Listen to the Left

Peter Eavis' frontpage story this morning about the Dow hitting its all-time high yesterday is worth reading. It's peppered with skepticism. We had a tech bubble followed by a real estate bubble; this is a Fed bubble:

Previous highs occurred when investors believed the economy could keep growing without any extraordinary assistance. By contrast, this rally has occurred on the back of enormous monetary stimulus by the Fed and the world’s other central banks. 

Since the end of 2007, five major central banks have injected some $6 trillion into the global economy, according to figures from the Bank for International Settlements. This was done to prevent bank runs and revive economies. 

As the stimulus forced down interest rates, it eventually whetted investors’ appetite for riskier assets like stocks.

And this from today's naked capitalism blog:

It’s hard to fathom the celebratory mood in the US markets, save that the moneyed classes are benefiting from a wall of liquidity reminiscent of early 2007, when risk spreads across virtually all types of lending shrank to scarily low levels. Then the culprit was not well understood, although Gillian Tett discerned that CDOs were a huge source of leverage, and in April 2007, an analyst, Henry Maxey at Ruffler, LLC, did an impressive job of piecing together how levered structured credit strategies were driving market liquidity. 

Now it’s a lot easier to see what is afoot. The Fed has been trying to reflate asset values to goose the real economy. What it has done instead is goose the incomes of the top 1% while everyone else is on the whole worse off. But the central bank is suffering from a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome. It’s unwilling or unable to admit that its program is working only for a very few. It has convinced itself that if it just keeps on the same failed path long enough, things will turn around. As we can see from Japan, “long enough” can exceed 20 years, and it is not clear that the latest Japanese pump priming will finally pull the economy out of the ditch.

What's called for is a massive public works program that would employ the unemployed and build things that future generations could use to live better lives. But this is not going to happen because Republicans as a minority party have figured out how to control the national government. I would guess the GOP will control the House and the Supreme Court for at least the next decade. And to be charitable to Obama, assuming he's not the Manchurian Candidate of the 1% as the Counterpunch Left perceives him, I think this is what lies behind his search for a grand budgetary bargain with Republicans here and now; he doesn't see them going away anytime soon. So better to try to cut a deal now on Social Security and Medicare that doesn't include an increase in eligibility age; cut a deal now while his election mandate hasn't completely evaporated (as it almost already has).

Generally, as a rule of thumb, the Left is right; that's why it's wise to pay attention to what is being said on blogs like naked capitalism and web sites like Counterpunch and in publications like Monthly Review; while not being 100% correct (who is?), the interpretive framework is more coherent. To give one prominent example of the Left being spectacularly correct while simultaneously the Right was disastrously wrong recall Saddam's weapons of mass destruction. The Left went with Hans Blix and said there's nothing there. And they were right. Don't ignore the Left.