What Sachs writes now about America’s unemployment nightmare is, with some exceptions, valid for most Western economies and also for fringe areas of Europe, such as Ukraine.
Exceptions are places like Canada that seem to be in good shape, not because of anything unusual they have done, but rather because of what they did not do, such as not allowing the banks to let folks sign out a half-million dollar mortgage with only a $500 checking account, no income verification and then selling it in bunches to gullible investors.
I shall be back to Jeffrey in a jiffy, after touching on the overall panorama. It all goes back to debt flipping — borrowing low and lending high, a simple age-old idea behind the seemingly innovative derivatives, index trading and swaps strategies (not to be confused with wife-husband swapping).
Swaps is an insurance game – similar to buying insurance on another person’s life, with you as the buyer and beneficiary. If that fellow or gal gets really sick, you can sell that insurance policy for much more than you paid.
In such a genial play, “another person” can be anything at all — a corporation, a bank, or a country’s sovereign debt. When credit bubble imploded and many banks and companies became insolvent in 2007, the insurers too went under, snowballing the effect into a financial meltdown of epic proportions.
One of the insurers, the famously known AIG, was bailed out to the tune of $80 billion of taxpayer money, part of which then went to pay the Goldman-Sachs group (another icon) the winnings on its successful bet for still another biggie’s collapse. If you guess that “the spreads” (a pointer related to the price of swaps, in Wall Street lingo) on Ukraine’s sovereign debt are huge in financial markets, you got it right. Such are some of the wonders of capitalism — known as “credit default swaps.”
The economy has tanked because of a massive debt overhang. It cannot recover without brisk consumer demand, which no longer responds, in the USA, to the fed’s absurd “borrow and spend” stimulus that consists of buying treasury bonds and toxic assets. This puts more cash into the hands of the super-rich, but it doesn’t create jobs for laid-off workers. Nor will the corporations step up hiring and rev up the supply side. Understandably, they opt to sit on an estimated $2 trillion pile of cash, as long as consumer spending is anemic. Perversely, prices are rising as the sellers try to offset the narrowing of consumer base by charging more and leaning heavier on those who still have jobs.
In a Huffington Post article “Two parties, no solution to jobs,” Sept. 17, Sachs, now director of Earth Institute at Columbia University, explained why he considers both President Barack Obama’s and the Republicans’ plans to cut joblessness in the USA as ineffective.
His take of unemployment conundrum is no different from evaluation that can be made concerning any country where a similar economic system is in a deep recession mainly for the same reasons. For instance, Ukraine’s oligarchies in the 1990s had adopted, stock and barrel, the gangster aspects of capitalism, and are still top players in Ukraine’s economy alongside the government’s leftover monopolies
The US president’s jobs creation plan (announced on Sept. 8), writes Sachs, is another example of short-term gimmickry, intended to restore the same self-destructive system, with the same players and the same incompetence of overpaid CEOs that drove their banks into the ditch after helping to dismantle the regulations enacted during the New Deal, such as the Glass-Seagull Act of 1933.
But his most scathing putdown is for the Republican Party’s intransigence. “The Republican Party’s premise of tax cuts as a solution for all ills is deeply misplaced (aside from being so greedy, as it is motivated by the compulsive need of GOP billionaires to keep every penny of their fortunes).”
“America’s revival will come from a new political movement, whose candidate (for president) isn’t just another corrupt Texas crony of the oil industry. The new third party will wade boldly into run-down neighborhoods of the working class and will wage a campaign to tax the rich and the corporations to rebuild America at home, not to build the bank accounts of the super-rich in the Caiman Islands and other favorite tax hideouts.” Strong words from a staunch believer in private enterprise.
If “Texas” analogy is filled with Ukrainian oligarchic equivalents, a similar recovery proposition makes sense for Ukraine.
We can see old women begging on street corners in Kyiv. In the USA, look at people behind the unemployment statistics. Like a family with two children in a Chicago soup kitchen, with parents jobless for two years and evicted from their home in foreclosure, now sleeping in a public shelter.
Hardest slammed are young people in the age bracket 18 to 30 who cannot find work.
Several million of them, many married with children and college degrees, are unable to pay rent and now live with grandparents. They are called the lost generation.
With a growing unemployment devastation, the country will fall apart if the upper crust is not stripped of some of their cash to put people to work and rebuild America’s infrastructure, which needs a colossal overhaul and will create jobs.
The change would not be quite the same as the French Revolution, but it would have to bring a major shift in terms of finance and tax policy. The top ranks are resisting any tax hike tooth and nail. Their obstructionism makes no more sense than the stubbornness of the French pre-revolutionary aristocracy, famously expressed by “Let them eat cake.”
In the absence of Solomonian wisdom, any prognosis requires caveats. Track record of third-party movements has been notably shaky in the USA. Nevertheless, restoration of a sensible progressive income tax scale — as it was before the G.W. Bush presidency — is highly probable, because the alternative is descent into a banana republic status.
As for Ukraine, its export-dependent economy relies as much on what’s being done in the West and elsewhere as it does on internal actions. Bending of this dichotomy requires investment decisions at government level — by raising capital, to begin with, from higher taxes on the oligarchic structures. This is unlikely to happen as long as the oligarchies and the government are virtually synonymous.
Although business and special interest lobbies are pre-eminent powers in Washington, Americans at least are occasionally able to elect reformers to Congress and the White House, who make some changes.
Unfortunately, in Ukraine honest elections is an oxymoron as long as the Party of Regions is in power.
Given such stark exhibits in Ukraine, the writing and loud advocacy of a forward-looking and inspiring socio-economic and national agenda would seem to be something the opposition should be doing, with gusto.
No such luck. On Sept. 22, opposition leaders were given an opportunity to present their vision to lead the nation, at an important conference at Yalta with the European Community leaders, also attended by President Viktor Yanukovych, while Yulia Tymoshenko, the parliamentary opposition leader, is in jail.
That presentation, as described in the Kyiv Post the next day (“Nation’s opposition leaders disappoint at Yalta summit”) and quoting Western participants, went poorly. Bombing out on such an occasion can only magnify the skepticism about the opposition’s ability to govern — which has always been questionable, judging from a permanent disunity in the opposition camp.
The one who can articulate her vision for Ukraine, and had done it before at the public square and in conference halls, was not there. The opposition and the Ukrainian people might as well rally for Tymoshenko as their leader. They have got no one who is better.
At the same conference, a message was sent from Europe in no uncertain terms about Ukraine’s chances of achieving an economic alignment with the European Union: No way Jose, as long as Tymoshenko is jailed. Ukraine’s president, with his paid American PR advisers, surely must know that the same message carries to other political prisoners.
Aside from the stated objective of achieving trade agreements with the EU, the mirage of the pursuit of this goal by the Yanukovych government has been a diversion to deflect attention from the absence of any meaningful policy by the government concerning the pitiful state of the economy and unemployment tragedy, and also the absence of any attempt at a substantive tax reform that could pinch the oligarchs.
In this light, the president’s game of balancing the East vs. West is made to appear like a brainy policy rather than a show of tomfoolery, useful only for Ukraine’s oligarchs to preserve the status quo.
Boris Danik is a retired Ukrainian-American living in North Caldwell, New Jersey.
