New Elite at War with Everyone

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.

Did I Just Feel Sorry for United?

As a regular user of United Airlines I have no sympathy whatsoever for a management system that someday is going to make me bust a blood vessel at a customer service counter after my third flight has been canceled in the same day. They are manipulative and deceitful on a regular basis, and seem to think the yellow-brick road to solvency lies through fields of stranded, price-gouged, or just plain hungry customers. Ben Stein's classic piece about United's financial screw-job on its own employees is required reading for air travelers everywhere.

And yet today I got a mass mailing from United management complaining about how finance capital has done a screw-job on them! The industry's CEO's have come together to denounce speculators and start a social movement. Wow is it fun to see the shoe on the other foot, the foot getting shot by oneself, the dog lying down and getting up with fleas, etc etc. Sign up with the corporate running dogs if you must, but first read their poignant denunciation of international finance.

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress.

Hell, for once United management is right. I'll try to remember this moment next time I give them $907.00 for a 350 miles x2 round trip from Santa Barbara to San Francisco.

More Fun with Finanical Crisis

For the best overview of the role of finance capital in Britain today, see John Lancaster's piece in the London Review of Books. At one point he asks a friend in finance about the effects of the crisis. His friend says it's a much-needed "correction."

So we’ll have to stop running around spending money like drunken sailors,’ I said.

‘Well, drunk sailors tend to be spending their own money,’ Tony said. ‘By contemporary standards they’re quite prudent.’

For a not-as-funny overview of recent American events, here's the economist Dean Baker's summary:

Citigroup continues to rank at the top in dollar losses from the housing market meltdown. It has now set aside $23.2 billion in loss reserves. This sum is a bit less than 20 percent of the company's current market value of $134 billion. Of course, its market value was more than twice as high before investors discovered how deeply involved it was in the subprime mortgage market. The safest bet in this story is that there will be more big write downs to come as falling house prices cause the epidemic of bad debt to spread.

The other major banks are also being hit, even if not quite as hard. Citigroup has already announced that it is laying off almost 10 percent of its workforce. With a sharp reduction in employment at the major banks, Wall Street and New York's economy are likely to feel the pain.

Even those keeping their jobs are likely to have less money to spend. The stock prices of all the major banks and brokerage houses are down sharply, leading to a tremendous loss of wealth for those in the industry. The value of Morgan Stanley's stock has fallen by $30 billion from its year ago levels, Merrill Lynch's decline has been worth almost $40 billion, and Citigroup's plunge has destroyed $147 billion of market value. While investors all over the world own stakes in these companies, these declines will be disproportionately felt in the New York area. Especially since there is almost certainly more on the way.

Watch the New York housing market. Real house prices in the New York City area more than doubled in the decade from 1996 to 2006, driven in large part by the extraordinary boom on Wall Street. With the boom turning into a colossal bust, the NYC real estate market looks quite vulnerable.

The weak December retail sales data released yesterday confirmed the reports from the chain stores last week. Consumers are beginning to cut back in a big way. There seems to be no way around the conclusion that this was a very weak holiday season. Comparing year over year nominal sales growth figures even understates the weakness somewhat since inflation has been higher in 2007 than it had been in prior years in this decade.

The inflation data released this week must have the Fed worried. Core inflation continues to creep up with the core inflation rate over the last three months reaching 2.7 percent. While this is still a very modest inflation rate by any reasonable standard, it is above the 2.0 percent rate that Chairman Bernanke would like the Fed to target. Furthermore, it looks like there is more inflation in the pipeline as non-fuel import prices are finally reflecting the decline in the dollar, rising at a 4.8 percent annual rate over the last quarter.

The Fed will have to be prepared to accept slightly higher inflation if it continues on its path of lowering rates. In this regard, it is worth noting that a 50 basis point cut in the federal funds rate will push it below the 4.0 percent overnight rate set by the ECB. If the ECB holds and the Fed continues to lower, then the dollar is almost certain to drop further against the euro.

For more fun and games, see the Guardian's slam of the Facebook founders, big venture cap libertarian haters of multiculturalism. I heart Facebook - world's lowest brain-power form of human interaction ever invented - unless I think about it. Which this piece made me do. Facebook incessantly packages mass mailings as individual appeals - Anna asks you What Serial Killer are You? - but actually Anna asked 20 people, and did so because she couldn't access the application until she did. The Skip button is a dummy.

I'm sure this is connected to the financial meltdown.

Some Financial Emotions

Father Frank's Sunday sermon was cheerier than usual, thanks to his reading of Obama's victory in Iowa. FF believes Obama and Huckabee are the anti-war candidates, relatively speaking, and that voters went for them because they dislike the war.

Unfortunately, the polls that Rich cites are ambiguous, even in his own paraphrase of them, to suggest an anti-war surge among voters. There's no evidence of revolt against war as an instrument of US foreign policy, and nearly half of the public think that reduced solider body counts mean the war is going well. That kind of bare-half (48 percent here) is how Republicans and near-Republicans like Hillary Clinton maintain control. Father Frank's spirit of joy passed me by.

I would be happier if the Dims had some non-conservative economic ideas - concrete alternatives to what Paul Krugman calls the Repub's decades of "Robin-Hood-in-reverse." With the partial exception of Edwards, they don't.

The core problem for the Dims once again is that Real Beats Fake. The Repubs believe in their Darwinist business-run economy. The Dims don't believe in a social-development alternative - they don't have one. The Dims are nicer about supporting public services, yet not because they are essential to wealth creation and justice, but because they believe in charity. Hillary will follow Bill's Fake Republicanism and do even better than he did to make it real. People don't actually want this nonfunctional neo-classical anti-public economics any more. They just don't have much choice.

The most important public statement in the Iowa campaign was actually uttered on Jay Leno's strikebreaking show, and it came from Republican Huckabee: "People are looking for a presidential candidate who reminds them more of the guy they work with rather than the guy that laid them off."

More everyday signs of the need for new socially-oriented economic theory:

- a good Wall Street Journal story on Japan's stagnation that traces it to the boom in low wage workers. The US kept consumption going through borrowing. Someday we'll rediscover the basic Keynesian idea of helping the economy by supporting demand, which requires good and rising wages for the majority.

- a strange New York Times article on job sadness among affluent doctors and lawyers. The Times is very sensitive to the mood of its base, which has taken a beating: starting as a lawyer in a big firm at $200,000 a year just doesn't feel as good as it used to. Topping out at $500,000 a year hurts a lot of physician's feelings. The article claims that working everyday at really challenging jobs for lots of money pales by comparison to creating your own start-up company!

The better explanation is the combination of grotesque overwork - 80 hour-weeks make everyone feel like indentured servants - and the inequality boom. It's not that you can't live on $500,000 a year. It's that all labor, even the best-paid, is grossly under-rewarded by comparison to corporate ownership and executive placement.

The pivotal economic issue in the election is capital gains tax policy. Will any Dim candidate say unearned income (via investments) should be taxed at the same rate as the income you earn with your own skill and work? Even Edwards won't go there. Until one of the candidates can, we'll have a banker's economy that will make every one else feel kind of bad.