THE NEW AMERICAN NORMAL / THE NEW YORK TIMES OP EDITORIAL ( VERY HIGHLY RECOMMENDED READING )

September 27, 2010

The New American Normal

By ROGER COHEN

LONDON — The “animal spirits” of which Keynes spoke are on the prowl across the United States. Their mood is ugly. The spirits are wary and troubled. Corporations and individuals are hoarding cash, when they have any, because they’re not buying into the recovery.


On a weeklong visit, I found a mood of deep unease in an America that seems to have descended into tribalism — not ethnic, but political, economic and social. Uncertainty is pervasive. The government’s rescue of Wall Street combined with the acute difficulties of a middle class struggling to get by on stagnant or falling incomes has sharpened resentments.


This is not a momentary phenomenon. Nobody seems to think unemployment is going to fall significantly from 9.6 percent — a level more often associated with France — in the near future. Get used to the new normal.


I spoke to a retired Wall Street executive who got out a few years back and set up a small business where he had to make payroll (sobering), but was freed from the debilitating short-termism of financial institutions that, over his career, had become dominated by traders “who look at economic opportunity rather than economic conditions.”


He said the final straw came in 2002. Top executives at the bank where he worked gathered to discuss their bonuses. The issue before them was whether to maintain those bonuses in a time of economic contraction, which would require firing 5 percent of the workforce, or take a 25 percent bonus cut, which would allow those jobs to be kept.


“The guy running the meeting asked for a show of hands on who would accept a reduced bonus,” he said. “There were 30 of us in the room. Three raised their hands. I was one of them.”


The job losses went through, this executive left, and the bank today is still trying to claw out from its uncontrolled excess.


America is a land of associations. Solidarity has not vanished from the land. But it’s in retreat. None of those guys who wanted all their yummy money was anything but rich.


Fragmentation holds sway. The stock market used to be a fair proxy for the state of the economy. Now it’s a market of traders, not investors. They want to know what the spread is today and tomorrow; they can make money on the way up or down; they care far less about U.S.A. Inc.


So the market goes where it goes — up of late but largely directionless (which makes it harder on those up-or-down traders) — while out on Main Street the struggle to make family payroll continues. People work longer hours, they juggle how to cover their kids’ needs, how to de-leverage just a little — and they’re still meant to “consume” for the economy’s sake.


The share of national income held by the top 1 percent of American families has doubled in recent decades to 20 percent. That’s a huge shift. I spoke to Doug Severance, a Vietnam vet who’s a hotel employee in Aspen, Colorado. “When I moved here in 1984 we were all family,” he said. “Now either you arrive in a Lear Jet or you’re a servant.”


Obama hope has dissipated in short order. He’s not entirely to blame and he’s not blameless. The exclamation from Velma Hart, a black Obama supporter, at a recent town hall meeting — “I’m exhausted of defending you,” — struck a national chord because so many people feel the same thing.


Arriving from the U.K., it was the uncertainty that was most striking. That’s about the worst thing for an economy. As one Chicago executive put it to me, people who are creative rise above a consistently applied set of rules. Opacity kills.


Britain has similar post-binge economic problems — of personal and national debt and spiraling deficits. But Conservative Prime Minister David Cameron and his Liberal Democrat partners have actually put bipartisanship to work — did any Republicans notice? They are looking to lock in five years of stability through a new law and push through painful cuts across government departments.


Five years is a decent stretch. In America today, quarter-to-quarter concerns hem in even a visionary chief executive.


The policy debate in the United States is head-spinning. Nobody knows if there’s going to be more fiscal stimulus, after the first $787 billion, or how a row over taxes will end. Under an Obama proposal, Bush-era tax cuts are due to expire at year-end for affluent couples and small business owners earning over $250,000. Republicans are digging in, saying it’s crazy to raise taxes in a faltering economy.


It’s not crazy. Ending the tax cuts for the rich is a minimum signal for a divided land, a statement that the two Americas are acquainted with each other. But with Obama facing a stinging midterm defeat, it looks like a long shot. What is needed above all is some clarity and sense of direction — the kind Cameron has given in London and booming China consistently applies.


Without that expect the animal spirits to keep on hoarding, an inward-looking America bent on retrenchment, and a new normal that lasts and lasts.