Class Seismic Shift in 2008 Election?

Ruy Teixeira says so in an interesting interview in 538. I don't buy the title claim for reasons I'll explain later, but there are interesting statistical trends:

• Obama won not because white working class voters shifted towards him, but because the electorate shifted away from white working class voters (towards the college-educated middle class and people of color).
• younger white working class voters ("Millennials," born in 1978 and after) did vote for Obama, as did their entire cohort by a huge margin of 2:1. So "help is on the way," if you care about the dumbness of white people.
• the "country party" of rural America is as hard core conservative as ever.
  

Nothing about Teixeira's kind of analysis, with its "creative class" biases, will change that. These analyses have an alienating feedback effect that I wish demographers could actually take into account.

Costs of the Current Stuckness

The New York Times notes with surprise the end of the time "when a company reporting a few billion in earnings could count its money while basking in polite, reverent applause." It announces "a widespread sense that winners in this economy are produced by a game that’s rigged."

If these companies can return to the festivities so quickly, were they really having the near-death experience they and the government claimed? And if taxpayers risked their money when they backstopped Wall Street’s misadventures, why aren’t they sharing in the upside now that the party has started again?

The best explanation of where GS got its new money is Matt Taibbi's spectacularly clear explication on Democracy Now, a summary of his "Inside the Great American Bubble Machine." My Capitalist Pals aren't happy either. One discovered a new kinship with Central Los Angeles Democrat Maxine Waters in agreeing that Collatoralized Debt Obligations should be outlawed (for five years). He goes on to note that

U.S. taxpayers are going to be called on to subsidize the very banks that got us into this mess – just so these institutions can continue to carry on as if it was still 2007 – then another expensive and damaging financial crash is almost certainly in the making.

There's also a good critique in this piece of CDOs' very existence. The basic point is that CDO holders have a structural interest in sinking companies and gaming markets. In other words, they push against constructive economic activity, and add nothing to it. It's amazing that while the US's industrial capacity is melting away, and crucial technologies like solar photovoltaics are starved for capital, the banks can carry on producing little more than massive economic inequality. In the case of Goldman's bonuses, they come to $700,000 per employee, or 14 times the average US household income.

Jon Stewart offered his less technical critique of Goldman Sachs, from which the graphic is taken. The point is simple: "I guess the bailouts are working . . for Goldman Sachs!"

How do we know rich bankers mean a worse society? There are lots of studies of inequality and how and why it has gotten worse over the past twenty years of financialization. But the evidence I've been experiencing is the meltdown of higher education in California. Here's one link, again made by Amy Goodman at Democracy Now:

While Goldman Sachs is making billions, the state of public higher education in California is in a state of crisis. The University of California Board of Regents is preparing to meet this week to discuss plans to implement widespread budget cuts after the state cut about 20 percent of its support for the university system, amounting to a $813 million deficit. On Friday, University of California President Mark Yudof proposed system-wide employee furloughs for most faculty and staff. Under the plan, workers would be forced to take as many as twenty-six unpaid days off or the equivalent of a ten percent salary reduction. Yudof has also proposed deferred hiring and cuts in academic programs. University of California, Davis, has already shut down its liver transplant program, and UC Santa Cruz has axed some science and music classes.

In the US we assume we could never turn into Russia, and that California will never be Mississippi or Brazil. But in fact our educational stats are Mississippian, or bond rating is worse than Mississippi, and our governments are still run by people who think markets make better decisions than governments except in some special cases. More to the point, Russia's social fabric was destroyed by deliberate shock therapy, and California's governer is administering the same shock treatment to California today, while Goldman Sachs and banking policy in general floats self-contentedly above the mess they have helped to make.

Banking or Universities?

Bloomberg reports that the defunct bank Lehman Bros paid its bankruptcy advisers - a restructuring advisor, a big law firm, a few others - $262 million over the past nine months. And this is a bank in bankruptcy.

To be tendentious - what else could we have bought for $262 million? A buyout of the 8% paycut for the entire workforce of the University of California's 10 campuses, and $70 million left over to patch all the other holes.

Global Grotesque Inequality

See five thirty eight.com's perverse but illuminating exercise in how much of the world and its population fits into only 5% of world GDP.

Monopoly Dependencies

When you're not pondering the death of state budgets, which I've been blogging in relation to the university, read "Michael Jackson to be Buried Without His Brain." And the LAT's Steve Lopez on the MJ memorial service.

Read about the Gulf of Mexico "dead zone" that is predicted to grow and grow.

Then read Dean Baker's latest call for a NEW stimulus to save the sagging states, among other things. Same goes for Robert Kuttner.

My ongoing concern is that the U.S. doesn't know how to make money in the open markets its leaders say they love. Its big industries need lock-ins and other kinds of monopolies in which they make piles of cash by abusing market share. Maybe that's the way US capitalism always was - as marxian theory has of course always suggested. I was reminded of this reading a USA Today report on AT&T's iPhone lock-ins - a nice illustration of Karl's concerns.

And in case you think Michael Jackson defines craziness, read Stiglitz and Blimes on the various price tags on US war policy, which carries on.

Markets Are Killing Us

Noam Chomsky did more of the backstory than he usually does in a Riverside Church lecture that Amy Goodman played on July 3rd. What's nice here is his emphasis on how much better things would be if the broad public were actually in charge of economic and social decisions, in contrast to the narrow elites who are still piling their plates unimaginably high as the crisis deepens.

I've been sparing you my recent reading about Roman history, but I'll just note one pattern in the midst of the decline-and-decay analogies with a lumbering dumbbell US elite that is currently demanding that its new president serve himself with his very own Bush and LBJ-like quagmire - "AfPak" - and bailout out the biggest banking screw-ups in world history, letting them keep all their companies and money and rules and therefore insuring they will do it again as soon as possible. Rome: things would go badly with the barbarians on the margins - for decades at a time. Someone from these borderlands would rise in the imperial system and figure out how to replace war with negotiation, trade, assimilation, population flows of various kinds -a whole bunch of unorthodox things that worked. They would succeed enormously. Stilicho, for example, "was himself from a barbarian family," and mixed "negotiation and strategy" with the Visigoths to keep things relatively peaceful (no big reformer here, just a lot of military non-dumbness)- until the junior emperor Honorius had him killed in 408.

Obama may still turn out to be Honorius, appointing diehard attack dogs in the Afghan theater (I can't believe I'm writing these words and it's not 1855). Chomsky started by establishing the sheer irrationality of established leadership's commonsense, quoting the Bagladeshi "New Nation" noting,

It’s very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN’s Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but to a lack of true concern for the world’s poor.

Chomsky then went on to describe two undemocratic pillars of the American system: the "aristocratic" Constitution, deliberately established to limit popular democracy, and idealized markets, citing Adam Smith on the way that markets serve the interests of those who control them, rather than the general progress of society. I would note how enormous the tension between social development and market signals actually are, with citations from economic history, but am distracted by the thought of how our economic debates are still shaped by quotations from 18th century philosophers. There is something medieval here about the suspension of mental time.

Chomsky pointed it out though, with a searing description of the case of Haiti, where poverty is directly tied to the US-assisted destruction of popular democracy, and then a historical passage on Bretton Woods that makes the direct link between financialization and social decline:

In substantial measure, the food crisis plaguing much of the South and the financial crisis of the North have common roots, namely the shift towards neoliberalism since the 1970s. That brought to an end the postwar, post-Second World War, Bretton Woods system that was instituted by the United States and Britain right after World War II. It had two architects: John Maynard Keynes of Britain and Harry Dexter White in the United States. And they anticipated that its core principles, which included capital controls and regulated currencies—they anticipated that these principles would lead to relatively balanced economic growth and would also free governments to institute the social democratic programs, welfare state programs, that had enormous public support around the world.

And to a large extent, they were vindicated on both counts. In fact, many economists call the years that followed, until the 1970s, the “Golden Age of Capitalism.” That Golden Age led not only to unprecedented and relatively egalitarian growth, but also the introduction of welfare state measures. Keynes and White were perfectly well aware that free capital movement and speculation inhibit these options. Professional economics literature points out what should be obvious, that the free flow of capital creates what is sometimes called a “virtual senate” of lenders and investors who carry out a moment-by-moment referendum on government policies, and if they find that they’re irrational, meaning they help people instead of profits, then they vote against them, by capital flight, by tax on the country, and so on. So the democratic governments have a dual constituency, their own population and the virtual senate, who typically prevail. And for the poor, that means regular disaster.

In fact, one of the differences—one of the reasons for the radical difference between Latin America and East Asia in the last half-century is that Latin America didn’t control capital flight.

Though there are obviously other differences, I don't know how Chomsky's argument can be countered. In the US, the advent of low-services and high capital mobility has coincided with three decades of stagnant wages for 80% of the public, increased poverty, degraded transportation, public health services, schools, universities, you name it - including easy mass layoffs in any industry, chasing of tax deals from one state to the next, and one country to the next, inducing a situation where now American industry can't afford Mexican wages, so it goes to China, which is getting so expensive!, so on to Vietnam.

Another example are trains, which are amazing in Europe and grossly reduce Europe's carbon footprint per euro produced. Chomsky offered a homely example:

Let me just add a personal note on that. I came down here this afternoon by the Acela, you know, the jewel in the crown of new high-speed railroad technology. The first time I came from Boston to New York was sixty years ago. And there was improvement since then: it was five minutes faster today than it was sixty years ago.

The climate crisis is being made worse by the underfunding of public systems in the US for the past 30-40 years. Car-based sprawl didn't slow down after 1980 in places like inland Southern California and North Carolina - it accelerated. How are we supposed to back of an expensive infrastructure that is locked into the mid-20th century and is both brand-new and out of date?

In a popular democracy the answer would be obvious, and Chomsky provides it:

Spain and other European countries are hoping to get US taxpayer funding for high-speed rail and related infrastructure. And at the very same time, Washington is busy dismantling leading sectors of US industry, ruining the lives of workers and communities who could easily do it themselves. It’s pretty hard to conjure up a more damning indictment of the economic system that’s been constructed by state-corporate managers. Surely, the auto industry could be reconstructed to produce what the country needs using its highly skilled workforce. But that’s not even on the agenda. It’s not even being discussed. Rather, we’ll go to Spain, and we’ll give them taxpayer money for them to do it, while we destroy the capacity to do it here.

so we have from Chomsky:
1. narrow elite self-interest underdevelops - even destroys- societies
2. "global managers" will let this financial crisis damage societies rather than themselves - as they are doing in various countries, but also to their own people in the U.S.
3. multiple crises are intensifying each other - climate, hunger, poverty, Western economies, finance
4. popular democracy and mass innovation is our only hope.

The U.S. was supposed to be the great democratic model that could use the powers of the multitude to transcend crises and leap ahead. At the moment it's looking more like latter-day Rome.

***

For the conservative confirmation of market failure, see this FT piece by one of my Euro-Capitalist Pals, Wolfgang Münchau. Here's how it's looking to him:

The European Central Bank has recently pumped €442bn ($620bn, £380bn) in one-year liquidity into the system, but the money is not reaching the real economy. Japanese-style stagnation is no longer possible – it is already here. The only question is how long it will last. Even in an optimistic scenario, global economic growth will be weighed down by a combination of credit squeeze, rising unemployment, rising bankruptcies, rising default rates, and balance sheet adjustment in the household and financial sectors.

I would expect the US to have something approaching a genuine recovery at some point in the next decade, but probably not in 2010 or 2011.

Have I mentioned Herbert Hoover enough? Muchaü seems him in his nightly dreams.

Muchaü doesn't blame banks, but blames the lack of creditworthiness of their formerly excellent customers, who no longer deserve loans. It would be more accurate to blame markets, which overshoot, move like sheep, and couldn't care less about systemic needs, social or economic.

This also comes back to the banks, since markets are structured by policies that are at the moment utterly dominated by the financial needs & desires of big banks - by the desire not to be nationalized and run by Pitchfork Bob and Surgical Nurse Jane, though these two with their broader visions could do a much better job.

Could Finance Pay a Tiny Tax, or is that too much to ask?

Let us ponder the mystery: the world of finance liquidated trillions of dollars and damaged the lives of hundreds of millions, and yet it has received only

• bailouts - with public money
• political deference - from Obama and the rest of Washington
• one famous conviction of someone who did terrible damage - Bernie Madoff - but with no address of root causes
  
• NO TAXATION whatsoever.

Not bad for the biggest bunch of colossal screw-ups in history.

One core problem was the fantasy of self-regulation - the fiction that not only were markets self-correcting (re Alan Greenspan's shocked awakening), but that their multiple and especially biggest players were actually better at regulating themselves than any outside party could possibly be. We should remember, as prominent investor Robert Altman reminded us not long ago, the goal of leading investors is not to regulate themselves effectively but to set it up so it's "heads I win, tails you lose."

I'm struck by how time has stood still since I wrote "Bore Me With Some Accounting" six months ago.

In a few hundred words, Dean Baker explains all: "Banks Own the US Government." And you thought after $13.6 trillion of public outlays and guarantees, it would be the other way around.

In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.

The way efficiency comes in way down the list of immediate needs is an interesting feature of our capitalist system that I will ponder some other time.

Baker's main point though is that someone in Washington has actually proposed a tax on our wealthy screw-up friends in finance.

I pay 9.3% California income tax and 33% or something federal, and with social security I'm up around 50% of my income gone in taxes, even though I'm not paying it in France and I don't get much non-military for my money - no national health care, no bullet trains, no local good public transit so I can dump my cars, etc. The proposed tax is 0.02% per transaction. Baker calls it a tax on gambling, and it cut a bit into some of the most absurd arbitrage - making money on minute spreads on large volumes.

Baker points out the political opposition De Fazio the sponsor will face. But his equally important point is about knowledge problem.

The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.

Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.

We don't know much, our dumbness makes us passive, and the passivity leads to easy wins for finance and to bad decisions for the economy overall.