Monday, October 20, 2008

The smoking ruins

I am staring at the smoking ruins that were my modest 401(k), which lost 1/3rd of its value in the past two months. This points to the problem with the notion that "defined contribution" pension plans like the 401(k) can ever substitute for a "defined benefit" pension plan like the corporate pensions of old -- none of us are professional fund managers, none of us have access to all of the wide range of investments that professional fund managers have access to, and thus to a certain extent we're reduced to just throwing darts at our 401(k) plan's list of funds and allocating money accordingly while hoping that they don't all go down in value at the same time. Which is what has happened to my own 401(k) -- every fund available to me has collapsed in value.

But what's true of my 401(k) is also true of this entire country. We've all lost a significant part of our value over the past 28 years of Reaganism. The industrial infrastructure has hollowed out and been replaced by one asset bubble after another, each popping more violently until we reach this last one, the real estate bubble, which has popped more violently than everything that preceded it. And so now Obama is going to take office shortly, and... then what?

The problem is that Obama can't create a new illusionary world where everything is okay, because everything is not okay. Bill Clinton might have been able to preach bullshit about how there was full employment and the sky was the limit and yada yada yada, but he had the benefit of an asset bubble in dot-com stocks to pump up his Presidency. When people are making money buying and selling stocks and using that to buy seemingly endless amounts of cheap Chinese goodies, it's easy to believe that despite the collapsing infrastructure, despite the disintegrating industrial base, everything is okay. But we don't have that luxury now, and Obama is not going to be able to recreate that same illusionary feeling of everything-is-great that Clinton was so adept at doing.

The American people are in for a rude awakening. The USA is not #1 in anything anymore except high-tech military weaponry, and that's only because Europe prefers to invest in its people rather than in military weapons not needed to counter any existing threat anywhere. The USA is no longer the world's #1 economy, ranks somewhere between South Korea and China on the list of industrial nations, has a health care system ranked somewhere between Croatia and Bulgaria despite spending more money than any other country on the planet, and has a decaying transportation infrastructure plagued by 28 years of underinvestment under the Reaganism theory of tax cuts for the wealthy (thereby reducing money available for infrastructure) and privatize everything (meaning that spending on public infrastructure fell to bottom basement on the priorities list). The U.S. has a serious energy shortage that is currently being funded by the Federal Reserve printing dollars with all the abandon of a Weimar Republic finance minister, and when the current crisis is over, we're going to all be standing in the rubble of our economy without much to show for it - no jobs, no industrial base, no fuel, and seas of foreclosed McMansions too far away from what few jobs and shopping venues remain to be habitable.

At that point we're going to have to all work together to pick up the pieces, but my biggest worry is that we won't be able to do that. American exceptionalism is firmly engrained in the American psyche. From the first day of school our children are taught that America is the best and greatest and most free country on the planet, and anyone that might contradict that is automatically considered "un-American". But soon there will be a day of reckoning because reality is simply not going to cooperate with that illusion any longer, and then what? Well, we know what happened when the German Empire collapsed. The German people were not willing to believe that their failure in 1918 had anything to do with a failed geopolitical strategy, and were eager for some scapegoat to blame for their failure in WWI. Adolph Hitler gave them one. It took another war, and the complete and utter destruction of the German nation until its population were reduced to cold and shivering and starving remnants huddled in the ruins before the German people realized there was no easy answer, that they themselves were responsible for the destruction of their nation. Only then could the German people come together and re-build their nation into the current prosperous and democratic Germany.

So November 4 is only the beginning. If Obama is elected, as seems likely, there is little he can do to stop this long hard slide to the bottom. It was created by our own choices over these past twenty-eight years, and most Americans aren't willing yet to admit they chose wrong. Only complete and utter national disaster will manage to do that, and the first casualty of any utter national disaster is always the President who presided over it. My prediction: Like Jimmy Carter, Obama will similarly be a one-term President. And then another follower of Reaganism will take power after Obama. And if, ten years from now, I am not squatting one of those abandoned McMansions growing food in the vast back yard and going hunting for the deer and rabbits that have moved into the neighborhood, I will be very surprised, because I'm not seeing much other than disaster ahead. Obama might delay the day of reckoning, while McCain would make it faster... but the collapse is coming, and it's coming hard, and there's not a whole lot we can do about it other than wait for the bottom and hopefully a return to sanity on the part of the American people.

-- Badtux the Apocalyptic Penguin


  1. I never did have a 401K plan and I'm doing just fine. Screw letting someone else manage my money, only a stupid person would trust someone else to do that.

  2. I have very little money going into a 401K. I take care of the rest.

    I agree with bbc. Money managers are not any better at managing our money than we are, so I manage mine.

  3. Unfortunately I don't have that choice, if I want to take out pre-tax money for my 401(k) I have to use the corporate 401(k) plan, I'm not allowed to put it into my own IRA or anything :-(. I get to "manage" my 401(k) by moving my money between the mutual funds offered by my 401(k). Unfortunately they're all lame, lame, lame, and all of them have collapsed in value these past couple of months.

    As for BBC, he'd need to have money before he'd have to worry about managing it :-).

  4. Whadaya mean signing this one the Apocalyptic Penguin?

    Pragmatic woulda worked


  5. You know things are going bad when the wife, a true democrat, asks how much does a gun cost.

    I'm terrified to look at my 401k balances especially when one of my co-workers said he lost 10k in one day(and he still thinks McCain is a better choice).

    So, what's going to happen when people of this generation start retiring and finding out that they don't have enough money because all of these bad investments and bailouts?

  6. They'll blame it all on "niggers and spics", Terrant. The way they always have. Never their own folly in electing people to office who aren't qualified and don't care. It's always someone *else's* fault.

    Especially for Republicans. For Republicans, when Democrats are in charge, it's the Democrats' fault that things aren't going well. For Republicans, when Republicans are in charge, it's the... err... Democrat's fault? Yessiree, it's that old personal responsibility thingy. For Republicans, it's always someone ELSE'S personal responsibility, not their own. Alrighty, then!

    - Badtux the Cynical Penguin

  7. And here I was feeling upbeat about the future of America after the last time I read your philosophisings about how Americans had enough sense to turn away from violent militias after contemplating what Tim McVeigh/Terry Nichols had wrought...

    Has the Economics Penguin read about Kondratieff Cycles and similar historicoeconomic theories? Can't say as I'm a student of them or a true believer, but it does seem reasonable, in a broad-brush sort of way.

    A generation gets burned during a severe downturn (The 1930s). The next one is hard-working, thrifty conservatives (the 1950s). As prosperity returns, a generation looks beyond material things because it has enough security to do so (The 1960s). As prosperity is taken for granted, the next generation becomes frivolously self-indulgent (1980s-now). Then there's a crash. Lather, rinse, repeat.

    The cycle can be roughly traced back through past American depressions like the one in the 1870s, that following the chaos of the Federation days, mid-1700s turmoil that led to the American Revolution...

    The test of the American people will be how they respond to what's coming? Get it together, or fall apart? We shall see...

  8. I always come here for my mental floss, Tuxy. You never fail to do the trick.

    And just when I think things might be getting a millimeter better . . . .

    Yes, it's been being hollowed out since Reagan stole the election from Carter with the flak about the Iran hostages only to be released because of his (Reagan's) innate goodness (and fake strength). Ah, the memories that flood back. The papers I wrote in grad school in the early 80's about what this view of government portended for the lower classes as I (and only a few others then) saw the willful annihilation of the middle class as part of their plan.

    No one believed it then but a few Chomskyites. Now it's a much larger party getting ready for the USA going-out-of-business free-for-all. At least we've got all that military hardware to put out on the sales tables, huh?

    I grok fully your 401(k) comments. I lost mine after 14 years at Westinghouse being rewarded by having them go belly up after having its stock (where a lot of mine was) price halve and then quarter in value as the managers gave themselves million-dollar bonuses for having the good sense to drive that long-term solid company down the tubes after the end of the Cold War. I used to tell people (who had difficulty understanding the metaphor) that Westinghouse was the pre-Enron Enron (at least as far as being hollowed out by the people at the top).

    And back to that millimeter - I've predicted on my blog that NC will go for Obama and that he will have almost a 50-state sweep as the rest of the country is awakened from their self-induced fog by hunger pangs.

    Not that it will do us much good, but we can learn to pray I guess.

    Great comments, Buck! Email me sometime.



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