Sobriety Week on Biden-Harris

That felt good. Now it's post-Biden-Harris Sobriety Week. Over at the blog Lawyers Guns & Money, Elizabeth Nelson writes, "let’s not interpret a Biden administration as an opportunity to indulge in cultural and political comfort food. Let’s not feel reassured or validated. There is nothing validating about 70 million votes cast for Donald Trump....This is not the time for upbeat “I knew we’d prevail!” indie rock. ...The anger should feel more acute now than ever. Per the GOP’s proven system, Trump will hand Biden a terrible economy and quite possibly an exaggerated winter of  I-Don’t-Give-A-Fuck-How-Many-Die response to the pandemic. Biden will be pilloried, vilified and obstructed from the moment he takes power. Let’s push back harder than ever." Yes, exactly.

Writing in the New York Times, Tressie McMillan Cottom defines the pushing back as "radical responsiveness" to real US conditions. This means above all extracting full accountability for the Trump Administration: legal forensics into the damage Trump and his people did to public systems from the Dept of Justice to the Environmental Protection Agency to the misuse of executive branch paramilitaries in policing demonstrations in a way that created the illusion of leftist violence that Republicans took with them to the voting booth. There must be a calling to account. The attack on systemic racism that Biden invoked in his victory speech, the rebuilding of public health infractructure (including the disgraced CDC), energy conversion to renewables . . .everything depends on a militant reassertion of expertise, reality-testing, interpretative skills, the whole quantitative and qualitative set of knowledge practices that Trumpism voids. Liz Chatterjee and I have pieces in a forthcoming book (coedited by Anna Alexandrova, to be published by Alan Thomas) arguing that experts truly did earn popular mistrust by supporting policies that did systemic damage to majorities in both the US and UK. That said, the Biden-Harris admin will need to assert, with full militancy, the value of knowledge practices for solving social problems. This will require *investigations* and *prosecutions* of Trumpian corruption, including their deliberate epistemic sabotage. There should be the theater of congressional hearings and legal proceedings, tied to specific lessons to expand the "reality-based community in post-truth America," in Ian Masters' tag-line for his excellent show. Nothing could be worse than forgive-and-forget.

Cottom can be read in conjunction with Larry Elliott's Guardian column about economic troubles. Biden doesn't have an analysis of finance capitalism that can dig the US or anyone else out of the current hole--to the contrary, as Elliott and others point out, Biden is part of the Clintonian Dem establishment that got us here. What kind of worked in the 1990s is failing now, and real budget policy ("fiscal") requires a Congress that Biden-Harris don't control. As Elliott writes, "Monetary policy [via the Federal Reserve] is no answer to America’s need to renew its infrastructure or to make its welfare system more generous. To the extent that it does make a difference, [Quantitative Easing] works by pushing up asset prices and creating a feel good factor so it tends to be better for Wall Street than for the struggling communities in the less well-off states." This has been the play since Alan Greenspan took over the Federal Reserve in 1987, with unaffordable housing and low productivity growth (via low investment) being just two of many negative symptoms. (See French economist Cédric Durand's "Fictitious Capital" for an important analysis of asset-price opium and its damage to the real economy.) So we're going to need a radical rethink of US/UK capitalism, and that work is going to have to be done on a huge scale outside the Biden Admin, which won't touch it unless it grows into a movement.

Why Is Economic Policy so Dumb?

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.

1.  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.
2. 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).
3. 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.
4. 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.
5. 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. 
6. 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.  
7. 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?

Long Slide in the Post-Crisis

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?

Obama Takes the Wake-Up Call

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."

Whiffs of Doom

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.

Dumb Enough Yet?

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%.

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.

Anti-Tax Dumbness

Howard Jarvis gave California Proposition 13, the cap on property tax assessments that has created chaos out of state budgeting for 30 years. It is the source of the 2/3rds majority requirement for tax increases, in addition to capping property assessments at the time of sale plus a little more than 1% annual increases maximum. The results were predictable at the time - gross inequalities in assessments of identical neighboring houses, with the new buyer paying much more, a transfer of wealth from young to old, from newcomer to old-hand, and endless controversy around the support of basic public services. The current Assembly speaker wants to have a blue-ribbon commission to study the problem, but the one thing she'll keep off the table is the straitjacket known as Prop 13.

The Howard Jarvis Taxpayers Assn writes me regularly, and their materials shows how the middle-class can be encouraged to fall on its sword. Their only figures are a "Homeowner's Property Tax Savings Chart" - if you bought a median house in 1993 ($188k), as I did, you have now "saved" $88k by having an assessment of 1% instead of 2.6%. What's missing of course is all the money we've paid out in other ways - for houses grotesquely overpriced in part due to suppressed assessments, for private services, e.g. private schools to get around crappy public ones and for big cars to avoid bad public transit. What's also missing are the costs for renters, for the state, for new businesses - for California society which is increasingly divided and still controlled by an entrenched landed class.

As a model for a "new economy" this is really really dumb.

Road Warrior Cometh

The premise of the Mad Max series is a comb- ination of "peak oil" - the radical decline of this resource coupled with strong-man anarchy. May ended with emerging signs of the coming dog-eat-dog.

There are various signs here and there, and I won't even mention the increase in deadly tornadoes.

• Baraka Obama's new economic policy director is Jason Furman, who has been close to Robert Rubin and other architects of Clintonomics. Clinton, Rubin, Larry Summers, et al presided over many a Road Warrior scenario around the world, Argentina and Russia being classic examples. Naomi Klein links the "shock doctrine" to right-wing warriors like Milton Friedman, but concentrated finance capital has the same effect, holding policymakers hostage and undercutting whole industrial sectors as money whips in and out of nations to arbitrage small price spreads. With the 1990s Washington Consensus embodied by Furman, Obama won't be able to resist the darkness.
  
• the hidden laws of finance. Here's a short overview of the quasi-private way that a small group of unknown authorities set the LIBOR bank rate - a key international index.
• ye olde middle-class high-tech foundations continue to erode. The Semiconductor Industry Association reported that revenue from memory chips "declined by 34 percent even as unit shipments increaesd by more than 30 percent in the first four months of 2008 compared to the same period last year." We can barely make money on more or less our best industry. Strap on those rooftop fuel tanks.
• L.A. area hospitals were dumping poor, sometimes helpless patients on Skid Row, usually in hospital gowns . Hollywood Presbyterian got fined $1 million and will need to appease a federal monitor. Maybe patient dumping will stop. But given the state of LA County healthcare, it probably won't.
• The NYT's front page for May 30 juxtaposed two stories: "For the Military, Ultimate Fighting, but with a Cheering Section," about how the military is using the human equivalent of dogfights to recruit poor kids into the military. Next to this: "As Oil Prices Soar, Restaurants Learn to Lock Up Old Grease": "The bandit pulled his truck to the back of a Burger King in Northern California one afternoon last month armed with a hose and a tank. After rummaging around assorted restaurant rubbish, he dunked a tube into a smelly storage bin and, the police said, vacuumed out about 300 gallons of grease."

Now you'll have something to put in your rooftop tanks.

Rediscovery For a Change

There are limits to dumbness:

• This weekend I've been at a family reunion in Marin County in honor of my brother's father-in-law Murray Kaufman's 90th birthday. If I were a media anchor I would call him a great American. Murray was a leftist CCNY student in the 1930s, in the US Army in France in World War II, was a printer in New York before becoming a high school teacher in Rossalyn on Long Island, where among many other things he coached the tennis teams and started one of the country's first high school curricula in environmental studies. Murray has never stopped fighting against unfairness and screw jobs in all their stupid forms. This is why his example is so important, why his company is such a pleasure, and why he has lived so long.
  
• I was in Oaxaca during the Obama-Jeremiah follies, where the media finally figured out how to play the race card - the ghost of panther-nationalism. I haven't had time to write about Oaxaca properly. We visited about a dozen frontyard, backyard, and cottage workshops of every kind. Some people make high-end crafts for tourists, some make art so expressive and direct it is hard to imagine it coming from the United States. Some get up before dawn to make animal characters they've invented out of pieces of scrap wood that they spend 12 hours in the local market trying to sell for the equivalent of 2-3 dollars or so. Nobody in the US who doesn't know how the Oaxaca half lives should ever lecture about entrepreneurship again.
• Meanwhile, a vacation did Tom Friedman good. He's got a sense of our royal American screw-ups much deeper than before. Maybe he's less screened by the effects of his regular diet of CEO kool-aid. He even borrows a title from an old book by one of the country's best business journalists, the Nation's William Greider ("Who Will Tell the People" - that their leaders' dumb ideas have sunk them). Here he is: "millions of Americans are dying to be enlisted — enlisted to fix education, enlisted to research renewable energy, enlisted to repair our infrastructure, enlisted to help others. Look at the kids lining up to join Teach for America. They want our country to matter again." That's a good start. He spoils it a bit by adding that America's Youth want it to "be about building wealth and dignity — big profits and big purposes. When we just do one, we are less than the sum of our parts. When we do both, said Shriver, 'no one can touch us.'" Well, no. The big stuff - teaching, research, invention, change - isn't about winning. You can't measure progress with profits. The search for profits is what has largely destroyed our search for purposes. But at least Friedman is starting to see what happened to the country while he was drinking the CEO drink.

The Great Shanking

The broad middle class is in bigger financial trouble all the time. For the short run - which raises the cost of borrowing to pay for that pillar of the American dream the family home - see an updated overview on the financial crisis after Swiss bank UBS announced another $19 billion in write-downs. If you're keeping score, see the chart at the left.

UBS's chairman stepped down, to be replaced by his former General Counsel. This looks a lot to me like replacing Tweedledum with Tweedledee. If it ain't, please explain.

Then there's the long run. The middle class these days is supposed to retire on its investment income. The private sector's defined-benefit pension system (where your income depended on a formula of age, years worked, final salary, etc. and not on market movements) has been almost converted to a defined-contribution system in about 25 years. Projections in the US and the UK suggest big retirement shortfalls coming up. Finance historian and practitioner Peter Bernstein offers a reason why. Though stocks are supposed to go up over 7% every year, in 1 of 5 years they go down, and "Nearly one in five of those 20-year spans produced real, or inflation-adjusted, total returns of less than 3 percent a year." So it's quite possible to have real returns of well below 7%. Add in the costs of buying and selling, normal management fee deductions, and bad timing, and your 401(k) rapidly becomes NOT like having a pension.

Bernstein talks about another detail that hugely matters.

Over the last 20 years, dividends have provided 39 percent of the total return.

But that was the past. Today, the dividend yield is only about 2 percent, compared with the long-run average of more than 4 percent since 1925. Achieving the long-run, inflation-adjusted annual return of 7 percent when starting with dividend yields of only 2 percent is a tough call, especially as earnings per share over that long run have grown more slowly than real gross domestic product, or only about 2 percent a year after inflation.

Wake up and check your pension! Whoops, never mind - you gave away pensions a decade or two ago. Wake up and sell the house! Well try to wait just five or ten more years, so prices can stop going down . . .

This Week in American Decline

Everyone was picking through symptoms of the financial crisis this week. The fire sale of bad boy investment bank Bear Stearns got five times more expensive than it was on Friday. The Financial Times reported that the $2 share deal came unglued not just because of Bear Stearns shareholder outrage but because JP Morgan, the buyer, didn't sew up the deal legally. This is not very comforting, given that they are the rescuer here.

Other financial themes persist:

• The economic confidence of middle-class and working folks has been crushed. Floyd Norris has the week's best view of the underlying issues. In terms of overall confidence levels, the last time we were this low was the oil crisis of 1973! He points out it's not just falling housing prices and market volatility that is the problem, but rather the

  evidence that America is no longer a leader, or perhaps even competent, in one area in which we believed it excelled.
  
  That area is finance. Only months ago, American financial institutions were pre-eminent in the world economy. We were the country that invented all the new financial products and that made lots of money from them. It was our investment banks that were called upon to advise companies and governments in other countries, and then to arrange the financing they needed.
  
  Now that reputation lies in tatters. Our big banks have been forced to turn to places like China and Abu Dhabi for capital as losses have mounted. But no similar angel turned up for Bear Stearns, and the Federal Reserve Board had to step in to avert disaster.
  
  The Fed, which only months ago seemed omniscient, now seems to be making it up as it goes along.

• Blind-date investing. Big asset pools remain mystery dinners. What the hell is inside the Bear Stearns asset pool, for example, which in theory among the most scrutinized? Who knows whether it's "really" all worth $2 a share, $10? 5 cents a share? Senators don't know either.
  
• crumbling middle-class dreams. The NYT again discovered the equity crisis and the truly amazing amount of credit on which the trappings of prosperity have come to depend.
  
• Obama sought to occupy working-folks ground with his speech on the financial crisis. Paul Krugman pointed out his proposals are all weaker than Hillary's.
• Help the Top First (and then Stop). The economist Dean Baker pointed out that the Fed guaranteeing nearly all of Bear Stearns's assets bails out the big institutions that hold instruments backed by BS assets. In the same vein, Republican candidate McCain made it clear that he will follow anti-government dogma on the genius of markets and not intervene. Treasury Secretary Paulson also rejected the New Deal quid pro quo: you get government money and support, you get government ground-rules.
• Hail Mary in High-Tech. Motorola hasn't found a product replacement for its smash hit Razr phone. Sales decline. Stock prices fall. Gorilla investor Carl Ichan gets upset. Motorola appeases Ichan by deciding to "split itself into two separate publicly traded companies, spinning off its unprofitable mobile phone unit to investors." Which is stupider - selling your main business, cell phones, instead of fixing it, or thinking that if you brand it a loser investors will buy it? I don't know. I do know the "real economy" folks don't know any more than last year's hedge fund geniuses. I also know that Carl Ichan should retire.
  

Politically, the crisis has continued and not transformed the two-party politics we've seen all decade. Republicans favor the upper brackets, really the top 0.1% and top 1% over even the top 10%. McCain's speech was proof that the best Republican minds see no mounting opposition to this.

Everyone else has to rely on the Democrats. There's an uptick in popular fear and hence popular suspicion of the Republican monopoly-market policies that got us here. But no one calls it that, and the Dems still have 1) too-little-too-late plans and 2) no overall philosophy of "social markets" or something similar that would be truly counter-cyclical and get the economy moving again. So for the moment, both the economy and the political debate are going nowhere.

Meanwhile, "Old Europe" and its apparently backwards social infrastructures (aka welfare states) is doing relatively well, even with the strongest currency in a couple of generations.