In David Rothkopf’s recent article, he identified six myths currently pervading our national dialogue. Three of Mr. Rothkopf’s assertions ring quite true, including his positions that finding a solution to the Palestinian-Israeli tensions will not fully stabilize the middle east, that the threat of terrorism is still real, and that President Obama is more of a pragmatist than the left might prefer. His economic myths, however, are of mixed validity.
That the current crisis has killed capitalism is indeed a myth. While the severity and acuity of our economic decline has prompted major government intervention, including initiatives that smack of semi-socialism (see: Detroit, Wall Street), capitalism remains the dominant ideology in our country. The American dream is alive and well, even through this uncertain time, and that dream is fueled by capitalism. It’s also worth remembering that the emerging powers of the world, as Mr. Rothkopf notes, are moving toward a capitalist position, not retreating into more state-secured economies, indicating that the long-term trend is toward freer markets.
This is not to say that the changes being implemented in this country are futile, or that they are destined to be mere bumps on the road toward wholly deregulated global markets- which brings up Mr. Rothkopf’s assertion about Wall Street. His opinion seems to indicate that the reforms already in place and planned for the financial industry will either reverse themselves or be rendered moot within a few years, and that Wall Street will go back to business as usual. On the contrary, the regulatory environment Washington is creating- slowly and incrementally, granted- will fundamentally shift the industry, hopefully for the better. But it can be assumed that greater regulation will help safeguard the interests of the average investor, promote transparency, and limit the amount of jeopardy institutions that are ‘too big to fail’ can put the economy into. With respect to Mr. Rothkopf, Wall Street may not become a Pollyanna playground overnight, but it will certainly never be the same again after this recession.
And clearly the recession is the biggest problem facing the world today. There are other systemic challenges and other things-in-general to worry about, but the Great Recession is the 800 lb gorilla we’re grappling with now. Yes, once we’ve started to recover the climate will still be changing, but we’ll have some resources available to recommit ourselves to that fight. There will still be a gulf between the rich and poor, but improved economic prospects will buoy all peoples. A slower, prolonged recovery is still a recovery, and does not automatically imply another Japan-style ‘lost decade’.
I prefer to take a page from Daniel Gilbert’s column in the New York Times today, and insist that it is the uncertainty spawned by the downturn that is shelving optimism, rather than the conditions themselves. In his words, “Our national gloom is real enough, but it isn’t a matter of insufficient funds. It’s a matter of insufficient certainty.”
Tue, 05/19/2009 – 2:40pm
It’s important. It even has broad repercussions. But neither of these things mean that solving it will actually make the Middle East broadly more stable than it is today. First, there is no such thing as an Israeli-Palestinian issue. The Palestinians are divided and the wing with the greatest allergies to peace, Hamas, is actually Iranian/Hezbollah sponsored. Their involvement does not however, mean that arriving at the two state solution that is the only answer for Israel and the Palestinians will instantly reduce tensions between Iran and Israel…especially given Iran’s views objections to Israel on grounds that have nothing to do with the Palestinians. Further, will solving the Arab-Israeli issue reduce tensions between Shiites and Sunnis, Turks and Kurds, Iranians and Saudis, extremists and moderates throughout the Arab world, the Taliban and the Afghan government, the Taliban and the Pakistani government, al Qaeda and the west, etc.? Will it bring a halt to the Iranian nuclear program or stabilize oil supplies? No.
Really? In the past week I have had conversations with senior Obama administration economic officials and prominent former Democratic cabinet and sub-cabinet members and the theme from all of them was the same. The reports of Wall Street’s demise as a center of obscenely high-paid, risk taking, politically influential, high-rollers are vastly overstated. To be sure we are in a downturn of historic portions and many big institutions have disappeared or been wounded. Further, new regulations like those associated with derivatives will be put in place. But some promised changes — like making it impossible for banks to grow “too big to fail” and containing executive compensation in meaningful ways — just can’t be done. Global corporations need global institutions of great scale to service them. Put limits on executive compensation in certain classes of companies and the best executives will move to others where they can make the dough. The firms within the TARP will skedaddle out as fast as they can and the firms left standing will have a great competitive position in global markets. There may be enduring caution on some level, but if you think that this recession is enough to crush the superclass on Wall Street (or their enduring hold on Washington policy makers) then you haven’t read enough about how cockroaches and other similar creatures can survive nuclear war.
Read the rest of the story: http://rothkopf.foreignpolicy.com/posts/2009/05/19/the_six_biggest_myths_currently_confusing_policymakers