Innovation Crosses the Spectrum?

My Capitalist Pals at Money Morning remind me once again about what I used to like about conservatism. In a piece by Shah Gilani, the big worry is that Obama is a state capitalist, which is often used as a technical synonym for Soviet communist. What gives, I asked myself - these guys aren't Cheneyites. Here's a key passage.

Regulatory reforms must ensure that free markets remain free. Part of what’s necessary is to reform the tendencies of firms to overdo the concept of economies of scale. Bigger isn’t always better if it crowds out the processes of creative destruction, the drain in the tub that can overflow and undermine the floor and foundation of democratic capitalism.

It was big banks, big super-regional banks, big investment banks and big mortgage originators that deposited us into the economic sinkhole in which we’re presently mired. Community banks and small loan originators didn’t conceive of the weapons of mass destruction, but they were forced to compete with the big brothers of business by engaging in many of the same practices and investments as a way to remain competitive or be destroyed by the sprawl of bigger, bolder, and badder brethren. Why not disallow firms to get so big they swallow or destroy all competition?

For this kind of conservatism, markets were about supporting the small innovator who would be otherwise crushed by the rich, the Ivy-League well-connected, the lackeys of the presidential palace. Gilani correctly sees Obama financial policy as protecting the bigs at any cost, which he (also correctly) sees as not only rewarding failure, but rewarding mediocrity.

This is the pro-market liberalism of the late 18th and early 19th-century. It produces hostility to government that modern liberals, socialists, and marxists cannot accept. But this classical liberalism is completely right about threat posed to innovation and equity by huge size and state nepotism. Obama's big bank bailouts look as nepotistic as humanly possible given popular anger about the obvious problems - in terms of both justice and efficiency - with giving so much to the top (AIG, AIG's counterparties, bank holding companies, et.c) and almost nothing to the public (very limited mortgage help, etc.)

Local, small, networked, innovative - these should be terms that classical liberals (market "conservatives") and various kinds of socialists should come together around. State capitalism was an authoritiarian corruption of socialism that was neither an egalitarian worker's state nor an efficient corporatism. Most of the left hated the latter almost as much as the right did, so why not start doing more with this?

One historical note: the state's favoritism toward gigantic, nepotistically well-connected monopolies got the early middle-class to side with workers during the French Revolution, and for a while in 1848. Gilani's kind of outcry might signal the start of a political realignment of the middle-classes, one which in the past has been revolutionary.

Things That Blew Up

The best history so far of the development of some fatal financial instruments is Donald MacKensie's review of Gillian Tett's book on JP Morgan's role in inventing a new kind of collatoralized debt obligations. The piece makes the technicalities clearer than any other - read it! the key passage:

As the historian of economics Perry Mehrling has pointed out, events in financial markets cast shadows ahead, not behind. What has loomed over the banking system for the last two years is the shadow of the gigantic, system-wide default of the super-senior tranches of all the CDOs based on the US mortgage-backed securities issued towards the end of the bubble.

If you don't know what that means - read the article! It's help on the shape of thing to come.

Thanks for Noticing

Today's No Shit, Sherlock Award goes to the Financial Times for noting that the "green shoots" recovery ain't all its cracked up to be. Did somebody go outside and talk to someone in a pub?

To be fair, what they're noticing is that other people are noticing the recovery isn't really happening. Arbitrage strategies are shifting, and meanwhile nobody's doing much of anything for the economy where the rest of us live and work - except cut stuff insanely. Yes, Steroid Boy, I'm talking about you.

The people who really Hate America are currency traders, who take every possible opportunity to sell the dollar. I have an archive of 350 Bloomberg currency reports, and someday I will count all the reasons traders have to sell the dollar. Today it's "speculation the Federal Reserve will temper expectations for an interest-rate increase this year in an attempt to lower borrowing costs" - dollar goes down against the euro about 3%. Whatever - the explanation doesn't really matter, and they just make them up. The only time they buy dollars is when some bit of news makes everything else in the world look worse. The default is, in the immortal words of Steven Butler, director of foreign exchange trading at Scotia Capital Inc. in Toronto, on September 11, 2007: "Everybody hates the dollar."

Last week's news this week: Naomi Prins does at least as well as Joe Nocera at explaining why Obama's new regs won't make any difference.

And thanks to Gerry for sending me a like to a Business Week piece on one of the major stakes of all this playboying with billions in real and fake money - declining innovation in the US and the dead end road we're looking down.

The People NEED the Spanish Inquisition

Not that I love polls but well I do love them. They are such good political enter- tainment. Obama's approval rating on the economy is down to 51%, though it's still higher than my approval rating of Obama on the economy. But then pollsters never call me.

Obama's disapproval ratings on the economy have recently tripled. There's a real split on whether Obama has the "right set of goals and policies to improve the economy" (question 12 of the full poll). 87% are somewhat or very dissatisfied with the state of the economy (question 19). Interestingly, this is double the percentage that are somewhat or very dissatisfied with their own financial situation (question 20), suggesting independent concern with the big picture.

So people get that Obama's plans aren't very impressive. On the other hand, they have even less of a clue. 69% are concerned "a great deal" or "quite a bit" about an increased role for the federal government even in a disaster like US health care (question 14). A majority opposes the GM bailout even when it is correctly described as federal stock ownership and increased management control. And 58% think controlling the deficit is more important than a quick recovery (question 24). Too bad Herbert Hoover isn't around so Americans could vote the Great Depression back in 2010.

Part of the explanation for this massive dumbness in the midst of crisis is that no mass education has taken place. There's been no general investigation of who and what caused the banking crisis, even though there is historical precedent for this (the Pecora Commission that began in 1932) and even though 70% or so want some kind of investigation. Father Frank preaches brimestone is his sermon today on Obama's weak financial reforms, pointing out that " "the old Wall Street order remains intact." Worse, so does its knowledge institutions like Moody's and other rating agencies, who were so busy investing in the bubble they were refusing to analyze correctly that they were unable to warn anyone until it was too late. What's just is bad is that none of the financial professions have come forward with apologies or reform proposals or self-critiques that could make anyone believe that this all won't happen again. No investigation, no knowledge reforms, no recreation of professional independence. Ethics, knowledge, humanity, and progress aside, this will delay for economic recovery.

Other victories for dumbness: an interesting tidbit appears in question 39, about affirmative action. When affirmative action is described correctly, as "countering the effects of discrimination" without "rigid quotas," 2/3rds favor it - in contrast to Supreme Court case law and most media coverage, which at best treats AA as highly controversial.

The only overexposed minority I know is the Republican right, symbolized by Rush Limbaugh. Limbaugh has never had more than 13% of the public express "very positive" feelings for him, and that was in 1993. This is about the same number of people that call themselves "strong Republicans" in this June 2009 poll (question F4), which should remind everyone of the anti-democdratic implications of the fact that strong Republicans have been running the U.S. since 1980.

Add "very" and "somewhat" positive for Limbaugh and you get between 20 and 25% of the public, fairly steadily over the past 15 years. This guy has always spoken for a fringe, and his mainstreaming can only be explained as the selective celebrity attention through which the media systematically overstates the impact of a tiny magic circle with powerful political friends. This star system is not that great for the quality of Hollywood movies, and it's incredibly terrible for politics.

The Reagan-Obama Continuum

The French economist Gilles Leblanc reminds France Culture listeners that the crisis remains brutal, that it has transmitted itself into every sector of the economy, and that the decline in industrial output has been faster and larger (e.g. in automobiles, down 30%) than during the Great depression.

The US President Barak Obama has performed a "balancing act" with his financial reforms, most pundits agree. Even Krugman does good-news-bad-news on this front. A clearer vision of the smallness of the reforms is Joe Nocera's.

The banking world fought like mad dogs to avoid limits on executive comp and won that battle. There IS new regulation of the "shadow banking" sector - one that includes huge lending and securitizing entities whether it be GMAC, GM's loan service or the Blackstone group. But it's all weak.

Why is the Democrat Obama administration softer on finance capital in the wake of its enormous disgrace than are My Capitalist Pals, e.g. Shah Gilani at Money Morning. Here's Galani's summary:

But sadly, true to the inviolate nature of politics and the power of entrenched and vested money interests, this once-in-a-lifetime opportunity to actually tear down the failed structures that guarantee another economic collapse and to replace them once and for all with a substantive regulatory structure that can stave off future financial tsunamis isn’t likely to happen.

It seems that the Obama administration’s sensitivity to potentially jeopardizing what some are pointing to as signs of recovery by not calling for radical regulatory surgery has resulted in signals that the approach will instead be to empower existing regulators with more patches and some needles and thread.

See Gilani's list of everything that is NOT being done that needs doing.

The key problem is that Obama is operating with a Clinton-Republican vision of economics - as what someone called a "Chicago School Democrat." In his speech, Obama claimed, "We're called upon to recognize that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our action." The same statement was made many times by Ronald Reagan. On the key matter of the economy, the shift from Republican to Democrat paradigms has not taken place - or rather, they are proving to be exactly the same.

In the wake of the actual failure of the model of self-regulating markets, Obama is maintaining the primacy of these markets, but with a bit more government regulation. Reaganism persists in the total refusal to submit this regulation to any kind of democratic process, in which for example recipients of TARP money are clearly identified, principles are discussed and weighed, the Main Street economy is clearly factored in, and, worst of all, financial discretion is curtailed - it remains maximized in the form of the tiny 5% requirement for assets held against money lent or invested. In this model, the market remains the Lord and master of wealth creation.
Government is the spoiler not the builder.

Recent weeks of “green shoots” rhetoric played an important role. Banks paid back some of their TARP money because they prefer to avoid caps on executive compensation to increasing their lending - money they would have lent has instead gone back to the feds.

Green shoots defined the crisis as a mood swing, a quick and drastic business cycle that is leaving like an unusually serious summer storm. This says that the system is sound, banking and political leaders made no serious mistakes and the ideas of their bubble years remain valid – with a little surgical elimination of some soft spots.

Regulation will remain crippled under Obama because private is still good while public is mostly bad. New private instruments will be invented to stay in the shadows as side deals between private parties. No change in the relation between financial and industrial economies is imagined – there is no Tobin tax, no responsibalisation of finance as one can say in French but not in English.

Meanwhile California is going up in flames - like Main Street pretty much everywhere.

Unhappy Furloughs

I'll soon discuss the Obama reforms, but meanwhile blood flows in the trenches. The NYT had a good piece on furloughs, the new work-for-nothing strategy (as it turns out in practice). But the most telling moment in the piece was about fear and secrecy at work:

Ms. Roberson and Mr. Becht were among the few people interviewed for this article who were willing to allow their names to be published. Others asked to have their names and workplaces withheld out of fear of retribution from bosses or colleagues. And some were hesitant to complain openly about their employment situation, given how many of their friends and family members had lost jobs.

“You’re not sure what they’re watching,” one furloughed man, an online salesman in Chicago, said about his bosses. “Do some people feel that they have to work those hours? Yes.”

The US workplace has gotten so despotic that it flatly contradicts the US conception of itself as democratic. Employers are displaying almost no interest either in the welfare of their employees or even in the reduced effectiveness of workers who skulk like punished dogs.

One of my colleagues in Grenoble remarked today that people are being asked to fit the work rather than the work fitting the people. It's true, and this self-imposed darwinism is so advanced in the US that it has become almost invisible.

More examples:
23% wages cuts at the Globe = survival.
firing 400 people = creating an innovation culture.

They should just say we have no ideas, but this way we spend less of our money.

Meanwhile back in the economy

I just got back from a great trip to Rome, full of new friends, constant beauty, thoughts of decline via stupid leaders - centuries full of them - and thoughts of endurance and triumph. But I'll write about Rome somewhere other than here.

Back in my office at U Lyon 2 there's a mountain of household goods left by our students gone back to California. Anyone need a rose-colored yoga mat? Who had the pillowcovers that are the same as mine at Place Bellecour? Where have all of you gone?

There's so much financial crapola to catch up with. I'm going to have to switch to the University budget side for a while, which is pure Hoover-time. But I ran into this piece about layoffs in Bahrain. People there seem to think that there are issues beside saving employers money.

"For four years I worked honestly for the bank and I considered it my second home", says Narjis Ahmed al Haddad, a former call centre administrator at Gulf International, who was attending a trade union meeting about the lay-offs a week ago. "But they terminated our jobs in one moment, so of course, you'll be angry".

"I still cannot comprehend that I don't have a job any more," says Mona al Kooheji, who worked as a secretary in the structured finance division.

"We have a lot of things set up for our futures, for our children, which is completely finished."

Wow. Your plans - you the employee's - are a factor! Why didn't we think of that in the USA?

The main factor is cultural: we got retrained by Pol Pot to see ourselves as "disposable Americans." Or maybe it was Rush Limbaugh and Phil Gramm, I can't remember. Give up your plans for the good of the firm. . .

All we need is the total reconstruction of economics so that it is measured by social and individual goals. The good news is that other cultures never stopped doing this - or at least knowing how.

Double Standards and Michigan, 1968

General Motors went bankrupt this week, but it's already disappeared from the media radar. GM was the flagship of the American economy during the "American Century," and its stock went from the mid $30s to a bit over a dollar in about 18 months. Oh well - we still have Google.

My noir instinct is that American business doesn't care that GM is bankrupt, because the "new GM" will have shed most of its workers and its obligations to the ones that are left, including its retirees. Somehow, a union trust fund tied to a company that couldn't pay retiree health care is supposed to pay retiree health care. The deal has been changed for hundreds of thousands of former GM employees who were told everything would be fine if they shut up and did their job. No workplace democracy, but a very nice retirement package . . And now look. That's what you get for playing by the rules. Bailouts for bondholders, but no bailouts for retired lineworkers.

The only interesting moment in the GM coverage was when auto analyst Maryann Keller, speaking on To the Point, said that GM had been going out of business for 40 years, and LA Times auto columnist Dan Niel dated GM's decline to 1980s CEO Roger Smith - gosh he was bad. It reminded me of Michael Moore's first feature film "Roger and Me," in which the target of the exposé was the same Roger Smith. The destruction of Michigan through delocalization of facotries was clearly documented in that film, as was the whole executive class's incapacity to grasp reality and do something intelligent.

The film came out in 1989. Here we are exactly 20 years later. What if economists had actually taken Michael Moore seriously? Well, never mind - they might have started their calls to strip pensioners of their health coverage that much earlier.

In the NYT Magazine today, Roger Lowenstein makes the radical proposal to democratize corporate boards. He offers a nice short description of how completely self-dealing and insulated boards often are, with the crap results that are all to obvious.

It's a good reminder at least that there's little democratic about American business, and that democracy and American business are not friends.

The field of economics has long avoided all such considerations, but in the wake of its embarrassment during the current crisis - which it both failed to predict and actively created - is trying some internal self-reform. Thus NYT business columnist Joe Nocera has dug up a guy - a business "columnist" for "Time," and writes,

As Mr. Grantham sees it, if professional investors had been willing to acknowledge these aberrations — and trade on the fact that the market was out of whack — they should have been able to beat the market. But thanks to the efficient market hypothesis, no one was willing to call a bubble a bubble — because, after all, stock prices were rational.

Gong. Way too little, way too late. LOTS of people saying this when it mattered - everyone from the mainstream Dean Baker to analysts of the deep historical cycles of capitalism like Giovanni Arrighi. And it doesn't seem to be making much difference in Econland, where Nocera concludes that the bubble really came from people wanting to believe it was different this time, and Burton Malkiel, the popularizer of the Efficient Market Hypothesis, announces the necessity of his own blindness towards bubbles.

There's a double standard at work here. Prominent economists who were dead wrong on their economics and cost ordinary people much or most of their retirements, for example, are still prominent, and allowed to excuse themselves in the pages of the NYT. Obscure economists, sociologists, professors of ethnic and womens' and American studies who were right remain, well, obscure. Dean Baker is a partial exception, and that's about it. Obama is insuring that the mainstream of the past stays mainstream in the present, but this will insure that a familiar dumbness stays front and center in setting the limits of economic policy.

Writing from Beirut, Rami Khouri has a good op-ed in the NYT that compliments Obama's mountaintop speech in Cairo on how there are so many good Muslims in America and the world, but points out that "An absolute commitment to equal rights and justice as the No. 1 issue would have been smoother." Smoother, only if Obama's goal were to replace force with negotiation and US preeminence with egalitarian multilateralism. But Obama does not favor international equality in nuclear programs or anything else. The main effect will be the continuation of double standards (to say nothing of inequality): nukes for us but not for you, massive bailouts for us but not for you, occupation by us but not by you . . .

Khouri is very generous and says, "He sought a new beginning, though, which we all badly need." I don't agree that this is what Obama seeks. It's more likely that he seeks a more balanced and therefore more effective extension of American power. Khouri gets this right in the first part of a sentence that winds up in the place of friendly diplomacy: "The fact that almost every fine principle articulated by Mr. Obama was contradicted by harsh U.S. policies throughout the region should not detract from the potential power of the ideas in his speech."

The continuing effect of that inequality -- the inequality enforced by US preeminence -- will be double standards, and double standards are a form of elementary injustice that drives everyone nuts and makes peace impossible.

Which reminds me of the summer of 68. Some people were protesting in Paris, Prague, New York, San Francisco, or leading lives of drug-enhanced artistic expression. My brother and I were packed off by our parents to our aunt and uncle's house outside of Plymouth, Michigan.
They showed us a great time, piling us into their 1967 Buick Electra 225 and bouncing up and down over the expansion joints of most of Michigan's highways to the lakes, the sand dunes, the cities and towns, and Niagara Falls. To me, growing up in Los Angeles, the woods looked like a jungle, and the leaves were so luminously green they looked like they were made out of stained glass. My cousin Harry - then in his 20s - worked as a mechanic at the local Buick dealership, and there were always 2 Buicks in the yard, always two years apart in age, the 1965 being set to get replaced in the fall. My aunt and uncle were retired apple farmers, and lived in the 2 story farmhouse that was surrounded by brick subdivisions of the houses of people that had moved to work there for jobs. There was a lot of election news - Bobby Kennedy had been killed, and Martin had been killed, and George Wallace was doing well, and Nixon and Humphrey were holding their conventions. Aunt Margaret found me in front of the TV one day watching Wallace give a speech, slapped the TV off and shoved me out the front screen door - I stayed outside the rest of the summer. Aunt Pat and Uncle Russ came through on their way to Botswana for the Peace Corps -- Plymouth Michigan was kind of a hub. There were the suburbs, but also the green flames of the trees, and the empty roads where the Electra rolled like a magic carpet.

That world is gone. Not so much improved - as it needed to be - as just gone.

Fictions of Inequality

I replaced Fr. Frank with Père Alain this afternoon - Alain Badiou, the French philosopher, who did a public interview today (page 18) with a Le Monde guy in a big art complex on the banks of the Saône river here in Lyon. The topic was philosophy and the novel, and at one point Badiou said this in my paraphrase translation:

the novel is rooted in equality. All great novels have an equal regard for all their characters, in the sense that they all are subjects of understanding. The novel grants everyone an existence that is prior to social sorting and economic hierarchies. This is a special form of knowledge, because it is fundamentally egalitarian.

Bien sur, Père Alain: this is completely true. I would go further and say that the absence of equality eats the soul. There are many forms of this, like slavery as what Orlando Patterson called "social death," and other forms of domination from torture to incarceration that destroy the dominated's identity and kill the ability of society to grasp their existence.

Badiou said at another point that the novel and politics are different forms of knowing. And on top of this, there is no master discourse above them that translates one into the other: they are just different. And "novel" knowledge is desperately in need of expansion and distribution everywhere, especially where politics and economics now are.

I've said before that this thing called the "middle class" in the US - the annoying term for the vast multi-racial economic majority that does the vast majority of the work - doesn't exist without equality, and is crushed by it's absence. The crushing has been happening visibly for well over a year, witnessed in stupefying crash figures from Dean Baker last week, and neighborhood stories all over the place, and in charts like the one below, that show the crashing value of the only meaningful asset owned by most US families:

Part of the point is the familiar but always important one that the munchkins are getting screwed while the wicked witches of east and west are protected by the federal government.

But the deeper point is that the victims of this bust would never have been so vulnerable had they been able to stick with equality as a principle. They weren't. Their pensions were converted to mutual funds that rose and fell with the market, their unions were gutted and then humiliated, their industries deindustrialized -- the fall of GM and Chrysler has been going on behind a few years of great SUV sales and zero-percent financing profits - their government services cast by Reaganism as a slave addiction, and their skills disparaged as old-economy while their jobs were outsourced and shipped abroad. Their public universities were cut in real dollar year after year, ending up in 2005 per capita below where they had been 25 years before. To top it off, their real wages haven't gone up for 30 years.

So they trusted to one boom-bubble after another. They put their funds in dot-com and telecom stocks in the 1990s, which blew up in 2000. They put their money in real estate, which melted in 2007 and exploded in 2008. They might have put their trust in their jobs and maybe their savings in their companies, but what would they have gotten back from that?

None of this would ever have happened if US society valued equality of outcome, period. It would have been intolerable, violated the basic standards of society, and been stopped.

The crash is the real-economy effect of two things. The first is capitalism's structural problems that lead to what Giovanni Arrighi called the financialization that signals the beginning of the end for a hegemonic power like the U.S. The second is a deep cultural illiteracy at the top of the economy, which accelerates and brutalizes the crisis itself.

The good news, if you can call it that, is that the bubble solutions to painful inequality have run out. They only place for the working/middle-classes to go for help is back to wages, which need to increase, their jobs, which need stabilzation, and public services, which are the only thing that ever head their lives together.

Governor Whack Job

Arnold has gone around the bend and is ignoring polls that say the no votes on sales tax increases means the public wants to eliminate in-house care for Alzheimer's patients, CalGrants for students, CalWorks, state parks, everything. He's going to go down with the right-wing ship, with the extreme right of the California Republican party that hates him anyway, and is taking as many of us as possible with him. The Gov goes around saying stupid helpless stuff like, "I know that that could mean potentially that now Alzheimer's patients will not get this in-home service that they deserve. . . . But you know something? Even though those are tough choices, what is the alternative?"

Actually the alternatives are legion, but most of them involve increasing equity in the tax system, and we have all been taught that fairness is bad for California business, so
are totally ignored as the entire state political system is thrown into a paroxym of defensive lobbying. Who can take the U.S. and especially California seriously given this total inability to solve the most basic financial problems?

Genius at work:

"Several of the latest cuts were eye-openers, but the largest was the wholesale elimination of the California Work Opportunity and Responsibility to Kids Program, which provides grants to parents that people commonly refer to as "welfare."

"Matosantos said that by eliminating the CalWorks welfare program and the Healthy Families program for children's healthcare -- which would affect 930,000 children -- the state could save nearly $1.6 billion. But it would also lose $4.7 billion in federal funds."

The captain is crazy. The crew is awol. The ship is sinking.

Dogs are Feeding

I got back to France from Santa Barbara a week ago today. The most memorable political moment back home was when Bill Maher's show came on while I was hooking up my mother's new computer to her giant TV monitor so she could see it better. Maher got through a sequence about Christian breast implants and then had Elizabeth Warren as his guest, an interesting law professor who has done a lot of good work on the decline of family finances in the new economy and how they get screwed by debt, and became the head of the Congressional Oversight Office charged with evaluating the uses of TARP bailout funds. Maher talked TARP for a while, and they agreed Repubs undid 50 years of prosperity with the help of Bill then said you passed the economics part of our show, but I have a philosophical question.

He then used a word I never thought Maher would use: "Philosophically." "I mean just put on another cap for a second. The root cause of our problems is that we really don't treat each other very well as people. . . I don't know if in Norway or Denmark, they are always trying to trick and trap and screw each other for money. . . if you look at a dozen problems in this country, it always comes down to that. We will do anything to each other for money."

Well um yes. Capitalism. Honed to perfection.

Warren's reponse was terrible: "But you know. Every game has rules . . ."

Here are the rules in Arizona, put in story form by this excellent piece that you must read: “You need to buy when there’s blood in the streets,” he said with a shrug. “Even if it’s your own blood.”

That means you bought high, prices fell, so you drive around town all day to find people getting foreclosed and try to by superlow to make up your losses by forcing them to eat theirs. Pure Road Warrior for a nation of house flippers.

Or Terminator 2, where John Connor, whom Terminator is now protecting, watches two boys hitting each other with sticks and says, "we're not going to make it, are we? "Who?" asks Arnold S, newly good Terminator. "People."

Well Arizona isn't. Maybe not the U.S. It's economy turns on shitheaded cons, like billionaire mayor Bloomberg making NY taxpayers cough up $1-4 billion in still-not-clear amounts of bond financing for the NY Yankees' new stadium. It's not just jet-lagged me saying crap like this. Currency traders, not exactly critics of Yankee capitalism, are again crushing the dollar on the generally correct theory that the main Obama financial strategy is to print huge oceans of money and then give it all to the banks, who will not pocket it fast enough to keep its value up.

Warren said we might have to say: "This is what America looks like for the next 50 years." Well yes. Because we're aren't changing too damn much now are we??

And I haven't even started in on California or the higher ed budgets. Or Star Trek, the longest series of movie quotations in movie history.

Battered Wall o Bunkum

Dean Baker and his crew do a nice job of exposing the inefficiencies of the US economic model on its own terms. The central index of its alleged superiority to "social capitalism" in Europe was a lower unemployment rate. Past and present measures of this take a useful hit in this helpful piece.

For a parallel debunking of Arnoldo-nomics in California, monstrous offspring of Prop 13, see Michael Hilzik in the LA Times.

Hilzik's most important point is not about the self-inflicted Republican train wreck but about it's non-necessity: "The truth is that real solutions to the budget crisis are obvious."

For an overview of Hooverization across the states, see this Wash Post piece from last week.

Hooverize Them

I've been having to do a ton of stuff lately besides lament financial dumbness in our time. I was in California when Arnold announced his stunningly bad budget proposal. It's a cross between "Say Anything!" and Andrew Mellon's 1930 "liquidate everything." Republicanism Degree Zero. Mental end times. Unfortunately the dead zone includes the state house.

I also caught up on some back reading (back dreading I wrote). Mike Davis had a very good wrap-up on the election in the New Left Review for March-April. (Or read this borrowed version, and then subscribe to NLR). Davis makes a good case for the Obama-Clinton fusion that will keep his presidency from being an epochal shift, which so far it really is not.

The key thing is that however well Geithner has propped up Morgan Stanley we're dying out here. The states are sinking fast, taking in stimulus money and flushing it right through the big holes in the bottom.

In other places, like Spain, labor is marching again, and against an unemployment rate of 17.4% in the wake of the implosion of their fake real estate bubble economy. So good, and then what?!

Hooverization Continued

Willliam Greider offers a nice example of why people need to push in a much more organized way against the oblivion to which Washington's fixes are resigning the rest of the country. I've written about the California example, and Greider discusses the thousand-plus local banks that are measurably sliding down the quality slope with no assistance coming from the rest of the government. The stress-tests were for 19 of the biggest banks. There's no similar reporting from Washington on all the other banks, although this is where you can measure the financial health of the rest of the country.

I've often wondered whether the US is too big to live. One reason why it would be is that its leaders think all the action is at the top. Most people in the US who want to be leaders imitate this behavior. Anyone who does'nt is classed as a community organizer, i.e. someone who does good on the ground but has no future in politics. Obama was a community organizer, but there are signs that his rise to the top has been accompanied by taking his eye off the ball - Main Street. If this keeps up, we're looking at a long slow slide and not the bounce.

Herbert Hoover Watch

As I was saying yesterday, Hoover is Happening under the stimulus. Helpful explication comes from this CEPR report, "The State and Local Drag on the Stimulus." It is coauthored by Dean Baker, he who called the housing bubble (a little early, but better early than late), and one of the Angry Ones. Also on Hoover Watch is Paul Krugman today. This eerie market calm and journalistic ambivalence is making me very nervous.

Europe is awake. In France, employees at some firms that shut facilities while making good profits are taking the CEOs hostage in their offices, and the French public mostly finds this understandable. The Eurozone is now predicted to shrink 4% this year, and a few people have noticed. Like many of France's prison guards, who blocked prisons today to protest overcrowding and declining working conditions and the suppression of posts. It's not everyday you see riot police tear-gassing protesting prison guards. But then in France, lots of prison guards belong to the old Trot union Force Ouvrière!

Mental Limbo

May Day was good here in Lyon - luminous sunny weather, a nice lunch and walk with my friend Anais, and of course the marches all over France. They were bigger than the useful for 1ere Mai, and smaller than the earlier protest days during this winter of discontent.

Listening to my Sunday radio show, L'Esprit Public, Jean-Louis Bourlanges summed up a major current in the US as well as here in France by saying that the centrist leader Francois Bayrou addresses people who are "exasperated by inequality, by economic insecurity, and by the inability to have any confidence in their future, and yet who are unable to propose a solution." That's definitely where the press is these days, and leaders - completely stuck, and unable to provide any direction for people who have to work for a living.

And yet the conservative daily Le Figaro fretted on April 9th that in spite of the assurances of writers like Francis Fukuyama and Francois Furet, "the French Revolution may not be over." Max Gallo on the abovementioned show said the same thing: unions and parties are busy being moderate and negotiationist, while regular people are mad as hell.

Why is no big mystery. Their leaders screwed up royally, the economy is still going down, employment is getting crushed, retirement and financial cushions in the form of home ownership in the US and UK have lost 20% to 50% of their value in the past year, and leaders are doing much except attending to the care and feeding of wealthy bankers.

Just one small example of ongoing Hoover 2 - money to the top, little below: University of California president Mark Yudof told the Chronicle of Higher Education last week that the state of California calculated the federal stimulus payout to UC, cut their general fund by that amount, and then gave them the stimulus money - as zero.

The big stories this week were the celebration of May Day in America with the bankruptcy of Chrysler, another death knell for the industry that more than any other created the 20th century American economy, and the biggest quarterly GDP shrinkage in decades. And yet most of the press was thinking maybe the recession was bottoming out.

To help explain the stuckness of leaders, it's worth remembering via polls that give the Republicans twenty (20!) percent of the electorate that Republican rule was always minority rule. They brilliantly engineered short-term plurality coalitions for elections by exploiting right-wing majorities on compartmentalized issues (the Iraq invasion in 2002-04, for example). They had some good glue in anti-government sentiment and in genuine hostility towards elites based on real popular grievances like decades of economic stagnation and cultural condescension (a misreading of the problem of out-of-touch concentrated economic power, but nevermind). The Republicans got the judicial branch by controlling the executive branch through constructed pluralities that depended entirely on the illusion of prosperity, bought with cheap credit and the ruses of Republican trickster figures like Alan Greenspan. The Gingrich Congress of the 1990s was also a wedge Congress, combining authoritarian party discipline with total opportunism on issues (scrambling everything from closing the government by refusing to pass a budget to impeaching Bill Clinton for his blow-job cover up). But though smarter on strategy than the Dims by necessity, it was always a minority party. The weakness of the US economy is in part the weakness of the US top-down management system whose poor judgement nearly destroyed the financial system - until it figured out that Big Government was its new cash cow.

The Republicans are idiots so now we're again a one party state. Great. The Revenge of Mr. Rove.

Crisis history, anyone? Here's a good piece on Lehman and commercial real estate debt securitization. These guys weren't printing money. They were getting out their crayons and writing "1000 million dollars" on construction paper and then handing it over to investors. Then they collected 20 million dollar fees. Gillian Tett at FT has written a book about JP Morgan as the source of much of the 1990s theorizing, and had a good summary last week.

Is the crisis history? Ha ha ha ho ho ho, um, well, no.

Cultural Roots of the Economic Crisis

Insight about the cultural roots of the economic crisis is finally making the rounds of some big-city papers. Gail Collins gets at the heart of the cultural problem with the bailouts, though here she's talking about the governor of Texas:

Perry, who is the sort of person who calls other guys “dude,” used to be a cotton farmer, a group that seems to have a special talent for combining rugged individualism with intransigent demands for government assistance.

I call this psychological structure submissive individualism. It's an old US tradition (I first identified it via readings of Ralph Waldo Emerson work from the 1830s). It's tied up with fear and American Christianity - salvation finally coming only from God and not from You. But the core is that individual agency needs strong social systems to be effective economically, US social systems have always been weak, individual agency is therefore a weak and fragile thing for most Americans, and yet the obligation to have big agency is absolute. The endless attacks of the US Right on government only makes the psychological contradictions worse. The result is hypocrisy and double-standards.

Collins continues.

The big mystery here is why the tax-protest crowds were behaving as if the world was coming to an end when all Obama’s infant presidency has done is lower taxes for a vast majority of the public. And why people like Perry seem to feel compelled to egg them on.

The answer is that what’s left of the Republican Party is intent on cutting off the knees of the administration before it actually manages to fulfill any campaign promises on reducing the huge economic gap between the top 5 percent of the country and the rest of the populace. In pursuit of that mission, fortune favors the hysterical and rewards politicians who behave like gerbils that just bit into an electric wire.

Yes. And what is the link between submissive individualism and the obsessive pursuit of inequality? Because the only psychologically plausible solution to submission is superiority - especially superior wealth, either achieved or imagined for one's future. Imagined superiority drives out individuality. That combination of inequality and repression is the whole history of the modern Republican party.

So we get simultaneously the culture wars and the budget wars. The latter take the form of endless ongoing cuts at the state and city level even as the banks are flooded with public money. And they are driven by the sheer unilateralism of financial rules in the US - the banks decide, we take it, even now after they have ruined everything.

Not Learning Too Much Yet

Bloomberg in NYC is just one of many examples of leaders who are doing big cram-downs on salaries and benefits Herbert Hoover-style. Cut wages, cut benefits, make the Great Recession worse. Let the state governments imitate the auto industry so we can all be Michigan.

Or the world, for that matter, where 1.8 billion people work informally, with no benefits or protections whatsoever.

Not much cram-down potential there.

Angry Economists

Jeffrey Sachs on bailout rip-off potential.
Dean Baker on attacks by failed bankers on the great success known as social security.

More on Summers and Geithner

Glenn Greenwald has a good piece in Salon about what, to save space, we can can the Obaman administration complicity in the financial failures they are claiming to solve. See the link to the good story in Stanford's magazine about the active role Robert Rubin and others back in power played in catastrophic deregulation. See also the link to a Post piece about Obaman efforts to shelter some financial executives income from the caps they themselves imposed.

Last night, France 5's discussion show Ripostes treated the G20 and NATO.
One guest, Jacques Attali, who had headed a commission on the French economy for the Sarkozy government and cannot be considered a strong opponent, nonetheless described the G20 like this: it was a huge victory for the Anglo-Saxon banking system. It supports the Geithner plan, which gives public money to banks to use as leverage in the same way that caused the crisis. There was nice talk about crackdowns on off-shoring banking countries and so on by no enforcement of any kind. And if the G20 plan works to save the financial system, it will block the recovery of the real economy.

For a similarly unhappy assessement from the Financial Times, see Wolfgang Muchau's column today.

And last but not least, Chris Hedges warns against the read road to serfdom