This Year's Nobels: Better than Usual

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

Bubble Brains

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

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

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

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

Why Obama Got the Nobel Peace Prize

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

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

Whiffs of Doom

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

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

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

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

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

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

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

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

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


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

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

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

Corporate Suicides in France

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

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

Inequality Takes Another Bow

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

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

Future of Housing?

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

Here's his summary of the dumbness:

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

thanks to Michael M for the link

Why Must We Relearn the Obvious?

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

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

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

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

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

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

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

Reforms that Weren't, Reforms to Come

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

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

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

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

Dumbest Health Care in the World

Thank you Matt Taibbi for this opener:

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

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

We are still so screwed

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

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

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

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

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

"we" can. they can't.

Krugman Softpedals the Woes of Economics

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

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

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

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

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

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

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

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

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

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

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

What if We Don't Shop?

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

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

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

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

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

Even Economists Wonder: Is this NOT a Recovery?

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

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

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

Bombing the Black 'Burbs

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

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

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

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

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

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

Two Economies

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

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

Absolute continuity with what got us here.

Kennedy against The Dumbness

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

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

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

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

Edward Kennedy, R.I.P.

Same as it ever was

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

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

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

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

Dumb Enough Yet?

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

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

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

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

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

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

England, Take a Permanent Vacation

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

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

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