Thursday, January 31, 2008

And the Next President of the United States Is

I'd like to talk about the financial crisis but I'm even more distracted than the Freakonomics dopes, who are using their NYT blog to take pictures of the soda locker in the U of Chicago business school and ponder moronic correlations between colleges with high SAT scores and reading Lolita and, um, Freakonomics. No way am I linking to them. Let me just say that when they talk about human behavior, they are boyish idiots. There is a whole profession just for them. It is called Economics.

And then there are the presidential candidates. My main problem with John Edwards leaving the race is that now the Democratic field doesn't have a Democrat. Hillary Clinton is the strong arm of the veiled Clinto-Republican Archimandrite that serves the invisible empire of capital gains. And Barak Obama. I don't know who he is the strong arm of because I honestly can't remember a policy statement of his five minutes after he's made it. I do think he's on Hillary's right. Today's Nouvel Observateur said "same thoughts, different styles." It's hard to argue with that.

Cognitive Dem therapist George Lakoff wrote an analysis that made me feel like a horrible cynic - for a second. He says Obama understands that the people "do not vote primarily on the basis of policies, but rather on (1) values, (2) connection, (3) authenticity, (4) trust, and (5) identity." Guess which politician understood this best? That's right, Ronald Reagan. Hence, Hillary, policy "incrementalist" - bad. Obama - boldness and empathy - good.

Lakoff is one of a long line of Dims who love and admire Reagan - the stylist, of course, not the ideologue. The elements of this love include the patronizing belief that the people need values and feelings and don't actually think; and a naive belief that the people are basically good, and could as easily vote for a liberal Obama as for a reactionary Reagan. This view is related to the Tom Frank-style thesis that people vote Right because they are duped about their own interests. It flows from the general American liberal phobia for political ideas and commitments, as strong in academics like Lakoff as elsewhere.

In fact, the voting majority of Americans are consistently conservative. They have been since the end of World War II when the government gave them a lot of free stuff (highways, subsidized suburbs, schools, universities, water projects) while pretending it wasn't, and since the 60s, when they took some criticism from students and black folks. Earth to George: maybe the voters liked Reagan because they liked what he said: cut taxes, crack heads, bomb Russia, lock up black males, and send in the Marines. Maybe they liked his warbling authoritarian personality. Maybe the United States is a conservative, rear-guard country!! Maybe it is closer to Columbia than to France. Maybe there are more than a few Reagan voters who would as soon see Obama get shot as get the presidency.

Which leads to two words: President McCain.

Sunday, January 27, 2008

Who the Hell Knows?

Finance has screwed up on a colossal scale. The salesmen on the left have no idea what to do. The man on the right, Treasury Secretary Henry Paulson, said today that the U.S. is on track for growth in 2008. Nobody's buying. Nobody bought the Bush "stiumulus" either. Partly it was because it was more self-serving shoveling of tax money to the wealthy. But really because nobody thinks it will work. That is because nobody has any idea what will work.

Headlines say things like "Fed Watchers at a Loss . . . : Rare uncertainty." Financial journalists scratched their head all weekend all over the world. Le Monde offered a compendium of non-knowledge about how Societe Generale could have lost $7.2 billion because of the bad bets of a single 31-year-old low-level trader - they don't even try to figure it out. The Yale economist and famous bubble-pricker Robert Schiller goes back to the New Deal and offers a vague meditation on the possible value of regulation.

At the weekend edition of the UK's Financial Times, the interesting "Short View" columnist John Authers wrote a classic thumb-sucker called "I've got a funny feeling about negative sentiment," in which he says that tracking the frequency of the use of the word "recession" often indicates the approach of a recession. He then describes the opposite view - that when editors figure out something like a recession is coming, it may already have happened. I call this piece "classic" because it makes visible the logic of most popular financial discussion: how markets work is completely clear - until the opposite becomes clear.

Trapped people are stupid. That's a lot of the recent story, in which the middle-classes of the US and UK respond to decades of stagnating wages with the hope for investment income - stocks in the 1990s, real estate in the 2000s. In their time, each would obviously go up and each was obviously a good investment. If you didn't buy Internet stocks in 1998 and real estate in 2003 you were an idiot - you had hurt your family, your kids' education, your retirement security. The crucial point is that at the time the delusion was totally rational, indeed mandatory. Skepticism was a huge mistake. It cost you big money. In real terms, it actually did.

Also in the FT, Sharlene Goff noted in passing that “A year ago, some 30 lenders were offering mortgaes of at least 100 per cent of the value of the property. A number were regularly handout out up to 125 per cent. This market has substantially dried up. Almost a third of lenders have withdrawn, and those left in the market are charing eye-popping interest rates." Who would ever lend 125 percent of the value of the collatoral? Well, anybody in 2004 who could count, since the property would escalate by that much in a year in much of the US and UK.
The veteran financial jounralist Joe Nocera describes what he sees as the middle-class problem.
Starting with the crash of 1987, every time there has been a market break, it always snapped back, usually sooner rather than later. Every time housing prices faltered — as they did in the early 1990s — they quickly snapped back as well. As a result, those twin engines, stocks and homes, became the assets we absolutely came to depend on to live the life we wanted. Our employers made the broad transition from pension plans — where the risk was spread broadly and the companies were responsible for their employees’ retirement — to 401(k) plans, where the risk was shifted entirely to the employees. But we were O.K. with that, weren’t we? We were happy to assume that risk because the market’s inevitable rise would secure for us a decent retirement.

Similarly, our home offered us the ability to buy things we wanted — vacations, for instance, or second homes — because we learned that we could borrow against the equity. The rise in the value of that asset made the prospect of repayment relatively painless. It also allowed us to avoid facing the fact that our incomes weren’t keeping pace with our desires.
All this is true. It is all regrettable - a series of bad decisions based on biased information and dumbness about how markets don't actually love the little people. But in real time, and not in hindsight, what was the middle-class supposed to do? To demand that corporations stick with defined-benefit pensions? That was pointless since even Democrats rushed to embrace the wealth-machine of market-dependent pension investments. When that went bad, was the middle class supposed to stick it out and NOT revert to the asset it actually understood, housing? All of its intellectuals, like Joe Nocera, were describing the trends as inevitable. To be intellectually independent, and to buck trends, is the single best way in markets to get royally screwed.

The real point is that people's financial security and quality of life should NOT be dependent on their powers of financial prophecy. They're supposed to do their jobs, spend time with family and friends, see and do and think new things, and have their lives, not spend 40-60 hours at work and another 20 on stock and real estate analysis - which even then means nothing about the outcome.

The financial markets are having the same problem. It's not just sub-prime loans. It's not only a liquidity crisis. It's not just temporary mutual suspicion. It's a crisis of knowledge. People don't know how to value credit and risk anymore. They don't believe in the math in the same way.

What should we do? It's actually not that complicated. We should bring finance into the socially-responsible economy by taxing it like everything else. That means
  1. Pass Tobin taxes on financial transactions, which are untaxed, in contrast to your purchase of food (in most states) or movie tickets.
  2. Return capital gains taxes to the same level as taxes on wages.

Both of these would generate a lot of income for social development all over the world. They would raise the cost of incessant betting and random arbitrage, lowering its unbelievable rate. And they might get a lot of people focused on inventing things and making stuff that we need all over again. All this money is a huge distraction from actually saving our asses from global warming and world poverty and other fairly pressing things.

Monday, January 21, 2008

Financial "Freefall"

There's a big stock selloff going on all over Asia and Europe today, and it will start up in the US in a few minutes. Steve Goldstein at Marketwatch traces it to paragraph nine of an article published in the International Herald-Tribune, which he correctly describes as mostly an NYT reprint paper for Americans abroad who can't read the local language.

That paragraph reads: "I'm reasonably confident that French banks will weather this turmoil without major trouble even though they are clearly, like all banks, in the world still in the process of marking down assets," said Christian Noyer, governor of the Bank of France and a member of the European Central Bank's governing council."

Apparently the fuss came from the statement that French banks were still "marking down assets."

Was there a single finance professional on earth who thought otherwise? Presumably not, so they are just "selling the news" - selling on the theory that stocks will go down because now the herd knows that French banks are still marking down assets.

But of course the herd also knew this, since it does know how to turn on a TV. So it's a case of "I (now) know that you know that I know that French banks are still marking down assets."

It's a great way to run a world economy.

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.

Sunday, January 20, 2008

Why Care about Keynes

Thinking about the presidential campaign makes Fr. Frank dull this morning. A fit of economic nationalism makes Maureed Dowd more interesting. Actually the term economic nationalism just means healthy concern at the blatantly negative effects of the dogma of free trade and the decoupling of the financial sector from national development.

In case anyone thought the Bush Administration would think about the national welfare instead of the welfare of its wealthy core, the president's "stimulus package" wants to make permanent the upper-bracket skew of his tax cuts, which will fail to stimulate. Fail, that is, to stimulate anything except more donations to him from the very rich, who appear to be giving more money than usual to the Democrats.

I'm not sure folks have grasped the philosophy behind the Republican hatred of "Keynesian" economics. Keynes was a major source of the idea that a government-led stimulus could reduce and end a downturn, like the one that in the 1930s was known as the Great Depression. The core concept is that you give money to people who will spend it. They get the goods the money pays for, and the economy is stimulated by their spending on those goods, which increases sales of products and services, which increases investment and hiring, which gets the economy going again.

Republican hatred starts with the association of Keynesian policy with the Democrats, and specifically with their most influential and effective president ever, Franklin Delano Roosevelt. They never stopped hating his New Deal, and here we get beyond the surface partisanship. The people who most immediately and completely spend the extra money they get from a tax rebate or government program are the middle-class and the poor. Keynes offered a solid technical reason for targeting generous, substantial public services at the bottom and the middle of the income ladder rather than at the top.

Even worse for Republicans, Keynesian policy worked. It created a counter-cycle during the Depression. It justified the massive public investment that was the fundamental ingredient of the economic "golden age" after World War II (I've written about this more than once.) It greatly expanded the American middle class (and the British, and the French, and the German . . .) It also, for a time, made a huge number of basically conservative white voters into Democrats. Only Nixon- and Reagan-pioneered campaigns against ungrateful Negroes and hippie students started to peel off the white middle-class from the Democrats (Nixon-Wallace in the 1968 election, Reagan in the 1966 election for governor of California). Good public services remained very popular - as long as their main beneficiaries didn't seem to be "welfare queens" and unAmerican critics of big business or war.

Beneath the political concerns lies a Darwinist disdain for the financial status of ordinary people. The silent assumption is that if ordinary people were any good with money they would already have more of it. If they deserve more money, then they will go out on their own and get more money. Republicans generally deny the economic conditions, discrimination, structural problems, or the sheer mediocrity of the wages nearly all of us earn doing basically useful things like teaching children how to add and subtract or or like nursing hospital patients. There are still some "Main Street" Republicans who don't stick their fingers in their ears or cover their eyes - Kevin Phillips has long been one, and has railed against Wall Street economic concentration better than nearly any Democrat. But the party leaders oppose economic power and broad-based wealth every chance they get.

Sounds a little extreme to say so, but in fact Republicans have spread economic Darwinism, rationalized all inequality booms, and suggested in effect that if schoolteachers don't like their salaries they can always quit and become intellectual property lawyers. They always oppose minimum wage policies,wage increases for the public-sector employees that have been the backbone of the black middle class, and broad-based stimulus packages that give meaningful rebates to regular people. "Free markets" have for a quarter-century been moving wealth and income from the bottom and middle to the top, and Republicans will protect the perimeter that defends around market inequality to their dying breath.

As long as the Democratic candidates don't really attack the inequality perimeter, I will stay bored with them.

Thursday, January 17, 2008

More Fun with Finanical Crisis

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

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

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

For a not-as-funny overview of recent American events, here's the economist Dean Baker's summary:
Citigroup continues to rank at the top in dollar losses from the housing market meltdown. It has now set aside $23.2 billion in loss reserves. This sum is a bit less than 20 percent of the company's current market value of $134 billion. Of course, its market value was more than twice as high before investors discovered how deeply involved it was in the subprime mortgage market. The safest bet in this story is that there will be more big write downs to come as falling house prices cause the epidemic of bad debt to spread.

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

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

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

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

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

The Fed will have to be prepared to accept slightly higher inflation if it continues on its path of lowering rates. In this regard, it is worth noting that a 50 basis point cut in the federal funds rate will push it below the 4.0 percent overnight rate set by the ECB. If the ECB holds and the Fed continues to lower, then the dollar is almost certain to drop further against the euro.
For more fun and games, see the Guardian's slam of the Facebook founders, big venture cap libertarian haters of multiculturalism. I heart Facebook - world's lowest brain-power form of human interaction ever invented - unless I think about it. Which this piece made me do. Facebook incessantly packages mass mailings as individual appeals - Anna asks you What Serial Killer are You? - but actually Anna asked 20 people, and did so because she couldn't access the application until she did. The Skip button is a dummy.

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

Monday, January 14, 2008

Sunday in East Berlin

Berlin is in most ways the opposite of Paris. It sprawls. Many of its plazas dwarf human beings. Its streets can take along time to walk across. Its newer apartment blocks go on forever. It feels wide open to a Los Angeles native like me, though Berliners don't really see the LA comparison. Unlike Paris too, half of its central city was destroyed during World War II, and rebuilt by sector and then rebuilt again after the end of the Cold War. There are only bits and pieces of the 19th century here, and not the enormous Hausmannian unity that makes Paris beautiful and yet a little isolated in itself.

Berlin is half-way to everywhere to the East and South - Prague, Budapest, the Ukraine, Bulgaria, Istanbul, Bagdhad. The approach to Berlin is across mile after mile of rails and roads. The new central train station is bigger than a drydock for an aircraft carrier. Across the street from the new station the old Berlin wall lines the Spree River- now the longest collaborative mural project anywhere. On the opposite bank stripped brick factories wait for something with their windows gone. Large parts of town are still under construction, while old power stations and apartment blocks remain shut down, waiting for the next round, which will be as big as the round they're in. On the first day the setting sun shone on a still working station's three steel towers.

Thus it took us a while Sunday morning to get out to Lichetenberg east of the city, on the S-Bahn that goes to Wartenberg. It was too sunny not to take pictures, of metallic Friedrichstrasse, the Spree downtown, the industrial wrecks, the rebuilt village blocks lining empty streets, including the one leading from the station at Noldherplatz, where Ines said the Neonazis were planning their march that would rename, unofficially, some street there after the Berlin police commander who in 1919 ordered the killing of Karl Liebknecht and Rosa Luxemburg.

These two famous socialists were among many other things founders of the Spartacist League and prominent anti-war and anti-imperialist activists who had called on soldiers and sailors to stop fighting the war and rise up to replace the Kaiser. Luxemburg was a leading marxist intellectual as well, and had written superb, original, and fundamental work on a range of subjects from the role of imperialism in the capital accumulation process to the weakness of reformism to the politics of the mass strike and to major errors committed by the leaders of the Russian Revolution. After the Spartacist League had formed an alliance that became the German Communist Party and supported the January general strike in 1919, the Social Democrats, led by Luxemburg's former student Friedrich Ebert, used the Freikorps to suppress their Left opposition, and in the process had her, Liebknecht and hundreds of others killed. As it happened, we were passing the Nazi march site on our way to visit the Luxemburg memorial on the anniversary of the assassination.

I had pictured a small memorial. There would be a gravesite - greener and more spread out than Jim Morrison's in Pere Lachaise in Paris. There would be a similar number of devotees, maybe up to a hundred since it was an anniversary. But after all this was Berlin.

We got off the train and hopped into a taxi. The driver said the streets were blocked and we hopped out again. We entered the tunnel to cross under the tracks and were swept into a river of people. We emerged on the other side and found hundreds more carrying red flowers. There were a few college-age anarchists and then thousands of middle-aged and elderly people, mostly well-dressed, utterly respectable, all carrying the same red flowers - thousands and thousands of flowers. There was a steady stream of people from grandparents to infants that went on hour after hour. There was the clustering, the solid wall of unmoving people, around the graves and the mounds of flowers. There were food trucks and political tents. They were expecting 80,000.

What is Rosa Luxemburg to them? Martyr to war and to proto-Nazism? A great figure of revo- lutionary thought and action? One of the giants of German political history? Unfor- gotten leader of a continuing revolution?

I have no idea. I don't know whether the members of the procession think she belongs to the future as well as to history. I don't know who they were - reluctant capitalist conscripts from the former East Berlin. Or older people unhappy with the regressions visible in the world, or people honoring part of their national identity. I do know I have never seen such a mountain of red flowers, or such a flow of people carrying flowers while not carrying. Whoever they were, they came for her. They came for the fallen. I think they came for the cause she fell for. If you put a flower on the grave, and you remember, then what you remember isn't actually gone.

We took the S-bahn back west a few stops to Waschauer, got off in the sun and walked over the bridge to another of Berlin's apparently several dozen art zones, this one in Friedrichshain. We ordered lunch in a corner tavern on Revalerstr and toasted various things including the Rosas still to come. Mattias joined us, and we walked through the neighborhood on Koperikusstr toward the east bank of the Spree, past 50s apartment blocks to an abandoned east Berlin power station on Rudersdstr that has become the biggest club in Europe, then rounded the corner where the statue of Rosa Luxemburg in the Michelin guidebook sits in front of the empty Neue Deutchland building, East Berlin's defunct daily, whose building continues to preside.

We were on Pariser Kommune by this point, and we walked in front of the shopping-mall train station Ostbahnhof down to Holzmrkt along the industrial buildings next to the water. One is a glass-cube restaurant. We walked down the side and found a brick patio with chairs facing the sun. There was the Spree, as still as a mirror, as empty as a good beach day after the a-bomb's gone off. Hidden below the patio was a wooden dock where a golden wood vaporetto dinner boat waited to take Mattias and Ines on their friend's birthday cruise. Off they went. I looked back across the water into the sun. Berlin here is Venice - if Venice had built brick factories by the river, let them fall into ruin, and allowed the grass to swallow them. My camera had stopped. The sun hung there. The boat froze on the mirror.

We started everything up again - back to the S-bahn at Jannowitzbruche, Hackesher Markt, and the History museum for the rest of the afternoon. In the exhibit on Portugal I saw a globe by Martin Behaim from the early 1500s. It had a golden-brown Europe and Africa and Asia, and on the other side, in the black sea, no New World. It was an Earth with everything except the Americas. It was another Earth, an alternate Earth, and in this room no two Earths were the same. In the Klaus May exhibit there were the Indians he invented in Bavaria, and the Arabs he connected with heroic utopias. In the long gigantic history of Germany there are the centuries of almost unbroken war, and the amazing murderousness of the leaders. And through all of this time there were always many Germanies.

Actually since 1919 not that much time has passed. On this trip, about my sixth to Berlin, I felt that the hidden side of the world is going to rotate into view.

Wednesday, January 09, 2008

New Hamphire Primary Results

My basic reactions, based partly on a Los Angeles Times exit poll:
-the NH Dems are split. This is a more important story than Hill's repeat of Bill's "comeback kid." - NHers think that Obama has the best chance of the three major candidates to beat the Republicans. Hillary didn't squeak ahead on the basis of electability (experience, etc.). They think Edwards has the worst chance to beat the Republicans. I think this is completely backwards and don't understand these people at all.
  • Voters saw no ideological differences between the candidates. This is too bad, because it means the campaign remains a popularity contest dominated by image positioning and generational identifications (Clinton gets the old, Obama the young).
  • Too much college: 54 percent of voters report having a college degree, which is exactly twice the percentage of college degrees in the general population. (These folks skew for Obama).
  • desperation time: "change" beat "best chance to win" by an incredible 54-6 percent as the main factor in one's selection.
  • the only Dem candidate who would really change foreign policy by, for example, withdrawing troops from Iraq is Bill Richardson, and he came in at 5 percent.
  • Forget Iowa and New Hampshire. Iowa is a white state (2.5 percent Black). New Hampshire is, amazingly, even whiter! (1.1 percent Black). Their votes are really not representative of "America," and yet some estimates say nearly half of all campaign media coverage is devoted to Iowa and NH, giving these country states truly illegitimate power.
  • No Fear for Tears. It's good Hillary wasn't dinged for having a teary moment when asked how hard it is to get out of bed every morning. Many news stories actually dragged out Edmund Muskie from 1972 to ask if wet eyes could sink her campaign. That's a sign of the empty-headedness of the media, of course, and also of sadly authoritarian foundation of American political life, in which the secret test question is always "are you willing to kill for America." Hillary has repeatedly said yes, and people seem still to believe her.
That was one of the few interesting moments in these incredibly scripted and mentally lowgrade campaigns. The question seems to have prompted Clinton to have an unbidden thought about how hard her campaign life is. Maybe she felt, for a fleeting moment, that her life is joyless and sacrificial in general. I think it probably is, in spite of the fame and power. Hard, hard hard - this is a problem with American politics. It shuts down a lot of options before we even know it.

Monday, January 07, 2008

Some Financial Emotions

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

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

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

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

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

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

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

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

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

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

Saturday, January 05, 2008

Unneeded Leader #109

At the Vatican last month, Nicolas Sarkozy talked about "France's Christian roots" and invoked the "Church's contribution to clarifying our choices and building our future." This prompted the major French weekly Le Nouvel Observateur to interview the head of the French freemasons, who denounced le Jogger's efforts to "reintroduce religious morality to the heart of society" and to ignore France's other "roots" in ancient Greece, Renaissance humanism, and the Enlightenment. It was nice to read an establishment defense of secularity and non-religious visions of the advancement of humanity. It's too bad it's hard to read similar things in the US mainstream press.

Le Jogger is doing what leaders everywhere are doing: reinforcing a society of deference. This is what post-democracy looks like.

Le J has built a miniature deference society in the French press, much of which is controlled by his close associates. They praised his enormous candor and transparency for putting his new girlfriend Carla Bruni on display on his holiday in Egypt, forgetting, as le J had planned, their denunciations of his lack of transparency on issues of business and governance, such as the "arms for hostages" deal that freed the Bulgarian nurses in Libya.

The US press overdoes it on le J's merits as well. Adam Gopnik made him into the paragon of human courage in his New Yorker profile late last summer (issue of August 27), and wrongly claimed all France admired the bravely of vacationing in New Hampshire and "talking calmly over a hot dog" to Bush. In fact, most of France thought he was desperate, proven when his pals at Paris-Match airbrushed his love-handles out of the canoe shots.

When he stopped revering Sarkozy for a second, Gopnik made a good point about the overall decline in the status of the US.
The Sarkozy-Gordon Brown-Merkel generation is not unsympathetic to America, but American is not so much the primary issue for them, as it was for Blair and Chirac, in the nineties, when America was powerful beyond words. To a new leadership class, it sometimes seems that America is no longer the human bomb you have to defuse but the nut you walk away from.

And he concludes that the Reign du Jogger "may be seen not as the start of a new pro-American moment in Europe but as a marker of the beginning of the post-American era."

As if. The philosopher Marcel Gauchet offered a different version of post-America in an interview in Marianne (issue of 24-30 November). Even as the world faces a form of globalization driven by economics rather than imperial politics (as in 1900), the US has relaunched an imperialism that isn't so different from the kind the world saw then. We can overstate the problem a little bit this way, Gauchet continued: Germany was a leading nation that lost the first round of globalization, and became the problem country of the 20th century. And the United States, which dreams of an empire in a world that is no longer made for them, could become the problem country of the 21st.

What does Gauchet mean, the "dream of empire"? This dream has a means and an end.

The end is to have a share of world wealth much larger than the US share of the world population - this is a goal codified by George Keenan in the 1940s and has stayed close to the heart of US policy since.

The means are many. But the one playing out in the US, Pakistan, and elsewhere is to discredit the multipolar social majority - Pakistan's federal judges, Benazir Bhutto's middle-class technocrats, US "liberals" and college-educated types, the non-aligned US working class, the pro-social left, the many small political parties in France. This preempts any possible alliance between the educated and uneducated, or the "middle" and working classes, or the employed and unemployed, or the regular economy and the "planet of slums."

With a majoritarian alliance made impossible, minority rule settles in, whether constitutional and supported with fraud around the edges - Florida in 2000, Ohio in 2004 - or by massive fraud and/or military coups, as in Kenya and Pakistan. Governance becomes a matter of cowboys vs. Indians - you are with us or with the terrorists - and this justifies not only the use of force but the grossly unjust appropriation of general resources.

Minority rule and growing inequality are major forty-year trends in the West and not just elsewhere - as any issue of Paris-Match will tell you!

Friday, January 04, 2008

Ugh the Vote

OK five more minutes on the presidential races. I'm glad about Obama coming out on top, though I like Edwards better - he has less self-deluded economic policies.

Some folks - like Frank Rich - say the change candidates will win this year, and not the credential candidates. I would put it differently, thinking about what Obama and Huckabee, last night's two victors, have in common: they are less authoritarian than their main competitors (Clinton, Romney / Guiliani). That's the ongoing danger of the country's executive democracy, and voters will being going out of their way to dilute it.

Avery's recipe for how the Dims can win:
- don't run Hillary: most people think she's opportunistic - read politically unreliable, dishonest, and yes authoritarian. Run Hillary = elect a Republican
- do run Obama - as Vice President. He's young and green as well as Black. He will run for president again later and win.
- do run Edwards as President, picking up the south, liberal and left Dims and populists everywhere, not to mention white men as well as women.

Avery is right.

On Dec 31 I mentioned a piece by Tom Nairn on the Australian elections. Read it for interesting parallels to the US.
  • race politics is not a sideshow but a central issue, even if disguised. The old "Anglo-Celtic" Australia hasn't disappeared, it has "simply sat down." Sitting down for a decade or two, it has forgotten what to do.
  • a new "non-military humanitarianism" is needed among factions within the country, particularly with First Australians, but that will require a "frontal approach" to the issues that has been lacking.
  • what has been happening instead of facing up? "keeping the lid on things," and doing it through a mechanism familiar in the US: "a ‘realism’ wholly identified with competence and sound economic management."
This is a deep thought: neoliberal economics is a holding pattern, a placeholder, an ineffective substitute for actual social progress. It is a booby prize in a contest we have forgotten we were in.
  • the partner of this impractical (and often unjust) realism is "Motherland two-partyism": Harold Laski showed long ago that "any ins-and-outs system could work only by extensive agreement between the parties – a ‘de facto’ one-party national order where the common ground was all-important. Stability and continuity are sacred, while democratic change and initiative, with their associated risks, are dispensable."
  • Unfortunately, the need now is for something that requires huge initiative: "non-military humanitarianism has to base itself on equality, not paternalism."
This leads to one of this blog's favorite questions: after decades of attacking equality, how will English-speaking countries practice it?

Thursday, January 03, 2008

So Far, This Year Is As Dumb as Last Year

I tried to take the presidental primaries seriously for five minutes, and this was my reward (from the Financial Times):
Drawing an unspoken contrast with Mr Romney’s affluent background, Mr Huckabee described how he grew up in a home with no indoor toilet and with a father who dropped out of high school and worked two jobs to make ends meet.

“This country still belongs to people like us. I’m not asking you to elect me to the ruling class. You are the ruling class,” he said.
OK, so people with no high school degree or indoor toilet are the country's ruling class and run America.

Just like they always have in history.

Mr Huckabee, you get the first Too Dumb to Live award for 2008! Why shouldn't you be president??

Wednesday, January 02, 2008

A Day Without a Leader

Remember the 2004 film "A Day Without a Mexican"? A pink fog come in from the Pacific one night and envelops California. When it leaves the next morning, it has taken every single Mexican-Californian with it. Instantly the entire state grinds to a halt Mexican-Californians do everything from feed Anglo kids in the morning to suing slumlords - a huge amount of the real labor on which society depends.

I'm starting the New Year by imagining A Day without a Banker. What if they all disappeared? Would we miss their labor? We wouldn't miss the 2 and 20 fees charged by hedge fund operators? We wouldn't miss the capital the finance community extracts from non-financial firms rather than raises for it (as Doug Henwood showed in Wall Street). We wouldn't miss their endless authoritative statements on CNBC that serve their own positions, and are reversed the following week. We wouldn't miss their fund management skill, since stock indexes outperform the vast majority of professional managers. We wouldn't miss the outsized slice they take out of the national income for their services. What exactly would we miss? Ah - a day without a banker.

What about a Day Without a Leader? I think about this one a lot, most recently via:
- les voeux du president de la republique, a New Years Eve address to the French public by in these days their Jogger-in-chief. Not only has the Omnipresident as Le Canard Enchaine calls him accomplished nothing except infinite publicity for himself, but he speaks to the French with the weird guilty resentment of the philandering husband addressing his kids. "I would never betray you," he exclaimed. Well a) you already have and b) who cares about our "relationship" with you- we want results.
- more broadly, the main job of world leaders today is to shift wealth from the working majority of their countries to, well, bankers - the world of finance capital and their allies. Le Monde Diplomatique has a nice piece about this in its January issue. Francois Ruffin cites among various bank-authored technical papers a Bank of International Settlements Working Paper whose title sums it up: "The Global Upward Trend in the Profit Share." One estimate is that by 2006, about 120 billion Euro more of France's Gross Domestic Product goes each year to capital rather than to labor than was the case in equivalent monetary units in 1983. France has somewhat more than 60 million people, so say each man, woman and child has 2000 Euro less per year than he or she would have had prior to the shifts in tax policy, pricing, and a thousand other technicalities. If each household has around 3 people, that means that each French household would have an extra 500 Euro a month under the regime prior to the great "revolt of the haves."

Ah: a Day without a Leader!