Full disclosure: Your pie maker has and seeks funding from the US federal government and all of his portfolio assets are protected from credit losses by the FDIC. Thanks Shelia Martin!
Your pie maker was recently asked a question about the so-called "class warfare" in which the US President seemed to be engaged. This seemed odd, given that this is the same President who has introduced new tax cuts and, despite promising to take the Great Deleveraging out on the "rich" it's hard to say that anything actually changed on the fiscal front in January 2009. However, this warfare narrative is emerging, at least among the President's critics, and it deserves attention.
To begin, it's interesting to see the Wall Street Journal, and not the Washington Post, editorial page describe what the President is currently doing as "class warfare" since it so clearly benefits a very small elite in the finance industry. Warren Buffet wants to protect his dollar assets, so he's happy to kick in a few extra million to keep inflation down for the rest of the decade. Dodd-Frank and his administration's vigorous enforcement of Sarb-Ox are almost explicitly designed to limit the number of banks that can compete with the 13 biggest, and all but require that they hire those firms' or related contractors to manage compliance. The Treasury Dept. and White House is staffed by major banks' alumni and financial institutions have literally never done better. If President is a class warrior, he should be clutching the Baroness' handbag.
If we want to make pie instead of (class) war, it's important to understand what allows people to benefit from the hostility while current policy effectively gets cast in concrete. An important component is the elimination of credit risk above a certain size (TBTF), which has helped lower interest rates and spur economic growth, and allowing the USG to achieve both bank and pension fund stability through a combination of regulation and loose monetary policy. Unfortunately, it's also spawned the Shadow Banking Industry (next Bond villain?) whose efforts have of late seemed to focus on regulatory arbitrage and using the No Credit Risk (TBTF) guarantee to force governments and central banks to make their pools of money larger. Meanwhile, the "real" economy is not doing well because there are credit risks on things like factories and merchandise stocks.
Indeed, as long as there is a class of people who do not fear asset losses, there will be massive inequity. Today's mechanism for this is investment banking, which has become a game of basis points and hedging, where the word "bet" is used almost interchangeably with "investment." Losses on those bets, at least over a certain size, are prevented by governments seeking to maintain their legitimacy in the eyes of citizens who depend on large employers and unsecured bank loans like checking accounts. The cleverest predictors of basis point shifts get rewarded by the wealthiest for growing their wealth faster than is possible in a truly free market (where they might get wiped out completely) and eventually they dictate policy to elected governments. Now that he's retired, George Papandreou would probably be happy to explain how that works in great detail.
The reason this is so intractable is that addressing this potential source of real class warfare means getting rid of what has apparently been Priority 1 for the duly elected government of the United States. Ridding ourselves of "Crony Capitalism", of which TBTF is a major component, is one of the only points of agreement between the Occupy and Tea Party types, but it's not clear that either understand what exactly that means. Does it mean returning to the era of bank runs? Does it mean putting nationalized institutions in the hands of civil servants, as is to happen soon at Freddie and Fannie? This is not a step to take lightly, and the consequences of taking it will be quite bad.
If we don't want a rigid class system in the US, the kind that encourages genuine class warfare, or simply genuine warfare, we need to allow credit losses in a way that doesn't threaten the social stability of the country. The route that we are currently following has the US federal government effectively owning the vast majority of debt in the US as the Treasury directs failing institutions and the Fed monetizes debt, all to the tune of Turning Japanese (I really think so). Meanwhile, asset and land ownership becomes concentrated in relatively few private hands that are forced to cooperate with the central authority. Perhaps this isn't a bad thing, feudal systems are nothing if not sustainable for long periods.
"Class" is a squishy concept in the US, while warfare requires defined sides and hostile intent. A shouting match over "taxes" vs. "spending" does not define a class struggle, but rather highlights the absence of a real discussion of what should be taxed, what services should be provided, and what can be allowed to face genuine risk. This is a very difficult discussion, but it lets us talk about our interests, goals and fears instead of abstract concepts where agreement cannot be reached. It's the kind of thinking and discussing that requires patience and energy. The kind best done over a slice or two of pie.
Piece out.
