Sunday, December 30, 2012

Children of the Reagan Generation

Thanks to my friend Ricki I wound up at the Mark Taper Forum in L.A. yesterday to see Jon Robin Baitz's play Other Desert Cities.  It deals with the same issues that people like Mad Men for addressing, but without leaving the impression that anything cool is actually happening.

Reviews (LA Times and LA Weekly's) have focused on the frame of a political couple, Polly and Lyman Wyeth (center and right in the photo), who were big in the national Republican party during the Reagan years, and who have, in 2004, been retired for a while in Palm Springs. Their children do not share their conservative politics, and their daughter, Brooke (at left), a liberal and a writer, has arrived to spend her first holiday with them for a while.  The youngest son, an L.A. TV producer, is also there. The oldest son, who committed suicide in the 1970s, is there in the form of a book manuscript that Brooke, has recently completed. It is a tell-all book about her famous family and how they cruelly drove their oldest son to suicide out of hatred for and embarrassment about his anti-war politics and revolutionary drug-taking friends.  Brooke wants her family to read the manuscript and bless her decision to use a published book to air the truth about their lives.  We learn (SPOILERS scattered from this point on) that she has been helped by her aunt and Polly's sister, Silda, a recovering alcoholic who has her own scores to settle with her sister and with Republican politics, not necessarily in that order.

The "liberal" position is upheld in the play by the two women--Brooke and Silda--who have  been damaged by their lives under the reign of the self-righteous, authoritarian power in the family, the mother Polly (played wonderfully by JoBeth Williams).  But they don't really espouse their own positions and instead continuously criticize Polly's.  Polly is a dominating figure who was friends with Nancy Reagan, Betsy Bloomingdale, and at one critical juncture had forced their fictional versions to back Lyman when they want to dump him.   The ongoing power of the parents is the real subject of the play, and runs deeper than Brooke's dislike for Polly's support for George W. Bush's wars in Afghanistan and Iraq, for Lyman's faith in Colin Powell, or for Polly's very frank hatred for the protest politics of the 1960s, which have clearly for her never ended.

Polly's position is clear from beginning to end: she hates weakness and admires strength.  "Families get terrorized by their weakest member," she says, referring to her sister Silda as someone she's had to take care of from start to finish--which financially at least is true. In one of the most quoted lines, she says, "I just think— The only way to get someone to not be an invalid is to refuse to treat them as such." (The audience loved Silda's response: "And there it is, folks: the entire GOP platform in a nutshell.")  When it becomes clear that Brooke's book is about her dead brother, Polly says two kinds of things.  One is "political" -- a standard conservative attack on the liberal / radical 60s:
The story of your brother. It’s drugs. Your whole generation, awash in drugs. The provocations, the absurd beard, the refusal to shower, to bathe, to adhere to the basic civilities of family life. He was stoned from the age of fifteen on, it made him dumb and it triggered his depression. Three generations, three generations of escapism. Lost. Drugs. Drugs actually destroyed the American century. Up the hill there, up the hill in Indio, the meth addicts, and you see them coming into town, wrecks.
There isn't much analysis, just a visceral antipathy for what she reads as a generation's break with the authority and more deeply the civilization of its parents.  The Reagan-era parents, embodied by Polly, once rejected by their children, were wounded, insulted, outrageous, furious, and unforgiving.  Baitz's Polly is a luminous portrait of a Reagan generation that condensed every social movement or progressive political idea into this rupture with, implied repudiation of, the goodness of their way of life.

The second kind of thing Polly says is parental. Referring to Brooke's view that publishing her version of the family's history is her right and of great benefit, Polly says,
Why is it that children are allowed a sort of endless series of free passes in this life, you know, and we’re expected to be the parents of children forever? This is a new phenomenon; once I was an adult, all of my parents’ indulgence ceased. You all want to stay children forever, doing whatever mischief you can think of. All you entitled children of the “me” generation. 
Polly is wrong about her children's politics and leftist motives, as in the first passage. She is right, as in the second passage, that her adult children remain childish.  Brooke replies with submissive wit, "By free-passes you mean 'free-will' of course?"  Her entire visit, in fact her book itself, is an effort to get not only attention but approval from her parents.  The effort is delusional and self-destructive: her parents couldn't possibly approve a project that claws open old wounds and embarrasses them all over again for something that had happened thirty years before, and for her to imagine that it could is infantile, a form of aggression that presents itself as victimized, which is of course exactly what her Republican parents see in everyone not of their political circle -- Romney's 47% etc etc.

Until we get to the major revelation, Polly and to some extent Lyman are much more impressive and even sympathetic than their twerpy children and the perceptive but completely unreliable Silda. Here's a core exchange between mother and daughter, regarding the publication of the book:

Polly (cont.) Whatever it is, whatever you do, you’re our daughter, and I will love you. I can’t stop you from doing what you will, I can’t prevent it. But you must know that whatever you do, there are consequences to your actions.  
Brooke What does that mean?  
Polly How could I trust you? How could I ever be in your presence, my dear? If you betrayed the trust of the family? A family that has so valued discretion and our good name in the past three decades. You would still be my daughter, but the meaning of it would change. You needed us. We came to the East Coast. A year of our lives, I thought of nothing but your well-being, your recovery. I could never in quite the same way avail myself— I know who I am. That is who I am. You would lose us. So you understand.
Polly does know who she is, while Brooke does not.  Polly's claim about the primacy of trust is entirely open and consistent with everything else she believes. She is a far more appealing character than is the passive-aggressive and dependent Brooke.

But Brooke is Polly's creation.  We don't know how she has produced Brooke exactly until the climax of the play--MAJOR SPOILER HERE.  In order to derail Brooke's book once and for all, Polly and Lyman finally tell the rest of the family the truth about their dead son: he never killed himself, but was ferried in secret by Polly and Lyman across the border to Canada, where he presumably still lives under an assumed identity.  Brooke has never gotten over her brother's death, and is shattered by this news. By the end of the play, we realize she really is victimized by her parents after all, whose genteel, sociopathic politics, Lyman says quite directly, flow from the capacity he discovers in himself, through this coverup, to lead a life of secrets and lies.

The revelation scene ends too abruptly. There's an epilogue six years later in which Brooke seems to have changed her book into celebrity pablum to cash in on the death of her parents.  The point is not to make Brooke an emblem of feeble-minded Democratic politics, though she is that, but an emblem of the capacity of the Reagan-era parents to destroy the independence of their children.  This is of course ironically what their childrens' generation was supposed to be about.

At one point Silda, pressing Brooke not to back down, says of Polly and Lyman and their Republican circle, "These people, driven by fear, have taken ownership of an entire country. And fear— fear led to punishment."  This is true of the parents, but it is equally true of the Reagan era's children.  What exactly are we still afraid of?

Wednesday, August 15, 2012

Building the Ryan Backlash

Mitt Romney has just confirmed the main- streaming of a far-right ideologue, Rep. Paul Ryan, by anointing him the Republicans' vice- presidential candidate.  What would constitute an effective response? It's clear from the early reviews that there's a confidence gap on the left in the vacuum created by Barack Obama's non-leadership on the relevant issues.

It's worth pointing out at the start that while some early commentary saw Ryan's extremism as a problem for a party that needs to reach out to the center in November, the Republicans' winning strategy since 1980 has been not to move the ideologue to the center but to move the center to the ideologue.  Romney's "bold" move is "Politics 101"  according to Reagan-Atwater-Rove: make fringe ideas common sense through saturation media exposure both pro and con from the pundit legion of America--even critique helps make the bad or silly claims weighty and important.  Hugely unpopular ideas can in this way become hard truths whose acceptance proves the adherent's toughmindedness, rather than, as in their first appearance, his obvious lunacy.

Exhibit A is Paul Ryan's obsessive desire to convert the country's existing public health insurance system--known as Medicare, limited to senior citizens--into a voucher system for purchasing private insurance.  This is an obviously absurd idea, since it takes a popular, administratively efficient, and humane program and gives it to a hated, inefficient, and inhumane private insurance system that delivers the world's most expensive health care at a mediocre level of quality.  But the whole country must take this bad idea seriously because the top of the Republican ticket advocates it.   

Progressives generally have two reactions to the way the two-party system and the monopolized MSM legitimate one awful, regressive right-wing talking point after another.  They split between anger and depression, which leads, respectively, to denunciation of the right and denunciation of progressives themselves.  For the first, here's Joan Walsh's blast at Salon right after the announcement- "Paul Ryan: Randian poseur":
Paul Ryan was born into a well-to-do Janesville, Wisc. family, part of the so-called “Irish mafia” that’s run the city’s construction industry since the 19th century. When his lawyer father died young, sadly, the high-school aged Ryan received Social Security survivor benefits. But they didn’t go directly to supporting his family; by his own account, he banked them for college. He went to Miami University of Ohio, paying twice as much tuition as an Ohio resident would have; the in-state University of Wisconsin system (which I attended) apparently wasn’t good enough for Ryan. After his government-subsidized out-of-state education, the pride of Janesville left college and went to work for government, where he’s spent his entire career, first serving Republican legislators and then in his own Congressional seat, with occasional stints at his family-owned construction business when he needed a job (reportedly he also drove an Oscar Mayer Wiener Mobile for a while).
Ironically, Ryan came to national attention trying to dismantle the very program that helped him go to the college of his choice, pushing an even more radical version of President Bush’s Social Security privatization plan, which failed. He has since become the scourge of the welfare state, a man wholly supported by government who preaches against the evils of government support. He could be the poster boy for President Obama’s supposedly controversial oration about how we all owe our success to some combination of our own hard work, family backing and government support. Let’s say it together: You didn’t build that career by yourself, Congressman Ryan.
Glenn Greenwald offered a parallel exposé of Ryan's hypocrisy and generalizes it to the Republican party:
the American Right seems to have a particular need to inflate their leaders into beacons of courage, self-sufficiency and virtue, even when their lives are completely devoid of those traits. Paul Ryan is a perfect symbol of America’s political class. He is directly responsible for the large deficits and debt which America has compiled, and now seeks to exploit what he himself helped create in order to deny to others the very benefits that were responsible for almost every opportunity and success he has had in his life, with the burden falling most harshly on those who need those benefits the most to have any remnant of fair opportunity. That’s the crux of the American elite: making massive mistakes and engaging in destructive behavior and then demanding that everyone — except them — bear the brunt of the consequences.
Greenwald and Walsh are excellent critics and writers, but their material inspires and deflates other progressives who can't imagine it having an impact on the American voter. This gets us to progressive option #2, which appears in the also excellent commentator James Kwak at The Baseline Scenario. The Right, Kwak wrote in a recent post, has a great rhetorical claim: "Government infringes on individual liberty. Cut down the government and we will have (a) more liberty, (b) more economic growth, and (c) lower taxes."  To respond to that the Left has, he says, well, nothing.  Democrats need to have "some kind of understanding of what the federal government actually is and does," which they apparently don't. Kwak ended the post in muffled despair: "President Obama needs to come up with a vision of what the government is for—one that he hasn’t already compromised away. Isn’t he supposed to be good at that sort of thing?"

Politics 101 does say that the angry denunciation, whether it's Walsh and Greenwald's columns or Henry Rollins singing Liar, shocks, alienates, and offends the fence-sitters one needs to win over.  On the other hand, Politics 101 also says arguments don't change voters minds.  Kwak's best line is a denunciation of the dimwit middle--"this election will be just like every other one: it will turn on a handful of independent voters’ inchoate, irrational perceptions of which candidate better fits their inchoate, irrational notion of what the president should look like."  Depression is anger turned against the self--the progressive self in Kwak's case--and within progressive psychological dynamics both responses are doomed: attacking is wrong, arguing is wrong, so the Right wins again.

Kwak's low esteem for the American decider in fact supports the Greenwald-Walsh style of denunciation, and is confirmed by three generations of successful Republican anger politics.  It's true, as Kwak says, that most people don't pick the candidate on the basis of "a considered reflection on the proper size of government." The obvious alternative is drama, story, passion, feeling, critique, and anger in a package that enlightens people while firing them up against a clearly-defined opposition.  Greenwald and Walsh are already masters of the genre of linking a threat to a face and name attached to it, which is sadly one of the few things that galvanizes humans in general and Americans in particular.  The goal with Ryan should be to show that he personally adds a new level of delusion about people's lives starting with the voters in his district, that he is a calloused ideologue, that he is a Simple Simon and therefore dishonest, and that his ideas about privatizing Medicare or whatever, because they are his ideas, cannot be trusted. This would include the kind of analysis at which Kwak excels, like showing that lower taxes don't produce higher growth or that falling government employment is hurting the recovery.  Getting there doesn't mean a smear campaign. It requires impassioned and relentless critique, escalating throughout the campaign.  In Ryan's case this started happening years ago (e.g Krugman's "Ludicrous and Cruel" in 2011)--there's plenty to work with here.

On to Kwak's other point, which is that progressives don't have a message about government.  This isn't true, and Greenwald and Walsh, to stick with our two examples, demonstrate two of them.  First, for Greenwald, government needs to be honest.  It needs to be honest in the specific sense of treating everyone via the same rules, equally and fairly. In health care, the obvious contrast is between private insurance companies that deny coverage to clients that are likely to be more expensive, and Medicare or Medicaid, which pays for everyone regardless of cost. Ryan fully intends to ration Medicare, and he worships the private sector model of cutting costs via denying coverage and this damages the welfare of millions of people in ways Ryan refuses to admit. Government rejects hypocrisy in the sense of double standards of the kind that, via private insurance, have divided Americans into 1st, 2nd, and 3rd class citizens in the realm of health care.

Walsh's progressive value is that individual success depends in part on the quality of the public sector.  For some reason Kwak wrote, progressives could say, "people need government services to succeed. (Doesn’t that sound offensive as soon as you say it, even if it’s true?)"  Why is that offensive to say? It is very true, and obvious in all wealthy countries other from the United States-- in fact the entire "rise" of the "West' out of the depths of quite violent, authoritarian cultures riven with religious fanaticism and planted on top of mediocre physical resources--like Britain, Germany, Sweden, etc.--hinged on their fairly early discovery that large-scale "improvements" in public infrastructure, coordinated by government but largely built from the bottom-up, made all the difference in a society's success or failure, and hence in the success or failure of all but a privileged few of its citizens.   Americans have not been taught this, but need to be via politics among other ways if they are to cope with the challenges of the 21st century.

Kwak is right that the Dem arguments for government are underdeveloped. But these arguments are correct, and the compelling drama is this: government-funded social development is the difference between plutocracy and democracy.  Crap public services, small middle class.  Most voters, judging from the popularity of say social security, know this. Progressives need to cement the convictions so we can go on to address our actual problems rather than the demons Romney and Ryan conjure up to get elected.

Wednesday, August 01, 2012

Under the Big Empty

I can't see any foreclosed houses from the hotel pool.  I do see a 5 story apartment building going up across the street. It looks cheap enough to fall down befoe it gets its supporting siding and paint.  It ill have the airport to the front and a hotel to the side. I look at it from poolside. Trees consist of a scattering of short palm trees whole leaves rustle like the pom-poms of tired cheerleaders, most of whose friends have already left.  There a party on the other side of the pool - Hilton Honors. the tall greeter, who much be a supervisor, is white. Every other employee is a person of color - mostly Latino, who can be seen everywhere doing all of the work, literally 100%, and a few South Asians.  Jets roll off the runway at John Wayne screened from view by the hotel.  Their steep angle keeps things quieter over the hedge funds heads below at Newport Beach, and up here they make a military roar.  Southern Cal has always been great for aviation - endless flat plains, steady onshore switching to offshore breeze. endless emptiness of the sky.  It's not so good for the people of the empty sky. the unchanging breeze ripples the pool surface that no one swims.
Earlier that morning, same hotel, other side:

Sunday, June 17, 2012

Unger is Right: the Left Must Defeat Obama

There's good stuff in the Unger statement about the purpose of society and government pointing towards the development of human capabilities, and the need to pay for education that does this.  Then he drops the bomb around 6:17 that got us the Huffpo headline, "Roberto Unger, Obama's Former Harvard Law School Professor, Says The President 'Must Be Defeated'

Here's what he says, after 6'10"
President Obama must be defeated. He has failed to advance the progressive cause in the United States. He has spent trilliions of dollars to rescue the moneyed interests, and has left workers and homeowners to their own devices. He has subordinated the broadening of economic and educational opportunity to the important but secondary issue of access to health care, in the mistaken belief that he would be spared a fight.  He has disguised his surrender with an empty appeal to tax justice.  He has delivered the politics of democracy to the rule of money. He has reduced justice to charity. His policy, is financial confidence and food stamps.  He has evoked the politics of handholding. But no one changes the world without a struggle.  Unless he is defeated, there cannot be a contest for the reorientation of the Democratic party as a vehicle of a progressive alternative in the country.   There will be a cost for his defeat, in judicial and administrative appointments. The risk of military adventurism, however, under the rule of his opponents, will be no greater than it would be under him.  Only a political reversal can allow the voice of democratic prophecy to speak once again in American life.  Its speech is always dangerous. Its silence is always fatal.
This is all quite right - except for the part about the Democrats becoming progressive if Obama is defeated.  Bit if it makes the chronic, semi-permanent fear vote for the Dem candidate feel any better, Unger is calling for a strike on the Democratic party that is nothing less than what the Tea Party did to the Republicans.  But it must go far beyond that.

When I began this blog in 2006, most people assumed that the fortunes of the working- and middle-classes went up and down with the business cycle, but that the overall trend was up.  Now over five years later, studies of the inequality boom have made it clear to anyone who reads that the gains of economic growth have gone largely to the very top, and to an almost unimaginable degree.

Monday, May 07, 2012

France After Sarkozy: What Can Hollande Do?

Nicholas Sarkozy came to power five years ago heralded as France's New Man who would yoke France to global capitalism by separating it from its social model.  He jogged and he paddled New Hampshire canoes without his shirt.   I thought then that it would turn out badly, and it has.  The new Socialist president François Hollande faces a mess when he steps out of his democratically little car.

Sarkozy was a classic wedge politician, campaigning against France's supposedly grasping unruly immigrants and its allegedly violent racial minorities in 2007 as he had while minister of the interior under Chirac. Sarkozy brought one of America's most repulsive and ineffective ideas into French politics, which is that solidarity damages the economy and retards society's wealth creators, who should rule by natural right.  The practical effects in France have been a minor-key echo of their destructive impact in the U.S.. Sarkozy presided over the piecemeal degradation of two of the cornerstones of French society, its strict, high-quality public schools and its affordable, high-quality health care system. 

Monday, April 30, 2012

Apple's Attack on the Knowledge Economy

The New York Times has just published the latest in Charles Duhigg''s important series of pieces  on Apple and the iEconomy (see also "middle class squeezed" and "human costs," written with various coauthors).

This third article is about Apple's global effort at maximum tax avoidance.  The story is mainly about what is in effect one rich company's effort to contribute as little as possible to public coffers, but it shows how Apple's way of looking at society is creating a Bizarro world that steadily undermines its own ability to innovate.

The most important relationship in the story is between Apple and its neighboring community college, DeAnza College.
A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

Monday, April 16, 2012

My Problem with Schumpeter

First, some throat-clearning, with Mr. Schumpeter at left very much in mind.

The decline of the middle class has been this blog's theme since it began in 2006. I have been interested in the self-inflicted nature of this decline, and in its social and psychological dimensions. The title of the blog expreses this angle on the problem.   The economic decline of the majority is now common knowledge.  The self-inflicted sources of the decline - not so much.

Most of my blogging since 2009 been about the decline of the foundational institution of the middle class -- college, including community college -- and about the big conceptual and storytelling errors that have gotten middle class voters to go along with the budget cuts and the loss of focus on core educational missions that have made universities increasingly less useful to the students (and faculty) who go through them.

When I consciously try to avoid this theme of public university (self) destruction, I wind up in my other obsessive area, innovation theory.    Which brings me to last week. On Thursday, in Berlin, I gave a talk at the JFK Institute called "Does Cultural Study Need Innovation Theory?" My real topic was the reverse - that innovation theory needs cultural study. This is a slightly obtuse way of saying that there are huge problems with the unchallengeable model of innovation in the US, which is founded in Joseph Schumpeter. Here's my one slide summary of what is wrong with him.

i just don't see anything in Schumpeter's model, with its hostility to self-governance and regular people, that is compatible with egalitarian economic development.  Why would a Schumpeterian entrepreneur care about full employment, as opposed to minimizing their own employment of people?  In this system it is inevitable for us to have an Apple Economy now where the wealthiest most admired companies practice the offshoring of jobs as a doctrinal necessity. The now-famously "squeezed middle class" is no longer the beneficiary of innovation and new levels of productivity, but its victim.   We have innovation, but we don't have innovation jobs.

Under Schumpeter, genesis is technology.  Its fountainhead is the entrepreneur, not the toiling multitude.  To a surprising extent, technology is always in opposition to labor, which it seeks to liquidate.  Schumpeter allows economists and anyone else to assume the valuelessness of people -- the valuelessness of how people like to do things.  Schumpeter enables the social darwinism that even Barack Obama has complained about.  He also enables the decoupling of labor productivity from pay, since productivity doesn't really come from labor at all.   The logical consequence is the broken relationship between productivity (up) and wages (flat) that has caused the economic decline of the middle class.

Am I blaming Schumpeter's dominant model of innovation for this decline? Yes I am. 

Looking for an alternative, the day after my own talk I went to the Berlin meeting of the George Soros-funded Institute for New Economic Thinking. More on that tomorrow.

Saturday, February 11, 2012


My favorite Capitalist Pal, trader Phillip Lewis, has a remarkable section in yesterday's post that is worth quoting in full.  Are European leaders going to force Greece to go the way of Russia under Yelstin, in which public health falls off the cliff?  It's another omen of a new dark age.  The deep psychological question is why elites are ok pushing things this way.  As Davis points out, they can't save themselves either.

****  Davis follows:

Sunday, January 08, 2012

How Subsidized Capitalism Hurts Innovation

Last week I posted on our more active university blog about how subsidized capitalism damages both the funding and popular understanding of the central role of public services in building economies and societies.

The post was just a first poke for the new year into a huge hole in Anglo-American capitalism's theory of itself.  This theory ignores the extent to which it has spent the conservative 1980-2010 period absorbing public resources into its own revenues. Most of this theory's public apologists denounce public spending, which has helped massively reduce their tax obligations -- tax avoidance has become a major profit strategy -- while justifying private appropriation as putting public money to better use.

The New York Times has a good example of the problem.  Caterpillar is spending $426 million building a new factory in North Carolina.  It has gotten the state to pay $51 million in various incentives, including $5.3 million in direct costs to train future Caterpillar workers.  Since most of the training is being done by a local college called Forsyth Tech, the state is footing other costs as well.

This suggests serious weakness in the economic theory itself.  The co-founder and longtime CEO of Intel, Andy Grove, wrote a while back that "the U.S. has become wildly inefficient at creating American tech jobs." Intel spent $3600 in adjusted dollars for every job it had 10 years after its founding.  This cost has exploded to $100,000 per job at some of the country's most successful high-tech companies -- Genentech, Google, etc. Here's the chart that accompanied the article:

The cost of each new Caterpillar job in North Carolina is $130,000 - well above Google's cost.  But that is only the state of North Carolina's contribution.  Add in the company's own investment in the new facility, and you get an incredible $1.2 million per job.  Caterpillar is very inefficient at creating jobs, and has gotten North Carolina to pick up some of the excess cost.

The use of the chart above isn't entirely fair, since the 392 jobs is this Caterpillar plant's immediate workforce and not the workforce 10 years out.  But the point of the new plant is to use technology to suppress workforce growth, suggesting future growth will be limited. And the huge cost per job can only be justified, if at all, through some extraordinary and unlikely tech-fueled level of productivity.  These are not obviously sustainable jobs, and the article points out that some of the same workers in the new state training program have been burned before by hit-and-run companies.

The problem with the expected public subsidy of capitalism has several parts. The first is that U.S. federalism has put states and local jurisdictions in competition in a "race to the bottom" to offer the weakest union protects, weakest safety requirements, lowest wages, and highest subsidies. Yes there are practical limits to all this and no not all firms are slave-driving exploiters of labor and plunderers of the public purse.  But the downward spiral is the logic of the system, and a well-paying company with good labor conditions (that support creativity) in New Jersey or Minnesota is vulnerable to competition from cheap operators in states like, well, North Carolina.

The second problem is deeper, and Andy Grove points it out.  U.S. companies are less efficient at creating jobs, he says, because the country has spent the last few decades shipping manufacturing know-how overseas, attached to the jobs it has shipped over there.  Grove focuses on the capacity for "scaling," which is the way that a good invention becomes an industry that supports lots of employment. The million little problems that must be solved require complex knowhow that is housed in people. Solutions require an entire, "effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer." When this ecosystem is already established as it famously is in a place like Silicon Valley, new jobs are generally less expensive to create.  When you don't have that ecosystem, they cost a lot and, just as importantly, they are less secure.

Universities are central to an innovation ecosystem, and constantly cutting their budgets weakens the ecosystem as a whole.  But interestingly, cuts ironically drive up the cost of new jobs rather than lowering them (usually defined as lower taxes).   A weaker innovation ecosystem can destroy a new industry before it gets started.  Grove's example is lithium-ion batteries for the next generation of electric cars and trucks.
The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up. 
Subsidized capitalism conceals the real problem, which is the weakening of the overall social environment in which innovation and sustainability take place.   It has been weakened by social underinvestment.   Grove calls explicitly for jobs policy -- for "jobs-centric" leadership.

We won't get something that intelligent because both parties like to shovel public money toward private firms, even when it means taking public funds away from the social ecosystem on which the firms depend.

To wrap up, subsidized capitalism kills two birds with its one big stone.  First, it hurts public services. Subsidized capitalism has enabled the takeover of the charter school movement by education companies whose existence depends entirely on taxpayer funding.  The same goes for-profit university-company sector, which depends so totally on federal loan money that it pipes through its student-customers that the government has had to cap their receipt of federal funds as a share of total revenues at 90%.  This sector sells educational services, but makes its money by not spending revenues on education, and produces bad educational results.  The bad drives out the good, as the for-profit sector's existence convinces many policymakers that they can get away with spending less public money on real-thing public education.   The same has happened to transportation. A somewhat funny example is Chicago outsourcing its parking meters, which historically helped pay for street improvements.  More seriously, the UK House of Commons's Treasury Committee published a study last August, 20 years into its "Private Finance Initiatives" experience that included privatizing its rail system.  The committee found among other things that PFI deals typically added 40% to the service costs.

The second victim of subsidized capitalism is the private sector itself.  Demanding tax reduction with one hand and receiving taxpayer funding with the other, corporate America has ignored the role of public funding in building the advanced society on which its own survival depends.  After nearly 40 years of this, in 2012, it's not clear that the U.S. will ever catch up.

Wednesday, November 02, 2011

Democracy vs. Finance Capitalism: Greece and Solar

Hat tip to Brad for the headline that summarizes the whole "problem" created by the Greek government putting the Poverty Now plan-of-the-week to save-punish Greece to an actual vote:  "Democracy Wipes Out Gains for Stocks."

A nice analysis comes from Yves Smith on the "debtor that roared."  The rescue was only going to accomplish the continuing impoverishment of the Greek population without actually stabilizing the banking system, and forget about inspiring investment and recovery.

Thinking about the examples of recoveries in places as different as Argentina (early 2000s) and Signapore (late 1990s), it would be interesting to imagine an actually democratic alternative to the financial system we have now. The minimum elements would be much smaller banks and regulation around lending that would push them close enough to local needs for investment capital that it would be more straightforward to nationalize them.

Wednesday, October 12, 2011

Wall Street Dissidents Backstop the Occupation

A crucial development in 2011 has been the way the Wall Street has managed to alienate so many of its natural supporters among economists, top economic journalists, and financial professionals.

Lots of mainstream finance commentators finally went ballistic over the state of financial policy.  The most interesting group are the professional investors who have turned on their masters. I get to them at the end of the list of dissidents.

The Angry KeynesiansPaul Krugman is Exhibit A, a 1990s liberal free-trader where strong state intervention was the exception more than the rule, but who opposed the Bush tax cuts and for the ten years since has railed tirelessly about every replay of deregulatory trickle-down business-led plutonomics. He summarized the Bush Years as "The Big Zero,"   denounces  "The Austerity Delusion,"  "The Urge to Purge,"   "Cockroach Ideas," among many others.   The "Economic Bleeding Cure" is a classic of this genre.
Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. And economic bloodletting isn’t just inflicting vast pain; it’s starting to undermine our long-run growth prospects.
Keynesians care about the development of society, and are confused and enraged by the casual blowing off of these concerns by policymakers in the US and the EU alike.  "Well, this is a miserable step in the wrong direction" says  Jeffrey Sachs, starting a denunciation of both parties in the US.  "From a self-preservation angle, this is lunacy," notes David Dayen.  

Nicholas Kristof alienated some Occupier supporters with a somewhat patronizing attempt to suggest demands, but he is also the author of the excellent summation "Our Banana Republic," voicing anger at policy suports for social devolution.  But you know these people.

Prophetic Re-regulators This group consists of high-end experts in technical domains -- mortgage industry regulation, complex credit instruments, international banking relationshiops -- who have become relentless and sometimes furious bloggers. They focus on the non-improvement of the financial system itself -- not so much on its social effects as its continuing rottenness, now propped by massive government subsidies (a 0.16% interbank funds rate for example) and complicity in the perpetuation of the shadow banking system that caused the problem in the first place.  You know most of these folks too:  the sober Simon Johnson and James Kwak at the Baseline Scenario, Dayen on housing, and Yves Smith at the remarkable Naked Capitalism on housing, banking as a criminal enterprise, and idiotic political dynamics that are forcing a choice between shooting the economy (Republicans) or bleeding it to death (Dems).  

Cassandras of Systemic Failure.  The lead people here are in Europe, with Martin Wolf at the front of the pack. These are a mixture of journalists and economists who accept the need for "adjustment" of the most crisis-ridden economies -- read drastically lowered living standards for the 99 percent -- but think politicians aren't being smart or independent enough to manage even that.  Wolf recently predicted a lost decade unless governments simply cranked up the printing press and created money, denouncing sadism towards populations along the way. He often points out that economic failure was not caused by bad behavior but by not very enlightened market judgements, e.g. public debt burdens that were lower in Ireland and Spain than in France and Germany.  This is the Japan Syndrome writ large by pro-capitalists who see that financial corruption and momentum have undermined the systems that made capitalism stable for a while.

Raging Traders. These are working investors, many of whom write blogs to attract customers to their investment business, which often consists of selling their trading advice.  Post-facto posts are the sign over the entrance meant to encourage signing up for the live action inside the tent.   These people trade every day,  feel shafted and betrayed, and are absolutely furious.

Here's the boss of Phil's Stock World on the horn last December talking about Obama's capitulation on the tax cut extensions.  Remember, Phil likes numbers.

Good job Congress!
Way to take it from your new Republican Masters! Not since Jack sold his cow for some magic beans has a deal like this been made by our "leadership" where families earning between $35,000 and $64,000 go $7,800 further into debt to get a $613 tax break while families earning between $5M and $10M get $38,590 and families earning $50M to $100M get $380,590 and families (or Corporations, of course) earning $500M to $1Bn get $3,859,000 or about 12,590 times more than the average middle class family but, then again, they deserve it because – they are that much better than you are!

Face it, unless you are in an income category where your tax benefit has 5 digits, you are what George Orwell (who worked in England’s Ministry of Propaganda) called a "Prole." In 1984 the Proles (proletariat) were the vast majority of the populace, the working class of Oceana. Though the proles are the majority, they are unimportant. The Party explicitly teaches that the Proles are "natural inferiors who must be kept in subjection, like animals". As one of the Party Leaders observes: "the relative freedom of working-class people is merely a symptom of the contempt in which they are held". . . .

You’re not going to be any trouble are you? Enjoy your $613, little people. That’s what, about a month’s worth of gasoline and cable TV? Congratulations on your voting acumen – you certainly have gotten the Government that you deserve! . .. . 

Congressman Ryan Paul . . .  points out: "Whose money is this after all?" It’s not your money that your family is going $7,800 further into debt to protect – it’s THEIR money. THEY earned it and THEY are darned well going to keep it. "Hey," you might say, "I work for THEM – didn’t I make that money and isn’t this OUR country that’s in debt and needs responsible fiscal policy?" Well, that’s just Commie talk and you’d better watch yourself – we’ve already sent your name of to HomeSec so consider yourself on notice…
The Proles in this country are dumb enough but what amazes me is the people who support the tax cuts thinking you are "one of THEM" when "they" look at you the same way you step over a homeless man in the streets. $858Bn is the NATIONAL Debt that we are taking on to fund these cuts. The cuts work out to about 0.75% of your income and your family share of the additional debt burden is $7,800 so, unless you are making AT LEAST $1M PER YEAR as a corporation or individual, this tax cut is a net loss for you. Once you clear that $1M hurdle, it’s all gravy flowing uphill to your plate! Even better if you are a "Corporate Citizen" – you have no real debt obligation to this nation because, like Haliburton and many, many others – you can simply move whenever you want – to avoid taxation AND prosecution!

As Bloomberg proclaims today "It’s a Great Time to Be Rich,"

You can often read this kind fury on Phil's blog. The "Long Con" is a fascinating example for its somewhat Marx-like systematicity.  Phil makes his money every day by betting on the blindly destructive greed and cowardice of financial and political leaders, which he describes as such.

Here's another professional financial advisor, Adam Lass, the editor of Wealth Daily, writing about Wealth Preservation During Depression

The central bankers want us to think their fountains of unlimited imaginary money are our sole hope of escaping yawning pits of economic hell. For these apparatchiks, it's all about hanging on to the levers of power any way they can.

The private bankers claim that if we just turn them loose from the stranglehold of post-crash regulation — and allow them to tangle the world in a impenetrable web of insanely profitable derivatives and bonds again — they will plant our feet firmly on the road to financial nirvana.

To these guys, you and I are just foot soldiers and cannon fodder. Our jobs, homes, wealth, and health? Collateral damage.
 Here its class war on Wall Street, not just between Wall Street and Main Street.

My final example is from the Wall Street Examiner, where Lee Adler states, "I Stand with the Protestors."  It is a howl of rage that starts like this:
We as a society must stop pretending. Most of us think that we still have money in the bank to protect, so we go along with the game of extend and pretend. For some of us, the game has already ended. The rapacious zero interest rate policy that I call Bernankecide has already robbed millions of savers of their life savings. This is the reality that has yet to hit home for many Americans who are content to wallow in the status quo. Unfortunately, the longer it takes for them to wake up, the worse their, and our, fate will be.

My mother and millions of other senior citizens are among the victims of the game that policy makers and those who empower them are playing. Their life savings are gone because Bernankecide, the financial genocide of the elderly, forced them to spend their principal. Now the government is indirectly confiscating 8% of my income because I must support my mother. That percentage is likely to grow as her health deteriorates.
Millions of other boomers are in the same boat. They are forced to pay this immoral hidden tax because Ben Bernanke decided that the innocent must pay for the sins of the guilty. While Bernanke’s ZIRP goes on allowing the banksters to continue to collect their fat bonuses, it steals the savings of millions of Americans, eliminates their disposable income, and cuts the spending power of millions of others who must now support those rendered destitute. The guilty benefit, and the innocent are punished.
Bernanke knows that, yet he continues to side with the criminal bankers in support of the financial genocide of the super elderly, and their children, the baby boomers who must increasingly support them.

Adler identifies himself in effect as Wall Street's 99 percent - screwed by the investment Bigs and with no end in sight.

In the late 1990s I wrote an article called "Business Civil Wars."  It was clearly premature.  Occupy Wall Street has brought this last group to the surface, and they are providing endless detail about the contradictory social relations within finance capitalism itself.

Thursday, September 29, 2011

Feeding the Financial Crisis

The situation is easily summarized.

In August 2007, the first clear signs surfaced that the financial sector had been piling up profits and individual payouts by greatly increasing the risk of their investments.  They did this while convincing themselves and nearly everyone else that risk had not really increased.  They used very high leverage, invented new instruments backed with dubious collatoral, etc - all this has been well analyzed in books like Econned.  When many people began to notice the AAA collatoralized debt obligations were junk, their value crashed, along with market averages overall, while highly exposed firms either went out of business (Lehman) or were bailed out by the government -- to the tune of $10-11 trillion (or maybe $29 trillion).

Government debts increased rapidly in Europe and the US.  While some government stimulus for the real economy was provided, it was not enough.  The financial crisis became an economic crisis, and there has been no real recovery -- only 16 of 100 American cities in one survey have recovered even 1/2 of the jobs lost during the initial downturn.  

Four years after the 2007 beginning, the financial sector is again (or still) in systemic trouble.

Hence austerity: austerity, laced with free-market ideology now functioning less as thought than as a paralyzing hangover, is in effect forcing governments to keep all possible government resources liquid for the next bank bailout.

In addition, most observers are convinced that the real problem is not private but public debt.  There is enormous discussion of the bad behavior of Greece, which has to scrape for every ten billion euros while private bank exposures are at least an order of magnitude larger.  Ireland is also going through a finance-created depression but it is rarely mentioned, perhaps because the bad actors there cannot be said to be tax-avoiding shopkeepers but the country's entire banking sector.

Meanwhile, bank reform has been paltry and pushed back through the concentrated efforts of the financial sector.  Regulators can't even see the majority of financial transactions, much less regulate or tax them. The head of the French banking authority recently estimated that opaque transactions form somewhere between 50% and 75% of the total.

There will be no recovery for economies, only for banks.  That is the post-feudal tradeoff that rules policy. 

Thus banks continue to make grotesque fortunes on a scale condemned by all known religions and ethical traditions in the same pre-2007 way, through junk and leverage (pious Deutsche Bank has "assets" (positions) 35x equity), added to which for several years has been essentially zero-interest public money on which they can make an automatic spread, meaning even more free money.  The banks' position seems to be that:
  • the government should buy everything forever, meaning unlimited bailouts at a moment's notice
  • but the financial sector should pay no tax for govermments
  • hundreds of millions of ordinary people should just lower their standard of living accordingly.
There are deep cultural questions lying behind what is obviously a disgusting ethical situation: 
  • where did the banks get their sense of entitlement, particularly to salaries in the tens or hundreds of millions of dollars annually for individuals?  Someone who gets mad at the idea of being taxed at more than 15% a year on $300 million, as Steven Schwarzman did, might be described as  insane.
  • Why does it seem like the people protesting (e.g les "indignés" of Greece, Spain, Israel, Wall Street) are a tiny minority?  Is it only media (non)coverage or bad coverage?
  • Relatedly, why is there no public or popular critique of the entire theory of economies and societies that underlay a banking system that had failed and had to be rescued?
  • It is said that (most) "people don't see any alternative," but WHY NOT? There are lots of ideas out there, and even more suffering and depression, so how long will the gelling take?  Sure, the US Democrats and the French Socialists proposed nothing of any importance, but why are people waiting for them? 
The "decline of the West" is being executed from within and from the top.  It's not a conspiracy, it's just how the system's logic is now working.  Governments are protecting extraction at the expense of production.  However, had I been Chairman Mao, believing that heightening the contradictions of capitalism would hasten the system's demise, I couldn't have done better than to gut manufacturing while feeling finance.  Were I to rewrite the Terminator series, I couldn't do better than to replace the military net that generates the Schwarzenegger character with the bots behind program trading (though the pros won't help me with the script).

    Wednesday, March 23, 2011

    The Pervasive Stupidity

    Decisions are being made that are wrecking US infrastructure.  Expert warnings are everywhere.  Decisionmakers remain oblivious.  People are drawing the obvious conclusions, and are hearing the voice of doom.  Charles Simic starts a recent essay by saying, "I can’t remember when I last heard someone genuinely optimistic about the future of this country."

    A large number of financial experts are beside themselves.  There's Charles Johnson, former IMF official, professor of finance, co-author of 13 Bankers, in congressional testimony on TARP a couple of weeks ago:
    the financial crisis produced a pattern of rapid economic decline and slow employment recovery quite unlike any post-war recession – it looks much more like a mini-depression of the kind the US economy used to experience in the 19th century.  In addition, the fiscal costs of the disaster in our banking system so far amount to roughly a 40 percentage point increase in net federal government debt held by the private sector, i.e., roughly a doubling of outstanding debt.
     Adjustments to our regulatory framework, including the Dodd-Frank financial reform legislation, have not fixed the core problems that brought us to bring of complete catastrophe in fall 2008.  Powerful people at the heart of our financial system still have the incentive and ability to take on large amounts of reckless risk – through borrowing large amounts relative to their equity.  When things go well, a few CEOs and a small number of others get huge upside.

    Saturday, February 26, 2011

    Shattered Pillars of the Middle Class

    Two and a half years into the biggest financial crisis since the Great Depression, we have gone backward instead of ahead. The pillars of the middle class aren't just crumbling. They're being eroded by systematic policy and failures to react.
    • Pillar 1 of the mass middle class was regular wage increases reflecting regular increases in labor productivity. Productvity has continued to increase, but wages have not.
    The wealth produced by labor is not getting plowed back into the wages of labor. This was the core problem that Karl Marx addressed in his analysis of capital: exploitation consists of owners' taking the surplus-value produced by labor, or what we now call value-added, rather than splitting it fairly according to the actual contributions of capital and labor.  This critique is more relevant than ever in advanced economies, given data like this.

    For more charts straight from ye olde class struggle, see the Bureau of Labor Statistics report - no doubt slated for defunding by the Republican House as a fountainhead of Socialist propaganda.   I can't resist this one:

    Labor Share of nonfarm business sector output, first quarter 1947–third quarter 2010

    While the causes aren't entirely clear, the result is: a smaller piece of value added for employees.

    • Pillar 2 of the middle class: home ownership, now eroded by the steady increase of the home's value, which became a necessity in recent decades because wages were not increasing.  These days, 1,000,000 families have their homes forclosed each year, with 2011's rate due to be higher than 2010s.  And you know all about the crash in prices (Case-Schiller index interactive is here, and Dean Baker's February Housing Market Monitor is here).  There is no housing price bottom yet.
    • PIllar 3 was stable pension and benefits.  Defined benefit pensions, based on a service formula that guarnateed a payout, have been destroyed by the private sector. The huge part of the middle and working classes who now depend on "defined contribution" pensions - 401(k) plans and so on, lost a huge piece of their retirement in the 2008 crash, and may or may not have gotten that back. That low private sector standard is now being touted as a benchmark by people wanting to get rid of public sector pensions. The Wisconsin protests are one example.  In the medical benefits arena, HMOs have responded to the coming of Obamacare with the highest price increases since 2006,  Aetna had proposed increases of 25% for 2011, and then withdrew them. Middle class poverty is set to increase even for the older workers who have for a few decades been well off.
    • Pillar 4 was public investment - infrastructure, low-cost, high-quality schools and universities, among many other things. These are getting cut everywhere. Higher education is being withdrawn right and left, if not in quantity then in quality. Students are paying more to get less, as public funding continues to plunge below historical norms. One cause is the Great Tax Shift from corporations and the wealthy to ordinary workers:

    • Pillar 5 was the proverbial rule of law.  The most powerful members of society don't need rules or justice to protect them, since they have power. In contrast, the middle class doesn't, and in the long run there is no middle class without accountability, due process, and equality before the law.  These are the only mechanisms that keep the middle class from getting crushed.  And yet, although the banking and mortgage industries destroyed trillions of dollars of wealth, much of it of ordinary investors, only one banker, Bernie Madoff, has gone to jail.  
    Sorry, that's not quite true.  The UBS banker who blew the whistle on an international tax fraud conspiracy at UBS, Bradley Birkenfeld: He's in jail.

    The protests in Wisconsin are a good start on a reaction to the attacks on all the pillars at the same time.  But they are only a start.