Sometimes Goliath Loses Even Today

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

To a Better Next Year

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

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

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

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

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

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

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

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

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

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

Class Seismic Shift in 2008 Election?

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

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

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

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.

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!

Anger at Bankers

I've been working in Britain this week, and the tabloid press has awakened to the scandal of the Royal Bank of Scotland's dependence on the British government for its survival, which required an additional L 325 billion in insurance and L 25.5 billion in directly injected government capital in a week in which it announced a L 24.1 billion loss for 2008 (L 40 billion absent some technical issues). The tabs analyzed the absurd, make-up securities on which RBS made billions before it lost billions, and proposed the de-securitization of the transactional banking system while slamming the phony "value" created by bankers who got rich on commissions - that is, not by creating anything valuable but by charging a toll like the troll who lives under the bridge. "Fred the Shred Revealed as Biggest Troll of All" screamed the respectable center-left paper The Guardian, in a story that carefully exposed Fred's personal net worth, and likened his position in the bank to a mosquito with a hundred beaks for sipping the blood of depositors and taxpayers.

NOT!

None of that reporting happened, although the events did. That'll be the day.

Well the tabs did perk up a bit at RBS's former head Sir Fred Goodwin's pension, at L 693,000 per year unto death, and headlined "Fred the Shred"'s refusal to give it up. PIGGY BANKER shouted the giveaway paper The Metro, and provided this helpful illustration:
Shades of that great 1970s slam of British capitalism O Lucky Man, in which eager-beaver salesman Malcolm McDowell stumbles onto a military-industrial experiment that consists of fusing humans and pigs - perhaps to create the perfect consumer we need to get us out of our new depression.

There are two statements that Fred the Shred's pension prompts.

1. leaders of failed enterprises shouldn't be rewarded for a bad market performance.
2. leaders of successful enterprises shouldn't be given the rewards bankers were getting in the first place.

But actually only #1 has been spoken. # 2 is lurking around the edges, as when the Guardian's print version of this story on Obama's budget was actually headlined "Republican anger as Obama plans to tax the rich in L3.5 trillion budget." (The Guardian also carried a story titled "Rich seek tax breaks to fund UN development donations." - well that speaks for itself.) The idea that the billionaire men's clubs were not making "market" salaries has appeared in veiled form from establishment centers, as in this comment on Sir Fred's pension:

Bank of England governor Mervyn King condemned executive pay and the City culture of bonuses and pensions.

He said: 'It was a form of compensation that rewarded gamblers if they won the gamble but there was no loss if you lost it. It's obvious that if you do that you will give people incentives to gamble."

This is at least right in assuming that Sir Fred's toxic security marketing wasn't creating value, and the rewards for that were not tied to value creation. But we need to go farther (without sinking into the deep philosophical questions like "is value in the eye of the beholder"?)

Farther can be simple. Picture the proverbial market in which people step up one by one and sell their type of labor to an assembly of buyers. The plumber comes forward, the wheat farmer, the winemaker, the neurosurgeon, the divorce lawyer, the farmworker, the high school teacher, everybody is there. Let's say most of these folks get market bids - it is open bidding, so its actually a broad social conversation - that are close to the current average of their salary category. The neurosurgeon makes $600,000, or 10x the high school teacher and 20x the farmworker. We can debate how right this is, but say you have a 20:1 spread for whatever reason.

Then the Fortune 500 executive steps up, and is followed by a hedge fund manager.

What possible argument could show that in our primal auction the assembly that represents the market would pay the CEO $14 million a year (233x the teacher) and the manager of a top-20 hedge fund $657.5 million a year? (10,958x the teacher?) To earn what the hedge-fund manager earned in 2007, the teacher would have had to start working 9,000 years before Christ was born, in the middle of the last Ice Age. What actual living "market" of real bids would ever bid within a factor of 1000 of those numbers? Why would such a group give a banker even a dollar more than a neurosurgeon? or a farmworker . . . but well we are talking about current society.

It's pretty easy to show that the idea that $14 million is a market salary is ludicrous. It's less easy to have a general discussion about this.

The issue has as special urgency this week, as we learned the economy went off the cliff. Housing prices continue to plummet, and the Center for Economic and Policy Research projects that

the median household in the 45 to 54 age cohort saw its net worth drop by more than 45 percent since 2004, to just over $80,000 (including home equity). For early baby boomers, those between the ages of 55 and 64, the losses were not quite as steep but still came to 38 percent of net wealth, with the median wealth falling to $140,000, approximately 80 percent of the price of the median home. Nearly 30 percent of late baby boomers will need to bring cash to a closing to cover their outstanding mortgage and transactions costs.

In CEPR's scenarios, the American Dream home destroyed most f the wealth of its owners between 2004-2009. In two of the report's three scenarios, renters have more wealth than homeowners when they try to retire.

The US press is showing its mental blinders by casting Obama's first budget entirely in political terms: is this the end of Reaganism? Well yes, but actually Reaganism ended itself by blowing up with no help from the Democrats or Obama. The real issue is: WHERE IS THE MONEY?

We'll need to work on the following things:

1. attacks on and full discrediting of market culture: the rampant, delirious anti-egalitarianism that make this fragile, collapsed banker capitalism possible and, more importantly, immune from criticism. These spreads will need to be denounced as widely as Fred the Shred's pension before we can exit the Age of Inequality that undermined our societies and our economies at the same time. (See Reich's liberal pragmatic explanation that inequality hurt the economy, and Wolff's left-theoretical one).
   
2. forced repatriation of US wealth hidden offshore (there was a start on this last week).
3. taxing the rich.

It's either that or the steady downgrading of the poor and the evaporation of the US middle-class at the same rate as the fall of housing prices and the disappearance of large-company jobs.

***
PS. Aficianados of the bankers' phony markets will enjoy this story about the non-value of collateralized debt obligations (CDOs, of which securitized subprime mortgages were a subset): different classes of AAA-rated CDOs are seeing recovery rates of from 32 to 5 cents on the dollar.

The Coming Middle Class Revolution

Hey, I'm only quoting the British police:

"Britain faces summer of rage - police: Middle-class anger at economic crisis could erupt into violence on streets"

Suburban revolutionaries prepared for summer smashing of finance capital with a little Gaza invasion street fighting last month:


Well you just never know.

Planet Boardroom

One of the pillars of the middle- class view is that we are not only the industrious but the represen- tative class. America R Us, and that means that elites with far more money and influence than your average teacher, accountant or internist nonetheless see things as we do.

This is a crippling delusion, since it allows the middle class to hand over its interests to whomever is in charge, e.g give up health care to HMOs, public universities to Republican state-funding cutters, tax policy to hedge-fund lobbyists. But if you still believe it then we have evidence you can use to retrain your senseless reflexes.

As the papers announced on Friday that the US economy has lost jobs for the third month in a row (80,000 more), and across a range of sectors, the NY Times published a poll showing that 81 percent of the public things the country is on the wrong track. 81 percent is an amazingly high number.

The same issue featured a business page story about all the CEOs who bought new penthouses in Manhattan while the banking system unwound.

In January, Lloyd C. Blankfein, chief executive of Goldman Sachs, closed on a $26 million duplex at 15 Central Park West, one of Manhattan’s hottest new buildings. Scott A. Bommer, a hedge fund manager, bought a Fifth Avenue co-op for $46 million. And Edgar Bronfman Jr., part of a private equity consortium that owns the Warner Music Group, spent $19.5 million for his own Fifth Avenue co-op.

This is as investment bank revenue fell 45 percent industrywide during the first quarter - or worse. "James E. Cayne’s $28 million purchase of two units in the Plaza was not the biggest deal, but it was among the most awkwardly timed. A few weeks after the second deal closed, the Wall Street firm where he is chairman, Bear Stearns, collapsed."

Investment moguls are not only out of touch with ordinary reality: they're out of touch with the strange world of their own industries.

More evidence of clueless leaders:

- as the economy went down down down, executive pay went up up up. ("According to the Congressional Research Service, average pay for chief executives stood at 179 times average worker pay in 2005, up from a multiple of 90 in 1994. Adjusted for inflation, average worker pay rose by a total of only 8 percent from 1995 to 2005; median pay for chief executives at the 350 largest companies rose 150 percent.")
- the executive compensation game shows the huge personal paydays that come from nepotism and insularity.
- details of the Bear Stearns deal
- coverage of Senate hearings, where Sen Christopher Dodd, recipient of great Bear Stearns largess, seemed especially interested in whether the government forced too low a price on the hapless victim investment bank.
-a column arguing that regulators still aren't admitting any mistakes in letting the banking system get so opaque and overleveraged that "a 'well-capitalized company' [Bear Stearns] could not find anyone willing to lend it money without government help."
- a piece on subprimes showing that most lenders weren't exactly defrauded by false claims by borrowers, because they didn't exactly check up on them. The author, Gretchen Morgenson, asks this question about our Head Geniuses In Charge:

Can investors stuck with losses on these loans sue to recover their investments based on this due-diligence failure? After all, mortgage originators made representations and warranties to investors that the quality of these loans was good when it clearly was not. And they made these representations knowing that they had not bothered to conduct quick and easy borrower-income checks.

Hey - maybe a national lawsuit will wake up the boss. Let's try it and see!

Meanwhile, check out the toxic buildup coast to coast.

My Favorite Judges

One bit of good news in a bad week for the American middle- and working-classes was the freeing of Iftikhar Mohammed Chaudhry, the Chief Justice who had been deposed and put under house arrest by Pakistan's military dictator aka President Pervez Musharraf. Pakistan's new Prime Minister was behind the move, and it will be interesting to see how this plays out.

Why mention this now, when the American middle-class is trying to get through the financial crisis? Because we won't get through the crisis unless we learn to fight like these guys. Middle-classes of the world - all you economic majorities everywhere - wake the hell up.















Why can't our lawyers be more like these guys?

On the Chopping Block

I spent nearly all of the weekend doing the spreadsheets and then writing a report on how the latest casual attack on California state government - Arnold Schwarzenegger, Director - will end the University of California as a public university, converting it to a public-private partnership at the mercy of private donors and interests. Fun stuff - trying to issue a wake-up call to folks who can seem to quite believe that their well-educated and docile heads are getting lopped off.

On some gut level I am furious with myself for having not only stayed in but spent much time trying to save what looks like a loser institution, when I should have just said bye-bye about ten years ago.

The middle-class has slept through the demise of the institutions that built it - as I say often enough on these pages. This is no longer the case at the Los Angeles Times, one of the country's
best newspapers, where yet another chief editor has just been fired for not cutting fast enough. The piece notes that this is "the fourth time in less than three years that the highest-ranking editor or the publisher has left for that reason."

The latest ex-editor, James O'Shea, was apparently resisting cuts on top of a long series of previous cuts. It is in the nature of modern managers and investors not to care - Arnold-style - about your previous sacrifices. The people who do the actual work know about the steady deterioration of both job and product. They already know that "The Times had a newsroom staff of more than 1,100 people at the start of this decade, but the number has declined to below 900, officials say. Its weekday circulation has dropped to about 800,000, from 1.1 million."

The owners look at the circulation and revenue numbers and demand even more cuts. The cuts are apparently completely unreasonable, given the fact that this fired editor started out as a hired gun for management.

The removal of the editor, James E. O’Shea, by the publisher, David D. Hiller, mirrors the odd spectacle of a little more than a year ago, when the previous publisher, Jeffrey M. Johnson, was fired for refusing to eliminate newsroom jobs as directed by the paper’s owner, the Tribune Company. In each case, a longtime Tribune executive was expected to rein in costs at the paper, but instead sided with the newsroom and lost his job for it.

Will the newsroom folks actually do anything? Who knows: with the Writers Guild Strike going on like the Justice For Janitors strikes used to, L.A. is again becoming a labor town. Maybe it's really dawning on people that they've been screwed.

Krugman had a good piece today about the failure of Reaganomics and the need to get this story out. Amen Mr. Krugman. Middle-classes I hope you're listening for a change.