Andrew Leonard: The crash in Republican economics. For most of us, what happened over the weekend, not just to Bear Stearns but to capitalism as we know it, is nearly impossible to fathom. Leonard's been writing a column called "How the World Works," and he's come as close to tracking it as anyone I've found. This is a very important article, which needs (and deserves) to be read very carefully. The following quote only sets the stakes:

The consequences of Bear Stearns' failing are simply too great to allow ourselves the moral satisfaction of watching the guilty and the greedy drown in their self-inflicted gore. If anything has been conclusively demonstrated by the past year of market follies, it is that the world's financial institutions are bound together more closely than they have ever been before in a web that is extraordinarily fragile. If one string unravels, the whole structure seems poised to disintegrate -- a process that will inflict pain on a far greater number of people than those who go to work in buildings on the southern tip of Manhattan.

Another quote:

But whether or not the current ills afflicting the economy do bloom into something much worse, it's hard to argue with the thesis that the rhetoric of market fundamentalism hasn't looked this threadbare since Ronald Reagan won office in 1980. Deregulated markets were given their chance. They didn't work, or, at least, they now look to be in need of serious overhaul.

He then tails off by looking at what the presidential candidates have to say about all this. Not much, folks (although you won't have any trouble handicapping them). As for Bush, there's an entry in "How the World Works" that I can only quote whole (title: "George Bush's reality distortion field"):

The president addressed the economy Monday morning. Referring to an economic update provided to him by Henry Paulson, secretary of the treasury, he said:

You've reaffirmed the fact that our financial institutions are strong and that our capital markets are functioning efficiently and effectively.

How the World Works finds itself incapable of summoning up the appropriate level of sarcasm necessary to comment on this quote. Truly, the end times are nigh.

Nicholas von Hoffman: Economic Chaos, Political Consequences. Not much optimism in the what-does-it-all-mean department:

We are in unknown territory facing situations that have never arisen before and taking measures that have never been tried. For the present we know that Bear Stearns/J.P. Morgan has been saved -- sort of. We suspect that some thousands of Bear employees will lose their jobs in the near future; we know that the news of the latest Fed actions was quickly followed by a fall in stock prices in Asia and another dip in the value of the dollar.

In a few weeks this latest insult to the once-imperial Yankee dollar will express itself in higher gasoline prices. That will hurt, but it may be the least of our pain. No body, no government agency, no clutch of economics professors, certainly nobody on Wall Street can lay out a plan of action. We do not know the dimensions of the storm buffeting us but that it is huge and enormously dangerous there can be no doubt.

Of course, what makes these events newsworthy is that now we're finally talking about economic events that hurt rich people -- that in fact threaten to blow their whole financial house of cards into dust. When it was just jobs that were being lost, when it was just the private and public sector safety net that was being shredded, when the infrastructure that supports our way of life was eroding, when the spreading gap between rich and poor was undermining the notion that we live in a just society, those were all things that could blithely be swept under our carpet faith in free markets, as the media quickly moved on to report the Dow Jones numbers. For a long time now, but especially since the 2001 recession that was compounded and exacerbated by 9/11, the federal government has been stuffing money into rich people's pockets to prop up the illusion that they are the health of the economy. What we're finding is that the rot at the bottom is increasingly hard to cover up with the riot at the top.

Von Hoffman thinks that we're going to be so busy bailing out the rich that there won't be any money for aspiring politicians to fix any problems:

There will be no health insurance for everyone. No long-needed increases in teachers' salaries, no big infrastructure projects, no decent-paying new jobs for those laid-off workers in Ohio, Michigan and Pennsylvania, and nothing for single-parent (read mothers) households. There is no money. As things stand now we may have to spend hundreds of billions to prevent millions of people from being thrown out of their homes and billions more to prop our crooked, avaricious, heedless and duplicitous financial system so it does not come crashing down on all of us.

It isn't clear to me that these things are either/or, although they will be if it isn't recognized that the finance problems are symptomatic of more serious structural problems: in particular, the growing chasm between rich and poor. The Keynesian money pump is a way of compensating for short-term slumps in demand, but doesn't add to persistent demand unless it increases the wealth of people at the bottom end of the scale. The current vogue for stimulating the economy via tax cuts and low interest rates for the rich has remarkably little effect. The only thing that stands a chance of actually reversing the hollowing out of the US economy that we've witnessed over the last few decades is to start putting not just money but power into the lower classes, to build up the sense of worth that drives long-term demand. The Fed won't be taking the lead there. To do so requires political change. But it wouldn't be unprecedented: that's pretty much what did in fact happen in the New and Fair Deals.

Postscript: In another How the World Works column ("Easy money days are here again?"), Andrew Leonard notes that the net effect of the ultra-low interest rates that Alan Greenspan pushed from 2001 through Bush's 2004 election, against the backdrop of an otherwise stagnant economy, sent Americans off on a spending spree at the cost of accumulating $3 trillion in household debt. Now that interest rates are dropping again, will the same thing happen? Well, starting out $3 trillion deeper in debt makes it that much harder to convert newly available money into consumer demand. We already saw from 2001-04 that the low interest didn't go into new capacity. It mosty went into the pseudo-growth of asset inflation (i.e., the real estate bubble). With debt past any resemblance of sane limits, and assets deflating like crazy, it's hard to see where the money can go -- although I suppose some people will try to use it to pretend nothing disastrous is happening. Last thing anyone would think of doing with it would be to spend it on poor people, helping them live a little better and becoming more productive.