Middle-Class Death Trips

Greco-America

2012-02-11T18:01:00.000-08:00

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

**** Davis follows:

Let's shift gears for a moment and discuss how the Greek crisis CAN KILL YOU! That's right, even as we speak those "necessary" austerity measures that cut back medical care in Greece and caused a crisis in their pharmacies, making medicine unavailable to millionshas already spawned a pneumonia-causing superbug that most existing antibiotics can't stop. According to Bloomberg:

Let's shift gears for a moment and discuss how the Greek crisis CAN KILL YOU! That's

The culprit is spreading through health centers already weighed down by a shortage of nurses. The hospital-acquired germ killed as many as half of people with blood cancers infected at Laiko General Hospital, a 500-bed facility in central Athens.
"We're not used to seeing people die of an untreatable infection," said John Rex, vice president for clinical infection at London-based AstraZeneca, which is developing a new generation of antibiotics. "That's like something in a novel of 200 years ago."
"We know what to do, but if you don't have the personnel, you can't do it," Daikos said in an interview in his office, deep in a side wing of the sprawling hospital. "If you don't have enough nurses, how can I assign a dedicated nurse to carriers?"

Welcome to the Republican dream of independent health care without government aid. I'm sure my conservative readers aren't worried even though Greece remains a major tourist hub and many of them are flying on planes that may have been in Greece the day before but what happens when this is the news out of Detroit or Miami? Will you still not care? What happens when depriving the poor of adequate healthcare means your maid shows up for work with a very nasty-sounding cough or you see you waiter wipe his nose - will you care then?

Just like crime, which is relatively under control these days, the top 10% tend to forget how bad things can get when you let that social safety net collapse. For good or bad, we are one big global family now and what happens in one country absolutely affects another and Greece is just a preview of what will happen under the crushing austerity programs that are being demanded by the ECB, the IMF and the GOP.

We are just a 10% cut in Social Security away from creating millions of more underwater mortgages as food costs, energy costs and local taxes are impacting the ability of senior citizens to continue paying their mortgages with fixed incomes. Out of 4.5M homes in Florida with outstanding mortgage loans, 2M (44%) are already underwater.

"People have no safety net. They get ill, a spouse dies, they lose their jobs and they have no support. All of these things can lead to foreclosure," said Carolina Lombardi, a senior lawyer with Legal Service of Greater Miami. "We are seeing all kinds of people, middle earners who are now on food stamps."
David Chandler Hicks, of Alliance Legal Group, which operates all over the state, has many clients who are 65 or older but who have been forced to come out of retirement because "they are about to go broke."

How Subsidized Capitalism Hurts Innovation

2012-01-08T22:15:00.000-08:00

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

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

The New York Times has a good example of the problem. Caterpillar is spending $426 million building a new factory in North Carolina. It has gotten the state to pay $51 million in various incentives, including $9.4 million in direct costs to train future Caterpillar workers. Since most of the training is being done by a local college called Forsyth Tech, the state is footing other costs as well.

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

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

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

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

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

Universities are central to an innovation ecosystem, and constantly cutting their budgets weakens the ecosystem as a whole. But interestingly, cuts ironically drive up the cost of new jobs rather than lowering them (usually defined as lower taxes). A weaker innovation ecosystem can destroy a new industry before it gets started. Grove's example is lithium-ion batteries for the next generation of electric cars and trucks.

The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.

Subsidized capitalism conceals the real problem, which is the weakening of the overall social environment in which innovation and sustainability take place. It has been weakened by social underinvestment. Grove calls explicitly for jobs policy -- for "jobs-centric" leadership.

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

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

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

Democracy vs. Finance Capitalism: Greece and Solar

2011-11-02T10:43:00.000-07:00

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

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

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

We hear a lot about financial innovation, but finance is now of no obvious help to innovation in general. The most important kind involves environmentally sustainable development, and solar energy is a perfect example of a mature technology whose rate of installation needs to increase by an order of magnitude in the next decade if we are going to avoid the International Energy Agency's prediction that current policy leads to 650 ppm of CO2 by mid-century.

Lehman Bros had a decent renewables portfolio before it collapsed in the fall of 2008 and precipitated the debacle from which our governments have not rescued us. But the margins required by commercial banks are very high. Second and third generation solar technology is coming along fairly slowly, attracts very little venture capital, and depends on government support for both research and development that has been discredited in many political circles by the bankruptcy of one of the Department of Energy's pet loan recipients, Solyndra. Meanwhile, China has tripled or quadrupled its market share in California and even in Germany, which still has one of the strongest solar industries in the world. Investors have been staying away from solar, and this is going to continue as prices fall and existing technology is commoditized by volume players from Asia.

China exploits labor on a mass scale, and this, along with currency manipulation and related strategies greatly assists its power in a range of markets. But American policymakers aren't thinking through the extent to which China's near-takeover of a socially-vital high-tech sector - silicon-based solar photovoltaic modules -- shows our innovation system to be obsolete. Venture capital is not so good at socially-useful technology development and great at generating large fortunes off of huge consumer markets in technologies like computer software that had been under development for decades before the big fortunes were made. Leading VC guru John Doerr declared war on climate change in 2007. In the four years since, Silicon Valley has lost any hope of leadership in PV solar, where its deep experience with silicon wafers might have been thought to give it a natural advantage.

In order to preserve both its working/middle class and something close to current global temperatures, the US needs to change its innovation system. The Greek referendum offers an important hint.

Wall Street Dissidents Backstop the Occupation

2011-10-12T22:44:00.000-07:00

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

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

The Angry Keynesians. Paul Krugman is Exhibit A, a 1990s liberal free-trader where strong state intervention was the exception more than the rule, but who opposed the Bush tax cuts and for the ten years since has railed tirelessly about every replay of deregulatory trickle-down business-led plutonomics. He summarized the Bush Years as "The Big Zero," denounces "The Austerity Delusion," "The Urge to Purge," "Cockroach Ideas," among many others. The "Economic Bleeding Cure" is a classic of this genre.

Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. And economic bloodletting isn’t just inflicting vast pain; it’s starting to undermine our long-run growth prospects.

Keynesians care about the development of society, and are confused and enraged by the casual blowing off of these concerns by policymakers in the US and the EU alike. "Well, this is a miserable step in the wrong direction" says Jeffrey Sachs, starting a denunciation of both parties in the US. "From a self-preservation angle, this is lunacy," notes David Dayen.

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

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

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

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

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

Good job Congress!

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

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

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

Congressman Ryan Paul . . . points out: "Whose money is this after all?" It’s not your money that your family is going $7,800 further into debt to protect – it’s THEIR money. THEY earned it and THEY are darned well going to keep it. "Hey," you might say, "I work for THEM – didn’t I make that money and isn’t this OUR country that’s in debt and needs responsible fiscal policy?" Well, that’s just Commie talk and you’d better watch yourself – we’ve already sent your name of to HomeSec so consider yourself on notice…

The Proles in this country are dumb enough but what amazes me is the people who support the tax cuts thinking you are "one of THEM" when "they" look at you the same way you step over a homeless man in the streets. $858Bn is the NATIONAL Debt that we are taking on to fund these cuts. The cuts work out to about 0.75% of your income and your family share of the additional debt burden is $7,800 so, unless you are making AT LEAST $1M PER YEAR as a corporation or individual, this tax cut is a net loss for you. Once you clear that $1M hurdle, it’s all gravy flowing uphill to your plate! Even better if you are a "Corporate Citizen" – you have no real debt obligation to this nation because, like Haliburton and many, many others – you can simply move whenever you want – to avoid taxation AND prosecution!

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

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

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

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

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

To these guys, you and I are just foot soldiers and cannon fodder. Our jobs, homes, wealth, and health? Collateral damage.

Here its class war on Wall Street, not just between Wall Street and Main Street.

My final example is from the Wall Street Examiner, where Lee Adler states, "I Stand with the Protestors." It is a howl of rage that starts like this:

We as a society must stop pretending. Most of us think that we still have money in the bank to protect, so we go along with the game of extend and pretend. For some of us, the game has already ended. The rapacious zero interest rate policy that I call Bernankecide has already robbed millions of savers of their life savings. This is the reality that has yet to hit home for many Americans who are content to wallow in the status quo. Unfortunately, the longer it takes for them to wake up, the worse their, and our, fate will be.

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

Bernanke knows that, yet he continues to side with the criminal bankers in support of the financial genocide of the super elderly, and their children, the baby boomers who must increasingly support them.

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

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

Feeding the Financial Crisis

2011-09-29T12:24:00.000-07:00

The situation is easily summarized.

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

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

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

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

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

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

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

Thus banks continue to make grotesque fortunes on a scale condemned by all known religions and ethical traditions in the same pre-2007 way, through junk and leverage (pious Deutsche Bank has "assets" (positions) 35x equity), added to which for several years has been essentially zero-interest public money on which they can make an automatic spread, meaning even more free money. The banks' position seems to be that:

the government should buy everything forever, meaning unlimited bailouts at a moment's notice
but the financial sector should pay no tax for govermments
hundreds of millions of ordinary people should just lower their standard of living accordingly.

There are deep cultural questions lying behind what is obviously a disgusting ethical situation:

where did the banks get their sense of entitlement, particularly to salaries in the tens or hundreds of millions of dollars annually for individuals? Someone who gets mad at the idea of being taxed at more than 15% a year on $300 million, as Steven Schwarzman did, might be described as insane.
Why does it seem like the people protesting (e.g les "indignés" of Greece, Spain, Israel, Wall Street) are a tiny minority? Is it only media (non)coverage or bad coverage?
Relatedly, why is there no public or popular critique of the entire theory of economies and societies that underlay a banking system that had failed and had to be rescued?
It is said that (most) "people don't see any alternative," but WHY NOT? There are lots of ideas out there, and even more suffering and depression, so how long will the gelling take? Sure, the US Democrats and the French Socialists proposed nothing of any importance, but why are people waiting for them?

The "decline of the West" is being executed fro within and from the top. It's not a conspiracy, it's just how the system's logic is now working. Governments are protecting extraction at the expense of production. However, had I been Chairman Mao, believing that heightening the contradictions of capitalism would hasten the system's demise, I couldn't have done better than to gut manufacuturing while feeling finance. Were I to rewrite the Terminator series, I couldn't do better than to replace the military net that generates the Schwarzenegger character with the bots behind program trading (though the pros won't help me with the script).

The Pervasive Stupidity

2011-03-23T05:17:00.000-07:00

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

A large number of financial experts are beside themselves. There's Charles Johnson, former IMF official, professor of finance, co-author of 13 Bankers, in congressional testimony on TARP a couple of weeks ago:

the financial crisis produced a pattern of rapid economic decline and slow employment recovery quite unlike any post-war recession – it looks much more like a mini-depression of the kind the US economy used to experience in the 19th century. In addition, the fiscal costs of the disaster in our banking system so far amount to roughly a 40 percentage point increase in net federal government debt held by the private sector, i.e., roughly a doubling of outstanding debt.

Adjustments to our regulatory framework, including the Dodd-Frank financial reform legislation, have not fixed the core problems that brought us to bring of complete catastrophe in fall 2008. Powerful people at the heart of our financial system still have the incentive and ability to take on large amounts of reckless risk – through borrowing large amounts relative to their equity. When things go well, a few CEOs and a small number of others get huge upside.

When things go badly, society, ordinary citizens, and taxpayers get the downside. This is a classic recipe for financial instability. . . .

With assets ranging from around $800 billion to nearly $2.5 trillion, these bank holding companies are perceived by the market as “too big to fail,” meaning that they are implicitly backed by the full faith and credit of the US government. They can borrow more cheaply than their competitors and hence become larger.

In public statements, top executives in these very large banks discuss their plans for further global expansion – presumably increasing their assets further while continuing to be highly leveraged. . . .

Even more disappointing is the failure of the official sector to engage with its expert critics on the issue of capital requirements. This certainly conveys the impression that the regulatory capture of the past 30 years . . . continues today – and may even have become more entrenched.

There is an insularity and arrogance to policymakers around capital requirements that is distinctly reminiscent of the Treasury-Fed-Wall Street consensus regarding derivatives in the late 1990s – i.e., officials are so convinced by the arguments of big banks that they dismiss out of hand any attempt to even open a serious debate.

Next time, when our largest banks get into trouble, they may be beyond “too big to fail”. As seen recently in Ireland, banks that are very big relative to an economy can become “too big to save” – meaning that while senior creditors may still receive full protection (so far in the Irish case), the fiscal costs overwhelm the government and push it to the brink of default.

The fiscal damage to the United States in that scenario would be immense, including through the effect of much higher long term real interest rates. It remains to be seen if the dollar could continue to be the world’s major reserve currency under such circumstances. The loss to our prestige, national security, and ability to influence the world in any positive way would presumably be commensurate. . .

In 2007-08, our largest banks – with the structures they had lobbied for and built – brought us to the verge of disaster. TARP and other government actions helped avert the worst possible outcome, but only by providing unlimited and unconditional implicit guarantees to the core of our financial system. This can only lead to further instability in what the Bank of England refers to as a "doom loop”.

Then there's Yves Smith at Naked Capitalism, concluding a review of a piece on yet another bunch of hidden losses and sanctioned fraud with this:

I’ve said it repeatedly, but it seems I can never say it enough: the financial power that be have long ago ceased being in the business of anything remotely connected with reality. They honestly seem to believe if they can get enough people to believe their propaganda, reality will come to conform to it.

In my entryway, I have some Rockwell Kent prints, namely, his Apocalypse series, on display (yes, I’m sure readers will regard that as fitting). One, which didn’t strike me as particularly apocalyptic when I bought them, is called “Degravitation” and shows Wall Street people flying to the sky. Maybe I can sell copies to the Fed and Treasury as motivational pictures, since it does seem to depict the business they are really in.

These are financial professionals that are saying this. Which brings me to the Angry Trader himself, Phillip Davis, who starts his report yesterday with this:

Yes, the dollar CAN go even lower - now 75.53 as the Euro tests $1.425 and the Pound blasts off to $1.64. Amazingly the Yen is at 81.07 so apparently the BOJ is supporting the Pound and Euro while letting the Dollar die. Makes sense, our consumers don't have enough money left to buy Japanese goods anyway.

What does he mean? The American middle class is completely broke, has been robbed blind, and has no more money. Here is one of Davis's typical explanations from earlier in the year:

I will never forget my meeting at Treasury when I said (and I was joking) to Geithner "So, does the US still have a strong dollar policy?" and the Secretary of the Treasury laughed so hard he almost fell off his chair. We are not allowed to quote people directly so I’ll just leave Tim’s answer at the time (Aug 16th) as "no comment." The Rich (who control this country) do not want a strong dollar – only people who get paychecks in dollars want them to be strong, but the people handing them out in exchange for labor are perfectly happy if Treasury Notes are as worthless as toilet paper because they generally run their businesses with debt financing anyway and at no time do they have significant cash assets.

It’s very hard for workers to get their head around this concept. In grade school, we all laughed at the silly Indians who traded Manhattan Island for about $24 worth of beads and trinkets but, like US Dollars, they were plentiful and easy to get for the Dutch traders but very difficult to obtain for the Indians as the Bedazzler had still not been invented. Of course the Indians also had no concept of land ownership so the whole contract was a sham, but that’s an essay for another day. Getting back to US workers – they exchange their valuable labor for essentially worthless bits of paper that are relatively easy for their employers to obtain – as long as we have a weak dollar, of course.

What else do the top 1% want? They want commodity prices to rise. That may seem counter-intuitive as they should be input costs but, in practice, consumers are charged on a "mark-up" pricing system and companies make a percentage of profits on sales so, if input costs go up, they simply raise prices and rising prices mean rising profits as long as they avoid margin compression – that’s why "slightly" rising commodities are preferred as sharp rises can cause dislocations in pricing.

The top 1% don’t want GDP to grow too fast (although at their outsourced factories in China, they seem to do quite well with 10% growth) and they don’t want Unemployment to come down too quickly – otherwise the workers may get uppity and ask for higher wages! They want inflation but not too much and they want higher borrowing rates which again is based on the fact that they have easy access to money and they don’t want the bottom 99% (which includes smaller businesses) playing on a level field. So that sums up very nicely what will make the markets happy in 2011 – the question is – how likely are these things to happen?

Very likely, actually. Wisconsin protests notwithstanding, the middle-class isn't even in the game, is not part of the conversation about how to run its economy. That would make the markets unhappy in 2011. How likely is that to happen?

Shattered Pillars of the Middle Class

2011-02-26T10:32:00.000-08:00

Two and a half years into the biggest financial crisis since the Great Depression, we have gone backward instead of ahead. The pillars of the middle class aren't just crumbling. They're being eroded by systematic policy and failures to react.

Pillar 1 of the mass middle class was regular wage increases reflecting regular increases in labor productivity. Productvity has continued to increase, but wages have not.

The wealth produced by labor is not getting plowed back into the wages of labor. This was the core problem that Karl Marx addressed in his analysis of capital: exploitation consists of owners' taking the surplus-value produced by labor, or what we now call value-added, rather than splitting it fairly according to the actual contributions of capital and labor. This critique is more relevant than ever in advanced economies, given data like this.

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

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

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

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

Pillar 5 was the proverbial rule of law. The most powerful members of society don't need rules or justice to protect them, since they have power. In contrast, the middle class doesn't, and in the long run there is no middle class without accountability, due process, and equality before the law. These are the only mechanisms that keep the middle class from getting crushed. And yet, although the banking and mortgage industries destroyed trillions of dollars of wealth, much of it of ordinary investors, only one banker, Bernie Madoff, has gone to jail.

Sorry, that's not quite true. The UBS banker who blew the whistle on an international tax fraud conspiracy at UBS, Bradley Birkenfeld: He's in jail.

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

Krugman's False Options

2011-01-14T15:13:00.000-08:00

I am SO behind on this blog. the University version has taken over. As a down payment: Hunter Richards has a nice, digestible set of charts on the decline of what is sometimes called brain work in America...
on the decline of what is sometimes called brain work in America - and on the state of the labor market in general. They are worth going through one at a time.

They helped me think about what didn't like Krugman's Tale of Two Moralities column today. He describes the opposition to the Right's darwinism as this:

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

Mais non! A major project for progressives is fix Krugman's incorrect alternative to the Right: it's not that the left wants safety nets, it's that the current accounting for value creation is completely distorted, leading to misappropriation of income in the first place. Krugman's formulation guarantees that liberals / leftists will lose, since it grants the genesis claims of the Right and wants to weaken them. It also guarantees the great divide he laments, not because the two sides have incommensurable premises, but because they have the same premise. No conservative has a reason to think of the left as having an alternative philosophy of labor and value that would actually change the position of regular people in society. The alternative just seems like the "bleeding heart:" version of conservatives.

The year 2010 brought better alternatives for thinking about how to stabilize and grow the actual US workforce and I will get to these.

Kid Gloves for Banks: the Opposite of a Stimulus

2010-11-29T02:49:00.000-08:00

A central issue of the current financial period is whether the financial sector will manage to transfer all of its liabilities to the public sector and keep them there. Many people have tied this issue to the Ireland crisis. The Irish public sector is getting slashed not because it ran deficits before the crash, and then saw them become unsustainable, but because the Irish government became the guarantor of 100% of the liabilities of Irish banks. These liabilities far exceeded Irish gross domestic product, and they still do.

The Financial Times ran a good overview on November 17th about the growing isolation of Angela Merkel among European leaders on the debt question. Most commentary presents the German position as hostile austerity: force the Greek public to pay for their debt crimes with austerity and poverty for years to come. There's something to that - much of the German public seems to feel that they sacrificed themselves (with few if any wage increases and service cuts throughout the past ten years) while other countries like Greece did not. But in fact the current German government is also trying to force private investors to share some of the cost. This has been an enormous problem for Western societies, as the financial sector gets governments to pass on the cost of their mistakes to citizens, who pay several times over - actual money and guarantees, zero-cost access to funds for banks that prop restored profits, public service cuts, austerity-induced low growth, and reduced investment in innovation for the future.

Today's FT reports that "France and Germany agree [on a] mechanism for future crises."
The main feature of the proposed new system - dubbed the European Stabilisation Mechanism -- will be for future borrowing by eurozone members to include collective action clauses that would involve bondholders in any eventual debt restructuring.

This means that governments won't be able to bail out investors at 100 cents on the Euro simply because they have been bought or intimidated. Investors will have to share the downside with the public that had previously made nothing on the investments that brought the crisis on.

Or does it? There are two major caveats. First, it doesn't take effect until 2013. This is a deliberate "message to the markets," which always threaten to drive up interest rates in an attempt to lock in their desired hefty margins. This invites another three years of "moral hazard," in which investors can continue to take risks with other people's (tax) money. Nothing about investor behavior need change.

Second, the eventual mechanism is not automatic, but will have a first phase in which "a eurozone country with liquidity problems [including private sector liquidity problems] would be able to apply for emergency funding from the ESM subject to a tough fiscal adjustment programme -- as with Ireland or Greece -- without having to restructure its debts or agree a standstill" [sic]. So investors still get to see a country first crush its public sector as a way of rescuing their own lucrative but risky investments. Only in a second stage might investors be asked to share some of the losses their behavior induced.

Even at this stage in the crisis, governments are still letting economies sink under the transfer of private into public losses, which has induced austerity measures to cut now-public debt. Germany got half a loaf, but the other half is austerity-induced decline.

Wall Street Off-World

2010-10-27T01:49:00.000-07:00

A piece by one of my Capitalist Pals denounces High Frequency Trading as a form of insider trading, and calls for the government to "tax the hell out of it." In addition to offering the pleasure of seeing a former investment banker going well beyond the Tobin Tax into HFT profit confiscation, this short piece offers a nice example of the total disconnect between Wall Street activities and those available to the rest of us. 20-30x leverage on funds borrowed at the fed window belongs to a small group of institutions. The huge money in U.S. society is being made by people who, institutionally speaking, have absolutely nothing to do with the overall economy - with the working world of everyone else. Marx's capitalists took a disproportionate share of the value created by labor in the industrial enterprises in which they invested. The most lucrative financial transactions that our author describes are not actually capitalist anymore, but constitute a kind of bizarre toll or rent or tax on activities in which none of the rest of us even engage.

The equally bizarre and unpleasant wage effects are chronicled in David Cay Johnston's "Scary New Wage Data." Employment is down ("The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year"), median wages are down 0.6%, and yet the people who earned more than $50 million per year saw their average wage increase "from $91.2 million in 2008 to an astonishing $518.8 million in 2009." "These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers."

The growth of inequality is neofeudal, and the psychological aberrations required to claim that people "earn" this kind of money belong to the shadow philosophies of authoritarian eras.

Why Is Economic Policy so Dumb?

2010-10-24T08:46:00.000-07:00

To understand what is going on in England, the U.S., and France, one has to get past the politicians' self-serving mythology that the popular majority is childishly refusing to face economic reality.

The French national daily Libération published a poll conducted October 14-15 that showed an incredible 79% in favor of the Sarkozy government reopening negotiations with the unions about raising the retirement age. (Sarkozy administration intends to raise the age for minimal retirement eligibility from 60 to 62, while also raising the age for full retirement benefits from 65 to 67.) Nearly 2/3rds opposed Sarkozy's policy of "firmness" in refusing to negotiate, a policy which led to the passage of Sarkozy's changes "by force" on Friday night (by a vote of 177 to 153). At the same time, only 43% supported the withdrawal of reforms, and only 36% favored its suspension and future resubmission. In short, the majority does not in fact oppose change, even change that means a lower standard of living. But a 4/5s majority does opposed change imposed by oligarchic decree.

A hallmark of the French protests has been extraordinary participation of young people, who have marched and shut down may high schools and unversities around the country. What were the students’ doing out there with the middle-aged truckers and office workers? Part of it was that the young want to retire older people so their jobs can be handed down in the normal manner - there was some self-interest (and economic rationality in the classic sense). But like nearly all French people, the young oppose government by decree. They are also sick and tired of the general deterioration in the public sector that includes educational systems under constant, brainless pressure. Victor Colombani, the president of the Union nationale Lycéenne (UNL), age 16, told Libération that high schools, the universities, public transport, the refineries, are all in the same mess. The Sarkozy government, like most others in the West, is taking excellent care of its banks, major corporations, and high net worth individuals who dislike paying taxes, and doing as little as possible for everyone else. French students marched about retirement because they don’t want what their elders are dishing out, which is a second-class deal for them.

One of the crucial facts of the post-2007 era is that market capitalism's social narrative now leads down instead of up. The Reagan-Thatcher era, and its Giscard-Chiracian echo in France, promised wealth and health to regular people in exchange for abandoning the social democracy that had built their middle class societies and their own security within them. When Thatcher sold Council housing to ordinary buyers, she was handing out public resources for the personal enrichment of les petits gens who had been given a decent life but never personal wealth by state-sponsored social development from the 1930s through the 1970s. That would now change, in the Reagan-Thatcher narrative, as they borrowed against the rising value of their now-private home to buy a vacation condo in Spain, trips to Greece and Morocco on new low-cost nonunionized airlines, and grew their financial wealth through investment instruments like mutual funds that had barely existed in LBJ's Great Society. But since 2007, Reagan and Thatcher's conservative (and centrist) descendants invoked market needs to continue to lower the standard of living of a majority already hammered by the loss of jobs, health insurance, and homes - nearly 3 million lost to foreclosure in the U.S. in 2009, and at least that many again in 2010. We are looking at the ongoing shrinkage of the US middle class, typified by the continuing increase in home losses even during the "recovery" - up 25% from August 2009 to August of this year. Republicans are continuing to respond to asset deflation by wanting more cutting of taxes at the top. Hello new dark pools of financial toxins, and ongoing non-punishment for banking fakery of various kinds.

Since they are now dishing out decline and decay, leaders in all three countries are struggling to muster approval ratings that stay above 33%, never mind achieving actual majority support. Obama is still the strongest at 45%, though on a steady drift downward, according to Gallup. Cameron's conservatives have a one-point vote advantage over Labour (at 41%) in a forced-choice party face-to-face that artificially inflates approval. When people are asked about specific policies, he does worse. After he announced his massive cuts, Cameron's ratings fell 11% in one day; Lord Browne's closely-aligned proposal to eliminate public funding for all non-science teaching in British universities got only 37% (still suprisingly high, since cheap higher ed is still the only reliable foundation of a majority middle-class society). France's Sarkozy fell below 30% for his "firmness" in opposition to weeks of blockages and marches that brought millions of people into the streets. In California, Gov. Arnold Schwarzenegger held the state budget hostage -- furloughing tens of thousands of state workers and stopping payments to state vendors -- for 3 months late in order to force huge public pension concessions on top of his all-cuts budget policy, and earned himself record popularity lows - 23%, 17%, then 15% in mid September.

Major leaders are imposing economic policies that are frankly unpopular, and which don't actually work. Dean Baker, Paul Krugman, Yves Smith, Simon Johnson - one can find a host of center-liberal economists denouncing the austerity "fad," as Krugman put it, as having "no basis in reality." I used to liken Arnold Schwarzenegger to Herbert Hoover, but Hoover has now become the national metaphor for the death-trip financial policies the population is subjected to in Greece Spain, the U.K, the U.S., and elsewhere - or his Treasury Secretary Andrew "liquidate everything" Mellon, or the U.K's Snowden budget of 1931, which Krugman invokes. And yet these leaders carry on - socialist governments in Greece and Spain alongside conservative governments in the U.K., Italy, Germany and France.

Why do leaders persist with these stupid, self-destructive economic policies? Here's my list, prompted in part by reading a good piece by the not-so-capitalist conservative political economist John Gray.

frozen market ideology. Gray identifies two ideas ruling the Cameron-Clegg coalition. First, government reduces freedom while market increase it ("Both Cameron and Clegg have insisted that moving away from state provision is not just a matter of saving money: the result, they say, will be services that are more responsive to personal choice.) Second and more importantly, "there is no standard of fairness independent of the market." Bailing out banks while firing hundreds of thousands of state workers isn't what it seems to be at first -- running society for the benefit of the economic top 1% or 0.1% of it -- but means stabilizing the market forces that liberate people to create new value, rather than helping the public employees who impede it. Ideology is never undermined simply by its surreal irrelevance to economic outcomes past and present.
Small elites in mass societies. Gray observes, "As in the 18th-century elite politics analysed by Lewis Namier, British politics today is shaped by a handful of closely related people." Political parties in the US, France, the UK, and most other Western democracies have become duocracies of center-left/center-right parties controlled by fairly small circles of people. Note the history of the Democrat party under Clinton or New Labour under Blair. As modern societies have become larger and radically more diverse, their ruling groups have paradoxically become more self-regarding and self-contained. (See Blair's accounts of his oddly isolating rituals of political reflection at the link above).
The God that Failed. Political leaders have a natural investment in believing that they have healed market capitalism, but it remains in crisis. It continues to rest on government life support - nearly-free money for guaranteed loan spreads, fictional "mark-to-mythology" accounting on toxic instruments that pospones lossses, and endless forgiveness for the most basic corrupt errors like the failure to verify forceclosure documents that has called the whole mortgage industry into question in the US - if anyone in government cared to question, which in Obama's case it does not. It is to be expected that in the midst of confusion, leaders cling to familiar ideas, even as they continue to fail.
A Radioactive Media. The major media routinely bombards any heterodoxic interpretation with fata doses of scorn when it mentions them at all. The result is that novel accounts are defined in advance for the viewer as marginal, biased, and self-interested, the view of someone who has a particular ax to grind. Even orthodox views that counter the conventional wisdom, like those of the NYU business school professor Nouriel Roubini before the crash, based on intelligent pro-market skepticism about the valuations of complex securities, were shunned until it was too late, and now identified with Roubini as an individual celebrity, a kind of novelty show. Regular coverage remains captured by a combination of economic orthodoxy and panic politics. The latter is instanced by the apparent influence of the clearly incoherent and unstable rantings of Glenn Beck. Much has been written about the tight grip of the boardroom over major media, largely owned or controlled by billionaire friends of Nicholas Sarkozy in France and by Fortune 500 corporations in America, to say nothing of Rupert Murdoch's global empire, who likened the Tories's 20% one-year cuts in government to adults administering medicine to children. The main point here is that the flourishing of diverse opinions on the Internet does not counter the narrowness of the major media, for the Internet is cast in the role of the permanent opposition, always outside looking in, an accumulation of minority voices easily branded in any given case as extreme. The media famously does not support the kind of public sphere that allows ruling opinions to be debated and changed. Change is possible, and there is no shortage of good ideas, but in this system, change may be delayed indefinitely, and to the point where it comes too late - as for millions of owners of overpriced homes.
Military Dominance. During the Bush Jr. Administration, the War on Terror successfully replaced the Cold War as the justification for both continuous international intervention and unlimited military spending. Military spending doubled in the U.S. in constant dollars in the 2000s. The economist Joseph Stiglitz has revised his estimates of the costs of the Iraq and Afghanistan wars from $3 trillion to something like $4-6 trillion. This spending on the control of perpetual threats is making social spending impossible, including the basic infrastructural renewal on which U.S. market capitalism in fact depends. One of Obama's central failures has been his continuation of the instruments, the goals, and the spending that goes with the War on Terror. Under these irrational conditions, scial stagnation is the best case scenario.
Adherence to Minority Rule. For me, this is the key ingredient of the whole paralytic system. Reagan and Thatcher were appalled by the challenges to traditional rule posed by antiwar protests, civil rights movements, and the rise of visible cultural minorities be they punk rockers in Birmingham or Jamaician construction workers in East London. They and their descendents have worked tirelessly to insure that the political majority would never again have the economic independence to support such widespread dissent. They noticed that many of the protesters came from prosperous families, were in good universities, and were forming alliances with the less fortunate, as with for example the college "Freedom Riders" who went to help Black churches and other groups with voting rights and desegregation in the US South. Ronald Reagan kicked off his 1980 presidential campaign in Philadelphia, Mississippi, the county seat near where three of these Northern civil rights workers -- one black, two white -- were murdered in 1964. Reagan praised "states rights," which was a synonym not only for racial segregation but for minority rule. Desegregation ended this most famous version of minority rule. The Right has been working steadily to replace it ever since.
Upward Redistribution of Wealth. The inequality boom has expressed minority rule on the level of economics. There are numerous studies that show the same shift of wealth from bottom and middle to the top - especially the very top (0.1%, 0.01%). Wolff has one good paper, Saez, often working with Piketty, has another, and the Associated Press had a nice overview a while back. A Pew-Brookings study in 2008 found that the wages of males are now about 12% lower than they were for their fathers a generation earlier, taking an obvious bite out of ordinary people's economic independence. The Supreme Court decision taking limits off political spending has forged a direct short circuit between extraordinary wealth and political control.

In short, the economic decline were are facing is a sign of ideological disarray in a political world controlled by conservative ideology for two generations, but it is also programmed within modern conservatism. Cameron and Osborne inherent this from Reagan and Thatcher. Governments have no idea how to stimulate innovation and growth. That would require two things -- some kind of industrial policy if not actually state capitalism Chinese style (the model that did best during the crisis), and a redistribution of wealth back downward, in the name of efficiency, to the people who largely created it in the first place.

The slow impoverishing of the economic majority has been going on for thirty years, and it has become cultural common sense even for its victims. It has now reached the turning point, a moment of acceleration in which a return to prosperity becomes increasingly difficult. The only bright spot is that an increasing number of commentators are starting to trace the unjust and also grotesquely inefficient boom in inequality to a deliberate strateg (e.g. James Kwak at the Baseline Scenario's good recent entry on the 1970s. But given what I believe to be the profound ambivalence of political and business leaders towards mass prosperity, I see little in established opinion that will convince them to work consistently towards a broad-based recovery. Where is the great economic majority, demanding that politics serve majoritarian economic interests?

This is really too bad for Obama personally, since he hitched his fortunes to that Democratic assumption of the greater good, so often honored in the breach. This is what Republicans are calling "socialist" in this fairly conservative pro-bank president: the very idea of mass benefit, one so broad as to only be possible through government-led development.

Obama's only chance to succeed is to give a major speech in the next two weeks. The speech would have to take on the charge of socialism, and say yes, social democracy built our prosperous Western societies (along with much less savory forces), and now my opponents have come to take all that away from you. He would have to point out that the Right replaced prosperity rooted in general provision -- low fees in publicly-funded universities, for example -- with prosperity rooted in private property ownership -- that they replaced a grounding in government with a grounding in market-based exchange values. As a result, he would point out, asset inflation and personal debt have become the two pillars of middle-class living after broad improvement in wages ended, coincidentally enough, around 1980. In addition, the ground rules of this prosperity are now controlled not by elected leaders but by an opaque labyrinth of banking and quasi-banking institutions, from mutual funds to mainline banks to hedge funds. Obama would have to say that even specialists know little about the condition of this system at any given moment, for its essential nature is to be proprietary, to hoard information, and to create losers in every transaction by selling at an advantage. He would have to say that political leaders have no independence from this system, that his own failure to stimulate anything except banking has abundantly shown this.

Obama would have to make an updated class argument - and a plain argument for democracy-based intervention in the economy. That is the sole means through which he can save the U.S. from a Republican 2010-12 that will accelerate the disaster, reach out to desperate Tea Partiers, and help people believe that their ideas about a better economic system might actually matter. It is the U.S.'s only chance for short-term public economic intelligence.

But what, short of a sudden meltdown in the markets, would get Obama to do this? What would get him to call out his own economic majority?

Woes of the French Government

2010-07-11T02:27:00.000-07:00

Here's the best English-language potboiler version of the scandal plaguing the Sarkozy presidency in France. An equally important story are the ongoing existence of actual independent journalism - in this case, the web-based paper Mediapart - amidst the profession's clientalist servility to the powerful ones who grant it access (witness the anger of the Washington press core at the revelations of Gen. McCrystal's contempt for the civilian government that came from a relative outsider working for the Rolling Stone).

The other big story is of course the extent to which the Sarkozy government works mainly for the rich and connected. Huge majorities are already upset enough by the absence of real economic accomplishments among contemporary governments -- Sarkozy's approval ratings have been below 50% for a year or two. They are even more infuriated by the prospect of the minister of finance, whose wife handles financial matters for Mme. Bettancourt, working to help the richest woman in France with a fortune of $17-20 billion reduce her tax burden.

Governments look increasingly like court servants of the each country's elite, in a throwback to the medieval period. The passivity of the middle-classes in effect supports the forces that jeapordize these classes's survival.

Brooks Upset By How Wrong He is, Blames Krugman

2010-07-06T12:56:00.000-07:00

As if. You won't want to read the excruciating full-length version of David Schoolboy Brooks complaining about how the pro-stimulus prog economists are wrong even though they are turning out to be right as the recovery dies on the vine. So cut to the commentary and various retorts.

The only interesting thing about this is the development of the term "demand-siders" to describe Krugman, Dean Baker, and other neo-Keynesians who think that people's incomes are an important part of economies and that they should be higher rather than lower. (This is in contrast to the "supply-siders" who came to power with Ronald Reagan, and who used the needs of suppliers, i.e. company owners and investors, as a reason to cut taxes for the high brackets.) It suggests that the Right is no longer able to pretend that the center-left in the US has no coherent economic strategy. This was the core of their "one church" approach to capitalism -they pretended there were no actual arguments against small government, no taxes, no public investment, etc. that needed a fair hearing. They taught a couple of generations of conservatives that all the "liberal" arguments had already been refuted, and they could be safely ignored.

That defense line has crumbled, and the next round of arguments is going to be quite different.

Another Dismal Overview

2010-07-05T09:48:00.000-07:00

This one pulls together a lot of stats around employment. Brace yourself.

Or just read this summary:

Let's recap. Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.

Fret Index Climbs

2010-06-30T05:11:00.000-07:00

More of my capitalist pals are really starting to worry about Great Recession 2 - and I mean the investment advisors that have optimism thrust upon them by the need to find good new deals for their clients. John Hussmann is predicting that equity markets will fall below their March 2009 lows, and Markos Kaminis is now a believer in the often-heralded double-dip recession.

Among folks not selling products, Simon Johnson points out that the banks' push into emerging markets repeats past mistakes of the 1970s and 1990s, making me wonder how we can get out of this with such a complete lack of new ideas at the top. He also notes yet again how impossible it is to imagine Goldman Sachs et al. supporting reforms of their own system, as opposed to supporting their own maximum freedom of movement. I still don't know why there isn't a massive middle class outcry about this.

The New York Times had a good piece on Ireland sinking under the weight of its austerity regime, with premonitions of long-term decline. “Ireland isn’t going to spend on infrastructure probably for another 10 to 15 years,” said one observer. Another, her business caught in the middle of a new yet dying housing development, said, “It’s so destroying. We all live day by day, and we don’t know when it will ever pick up.”

The Crash Was the Best Thing for Finance Ever

2010-06-28T01:53:00.000-07:00

Simon Johnson quantifies the benefit of the crash to the ones who caused it:

the purely fiscal damage wrecked by big banks – apparent in 2008 but building for longer – will end up increasing our net government debt held by the private sector by around 40 percentage points of GDP. . . . Around half of our existing government debt burden and much of our continuing fiscal vulnerability is due to the dangers posed by unreformed big banks.

There's the direct benefit to private financial interest of the bailout with public money. There's the indirect benefit of crippling the public sector and lowering its tax costs to corporations and wealthy individuals. This is the only agenda of the California Republican party, whose social vision consists in its entirety of blocking tax increases on large incomes, this year by gutting the pensions of public employees.

This has already happened in Illinois, and click here to hear Arnold Schwarzenegger's spokesperson repeatedly saying that the state budget deficit makes public pensions unaffordable. In America, saying something again and again makes it true. Another guest pointed out that state employees get 2% of their salary as a pension for every year worked, so after 30 years they get 60% of their final few years averaged salary, and the average is $24,000 a year. Apparently this is too much money for someone who worked for the public for 30 years, compared to the enormous piles both needed and deserved by wealthy investors.

The banks are continuing on much as they were: too big to fail will survive the reforms, along with the banks' first lien on all national wealth. Derivatives trading will carry on with small changes. The only tools at ordinary folks' disposal - disclosure, data, discussion- will remain unavailable (see Morgenson's summary). The economic leadership's silent passion for impoverishment means that people are still losing their houses even with loan modification programs. In the California counties of the new middle class of the 2000s -- around 1 in 100 houses received a forelosure notice just in the month of May 2010.

This system is grossly unjust and inefficient - inefficient like baronial 18th century French agriculture. Inefficient like Greece agreeing to austerity and paying even more for credit than before. Inefficient like families having no place to live. Inefficient like a third depression. Inefficient like today's college-age adults being less well educated than their parents.

What amount of decline is going to upset the middle classes enough to fight for their jobs and their homes?

Sometimes Goliath Loses Even Today

2010-06-10T00:36:00.000-07:00

California had its primary elections this week, and the Republicans nominated a billionaire and a megamillionare to be their candidates against Jerry Brown for governor (yes, as is typical of our sclerotic political system, 1970s Jerry Brown is California's only hope for avoiding another four years of oligarchic politics by giving us four years of paralytic centrist politics). In the midst of this was a nice story of Pacific Gas & Electric getting beaten in its attempt to require a 2/3rd vote before a municipality could offer its residents a public alternative to the existing power monopoly - even though PG&E outspent its opponents 1000-1.

Perfect Storm

2010-06-06T10:15:00.000-07:00

Here's interesting death-trip summary of Friday's economic activity by Bo Peng

Friday's US equities market strikes me as being highly unusual.

1. S&P 500 followed a perfect straight channel down through out the day.
2. VIX only touched 36.

In other words, there's never any sign of panic or crash, which is quite remarkable when the broad market is down 3-4% across the board; the Dow broke the symbolic 10,000 level, EURUSD broke the symbolic 1.2 level, interbank funding and corporate/muni bond markets have all but dried up, next housing sales are bound to be bad as predicted by the latest mortgage application number, a number of government bond auctions (Brazil, Hungary, Romania, Spain -- almost) have failed, CDS on French sovereign shot up. For the weekend: US bank seizures and Spanish bank mergers/failures, Bilderberg Club to decide on dismantling the Euro, BP (BP) oil washing up Florida beaches, etc

I doubt there's ever been a day like Friday before.

Panic is usually followed by quick reversals. But calculated, organized retreat means gone for good. This is well-controlled retreat. The calm is scary. A perfect storm is brewing.

Global Hoovermania 2

2010-06-06T00:45:00.001-07:00

Scarecrow adds fuel to yesterday's post, starting his comment on the G20 by saying, "Unless I misunderstand these stories, it appears the world’s biggest economies just decided, over US objections, to resurrect Herbert Hoover, rebury Keynes and pursue another Great Recession, tanking their economies and putting millions more out of work."

Democracy vs. Finance, Governments vs. Progress

2010-06-05T02:20:00.000-07:00

Markets are supposed to create rigor and discipline, to reflect economic reality. In this standard view, the public is seen as self-serving and self-deluded about economic reality. Governments that reflect the wishes of their majorities are almost by definition going to impose inefficient, nostalgic policies suited to a bygone age that discourage their population from adapting to the economic needs of today. Democratic governments are seen as dangerous for the economy. This is why "central bank independence," which is seen as the prerequisite to central bank reliability, means independence from both popular desires and from democratic representatives like the U.S. Congress.

Is this how things really work? The economist Mark Weisbrot has a nice summary of the European crisis that suggests not. First on markets:

"the markets" can't seem to decide what they want from these governments in order to love them again. Two weeks ago the euro was plummeting because the financial markets wanted more blood: they wanted Greece, Spain, Portugal, and the other currently victimised countries of Europe (Italy and Ireland) to commit to more spending cuts and tax increases. Then they got what they wanted, and within a day or two, the euro started crashing again because "the markets" discovered that these pro-cyclical policies would actually make things worse in the countries that adopted them, and reduce growth in the whole eurozone.

Markets are pushed by investing institutions, which are fairly close to a global monoculture of neoclassical economic orthodoxy. So austerity is always job 1. But orthodoxy recognizes contraction and that austerity policies can make contraction worse. Markets are ruled by an economic orthodoxy that is contradictory and pushes investors in different directions.

Similarly, here's Weisbrot on governments:

Unfortunately the European authorities – especially the European Central Bank – are even worse than the markets. They are less ambivalent and more committed to punishing the weaker economies by having them cut spending even if it causes or deepens recession and mass unemployment (over 20% in Spain). . . .

There is a class dimension to all of this, with the EU authorities and the bankers united in wanting to balance the books on the backs of the workers – and adopt "labour market reforms" that will weaken labour and redistribute income upward for generations to come. The EU authorities and financiers believe that real wages must fall quite sharply in these countries in order to make them internationally competitive – but the protesters are responding with a fiscal version of "No justice, no peace".

In short, "markets" change their minds every few days about the necessary medicine because they really have no idea how to develop economies. Governments are now devoted to de-developing their populations: lower wages is a euphemism for increased poverty.

Economists aren't doing much better, for the most part. Writing in the Financial Times on June 1, the prescient critic of finance Nouriel Roubini contradictorily calls for "radical reform of finance" and for Europe to "deregulate" and "liberalise." And Weisbrot calls for an end to the Euro so that countries like Greece can rebalance by deflating a national currency, rather than calling for EU-based economic re-development.

The only way out is to start by recognizing that markets seek to make money for the people who invest in markets, and do not seek to develop economies. This will help keep governments from catering to them, and impoverishing their populations in the process. It will also relegitimize popular economic demands, which are in fact closer to developmental wisdom than are the self-serving calculations of investors and the central banks who set things up for them.

Democratic theory presumes the long-term wisdom of the deliberative majority. Finance -- via its economic theorists -- has declared itself to be the great exception to democracy, and remains the area in public life where frankly anti-democratic, elitist theory flourishes. It drags public policy in its wake, and in spite of lucid mass hostility to banks, has intimidated and paralyzed the popular reimagination of economics. This has set up a kind of ancien regime within democracy as such. In the arena of financial capitalism, democracy has been effectively canceled.

Either we democratize finance with a basis in a coordinated retheorization of it or Europe and the US will keeping heading straight the poorhouse.

New Elite at War with Everyone

2010-05-22T03:10:00.000-07:00

This past month has seen the final shoving of Germany towards supporting a Greek bailout, the condition being an imposed austerity whose terms will lower Greek living standards for years to come. Most of the Greek public is opposed, having never seen most of the money their financial and political sectors managed not to invest in rebuilding a modern Greek economy. They are getting their wages and pensions cut anyway, and are regularly in the streets.

The media largely still tells the story as between past and future, meaning labor and finance, or unions, who seek self-protection that looks backward to a vanished era, and responsible, enlightened business opinion, which seeks austerity. For example, a leading proponent of serious financial reregulation in the U.S., Simon Johnson, calls for austerity in Greece. Economists who point out that this is a recipe for poverty and financial depression - which in turn endangers loan repayment - are in a minority.

The "capital vs. labor" paradigm suggests that there is a large, forward-looking majority -- wealthy business elites, of course, but also a large affluent middle-class with BAs, MBAs, JDs and MDs -- and that this combined majority sides with enlightened business interests who create new wealth and the future's new industries. They oppose the dwindling, outmoded blue-collar folks represented by unions and the public sector in general, who fight a rear-guard action for privileges that the marketplace, reflecting the real economy, no longer supports.

There was a time during the post-war "golden age" when the very top of the financial pyramid cemented the loyalty of a large middle class with generous benefits, delivered largely through a well-funded public sector. Great public universities were one major example, but so were cheap freeways and subsidized suburban developments, hospitals and schools, the whole panoply of the "American way of life" for what was actually a fairly ordinary bunch of people, judged by global standards. This time has come and gone. I've written at length about the deliberate downsizing of the middle class through attacks on its central institution, the public university, and we now have abundant evidence of the result: a splitting of a tiny elite -- an upper 0.1% or so -- from the rest of the top, which it opposes.

We're actually seeing a return of the Three Estates of the profoundly pre-democratic French 18th century social system: well-educated brainworkers are falling into a huge Third Estate of unprotected, insecure workers of vastly different educational qualifications. One example of the tendency is the ongoing effort to eliminate public pensions in California, which provide compensation for the relatively lower wages of public service workers many of whom are as well educated as $800,000 / year attorneys (nurses, college professors, financial analysts, etc.)

A good example of our "post-democratic" class structure appears in a nice paper by Mike Konczal.
He finds a way to distinguish the views on financial reform of Certified Finanacial Analysts, whose median incomes of around $250,000 put them in the top 1.5%, in contrast to the people who hire them, in the top 0.1%.

Studies of the distribution of the financial gains of the past decade show much the same thing - the lion's share not to the top 10% or even the top 1% but to the top 0.1% and 0.01% of the population. The result is an unsustainable economy - as the crisis has shown - and a fractured polity that even the apparently skillful Barack Obama is blatantly unable to glue together again in the absence of meaningful 'reform."

The only cure is moving ahead into a new egalitarian phase of whole-society development. But this depends entirely on a push from the great majority that is currently losing ground. And where is that push? Konczal's paper went up on HuffPo on May 3rd. Almost three weeks later, it has zero comments. Meanwhile, a clip of Rand Paul's dumb, obviously right-wing stuff about the Civil Rights Act has over 16 thousand. Great, we've figured out that Paul is Tea Partying right-winger, like he hadn't already said that everyday in his campaign. Meanwhile, the middle-class seems completely unable to define the reforms on which depends for its survival.

Falling Ideology?

2010-04-24T04:58:00.000-07:00

In addition to running good steady commentary on the banking reform legislation (e.g here), Simon Johnson remarks on the Baseline Scenario that "the ideology of unfettered finance is crumbling." Clearly top Obama economics advisor Larry Summers hasn't heard. It's worth watching the clip to see the weird blasé attitude towards "things that happen on Wall Street" - the tone is more important than the words. I'm not feeling the shift yet but he's there and I'm not so here's hoping.

Finance as Fraud Itself

2010-04-19T00:29:00.000-07:00

This morning the Vulcan cloud of cinders is as good a commentary as we're going to get on the fragility of an economy that depends on unsustainble long range transport.

Krugman is a bit late but still lucid defining the crisis as issuing from deliberate fraud. He mentions a good ProPublica piece on the same kind of toxic stuffing at a hedge fund with one of the stupid fake names bankers love - Magnetar, which immediately dissolves into several variants composed of amputated partwords stitched together by Dr. Frankenstein - Mangy-tar, eat-tar (from the French manger- to eat), eat nectar, magnet-star . . .)

A commentary on Goldman Sachs by Will Hutton gets at two other core issues in the rise of finance over the past 30 years in the Anglo-American version of capitalism (beyond the use of complexity to defraud one group of clients for the benefit of another). The first is the abuse of independent professionals as fronts of legitimacy: clients couldn't see under the hood of the instruments they were buying, so they took the word of analysts on the basis of their professional stature and institutional affiliation. "A court-appointed examiner found that collapsed investment bank Lehman knowingly manipulated its balance sheet to make it look stronger than it was – accounts originally audited by the British firm Ernst and Young and given the legal green light by the British firm Linklaters."

And in the Goldman Sachs case,

Goldman allegedly went one step further, according to the SEC actively creating a financial instrument that transferred wealth to one favoured client from others less favoured. If the Securities and Exchange Commission's case is proved – and it is aggressively rebutted by Goldman – the charge is that Goldman's vice-president Fabrice Tourre created a dud financial instrument packed with valueless sub- prime mortgages at the instruction of hedge fund client Paulson, sold it to investors knowing it was valueless, and then allowed Paulson to profit from the dud financial instrument. Goldman says the buyers were "among the most sophisticated mortgage investors" in the world. But this is a used car salesman flogging a broken car he's got from some wide-boy pal to some driver who can't get access to the log-book. Except it was lionised as financial innovation.

The investors who bought the collateralised debt obligation (CDO) were not complete innocents. They had asked for the bond to be validated by an independent expert into residential mortgage-backed securities – a company called ACA management. ACA gave the bond the thumbs-up on the understanding from Fabrice Tourre that the hedge fund Paulson were investing in it.

Whether or not Goldman Sachs' Tourre lied to his investors and said that Paulson was investing in the CDO when in reality he seems to have made it as toxic as possible so he could bet it would collapse, as it did, the deeper point is that these transactions were confidence games, literally speaking.

The further issue is that the transactions had no value except in the confidence game that constructed them. Outside of that, they had no value, certainly not for society. Hutton writes,

It is time to reframe the question. Banks and financial institutions should do what economy and society want them to do – support enterprise, direct credit to where it is needed and be part of the system that generates investment and innovation. Andrew Haldane – and the governor of the Bank of England – are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth.

That would be to end high finance as we know it, because that does not invest in enterprise or places where credit is socially needed. The returns there are lower than what it can get elsewhere.

In a similar spirit, see the Stiglitz presentation on financial reform at a large economics conference at Cambridge University a couple of weeks ago. It comes from a world that doesn't yet exist. Perhaps it will be revealed by the passing of the Vulcan cloud of ash.

The Goldman Sachs Complaint

2010-04-17T04:37:00.000-07:00

Joe Nocera has a good summary of the issues involved in its Goldman Sachs complaint, and the SEC has a condensed description of it. Here are the two key paragraphs:

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

These are our financial geniuses at work on a straight con. The CDO lost 83 percent of its value in the first six months. Nice.

James Kwak at Baseline has a helpful exegesis on the "type of transaction involved — in which a hedge fund makes a CDO as toxic as possible in order to then short it." He notes:

It seems like the key will be proving that Paulson influenced the selection of securities enough that it should have been in the marketing documents. Paragraphs 25-35 include quotations from emails showing that Paulson was effectively negotiating with ACA over the composition of the CDO, so it’s pretty clear he had influence. The defense will presumably be that ACA had final signoff on the securities, and Paulson was just providing advice, so Paulson’s role did not need to be disclosed. (I don’t know what kind of standard will be applied here.)

Kwak adds, "no doubt to the annoyance of many, I don’t blame Paulson. It’s Goldman that had the duty to its investors, not Paulson."

Michael Lewis is more explicit about all this in an interview that Kwak quotes elsewhere:

all of the people you mentioned all swallowed a general view of Wall Street, which was that it was a useful and worthy master class, that these people basically knew what they were doing and should be left to do whatever they wanted to do. And they were totally wrong about that. Not only did they not know what they were doing, but the consequences of not knowing what they were doing were catastrophic for the rest of us. It was not just not useful; it was destructive. We live in a society where the people who have squandered the most wealth have been paying themselves the most, and failure has been rewarded in the most spectacular ways, and instead of saying we really should just wipe out the system and start fresh in some way, there is a sort of instinct to just tinker with what exists and not fiddle with the structure.

Lewis also hits this blog's humble theme, the intellectual limits of the mass middle class that continues to prevent it from overcoming its humiliating defeat by financial forces it never bothers to understand:

The question is how does Washington move away from those institutions and make decisions that are in the public interest without regard for the welfare of these institutions. It’s a hard question because . . . this is the problem. Essentially the public and their representatives have been buffaloed into thinking that this subject — financial regulation, structure of Wall Street — is too complicated for amateurs. That the only people who are qualified to pronounce on this are people who are in it. And there are very very few people who aren’t in it in some way who have the nerve to stand up and fight it. . . .

The reporter as much on this beat as anyone in the U.S. Gretchen Morgenson, discusses why John A. Paulson who set this up was not indicted. Paulson's firm released a statement that said in part,

There’s no question we made money in these transactions. However, all our dealings were through arm’s-length transactions with experienced counterparties who had opposing views based on all available information at the time. We were straightforward in our dislike of these securities, but the vast majority of people in the market thought we were dead wrong and openly and aggressively purchased the securities we were selling.

Morgenson (and Louise Story) continue:

After analyzing risky mortgages made on homes in Arizona, California, Florida and Nevada, where the housing markets had overheated, Mr. Paulson went to Goldman to talk about how he could bet against those loans. He focused his analysis on adjustable-rate loans taken out by borrowers with relatively low credit scores and turned up more than 100 loan pools that he considered vulnerable, the S.E.C. said.

Mr. Paulson then asked Goldman to put together a portfolio of these pools, or others like them that he could wager against. He paid $15 million to Goldman for creating and marketing the Abacus deal, the complaint says.

One of a small cohort of money managers who saw the mortgage market in late 2006 as a bubble waiting to burst, Mr. Paulson capitalized on the opacity of mortgage-related securities that Wall Street cobbled together and sold to its clients.

In a video clip, Story points out that the case seems to be proof that Goldman does bet against instruments it markets to its own clients, contrary to its repeated denials. In another clip, the SEC's Robert Khuzami answers questions about the compliant.

The complaints are finally getting under way.

Long Slide in the Post-Crisis

2010-04-15T05:49:00.000-07:00

Some good books on the financial crisis have come out in the past month, including two I've bought but am still waiting to get time to read. One is 13 Bankers, by Simon Johnson and James Kwak (who also run the blog Baseline Scenario, an excellent source for blow-by-blow commentary on the ongoing struggle for a soupçon of financial reform. Another is Econed, by the author of the blog Naked Capitalism, which details the intellectual failures of doctrinal US economics and their real world impact.

Kwak has a good review of another of the good recent books, The Big Short by Michael Lewis. Kwak gets at the crucial problem with the financial system in general, which is that the supposedly iron logic of objective market forces to which financial players are all subject in fact masks rules made up by a fairly small number of insiders to maximize their take. Here's just a taste:

The problem was that the banks, as the swap dealers, got to decide what the swaps were worth. So, for example, Charlie Ledley bought an illiquid CDS on a particular CDO from Morgan Stanley. Five days later, in February 2007, the banks started trading an index of CDOs that promptly lost half its value. But, as Lewis writes, “With one hand the Wall Street firms were selling low interest rate-bearing double-A-rated CDOs at par, or 100; with the other they were trading this index composed of those very same bonds for 49 cents on the dollar” (p. 162).* That is, the market price of the already-issued CDOs didn’t affect the sale price of new CDOs. And what’s more, Ledley’s broker insisted that the price of his CDS (which should have soared as the index of CDOs fell) had not changed. Here you see the banks simultaneously ignoring a market price in two separate ways: once so they can continue selling new assets that are extremely similar — worse, if anything — to assets that they are trading as garbage; and again so they can avoid sending collateral to their hedge fund client.

Got that? It's people making stuff up, and making a pile of dough as a result. This is finance that has nothing to do with investment, productive or otherwise. Its only impact on society is to damage it. The rest of us are supposed to believe in its objectivity and defer to the outcome. How far along are we in knowing enough to think otherwise?

We're looking as usual at a huge gap between the insight of experts and that of the general public. A sign of where the public discussion is can be found in Jane Hamsher's comment on the its basic non-existence.

The social damage continues to spread. People are looking at Portugal next, and even the best financial commentators, like Simon Johnson, counsel cuts and austerity till the end of financial time.

For example, just to keep its debt stock constant and pay annual interest on debt at an optimistic 5 percent interest rate, the country would need to run a primary surplus of 5.4 percent of G.D.P. by 2012. With a planned primary deficit of 5.2 percent of G.D.P. this year (i.e., a budget surplus, excluding interest payments), it needs roughly 10 percent of G.D.P. in fiscal tightening.

It is nearly impossible to do this in a fixed exchange-rate regime — i.e., the euro zone — without vast unemployment. The government can expect several years of high unemployment and tough politics, even if it is to extract itself from this mess.

Neither Greek nor Portuguese political leaders are prepared to make the needed cuts.

Greece's crisis has settled into semi-permanence in the style that is becoming typical of our new post-crisis era: permanent low-level anxiety, permanent austerity, and permanent stagnation in wages. All of this is imposed with a financial logic of inevitability. The continuous message is that there is no escape. Greece is looking at a lost decade for its society. The West is dealing with a crisis caused by its small, arrogant, uncaring, incredibly rich financial sector by downgrading the resources and the vision of its societies. After ten more years of this, what visions and aspirations will be left?

The Spineless go to the wall

2010-03-19T05:56:00.000-07:00

Jane Hamsher is right in her bitter lament about the Dim "left" cave on health care:

Nobody will take progressives in congress seriously, nor should they. Their threats are idle and they won’t fight for anything they believe in. In the end, they’ll just take turns shaking their fists in futility and alternately sucking so no serious liberal challenge ever emerges to anything.

Tbe pain is visible on Democracy Now as Dennis Kucinich, whos's spent his congressional life as a pirncipled outsider, explains why he switched to Obama after a ride on Air Force One:

it would be impossible to start a serious healthcare discussion in Washington if this bill goes down, despite the fact that I don’t like it at all. And every criticism I made still stands.
I want to see this as a step. It’s not the step that I wanted to take, but a step so that after it passes, we can continue the discussion about comprehensive healthcare reform, . . . But if the bill goes down and we get blamed for it, I think there’ll be hell to pay, and in the end, it’ll just be used as an excuse as to why Washington couldn’t get to anything in healthcare in the near future.

Clearly Obama and the other Dem leaders were planning to retaliate against Kucinich and other holdouts, perhaps as the party retaliated against Cynthia McKinney in Georgia by running a "moderate" against her in the Demoratic primary. Goodman and Gonzalez gave Kucinich every opportunity to say that he got something for caving in. He seems to have gotten only the absence of retaliation.

It's sad because of Kucinich's courageous and unpopular stands against various wars along with other wasteful, destructive stupidity that the U.S. blunders into and then feels entitled to continue - like the main elements of its awful healthcare system. Sadder still is his apparent belief that by conceding this time, he will be listened to next time. Au contraire.

Why does the progressive middle-class think that if it concedes now it will win later? If I agree with you now, will you agree with me later? Ha ha ha, of course not!

There were some institutions that did work like that: large organizations with clearly-defined roles and job security, professional groups like medical practices, and other structures that institutionalized reciprocity, or codified it informally. These were humanizing forces in society, even when they were bureaucratic, stratified, exclusionist, and so on. They are being relentlessly eaten away by the external and unilateral use of power, particularly forms of financial control like treatment regulations imposed on doctors by HMOs. That is the time of the iceberg.

Middle-class America will increasingly approximate the condition of the US Congress, except without the floods of lobbyist cash. The failure continues to be intellectual, as Talk Left points out:

[Nate] Silver can not imagine a progressive bargaining position that threatened the passage of the health bills. No one could imagine it, even progressives. Until they can not only imagine it, but in fact project it in a political negotiation, progressives will remain irrelevant outside of Democratic primaries, when they will receive a plethora of campaign promises sure to be abandoned by pols.

Contradiction in Obama's Economic Philosophy

2010-02-27T04:12:00.000-08:00

Commenting on Obama's health care 'summit,' Krugman identifies the pattern that dominates health care and pretty much everything else in national politics: "Democrats [offer] moderate plans that draw heavily on past Republican ideas, and Republicans [respond] with slander and misdirection."

Why do we see this same pattern of compromising Dims and savage Cons year in and year out? One theory is that the Dims are actually Cons and so by losing to the Cons can get what they secretly want. This theory works some of the time. But it doesn't explain the Dims tolerance for highly-visible losses, which are supposedly a bad thing.

Another theory is that the Dims are not really Cons, especially in the sense that they are basically nice, humane people unlike Cons and therefore don't fight to kill and win. They actually like compromise, believe in everyone getting along, have faith in the high road, etc. This theory is also more than partly true.

This blog has long interested itself in what allows people to formulate a strong position and then actually achieve it. This is equivalent in our terms to avoiding the pursuit of decline and failure, which has become so common in the vast but shrinking middle rungs of American society.

One central precondition is intellectual coherence. Obama's political weakness is related to the fact that he lacks this. His health care proposal, weak as it is, assumes an expanded role for government in the delivery of health care. This in turn assumes that government plays a necessary regulative role in a market-based system dominated, to majoritarian distress, by a small number of large and powerful corporations. This regulative role further assumes that government is a positive and constructive force in negotiating society's relationships with private entities like Blue Cross.

How does this fit with Obama's overall economic approach? In a speech to the Business Roundtable last March, Obama offered a good summary of his economic philosophy, so to speak:

I’ve always been a strong believer in the power of the free market. It has been and will remain the very engine of America’s progress — the source of a prosperity that has gone unmatched in human history. I believe that jobs are best created not by government, but by businesses and entrepreneurs like you who are willing to take risks on a good idea. And I believe that our role as lawmakers is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still makes this nation the envy of the world.

But I also know this: Throughout our history, there have been times when the market has fallen out of balance. There have been moments of economic transformation and upheaval when prosperity and even basic financial security have escaped far too many of our citizens. And at these moments, government has stepped in not to supplant private enterprise, but to catalyze it — to create the conditions for thousands of entrepreneurs and new businesses to adapt and ultimately to thrive.

That’s why we laid down railroads and highways to spur commerce and industry — to stitch this nation together. That’s why, even in the midst of civil war, Lincoln launched a transcontinental railroad, and Land Grant colleges and the National Academy of Sciences. That’s why we initiated universal public high schools and passed a GI bill to nurture the skills and talents of all our workers. That’s why Eisenhower built an interstate highway system, and Kennedy pointed us to the moon, knowing that the exploration would lead to unimagined innovations here on Earth.

That’s what we’ve done in the past. And that’s why I’ve chosen to address education, health care, energy and this budget — because we can’t wait to make the investments today that will lead to tomorrow’s prosperity.

Such thoughts are why Cass Sunstein called Obama a "Chicago School Democrat" - the market creates all wealth, except when the market fails, at which point government must fix the market. This also a "public private partnership" (PPP) philosophy, similar to that espoused by Blair and Brown Labour in the UK.

Unfortunately, Obama's position -- a common one among centrist Dim and Labour elements -- makes neither political nor conceptual sense. If the market fails with any kind of regularity, then government is also a source of wealth and value. If government is a source of wealth and value, then the market is not the dominant if not the only source of wealth and value. In the case of health care, if the market is the very engine of American progress, then America's free market system that has placed such enormous profits in the hands of HMOs and insurance corporations has been an amazing success, and we should not now be talking about bringing government in to regulate it. Cons take continuous advantage of Obama's awkward stance.

The political problem with Obama's position is similar. How can he rally a mass base by chiding Wall Street bankers one day and praising their wealth the next? How can he be taken seriously by saying business should run the economy and then invoking the railroads to say government should help run health care? The scope and timing of intervention is also always at issue, and you need some coherent principles to decide when and where.

The obvious solution is for Obama to say loudly and often that "government creates wealth" - in exactly the ways he describes in his speech, with quality education being at the heart of value-creation along with universal health care. Society creates wealth, and government is one instrument and business is another, and in a democracy society gets to decide the scale and scope of the various instruments. Government and businesses are co-generators, which means that public investments should be both ackowledged and compensated - which would reduce profits for companies that have gotten used to getting all sorts of public stuff for next to nothing, and would challenge American capitalism as it is, which of course Obama has to do if he wants a real recovery, except he thinks we already have one.

Obama's intellectual failure to expound a coherent social-democratic vision of society, which would also be post-capitalist in the sense of being post our inefficient, wasteful, crooked, silly current version of capitalism will, if it continues, be yet another source of his political failure.

Monopoly Endgame and Middle-Class Decline

2010-02-22T01:17:00.000-08:00

Yesterday the NYT ran a very good piece on the rise in the long-term unemployed. One of the featured people is Jean Eisen, out of work for two years. A former comic, she's turned to Christianity because prary offers the kind of health insurance she can afford.

Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380.

“We’re looking at the very real possibility of being homeless,” she said.

The piece states the clear implication:

Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

And also offers a more candid-than-usual explanation of why:

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

Jobs used to grow at a 3.5% rate each year. After 1980, they grew during expansions at under 1% a year. To make the point as directly as possible, U.S. economic leaders shifted the conditions of revenue growth so that they depended on the reduction of employment growth. In other words, U.S. expansions become almost-jobless recoveries by design. The actually jobless recovery after 2003 under George W. Bush was the holy grail of this economic policy.

The Obama Administration is doing what it can to draw a somewhat bent line from Bush to Hooverization. Its money goes to big banks not small ones, who are not lending to the small businesses that produce the vast majority of new jobs in any recovery. (See my Capitalist Pal on this crowding out.) Small business is not recovering, and employment will recover that much more slowly. Strategic sectors like green energy are on the ropes. The federal stimulus will not rebuild enough of the crumbling country by in the process hire the hundred thousand a month required just to keep unemployment in place. Instead, its unemployment bill will mushroom, as people are paid not to work on public projects but because they can't find work. Cash-starved governments will try to contain the mushrooming bill by throwing people off of "safety-net" programs that include welfare: "as of 2006, 44 states cut off anyone with a household income totaling 75 percent of the poverty level — then limited to $1,383 a month for a family of three." The effect here obviously is to insure that welfare leads to paralyzing, unhealthy poverty.

It's all getting to be too much even for some of the Summers-Rubin Lexus worshipping fans of unhinged business. Tom Friedman's column is titled "The Fat Lady Has Sung," and has the quip that sums up pretty much everything.

But now it feels as if we are entering a new era, "where the great task of government and of leadership is going to be about taking things away from people," said the Johns Hopkins University foreign policy expert Michael Mandelbaum.

Ms. Eisen's life story is a history of So. Cal deindustrialization, as she energetically jumps from one industry to the next with a cheery entrepreneurial spirit, only to see that entire industry die or get sent abroad (aerospace, a travel agency, then beauty product sales . . .)

The worst comes nearly last. Another successfully member of the middle class who hasn't been able to find a job in two years remarks, "“What is going to happen? . . .I worry about my kids. I just don’t want them to think I’m a failure.” The worst is that many of those on the front lines of middle-class decline don't see the structural problems. It's hard to imagine, given the incredibly low mental level of most US media, that they ever will. But without a reason or a will to revolt against this dead-end system, all they can do is spiral wagewise to the bottom.

There's a direct connection between the U.S.'s monopoly-prone economy and wage / employment decline. It won't change unless members of the ex-middle class start to realize the removing jobs has for thirty years been the U.S. economy's dominant recipie for revenue success.

Obama Heart Banks

2010-02-17T07:23:00.000-08:00

When Obama praises the spirit of piling money higher and deeper as the great Spirit of America, and absolves the bank bonusers of any wrongdoing, he makes no sense ethically or economically - finance and its grotesque incomes is grossly inefficient, really unaffordable in our struggling world. But on the level of simple tactics he makes his alleged crackdown on the banks into a joke. Henceforth all of his stern fingerwaggings will be greeted with a wink and a nod - except in middle America, where the pitchfork crowd signs up for Tea Party populism and waits for the chance to run Obama out of town.

I never thought I'd be seeing him as simply dumb but I am starting to.

Global Hoovermania

2010-02-15T12:59:00.000-08:00

The national debt crisis in Greece is an example of a case where a combination of Eurozone rules and financial market pressure will force huge cuts in public spending, damaging both living standards and delaying economic recovery. On Sunday, the New York Times reported that some of Greece's hidden debt was concealed courtesy of instruments sold to it by Goldman Sachs in 2001. In November 2009, Goldman Sachs tried to do it again. The Financial Times reported today that EU authorities have requested information about the swaps.

Greece's national debt is over 100% of its annual GDP. But this is not so horribly out of line with other countries, as can be seen at left and here.

"High" debt is a matter of interpretation, and 40 years of attacks on the existence of government, the public sector, and public debt as a source of public investments has greatly reduced the markets' tolerance for debt levels that are still well below what seemed normal in times of crisis like World War II. Markets put up with high debt levels during war. If we were serious about, say, decarbonization, we would run 200-300% deficits in gigantic crash programs in solar power, total transportation system reengineering, weatherproofing every building on the planet, you name it, so that there will be great-great grandchilren around to pay the debt we left them.

The interpretation of debt levels as too high is threatening the recovery, since it will force governments to cut spending when they should be increasing it. This is the plan for Greece, the famous land of Generation 800 Euros (youth salaries per month) and meager economic development outside of coastal estates built on land removed from government protection by arson-set forest fires.

Government employment is a pillar of the middle class everywhere in the world. It is also being squeezed everywhere: in Sacramento, California, a moron's consensus reigns on the virtues of cutting state employee salaries 5%. In all countries, public service employment is the crucial gateway to the middle class -- as it was in the United States from the 1940s to the 1960s, for African Americans in particular who faced ongoing discrimination in the private sector. Countries like Argentina that were forced into IMF-style austerity programs that slashed the public sector have one common feature: an incredible shrinking middle class.

Most pundits seem to have learned nothing in all these years. Thomas Friedman recently contrasted two years in the Middle East. 1977 was good -- neoliberal policies implemented in Egypt by Sadat. 1979 was bad -- the Iranian revolution, Whahabi-reaction in Saudi Arabian Islam, etc. But "liberalization" and "modernization" were themselves the source of the radicalization of mass Islam that Friedman deplores. They impoverished the great majority in Egypt, ruined Cairo's public systems for starters (on my recent trip there an archictectural institute informed me that 60% of Cairo's housing is "informal" - built by occupants because the private and public sectors both refuse.)

Krugman points out that the bigger debt problem in the Eurozone is Spain. But for some reason he spends his column attacking the very idea of a single currency in a variable region rather than attacking austerity politics, though he knows in the U.S. case that the focus on debt will kill the recovery.

Since the world needs both recovery and stable currency and debt arrangements across diverse national economies - both of which the financial system has not delivered - Krugman et al. need to figure out how to avoid screwing the populations of countries like Greece. The world has to learn how Greece can have a modern, efficient, green infrastructure with its current economy, and then discover how to provide the same to about 130 other countries that are in even greater need.

If the EU can't fix Greece, it can't fix anything that needs fixing.

Hitting the Iceberg on Purpose

2010-01-29T06:56:00.000-08:00

The simplest summary of President Obama's State of the Union message is that the Wall Street bailout was a success, and the Main Street bailout must stop. Why else would he point out ongoing suffering and then call for a 3-year freeze in the federal funding that is the only meaningful source of support and social development money in the United States?

For the pre-limbic thought processes that are leading the Democrats into a deliberate steering of economic recovery and their own political power onto the iceberg, see this dismal collection of inane forgetting of basic politics and economics not to mention the basic purposes of the Democrat party.

The Dismal Collection gets to the backstory behind Krugman's excellent slam of Obama's "deficit-peacock strut." Obama has produced too small a jobs program and too weak a health-cost containment because "our political system doesn’t seem capable of doing what’s necessary." Behind the political failure is mass mental failure: learned and extremely astute people like Obama have their options shaped by 8th grade arguments and personal attacks that wouldn't score any points at all on most issues in most educated countries.

Afghanistan is a good example, and the NYT's London bureau chief John Burns perfectly articulates the incoherent strategy for which Obama is risking his presidency. "Winning" Afghanistan means winning hearts and minds, but the actual US strategy is to win on the battlefield by killing a lot of Taliban, thus demoralizing them, at which point they will accept our money to switch sides forever to the Stars and Stripes. This is as dumb as it gets, but Obama is racing down this road because of dimwit beltway concerns about "Obama the man."

Obama is letting himself get blown around by the gale-force winds generated by airhead Repubs and Dims all calling for him to move to a center that is well to the right of Richard Nixon. He went from the US inventing the world's cheapest solar cells to "building a new generation of safe, clean nuclear power plants in this country" from one paragraph to the next.

Obama's former enthusiasts are getting desperate. Cenk Uygur says that if the Dims reappoint Bernanke the great Titantic captain "there’s no helping them and there is no hope in them." The great summary of this dead end is Jon Stewart's: "No matter what you do, the Republicans are not going to let you into the station wagon. . . .and you're the majority party. It's your car!" Later Assif Mandvi explains, "The Democrats are going to need bipartisan support if they're ever going to see Bush's agenda enacted."

Finally: "you can't hurt us anymore. We're already dead."

Stewart's stuff about the Repubs not letting the Dims into their own car gets at some deep Democrat yearning for approval from authoritarian dickheads on the Right, and from the same elements in their own constituencies. How can their survival do more that degrade us further?

Obama Takes the Wake-Up Call

2010-01-23T01:38:00.000-08:00

My hope for Barack Obama always rested on the fact that he was a smart politician in the old school sense - that he would listen to majoritarian pressure and respond to it. He may have figured out via the loss of Kennedy's seat via a "centrist" Dim to a Republican that economic oligarchy isn't popular. There seems to be supportive polling data that Coakley didn't lose because she's too liberal.

This week, Obama offered a direct attack on the Supreme Court's neo-feudalist decision to give corporations the free speech rights of citizens, calling it "a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.” And his "populist" shift against banks, read as a shift from Geithner to Volcker, upset the moderate Financial Times (which called Obama's move both a "declaration of war" on Wall Street and a "Maginot line", and the trading of bank stocks. (Sen. Barbara Boxer also announced her opposition to the reconfirmationl of Ben Bernanke at the Fed.) Again there was strong language:

My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.

Still, the proposal itself has no specifics at all. Obama has never had trouble making a good speech. The trouble is always whether anything comes next to back it up. I'm doubtful that he has any interest in turning banks back into something more like a service to the public economy. But at least he's not still asleep.

ADDENDUM. See this good overview of Bernanke's two failures - to have seen the housing bubble for what it was and helped deflate it, and to continue to privilege "fighting inflation" over fighting unemployment.

- Fr. Frank offers a definitive summing-up of where Obama is right now. Offering many useful details, he says, "The president is no longer seen as a savior but as a captive of the interests who ginned up the mess and still profit, hugely, from it." His muddled non-direction, Fr. F notes, is Dim party is adding to the existing weight of Dim centrist pro-biz confusion and pulling it under "the Obama administration is so overstocked with Goldman Sachs-Robert Rubin alumni and so tainted by its back-room health care deals with pharmaceutical and insurance companies that conservative politicians, Brown included, can masquerade shamelessly as the populist alternative."

Rocket to the Bottom

2010-01-21T00:50:00.001-08:00

The loss of Teddy Kennedy's Senate seat to a Republican is being greeted in France a clear sign of Obama's fall from grace and perhaps from influence. In the midst of the avalanche of commentary came this poll about how Americans think Obama has done with improving race relations and the position of African Americans. The WaPo reports that "On the eve of President Obama's inauguration a year ago, nearly six in 10 Americans said his presidency would advance cross-racial ties. Now, about four in 10 say it has done so."

There's far more agreement about this between the right and left than between black and white. 70 percent of "Americans" think Black folks have achieved social parity. 11 percent of Blacks folks agree. The existential gap persists between those who actually experience being American while Black and those who don't. So does a deficit in cultural capacity, which I define here as the majority's ability to credit "minority" experience. The U.S. majority is bad at this, though it must be said that the majorities of most countries also are.

The main race debate in Obama's first year revolved around the arrest of the Harvard professor Henry Louis Gates, Jr. in his own home in Cambridge Massachusetts. Obama retreated from his initial explicit outrage at police behavior, leaving the outcome as a public teaching moment murky at best.

But race relations are obviously also at stake in Obama's escalation in Afghanistan and inability to reduce the meddling and swaggering and support for tyrants that intensifies rather than suppresses the violence. He's maintained what is widely perceived as a war on Islam, a war on Arabs and on other middle eastern peoples - on non-Western brown folk who object to U.S. sovereignty over their own region of the world.

The saddest example in the U.S. rescue effort in Haiti. Haiti is the litmus test of Black conditions in the world as a whole - the first and last successful slave revolt created it as the first Black republic, and its neighbors starting with the U.S. haven't given it a break since. When Port-au-Prince and many other Haitian cities were flattened in last week's earthquake, Iceland arrived first, and Cuba and Venezuela were there, and France sent various planes including one with field hospitals. The U.S. then arrived, took over the airport, turned back the French plane with field hospitals among others, injected 11,000 heavily-armed troops into the country, with the visuals looking a lot like the U.S. a military occupation. The mainstream media has copped to the fact that the U.S. is not really helping the rescue effort so much as policing an effort that "needs gauze, not guns." Obama's most visible moment was appearing with former Presidents Clinton and Bush II in a weird show of solidarity not with Haitians but with the white presidents who meddled constantly in Haitian political affairs. Bush backed the current government's perverse privatization efforts, which resulted in the closing of the country's only cement company and the closing of the country's only flour mill. That was the kind of American support Obama reflected in posing with those two guys in his ride to the rescue.

It's no wonder Black racial optimism is back where it was before Obama's election. I still see those lines with hundreds of people waiting in the rain at 5 in the morning to make sure their vote got to count.

Financial Crisis as Mental Problem

2010-01-16T13:45:00.000-08:00

The financial crisis continues to foreground a crisis of knowledge: what are people allowed to know? When is what they know allowed to be true?

The financial industry has never faced the extent to which its analyses are skewed by its own financial interests, or how completely the uses of bailout money remain secret. AIG remains a black box, and more generally we have no idea what any of it is worth once semi-detached from the government guarantees that float it now, and sink the rest of us.

Anne Enright has a nice piece in the London Review of Books on the universal mental unreality. Called "Sinking by Inches," she writes about Ireland's meltdown as caused in part by Ireland's mental paralysis.

I can understand the denial at the end of the boom; what worries me is the denial that made it. From 2001 to 2007 it was not possible to be off-message about the Irish economy or, especially, about the housing market. You would barely be published. . . . It was no fun being informed, either then or later. People don’t like you for it, and why should they?
One of the strangest feelings, living through a housing boom, is that you are rich or poor not because of the money you earn, but the year you started earning it. It is not a question of effort, but of luck. This was part of the impotence and panic that drove Irish people to buy overvalued houses towards the end of the boom; it was the feeling that we were running up a down escalator and had to grab hold of whatever we could, to stop being swept away. . .
Telling the truth was, in the circumstances, not just boring, it was also unlucky, hexed, taboo. It might even be unclean. Careless talk costs jobs. If the bubble burst it would be your fault for calling it a bubble, because, at the end of the day, it’s not an economy, it’s a mood.

This is still where the U.S. leadership seems to be, new bank tax or not. Its main goal is to make the mistakes of the past into something bearable - at least for them. While they continue to foucs on this, the country as a whole won't be able to tell the truth because it is still afraid of making it all worse. And so we'll stay stuck with the combination of "impotence and panic" that got us where we are.

Ticking Time Bomb for 2010

2010-01-01T03:15:00.000-08:00

There isn't enough commentary out there about how the "recovered" sector of the American economy - the banks - are recovering through continued and massive taxpayer subsidies. One of my Capitalist Pals had a good piece on it earlier this week. Healthy balance sheets are coming from (1) free money guvmint money (effectively zero interest) for which the banks can charge 5% or whatever; (2) the use of higher-yield Fannie Mae and Freddie Mac securities, although these agencies are floated by bailout funds; and (3) the declaration of actual losses as income:

many of the same banks that received TARP funds were deliberately allowed to mask big losses in the 1980s after their loans to Latin American countries went bust.

Today, banks are doing the same thing by underreporting losses and delinquencies. This means that, even if banks aren't collecting, they can keep counting interest they're owed as if they are getting paid. This allows them to delay the write-down process, and casts doubts on their financial statements.

The fact that the author of this piece depicts his view as controversial suggests we're living again in Kool-aid World, and that unpleasant surprises await.

Be sure to read the even scarier Part II.

HNY quandmême!

To a Better Next Year

2009-12-30T04:19:00.000-08:00

One good thing about the 2000s was the expansion of the blogosphere - the quality of available commentary has never been better, and we can access expertise and insight that otherwise would have been limited to a particular college lecture hall or small-circulation speciality magazine. So here's to folks I unambivalently celebrate as creators - Ted Newton and his conceptualization of hypertext, Tim Berners-Lee and the universal resource locator, and the thousands of others who put the Toile together as they say in French.

On the decade itself, Krugman's Zero Decade pretty much sums it up for me so nuff said. Zero economic progress, intellectual suspension between paradigms, no answers to 1990s questions about how to have a productive economy and decent, sustainable life without monopoly rip-offs and exploitation of the global South - actually questions barely asked by the ones in power. The gap between intelligence and leadership seems as large as ever in my lifetime, and I'm old enough to remember Richard Nixon.

On the absence of establishment intelligence in the United States, Jane Hamsher puts it well:

the right, whose numbers are relatively small and whose views are generally far outside of the main stream, has dominated politics for the past 30 years because they made an alliance with the corporations. It’s only natural that Democrats have sought power by replicating that model, even at the price of destroying the illusion that they’re the “party of the people” and fracturing the support that put Obama in office.

The Democrats are trying to secure their political ascendence by tying up the money, no different than Tom DeLay did. But whereas the Democratic Party represented a net to collect and unite those disaffected with the kleptocracy of George Bush, the actions of the Democrats since securing the White House this time around have dimmed the hopes that the Democrats present a real alternative.

The Bush Republicans flogged social issues in order to obviate the need for populist economic measures. They satisfied the base by treating them to a banquet of God, guns and gays while they looted the taxpayer trough. The Democrats, however, are making a sacrifice play on social issues and enabling corporatism by triangulaing against their own base. . . . the White House positioned themselves as “centrist” after the widely popular public option was dispensed with, simply because it was something “liberals” seemed to want too. What they’re forcing, however, is a situation where there is no place for populist liberal discontent to rationally go.

Hamsher ends by seeing a populist alliance opposing "kleptocracy"of the republocrats, but given the 2-party lock this can only be a domestic "war that will last for years."

On the coming War Decade, one need only extrapolate from Glenn Greenwald's piece on the Five Wars and the absence of clear thought about what to do. See also Juan Cole's Top 10 Middle East Crises, which are a fitting epitaph for the decade overall. Obama seems even more manipulable than Bill Clinton by any accusatory nonsense the Right can dream up about his lack of masculine will to kill the terrorists and their infinite threat. I'm also old enough to remember the Cold War, when the hysteria could at least base itself in a opposition to a real superpower, the Soviet Union, and its utterly unconquerable unappeasable ally, Red China. Today's global mobilization against a crazy college dropout who lit his pants on fire only to be subdued by his fellow passangers, all of whom landed safely, and this deranged young man's several dozen committed al-Qaeda allies in Yemen, is frankly pathetic. Some sorryass superpower we turned out to be, shouting and ranting and flagellating ourselves in public over a security lapse, and making ourselves feel better with threats of world war.

The worst part is the shock and rage each time that someone obsessed with the US presence in the Muslim world tries to kill some Americans. What exactly do we expect? Either we are trying to rule the Muslim world by supporting dictatorial governments and reactionary monarchies everywhere, deploying dozens of military bases and advising local governments in the arts of political repression, scrambling for resources in competition with Europe and Asia, and backing Israel no matter how much it colonizes and mistreats its neighbors, in which case a portion of the affected populations will naturally try to kill us. Or we will try to get them not to kill us by creating relations of economic equity, sustainable development, and political democracy with real local control (and hence disagreement with U.S. policy and favoring of local rather than U.S. businesss). Can we grow up enough to even see that there is a choice here? Not very soon, since the rage that suppresses thought is in sync with the loss of collective intelligence we suffered during the Cheney Years. Obama doesn't have the chops to escape.

Hopefully, however, we do. Happy New Year no matter what.

The Era of Permanent Discontent

2009-12-23T04:24:00.000-08:00

Thanks to Juan Cole for writing up the Top-10 "worst things about the wretched period" of the 2000s - for me the Top-10 signs of decline. Yes, it was a truly bad start to the new millennium for which we have many dumbass electorates and self-serving elites to thank. The decades' leaders replaced negotiation with belligerence wherever they found it convenient to them - really, with Iraq, whenever it felt right. The same goes with finance now and the end - Cole's top 1% who reaped 2/3rds of the gains of the 2000s are getting a free pass from the Obama admin to do as they like. The same goes with the environment, where the failure of Copenhagen to produce targets and timetables in an utterly quantified management culture that responds only to these will mean the reinflation of fossil fuel use - oil sands, clean coal, the whole 9 yards.

The decade began the Era of Permanent Discontent. There were mass protests and opposition to policies like the Iraq war that political and business leaders systematically ignored. Individuals like Dick Cheney were more openly contemptuous of public opinion than others, but it's hard to think of a national or state-level leader who has recently opposed his or her small inner circle or the Ring of Lobbyists - on any issue in order to back a majority view.

Continuing the cycle, obvious rejection of popular positions then produce further protests and widening gap between leaders and the vast majority they claim to lead. Polling data picked it up: rulers implemented positions accepted by a minority of the public, and this is happening again with the health care "reform," where a "clear marjority" wants a public option (October 2009, December 2009), and where political leaders don't, and so there won't be one. In Europe they call this "post-democracy." In California, it is called minority rule, and a UC professor George Lakoff has started an initiative to end the Proposition 13-based supermajority rule for budgeting and taxes. This is a great idea. But it needs to confront an electorate that has no experience with or trust in real majority rule.

The twin of permanent discontent is Permanent War. Bush's "war that will go on for years" has become Obama's Afghanistan escalation and similar rhetoric of standing, dispersed dangers to global security. Apparently no American executive can govern without Cold War-style insistence that the country is in grave danger from all over. The benefits to the military and industry are obvious, and so are the benefits to executive authority. Obama's Wars now involve escalating the drone attacks and secret military incursions into Pakistan that echo the Nixon-Kissinger incursions into Laos and Cambodia that hardened and widened the Vietnam war that they too claimed to be winding down. In the context of majority demands for public health care, better infrastructure, cheaper higher education, green technology, more and better jobs, war has an important role to play. The function of war i to make all popular things impossible.

It's worth nothing that finance has come to play a similar spoiling role. Its absorption of somewhere between $17 and 24 trillion has already killed off any new New Deal for the states and their outmoded intrastructures and social systems (the US ranks 12th to 16th in the social distribution of its own core technologies, broadband access). Finance is increasingly acknowledged to invest largely in unproductive assets, so it's not like we need its domination over the economy because they are about to give back to society - give back new industries, high productivity growth, better living for all.

But the financial sector is good for the political executive function. It concentrates wealth and concentrates the power that goes with it. Wall Street's importance magnifies Washington's importance, and the leaders of each get enormous personal benefit from the acute stratification of their sector, where all meaningful decisions are made at the top. The concentration of finance into a few banks that are too big to fail is also good for the military, which operates on the same principle. Having a superconcentrated financial sector run by insiders has long stabilized corrupt, crony-ridden governments in places like South Korea and Japan. It provides the same function in the United States.

The epoch battle now shaping up is between innovation and control. Concentration and hierarchy are good for control and bad for innovation. You can't spread broadband across income groups if you can't distribute and share because your broadband industry is a plutonomy of interlocking monopolists. But most of our innovation industries, starting with IT, have become oligarchies built up around monopoly rents, and the innovation economist David Mowery has pointed out that software developed with market shares of 80 percent at home and 65% abroad (p 14). Innovation depended on acquiring monopoly control in the post-war market environment - and on large amounts of military funding.

Where are the forces of innovation that can do without this kind of control? Mostly lodged in our permanent discontent. My hope - and fear - is that they will remain dormant until they enter into open revolt against the control-focused governance that now pervades every corner of politics and the economy.

In 1009, Egypt's Fatimid caliph al-Hakim leveled Jerusalem's Church of the Holy Sepulchre to the ground. He then "hacked the church's foundations down to bedrock." The church was rebuilt in 1048, but it's initial destruction became the cornerstone of the crusade preaching of the Catholic Church. His successor would rebuild the church ing 1048, but Hakim's rash act stirs demands in Europe for a Christian crusade to recover the Holy Land from the "infidels." In 1096, the First Crusade would leave Europe for the Holy Land with more than 30,000 men, and would crystallize the anti-Islamic hostilities and salvific-warrior mentalities that seek to control our destiny today, a thousand years down the road.

Dissociation in a Bad Decade

2009-12-20T04:10:00.000-08:00

A few posts this week get close to the heart of the problem. Fr. Frank's Sunday sermon provides the frame - "As we say farewell to a dreadful year and decade," we have to recognize the following:

The men who played us for suckers, whether at Citigroup or Fannie Mae, at the White House or Ted Haggard’s megachurch, are the real movers and shakers of this century’s history so far.

Fr. Frank replaces Time Man of the Year Ben Bernanke - "as big a schnook as every other magical thinker in Washington" with Tiger Woods, the age's typical con man who piles up tens or hundreds of millions of dollars in personal wealth with a skill base prosthetically extended via an image fabricated by extremely expensive media machinery that is at complete odds with reality.

This blog's technical term for the state of mass suckerdom has been dumbness. This is a word I also use for dissociation, the systematic though often unconscious concealment of intersubjective reality behind a screen image of the real.

The most effective means is obviously the mass media in general and its hyperdeveloped skill at producing idealized simulacra of reality - simulacra so perfectly cleansed of anomalies that they fit the definition of hysteria. The source is often a trauma. Thinking of US history in general and of 9/11 in particular, I would say that dissociation is a response to a trauma that suppresses the subject's own role in having produced the trauma.

Everyday examples of dissociation can be found in Fr. Frank's descriptions of hero-worshipping of male sports stars and of faith in Weapons of Mass Destruction in Iraq. The other huge example that we're very much living with is the securities industry, in which values for securities that brokers made up were assigned through exchanges via mimetic thinking and mutually reinforcing professional networks.

Fr. F rightly starts the dismal decade with the Enron scandal rather than 9/11: 2001 was the year in which its "assets" came gradually to be seen as accounting fabrications. He gets good play out of the accounting firm Accenture's use of Tiger Woods as its sole emblem of all things virile and triumphant, and then its attempt to scrub Tiger Woods from every piece of company material as though the relationship never existed. Fr. Frank doesn't mention that "Accenture" was the name that emerged when accounting giant Arthur Andersen had to scrub itself out of existence as the disgraced accounting firm for Enron Inc.

There is an Orwellian aspect to these total reversals: we worship Tiger Woods; we look down on Tiger Woods. Enron is America's most innovative company; Enron is America's most fraudulent company. As an educator, I notice first and foremost the absence of learning. We just go onto the next thing: from Enron's "special purpose entities" to Lehman's "structured investment vehicles," from day-trading in equities to zero-down real estate investing. The pattern is reinforced by our leaders, who depend on it to maintain their own position. A recent example was Obama's justification of the escalation in Afghanistan by trying to suffocate reflection with a thick blanket of primal innocence: "unlike the great powers of old, we have not sought world domination."

In his amazing novel 2666, one of Roberto Bolano's main characters, a Spanish specialist in German literature and in particular the works of the elusive Archimboldi, returns to his hotel room in a Mexican border town, puts down

rugs on the bed he didn't sleep in, then . . . sat on his bed and for a fraction of a second the shadows retreated and he had a fleeting glimpse of reality. He felt dizzy and he closed his eyes. Without knowing it he fell asleep.

Why are we still sleeping?

The effect of the Big Sleep appears in another great framing moment, Glenn Greenwald's continuation of his critique of the Obama administration on health care. He argues that Obama is systematically continuing Clinton's Third Way, which Greenwald defines as corporatism.

It's about more than just letting corporations do what they want. It's about affirmatively harnessing government power in order to benefit and strengthen those corporate interests and even merging government and the private sector. In the intelligence and surveillance realms, for instance, the line between government agencies and private corporations barely exists. Military policy is carried out almost as much by private contractors as by our state's armed forces. Corporate executives and lobbyists can shuffle between the public and private sectors so seamlessly because the divisions have been so eroded. Our laws are written not by elected representatives but, literally, by the largest and richest corporations. At the level of the most concentrated power, large corporate interests and government actions are basically inseparable.

The health care bill is one of the most flagrant advancements of this corporatism yet, as it bizarrely forces millions of people to buy extremely inadequate products from the private health insurance industry -- regardless of whether they want it or, worse, whether they can afford it (even with some subsidies).

Greenwald is right about this "centrist" Democrat philosophy, and about its authoritarian overtones. It's also important to figure out where this corporatism comes from. Part of it is the media simulacra, of course, providing all the comforts of Babyland for an infantile population. The deeper harder part comes from systematic and self-protective dissociation from anything that conflicts with an airbrushed image of America that helps us all confront absolutely nothing the country or its leaders actually do - like "seeking world domination" around financial markets, military power, UN climate policy, and so on.

The area where the country's middle classes are being continuously damaged is finance itself. The financial system created untold trillions of dollars of assets that its own participants determined in the summer and fall of 2008 to be worth little or nothing. Collapse was averted because governments led by the US Treasury and the Fed stepped in to provide unconditional guarantees that these assets would be worth close to face value. This was the importance of Treasury Secretary Tim Geithner's "giveaway" (also here, here and here) of 100 cents on the dollar to AIG's counterparties. Even if it wasn't a giveaway, it signaled Total Commitment to whatever fictions finance had been using to pile it high and deeper. In other words, to avoid collapse, the feds supported dissociation. This meant the rapid forgetting of what we had momentarily learned about the non-value of financial values through their real support with taxypayer-supplied direct payments, loans, and guarantees. The forgetting continues to this day, when it is hard to find any commentary on the problem assets that remain on everybody's books, because we are now dissociatively engaged in an economic recovery.

How do we make it stop? The old Left mechanism was the exposure of false consciousness through immiseration. The lie of prosperity (for the large majority) would be exposed through the truth of suffering.

We have plenty of suffering in the dying states. In the Left Business Observer, Doug Henwood writes,

According to a new ABC News/Washington Post poll, one in three U.S. households reports that a member lost a job over the past year. The effects: 90% report higher personal stress; 62%, anger; 58%, depression. That translates into 83 million Americans experiencing stress; 58 million, anger; and 52 million, depression, as the result of recen job loss. Not quite four in ten of the job losers report having foudn a new job - and of those who do, half say it's for less pay. For those unable to find a new job, the emotional effects are severe: 70% are depressed.

The obvious problem is that suffering that leads to depression doesn't lead to change. Anger is more useful, but can easily be reversed into depression, particularly in a culture like that of the U.S. in which everyone is held personally responsible for failure and there are no structural problems really or exploitative ruling classes etc etc - except the ones you see when you are really angry, and then even your friends avoid you for being the loser you are.

The Left is not doing well right now in defining a new architecture for a egalitarian economy that develops the whole society. It also needs to do better at confronting the psychological blockage to imagining what that would be, starting with acknowledging our own role in getting us here. I think the key to ending dissociation is ending the threat of being a loser by confronting the fact that in the current situation that is exactly what nearly all of us are.

Getting Rolled AGain

2009-12-16T15:33:00.000-08:00

Glenn Greenwald outdoes himself in this unrelenting slam of the Emmanuel-Obama Axis of Nixonism - except Nixon was more of a New Dealer. Here's a particularly nice summation:

In essence, this reinforces all of the worst dynamics of Washington. The insurance industry gets the biggest bonanza imaginable in the form of tens of millions of coerced new customers without any competition or other price controls. Progressive opinion-makers, as always, signaled that they can and should be ignored (don't worry about us -- we're announcing in advance that we'll support whatever you feed us no matter how little it contains of what we want and will never exercise raw political power to get what we want; make sure those other people are happy but ignore us). Most of this was negotiated and effectuated in complete secrecy, in the sleazy sewers populated by lobbyists, industry insiders, and their wholly-owned pawns in the Congress. And highly unpopular, industry-serving legislation is passed off as "centrist," the noblest Beltway value.

Digby's quite nice on this too. The key here is the middle section of the paragraph: Obama can directly and coercively give the taxpayer's money first to the "F" in FIRE (finance) and now to the I (insurance) because of the pathetic psychological state of progressives - so pathetic that it's hard to even know if they are progressives or not, or if they know. Would these people respond if exposed and pounded on by a thousand Greenwalds and 10000 Digbys? How much more failure is it going to take? My only disagreement with Greenwald is that he doesn't sufficiently stress the apparent causal power of a mass mental break.

It's true that Obama is more to blame than Lieberman, but why is Lieberman able to act like one of the regional tyrants that could blackmail the emperor as the western Roman empire disintegrated (e.g. throughout all of the 400s). This is a sign that Obama has already lost most of his authority, if he ever had it in the first place. It's also more evidence for Fire Dog Lake's important claim for the practical failure of the Rahm Emmanuel strategy of crippling the left and even the center so they can cut deals with the right. They have achieved almost nothing this way - unless what they want is in fact FIRE corporatism instead of government.

There are a lot of parallels with Clinton, of course, but it reminds me more of Tip O'Neill's disastrous accommodation of a not-yet-strong Ronald Reagan during the recession of the early 1980s, when instead of fighting him on the air traffic controllers and tax cuts, he found lots of local advantages in caving in. The Dems haven't ever really recovered on the level of strategy or of ideology, and that was almost 30 years ago. And of course O'Neill was still running scared from the McGovern debacle, which they never analyzed correctly - as is Obama in his desire to be Nixon rather than McGovern (or Carter) in Afghanistan . . .

I like FDL's virtual whip project but am not sure how to scale up opposition to a DC that is completely off the rails and selling itself to the highest bidder as quickly and totally as it possibly can. (This view is compatible with Nick Silver's good rationalist analysis of progressive failure.) Obama's vaunted Internet strategy was built to campaign the masses and not to rule the brokers in the capitol. A starting point would be for Obama to engage in a public slicing and dicing of his enemies in a major national address - really hang them by their heels from the telephone poles on the road to Woody's Creek, as Hunter S. Thompson used to say - but he's already lost the spirit to rule in the midst of all his orthodox calculations of compromise, to say nothing of implementing any actual renovative ideas.

Decline And Fall - For No Reason at All

2009-12-12T11:50:00.000-08:00

Pretty much the whole sad story of Obama, War President of the Nobel Peace Prize is wrapped up by Glenn Greenwald, so no need to expend extra thought there. This Greenwald is required reading on the foreign policy portion of the current rapid Democrat slide into Republican policy hell - all for basically no political reason, since the Repubs are widely despised. (See also David Cortright here.)

Same goes for Obama's Republican economic policy - Matt Taibbi this time on the" economic team made up exclusively of callous millionaire-assholes an economic team made up exclusively of callous millionaire-assholes [that] has absolutely zero interest in reforming the gamed system that made them rich in the first place." Thank you. Taibbi links the names, a simple way of showing the painful marginalization of any critical thought - finally as insidious and life-sapping a trend in modern America as the pervasive, half-veiled faith in violence. The sorry outcome is that all those Dems from Obama to Frank et al can't move ahead unless, as they were in Fall 2008, they are prodded by simple fear. With the visible threat past for the immediate Finance Family, it's back to their laissez-faire.

The result with the Obama admin is, as one person puts it, ""Rather than having a team of rivals, they've got a team of Rubins." How much clearer could it be that Obama is finished as an indepenedent force in US politics? Rolled like that, you never recover. At least he won't.

Amidst all the enforcing of progressive timidity by Rahm Emmanuel et al is the sheer timidity of the conventional wisdom here.

Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.

On this point, Obama foreign policy is even worse than Obamanomics. Greenwald wraps up the Nobel speech like this:

Indeed, Obama insisted upon what he called the "right" to wage wars "unilaterally"; articulated a wide array of circumstances in which war is supposedly "just" far beyond being attacked or facing imminent attack by another country; explicitly rejected the non-violence espoused by King and Gandhi as too narrow and insufficiently pragmatic for a Commander-in-Chief like Obama to embrace; endowed us with the mission to use war as a means of combating "evil"; and hailed the U.S. for underwriting global security for the last six decades (without mentioning how our heroic efforts affected, say, the people of Vietnam, or Iraq, or Central America, or Gaza, and so many other places where "security" is not exactly what our wars "underwrote"). So it's not difficult to see why Rovian conservatives are embracing his speech; so much of it was devoted to an affirmation of their core beliefs.

The more difficult question to answer is why -- given what Drum described -- so many liberals found the speech so inspiring and agreeable?

And then the 64 dollar observation: "Yesterday's speech and the odd, extremely bipartisan reaction to it underscored one of the real dangers of the Obama presidency: taking what had been ideas previously discredited as Republican or right-wing dogma and transforming them into bipartisan consensus."

Dissociation, fear, mindless nationalism, avoidance of solutions to economic problems that would require change, mindless nostalgia, cultural stupidity so deep that it endangers the country: what is it ?

Fr. Frank's Sunday sermon points out that our "particular darkness" is "the disconnect between the corporate culture that is dictating the firing and the rest of us." And there is the total immunity from the "consequences of their actions."

There's some kind of death knell here for even the illusion of the Dims as a second and oppositional party. There's the Dead Zone politics to come, followed inevitably by far more unrest than we've seen in the US in quite some time. See the U blog for the local versions unrest - or this poll report for majority desire for the New Deal now abandoned - as the pseudo-recovery continues to squash the little people and their chldren.

With this in mind, we have to start facing the fact that Obama, who rapidly moved from "change we can believe in" to disappointment to sell-out (to Wall Street), may be entering the territory of "worst thing to happen to the Democrats in decades."

Oursource Traders and I-Banks Too

2009-12-08T02:23:00.000-08:00

Dean Baker had a nice short bit called "Toyota's CEO Works for Less":

The NYT told readers that GM may have trouble getting a new CEO because of the limits the government has imposed on CEO compensation. It would have been worth mentioning that the CEO of Toyota and other successful auto manufacturers work for pay that would likely confirm to the government limits.

This suggests that CEOs in the United States have simply priced themselves out of the market. The obvious solution would be to outsource top management, as was done with Chrysler.

Same goes for the banks themselves. At some point we may tire of claims that huge bank bonuses during the Great Recession they caused are necessary because you can't get a trader to exert his god-like powers for less than 500x the median annual wage. We'd then ask that all trading be sent to back offices in Banglore and Ho Chi Minh City, just down the road from where the banks got industry to send US and UK manufacturing jobs years ago.

Obama Kills His Better Half

2009-12-04T08:14:00.000-08:00

Obama's decision to escalate in Afghanistan was sad and stupid, and made stupider by the bollocks he talked in justifying the dumb murderous thing.

There was

"the waving of the bloody shirt" - the oldest presidential gesture in US histor - around 9/11.
the repetition of Bush's fradulent claims of The Terrorists' immediate threats to American security.
the phallic backdrop of West Point, the martial imagery, the sentimental militarism, the "using [of]American soldiers as props" by yet another president who feels insuffficiently martial for warrior nation, the grotesque ass-kissing - "it's an extraordinary honor for me to do so here at West Point" - hello, you're the elected president, we still have a civilian government don't we?
the standard self-righteous vision of America's own saintly and hence preeminent leadership in all actions, thanks to its absolute innocence of selfish motives behind violent acts ("unlike the great powers of old, we have not sought world domination").
no recognition of the failure and uncertainty of military interventions (cf Bacevich)
no recongition of the absurd double standard of the US military presence in 130 or more countries - you must check with us about everything; we do whatever we want
no recognition of blowback (Reuters found multiple expressions among Afghans within a few minutes of the speech's end)
no recognition that the US, in escalating its occupation of a Muslim country, is doing exactly what a credible authority named Osama bin-Laden said provoked terror in the first place - occupying a Muslim country
no ability to see that 130,000 US troups in a country is an occupation. For god's sake.
no recognition of the mindless destructive waste, the death trip, the death drive.
no recognition that noone in other countries believes any of this bullshit - strictly no one, none of it, especially not the pathetic washing of the blood off the hands at every public opportunity as though the whole world were a fundamentalist church.

Aside from the futility of the policy itself (see the whole Democracy Now broadcast December 2 for the many reasons why), it's also finished for Obama - he's cooked his own goose.

Historical evidence for this unpleasant conclusion was nicely condensed by Rep. David Obey in his honorable attempt to impose an Afghan wartax (squashed by House Speaker Nancy Pelosi):

if we don’t pay for it, then the the costs of the Afghan war will wipe out every other initiative that we have to have to rebuild our economy. That’s what happened with the Vietnam War which wiped out the Great Society. That’s what happened with the Korea War that wiped out Harry Truman’s Square Deal. That’s what happened to the progressive movement back before the 20s when we went into World War I. In each case costs of those wars shut off the ability to afford anything else.”

Obama has deliberately embraced the wiping out of his own domestic policy. And that is what he will get.

Obama is going down. During our latest undeserved ordeal, try at least to enjoy Onion stories about our most recent Teleprompter President. The big question remains: how will we avoid going down with him?

Ye Olde Split Between Top and MIddle

2009-11-23T09:56:00.000-08:00

"Top" here means the White House and the Congressional leadership, whom Krugman describes as being pulled away from job creation and other recovery politics by the banks, who in a growing number of accounts have conquered the U.S. Government. Max Keiser's "Goldman Sachs are scum . .. they've basically coopted the US Government, the US Treasury Department, the US Federal Reserve functionality, they've coopted Barack Obama" -the second part, about banker cooptation, apprears on the pages of many daily newspapers.

The middle - here rank-and-file Congressional Dems - rebelled a bit. They passed a measure in the House Finance Committee requiring an audit of the Fed's many enormous bailouts of insolvent banks, whose sums and recipients remain undisclosed. They passed the measure over the opposition of House Finance Committee Chair Barney Frank.

There are lots of good ideas around about how to fix things. One of many examples is Dean Baker's idea of how to actually go about revaluing the Chinese yuan. The problem isn't that nobody knows what to do, that it's all so complicated. The problem is that the top doesn't want to do the things that could be done to fix things. These things would cost them money.

The outcome is the sort of phony helplessness that now pervades US policy in finance, job creation, higher education - take your pick. It only works on the assumption that most of us are pretty dumb.

Disaster in Plain Sight

2009-11-14T02:30:00.000-08:00

It's interesting to see the category "financial elites" used as a natural object by the New York Times. On top of that, Bob Herbert nicely summarizes the clearly visible problem with the current "recovery":

It was the financial elites who took the economy down, and it was ordinary working people, the longtime natural constituents of the Democratic Party, who were buried in the rubble. Mr. Obama and the Democrats have been unconscionably slow in riding to the rescue of those millions of Americans struggling with the curse of joblessness.

Amidst an underemployment rate of about 25% for Blacks and Latinos, and a poverty rate of 35% for Black children, "Wall Street can boast about recovery all it wants, [but] much of America remains trapped in economic hell."

I think it's worse than that, actually. The "investment" and "employment" economies have been divided for some time: attempts to save the company by firing workers, the national stroke of managerial genius of the 1970s, became attempts to loft the stock price by firing workers. The markets divorced the industrial employment base a long time ago,and they have long gone in opposite directions. The crisis has given the financial sector the chance to perform the most complete dumping of the employment economy in modern history. It's not sustainable, but finance doesn't care. Without some kind of upheaval, by the time the political sector shifts a little emphasis back to the employment economy, all of the political sector's money will be gone.

Dismal Dems

2009-11-08T02:14:00.000-08:00

Driving the point home about the failing Democrats, John Nichols blogs in the Nation that Obama and the Congressional Dims "continue to make the mistake of treating unemployment as an afterthought rather than the most serious issue facing the nation." Writing about last week's Republican victories, he points out that " in New Jersey and especially in Virginia, where Republican candidates in high-profile races focused tightly on economic issues and job creation, they won." And Fr. Frank's Sunday sermon notes,

The system is going back to the way it was with a vengeance, against a backdrop of despair. As the unemployment rate crossed the 10 percent threshold at week’s end, we learned that bankers were helping themselves not just to bonuses as large as those at the bubble’s peak but to early allotments of H1N1 vaccine. . . . both parties have their own delusions, not the least of which is the Republicans’ conviction that Tuesday was a referendum on what Obama has done so far. If anything, it was a judgment on just how much he has not.

Unhappy Obama Anniversary

2009-11-06T01:03:00.000-08:00

It's Obama's one-year birthday as president and I like many others am not celebrating this week. Afghanistan escalation, Guantanamo closure, the ongoing fiasco in Honduras, non-existent financial reform, health care with no public option, you name it. The middle-classes are shrinking and falling as before. Obamanomics has split Main Street off from Wall Street in order to protect Wall Street, which is busy reinflating various bubbles and is back paying its people like an aristocracy superior to everyone else on earth. Public higher education is sinking fast. As Avery put it, what in practice is better after a year of Obama than before?

There are no doubt federal institutions that are better because they are no longer being run by sworn enemies of government. There are many many fewer appearances by George W. Bush. There are no doubt improvements in the judiciary. But the top-level decisions have been uniformly disappointing.

This impression is beginning to circulate in Europe as well. The American economist Jeff Madrick had an interview published in Le Monde on November 4 in which he deplored Obama's reflexive attempt to find the middle way even if it is a dead end. The problem is not that Obama compromises too easily, but that he is what Cass Sunstein a while ago called a "Chicago Democrat." He wants government to set some rules for a "market" that he conceives to be the source of all economic value and which therefore must be as free as possible. In practice this means as unregulated and as unaccountable as possible. This is exactly what we are getting.

See Paul Krugman's mournful description of Obama's strategy, which might be called "one bridge too few." "The Democratic base, so energized last year, has lost much of its passion, at least partly because the administration’s soft-touch approach to Wall Street has seemed to many like a betrayal of their ideals." 538.com discusses statistically visible "democratic disgruntlement" -

Current data showing strong disapproval of the Democratic-led Congress by rank-and-file Democrats could be given voice as follows: I realize that when Democrats first took control of Congress, Bush was still President, and Congress, even though dominated by Democratic partisans, had their hands tied. But now, with Obama as president and increased majorities in Congress, you're still not getting stuff done that I care about? And, when are you guys (expletive deleted) gonna focus on what we need most—jobs! You wanted complete control, and that's what you finally have. And this is what we get?!

I stick to my description one year ago of Obama One, a near-reincarnation of Bill Clinton. The proposed gutting of Sarbanes-Oxley this week - by Democrats - may become a fitting monument. When we face this fact, we may really get back to working on something better. Grace Lee Boggs had a nice passage on this.

I think that the only answer to the counterrevolution . . . is to begin creating a new concept of hope, not to talk about recovery. We don’t need to go back to a society that is concentrated on economic growth, that dehumanizes us, that makes us consumers only and is threatening all life on this planet. We need to be thinking about something new.

Warlord Schoolboy

2009-11-01T01:43:00.000-07:00

I'd almost forgotten what a dunce David Schoolboy Brooks is because I never read him anymore, but this terrible piece was somehow unavoidable. In it, Schoolboy offers no actual argument for escalating in Afghanistan. He just refers to unnamed gladiators like himself to taunt and bully Obama with that great question of modern statecraft: "are you man enough to go to war"?

Glenn Greenwald has previously sent Schoolboy to the corner for chest-beating in class. He does it again this time (as does Amy Davidson at the New Yorker), so I'm reluctant to mention the man again. The problem is that Schoolboy spent the Bush years not only defending all pointless invasions but also establishing himself as the national spokesperson for middle-class values. In other words, he has specialized in defining extreme right-wing positions - particularly military conflict-resolution and economic plutocracy - as the foundation of bourgeois utopia.

A few people call Schoolboy on this publicly, and Greenwald is exemplary in railing tirelessly against the weird, myopic hypocrisy of media and political elites who are happy to spend money we don't have for war but not for health care. To me they sound like the clueless leaders of France during Napoleon III's mid-19th century Second Empire, a period when France should have been democratizing and developing its social capacities for various kinds of economic and social development, and when it instead became increasingly militaristic and economically second-rate. Schoolboy's term "tenacity" accidentally invoked not Churchill but Nixon in Vietnam. The middle-class lets people like Brooks speak for it only at its own mortal peril.

Schoolboy published the day after his own paper shone yet another light into the cesspool of Afghan leadership with a story revealing that Ahmed Wali Karzai, already suspected of being a major opium trafficker, is a CIA operative who helps them run a paramilitary force in Kahdahar province. The past couple of weeks have seen increasing exposure of Afghan and "AfPak" reality, including Jane Mayer's report that the CIA is also running a U.S. drone campaign in Pakistan (see also UN Special Rapporteur Philip Alston), Secretary of State Hilary Clinton's unpopular visit to Pakistan, marked by the market bombing in Peshawar (and Clinton pushing "the button on a computer that randomly chose more than 700 lottery winners"), and the U.S. visit of Afghan democracy activist Malalai Joya, whose book, A Woman Among Warlords, is a reminder of the costs of the real-world version of the armchair warlord schoolboys.

Devolution through Dumbness

2009-10-25T11:06:00.000-07:00

Thanks to Michael for linking me to the great Glenn Greenwald piece, "American Priorities, by the Beltway Elite," which gets at the heart of why the U.S. is moving backwards and is no longer a model for aspiring countries anywhere. The heart is simple antihumanism, directed at our own population, in this case by the editors of the Washington Post.

Universal health care, however desirable, is not "fundamental to the defense of our people." Nor is it a "necessity" that it be adopted this year: Mr. Obama chose to propose a massive new entitlement at a time of historic budget deficits. In contrast, Gen. McChrystal believes that if reinforcements are not sent to Afghanistan in the next year, the war may be lost, with catastrophic consequences for U.S. interests in South Asia. U.S. soldiers would continue to die, without the prospect of defeating the Taliban. And, as Mr. Obama put it, "if left unchecked, the Taliban insurgency will mean an even larger safe haven from which al-Qaeda would plot to kill more Americans."

As Greenwald points out,

We have absolutely no ability to pay for our Afghan adventure other than by expanding our ignominious status as the largest and most insatiable debtor nation which history has ever known. That debt gravely bothers Beltway elites like the Post editors when it comes to providing ordinary Americans with basic services (which Post editors already enjoy), but it's totally irrelevant to them when it comes to re-fueling the vicarious joys of endless war.

There's some civilizational madness reflected in these beltway editorials - the death trip we keep trying to understand.

The Media's Quagmire

2009-10-23T12:08:00.000-07:00

Mark Weisbrot's slam of the amazing establishment bias in the media was a nice end to my computer day.

Senator Carl Levin of Michigan, a Democrat, was apparently intended to represent the "other side" of the debate. Here is what he said: "Clearly we should keep the number of forces that we have. No one's talking about removing forces."

"No one" in the above sentence refers to the American people, whom Levin understandably sees as nobody in the eyes of the US media and political leaders.

And he goes on to make a crucial distinction between Obama catering to elite media and Obama catering to polls, which might lead him sometimes to do what large popular majorities actually want:

If you want to know why Obama has not fought for a public option for healthcare reform, why he has caved to Wall Street on financial reform, why he has been Awol on the most important labour law reform legislation in 75 years (despite his campaign promises), just look at the major media. Think for a moment of how they would treat him if he did what his voters wanted him to do. You can be sure that Obama has thought it through very carefully.

Obama's whole political persona is based on media strategy, and on not taking any risk that the major media would turn against him. That is how he got where he is today and how he hopes to be re-elected. Many analysts confuse this with a strategy based on public opinion polling. But as we can see, these are often two different things.

Inequality as Theft

2009-10-21T11:27:00.000-07:00

Marcus Baram has this nice chart at Huffpo that compares the growth in financial sector bonuses to non-growth in salaries.

Back in 1985, the average annual salary for all workers across the country was actually a bit higher than the average bonus ($19,000 to $13,970). (Note: these numbers are not adjusted for inflation). How times have changed - while the average bonus soared almost 14 times higher (by 2006), the average salary has essentially been stagnant sine the mid-1980s.

Meanwhile, the Obama administration got pissed at the insurance industry for its open attack a couple of weeks ago on even the weak reform plan. Obama lit into them, and on This Week White House advisor David Axelrod repeated the basic argument:

we need these reforms. In the last year—in the last ten years, premiums have doubled. You’ve seen the insurance companies take—ten years ago, fifteen years ago, they spent 95 percent of their premiums on healthcare, now 80 percent. More of the money is going to bonuses, salaries, administrative costs. This is not a sustainable path for this country. So we need reform, and that’s what he is arguing for.

Turns out politicians can in fact discuss parasitism in America, but only when the deal with the newly proclaimed parasites has fallen apart. When will Axelrod substitute "insurance companies" with "banks" in the same phrase?

Sick of the Job

2009-10-20T02:10:00.000-07:00

A new report confirms what we all know but aren't allowed to take too seriously: bad your job hurts your health. Workplace decline, inhumane treatment, bad psychological vibes affect you and then the whole country. The president of the Families and Work Institute, which sponsored the report, said, "You have to pay attention to the small things, the way people treat each other, whether there are opportunities to learn, whether people’s input is asked for and considered.’’ Obvious in theory and avoided in practice.

The theory is well understood.

Nearly 40 percent of employees in a highly “effective’’ workplace - where people are trusted and supported - report being in excellent health, double the number of those who say they’re in the best health at less effective companies. The institute defines an effective workplace as one offering a climate of trust and respect, learning opportunities, worker autonomy, work-life fit, supervisor support, and economic security. High work-life support and flexibility are especially linked to good health outcomes.

Rehumanizing US society will build from a lot of places, and one is fixing the workplace, which has slid into barbarism and authoritarianism for way too many people.

Inequality as Policy

2009-10-19T15:47:00.000-07:00

This is the title of a CEPR report that is clearer than most that inequality has not been an accidental byproduct of high-tech growth and the "service economy" but has been a deliberate strategy. I elaborate on this in a book on the decline of the paramount middle-class institution, the public university, and am very glad to have this company.

Privatizing Baseball

2009-10-18T02:13:00.000-07:00

Baseball has always been a sport dominated by club owners and business goals, but Bob Herbert has a nice piece on the meaning of the replacement of affordable old stadiums with new corporate parks, all publicly-supported at some point in their construction. Yankee season tickets for a family of 4 were initially priced at $800,000. Herbert note a familiar pattern of absolutely upside-down priorities: "the auto industry is on its knees and we’ve got school buildings in sorry shape and we can’t even rebuild a public hospital in New Orleans. But the Dallas Cowboys have a brand new billion-dollar-plus domed stadium that looks like something out of “Star Wars.”

Banker Noir

2009-10-17T07:18:00.000-07:00

First it's Dean Baker (see his good links), and now the mainstream press is going noir on this banker business. "Bailout Helps Fuel a New Era of Wall Street Wealth" says on NYT headline, which makes for a decent summary of where we are right now.

The banks' new big money comes from Washington - the taxpayers, in the form of direct cash, loans, loan guarantees, and zero-percent interest that they can loan back at 5% or so.
They are making money now doing exactly what they were doing before the crash 14 months ago - "making fortunes . . . trading stocks and bonds, rather than in the ho-hum business of lending people money." That is putting speed-trading, currency speculation, commodities arbitrage, and a bunch of much more clever stuff euphemistically.
No new regulation has taken place: "So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza." or: “'They are able to charge more for all kinds of services because companies need banks and investment banks more now, and there are fewer strong ones to help them,'” said Douglas J. Elliott of the Brookings Institution."
Surviving banks are making monster profits on monster spreads: "Banks that have waded back into the markets have been able to exploit large gaps in the prices of various investments, a feature of the postcrisis financial markets. The so-called bid-ask spreads — the difference between the price at which banks are willing to buy things like bonds, and the price at which they are willing to sell — are roughly twice what they were two years ago.

The noir reading is this: 9/08 was banker 9/11. They didn't do it on purpose, but they used it to increase financial power over the economy. US economic leaders, having stopped being able to generate 1950s-1960s profit margins by making better products and beating the global competition head-to-head, squeezed wages, benefits, and social investments of every kind. These elites made up for the damage done to the general incomes of their own customers with a combo of lootings and bubbles - S&L pillaging in the 1980s, dot-com bubble of the 1990s, real estate bubble of the 2000s, that maintained consumption and middle-class living through easy borrowing against inflated assets. Now there are no more bubbles. The "green economy" of Van Jones and others would help the environment but also raise wages by rebuilding industries that pay decent wages, and that cost finance money! If there's no bubble for Main Street, cut Main Street loose. That's what we have now: the barnacled ship has been cut loose from the government tugboat, and is sinking steadily, while the finance sector is being towed ahead even faster than before.

The new cover story is the V-shaped recovery.

Finance is supposedly helping the gigantic resilient rebound. But in fact it is not putting money into the economy with lending and is taking money out with enormous trading profits for which some losing party pays. All the faltering Vs are aspiring to ideal V-ness. The ones who will succeed - like China - are the ones whose banks are most completely under political control.
The government money not being spent on banks is being spent on our two unwinnable wars, which are also financed by banks. Depressing dumbness floods in from everywhere, as in the McChrystal folly in Afghanistan, which assumes the power of a rich kid country that has in spite of its self-image failed repeatedly at military control, and will spend whatever we have left failing again.
That's noir. It signals the moment where the rotten foundations of the most powerful forms of success become visible to pretty much everybody.

Addendum: noir also assumes the permanent ignorance of the little people. Fr. Frank hits this note on Goldman Sachs in his Sunday sermon

there is one other significant way that our 21st-century vampire squid differs from Rockefeller’s 20th-century octopus. Americans knew what oil was, and they understood how Standard Oil’s manipulations directly affected their pocketbooks. Even now many Americans don’t know what Goldman’s products are or how it makes its money. The less we know, the easier it is for reckless gambling to return to capitalism’s casino, and for Washington to look the other way as a new financial bubble inflates.

Another one of my Capitalist Pals has a good piece on the new order's new big winners ("three sets of players look positioned to do the same in the US today, mostly based on the amazing set of “carry trades” available if you have access to large amounts of cheap short-term funding"). The piece starts by describing US equities as an "emerging market":

The US increasingly displays characteristics that we have seen many times in middle-income “emerging markets” – new dimensions of vast inequality, forms of financial instability that benefit the best connected, and consistently easy credit for the privileged. But this raises the question: who exactly is going to dominate our economic and political landscape moving forward?

Noir as a genre flourished historically as the U.S. transited from a banana republic to a more routinized industrial one, while keeping many of the banana features. Now Simon Johnson concludes, "Many states have been taken over by bankers; there is no shame in fighting and losing against what Jefferson called the “monied aristocracy. But few governments, even the weakest, have handed over the keys as quietly as we did. "

The noir conditions flourish again.

Love is Worth It

2009-10-16T03:06:00.000-07:00

Democracy Now had a great sequence yesterday on the Gay Rights March in DC, starting with Lt. Dan Choi's speech about coming out, "love is worth it." He's facing discharge for telling even though he wasn't asked, and his crescendo in DC can be seen on the website:

But when we’re telling the truth about our love, our country slaps us in the face and orders us, “Don’t ask,” and orders us, “Don’t tell.” Well, I am telling you that the era and the time for asking is over. I am not asking anymore! I am telling! I am telling! I am telling! Will you tell with me?

On the show, he talked about coming out to his parents.

Well, when I came back from Iraq, I finally understood what love was when I started a relationship, my very first one. And I didn’t want to lie about that anymore. I didn’t feel that if I respected my parents—and I respect and love them—that that kind of a relationship should be based on anything other than integrity and full disclosure. They should be a part of it.

The principle here is crucial: respect means you tell the truth even or especially when it will produce disagreement and conflict. The same holds for politics and economics as well: the continuous lying we face as part of the growing orbital divergence of our two economies, finance and everything else, is an exercise of continuous disrespect. It paralyzes us, but only in the short run. As Lt Choi proves, when the paralysis ends, the truth-teller activates not only himself but everyone he or she touches. That process of upheaval in both love and finance is slowing turning its bow towards the way out of the harbor.

This Year's Nobels: Better than Usual

2009-10-12T04:23:00.000-07:00

The Swedish Bank's "Nobel Prize" has gone to two more Americans, including what I believe is the first woman ever to get a "Nobel" in Economics, Elinor Ostrom, of Indiana University. Her work was honored for its contribution to the possibility of "governing the commons" and of inputting user knowledge into the rule-making process. Good. UC Berkeley's Oliver Williamson was co-winner for his work on non-market economic activity, which is of course grossly underappreciated in the neoclassical tradition that the Swedish Bank has generally recognized, and that has lopsidedly dominated US economic theory for decades. The public write-up is pretty good. It would be too much to say that these are anti-Chicago School economists, but in the Swedish "Nobel" context, they are. It's a good sign.

Bubble Brains

2009-10-11T15:23:00.000-07:00

Robert Schiller has some interesting evidence that people haven't given up on huge coming profits on buying and selling houses. It confirms that pathetic story about Arizonans bankrupted by house flipping trying to make it back by buying foreclosed houses in the hope of future flips. As Schiller says in his understated way, "At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game," still hoping they can win by timing the market.

I would only add that people is dumb because a) dumbness used to pay, but also b) they don't have anywhere else to turn. Are they supposed to invest in the green economy? Look for solid annual pay increases by reskilling for a job in the big new American industries that are coming on line? Take heart in the solid new economic strategies pondered in Washington? Trust their retirement to Wal-Mart?

People don't in reality have any of these things to turn to, especially not new economic policy. Bank regulation hasn't happened, and won't, as the foxes still manage the chicken coop, and policymakers, timidly caught by conventiontional deficit worries, are going to tighten money rather than dynamite their way to recovery with a stimulus so big it will actually allow the paying down of the future deficit.

People rely on bubbles because the American economy and its backward leaders still, over 2 years into the surfacing of the crisis in August of 2007, have nothing else to offer them.

Why Obama Got the Nobel Peace Prize

2009-10-09T11:53:00.001-07:00

My friend Ricki has the best one-sentence explanation: Europe wanted to say thank you for beating Bush.

Maureen Dowd is funny in a mock comiseration session between Clinton and Bush.
Fr. Frank's wrangling with the propaganda war on Afghanistan positively reeks of Vietnam

Whiffs of Doom

2009-10-09T01:17:00.000-07:00

In France, the only story about the U.S. right now is its fragility. There's generally incredulous coverage of the health care debates, with marvelling at Obama's inability to either defend or get support for a "public option" variant on the universal public coverage that Europe takes for granted.

There's the relentless transformation of Afghanistan into Vietnam, the pouring of resources down a rathole that will do nothing but create more enemies, suffering, and poverty. There will be one difference from Vietnam. This time the poverty will also be America's.

Then there's the pitiful dollar. As I've noted before, the world hates the dollar. Currency traders are as contemptuous of US economic conditions and policy as the Taliban are of our Afghani statebuilding, and at the first sign of recovery this spring they began to sell the dollar. Some of the reason is that rock-bottom interest rates encourage the carry-trade (borrowing a low-interest currency to buy assets in a higher-interest currency), and some is just sheer fear of the US's infinite deficit funding. I would add that the real problem is not deficits as such but deficits with no "real economy" revival or reindustrialization anywhere in sight. Hence daily stories like the Financial Times - "Asia steps in to support dollar." And hence the daily fretting of my Capitalist Pals - "Is the United States on Sale?"

The issue is the absence of bottom-up vitality in the U.S. The cliche summary is that Wall Street thrives while Main Street dies. That's pretty close to the truth, as my university blog is documenting with sickening ease.

I thought about this on a trip to Florence, Italy has weekend. The L.A. boy in me always remembers the dismal intersection of Normandie and Florence, ground zero for the 1992 Rodney King revolt, an image of the U.S. borrowing with names a cultural capacity it lacks in fact. Florence Italy was an unruly republic that in the 1200s started to build a palace for its elected officials. The officials lived there for 2 months day and night while they did the job of governing. Afte 2 months they no longer had the job, and were replaced by other citizens.

The republic was replaced by the rule of great families, the Medicis being the most important of these. By the mid-1500s, Cosmo I had anointed himself grand duke of Tuscany over all, and moved his court into the formerly-republican palace. The English-language tours don't even mention this fact, as though the distinction between republic and art-loving tyranny would be lost on us.

Florence's wealth had been established through the combination of mass creativity and an early Medici's financial brilliance - usurious lending to various royal families and creative financing that supported trade. In other words, its wealth rested in large part on the massive upgrading of craft expertise in the arts and the trades - the invention of perspective is the most famous, but there were countless other improvements devised and developed by thousands of unsung heroes of technico-artistic transformation. This is where the Duomo comes from, as well as everything else - not from the Medici sponsorship as such, though that was crucial, but from consistent craft innovation widely distributed through the general population of Florence and beyond.

Cosmo had a couple of tiny studies where he supposedly kept in touch with higher things, including his own thoughts. I was struck by one painting and looked it up later. This is a version of Alexandre the Great meeting the philosopher Diogenes, who supposedly lived in a tub.

The solider-king approaches the philosopher and asks, "is there anything that I can do for you?" Diogenes supposedly replies, "yes. You can move. You're blocking the sun."

Florence was flooded with competing philosopher-kings and yet the spirit of the place is the tacit immunity of the artists and artisans and philosophers to royal power. The solider-kings tore up one beautiful city or another on a regular basis. The artists and artisans put them back together, better than before.

In the US, the whiff of doom comes from the absence of this artistic-artisinal counterpower in political practice, and also in political theory. It's a series of powers that lie in wait everywhere, but that in general don't recognize themselves as counterpowers at all.

Then there are my artist friends Cora, Erik, and Ines, who do.

Corporate Suicides in France

2009-09-30T08:55:00.001-07:00

About 24 employees of France Télécom have killed themselves in the past 18 months, and most of them have been tied directly to the workplace environment, and particularly insecurity and stress. The story has been well-covered in France, and the NYT has a piece in English on what has become a huge story about the effects of workplace unhappiness that underlies the bollocks about "lifetime employment" and how good everybody with a job really has it.

Productivity gains are often attributed to technology, but the are more likely to come from overwork and other conditions that cause stress. The U.S. professional workforce has more or less abandoned the 40 hour week - and they don't get paid for extra hours. The toll on quality of life is basically ignored, because in the post-Cold War period quality of life has taken a back seat to sheer production, growth, and wealth as the measures of all things, drowning out peoples' voices and actual experiences that should be making the rules and not the other way around.

Inequality Takes Another Bow

2009-09-28T22:47:00.001-07:00

forever on the rise, now fueled by the recession near you, and with predictable effects on the middle:

Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade's worth of gains to hit the lowest level since 1997.

Future of Housing?

2009-09-28T03:03:00.001-07:00

At Calitics, Robet Cruickshank has a nice piece on boomer housing fortunes and looming failures - the housing boom as a short-cut to wealth that has helped wreck California and that won't save their retirement either. It's more relearning of the old lessons we stuipidly forgot, and maybe too late . . .

Here's his summary of the dumbness:

After having spent 30 years steadfastly refusing to pay higher taxes to help provide to younger generations the affordable education, health care, and other benefits [boomers] themselves enjoyed when they were younger, they have now created a situation where they'll either have to live in their paid-off houses without the ability to provide for their own needs, or will have to sell for cash at fire sale prices in a marketplace without enough buyers.

thanks to Michael M for the link

Why Must We Relearn the Obvious?

2009-09-27T00:49:00.001-07:00

Fr. Frank's piece today on Obama's Afghanistan-Vietnam made me sad. It's a typically learned and perceptive reflection on the historical parallels for Obama's increasingly obvious quagmire in foreign policy. By why does he have to work so hard to lay out what any 8-year old outside the beltway can see? The US in Afghanistan is a way to kill innocent people, piss off absolutely everyone, block economic recovery, throw away whatever money the public has left, destroy his own presidency, and revert the Dims to an imitation of Republican hawkishness that will lose in 2012.

I felt compelled to write a whole book about failing cultural capacity in the US - the reduced ability to learn quickly, retain what we learn, and apply knowledge when it is actually relevant. Afghanistan. Just say the word. How stupid can we really be? Where's the bottom of our stupidity?

"White House Near Chosing U.S. Location to Hold Gitmo Detainees" Am I really reading this headline today, and not three years ago when Cheney was Prez and we were winning the war for hearts and minds in Iraq?

I heard multiple interviews this week in English and French from leaders trumpeting the G20 reforms. But the best analyses were first, from Lori Wallach of Global Trade Watch, who pointed out the contradictions between reigning in finance and letting do whatever the hell it wants, i.e. more of what we have; and then a citation in a John Authers column in the Financial Times, this of one David Bowers of Absolute Strategy Research in London, describing the equity markets right now:

It’s the last game of pass the parcel. When the tech bubble burst, balance sheet problems were passed to the household sector [through mortgages]. This time they are being passed to the public sector [through governments’ assumption of banks’ debts]. There’s nobody left to pass it to in the future.

That's where we are now, with no plan from the top, except for pointless military interventions and additional threats, which utterly undermine Obama One's promises of an era of rebuilding.

We are going to have to start that work by ourselves.

Reforms that Weren't, Reforms to Come

2009-09-15T00:37:00.000-07:00

President Obama's speech about reforms in the financial sector was disappointing, to put it mildly. There were no plans for implementation and no ongoing developments that might actually change the system that blew things up. The consumer agency has nothing to do with stopping problems with overleveraging, opacity, internal fragility, and the unbelievable social costs of the extreme profits involved in financial speculation. Obama appears to be assuming a trickle-down recovery, although evidence at the state level is very much to the contrary. See California's tax revenue stream, for example:

I assume folks who track spreads in lending rates, loan volume and the like could clarify the "two economies" divergence that is crushing a lot of regular folks. You'd think Obama would at least have figured out that the backlash against his health care reforms are fueled by very reasonable economic fear and panic enabled by his non-existent financial reforms.

There's more hope in the report of the Stiglitz commission to the French government on moving from narrowly economic to broader measures of social progress. See also the interesting papers on the commission's website.

It would be nice to be able to say at some point in my lifetime that the US was back on the front lines of economic thinking. That time still looks a long way off.

Dumbest Health Care in the World

2009-09-11T05:02:00.000-07:00

Thank you Matt Taibbi for this opener:

Let's start with the obvious: America has not only the worst but the dumbest health care system in the developed world. It's become a black leprosy eating away at the American experiment — a bureaucracy so insipid and mean and illogical that even our darkest criminal minds wouldn't be equal to dreaming it up on purpose.

Keep reading. Taibbi combines a certain gonzo directness with lots of lucid detail on political processes that people really need to know in order to understand what is happening in their government.

We are still so screwed

2009-09-08T12:02:00.000-07:00

Thus spaketh the Congressional Budget Office's projections, in which ballooning deficits don't buy us lower unemployment. When are policymakers going to get really upset about this and actually do some New Deal public works and general rebuilding of the kind our decrepit public infrastrucure actually needs?

Republicans have absolutely nothing to offer on the economy, health care, education, you name it, as Arnold proves every day in California. Their operatives are making Americans insane. The president of the US wants to give a speech to children about how school is important. In the Insane Country, saying school is good becomes controversial. Hundreds or thousands of people spend their working day considering what to do about this.

In Florida's Indian River County, the superintendent met with local officials up to the 11th hour to determine how to treat the broadcast. According to the Press Journal, school officials last week decided that the speech had to be taped and reviewed before showing students, meaning it would not be shown live.

And these people are allowed to run schools for children? They are completely dumb.

Obama rose to the occasion with this crescendo: "I expect great things from each of you," he said. "So don't let us down -- don't let your family or your country or yourself down. Make us all proud. I know you can do it."

"we" can. they can't.

Krugman Softpedals the Woes of Economics

2009-09-06T23:12:00.000-07:00

Paul Krugman has a lot of good moments in his big think piece on the many failures of the field of economics. He sums up his thesis early on:

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.

The blindness of a whole field was possible because of a wholesale "retreat from Keynesianism and a return to neoclassicism."

There's some handy simplified intellectual history here, but the best feature of the piece is Krugman's linking of even those liberal economists who rejected hard core neoclassicism (and its key mathematical axiom, the efficient market hypothesis) to a debilitating consensus.

But the self-described New Keynesian economists weren’t immune to the charms of rational individuals and perfect markets. They tried to keep their deviations from neoclassical orthodoxy as limited as possible. This meant that there was no room in the prevailing models for such things as bubbles and banking-system collapse. The fact that such things continued to happen in the real world — there was a terrible financial and macroeconomic crisis in much of Asia in 1997-8 and a depression-level slump in Argentina in 2002 — wasn’t reflected in the mainstream of New Keynesian thinking.

The lesson here is that moderation is blindness. Moderation enforces the intellectual limits of the consensus. In this case, "the New Keynesians, unlike the original Keynesians, didn’t think fiscal policy — changes in government spending or taxes — was needed to fight recessions. They believed that monetary policy, administered by the technocrats at the Fed, could provide whatever remedies the economy needed."

Then there's the not so good. The first weakness is the total lack of novelty in the critique of economics as delusionally neoclassical. People outside economics have been saying this for years or decades. They are often called sociologists or anthropologists, and have always thought that the models had lost touch with institutions, people, and also of course power and coercion, which played huge roles in setting up actual economies. In addition to the recent book by Curious Capitalist Justin Fox, there is also Doug Henwood, longtime editor of Left Business Observer, whose classic 1996 book Wall Street offered a much more thorough intellectual history and critique than Krugman even hints at here.

More importantly, Krugman blames "beauty" for leading economics astray. He offers the philistine tag line, "As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth." In reality, economists mistook money for truth. Models that made important people lots of money had to be true. Krugman only superficially considers the possibility that financial incentives corrupted the heart and soul of the economics profession. Some of this corruption was personal and some was collective - it's hard to argue with what seems to be success. But economists are like all scholars in being paid to look past the surface of things to the real forces at work. They have flopped big time, and they

Finally, Krugman's cure is little more than a weaker form of the disease:

So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.

These are three ways of saying that economists have to admit that markets aren't perfect. This may well get them into a freshman sociology or culture or history course, but it won't get them to the point of explaining how our economies actually work or how to keep them from being giant factories of social inequality and environmental destruction. Moderation is blindness, even when it comes from Krugman.

What if We Don't Shop?

2009-09-06T07:00:00.000-07:00

The NYT published this piece about fundamental changes in US consumption.

Millions of Americans spent years tapping credit cards, stock portfolios and once-rising home values to spend in excess of their incomes and now lack the wherewithal to carry on. Those who still have the means feel pressure to conserve, fearful about layoffs, the stock market and real estate prices.

I've wondered for years what most Americans like to do besides shop their way up the commodity ladder to bigger or more expensive. I don't know that many people who did this full time, but the ones who do seem to make the rules for everyone else.

We're seeing a forced slowdown, but no real shift in desires - are we? Are consumers as totally inflexible as bankers, who a year after the big meltdown have taken all the government's money, maintained all the rules, and blocked all reform?

The main difference seems to be that bankers have more money - including more public money than the public has.

Even Economists Wonder: Is this NOT a Recovery?

2009-09-04T00:58:00.000-07:00

Here's a doubting Stiglitz. W-shapes, anyone?

There's some good stuff in this June piece by Marshall Auerback on why our bank bonanza isn't an economic bonanza, and will never be.

And here's a piece by one of my Supply Sider Pals on the "Non-Stimulating Stimulus." He, being a supply sider and a Poverty Denier, thinks the non-stimulus is good, because all government spending is by definition bad. But his data is interesting - only 12% of the stimulus is going into new purchases of goods and services. This helps explain the non-stimulus.

Bombing the Black 'Burbs

2009-08-30T02:15:00.000-07:00

Credit itself is valuable and not parasitic, but huge returns in banking service areas like mortgage lending ARE parasitic. Obviously fat profit margins raise the cost of any product to consumers, though this basic idea seems to be lost on the dumb bunnies that line the streets throwing confetti on the CEOs that pocket tens of millions a year in personal income to run the U.S economy into the ground. The human toll is huge (see this New Haven story as one small example, or today's LA Times on California state workers pushed out of their houses by furloughs), U.S. bank's subprime policies have done all the marxist work any critic could ever want, and Friday's Democracy Now had several particularly good segments on their greedy dumbass antics that have pushed big chunks of the black and brown middle classes back into poverty.

The short version is that folks got tired of waiting around for the raises they hadn't had since 1973, jumped into miracle loan products that were invented so they could be packaged and sold to pension funds and other huge buyers as mortgage-based securities, and were assured that their house value could only go up so that they could always refinance before their balloon payment or interest rate reset bankrupted them. And here we are with housing prices down over 50% in centers of black home buying like Las Vegas, and the bottom 1/3 of the market still falling at about a 25% annual rate.

DN has one segment on how the feds' Making Home Affordable program is giving $21 billion to 25 banks to get them to restructure troubled mortgages - 21 of which were major subprime lenders to begin with. See the report by John Dunbar of the Center for Public Integrity - the biggest chunk, over $5 B, going to B of A's infamous, recently-purchased unit Countrywide.

There's a segment with Wells Fargo subprime whistleblower Elizabeth Jacobson. Some highlights:

Wells Fargo had a separate subprime loan division. Commissions there were 3-4 times higher than in the prime loan division. Interest rates could go from 6% to 12% in two years, had extra origination points, etc. raising customer cost along with commission. Additional revenues were built in by structuring the product to induce a new loan every two years.
"As a company, Wells Fargo pushed the subprime loans, because it was their goal to have the subprime division pay for the fixed costs of the whole company. So there were [subprime] quotas to be met."
deception at the top: "I happened to see a news report with the CFO of Wells Fargo, and he was questioned about the subprime division and denied at that point that Wells Fargo even had a subprime division. So here he is, the chief financial officer, where the subprime loans were supposed to be paying for the fixed costs of the company, and he’s denying that Wells Fargo even did subprime loans."
targeting minority communities: bank management "would encourage the loan officers, the subprime loan officers, to go into Baltimore city and target the churches, the African American churches, to get a relationship going with the minister or the reverend at the church and try to get that person to schedule some sort of meeting. They would call it a “wealth-building seminar” to get the parishioners of the church to attend. And any loan that was funded by Wells Fargo, whether a purchase or a refinance, $350 would then be donated to the church. And so, that was the incentive for the church to want to have these seminars there."

One small silver lining is that Elizabeth Jacobson is now defending victims of foreclosures in Maryland state proceedings. But meanwhile, watching the big dogs that are still in charge, the little dogs keep feeding - on themselves.

Two Economies

2009-08-28T13:54:00.001-07:00

It's not so nice to see that the crash that was driven by finance is now being covered up by a recovery that is limited entirely to . . finance. There's the "two economies" problem nicely explained by Max Fraad Wolff. One of my Capitalist Pals discusses the continuing wave of bank failures around the country, eclipsed by stories about Goldman Sachs's profits. Finance has managed to create multiple tiers even within itself, with the local banks dying along with the job base that top-tier banks have long invested in destroying. A slice of Mr. Gilani:

But now the originators of the leveraged-buyout business model want to control taxpayer-backed banks, to apply another round of leverage to already crippled banks in order to squeeze out all the profits possible. Although this comes at a cost to duped and already drained taxpayers, regulators, legislators and the American public would be foolish to expect anything else from the private equity crowd. If the FDIC thinks it has a problem now, wait until the next implosion of leveraged banks happens.

Absolute continuity with what got us here.

Kennedy against The Dumbness

2009-08-28T04:03:00.000-07:00

Although I wasn't a huge fan of Ted Kennedy, I was quite moved by the two extraordinary clips that Amy Goodman has found of his comments on health care. The first reads in part:

The President’s program, as announced today as a national health partnership program, I believe is really a partnership program that will provide billions of dollars to the health insurance companies. It’s really a partnership between the administration and the insurance companies. It’s not a partnership between the patients and the doctors in this nation.

Amazingly, Kennedy was saying this about Richard Nixon, in 1971.

If we are exactly where we were nearly 40 years ago, are we too dumb to live? It's still my primal question about the current state of things.

Edward Kennedy, R.I.P.

Same as it ever was

2009-08-25T12:42:00.000-07:00

I spent a lot of this August sitting there and looking at that. I did the same thing in August 2008 and August 2007: thank you Susan and Claude!

What I see is an agricultural landscape that France takes care of, and Charolais cows in the afternoon. What I see is the possibility of not destroying everything and not finding new ways to decline. I see from the chair the past, I see the future.

Above I see no Internet. I get none of the hallucinatory "we're on the mend" central banker crapola as in my Google news. I get no CEPR reality in the form of a continuing crunch. But do read this reality (and this). It fits with what I hear from folks like my commercial real estate developer Uncle Russ about enormous debt hangovers, lack of spending power, and other structural issues that will keep the economy from looking like 2006-07 for years to come.

Could we try something else now? Start with the picture.

Dumb Enough Yet?

2009-08-09T02:23:00.000-07:00

Bill Mahler has been working the theme that this is a dumb country. This obscure blog can hardly disagree.

And before I go about demonstrating how, sadly, easy it is to prove the dumbness dragging down our country, let me just say that ignorance has life and death consequences. On the eve of the Iraq War, 69% of Americans thought Saddam Hussein was personally involved in 9/11. Four years later, 34% still did. Or take the health care debate we're presently having: members of Congress have recessed now so they can go home and "listen to their constituents." An urge they should resist because their constituents don't know anything. At a recent town-hall meeting in South Carolina, a man stood up and told his Congressman to "keep your government hands off my Medicare," which is kind of like driving cross country to protest highways.

I'm the bad guy for saying it's a stupid country, yet polls show that a majority of Americans cannot name a single branch of government, or explain what the Bill of Rights is. 24% could not name the country America fought in the Revolutionary War. More than two-thirds of Americans don't know what's in Roe v. Wade. Two-thirds don't know what the Food and Drug Administration does. Some of this stuff you should be able to pick up simply by being alive.

Against this kind of evidence, I'm one of those odd people who thinks that humans are naturally smart, not dumb, and naturally goo - well not good exactly but not naturally evil. I have 20 years of students to prove limited and localized non-dumbness - smartness is possible!

But my optimism is being sorely tested by the United States of America as a whole. Of course this isn't the first time, but I was thinking that during the first summer that we have Obama rather than Bush, that the big picture might start being a little less dumb. No such luck. We're back at the level where US politics consists of Republicans making up some really dumb shit, and the media broadcasting it everywhere as a real story. Like Sarah Palin's claim that Obama health reform will mean a "death panel" that might have killed her Downs' Syndrome baby. Say anything - the dumber the better.

None of the bloviating against socialism etc was ever smart enough to defend ideas that actually worked. Floyd Norris produced some data last Friday showing that the private sector added virtually no new jobs between 1999 and 2009. The growth areas? Lawyers, accountants, and managers, who worked tirelessly to make the economy good for them. You can see how it worked out for the other 90%.

England, Take a Permanent Vacation

2009-08-07T13:56:00.001-07:00

Vacation was so great - same place as last year, and the year before - the Shire, version française, meaning the Morvan, and our friends Susan and Claude's old house in the village of Montarin. More of that later. I have to catch up with hundreds of emails on the university blog, but had to link to this story about the British Council replacing workers with Indian subsitutes that first follow the workers that they are going to replace around on the job.

As I said two years ago in the link above, France has it's problems - like its stupid banking laws that the big bonus-getters haven't fixed enough so that I can draw a check in one branch of HSBC-France from an account I opened in another branch. But France will not be voluntarily ripping up and destroying itself like those wankers to the north.

Think about it. Britain has a government council to promote its culture abroad decides to use that council to showcase the practice of outsourcing the jobs that promote that culture, and does this by creating international ties between the workers it fires and the workers who are replacing them. It gives me a real bad feeling: This country doesn't have any REAL self-respect, and it doesn't have a future. Unlike the Morvan!

Class Seismic Shift in 2008 Election?

2009-07-22T07:38:00.001-07:00

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

2009-07-19T11:09:00.000-07:00

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?

2009-07-09T04:42:00.000-07:00

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

2009-07-08T13:53:00.000-07:00

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

2009-07-08T01:06:00.000-07:00

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

2009-07-06T08:52:00.000-07:00

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?

2009-07-01T03:20:00.000-07:00

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.