Brace yourself. Thom Hartmann has bad news. His new book "The Crash of 2016" is self-explanatory but understated. The great recession? As he sees it, that was a tremor before the big one. It's coming and just one of the causes might be the unregulated derivatives market measured in hundreds of trillions of dollars, several times as much as the conventional global economy.
Thom Hartmann talked to Salon about how conservative "predators" got out of control, Enron's ugly legacy and why he's optimistic. Gluttons for punishment can find an excerpt from the book here.
This interview has been edited for space and clarity.
What is the plot to destroy America? There have been lots of them.
From the beginning of our republic there has been this debate. There have been these dueling visions of what America should be. In some ways it’s an analogue of what ended up being the Whig Federalist vs. the Democratic Republican debates, which is should we have a country that is governed by a wise few, because the masses can’t really be trusted or should we have a country that is governed from the bottom up. This debate has taken a lot of different forms and morphed into a variety of political positions, but that’s the essential battle.
That’s the plot, as it were; on the one hand a group of ideologues concerned that you can’t trust the masses and on the other hand you have the kind of Rooseveltian notion that society should be for all the people and all the people should be able to participate in the society whether it’s through a union or with the democratic process.
There’s two groups that are driving this thing that I describe as the plot. First is the [conservative] ideologues but then there’s also a group of predators who use that rhetoric and that ideology to set up a situation where they can enrich themselves at the expense of everyone else. So the rhetoric has been used to deconstruct the protections for our economy and our middle class that kept our nation stable from the '40s through the '80s.
Then the predators stepped in and said let's take that a step further and blow up Glass-Steagall and put in the Futures Modernization Act so we can have unregulated derivatives, create an $800 trillion market when the whole world’s GDP is only $65 trillion. It’s really the predators that have always brought down our country, but they’ve hidden behind ideology that is actually a legitimate ideology.
You’re talking about conservative ideology?
One might call it conservative ideology but I’m not even sure Barry Goldwater would recognize it. Maybe "libertarian ideology" is a better word for it.
What enabled this ideology to reach what you’re arguing is a dangerous point? There have always been predators.
That’s the second major point of the book. You have to go back to a quote that has been attributed to various people, “When the last man that remembers the horrors of the last great war dies, the next great war becomes inevitable.” When we forget the history, to paraphrase Sir Edmund Burke, we are doomed to repeat it. And it takes about 80 years for that to happen. Roughly 90 years ago we saw the election of Warren Harding on a platform, his slogan was, “More business in government, less government in business.” He dropped the tax rate, deregulated banks, deregulated pretty much everything. It was this huge bubble in the '20s that crashed in 1929.
If you go back 80 years before that you see the big battles over regulation and deregulation of the 1840s and 1850s that led to the crash of 1857 that arguably led to the Civil War. And if you go back 80 years before that, you see there were somewhat similar economic debates.
Roughly every 80 years we kind of forget about economic bubbles, make the same mistakes, and those mistakes lead to economic disaster, which typically leads to a war. And I’m saying we’re 80 years out from the last one and we’re making the same mistakes.
We’ve just had a severely bad recession as well as quite a few wars. Why aren’t those having the effect you say crises have – a corrective effect?
Because we’ve been insulated from them. Because they haven’t been real for the average American. World War II, the Civil War, the Revolutionary War – everybody participated. There was no getting out of it. This war – the Afghan and Iraqi wars, which I would argue are not so much a result of this economic crisis, they were more strategic and oil wars – those wars were basically volunteer wars. We have a pauper army, to an extent.
So the war hasn’t really affected America the way the Vietnam War did or World War II, the Civil War, the Revolution. And the recession – the stock market is back where it was, the recession -- the really bad part, the hemorrhaging jobs -- that lasted for just six or seven months. Obama got his stimulus bill passed and kind of put a stop to it. What I’m suggesting in the book, and what I think I’m making a pretty strong argument for, is that we’re still in that crash. The crash really started in 2006/2007 when the housing started to collapse, and arguably it started in '99/2000 when all the banking supports were pulled apart. That was the analogue of 1920 and the analogue of 1840.
Because we haven’t repaired the fundamentals, we haven’t regulated investment banks, we haven’t regulated derivatives and commodities trading; we haven’t protected the middle class and now they’re being eviscerated. The predators are like bandits and the economic fundamentals are not different in any meaningful way than they were in 2006. The crash was going to happen, and they had a whole bunch of bubble gum and wire holding it together.
That’s why I’m saying the [crash will come in] 2016. The crash really started in 2006, and the Bush administration saw it coming and did everything they could to hold it off until after November 2008. And they just were not able to. And now I think the Obama administration thinks they can old it off until after November 2016. But they can’t. I’m skeptical.
From the George Washington administration until the Franklin Roosevelt administration, we never went more than 15 years without a major national bank panic, or stock crash. Never. It was just constantly happening. When things got so Roosevelt created the SEC, put in Glass-Steagall, put in really serious banking regulations, made unions legal, which is a mass stabilizer. He also raised the top income tax rates, another mass stabilizer since it keeps hot money out of the marketplace. He put all these protections into place and we went from 1935 until 2008 without a major bank panic and without a major stock market crash that lasted more than a day or two.
They had finally figured out how to build stabilizers into the economy. Well, we’ve been deconstructing that aggressively9. Without all of the traditional stabilizers in our economy we’re not just vulnerable to a collapse, but I think a collapse is inevitable.
Consensus is that the crash in 2008 was due to the housing bubble and the mortgage bubble. What are some of the indicators that you’re looking at now that make you nervous?
I would say that the crash of 2008 wasn’t the housing bubble and the mortgage bubble, but it was the housing bubble and the mortgage bubble, which crashed the derivatives bubble, which is really what caused the crash of 2008. You had banks that had multitrillion-dollar liabilities, which we’d never seen before. In the late '90s we had a derivatives market that was less than $80 billion, to, in 2008, having an unregulated derivatives market was over $800 trillion, according to the bank of international settlements. The entire GDP of the planet is $65 trillion and the entire GDP of our entire country is $15 trillion per year.
This is all funny money, and it dropped down to $400 trillion after the crash, but it’s back up to $700 trillion or $800 trillion now. Nobody knows for sure because it’s unregulated. So I’d say that the crash really begins back in '99/2000 when Phil Gramm pushed through the Commodity Futures Modernization Act that allowed all that to happen. Of course he did that because [former Enron CEO] Ken Lay wanted it done.
There was an attempt to change [the law] with Dodd-Frank, but more than half of Dodd-Frank has not even been implemented. And I don’t think Dodd-Frank, even if it was fully implemented, would be strong enough to rein this stuff in. We need to go back to simple stuff like Glass-Steagall. Am I making sense?
You’re making sense. To most people, a derivatives bubble is invisible. Is there anything more tangible to look for?
We are starting to reinflate the housing bubble. We’re starting to reinflate the stock market bubble. I mean, we’ve been doing it over the last couple of years. But the most tangible thing is that since roughly the beginning of the Reagan presidency, wages have been flat even as productivity has continued to increase. Productivity is what creates corporate profits.
Back in the '60s Time magazine did a thing on the coming leisure society and they predicted that by 2000 people would be working, you know, 20 to 30 hours a week and making the equivalent in today’s dollars of $80,000 a year. And if productivity and wages had tracked each other over the last 32 years that would be the case right now.
But instead wages have flattened out for the average working person and productivity has increased. All that wage money has gone to basically the ownership class, the CEOs and stockholders.
The consequence of that is that for the middle class to maintain their standard of living more women [went to work]. And then when women entering the [workforce] wasn’t enough to maintain middle-class stability, people started converting their homes into ATMs.
Then when they ran out of equity on their house, they began to put stuff on their credit card, and when they ran out of that, they went back to school or sent their kids to school and now we have a trillion-dollar debt bubble in student loans. So there’s this massive debt bubble and when that thing bursts it’s going to take everything down with it. People know this instinctively: People don’t buy cars anymore; they rent them, they lease them. People don’t buy houses, they borrow them from the bank. I’m old enough to have seen this cycle. I remember actually buying cars and owning houses back in the '70s, '80s.
What can be done?
There are three things we need to do in a very straightforward fashion. No. 1: We need to restore fundamental regulators to the game of economics. You wouldn’t play a game of football without referees, and rules and goal posts. And if you said, “Whichever team has the most money can just determine where the goal posts are,” everybody would think you’re crazy. And yet that’s what we’ve done to our economy. We need to change the fundamentals and go back to a set of rules that are good for everybody.
No. 2: We need to unwind the debt bubble. I think, frankly, we need to deal with student loans. Abraham Lincoln gave us great schools. Thomas Jefferson started the first free school. That ended with the Reagan presidency. We should seriously consider debt [forgiveness] for student debt. We have an entire generation that is saddled with decades of paying off debt that none of their predecessors had.
No. 3 is to put policies into place that will cause wages to track productivity, like they did from the George Washington administration to the Ronald Reagan administration. And that principally has to do with taxation at the high end, so that it’s just not worth it anymore to make a thousand times more than your workers. Go back to that 30-to-1 ratio that we historically had in America.
Are you optimistic?
I’m very optimistic because every time we’ve had one of these four-generation, 80-year crashes, what has come out of it has been a very rapid and very substantial positive and forward motion for this country. The first time we went from being a colony of England to forming our own nation. The second time we ended slavery and moved into the Industrial Revolution. The third time, in the 1930s, we came out of the Great Depression and built the strongest middle class the world had ever seen. We became the world superpower.
Our country tends to move forward but the biggest motions always come after these crashes. We are sort of like in AA: We have to hit bottom before we seriously start talking about looking up and seeing what the possibilities are.
That’s an answer to why didn’t the crash of 2008 do it? Why didn’t the wars in Iraq and Afghanistan do it? The average American didn’t have the experience of hitting bottom. And when we do, then there will be a serious discussion, serious conversation that goes beyond dueling sound bites between political parties, and partisan positions, about what kind of country this is, and what kind of country we want it to be.
You’re saying it is going to have to get really bad, but then you’re optimistic.
Absolutely. That’s what rebooting is, like rebooting your computer.