Lies the Wall Street Journal Told You

I’m not going to delve into all of the right wing ideology espoused on the Wall Street Journal’s editorial page, their free market blather and extensive apologia for President Bush, which not even a misguided war and a failing economy could discourage. It’s like arguing against the Detroit Lions. The abysmal judgment of the Journal’s editorial staff is there in black and white and doesn’t even need to be debated. But let me point out one thing: can you imagine the panic right now if the country had listened to these guys and privatized Social Security?

Actually, I’m not even here to rail against the Wall Street Journal, per se, but at the business media in general and in their seemingly uncanny ability to be wrong about almost everything. Here are a few generally unrefuted pearls of wisdom that have been floating around during the recent financial crisis, ideas that are at least misguided, if not outright lies:

1) The U.S. consumer matters: Once upon a time, the U.S. consumer was the engine that fueled world economic growth, but that is no longer the case. Over half the planet is rapidly growing, or at least it was until a couple of months ago, and the people in these countries have a voracious demand for all the good things that we take for granted. Demand growth is the mother’s milk of capitalism. The biggest problem with the current banking crisis is not what it has done to the U.S. consumer, or even how it has saddled the banking system with bad debt, it is how the crisis has cut off the spigot of financing that had been fueling rapid growth around a host of developing countries, from India to Russia to Brazil. The sooner these folks can resume expanding their economies, the sooner things will get better for the rest of us.

2) Giving the American people a rebate check is a good way to stimulate the economy: Does anyone remember what most folks did with last spring’s rebate checks? Sure, people saved some of it, which for some reason is supposed to be bad. But what they did with most of the money was a whole lot worse. Tens of millions of Americans went out to some big box retailer and spent their rebate checks on cheap plastic crap from China, hurting our balance of trade payments but doing almost nothing for our economy. This time around, the U.S. government might as well buy all of that plastic crap directly from the Chinese at wholesale and then open up warehouses to disperse it directly to the public, like we used to do with government cheese. I figure that the actual cost from the Chinese manufacturers must be pennies on the dollar, thereby saving our kids and grandkids, who will end up paying for this scheme, tens of billions.

3) Investing in infrastructure will not help us today: It takes awhile for new projects to get started, the theory goes, thus limiting the impact of infrastructure spending as a stimulus. But one of the first rules of trading is to “buy the rumor and sell the fact.” So the market tends to move in anticipation of an event, not from the event itself. The “smart money” will be looking forward to the long-term boost that infrastructure spending will bring, a slow burn that should, if nothing else, limit the pace of any market slide. Meanwhile, a host of businesses will begin looking to take advantage of all those freshly paved roads, the new mass transit, and the growing alternative energy industry.

4) U.S. heavy industry does not matter: All those expanding economies in the developing world are full of people looking to buy their first car, their first refrigerator. For most of the planet, what the U.S. media refers to as “old industry” is new to them. There are plenty of American companies that can step in to meet this new demand, and this should be a cornerstone of the coming economic rebound.

5) The U.S. computer industry has a bright future: We all have computers, and we all know how often they break down, ranging from program glitches and overheated batteries to the dreaded blue screen of death, but for some reason the computer industry gets a free ride in the media. The reality is that most American computer manufacturers make an undependable product, and most American software companies aren’t much better. It’s only a matter of time until the Japanese, the Koreans, or the Finns learn how to kick our ass at this, too.

6) Corporate consolidation is a good thing: Now that we’ve bailed out the major American financial institutions to the tune of $350 billion and counting, the talk is about how the financial industry is too diffuse and needs to “consolidate”. But the questions are: why is it too big, and who is going to do the consolidating? Because the corporations that are most likely to be in the buying mode, such as Citigroup, or Bank of America, or Goldman Sachs, were key players in the recent financial collapse, while many of the smaller regional banks kept their heads down and were just busy doing their job. In this context, “too big to fail” is a crazy concept. Rather than giving the large banks hundreds of billions to swallow up everyone else, the government should be breaking these banks into their constituent parts, returning the American banking system to the patchwork of regional banks concerned with servicing their local communities, which is the way things used to be before the banking deregulation of the 1980’s.

Oh, and BTW, Happy Thanksgiving.