Jump

That is my instinctive response to 2008, taken from Episode 7 of this year's half-season of Battlestar Galactica. I will get to this in a moment.

As I have had to point out before, the great economic majority, here called the "middle class," but which includes many subdivisions and fragmentations and the working poor, hasn't advanced for 30 years through wage increases. It has advanced through asset inflation: stocks in the 1990s, when its companies converted pensions to investment funds, and through housing inflation in the 2000s.

Both of these patches are now rendered useless. Housing prices are still in free-fall -- down 18% in October from the year before. Given the great m-c's inability to save, that is 18% less for the future - college, for example - and for the present - a more reliable car for work, and in some cases clothes and food. No big surprise that "consumer confidence" fell to an all-time low. This is in effect a no-confidence vote in our leaders. It says no hope in sight.

The only thing that the middle class ever has going for it is analysis and accountability. The crisis needs to be explained. Causes and primary agents need to be found. Justice needs to be done: prosecutions of CEOs, hedge fund managers, and while we're at it of some financial economists for fraudulent product claims.

War has been waged on the middle classes for years. Now it is time to fight, using the class's actual strengths - analysis and accountability through law. There are calls for accountability for this with the Bush administration and foreign policy, torture, and general corruption and malfeasance - Katrina obviously comes to mind. There will be exposures of the rigging of the ground rules in favor of the bigs against the middles and the smalls - even the rigging of the bailout. Here's a picture just to remind you of the stakes (from the Economic Mobility Project).

A year ago I had wishes for 2008: that we could remember that value comes from labor and collective effort, and not just from technology, "entrepreneurial spirit," and leaders. My wishes did not come true.

This year I have wished that people would think systemically. The French do this when their national press gets up in arms about the death of a 57-year-old in an emergency room that lacked necessary equipment: they trace it to the decline of public services, Sarkozian cheapness for all but the rich, failed modernization, and various other major trends. Still, the French have not done this about Israel in Gaza: they see no systemic explanation, and generally look at the last rocket fired before the Israeli strikes. People who invoke systemic elements, like Dean Baker on structural government bias toward the wealthy in making good on losses for the largest banks' high-risk investments, or like Fisk on Gaza cited yesterday, or like this sociologist critiquing mutual militarism and its War Without End, are voices lost in the din.

This wish too did not come true.

Nothing good will happen until these wishes do.

Let's move from our own Battlestar issues to those of Galactica. As you know, the humans created Cylons to be their servants, the servants realized they were considered subhuman slaves, and the slaves revolted. There was a truce. It was broken a lot. Then the Cylons came out of their quandrant and nuked the planet, killing all but about 40,000 humans, who now wander space trying to find Earth so they can settle again. They have sub-light drives on their ships of course, but real travel occurs in "Faster Than Light" (FTL) mode, which occurs when they "jump." And of course they and the Cylons go at each other in every episode. The show's themes are love, fear, terror, and War Without End - and also how to end it. More than any other show I've seen lately, it gets at the mood and the systemic forces of the degenerative Bush years.

The breakthrough in the half-season aired so far (4.0) is that some Cylons rebel against the extermination campaign, which is tied to a parallel rejection of the subordination of their own earlier Cylon models - the Centurions (mechanical) and the Raiders (bio-mechanical pilots). The rebellion is the result of lots of human-Cylon interaction, hatred, and above all inter-"racial" love, which has a religious dimension I ignore here.

The core idea of the rebels is a kind of humanist egalitarianism. I personally believe that this is the sole basis for real progress on our Earth that the BSG humans are desperately seeking, which keeps me going through the repetitive agitation and character-loops of most of the episodes. Will humanist egalitarianism overcome racial hatred, continuous actual violence, and its endless renewal of hostility and revenge?

This brings us to Episode 7 (I omit its foolish title). SPOILER PARAGRAPH HERE: At the start, the humans barely avoid destroying their new allies, the rebel Cylons (the Twos, Eights, and Sixes), who then, through their Six-leader Natalie, offer the humans an amazing deal: they will take the humans to the Cylon resurrection hub (which allows endless downloading of minds and thus a kind of immortality), who can then destroy it. In exchange, the humans will allow the rebel Cylons to go their own way with the "Final Five" Cylons whom they think are great spiritual leaders. They will all, humans perhaps with Cylons, go to Earth together. The humans, especially the conniving, authoritiarian President Roslin, immediately go on to setting up a double-cross. The Cylons, realizing humans are double-crossers, decide to double-cross in turn. After Natalie-Six meets with the human Council to explain her theory that mortality makes life meaningful, she tells the other Cylons the humans still hate them, which prompts her fellow rebels to try to un-doublecross (to both defeat the human plan and to show the humans they are worthy allies), and also to realize that the inconsistency involved in un-doublecrossing will itself seem like yet another doublecross. The episode's last ten minutes are a great hallucinatory mix of sound and light that conveys the descent into madness guaranteed by the mutually cancelling and yet annihilating doublecross, as certain as Hamas Vs. Israel and as Spy Vs. Spy in the Mad Magazine of the 1960s. It ends as Athena-Eight, the Cylon married to a human and the mother of the first human-Cylon hybrid, Hera, while looking for Hera, and seeing Natalie-Six, escorted by soliders, greeting Hera in a corridor, and having a flashback to a dream many of them are having of the Six taking Hera away, responds by shooting Natalie-Six the rebel leader in the chest. At the same moment elsewhere, on the rebel base ship, President Roslin, has ordered the Cylon hybrid (the link between the bio-mechanical and the human Cylons) plugged back in. The hybrid speaks like an oracle, and controls the Cylon base ship. Once plugged back in, the hybrid first and only word is JUMP.

The base station FTLs and disappears.

The double-cross shall not be uncrossed. The only solution is to Jump.

For us, the non-leaders of the world, the only jump available is to block the next doublecross. That work begins by digging down to the depths of the doublecross we are living now.

Damned by Leaders

American leaders, Dims and Rips alike, lined up for Israel's right to respond to rocket fire with its turkey shoot in Gaza. I will spare you the gruesome and abundant details in this appalling international ritual we have seen many times. But in reference to our favorite social group, the American middle class, it is amazing that they seem not to realize that the war, the defense, the killing, the expense, will make everything good impossible for them.

I mean that literally. There will be no real economic recovery, no redevelopment of US society without peace in the Middle East, whose conflicts are draining the world. For US society, more crudely, there will be no money.

See Robert Fisk for the noir leadership vision of what keeps it going, "Leaders Lie, Civilians Die."

And speaking of leaders who lie, Dan Rather is suing CBS for $70 million, claiming breach of contract by CBS in caving to political pressure to retract his story that George W. Bush had a very poor national guard service record.

Worshiping the Black Box

Often they are called "investors." I call them marks, johns, goobers, shitbirds, chumps, suckers - you know, the customers. What did Bernie Madoff call them?

This is a bad time to bring this up. Lots of good people are hurting this holiday season. And I've been fairly sympathetic to the pressure during decades of increasing income polarization on middle-class dupes not to fall behind when everyone else was making 10% a year, including the dope next door. Your salary had plateaued, the job wasn't rock solid, the kids needed college, mama needed a new pair of shoes. Unearned income could make life quite a bit better. But many of these guys gave up the only thing the middle-class ever had going for it: skeptical and independent thinking.

Madoff preyed on his inside networks. He told them how hard it was to get in, how exclusive he was, what a tight little elite club his was. The 19th hole wannabes lapped it up. Then he told them it was all proprietary. Secret shit. 10% year after year pumped out by his black box stuff. They loved it even more.

They loved that they didn't get it. They loved that they didn't understand. They didn't really care about the inequality boom or growing poverty or declining manufacturing or 40 million without health insurance - at least not enough to think about what they were doing.

This is the core religious impulse that keeps the world the dogwatch of tyrants and con men that we sometimes and correctly feel it to be. So we have this chaotic undemocratic sidestepping of progress that the marks and suckers insure that it is.

There's lots more to say about things like the failure of the Securities and Exchange Commission. There's more to say. But it starts with the dolts that make it all possible: the middle-class wannabes without the guts to think for themselves.

The Essential Premise

The starting point for understanding the state of things is that the the American middle classes are not in danger, but have already been destroyed.

The exception is the upper middle-class, the doctors, lawyers, and bankers who are in professions that have been both protected from competition and grossly overpaid by comparison with the nation's overall pay scale. It is becoming clearer, as the Madoff and other Wall Street scandals unravel, that much of this amazingly inflated income (millions to tens of millions for an individual in a year) and swollen wealth accumulation depended on personal connections, family ties - the stuff of "natural aristocracy" gone mad.

For the rest, wages have declined, as I've noted many a time before. NYT columnist Bob Herbert has a good piece today on the auto industry example.

Last year, before the economy went into free fall and before any talk of a government rescue, the autoworkers agreed to a 50 percent cut in wages for new workers at the Big Three, reducing starting pay to a little more than $14 an hour.

That is a development that the society should mourn. The U.A.W. had traditionally been a union through which workers could march into the middle class. Now the march is in the other direction.

Mr. Gettelfinger noted that his members “have not received any base wage increase since 2005 at G.M. and Ford, and since 2006 at Chrysler.

Some 150,000 jobs at General Motors, Ford and Chrysler have vanished outright through downsizing over the past five years.

Auto workers gave and gave and gave at the office, and their executives and then the Senate just kept coming back for more. Why did they bother? Look at the Michigan economy: its cornerstone - not the "auto industry" but "auto workers" and their earning and spending - has already been semi-destroyed.

The old "Fordist" contract between workers and employers was the cornerstone of the American economy. The deal was attributed to Henry Ford Sr., who was mean as hell but capable of a medium-term self-interest well beyond that most economic leaders today. The deal was that his workers should make enough, consistently enough, to eventually buy one of the cars they made. By paying workers $5 a day, he could expand the market for his own product.

American economic leaders have for decades only wanted to expand foreign markets, and have taken the domestic one for granted, and don't really care what happens to local purchasing power. More accurate, perhaps, is the first phrase - they just take it for granted, in the lazy, thoughtless way that Reaganites took highways, bridges, airports, roads, schools, hospitals, and sewer service for granted as they were trying to destroy the governments that had and were continuing to build them. They haven't stopped yet, and a new, much smaller generation of auto employees making $14 hour has no chance of supporting an economy that helps them or anybody else.

None of the bailouts are going to get us off the low road that for decades has been quietly stripping the US of its status as a broadly middle class society. Anyone who thinks we can have one without the middle class status of blue-collar manufacturing workers - well, I've got some Phil Gramm 1999 legislation I'd like to sell you.

More Unrest, Less Meltdown

For the French-inclined, here's a nice piece about the background to the Greek riots.

High schoolers have been marching in France as well. I will have to explicate later - I'm not feeling so good.

Suffice for the moment to say that Greek and French unemployment for 18-24 year olds is about 25% in both cases. This is always attributed by our economists to the oppressive welfare state in places like France, that discourages innovation - like mass layoffs. OK, to be fair, French business law is a pain in the butt. But Greece has no welfare state and is as stuck as ever.

I keep thinking we'll start to look at the business system itself for an explanation.

It's kind of obvious that massive unrest or global meltdown are the only things that prompt basic introspection in our political and business leaders. We need more unrest.

Some Clarity

For a good short statement of the financial industry's extraction of money from the real economy instead of putting it in, see today's Krugman.

For a good overview of auto pension economics and the earning of pensions, see Gregg Shotwell (ignore the already outdated frame for the story

Ongoing Conceptual Crisis

The Financial Times was the first of the big business newspapers, back in August of 2007, to point out the real root of the financial crisis, which was and is that a huge proportion of the securities everyone was buying and selling cannot be priced. Value unknown. Value zero. Value= what the sucker will pay. Suckers everywhere have gone broke or gone home.

So note today's FT coverage for the financial equivalent of the cigarette warning label that has become routine:

The affair has called into question the business model of funds of hedge funds – which run about $685bn in assets – after many of the biggest failed to spot warning signs.

Cleanups require sorting wheat from straw, sheep from goats - all farmyard metaphors are alike to me . . In our current case, the pros can't tell them apart. Worse, the two kinds of assets trade places all the time, and depend on confidence for their stability - on faith in the story being told. Financial sheep are turning into goats, while governments try to pay investors to see their goats as sheep.

It's a great way to run an economy.

The Nation's Mental Decline

Dean Baker nails yesterday's theme:

One of the key lessons of this economic crisis should be that there is a remarkable lack of capacity for independent thinking in our most important institutions: government (both the executive and legislative branches), business, the media, and academia. It is possible that an important authority figure could force a re-examination of deeply held views of the world, but we all must recognize that there is a huge amount of dogma to overcome.

The Dying Middle

The lunatic criminal governor Rod Balgojevich is now helping Obama to his first taste of Clintonian Whitewater politics, now in a media circus near you even before the guy takes office. Who will be Obama's permanent Ken-Starr Special Prosecutor. But crazy Balgojevich is a sideshow. Lets stay focused on crazy bankers and their codependent lawyers. After all, a couple of big firms imploded this week - Dreier LLP and Madoff Securities.

The money these people were making was completely insane. Literally delirious. Operations like Dreier's silently sponged hundreds of millions of dollars annually out of the economy for a couple of hundred people, basically by doing paperwork. You wonder why they call it "law" or why they call "law" a profession. Dreier law is to a profession what crack is to Riddlin. You use a profession to negate it.

Fr. Frank utters an eloquent call for this kind of return to honesty and decency. Other voices of sober wisdom are reading from the Book of Keynes.

Well it's a much better Scripture than the Book of Greenspan. But like all scriptures it needs to be replaced by a new one. Keynes was born in 1883, was in his 30s during World War I, helped enormously contain the ravages of the 1930s depression by giving mainstream clueless policymakers something way less dumb than what they were using, and died before the Cold War even got started (1946).

The current financial knowledge system is so rotten that we are going to have to work much harder than that to make any headway. The big lesson of the meltdown is that not only the public, not only 401(k) investors, not only economists, not only corporate executive, but professional banking elders like Robert Rubin at Citibank had no idea what the hell they were doing. There are the crooks like Madoff and Dreier, but the deeper point is that the biggest bankers of all couldn't tell true from false accountability if their billions depended on it.

The guys at "L'Esprit Public" were debating the Obama team today, but only one, Denis Olivennes of le Nouvel Observateur, expressed sadness at the "classic" nature of the choices, which he thought would block any meaningful innovation. I think he's right.

This is a sad truth indicated by articles like "Liberals Wonder When Obama’s Team Will Reflect Them." The way to get picked for the liberal top is to a) be superconnected (all Harvard-Yale-Chicago this year) and b) have always stayed inside conventional wisdom. The lesson is that originality and strong positions will sink you now and forever.

This is really too bad. Real solutions come from breaks with orthodoxy. Breaks with orthodoxy require a certain antagonism towards orthodoxy itself, and often involve conflict, critique, unpopular position-taking, and general offensiveness. The failure to find any of this ever in the Obama-nomicists leads to the strong possibility that the moderate Obamans are not actually going to be deal at all with this enormous crisis.

Larry Summers is a case in point. The article reads:

Even some of [Obama's] appointees have evolved in their views. Lawrence H. Summers, the former Treasury secretary chosen to be Mr. Obama’s chief White House economic adviser, talks much more about income inequality, financial industry regulation and other favorite causes of the left. “The Larry Summers of 2008 is not the Larry Summers of 1993 or 1999,” said Katrina vanden Heuvel, editor and publisher of The Nation, a liberal magazine.

Of course vanden Heuvel is right. But all this means is that Summers went with the neoliberal deregulatory anti-social flow in 1993 and is going with the flow in 2008, in which every non-reactionary banker on earth has become a Keynsean statist. The future has to come from somewhere else.

Go Ahead Take Everything Take Everything Why Don't You

Dow Chemical is laying off 5000, closing 20 plants, and shutting 180 temporarily. Sony is laying off 9000 of 160,000 and cutting 10% of its capacity. The Tribune Company filed for bankruptcy, affecting the Chicago Tribune, LA Times, two dozen television stations and more. Blogher has good backstory on the use of the Tribune company as pure debt capacity, not to mention the continuous squeezing of the LA Times.

At the end of the day the story is simple. We tried it the Zell Way. We tried the debt and deal making way. We tried taking real companies and using them as financial shells. We let them all print their own money - any kind of security they could make up. The amazing thing is the total latitude these financiers have had, to do absolutely anything. And they wrecked everything. They were already wrecking news journalism. Now they have wrecked their entire companies.

When I look at the largest auto company in the world, one of the backbones of the American 20th century, and hear people talking about it disappearing this winter, I am amazed at the incredible fragility of the enormous wealth that the whole society ceded itself to.

The employees of Republic Windows and Doors are occupying their factory for the 5th day. The company had its credit line cut off by Bank of America - not long after B of A got $25 billion in taxpayer bailout funds so that it would maintain this kind of credit line. The State of Illinois announced that it is boycotting Bank of America. Meanwhile, the Chi-Town Daily News reported that Republic Windows and Doors owner's wife bought a similar factory in Iowa, suggesting a plot to dump unionized Chicago workers in exchange for cheaper ones in the countryside.

Why exactly are these nitwits running everything? Why are the rest sitting without jobs on the factor floor?

Meanwhile Athens is burning

Glad SOMEBODY'S Paying Attention

Even if the office workers are lambs to the slaughter, here are some blue-collars who aren't. It's a good moment too for Obama, and Jesse Jackson, and the power of outrage at basic hypocrisy on the part of banks loading up on govt money.

Obama Says Workers at Chicago Factory Should Get Pay


By Julianna Goldman

Dec. 7 (Bloomberg) -- President-elect Barack Obama said that union workers in Chicago who are protesting their factory’s sudden closure with a sit-in are justified in demanding their benefits and pay.

“I think they’re absolutely right,” Obama said today in response to a question at a Chicago news conference. “And understand that what’s happening to them is reflective of what’s happening across this economy.”

Obama, who gave up his Illinois Senate seat last month after the Nov. 4 election, was asked at a press conference today to weigh in on the protest at Chicago’s Republic Windows & Doors factory, which closed on Dec. 5 after Bank of America canceled its line of credit.

Workers “are occupying the plant around the clock this weekend, in an effort to force the company and its main creditor to meet their obligations to workers,” the United Electrical, Radio and Machine Workers Union says on its Web site.

Because Bank of America received funds from the government’s $700 billion rescue package, the protest has attracted attention from the Reverend Jesse Jackson and Representatives Luis Gutierrez and Jan Schakowsky of Illinois as an example of the Troubled Asset Relief Program helping Wall Street and not Main Street.

‘Reasonable Steps’

“It’s also important for us to make sure that the plans and programs that we design aren’t just targeted at maintaining the solvency of banks, but they’re designed also to get money out the door and to help people on Main Street,” Obama said.

Nobody answered the phone today at Republic Windows. Bank of America declined to comment on Obama’s remarks, spokeswoman Julie Westermann said. “We are honoring all of our contractual obligations to the company,” she said. “We have taken reasonable steps to talk to the company and its management and we expect that the company will soon decide how to proceed.”

While Westermann wouldn’t discuss details of the bank’s relationship with Republic, she called it regrettable that the company has faced “extreme financial hardship.”

The labor union’s goal “is to at least get the compensation that workers are owed,” its Web site says. The workers also want the company to resume operations and, if it closes, are seeking 60 days notice and a “fair severance package,” according to a fact sheet distributed by the union.

The union fact sheet also says the average wage at the factory, which manufactures vinyl windows, is $14 an hour. Workers also “receive good health coverage and retirement benefits,” the union statement said.

“I think that these workers, if they have earned these benefits and their pay, then these companies need to follow through on those commitments,” Obama said at the news conference.

To contact the reporter on this story: Julianna Goldman in Chicago at jgoldman6@bloomberg.net

Last Updated: December 7, 2008 21:00 EST

Pavlovian Applause

That is Fr. Frank's phrase for the fairly mindless praise being heaped on the Obama economic team, people of great credentials and many practical failures.

The piece is called "The Brightest are not Always the Best." One great thing about Frank Rich is that he's incapable of saying what everyone else is saying. But another great thing is his ability to find a cultural framework that puts politics in perspective. Here he invokes David Halberstam's book about the boy wonders in the JFK administration who brought us the quagmire of Vietnam.

Were Fr. Frank not invoking Halberstam, he could have used a more accurate title, "The Brightest are Often Dumb."

The piece is about Summers and Rubin and Geithner and you won't be surprised by the flaws he finds in their actual record. The more interesting bits are the frighteningly familiar comments from Halberstam about the blindness of the Kennedy geniuses. Since I think Kennedy is Obama's real model rather than Bill Klinton, it was alarming to hear Halberstam talk about the free pass the DC press gave JFK because of his similarties to them as to prep schools, Ivies, credentials, and white-collar world-view - a certain kind of entitled, liberal elitism that you could hear in Obama's comment as he introduced his foreign policy team: "They share my pragmatism about the use of power, and my sense of purpose about America's role as leader in the world."

Rich quotes Halberstam at one point on how the boy geniuses were not so smart:

“the difference between intelligence and wisdom, between the abstract quickness and verbal facility which the team exuded, and true wisdom, which is the product of hard-won, often bitter experience.” That difference was clearly delineated in Vietnam, where American soldiers, officials and reporters could see that the war was going badly even as McNamara brusquely wielded charts and crunched numbers to enforce his conviction that victory was assured.

This is true. The "quickness" comes from systematic dissociation from the actual consequences of and people affected by the model that appears in the boy wonder's brain.

There are two things that have made the problem much worse since Kennedy:

• the hegemony of economics over domestic policy. Economists in the US are abstract modelers, and the modelers are in charge of Obama's economic policy.
• the "knowledge economy" was just an idea during the Kennedy Administration, first publicized by UC President Clark Kerr as the Kennedy period was coming to an end. The prestige of "symbolic analysts" and their detachment from the great masses of real people are more acute now by a factor of 10.

It's going to take cultural imagination to get us out of this. The question is how do we get that through the airlocks of the Obama Admin?

Middle Class Lewis

Michael Lewis published Liar's Poker about the 1980s Salomon Bros where he worked. His book exposed the fact that Wall Street does not actually allocate capital rationally towards productive investments. In fact, Lewis was attractively candid that he couldn't tell how his bank allocated capital at all.

He was blushingly modest, putting the incompetence on his own shoulders rather than on the investment industry as a whole. People loved the book, and kept buying the Wall Street products he had supposedly exposed.

He wrote a retrospective last month, where he says,

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in
1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed theyʼd be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didnʼt expect was that any future reader would look on my experience and say, “How quaint.”

Very true. But keep reading. Overall, Lewis is a classic example of the great middle-class enabler of the world of finance.

For example, he remarks to Mac Greer that

I think it is true that the models that have been used on Wall Street since the early 1980s to price financial risk -- to essentially price financial insurance, which takes different forms, but the most common form is an option -- work reasonably well in normal financial environments, when things aren't too volatile. When there are really extreme moves, they fall apart. And over and over in the past 25 years, we have seen really extreme moves in which they fall apart.

This is like an engineer praising a new material by saying, "our alloy holds up well on all aircraft control surfaces, except when those surfaces are needed to maintain stability during a storm, in which case they collapse."

Pretty dumb, Michael. How about the cultural analysis?

If the Wall Street firms had been partnerships instead of corporations, if the people in them had had total long-term engagement with the risks they were taking, they never would have done what they did. If American culture had not evolved to inure people to the risks of leverage, then I don't think nearly so many people would have borrowed money they couldn't repay.

Uh huh. If America were socialist and pigs could fly, and companies cared about workers instead of throwing them over the side at the first roll of the hull, then finance workers wouldn't have maxed out leverage to make a million bucks today knowing their rich firm was going to fire them tomorrow.

Then he says Detroit should be allowed to fail.

With middle-class financial intellectuals like Lewis, no wonder we're screwed. I like his writing and his characters, but twenty years later, couldn't we find a better analyst?

Building Vs. Investing

As the real economy goes into its worst nosedive since the 1970s, it's worth remembering two things:

• it's actually worse than it seems. If you count unwillingly part-time workers, the unemployment rates is 12.5%. Then throw in lost health care . . .
  
• the US gave away its intellectual and institutional capacity to create jobs 30 years ago.

I say this because economic thinking is still oriented towards investing, not building.

You say investors do build things. I say they don't.

Well sometimes they do, but only by accident.

Investors invest to make money. They look at current and expected prices, cash flow, and calculate returns on investment. This is entirely logical, from their point of view. If the entity they invest in makes next-generation tram equipment or plastic photovoltaic modules, great. If it makes money by buying hybrid cars and destroying them to raise the price, that's great too.

What about investing in the green economy, as president-elect Obama proposed yesterday?

It will work if it's not an investment in the technical sense of looking for calculable returns on investment in the short or even medium term. If the plan is to use government money the way a bank or individual would, then the money will go towards safer, less risky, and lower impact investments. Breakthrough research is incredibly risky, and markets, all macho propaganda aside, don't like risk.

The thinking around the infrastucture plan remains the same, if you take the NYT coverage I linked above as an example. The authors write,

Mr. Obama’s plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them.

This is supposed to be bad - the government "picking winners." As opposed to markets doing it, which have, for example, taken the area where the US supposedly leads the world - the Internet economy - and let it be 15th in broadband adoption, as Mr. Obama pointed out in his speech.

In Santa Barbara, I pay $45 a month for broadband that is about 1/3 as fast as my Lyon service, for which I pay 17 Euros a month - and that includes television and telephone with free long distance.

I would like the government rather than bankers to pick winners for a while. They might do better.

I would like local rather than national politicians to do it. The latter are out of touch. When Mr. Obama "met with the nation’s governors last week, they said the states had $136 billion worth of road, bridge, water and other projects ready to go as soon as money became available. They estimated that each billion dollars spent would create up to 40,000 jobs."

For the sound of the Investor Economy, on the other hand, read this intelligent piece about Warren Buffett from the Motley Fool. The Fools have been hard-core long-termers in the markets, meaning they have encouraged millions of middle-class people to see the markets as a kind of savings account. Their author here takes that Buffet op-ed that I was hatin' on in October and say that Buffett is right that stocks are cheap and that therefore it is time to buy. The piece has some interesting Buffett history, but it does get naked with the fantasy of middle-class investing:

buy cheap and sell high
replace earned with unearned income
by the way, building your wealth builds the country's wealth.

We should be clear here. This is not "buy-and-hold." This is not stocks as a saving account. This is market timing, which is what professional Buffetts do. You get in when the numbers are good. You dump when the numbers are bad. This has nothing to do with building a company or building a product. A good investor drops even a wonderful company the second the holding will cost him a dollar.

What we actually need now is three things:
a middle class that wants to build and not just invest
a carefully targeted stimulus
a huge tax on capital gains to punish speculative investing and raise the money the building will need.

As usual, the solution is simple . . .

Up Now Leads to Down

Obama's cabinet. I don't want to talk about.

Well about just one thing maybe. He IS giving the world a long flashback to the Clinton 90s, where two forms of Reaganism carried on - Cold War coercive diplomacy and financialized capitalism. The foreign policy team was chewed over nicely today on Democracy Now. Robert Dreyfuss was right to say that "There was nobody there from the anti-war wing of the Democratic party," and that it looks center-hawk, more of the same. Steven Clemons responded like this: "what if he brought in a lot of the people that Bob Dreyfuss suggested should be part of that cabinet? I think Obama would have to go out and bomb a small country or something to show he was tough and had the ability to deploy force."

There are no real openings here. We're talking Obama One - muddled and mediocre, not a man of destiny.

But I've underestimated his strategic abilities before. He may be avoiding Clinton, who did his outsider cuts and thrusts and got rolled every single time. Clemons was hoping for Nixon in China. Dreyfuss was saying not with these people, a combo of hawk Dems and actual Bush people, including Mr. Surge and Mr Escalate Afghanistan - Sec of Defense Robert Gates. It's kind of like Bill Clinton keeping Bush I's Secretary of Defense, one Dick Cheney.

But screw politics, let's talk money. Governments are trying to look like they care. They do care. They care because they're scared. Personally, deeply, very afraid. Their great business leaders took the money and ran the company into the ground. Their gurus like Larry Summers don't really have any idea what the hell's going on.

Luckily I do. It's simple. The securities out there are crap. Everybody has now figured this out. Nobody wants to buy any of it, or let any of it be put up for colattoral. There's money to be made extracting big upfront bribes in the form of government money. your money and mine. There's money to be made waiting for some bidding up after a big bailout - it's been a few days now, hasn't it? - and then selling it all short. Hence the NYSE's 600 pt drop yesterday after its happy thanksgiving. There's not going to be much going on until we get back to inventing and making stuff again - like in WWII. You know, green-nuke gliders to bomb Iran.

John Authers at the Financial Times has a nice chart that show up staying down.

When the Xanax kicks in, it still doesn't get the S&P up to the 50-day moving average which keeps going down (blue), or the post-Lehman average, which is even more down. The trend is not our friend.

In his "Short View" column for December 1, Authers tries to explain Monday's gloom:

What dashed the market’s hopes? Surveys of supply managers in China, the US and the eurozone showed economic activity contracting faster than had been expected. The US ISM survey raised deflation worries by showing that the prices paid by manufacturers had their sharpest drop since 1948.

The US National Bureau of Economic Research announced that the US went into recession in December last year.

And Ben Bernanke, chairman of the Federal Reserve, said the Fed was prepared to buy long-dated Treasury bonds.

Many assets have become “toxic” this year. Treasuries are not among them. Even before the Bernanke speech, 10-year Treasury yields were at their lowest in 50 years, reflecting extreme negativity about the economy and a “flight to safety” by investors. Treasury bond investors do not need help.

Rather, the Fed would buy them to push their yields down further still, in the hope that lower rates would stimulate the economy.

This sounds like the “quantitative easing” practised by the Bank of Japan to combat deflation. This implies monetary policy as usual, setting rates for banks, no longer works.

This may be the right thing to do. But official recognition that it might be necessary removed all vestiges of Thanksgiving week’s optimism.

My thoughts exactly. Time for some new medicine. But the US government hasn't done social medicine for a long time. It has cut society - like Mumbai cut basic emergency services, magnifying the death toll - and does wartime medicine. Now we have a "war cabinet" in the Obama 1 administration.

The trend is not your friend.

Mumbai Timeline

Reuters has stitched together a partial sequence of events of the guerilla attacks on Mumbai, designed both to kill randomly and receive massive Western media coverage for doing it.

They change nothing about the underlying logic now controlling world events. The logic is sustained by the way leaders sustain conflicts for decades at a time to stay in power, and the grotesque inequality, suffering, and brutality that go with it. The attacks and the carnage simply express that logic.

The carnage is of course completely disgusting and unjustifiable. I feel not only for the victims but for everyone who loves Mumbai in part because it seems like the open and hospitable crossroads of India. And there is almost nothing I abhor more than highly armed religious idiots ushering in the kingdom of heaven by drenching the earth in blood.

But that doesn't mean we have to be stupid ourselves, and regress to the infamous Friedman culture war between the "Lexus" and the "olive tree." A NYT op-ed set it up this way - a Mumbai native defines Mumbai as the center of Lexus culture in India, as gloriously free commerce joining the peoples of the world. He continues like this:

the best answer to the terrorists is to dream bigger, make even more money, and visit Mumbai more than ever. Dream of making a good home for all Mumbaikars, not just the denizens of $500-a-night hotel rooms. Dream not just of Bollywood stars like Aishwarya Rai or Shah Rukh Khan, but of clean running water, humane mass transit, better toilets, a responsive government. Make a killing not in God’s name but in the stock market, and then turn up the forbidden music and dance; work hard and party harder.

This comment confuses wealth and investment-banker partying with social development for all. It then swallows "dreaming" by this morass. If we don't see religion, even the murderous kind, as about a form of dreaming that is neither about mountains of money nor the good society, then we understand exactly zero about religion.

That's one problem. The other is that Mumbai and India in general - and the United States - are monuments to the nightmarish gap between accumulating wealth and creating the good society. The gap today is vastly greater than that which produced the cycles of violence one can read in the Old Testament.

Thus it's really dumb for the NYT columnist to define Mumbai as a temple of progress and not as also at the same time a swamp of unspeakable squalor that drowns the lives of untold millions. I've written before about how the historical Jesus understood the community of the world that could arise in the absence of tyrants and moneylenders - the heaven-on-earth I associate with the all-welcoming Jesus of the tympanum at Vezelay rather than with the weigher-of-souls at Autun. There's no excuse for our not being at least this intelligent, and seeing nightclub globalization as an atrocity visited on tens of millions of people whom we do ignore completely until they fire their guns.

The Opposite of Transparent

The NYT had a good piece about this week's biggest bailout - the $800 bil for consumer and mortgage loans. It notes that "the most troublesome unknowns are how the maze of protections for investors and consumers will change economic and political behavior in the future."

The lack of transparency is a political issue, since public money is being used with no transparency or accountability to prop up private interests, nearly all of whom were active agents in causing the problems for which they are being bailed out. The injustice is plain. Peter Cohan at Blogging Stocks offers the best short take on secrecy's motives.

Others are noting that the feds are letting banks do whatever they want with the money, which doesn't include actually lending it to people. So the failure of the bailout to set lending standards and write rules for bankers explains why the financial handouts are not helping the real economy, where housing prices continue to fall as credit stays hard to find.

An even smaller number of commentators are making an equally crucial point: the deliberate concealment of bailout distributions is not maintaining confidence, as the feds claim secrecy does, but keeping investors and bankers in states of fear and doubt. We have no idea which banks are getting what, "we have no idea what banks are doing with the money being loaned to them," as Bloomberg's Editor in Chief Matt Winkler noted a couple of weeks ago." He concluded that "without transparency the market is going to have difficulty recovering."

Not only is transparency just and democratic - it would also be more effective at saving the real economy from enormous pain.

Surface to Air

A day without a bailout - Happy Thanksgiving!

Some kind of new model army is beseiging the wealthy foreign-oriented parts of Mumbai. I watched coverage from Lyon in four languages, including Arabic which I don't understand. (Arabic is the best singing language ever, but that's another story.) Nobody knows anything. And its still going on 24 hours later.

This is very interesting - the capacity of small organized guerilla groups to disrupt everything in modern, highly armed, nuclear security states like India. I'm sure it's making poor oppressed people everywhere pay attention. Maybe they will attack actual leaders for a change.

Today in Bretagne farmers set fires outside of the supermarket chains that force unliveable prices on them. In Paris, CNRS researchers occupied the offices of the main research agency, which of course is trying to downsize them.

One among various bad things about these random, bloody attacks on non-combatants like the one in Mumbai is that they help billions of people believe that it's the little people, the poverty-stricken fanatics from illiterate hinterlands who kill. These cases are in fact a tiny minority of the death dealt out for political or economic reasons.

So Mumbai reminded me of former-Soviet Georgia, and the moronic military clash last August, stage-managed by leaders in Tbilissi, Moscow, and Washington DC. One 48 year old man who fled Gori with his family was interviewed by the French daily Liberation. My translation of some of the remarks of Merab:

All this, it's the fault of big-time politics. Before, we all lived very well together, I [a Georgian] had Ossetian friends. We celebrated our births and deaths together, we married each otehr. It's true that after perestroika, the Ossetians started to have nationalist ambitions. The Russians, who helped them in secret, complicated everything. They had money and arms that crossed the frontiers. Everything got worse when Zviad Garnsakhourdia, the first Georgian president, came into power.

To keep from making the same mistakes following our leaders, learn the backstory from guys like Merab.

One Retread Too Many

The incoming admin- istration had already been putting too many old Clinton tires on the Obama Express - Larry Summers, Tim Geithner, etc. Now Obama has found a pre-Clintonian retread - the 81-year-old former Federal Reserve chairman Paul A. Volcker - who is going to chair a new group called the Economic Recovery Advisory Board.

The board sounds very New Deal, but Volcker is not a New Deal guy. His main accomplishment as Fed chair was shock therapy - the brutal elevation of that took the prime rate - the rate at which banks lend to each other overnight - to 20%. The idea was to "break the back of inflation" by, in reality, breaking the back of the economy. He helped send unemployment to 11%. Crude and destructive. Volcker also helped Nixon unravel the Bretton Woods conventions on currency exchange, which has been a gold mine for speculators and destabilizing for everyone else, particularly developing nations. Volcker has never shown any interest in social development or social reconstruction. He is on the face of things a terrible, misguided choice for a board focused on economic recovery.

It looks like the only Clintonian big wheel not to get a new White House job will be Robert Reich, former labor secretary who was in fact the only committed progressive in Clinton's economic inner circle. He also has a blog, and I read this to mean blogs are very bad for political careers.

Reich's deeper liability is that he has always advocated the development and the protection of new-wave labor, by which he mostly has meant white-collar brainwork, the work of what he called "symbolic analysts" in his classic book "The Work of Nations" (1991). Reich was a Clintonian darwinist about the inevitable decline of manufacturing in the face of allegedly higher value-added activities like architecture and radiology - both of which are being offshored as well. But Reich was honest about the stratification and inequality and evil social fallout of this system - the last long dystopian section of WN makes the book still worth reading.

Reich also thought democratic governments could choose policies that would maintain - or at least valorize - social solidarity. The good thing about solidarity is that it sustains a capacity to renew the workforce rather than simply dumping into low-wage dead-end jobs. If Obama doesn't agree with his we are really screwed.

Obama obviously wants to assemble a team of well-connected insiders so that Washington doesn't freeze up on him when he tries to do something. I see the point here. But there is a wider range of insiders than the ones he is picking from. The Business Roundtable is a little too content.

These appointments are also scary because of the sheer multiplication of economists and economic perspectives. The White House has both a Council of Economic Advisors (to be headed by a UC Berkeley economicst Christina D. Romer), and a National Economic Council (Summers). There is a White House Office of Management and Budget (to be headed by Congressional Budget Office director Peter Orszag). There is a chief economic advisor, who will be U of Chicago professor Austan Goolsbee. There is also a Domestic Policy Council, and multiple other economics jobs.

One problem with this redundancy is that economics has a profound bias in favor of market-like mechanisms and against political institutions. The profession has been instrumental in creating the mess we're in. It's hard to see that any of these people have the ability to put society back in the mix.

Pressure for any kind of New Deal is clearly going to have to come from outside. But be ready to dodge shredded retreads.

Ridiculous Obameconomists

I read every page of today's Financial Times while eating dinner in the Brasserie 1904 in Grenoble. Did I find a single moment of insight coming from Obama's new-old economists. Sadly, I did not.

I watched Grenoble's Tram A and Tram B glide by every few minutes, and noted for the hundreth time that rich America has nothing like this, and my hometown Los Angeles will not have multi-class, multi-racial public transit in my lifetime. I will have to come to Grenoble to see working trams - or 200 other cities in Europe. Why?

I thought about trying to find the great Addams Family Thanksgiving scene on You Tube.

I thought about the students I met with today at our study center, and about how one I especially like had exactly 20 Euro with which to go to Spain for fall break - until I loaned her 100 E, which she paid back the next week with 5 twenties.

I thought about another student in Lyon who I met with last night for an hour or so. She started in the beginning French program and clawed her way into being good enough to stay for the year. She has expenses of about 1100 Euros a month, or 12,000-14,000 a year - not too comfortable or relaxing, really a poverty income. What about her income? She has several loans and grants that give her $450 a month. She has a monthly shortfall that means that she will have to borrow another $6000 to stay the rest of the academic year. What do you normally do, I asked? "I work - 30 hours a week." As a full-time student.

Citibank has $309 billion in toxic assets. It gave the govt $27 billion in preferred stock. That is around the maximum amount it can lose on its toxic assets ($29 billion). The government insures the rest, meaning it is exposed for 90% of the losses. The gov gets dividend payments - but no control of Citibank assets or decisions.

So here's how it works. Make up a bunch of assets and sell them to people desperate for higher returns. Earn 20% plus each year in an economy that grows at 1/10th the pace, while 80% of wages don't grow at all. Pay your top people tens of millions a year. Militate the entire time in a weird, tireless way against worker and environmental protections, wage increases, pension funds, unemployment insurance, and government programs. Predict rising prices forever. When suddenly prices fall, and you turn out to be wrong in fact, wrong in theory, and the BIGGEST LOSER OF ALL TIME - go collect $309 billion from the government. Give them $29 bil in exchange in "stock" - i.e your own special printed money. No strings. no apologies. No agreement to pay actual taxes. no ownership, compensation, nothing. Just a bunch of comments about how the future of civlization depends on you getting free government handout money.

I wish I could give my student $309 for her rent in Lyon - 309 billion I mean.

Why say it myself when others have said it for me?

Essential reading: great roundtable on Democracy Now - Bob Kuttner, Michael Hudson, and Naomi Klein.

Bloomburg: the tab is already $7.7 trillion. With no bailout for things like pension funds.

That was the weekend. Today was another day, and another $800 billion bailout - 600 bil more for Fannie and Freddie.

I'm sleeping up under the roof in a hotel in Grenoble. There isn't a sound. I wish it would snow.

Defeating Trickle Down Democrats

OK so we have Larry Summers in the White House itself rather than down the street at Treasury. He's going to head Obama's Council of Economic Advisors. I'm not relieved.

Later on I will say more about Summers' recent ideas. But what has to be said now is historical: he was a central player in the Clinton administration, and the Clinton administration presided over the continuation and the acceleration of the economic inequality boom in the United States. It was amazing that Clinton economists like Summers either didn't know or didn't care that wages were absolutely flat for 60-80% of the population while income for the top 1% and top 0.1% doubled or tripled.

Actually, I think the story's worse than that. The Clinton economists did care that inequality was increasing, and they liked it. They agreed with the Reaganomic view that capital belonged in the hands of the rich because they invested and spent more effectively. The Clinton economists made no obvious effort to increase wages or regulate banks and non-bank investors. They are the people that wound up the mechanical bankers and let them decide who to give our money too and then eat the rest of it.

Summers will make sure that investor interests are everlastingly at the table when the government funding cards are being dealt. He may help them to get two or three cards while everyone else gets one. The Wall Street Journal announced Summers' appointment in the same piece that suggested that Obama's plan to raise income taxes a little on the $250,000 plus bracket was going to be delayed to 2011.

So what would be better than Son of Clinton & Summers?

1. big big bailout - for society. Social reinvestment on a giant scale. More confirmation that size matters from Bob Kuttner.
2. quarantining and disinvesting from speculative finance based on the social value of what it investment supports. Nomi Prins reminds us that backing "consumer-oriented banks" was one of the good parts of the New Deal.
3. getting investment capital into the streets. Do this by directing capital to local governments, municipalities, and states that propose specific projects of social development and mass benefit.
4. find these funds both through taxpayer-funded government debt, and through a "capital recovery" project that taxes past windfall profits in the financial sector. This would be a version of the "negative bonus" some banks imposed on employees who got huge bonuses in one year by staking out unstable positions that would lose money in the following year.

The Clintonians are heading towards 1. They won't go for 2-4 -- without a lot of help from us.

Keep Your Head, Write Some Theory

This was not a good week for Planet Economy.

The Financial Times reports that mass layoffs came to 80,000 in just five days.

In the same paper, financial editor Martin Wolf summarizes the bad bad bad financial indicators.

This week, Citigroup lost half its market value.

After Thursday's massive plunge, Wall Street greeted the appointment of New York Fed chair Tim Geithner as Obama's Treasury Secretary with a festive one-day increase of about 6.5%. Is it because the Markets were as worried about Larry Summers as I was? There was some certainty-effect - the news was finally in. Geithner is what we could call smart-orthodox. He came up under Summers in Treasury in the late 1980s, has lived abroad and seen other systems, has criticized aspects of the paradigm without breaking with it.

For example, FT reports

In speeches going as far back as 2004, Mr Geithner praised innovations in finance such as securitisation and globalisation. But at the same time he warned that these developments, while reducing the probability of a crisis, could exaggerate the downside if one ever did occur.

Plus, "Within the Fed, Mr Geithner has a reputation as a fiercely competitive sportsman." So they don't really know anything. I would say he's like Obama himself: an ecumenical insider - an insider with the ability to see what the outsider thinks, without actually responding to it.

The markets continued to refute the existence of "market rationality." Or more accurately, the markets revealed the panicky followership that has always been the real meaning of "market rationality." Leaving aside the Buffet-exceptions, investors imitate other investors, going up or going down. The reason is simple: the "market" controls the value of their position. If they don't follow it, they lose out (going up), or lose (going down). The master gesture here is imitation. Look at the volatility boom in the chart below (from Yahoo Finance). Increased risk has made the logic of the market more dramatic - but the mass of the markets always simply followed the trend - wherever it led.


I have never experienced that apparently widespread gut feeling that markets are the most effective way to allocate resources. The markets are a complicated network of financial institutions that broker and mediate all individual contact with them. These institutions, like all brokers, take a piece of the action. Commissions in high-end investment banking were famously huge - one standard was 2% of assets under management as an automatic fee, and 20% of profits. In 2007, the financial sector produced 40% of all the profits of that advanced industrialized country known as the United States. Often capital got moved into exciting new things that needed it. But the price of this capital was much higher than we think.

We cannot assume money wouldn't have gone to those things under a leaner and more democratic system, in which public policy debates shaped resource allocation, as they may do with Obama's infrastructure plan.

Deregulated markets have been a good way for the best - the best-connected? - brokers to get very rich. After 1980 they were a good way for the middle classes to feel in this money. It's a seductive feeling. Small investors grew their money through a variety of brokered instruments in a 20-year bull market - a bull created in large part by the mass obligation to stay in the action, not so much to buy and hold but to buy and sell. The bull also arose from the action - and the expectation of action - that spread from Wall Street to Main Street as companies converted pensions into personal investment funds. The bull continued with massive leveraging - buying assets with borrowed ones, sometimes in a 30:1 ratio of borrowed to owned, or even more. This ran the price up on most things. It created the mass expectation that the price could go up on anything. Leveraging, cheap and easy credit, high fees, new money from the market's munchkins - all this was enabled by rising prices, which enabled prices to rise even more.

I was always impressed by the absence of critiques of rising housing prices. Huge portions of the population were shut out from home ownership - or forcibly relocated from more to less desirable areas by cost. Not that I don't like Las Vegas, but why do half of my African American students at the University of California, who grew up in places like San Francisco or San Pedro, now have to go to Vegas to visit their parents. But the critique was stifled by the combination of sprawl development - low-cost outland development - and almost-free credit, deliberately cheapened by Fed Chairman Alan Greenspan.

The critique should have been part of the pricing of housing, credit, and stocks. Some kind of social discourse should have been in the mix. One way of putting the problem is that the theory that markets are both free and self-regulating was factually wrong - as Greenspan himself now admits.

We aren't close yet to understanding the mass psychology of markets - or the more basic fact that markets are mass psychology. When we do, the Age of Markets will indeed be over.

The Death Trip Continues

The Marshall Plan that rebuilt Europe cost $115 billion in today's dollars.

The New Deal cost $500 billion, and it rebuilt the United States - actually built the place for the first time in its country-ass, lonesome-mile, wagon-train across the burning prairie history.

The War in Iraq cost about $600 billion in these terms - or $3 trillion according to Joseph Stiglitz.

See the great slideshow at CNBC. Then shed a few tears.

The Great Bank Bailout - 4 trillion dollars. Cry yourself a river. Then get pissed and do something for a change.

Today in Place Bellecour here in Lyon the cops didn't police a big protest - they led it. They dressed up a mannequin in a Police Nationale uniform and full headgear and hung it by the neck from a giant crane. The strangulation of public services by a blind unseeing grasping state shovelling money to the top of the ladder - or some such symbolism. Their speaker said "the great eye of Mordor sees all, and means evil to us." Well actually, he said, "reductions, limitations, privatizations, destructions of public services, we accept none of this, and we will fight it.

Meanwhile, Sun Microsystems laid off about 6000 people, bringing the number of layoffs in the tech sector to nearly 60,000 in the last 2 1/2 months. Startups - the "jobs of the future" - are cutting deeper. The auto industry, which still accounts for about 2.5% of the US economy, has laid off 100,000 people since January. And fricking Citigroup is laying off 50,000 in one swoop.

This is of course the middle-class past present future, getting whacked. Where's the peep?

Bailout leader Henry Paulson objected to the idea that bank bailout money be used to help ease home foreclosures. This prompted Rep. Barney Frank to say "The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said."

Naomi Klein has been doing a great job of explaining how the crisis is being used as "shock therapy" to force changes that before would have been unacceptable. I was struck yesterday by how she clearly feels the window on reform is closing, and that the crisis caused by the wealth-making practices of banks is being used to make even more money for the same banks.

The process is staying crooked, as Klein pointed out:

really what [Washington is] saying is, we can’t afford to enforce the law, because there is an economic crisis, that somehow, because there’s an economic [crisis], legality is a luxury that Congress can’t afford. That is a very scary statement. But this . . . bear market, has the temperament of an ill-tempered two-year-old. I mean, it throws temper tantrums whenever it doesn’t get what it wants, whenever it is frightened.

That's pretty much how it will be run until the loyal henchmen derail it.

Gates Foundation Puts New Focus on College Completion

By BEN GOSE

Wednesday, November 12, 2008

Seattle

The Bill & Melinda Gates Foundation plans to spend several hundred million dollars over the next five years to double the number of low-income young people who complete a college degree or a certificate program by age 26, foundation officials told an exclusive group of education leaders who gathered here on Tuesday to provide feedback on the ambitious plan.

If successful, the new postsecondary program would result in an additional 250,000 people per year with some type of higher-education credential. And it broadens the foundation's already-generous spending on education, which previously has focused on secondary schools and college scholarships. Over all, the foundation plans to spend $3-billion on education during the next five years.

The foundation announced its new campaign at a conference attended by about 100 people, including current and former governors, prominent business executives and school superintendents, and Education Secretary Margaret Spellings.

The new effort will initially focus on community colleges because of their relatively low tuitions and open admissions policies. Foundation officials said they would consider expanding innovative approaches to improve college-completion rates, such as using technology to allow a student to move quickly through remedial work, and forgiving a portion of debt each year for students who stay in college and are making progress toward a degree.

In a speech on Tuesday, Melinda Gates, a co-chair of the foundation, pointed to data from the federal Bureau of Labor Statistics showing that more than half of all new jobs in the United States will require more than a high-school diploma. Only about 20 percent of low-income black and Hispanic students earn any sort of postsecondary credential.

“Completing high school ready for college is a key transition point in the path out of poverty,” Ms. Gates said. “A second transition is earning a postsecondary credential with value in the workplace. If young people fail to make the first transition, it’s unlikely they will make the second. If they fail to make the second, it’s likely they will be poor.”

Hilary Pennington, the Gates official who is leading the effort, said the foundation would announce a small initial round of grants next month, and that within a year, it would select eight to 10 states in which it will focus its work for the next three to five years. Grants will probably go to networks of institutions and organizations, rather than to individual colleges, she said.

Regret at Being Left Out

The foundation took some risk by presenting its general ideas to a high-profile audience before announcing even a single grant. Ms. Gates asked for “candid feedback” during sessions moderated by the journalist Juan Williams, and the foundation received plenty.

Some conference attendees wondered why the foundation—which has by its own admission achieved mixed results in its eight years of trying to improve high-school education—wasn’t spending more on elementary and middle-school education, rather than college completion.

“We made a choice,” said Bill Gates, a co-chair of the foundation and a co-founder of Microsoft. He said the foundation was motivated in part by new approaches that are helping students make it through certificate programs and community colleges.

University officials who attended, including Charles B. Reed, chancellor of the California State University system, urged the foundation to broaden its initial focus to include four-year institutions. And representatives of for-profit institutions grumbled that the foundation’s age cutoff—26—would exclude the many proprietary institutions that focus on adult learners.

The foundation has hired Thomas J. Kane, a professor of economics and education at Harvard University, to oversee an initial research effort. Vicki L. Phillips, the foundation’s director of education, said it would spend $500-million over the next five years on data and research related to college preparation and completion.

The Gates Foundation, which gives away $3.5-billion a year, far more than any other American foundation, is already an important force in education. It has spent $4-billion over the past seven years on efforts to improve high schools and on scholarships for low-income minority students (The Chronicle, August 8, 2006).

'Big and Bold' Endeavor

But the new postsecondary effort was touted by foundation officials as the modern equivalent of the GI Bill, which helped millions of returning soldiers attend college.

“We must be as big and bold as we were at the end of World War II,” Ms. Pennington said. “And we must do everything we can to make certain that postsecondary education is not just about access but success.”

Gates Foundation officials said they would work in partnership with other foundations, especially the Lumina Foundation for Education, which focuses on expanding access to postsecondary education, and they would look to expand successful programs that have already been created by colleges or industry.

They will also support efforts to use technology more effectively. In a speech on Tuesday afternoon, Ms. Pennington cited Rio Salado College, in Arizona, which has a rich online course catalog that is complemented by online tutoring and support services, and a graduation rate that, at 60 percent, is double the national average.

The conference focused on both college readiness and college completion, and the majority of the discussion focused on how to improve high schools so that students could succeed in college. Attendees included Joel I. Klein and Michelle Rhee, the school chancellors in New York and the District of Columbia, respectively, and politicians who have worked to improve education, like former North Carolina Gov. James B. Hunt Jr. Pennsylvania Gov. Edward G. Rendell participated by teleconference.

The foundation’s first efforts in education focused on creating smaller high schools, but Bill Gates said the foundation would now put more emphasis on improving teaching through new standards, curricula, and instructional tools.

“It’s clear that you can’t dramatically increase college readiness by changing only the size and structure of a school,” he said. “The schools that made dramatic gains in achievement did the changes in design and also emphasized changes inside the classroom.”

Through the postsecondary effort, the foundation is bringing its resources to bear on a problem that states and colleges have been grappling with for more than a decade, with little to show for it. Twenty years ago, the United States ranked first in the world in the percentage of adults between the ages of 25 and 34 who held a postsecondary credential. It has now fallen to 10th place, according to the Organisation for Economic Cooperation and Development.

The country’s financial crisis may aid the Gates Foundation as it tries to persuade states, school districts, and colleges to embrace structural changes and experimental approaches. The federal government and many states won’t have the money to lead a reform effort, noted Arthur Levine, president of the Woodrow Wilson National Fellowship Foundation, and a former president of Teachers College at Columbia University.

“That means the Gates Foundation could become the most powerful force in American education in the years to come,” he said.

http://chronicle.com/daily/2008/11/7251n.htm