Don't Trust 'The Press'

Dean Baker tells us that we ought not trust the media. In this case it's because they seem to have bought into the 'economy is sound' story for too long, missing the housing and stock bubbles and instead cheering on the ongoing American-led consumption party. On that latter note, Robert Reich tells us that the party is over—the American consumer is tapped out. Worse, the power brokers (including the media) don't yet see it:

The US economy, Pravda style, Dean Baker, The Guardian, Jan 28: … Just as the Soviet press [in the bad old 'cold war' days] wanted the public to trust the wisdom of the party bosses, … pillars of the [American] elite media want the public to believe that the experts who are the insiders on the decision-making process in Washington are uniquely qualified to craft policy. …

Misunderstanding the economy's weakness earlier this month is trivial compared to the much more grandiose mistake of failing to recognize the $8 trillion housing bubble, or before that, a $10 trillion stock bubble. If performance mattered, then the experts who got things so hugely wrong would no longer be the ones shaping public policy. Instead, with the Washington Post style beautification process, experts can jump from policy disaster to policy disaster and never have their failures affect their standing.

If we are ever to have an open debate on economics, or any other area of public policy, we will need media that honestly discuss policy failures and that hold those in charge accountable. In the current situation, the economic disaster facing the economy was entirely preventable, but the Federal Reserve and the rest of the inside crew were either too incompetent to recognize the housing bubble or felt the short-term benefits outweighed the costs that the country would inevitably face when the bubble burst. … [Most] major news outlets chose to hide any serious debate on the problems posed by the bubble on the way up, and they would like to prevent any discussion of this massive policy failure even in retrospect.


The Real Recession Problem: Consumers Are at the End of Their Ropes, Robert Reich, Jan. 28: … [Business tax breaks exemplify] the illogic of what’s called supply-side economics. If you reduce the cost of investing, so the thinking goes, you’ll get more investment. What’s left out is the demand side of the equation. Without consumers who want to buy a product, there's no point in making it, regardless of how many tax breaks go into it.

Which gets us to the real problem. Most consumers are at the end of their ropes and can't buy more. Real incomes are no higher than they were in 2000, while food and energy and health care costs are all rising faster than inflation. And home values are dropping, which means an end to home equity loans and refinancing.

Most of what's being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich — which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.

Add all this together and there's just not enough consumer demand out there to keep the American economy going. We're finally reaping the whirlwind of widening inequality and ever more concentrated wealth. Supply-siders who want to cut taxes on corporations and the rich just don’t get it. Neither does most of official Washington.

Comments

[Bill Colohan]

As usual, Reich has it only half right. Yes, the middle class is in dire straits but that does not mean you tax the hell out of the wealthy. Increased taxes is never the answer. Eliminate taxes and let the market run. If you tax at all make it a consumption tax.

The middle class has been on a buying binge for a decade and have been unwilling to deny themselves and their children anything. This is just a dose of reality. STOP SPENDING was the solution. Now they couldn't even if they wanted to, which of course they do.