The Newsweek Bubble

Zakaria is living in some other economy

A Debit to Newsweek for trying a bit too hard to look on the bright side as the latest economic developments unfold. In the October 20 cover story, Fareed Zakaria introduces us to the catastrophe’s “silver lining.” In case you missed it:

This crisis has—dramatically, vengefully—forced the United States to confront the bad habits it has developed over the past few decades. If we can kick those habits, today’s pain will translate into gains in the long run.

Now, the fundamental problem with this piece—the false premise on which the counter-intuitive argument stands—is that a single “we” exists as an economic reality. We can all learn from this crisis, goes the argument, because we have all brought it on ourselves.

Tell it to the struggling Ohio voters profiled in this recent New Yorker piece (which we “Audited” here).

Nonetheless, Zakaria explains the problem:

Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose.

Then come the “we’s”:

If we wanted a bigger house, a better TV or a faster car, and we didn’t actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies.

Fantasies like…. health care? Filling the gas tank? Food? Education? Child care? The fact is that the costs of living have been rising while middle-class wages have been lagging —with growing income concentration at the very top.

So, given the difficulty many Americans have in just covering the basics, why attribute rising debt to “fantasies”? The explanation that the battered middle class spends money mostly on necessities makes far more sense.

But Zakaria continues:

As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today.

This is not to say that he only blames the fantasies of ordinary people. Next on the list:

But the average American’s behavior was virtue itself compared with the government’s. Every city, every county and every state has wanted to preserve its many and proliferating operations and yet not raise taxes.

And next:

Local pols aren’t the only problem. Under Alan Greenspan, the federal Reserve obstinately refused to inflict any pain.

Next, maybe Wall Street? No. It’s back to you, me and everyone we know:

The whole country has been complicit in a great fraud.

And then later:

In the medium and long term, we have to get back to basics. Households, for instance, should save more.

Wall Street does eventually enter Zakaria’s picture, but only as one problem among many. Ultimately, he says, we all need to accept responsibility. It might even be good for us:

This discipline will be painful for a country that has gotten used to having it all. But it will make us much stronger in the long run.

The fact is, Americans haven’t all benefited equally from the up years—as David Leonhardt pointed out in an excellent column that helped make up for his own mistaken attempt at counterintuition—and American’s don’t all deserve equal blame.

To suggest otherwise doesn’t just distort the historical record, it allows for silly moralistic arguments that cloud our future direction.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.