Will the Economic Crisis Inflame the Culture Wars or End Them?

As a matter of principle, I refuse to make predictions. As I wrote last month: "I make no predictions. I can only state a single truth: 'Ideas have consequences.' So let's choose our ideas wisely."

Lately, I've been bandying this question around in my head: "Will the economic crisis inflame the Culture Wars or end them?" At first, I was tempted to answer that the global recession (which may turn out to be the worst since the Great Depression of the 1930s) will defuse some of the Culture Wars.

Why?

Well, we've already seen some evidence of that. The big cultural battles of the post-9/11 era (usually waged between the Evangelical right and the Secular Left) have dramatically mellowed since the Mortgage Meltdown began in 2007.

For instance, take the issue of Intelligent Design. In 2005, I.D. became a huge issue that dominated Presidential press conferences, magazine covers, and Sunday talk shows. However, 3 years later - when the documentary Expelled was released - I.D. couldn't regain the same momentum because the stock market was in tank and millions of people were losing their jobs. Who has time to fight a Culture War when you're worried about your next paycheck? And that's where things stand today.

But is that where things will stand tomorrow? Or 5 years from now?

To answer that, the first thing we need to grasp is the long-term health of America's economy. Again, it's always dangerous to make predictions, and I am by no means an economic expert, but people I trust on economic issues (see these guys) are quite confident that this recession will be long and nasty (and indeed, the term "Depression" can't be ruled out). In other words, we might be on the verge of an economic/social paradigm shift not seen since the 1930's!

Should we be concerned? Absolutely. From the perspective of a typical American, it's one thing to be out of a job for a while with the understanding that prosperity is "right 'round the corner." It's quite another thing when our economic system is shaken to its very core and our our standard of living is thrown into doubt. Right now, I would wager that we are between those 2 perspectives, but over the next 1-3 years, we may solidly be in the 2nd perspective.

And then what?

Well, that's where things get even murkier...as I said above, the Culture Wars could be portrayed as a luxury that people inevitably grow out of during tough economic times...or...then again...maybe not. Maybe, when the economic foundations are threatened, and fear and uncertainty go into overdrive, the Cultural Wars go into overdrive, as well.

The good news is that America weathered the Great Depression of the 1930s with its social and political system largely intact, and its economy (while severely damaged) ultimately managed to survive, as well. Of course, Germany had its own Great Depression in the 1930s...and they got...Hitler...and soon after...we all got...World War Two.

Now, don't worry, I'm NOT suggesting that America is going down the path of Nazi Germany...I think that is extremely, extremely unlikely...but anyone who studies history finds its a very sobering subject - and indeed, history makes you realize that offering predictions of any kind is futile.

Nevertheless, I do think it's interesting that the Culture Wars of the past 25 years took place during a time of literally unprecedented prosperity. Looking to the future, the key question is: Did that prosperity CAUSE the Culture Wars (by giving people enough time and money to waste on personal pet projects), or did it CONTAIN the Culture Wars (by using cash to smooth out society's rough edges)? That is the million-dollar question.

I will say this: In Chapter 3 of The Mustard Seed, one of the supporting characters, Julia Shapiro, says that "consumerism" (NOT Christianity) is America's religion. While I don't agree with her statement verbatim, it's an intriguing concept.

Indeed, one could even make the argument that the consumerist religion started in the 1980s (when the Great Bull Market began) because, following the decline of Christianity over the first half of the 20th Century, and then the failure of the nihilist counterattack against Christian values during the 1960s and 1970s, a critical mass of Americans effectively said, "Eh, we don't know what to think or do anymore! So all just go to the mall!"

In case you think I'm crazy, do you remember what President Bush said in the aftermath of 9/11 when people were asking what they can do to help their country? "Go shopping!"

And now the shopping spree may be coming to an end.

Uh oh.

If anything were to happen to undermine to America's "religion of consumerism," it will be very interesting to see how the consumers react...



We may be on the cusp of a total revolution in America's political, economic, and moral order. Or...then again...maybe not. I honestly don't know. As I said above: "I make no predictions. I can only state a single truth: 'Ideas have consequences.' So let's choose our ideas wisely."

**UPDATE, JUN. 24, 2009**




The Daily Reckoning is my most trusted source for economic news and trends (they release a brand-new report each day and they’ve also released some excellent books). But in this blog post, David R. Goldman beats them all in explaining why all this boilerplate about "green shoots" in the economy is total nonsense.

The worst isn’t behind us.

It’s in front of us.

And we can hardly know where it’ll take us…

“Obama’s stimulus package and associated handouts to the auto industry, banks, and so forth have endangered the credit of the US and damaged the standing of the US dollar.”

“With the Treasury’s annual deficit financing requirement approaching an unheard-of $2 trillion, the largest international investors in Treasuries have expressed dismay about the threat to the long-term value of their investments…Today several foreign central banks announced plans to purchase International Monetary Fund bonds denominated in a basket of currencies, as a diversification away from dollar reserves.”

“Just how does America finance a $1.8 trillion deficit? The most that overseas investors ever have invested in the US in a year is $400 billion, and it is unlikely that foreign governments will purchase this quantity of Treasury debt under present conditions. Assuming (optimistically) that foreigners buy $300 billion worth of Treasuries per year, that leaves $1.5 trillion to finance. For the American private sector to finance $1.5 trillion worth of Treasury debt, or about 11% of GDP, presumes a savings rate of 11% of GDP, something America has not seen since the early 1980s. The present recession has pushed the personal savings rate up to 6%, with painful economic consequences.

But even a return to the very high savings rates of the early 1980s would barely cover the Treasury’s financing needs. There would be nothing left over for corporate debt, mortgages, or any other financing requirements.

The economy, of course would crash under these circumstances. To make up the gap, the Federal Reserve has increased its balance sheet to provide credit to the economy by over $1 trillion since last August, including $600 billion of securities purchases.

The Federal Reserve can’t keep monetizing debt, that is, printing money in order to buy securities. The perception that it is coming close to the end of its tether is the proximate cause of the jump in interest rates.

Whether this results in more deflation (collapse in demand in the US resulting in lower asset prices, lower wealth, and ultimately lower prices for goods and services) or inflation (money printing by the Fed, a collapsing dollar, and an exchange of paper for stores of value in the form of commodities or other tangible assets) is difficult to predict – the market seems to be betting on the latter. In either case, Obama’s maneuvering room has been exhausted only a few months into his administration."

On Jun. 6, columnist Ambrose Evans-Pritchard wrote a sobering piece called “The Depression Deepens"…

"For guidance on where we are in this long-drawn saga, I look to Berkeley's Barry Eichengreen, author of the Great Depression classic Golden Fetters – which avoids the error of viewing the 1930s through a US prism.

“He has crunched the latest data with Trinity College Dublin's Kevin O'Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time.

“The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: the global equity crash has been twice as bad."

Two days later, Evans-Pritchard wrote a related column, "Europe Swings Right as Depression Deepens…"

“The establishment Left had been crushed across most of Europe, just as it was in the early 1930s.

"We have seen the ultimate crisis of capitalism — what Marxist-historian Eric Hobsbawm calls the ‘dramatic equivalent of the collapse of the Soviet Union’ — yet socialists have completely failed to reap any gain from the seeming vindication of their views.

“It is not clear why a chunk of the blue-collar working base has swung almost overnight from Left to Right, but clearly we are seeing the delayed detonation of two political time-bombs: rising unemployment and the growth of immigrant enclaves that resist assimilation.”

“Half way through the depression, we are facing the exactly the sort of political disintegration that occurs in times of profound economic rupture.

“Remember, the dangerous phase in the Great Depression was Stage II, after the collapse of Austria’s Credit-Anstalt in mid-1931 set off a disastrous chain-reaction that Autumn (until then, most people thought they faced no more than a bad recession, like today).

“Don’t count on the political fabric of Europe holding together if our green shoots shrivel and die in the credit drought of the long hot rainless summer that lies ahead.”

I don’t want to make this into a political blog (I really, really don’t), but I will continue to post a few articles on the economic crisis periodically in order to see how they relate to the philosophical ideas expressed in The Mustard Seed.

-Todd

**UPDATE, AUG. 1, 2009**



In light of the recent good news about the stock market, I thought I'd share a few interesting quotes from the year 1930 (a few months after the Great Depression began, and a full 11 years before it ended).

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover."

- Herbert Hoover, President of the United States, May 1, 1930

"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."

- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

Indeed, click on the chart below...


As noted by the folks at Trading Stock Market:

*In the final 2 months of 1929, the Dow Jones fell 200 points (a 50% drop from the top of the market)

*Then, for the next 5 months (until May 1930), the Dow Jones went up 100 points (a 50% increase from the bottom of the then-bottom of the market).

*Then, for the next 2 years and 2 months (until July 1932), the Dow collapsed to the $40 level

Why is this interesting?

Click on the chart below...


Note the following:

*From the time the Wall Street Crash began in September 2008 through March 2009, the Dow Jones fell from about 11,500 to about 6,500 (a 44% decline).

*Since March 2009, the Dow has increased to over 9,000 (a 40% increase).

As The Daily Reckoning guys note, "As a general rule of thumb, a [stock market] bounce can be expected to recover half of the losses from the crash."

If that rule applies this time, the Dow may reach 10,000 very shortly, before leveling off and falling again.

What's the bottom line?

This thang ain't over. Not by a long shot.

Oh, and one final note: When people start to realize this thang ain't over, I wonder if they'll start paying attention to news items like this one...

Spitzer: Federal Reserve is 'a Ponzi Scheme, an Inside Job'

In a wide-ranging discussion of the bank bailouts on MSNBC’s Morning Meeting, host Dylan Ratigan described the process by which the Federal Reserve exchanged $13.9 trillion of bad bank debt for cash that it gave to the struggling banks.

Spitzer — who built a reputation as “the Sheriff of Wall Street” for his zealous prosecutions of corporate crime as New York’s attorney-general and then resigned as the state’s governor over revelations he had paid for prostitutes — seemed to agree with Ratigan that the bank bailout amounts to “America’s greatest theft and cover-up ever.” [snip]

“The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.

“The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through — conduit payments — to the investment banks that are now solvent. We [taxpayers] didn’t get stock in those banks, they didn’t ask what was going on — this begs and cries out for hard, tough examination.

“You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy."

Note: I've put this blog update on a separate webpage, which can be found here.

-Todd


**UPDATE, AUG. 7, 2009**

The Daily Reckoning released an interesting chart today.

Click to increase the size.


Hmmm....


**UPDATE, SEP. 9, 2009**

See my new essay, An Opening Shot?

I've speculated (in my more pessimistic moments) that - with the "Great Recession" continuing to deepen - we would start see high-ranking members of The Elite vocally losing faith in democracy and advocating (gently) the end of representative government in America.

If that's the case, Thomas Friedman's newest column might be an opening shot... [continued]


***UPDATE, SEP. 29, 2009***



From today's New York Times article, Even in Capitalists' Bad Times, Socialists in Europe Suffer...

A specter is haunting Europe — the specter of Socialism’s slow collapse.

Even in the midst of one of the greatest challenges to capitalism in 75 years, involving a breakdown of the financial system due to “irrational exuberance,” greed and the weakness of regulatory systems, European Socialist parties and their left-wing cousins have not found a compelling response, let alone taken advantage of the right’s failures.

German voters clobbered the Social Democratic Party on Sunday, giving it only 23 percent of the vote, its worst performance since World War II. Voters also punished left-leaning candidates in the summer’s European Parliament elections and trounced French Socialists in 2007.

Where the left holds power, as in Spain and Britain, it is under attack. Where it is out, as in France, Italy and now Germany, it is divided and listless.

**UPDATE, SEP. 29, 2009, PART 2***


Some rare common sense from David Brooks in his new column, The Next Culture War...

There clearly has been an erosion in the country’s financial values… In the three decades between 1950 and 1980, personal consumption was remarkably stable, amounting to about 62 percent of G.D.P. In the next three decades, it shot upward, reaching 70 percent of G.D.P. in 2008.

During this period, debt exploded. In 1960, Americans’ personal debt amounted to about 55 percent of national income. By 2007, Americans’ personal debt had surged to 133 percent of national income.

Over the past few months, those debt levels have begun to come down. But that doesn’t mean we’ve re-established standards of personal restraint. We’ve simply shifted from private debt to public debt…

Our current cultural politics are organized by the obsolete culture war, which has put secular liberals on one side and religious conservatives on the other. But the slide in economic morality afflicted Red and Blue America equally.

If there is to be a movement to restore economic values, it will have to cut across the current taxonomies. Its goal will be to make the U.S. again a producer economy, not a consumer economy.

It will champion a return to financial self-restraint, large and small. It will have to take on what you might call the lobbyist ethos — the righteous conviction held by everybody from AARP to the agribusinesses that their groups are entitled to every possible appropriation, regardless of the larger public cost. It will have to take on the self-indulgent popular demand for low taxes and high spending.

A crusade for economic self-restraint would have to rearrange the current alliances and embrace policies like energy taxes and spending cuts that are now deemed politically impossible. But this sort of moral revival is what the country actually needs.

***UPDATE, OCT. 5, 2009***



I've posted 3 new articles on The Great Recession...


The Wiley E. Coyote Economy


Banks Brace for Latvia's Collapse


Demise of the Dollar


Also, I want to quickly update my Jul. 31 post about the stock market. Since that date, the Dow has reached a new high for the year (9,830 on Sep. 23). Since the market bottomed out at 6,547 on March 9, the Dow has jumped 50% . Knowing that, it's probably worth repeating what I wrote (or actually, what the Daily Reckoning guys wrote) on July 31...

"As a general rule of thumb, a [stock market] bounce can be expected to recover half of the losses from the crash."

If that rule applies this time, the Dow may reach 10,000 very shortly, before leveling off and falling again.

Since Sep. 23, the Dow has dropped more than 400 points in 9 trading days.

Perhaps Sep. 23 (and the mark of 9,830) will the be the high-point of the year.


**UPDATE, OCT. 23, 2009**


I published a new piece today: Demise of the Dollar, Part 2.