Monday, December 31, 2007

Petting the Golden Calf

I've been gnashing my teeth as French radio commentators fawn on Sarkozy for the sheer openness and transparency of his luxury holiday in Egypt with his new movie-star girlfriend. Two weeks ago these same folks were griping about secret business deals with Kaddafi, the Libyan despot who was living in his tent in the backyard of the Palais Matigny across from le Jogger's digs. Le J is as conniving and secretive about business and politics as any leader in French history, but after his celebrity holiday all was forgiven - and worse, forgotten.

But let me try to say something nice for once about le president de la republique. He IS more transparent about an important thing: his total worship of wealth and wealthy people, to whom he has devoted his life. In contrast, most of our countries have leaders who claim to serve the public while they in fact serve money. They just lie about it more, and lie to themselves more. This is very confusing for the public, and excellent for the rule of money.

In addition to Segolene Royal the Socialist Party candidate who ran against Sarkozy without ever defining her big difference from him, I'm thinking of the Dims back in the USSA, who finally couldn't see taxing the hundred-million dollar annual salaries of hedge-fund managers at the same rates as schoolteachers (35% or so, as income) rather than at the same rate as Bush family investors in the Carlyle Fund (15% as capital gains).

This happens all over the world: Blair and now Brown's New Labour Party have the same independence of UK financial leaders as Catholic bishops have of the Pope. No doubt they express private gripes, but never have public policy differences. Same in Australia, where Tom Nairn reports that new Labour prime minister Kevin Rudd ran on a fiscal prudence platform. He will be much better for the Australian counterpart to my sector - higher education - which the past PM Howard gutted, but he shares the business-prudence ticket with the right.

None of these folks can do the obvious thing this invisible blog always calls for: putting social development first, and then building the effective economic base society needs. Doh!

When oh when oh when oh when? Aussie novelist Thomas Keneally says all sorts of things will happen, in Nairn's paraphrase, "Only if the whingeing latte-sippers and culture-heads get their act together for another push against the system. Penal colonisation has given way to ‘independent’ self-colonisation." What will make them push, exactly?

It's embarrassing to be a Western culture-head and look on at the acts of courage undertaken by the professional and middle-class folks of other countries (to say nothing of the daily constructive labors of the poor). Pakistan springs to mind, where everything from Gen. Pervez Musharraf's martial law to last week's assassination of presidential candidate Benazir Bhutto was propelled by a combination of poor folks and federal judges protesting a despotic executive firing last spring. What if American judges took to the streets? Can we still imagine it?

On the assassination, see a good piece by Tariq Ali, and a strange but intriguing one by Robert Fisk. See also Ali on the imposition of martial law last month, and his excellent longer overview from the London Review of Books.

Friday, December 28, 2007

Class War Concepts

I woke up this morning wondering not how I could help the writers at left against the studios but if I overdo the critique of elites in my forthcoming book, "Unmaking the Public University." I wondered about my comments about the Duke lacrosse saga on my new blog. Gaa. It's never good to wake up with a self-reproach, especially of the chickenshit kind. But then it did get me out of bed at a decent hour.

What's the issue? The book offers an historical account of a post-war threat to American conservatism that produced an organized backlash against "liberal" culture and core values associated with it. I argue that this is a core source of the public university's now-perpetual funding problems. The Long Squeeze comes not from the business cycle, or from prisons budgets alone, or from the sheer efficiency of public-private partnerships, but from a multi-faceted attempt to undermine an institution whose independence was underwriting a new outlook, a new culture, and not only among society's oppressed but, more frighteningly, in the mainstream middle class. Universities were doing what I call "civil-rights science" - offering a base of validated socio-cultural knowledge to the social movements that were changing society. Inspired by these movements, university communities were advocating cross-racial power sharing and the evaluation of economic practice by its human and social impacts. The university was humanist ("people before profits") and egalitarian (even as it remained in itself highly elitist). Ever since these trends became widely known forty years ago, the university - especially the huge, high-quality public research universities that educate the mass-middle class - have been targeted by the Right for containment.

Through all this I have struggled with how polarized my account should be. I don't think people come in two flavors or that the culture wars can be understood as a binary conflict. In addition, Americans have a learned phobia about polarization, and I want to accept people as they are and take it from there. I thus try to avoid the slap across the face with a cold fish. On the other hand, Americans can be the world's biggest babies about politics, and fly into rages over disagreements (call it the O'Reilly syndrome) that other political cultures handle as a normal part of democratic debate. Finally, the myth of the classless society has damaged our national ability to understand the American economy as it really is. I've blogged about this often here. The prominent columnist Paul Krugman has been flogging the issue, along with many others. Critiquing grossly elitist economic and social politics is an educational process, and there's no turning back now.

Some relevant tidbits:
  • Writers of the world unite: Adding to previous data on the writers' little piece of the pie, Kate Coe writes the following:
    The WGA is demanding that writers get 2.5 percent of all gross “new media” revenue flowing from content they write. Currently, writers’ residuals are based on a far smaller slice of gross sales. A recent study by Global Media Intelligence suggests that studios are paying out as much as 25 percent of a film’s profits in residuals. Last year, that amounted to $3 billion in after-release payouts. Yet from this river of cash, writers received only $121 million. By contrast, an actor or director can receive residuals ranging from $20 million to $70 million for a single picture.
  • Bush's Class Warfare: The urban planning expert Peter Dreier had a straightforward piece about this last week. How do you know when there's a class war? When leaders defend grotesque disproportion in returns no matter what. Dreier has good concrete examples.
Both cases illustrate the core fact that business leaders manage "knowledge workers" in the same way they do everyone else - as a cost to be reduced as much as possible. This is of course central to the logic of capitalism, which leads us back to the core polarity: the middle-class worker interest is starkly opposed to that not only of wealthy shareholders, but to that of the top executives who are now paid in the millions or tens of millions a year, i.e. proportionately more than the colonial-era ruling class.

There are no grounds to claim that the US has no distinct elite that opposes the vast majority. Growing economic disparity shows that elites have figured out they don't need to give the middle or bottom the same raises they get either to keep the economy running or to keep society quiet.

Does this have to be resolved as a simple power-struggle, one which the majority could in principle use their voting strength to win? At some point yes, there will have to be direct political confrontation.

In the meantime, there has to be much better accounting. Egalitarians need to do more to define the limits of acceptable inequality and to say more exactly where the line is crossed. We also need to redefine the sources of wealth. Corporate revenues, for example, are earned by the company as a whole and not by its CEO and inner circle. These revenues are created in no small part by society. The goal has to be to correct initial distribution of income with correct sourcing of the creating of value and not simply to demand a retroactive redistribution of money people allegedly "earned" on their own only to have it taxed away. Little will change until we can make conceptual headway here.

The good news is that, judging from polls about economic stratification, a popular majority wants quite a bit more equality than their leaders to.

As for my initial worries, I first thing found a nice email about my Duke entry from Reharmonizer, a composer who is more or less the best blogger on the lacrosse business. He pointed me to another very interesting analysis of the same, which ponders among other things the attraction to polarized stories.

Monday, December 24, 2007

Our Entire Post-Cold War Paradigm Revealed

First, I just want to say that I hope you all have had the chance I've had to eat pain au chocolat half-naked in a sun-filled living room on the morning of Christmas Eve.

Sated as I therefore was, I wonder why I went on line to read the Financial Times so that I could run into the Sum of all Errors in the form of this column from December 18th. It made me have 2 big wishes for 2008 - wish for reductions in two big kinds of dumbness. Please!

1. Could we remember that value doesn't just come from technology and fossil fuels, but also from people working, aka Labor?

2. Could we realize that value doesn't just come from incarnations of "entrepreneurial spirit" - aka CEOs of corporations larger than half the world's economies - but from collective effort in complex social systems?

Of course we could! Except that the opposite views - these two giant, pervasive mistakes - have become pillars of Western Civilization.

Take the terrible column I read as an evil chaser to my pain au chocolat. Its author is the basically sensible but compulsively orthodox Martin Wolf, more or less at the top of the English-language profession of business journalism. He posits something he calls "the positive-sum economy," which he worries will be damaged by our global encounter with some basic environmental limits. OK. But things go downhill very quickly.

Wolf says that "fossilised sunlight and ideas have been the twin drivers of the world economy." Translated, this is oil and technology. The "clever use of commercial energy" has yielded endless new "goods and services" and led to greater justice: "Serfs and slaves need no longer satisfy the appetites of narrow elites."

The latter claim is false: legalized forms of serfdom and ye olde wage slavery are the backbone of emerging economies. So is the former claim. Wolf can ignore serfdom and slavery because he simply omits the two elements I mentioned above - labor and social systems - as sources of value. People and society: not positive factors in the production process. Exploitation and tryanny: figments of our imagination. Not.

Next comes this: in contrast to the perpetual-growth economy, "A zero-sum economy leads, inevitably, to repression at home and plunder abroad. In traditional agrarian societies the surpluses extracted from the vast majority of peasants supported the relatively luxurious lifestyles of military, bureaucratic and noble elites. The only way to increase the prosperity of an entire people was to steal from another one." Now Wolf is claiming that democracy also comes from the energy-intensive growth economy. This is also wrong: democracy comes from people, especially from people who have had to battle the leaders of the growth economy.

Wolf moves on from democracy to peace: "Equally, a positive-sum global economy ought to end the permanent state of war that characterised the pre-modern world. In such an economy, internal development and external commerce offer better prospects for virtually everybody than does international conflict." This is a version of Tom Friedman's old "Golden Arches Theory" of conflict prevention, in which no two countries that have a MacDonald's franchise ever go to war with each other. That one was wrong, and so is Wolf's theory - completely wrong. He ignores Columbus, New World gold and silver, Algeria, the colonization of Africa, World War I, World War II, Korea, Vietnam, Iraq, and dozens of others conflicts that show that economic growth and war have gone hand in hand throughout modern history.

Getting towards the end: "But if there are indeed limits to growth, the political underpinnings of our world fall apart." No - except in Wolfworld, where wealth, democracy, and peace - my pain au chocolat and his nightly Talisker's - all come from Growth, and growth alone.

Finally, the fatal finger of blame: "The response of many, notably environmentalists and people with socialist leanings, is to welcome such conflicts. These, they believe, are the birth-pangs of a just global society. I strongly disagree. It is far more likely to be a step towards a world characterised by catastrophic conflict and brutal repression." War, invasion, inequality, misery, hunger, and three billion people living in shantytowns are the once and future fruits of environmental and socialist leanings. Again, completely and absurdly false.

Wolf's worldview is worth this detail only because it is a neutral statement of the worldview of leaders in the Anglo-American world: capitalist growth causes prosperity, democracy, and peace. Restraints on growth cause poverty, tyranny, and war. Attention to the needs of the environment, of people, and of society, cause restrains on growth. That's really our entire post-Cold War paradigm.

The paradigm has a permanent crawler on the bottom of its screen. It says, attention to the needs of nature, people, and society can be tolerated only if those needs are defined in advance by the Growth Model. Look at the side of your cigarette pack - it says it there too. There can be no autonomous discourses of those needs. It is Wolf's task to equate the emergence of such an autonomous discourse with the coming of World War III.

Wolf won't state his real fear, which is that the leaders of Anglo-American capitalism will never ever do the one thing that will save them.

Some quick background: These leaders have spent decades celebrating "creative destruction" that deliberately destroys the social systems that support collaborative problem-solving. The West thus approaches the environmental crisis of its growth model with what I call a cooperative disadvantage. Western leaders have pissed off a majority of their own population,s which haven't had a raise in decades, and have pissed off a majority of the world population, which experiences unequal development, exploitation, intense poverty and political oppression. These leaders have a good minority in the most abused subordinate countries (oil despotisms in the Middle East) baying for their blood.

The one thing that would save the West would be for its leaders to give a little - actually, give a lot. Shut up about chopping down the people's "olive tree" so Tom Friedman can have his era of the Lexus, and redistribute wealth. Stop supporting every last one of its pillaging tyrants while selling them your country's brand of helicopter gunships. Start letting wealth flow more to the work that produces it in the first place - the work that is happening every minute all over the world and that makes "the West" possible in the first place. Doh.

What Wolf knows is that Western leaders will never share like this - share in a considered, systematic way that acknowledges the role of people and societies alike. And that is the real reason why we continue to face economic decline and perpetual war.

Saturday, December 15, 2007

Middle Class Workers of the World?

One of my favorite questions is this: when the heck will the middle classes of various countries dispute the interests of moguls and political bosses rather than generally serving them?

The problem got some attention in the Financial Times in the seventh week of the Writers Guild strike, when columnist John Gapper looked for a trend at the various strikes by the writers, the stagehands, and finally the Viacom temp slaves who got mad about cuts to their health benefits.

As a journalist, Gapper is much like the "knowledge workers" whose labor politics he tries to analyze, and his piece shows how limited the white-collar critique continues to be. The main thing collective bargaining could get these media workers, Gapper says, is "outside the workplace – by providing health and pension benefits that freelance workers do not get." So labor negotiations will be most useful where they don't actually concern labor itself. Ouch!

Why does Gapper say this? Because for him, white-collar workers are too individualistic to want to bargain collectively for wages. That is because they care only about themselves, which means they focus on beating their peers rather than cooperating with them for general improvement:
Collective bargaining has a role in this world – to set standard contract terms or percentages for royalties and residuals – but individual negotiation is where the big money lies. Many technicians and writers are freelancers because it suits them: they get greater freedom to work across the industry and earn more.
Gapper's implicit "should" here is wrong. There's no reason why WGA members should ever leave salaries to individual bargaining: TV writers work in a semi-feudal system of medieval inequality and they do as well as they do only because they have long had one of the stronger unions - collective bargainers - in the country.

As a description of a certain middle-class mentality - his included - Gapper is right. Many of us seem to be primitive, pre-conscious merit fundamentalists who act as though the writer who makes $3 million a picture is a hundred times better than the one who made $30,000. Many of us thus are focused on standing out from our peers rather than rising with them and sharing the spoils - though in reality we generally shared the work.

This is not a uniform middle-class view, however. I have seen the split firsthand in the University of California, where a large majority of those faculty involved in an attempt to raise salary levels (while keeping the peer-review "step system") wanted the solution that would raise the scales for everybody. This majority knew perfectly well that therefore the "high flyers" with large "off scale" salaries would be flying a little closer to the ground formed by the regular salary scale, which was raised to be closer to their cruising altitude. Even many off-scale people - myself included - supported this, though it meant smaller raises for us. The professional school folks were already appeased with their own special higher scales - as were the economists - and finally the opposition was lead by some top administrators in the system and not by the faculty as a whole.

My experience is that the group psychology of white-collar types is like that of everybody else: they will support group advancement until it seems about to screw them. Thus the best way to destroy solidarity isto create lots of internal inequality. The fact that the WGA has held together in the face of its own grotesque pay inequalities is a tribute to the vision of leaders and members alike. Needless to say, the inequality boom in the US and UK over the last thirty years has both splintered the middle class and made the post-war practice of general development seem naive. Once many people begin to think that the best way to damage their own well-being is to work for collective betterment, there will be no more work for this betterment.

The Right understands this quite well: its success is based largely on creating higher levels of individual insecurity and fear, for these gnaw at social projects until they are dead. Liberals and leftists still often blame the duped lower-middle and white working classes for their political failures - witness the ongoing popularity of Tom Frank's dupe theory of Republican victory, which says well, all those millions of folks just voted against their own economic self-interest! But the real reason for the Right's success is that the professional center - the media- and sometimes university-based official intellectuals of the middle-class - abandoned Left social projects as having no dependable payoff for themselves.

To some extent the professional center has been right: the top 5 percent (above @ $150,000 family income in 2006) of every society gets not so much out of public services as they do from private treasures - Harvard, not UC Irvine; a borrowed Malibu Colony beach estate, not a nice chain hotel in Miami Beach. So there is always some good chunk of the middle class trying to get to the very top by adopting the views of the people already there, and in the U.S. these views are 99 percent business and 1 percent social (1 percent is the proportion of their net worth that charities try to extract annually from the wealthy).

But the bigger reason that the middle (and working) classes have lost their social projects is that the Right has a) ideologically reviled and b) functionally degraded all public operations - schools, hospitals, transportation, water delivery, food inspection, environmental protection, you name it - so that the middle and working classes alike can no longer believe that these operations will work for them. The game then becomes everyone for themselves - take your kid out of the public school rather than helping to fix it, buy a bigger car rather than taking the bus, etc. etc. The environmental damage of all this panicky self-interest is obvious. The social damage is just as great.
The cure starts with becoming aware of the vicious cycle of degraded public services and narrow self-interest that leads to "social dumping," general decline, and bad union deals. This can still be turned around.


While we're doing this we need to realize that another realm of confidence has been under attack as well: the financial services industry. I blogged about the meltdown in August; the
Financial Times has been ahead of the American media on this, and recently published a good overview of the "shadow banking system" to sustain a wake-up call to folks who still know how to read.

It's important to remember that the financial crisis is not really about subprime mortgages. It is not really about a failure of liquidity. It is not finally about the solvency of many major banks. The crisis is about the failure of markets to determine accurate values for complex financial instruments. There has been widespread market failure in the financial sector and a corresponding failure of trust.

I mention this now because the contemporary middle class is such a devout believer in market values, market signals, market outputs, and market measures of value, but unfortunately this belief has just screwed it again. The financial crisis shows that financial values are often determined by the off-stage behavior of a small number of elites, in this case, the creators of "strucutured investment vehicles" and other novel instruments that even professional investors could not accurately value in the moment of purchase. Values were fixed by what sellers could persuade buyers into paying, where the persuasion consisted of complicated - indeed, often indecipherable - financial arguments, not to mention very good returns at the start of it all.

In cases like this, by the time the general buyer decides the real value is much lower than the value he paid - "he" meaning either the individual or the fund manager who controls lots of savings and pension money - the insiders have gotten their money out. Losses accrue to the outsiders - the late buyers, the naive buyers, the dumb buyers, the eager, greedy buyers, the desperate buyers, the buyers who worried about being shut out and thus bid too much. Markets are always a game of I say/ you say, a running sales pitch, a giant advertising campaign. The crucial thing is that they know and you don't: they, the top rung of financial professionals and their shadow helpers; you, the beleaguered salarywoman or man.

People think financial elites are upset about the "financial crisis." But let's be a little more Noir than that. These folks have destroyed confidence in the public systems that create egalitarian, general development. They have destroyed the "investor economy" alternatives for the mass middle class (the one that hasn't gotten a raise in 35 years, and whose men made 12 percent less in 2004 than they did in 1974.) They have generated a series of financial scandals over decades and haven't paid much yet (see a bit of financial history from "common man" investment manager Ben Stein).

They pick up what the middle class doesn't earn in either the real or the fianancial economies. They win at poker, and they win at roulette too. These financial folk don't bet against the house: they are the house. What's for them to be upset about??

Thursday, November 29, 2007

The Great Unwinding

Writing in the Financial Times, Martin Wolf has pointed out why the US government's unofficial weak dollar policy isn't so smart. Although in recent quarters "net exports contributed a quarter of US growth," exports are "only some 12 per cent of GDP. They must grow by considerably more than 10 per cent a year, in real terms, if the contribution of net trade to the rate of growth is to be as much as 1 percentage point. It is likely to be much less."

Sounds technical, but it means that the U.S. can't replace the engine of consumer spending with the engine of exporting for foreign spending. Two reasons are obvious: most of the world's population does not have as much money as Americans do, and they aren't willing to spend all their savings and more to do it.

Wolf calls this the "great unwinding" - an end to the growth caused by spending based on borrowing against rising housing prices. He describes it as "a turning-point for the world economy." The question is whether the "emerging markets" will be the "demand engines" of the economy to replace the US consumer.

My own guess is not. The US consumer was able to be the little demand engine-that-could because of decades of prior social investment, housing price inflation, easy credit, and no saving for tomorrow. Most of the world's population lacks some or all of these things. In addition, though many of them are wealthier than ten years ago - China is the leading example, some of the Indian population is another - the manufacturing system depends not on their wealth but on their low wages.

The world needs social development spending as much - more really - than consumer spending. We should figure out how to get that!

Friday, November 23, 2007

Corrosions of Inequality

Last week the French strikes spread and hovered on becoming a general strike before the lead unions voted to start negotiations again. The strike is at bottom not for retiring at 55 but for labor having a decent piece of the economic pie in a "globalized" Western economy. The French are as a population more skeptical about "market economies" than any other similar public. The U.S. media likes to present this as a sign of French backwardness and selfish nostalgia, perhaps because they don't know any actual French people. It is in fact a sign that they understand that "markets" are used as an excuse for cutting labor's share. Someday the American suburbs will figure this out.

In the U.S., television and movie writers remain on strike. One of the best writers perspectives appeared this week in the Santa Barbara Independent. James Kahn does not mince words, and among other things he says that "Writers collectively get 55 million bucks a year in residuals. If the studios gave us everything we were asking for, that would go up to $75 million. Just one company —Viacom — has annual revenue of $18 billion, and its top execs make about $60 million apiece annually." In other words, one Viacom exec can make as much in one year as all the members of the writers' guild put together.

What is the possible justification for this kind of inequality? It's monarchical, where one person earns as much as tens of thousands. It's worse than the middleman strangleholds that started the Grangers' revolt on behalf of food producers against the food brokers, who, then as now, take the lion's share of the final revenues. American business leaders have used global changes to undo the post-World War II middle-class revolution, which I define as income advances that are the same or greater for the majority than they are for the top. Society was starting to advance as a whole. That common advance has stopped. And these business leaders are the reason why.

Most of the business press has slept through it. It's hard not to assume it's because writers don't want to be too rude about the self-serving beliefs of the top execs that control their outlets. Maybe this explains James Surowiecki's terrible piece, "Striking Out," ostensibly about the writers strike in the November 19th issue of the New Yorker. In general Surowiecki never met a boardroom theory he didn't like, but he is even more of the front-row teacher's pet this time around, taking the opportunity to sigh about how strikes never raise wages and to make the writers seem as self-interestedly deluded as any billionaire exec. Economics, history, sociology, personal stories all disappear in Surowiecki's likening of both sides to fans in a 1950s study of a Princeton-Dartmouth football game, players of "ultimatum" and capuchin monkeys who are rewarded for working together. Anything to avoid talking about the grotesque inequality between execs and writers.

Surowiecki is a longtime ideologist of the middle-class: he spent the 1990s selling the New Economy and its market forces to the white-collar working stiffs who in the great majority of cases were going nowhere in it. But for Jim's faithful readers it seemed both glamorous and inevitable, and he asked us to identify with the masters of the universe who were making the high-tech future for us, ready or not. Entrepreneurs wrestled with the market gods and won: from their loins sprang infinite riches which we gratefully received. This mighty union of entrepreneurs and markets was the highest, the most glorious, and the only road to the wealth and plenty that is America's alleged birthright.

Unfortunately, when you put down the writings of middle-class admirers of capitalists and read the work of the capitalists themselves, you discover the admirers were lying to you about markets.

Look at these sayings from investment books:

- I'm a 40% fundamentals / 60% technicals trader
- buy the company, not the stock price

Let's start with these two. The first is from some young guy with an MBA from NYU who trades currency for a living. His work is neither interesting nor socially valuable - he practices "scalping" and holds positions for about 15 minutes at a time, but he does note that he cannot make money by regarding markets as snapshots of economic reality - the "fundamentals" view. The behavior of market traders is "60%," and these folks are exploiting market spreads - gaps, holes, that is market inefficiencies and market failures, to make their numbers.

The second is a saying of Warren Buffett's. It means don't look at the market measure of a company, look at the company. Buffett's famously successful investment strategy in effect invests in specific social institutions and relationships with names like Coca-Cola. You invest in people, products, and financial measures of those things. You don't invest in market prices.

Such sayings imply that major capitalists do not believe that markets are self-managing systems that return to equilibrium if you don't let governments money with them. This flatly contradicts the wisdom of TV hosts and politicians, who celebrate the "free enterprise system" and the "efficient market hypothesis" as though it is always the 1950s in America, not to mention the 1920s. Capitalists make money by seeing markets for what they are - social institutions with all sorts of problems that can be mended and milked, often at the same time.
Most of them find it convenient for the masses to believe otherwise - that markets must be left alone.

The blanket buy-in to this ideology may explain odd facts like how no disaster - Enron for example - ever actually gets us to reform our corporate governance system. Paul Krugman points out in his column today that this undone reform is the source of the ongoing "subprime" credit crisis, which sounds like it was caused by shady small-time mortgage brokers when it was caused by buying and selling asset-based securities by the wealthiest bankers in the world, they of the $40 million a year minimum paychecks. Congress may not reform the corporate world because the latter owns Congress - that's a big part of the story - but they also don't reform because business, B-schools, etc. have trained us to think that markets are wiser than all democratic intervention - that it is indeed undemocratic for the people to steer economies.

One last example of insider debunking of this Americanism. George Soros is one of the most successful currency traders in history, and in 1987 published a book called The Alchemy of Finance. I will say more about the overall theory of "reflexivity" in markets some other time. But my point here is simply to note that Soros rejects self-regulating markets categorically as what he calls "market fundamentalism." On page 52 he says, "I replace the assertion that markets are always right with two others:
  1. Markets are always biased in one direction or another.
  2. Markets can influence the events that they anticipate."
Thank you George for this reality check. Suburbs, take note - you've been had, you pikers! Inequality is something to intervene against, not something to embrace even as it drags you down.

Sunday, November 11, 2007

Democracy Is Over?

Fr. Frank outdoes himself in his Sunday sermon today. He mentions a new poll that shows that 24 percent of Americans think the country is "on the right track," a ten-year low and that folks hate the Democratic Congress as much as the Bushian exec. But the heart of the piece is a running comparison between the Presidents of the U.S. and of Pakistan as parallel tyrants. Which leads to this:
In the six years of compromising our principles since 9/11, our democracy has so steadily been defined down that it now can resemble the supposedly aspiring democracies we’ve propped up in places like Islamabad. Time has taken its toll. We’ve become inured to democracy-lite. That’s why a Mukasey can be elevated to power with bipartisan support and we barely shrug.

This is a signal difference from the Vietnam era, and not necessarily for the better. During that unpopular war, disaffected Americans took to the streets and sometimes broke laws in an angry assault on American governmental institutions. The Bush years have brought an even more effective assault on those institutions from within. While the public has not erupted in riots, the executive branch has subverted the rule of law in often secretive increments. The results amount to a quiet coup, ultimately more insidious than a blatant putsch like General Musharraf’s.
We had a coup d'etat! Yow! Oops - who knew?

Rich is right that representative democracy has ended at the federal level. Congress and the President can't even get up to 25 percent approval ratings, but, well, they don't really need our approval any more, do they?

Friday, November 09, 2007

Why Moguls Hate Writers

Pakistan is burning, and Sarkozy is making an ass of himself grinning in line with Bush and Cheney. But let's look at Hollywood for a minute. The Writer's Guild of America has been on strike since Monday, largely over the failure to get concessions from the studios about royalties on either DVD sales or "electronic sell-through" (EST), otherwise know as digital downloading or "new media." There are all sorts of ins-and-outs to this labor-management conflict, including the blurring of the lines between the two. I refer those not too exhausted by details of Hollywood to read Nikki Finke's blog for one of the best running commentaries; her regular column in yesterday's issue of L.A.Weekly offers a good overview for the latecomer.

But the deeper issue is why Hooy-wood honchos couldn't care less about writers. Some reasons:

They are orthodox American capitalists. This means they think all value comes from technology and not from labor - and of course from their "entrepreneurial" management of technology. They get this from old-school innovation economists like Joseph Schumpter, who make technological innovation the center of wealth creation and economic development. A million economists have echoed him since, including "new growth theorists" like Paul Romer at Stanford. This means that shifts from big to small screens, from broadcast to cable, from broadcast-cable to taping, from analog to digital taping, from VHS to DVD, from DVD to EST - these are the shifts that define the industry. Writers are irrelevant. They who master process innovation and assemble the giant corporate machine for technological control shall rule the universe.

Moguls assume labor doesn't matter. Market placement and network effects matter. Thus a tiny handful of writer-kings create nearly all of writer-value - the hit machines. More important are the producers who do the series concepts, especially the ones like American Idol that can avoid writers altogether.

Moguls see inequality as natural. the Writers Guild of America is a poster-child white-collar union enjoying forms of inequality that would make Darwinian selectionists blush. A good piece by Brooks Barnes points out that "Among the Writers Guild’s 12,000 members are television writer-producers like Shonda Rhimes, the creator of Grey’s Anatomy and Private Practice, who take home up to $5 million a year. On the other extreme are junior writers who — if they work at all — make $50,000 or less. About 48 percent of West Coast members are unemployed." The whole industry is like this - billionaires and millionaires on one side, the mass unemployed on the other, plus a small and unstable "middle-class." Is tis America's overall future economy? Yes, if we all think this is normal. On this point, an LA Weekly piece by Steven Mikulan quotes one picketer as saying that "There’s this myth that it’s millionaires versus billionaires. But the median income of a WGA member is $5,000. I rent an apartment in Sherman Oaks. I have a 4½-year-old son and a baby due in December. The only reason my wife and I can live in a nice part of town is because of the union contract." (On the other hand, "The average working writer in Hollywood takes home about $200,000 a year, according to the studios and networks, which are represented by the Alliance of Motion Picture and Television Producers." Note the difference in source, and also between "median" and "average" - the later can be skewed up but huge packages at the top.)

Moguls live in the world if truly insane legal and financial fees. Lawyer contingency fees can run 33-40 percent for major civil lawsuits. The law firms in the successful Vioxx suit against the pharmaceutical giant Merck will run over $2 billion of the $4.85 billion settlement. Hedge funds operators get "2 + 20," meaning a straight 2 percent of assets under management put 20 percent of profits.

Of course all this makes moguls think like a lot of middle-America. Too bad the latter make zero money from it - less than zero, to be exact.

Thursday, November 08, 2007

How Do You Know When You're Dead?

When you don't fight what's hurting you. I've blogged before about the Pakistani lawyers and judges. Here they are last March standing up, after decades of passivity, for law and against their tyrant. Pretty simple. Now there's martial law, a suspended constitution, continuous riots. Tariq Ali has an excellent short summary of what happened.

Something similar is happening in France. There were the big rail strikes last month, and the Air France flight attendants strike that stranded us in Berlin for about 12 extra hours on October 27th, and the Bretagne fishermen who have been protesting fuel price hikes and, when le Jogger, aka le president de la Republique showed up, confronted him face to face and said he wasn't doing a damn thing for them. It was an amazing spectacle for an American, raised on our deference to our executives and their vast security forces, to see le Jogger surrounded by local folks listening but dishing it right back to him.

Americans generally don't see why the French make such a fuss about everything, including little stuff like cuts in pensions - in this case, in the "special" pension systems that affect employees of the Paris metro, the national train system, and the national gas company. The reason is simple: the public pensions are much better than the private ones. le Jogger et al want to cut the public pensions down to the private level, because that will save the state and its high-income tax base money. The employees don't want to give their pension money back, so that le Jogger can give it to business and wealthy people in the form of tax cuts.

As in the States, the language of necessity is always trotted out. Globalization means we can't afford your luxury pensions any more. Here are the actual figures, from Le Nouvel Observateur (table not on line): the average monthly pension (I'm assuming after tax, which is how salaries are usually expressed in France) for train folks is 1683 Euros, and a little over 2000 for EDF-GDF (electricity and gas folks). The highest average is RATP (Paris metro & bus), at 2136 E / month. That's 24000 E / year after tax, or what, maybe 40,000 E gross per year. That means that a retiree from those operations in France has an income that is somewhat below average for a family income in the United States (around $50,000 /year, depending on how calculated). FAT!

The private sector average is the big scandal: 827 E / month for non-cadres, meaning roughly blue-collar and other non-professionals, and a whopping 1429 E average/ month for professionals. Who wouldn't fight to keep their pensions from dropping by 1/3 to 1/2 if, as most think, le Jogger wants to shift the public onto the private model and get the final pension as an average of the last 25 years of salary rather than of the last 6 months.

Bush wanted to privatize Social Security in the US after his 2004 re-election. Arnold tried to do the same to CalPERS and other public pensions in California in 2005. It's a trend in Western countries for leaders to try to get money out of funds controlled by labor - and that go into employees' pockets - and into the investment system and corporate revenue streams that they control. How could employees NOT fight this?

The nurses and firefighters fought in California in 2005. But no thanks are owed to the political system. The Dims can't lie down fast enough. They can't manage to pass a law taxing hedge fund managers income - in come cases hundreds of millions of dollars a year - as actual income (it's 15% rather than 35% or so). Will the Dims get as radical as mondo-billionaire Warren Buffett in complaining about the gross injustice?

No. On another front - take the Bush Administration's nominee for Attorney General. He's opposed to torture but won't condemn waterboarding. The context for is the secret 2005 Justice Department memo the New York Times reported on in which, in the wake of Congress prohibiting “cruel, inhuman and degrading” treatment, declared waterboarding to be none of those things. Michael Mukasey inserted himself in exactly this space, opposed to torture, not opposed to waterboarding. Sens Sens. Fienstein and Schumer created an 11-8 majority that moved Mukasey's nomination out of the relevant Senate committee.

In California, Gov. Arnold Schwarzenegger has responded to a likely downturn in income tax receipts by asking all state agencies to plan for budget cuts of 10 percent. It's a habit among US political and business leaders to cut jobs and services as a first resort. The response? not a peep.

If we define life as acting in history, it's not clear that the US middle class is still alive.

Tuesday, October 23, 2007

Earth to Greenspan: Go Away!

The picture is not a metaphor for global financial meltdown: it's my Southern Cal land of origin burning to the ground. See my Global California blog for links to the maps and more.

I get a little preachy there about the social roots of natural disaster, which we can call in shorthand "Mike Davis is Right." There's been lots of great work in recent decades about the natural disasters caused by social forces like the international banking community's idea of development - the effects on ecosystems and communities of the IMF's love of giant dams, for example. Greenspan is one of those guys, helping to cause economic and natural disasters that he then permits himself to lament.

He's doing it again, using his recent book as an excuse to go around lecturing everyone about current policy errors in his typically convoluted way.
"Obviously there is a limit to the extent that obligations to foreigners can reach,'' Greenspan said in a speech in Washington yesterday. The dollar's decline to its lowest since 1997 may be "an indication America is approaching this limit.''
Well golly. (See the full article for an attempt to endow Greenspan with the dignity of historical consistency.) The irritating thing here is not that Greenspan is wrong - he's right. The irritating thing is that he acts like he wasn't the leading economic policymaker in the U.S. if not the world until 2006, having been chair of the Federal Reserve since 1987, and therefore in large part responsible for this financial "limit" and many others.

He can go around acting innocent because of an even more irritating thing: now well into his 80s, Greenspan continues his quest to make economics seem like a collection of natural phenomena rather than the effects of deliberate choices made by the folks in charge, like him.

So he is an outrageous overuser of the passive voice, in which no policy agent ever does anything, things just happen. "A diminished appetite for adding to dollar balances" is reached, or the subprime crisis is suddenly observed, or this or that crisis is "waiting to happen." The only agents are inanimate objects: the dollar "drifts downward," for example.

As an explanation of how things work, this is really dumb. It's like my 5-year-old self standing next to the cookie jar and telling my mother, "the cookie is no longer in the jar." Mom wouldn't buy it, but hundreds of millions if not billions of people have to buy this kind of nonsense - about what happens to their money - every day.

What is the goal of Greenspan dumbness? With the dollar, it allows policymakers to continue to let the dollar slide. Greenspan is thought to oppose Bush Administration economic strategy. Here, he helps Treasury Secretary Hank Paulson tank the dollar to help US export firms by implying that it's all automatic, the dollar drifts, limits are reached, nothing can be done.

That's absurd: European policymakers are warning traders not to make "one-way bets" against the dollar, and scholars offer ways the U.S. Treasury could stop or slow the decline (e.g. suddenly buy dollars, scaring dollar-shorters out of their one-way bets). But as long as we have Greenspan around to muddy the waters with laissez-faire dumbness, stabilization will be that much harder.

Short those dollars. Burn baby burn.

Saturday, October 20, 2007

Things Are Not Good

Three sighs for Southern Cal, where I was born and raised.

Continuing signs of the runoff of the ongoing financial meltdown swamping the real economy. Big profit plunges in the big banks and the like. Always fun to watch them losing our money.

Meanwhile, the banks are having a hard time figuring out how to bail themselves out.

Even a financial journalist finds the Treasury secretary incoherent and dissociative.

Another F.J. marvels that "interconnected global markets should make the world economy more stable," except they don't. Duh. Life is surprising for journalists who believe in the Invisible Hand.

Fr. Frank supplies the details on the financial conflicts of interest, nepotism, and for-profit self-dealing that are the main aim of Bushian government.

Media companies that can't create it - buy it. Always enough money in this country for that.

Meanwhile, Rep. Pete Stark blows his stack, and tells Bush off.

Thursday, October 18, 2007

A Little Distracted

Paris transportation was shut down today by the strike. We went looking for the revolution on foot, couldn't find it at the Bastille, and were told by cops that the route of the revolution had changed. By the time we got to Nation, the revolution had moved to the cafes, where les militants were blowing their sheephorns for additional wine. This was a post-revolutionary state I could relate to. But the media didn't care about stuff like social movements, because they were too busy covering the ins and outs of Cecilia Sarkozy dumping Le Jogger out in the open, having covered for him during the election, so he could play the man in charge of everything including his wife. Meanwhile, if you are noticing the financial meltdown, and are one of the undumb members of the economic other 90 percent who hasn't been wafted upwards by the right-wing pseudoeconomics for the last five or twenty-five years, and have begun to notice that many financial columnists are truly insane, you might be ready to read a long piece on structured investment vehicles as a down payment on getting the big picture on who's been screwing you. Enjoy - just one of many past and future attempts to turn over the financial rocks to see what crawls out.

Tuesday, October 16, 2007

Rich And Dumb

That would describe our current Secretary of the Treasury, Hank Paulson, your average Wall Street billionaire who said this at Georgetown:

"Let me be clear: Despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy,” Mr. Paulson said in a speech at a Georgetown University law forum. “The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."

Right. Housing price inflation - cornerstone of American economic greatness. Hmm. Now that you mention it, maybe it is.

Paulson sounds like a North LA County realtor, but that doesn't make him stand out. There's all sorts of statements from Fed Chair Bernanke that contradict themselves in mid-paragraph, which is considered a sign of moderation and good judgement in the financial world. They actually have no idea what's going on right now. They only have about 2 tools anyway to fix a machine with six billion parts - interest rate levels, money supply. Frighteningly helpless strutting around from people who control all the money anyway.

Meanwhile: "Foreign Investors Flee US Securities"
"Europe Records Unprecedented Outflows"

Forget about it. Read Colbert on the US Election. My only laugh in the paper this week, and I'll take what I can get.

Sunday, October 14, 2007

Dum n Dummer

On this Sunday morning Fr. Frank is more righteously wrathful than ever, comparing American public silence on the U.S. practice of torture to the "good Germans" who ignored Nazi extermination during World War II. One chilling moment is when he borrows from Andrew Sullivan this observation"

America’s “enhanced interrogation” techniques have a grotesque provenance: “Verschärfte Vernehmung, enhanced or intensified interrogation, was the exact term innovated by the Gestapo to describe what became known as the ‘third degree.’ It left no marks. It included hypothermia, stress positions and long-time sleep deprivation.”
So "As the war has dragged on, it is hard to give Americans en masse a pass." Amen, Fr. Frank!

How did we sink this low- and against a small poor country (again)? Well one answer is that we've always been there. Jim Crow segregation, Japanese internment camps, civilian massacres in Vietnam, and many similar American practices didn't produce rebellion in the streets. Americans are like people all over the world: most of us keep our heads down, if not firmly up our butts, and do what's good for ourselves and nothing more. A reasonable rule of thumb, with the occasional hopeful exception.

Another part of the answer is that the U.S. public has actually gotten dumber in the last twenty years. I was reminded of this when Fr Frank's own paper, the New York Times, couldn't think of any better commentary on the novelist Doris Lessing's Nobel prize than to reprint a fifteen-year old piece of genuine crap that she published about political correctness carrying on for the communist illusion. It sounds like it was ghostwritten by Denish D'Souza or some other culture warrior of the period, and comes complete with a headnote that apparently inspired the reprint - the arch-conservative literary critic Harold Bloom taking the Nobel as an opportunity to say Lessing only got it because of political correctness. This whole idiotic time-warp experience didn't fall down the memory-hole, but became the most emailed article by the upscale types who read the NYT.

What's the connection? The attacks on political correctness in 1990 and 1991 launched the culture wars. These sought to destroy whatever egalitarian instincts had survived the Cold War in the hearts of the American public, and which had been inspired by the civil rights and anti-war movements, among others. Newsweek published a piece in December 1990 about how race consciousness was another version of the Soviet dictatorship of the proletariat. This was right as the Soviet Union was opening up and soon to disband itself, and the Berlin wall was going to fall. What would the Right use to smear equality, negotiation, multilateral foreign policy, and racial justice if the couldn't call it Soviet puppeteering anymore? Like lots of liberals, Lessing fell into the trap, calling PC a kind of communism.

I just finished the copy-edits of chapter 3 of my forthcoming book, Unmaking the Public University, so let me quote myself on the subject:
the early 1990s attacks on PC succeeded through their ability to associate PC with race consciousness, which they in turn described as an internal enemy that challenged national unity. The civil rights movement had yoked race consciousness to increased equality, and these were denounced interchangeably in culture-warrior attacks. Arnold-style invocations of a unified and universal national culture expressed a genuine nostalgia while running intellectual cover for a conceptual rollback. The attacks took advantage of a national culture in transition, one in which most of the American population seemed not to know what to do with an increasingly multiracial, culturally dispersed, and economically fragmented democracy, while their leaders seemed to know even less. American society needed new cultural capabilities, new powers of complex analysis and construction. The need was evident in the PC wars themselves, since the phony social crisis of a few ethnic studies courses and isolated campus incidents could have occurred only in a country that needed new bearings. What the country got, instead of new cultural knowledge about multiracial and egalitarian democracy, was the attacks on PC. These tied racial equality to a Communist-style threat to the nation, while making inequality the prerequisite to order.
I'm not happy to report that this is where we still are, nationally: we don't believe in equality anymore, and don't think negotiation or fairness or development will make the "war on terror" unnecessary. So we do force and war, and torture is the core of war unleashed. That's not because torture works (Fr. Frank cites WWII vets saying they learned more from Nazi prisoners by playing chess with them); it's because torture is what war boys do.

Thursday, October 11, 2007

A Little Good News

I forgot to mention here, though I did say it on my Global Cal blog, that the problem of declining public funding for the University of California had a really nice write-up in the Los Angeles Times on Sunday. Hats off to Rick Paddock for the best daily newspaper story on public higher ed funding in world history.

We'll see what it does. But at least the idea is out there that privatization can't save public universities: the amount of the donations aren't enough, and the money comes for specific purposes, including, in the case of sponsored research, for a return on investment and not for general social development. For doing the latter, general taxation is far more efficient than cutting taxes and then hoping companies give a small percentage of their tax savings back to the public sector in the form of targeted research that may or may not have social spillovers. Read the original report if you want more on this topic. And who wouldn't want more? Take your medicine! It will help you to keep from getting screwed.

There was some good coverage here in France of the insider trading scandal at the Airbus parent company. The story is that a number of politically-connected insiders at the company sold much of their stock right before it plunged on news of Airbus 380 delays. One piece of the problem is that they appeared to profit from knowledge they had as insiders that the public did not. Another piece is that a government financial institution, la Caisse des dépôts, bought the stock high with public funds, bailed out the insiders, and thus took the loss out of the public till. Did the Caisse directors have a deal with the insiders to help them out? No proof, they deny it, and so it goes.

The only good news here was that the mainstream radio coverage I heard (Europe 1) said if one side sells at a good price (high), another buys at a bad price (high and about to fall). They noted that the government's losses, 180 million Euro, meant that the insiders in effect gained 3 Euro per man, woman, and child in France. It's helpful to think about who pays when others gain, rather than living in the magical world of Anglo-Saxon market talk in which everyone wins, and the big wins are allotted simply to those who are best.

I have a few thoughts about le Jogger's trip to see his fellow strongman Putin and to have a virile dialog of mutual respect, but I'll spare you. Better news elsewhere - including TV criticism - where people are seeing how it really is.

Saturday, October 06, 2007

The Big Empty

I talked compulsively on my cell phone back home in Santa Barbara, since there were lots of great people to catch up with after 3 months in France. One of them is my friend (and excellent blogger) Raphaelle, my mirror-image refugee from her home-city Paris, now living in Venice CA and telling me how LA traffic is just fine if you know what you're doing - much better than in Paris. I could have missed my Air France flight from LAX to CDG if I'd let the 405 work its bottleneck magic - a 6 car wreck on perfect early autumn morning, both sunny and dry, backed us all up to Mulholland. But I fought the road and I won.

Thanks go out to the unknown black-haired brother and sister (as I think of them) in the black Chrysler wagon from Alhambra - the brother's head back looking at the sky, the sister driving like a bush pilot - whose passing and falling back in lane number 1 gave me the strength to stick with lane number 2.

F Scott Fitzgerald supposedly said, "In a real dark night of the soul it is always three o'clock in the morning." I first read that when I was 16, born and raised on the west side of LA, and my first thought was no, the dark night is when you are trapped in a Southern Cal 3 o'clock in the afternoon. There are no clouds, and the sky is a giant pale blank like the roof of a fundraising tent the company forgot to take down. It tells you nothing will ever change. The dog barks at 3:05 pm just like he did the day before. Yesterday's skin-temperature breeze drifts in the window again. The sun is the bare overhead bulb that someone forgot to turn off. You are tempted to find some feature in the world by looking at the sun, and the simple fear of looking at it can make you blind.

State Hospital about forty years ago. I only remember her, and not the building, which is a Cal State campus today. I turned off After I dropped Avery off at LAX I drove back to Santa Barbara up the coast, and then left Hwy 1 at Las Posas because I like the last unbuilt crop fields in western Ventura county, fields that run up against the dry hills where I used to visit my great grandmother Mooney at CamarilloLas Posas to find it, wound up Old Hueneme Road and kept going away from Santa Barbara through the pass into the Santa Monica mountains and landed in the back forty of Thousand Oaks, where it runs out of asphalt next to the scrub and grassland, both of which look eternally on the brink of death.

3 o'clock in the afternoon looks like this:

Luckily there are the friends. Richard and Hilal put us up and we had a chance to hang out a little bit especially over breakfast. They gave me a birthday party the day after the actual day, Sept 26th, because I again spent it with my Academic Senate pals in Oakland, since the last week of September is the beginning of the fall quarter at UC.

A bunch of us saw Naomi Klein speak about her new book The Shock Doctrine at Victoria Hall. I liked her because she's putting up a good fight and because the film she did with her film- maker partner on Argentinian workers taking back factories closed by their owners - The Take - is one of the best globalization documentaries ever made.

The best point for folks to take away from this project is that "free markets arrive through force." Not all her links between markets, shock doctrines, and dictators are equally convincing, but she's completely right in making the general point that markets rest on state regulation, and when markets are used by elites to screw the middle- and working-classes, as in Argentina and the United States, they are so unpopular that marketeers turn to dictatorship or, in the US, to hard-core minority rule.

Klein's more serious limitation is that she didn't in the talk have a good new story to tell about non-market development. This is my obsession - showing that progress, prosperity, and development proceed faster when they are done by and for everybody. In contrast, Klein is still a Keynesian, wanting government easing of the fallout of globalization, and that 20th century kind of social democracy is of course a radical position in the US. It's not enough any more, but what the hell - Klein's off to a good start, and I hope a lot of people read the book.

Some fight, but most do not. In higher circles the death trip continued. One example is the confused strategy for maintaining that pillar of the good life for the vast majority - public higher ed. One of the things I do in Oakland, which hosts the Supreme Allied Command headquarters for the University of California, is sit on the Senate's Academic Council, which hears testimony from the University's senior managers once a month. This month I again asked the President and his 3 Executive Vice Presidents why we seemed to be going backwards again. Six months ago, my committee's "Futures Report" had been put before the Regents. It showed that the University has lost over a billion dollars in state funding compared to where we would have been if we'd kept even with state income growth since 2001. The report also showed that private fundraising, though deeply beloved by senior administrators everywhere - losers ask for state money, winners get it from the rich - could never fill the gap, and that the same inadequacy held for research funding, which went for specific scholarly work and not for overall education. We showed that the choice was between more state money and doubling and then tripling student fees.

But there I was end of September saying that though we all agreed on the numbers, but then the University destroyed public support for public funding every chance it got. The President's public statements on the budget repeatedly said that state funding is strong and pleasing to us. Every time a major private donation comes in, senior administrators praised our excellent public funding. Every time small, elite UC units like Boalt Hall law school asked for private money, they said public funds would never increase to adequate levels again. How the heck, I asked, can we ever possibly ask the state to restore the funds they took from us when we keep saying we have everything we need?

Each senior manager began his or her comments by saying "Chris, I completely agree with what you just said," and then explained that they would keep doing exactly what I was lamenting. I didn't know whether to laugh or shout, so I smiled benignly and thought my usefulness in this Senate mechanism was at an end. The decline continues, not because these aren't good and intelligent people - they are - but because they accept as given the rules that ruin us. Good and intelligent professional people don't revolt against the rules.

What is the rule that we must now break? The rule is reject taxes, beg for charity. In the world of low-tax and low-service conservatism, huge, intentional wealth concentration has meant that for the wealthy most taxation is voluntary, and they tax themselves entirely at their own discretion (and at far lower rates) via self-aggrandizing philanthropy with the money that should have gone to public services in the first place. Universities, hospitals, schools, music, art and sports programs, libraries, health clinics, nursing homes, disability services, housing authorities, all must complete their budgets by begging the wealthy hat in hand. Getting the money up front, via taxes, as a public right, as a return to the public for its service in supporting the endeavors that made the wealthy wealthy - that is what breaking the rule should restore.

It's time to find another strategy, outside the Big Empty.

Monday, September 24, 2007

Don't Toss the Business Section

I love my friends Richard and Hilal who are putting us up in Santa Barbara since we rented our house. But I had to dig the Sunday NYT business section out of the bin, where it had gone straight to recycling. Since the middle-class, my hosts excepted, is super dumb about money - rich folks spending ours - we should really read business news more carefully.

Which I did right after I cancelled my sub to the WSJ, citing Rupert Murdoch's worldwide track record of corrupting the news side to suit his right-wing agenda. In the NYT I found Papa Ben Stein, my 11th favorite Republican, saying some true things about financial policy. In the real world, effect is tied to cause in ways that are inexact and variable. So simple statements of economicdogma are almost always wrong. Like cut taxes, grow the economy. Raise interest rates, fight inflation. Stein writes, "We do know that if the Fed starts printing money, Weimar style, and dropping it from helicopters, Bernanke style, we will probably have big inflation. Or maybe not." This last is far more accurate than most of the crap out there. Stein's main point: "The plain truth, as I paraphrase my sainted father for the millionth time, is that we simply do not know how the various parts of the monetary machine work on the economy."

More fun than Stein's main point is his summary of the Wall Street folk as they responded to the August financial crisis.

Here are some things we do know:

First, Wall Street desperately wanted a rate cut. People on Wall Street had gone into a sort of lenders’ panic as they saw the chickens of excess risk-taking come home to roost. The Wall Streeters loved the excess fees for excess risk. They just didn’t like the inevitable losses of excess risk.

As I have said before, the actual magnitude of mortgage losses was small, but Wall Street is run by young people who panic easily at the first sign of frustration, like overtired infants. They wanted to be reassured that Mommy cared about them and would give them her breast, in this case monetary ease.

When they got that liquidity, so to speak, they calmed down. It is a shame that we have to appease these big rich babies to keep the economy going, but they are very strategically placed big babies and they need care.
The actual article is good on where your money goes, and whom money strokes, and whose well-being it is spent on.

Click on the nursing-home spinning-wheel. There are the encompassing layers of ownership that absorb the money that was meant for care - before it gets to the care. See how Jack makes money. Find Jill's mommy, lost in the maze.

Thursday, September 20, 2007

If You Have a Big Column, Why Do You Blog?

That's a question for Paul Krugman, and a lot of other folks too. When do you actually get to think? Or read? Do you need more attention than you already have?

Maybe the idea is if that if you produce more words, you will have more influence over people with power. It is kind of amazing to see how little

More Krugman is generally a good thing, though his title is horrible - The Conscience of a Liberal. The allusion is to "The Conscience of a Conservative," a book by 1964 Republican presidential candidate and Arizona arch-conservative Barry Goldwater. Both "liberal" and "conservative" should be banned in America for 10 years, until people can have a few political ideas that don't involve either of them.

Good things about Krugman:
  • he hates economic oligarchy. When he's not stressing golden age bipartisanship, he's a class war kind of guy. Look at the chart, which shows the percentage of total income that goes to the top 10% in a given year. The post war period was when the top 10% only got about a third of national income.

  • he ties political democracy to economic equality. Can't have one without the other. He's right.
  • he thinks policies create both Gilded Ages (tax cuts, service cuts) and democratic ones. Yes again. He could be a lot clearer about how people don't first earn money and then the government either does or doesn't redistribute it. Governments - the rules of the economic game - largely determines who earns how much. No I'm not denying individual effort. I'm denying that life occurs in a vacuum, especially salary-producing life.
  • he implies we could have a more egalitarian and democratic US. It's a lovely thought.
If he were very clear about the limits of that period (racism galore, crazy, dangerous homophobia, Cold War militarism, gross gender inequality) - he'd be even better.

Perry Anderson addresses the ties between politics and economics in a great, long piece on Europe in the London Review of Books. He elaborates on absence of any kind of popular input into the operation of the European Commission, which elaborates endless rules that governments must follow. He then writes,
There was from the beginning a third vision of what European integration should mean, distinct from either federalist or inter-governmentalist conceptions of the Community. Its far-sighted theorist was Hayek, who even before the Second World War had envisaged a constitutional structure raised sufficiently high above the nations composing it to exclude the danger of any popular sovereignty below impinging on it. In the nation-state, electorates were perpetually subject to dirigiste and redistributive temptations, encroaching on the rights of property in the name of democracy. But once heterogeneous populations were assembled in an inter-state federation, as he called it, they would not be able to re-create the united will that was prone to such ruinous interventions. Under an impartial authority, beyond the reach of political ignorance or envy, the spontaneous order of a market economy could finally unfold without interference.
Unregulated markets and non-democracy not only work together, but are in Hayek and elsewhere advocated by the same people. "Freedom to Choose" conservatism means individual consumer choice, not collective sovereignty. The latter is something that the Right almost invariably fights.

I meant to say something nice about President Rupture for a change, and it's not too late. Sarkozy is trying to browbeat the European Central Bank into having some concern about the effect of its policies on France and its people. He has some bad reasons for this, but the basic idea is right - banks shouldn't govern people's economic lives like unapproachable dictators.

To see why this matters, read Anderson, and think about the ongoing thawing of the world financial system, which remains largely an invisible empire with real effect.

Wednesday, September 19, 2007

The Simple Noir Rule of Finance

The Financial Times has a two-part gee-whiz what-happened thumb-sucker today about the iron laws of finance - as they are this week. They're upset about the loss of liquidity: it couldn't happen, then it did happen, how could it have happened?

I've blogged about this silly stuff before - no systemic failure is possible, until it happens, markets are efficient, until they're not, we know best about everything, until we don't know anything!

A week from now, we won't know anything again. The paradigms won't expand, because then the simple political battering-rams would look like the medieval engines they actually are: markets are always right, central banks manage perfectly, equity funds create liquidity and value at the same time - except when they don't.

What if markets only worked some of the time? What if private equity geniuses where right only now and then? Well then we'd need other stuff too - governments, democratic inputs, democratic cooperation, institution building, public services, innovation as something ordinary people and not just bankers and CEOs do. Forget about it - no way we're letting all that come back.

The state of honest financier confusion is temporary, since all will be explained soon enough, contradictions fully intact, in spite of the best efforts of various angry columnists and shocking Greenspan-doubters.

But before the Men in Black memory stick flashes, let's remember the simple Noir Rule of Finance, spoken by banks to Feds everywhere. There is only one rule: do what we want when we want it. Tightening yesterday, cash flooding today, rate cuts tomorrow. Whatever. Just shut up and wait like the limo drivers outside the Warburg UBS building on 6th Ave 2:15 am until we send the new order.

Monday, September 17, 2007

Attacks on the Unreality-Based

Today's Paul Krugman column is quite pissed about Alan Greenspan avoiding responsibility for his mistakes with various tax cuts and with bubbles caused by cheap credit. I would add

A larger context for thinking about leaders in general came a week ago from another of my favorite public economists, Dean Baker. His attack on Greenspan includes a description of a reality-based, evidence-oriented approach to not only assessing the Real in economic life but in holding fund managers responsible for responding to evidence. Baker's idea is that the Chairman of the Federal Reserve would have explained the historical evidence showing that stock and, later, housing were in a state of great overvaluation. Managers who invested at the NASDAQ 5000 peak and lost tons of other peoples' money could be sued for negligence. They would be asked whether or not they responded rationally to the presentation of reasoned evidence by the Fed Chair. If not, they would lose the suit.

Accountability determined by recourse to fact-based reality! Old fashioned, I know, and a little naive epistemologically. But nonetheless, revolutionary!

Krugman and Baker are "professional-managerial class" (or professional middle-class) (PMC) folks in full revolt against the spinning, advertising, PRing, and lying, partly because they hate the results and partly because it negates the value of their professional expertise.

I've noted Pakistani jurists standing up for a middle class power of truth in expertise. I like this because it is opposed to tyranny and because it is one element - only one, but a crucial one - that would reduce exploitation and poverty.

Something similar is going on among French jurists as President Rupture tries to decriminalize certain business executive activity. One said he wouldn't want to be a judge with le Jogger's "zero tolerance" for petty criminals from the poor banlieu and zero penalization for wealthy bosses. The other noted that le J's core political strategy is to find a moment where social cohesion seems fragile, and then identify a "monster" that all can unite in driving out. This political theater blocks the need the fix fact-based procedures - if that is necessary - that make justice work. We have had forty years of this politics of the spectacle that trashes expertise whenever it gets in the way of what the folks in charge want to do. I can't believe it will take off in France, but le J's giving it a damn good shot.

By the way, it started with Wallace, Nixon, and Agnew in the 1968 campaign, not with Reagan in 1980. After the Goldwater debacle in 1964, Republican strategists realized hard-right arguments would never win unless the framework of argument itself was discredited. Then folks could vote their needs and prejudices with a clean conscience. This discrediting of argument is the main effect of current-events TV.

Baker also has a nice entry on the dumb American hostility to the notions of social development that are the only thing that will keep the American middle class from killing itself, and making the poor even worse off than before. Wake up!