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.