Mike Konczal wrote a critique of Mitt Romney's plan to convert unemployment insurance into something that more closely resembles a 401(k) -- the idea being that everyone should have the "freedom" to manage their own unemployment insurance in accordance to how they assess their own personal risk. Of course, as Konczal notes, it would also help erode the idea that government exists in part to provide a general social safety net and aggregate social risk efficiently in order to defray it -- conservative thinking is that individuals should bear all of life's risks themselves. The private-account gambit is one of the quintessential neoliberal policy moves, ostensibly ending government "interference" in the labor market by making sure workers are as insecure as possible.
Conservatives favor these sort of arrangements, Konczal suggests, because "people will look at private savings accounts and think that the government isn’t doing anything." This furthers their arguments for dismantling the services government provides to all straightforwardly while protecting the "submerged" benefits that the rich, savvy, and well connected are better positioned to exploit through knowing how to take advantage of tax loopholes -- a phenomenon explored in this American Prospect essay by Suzanne Mettler and elaborated here by Henry Farrell. It reminds me also of arguments Dean Baker makes in The Conservative Nanny State (pdf) and Jamie Galbraith makes in The Predator State (excerpt here). They argue that the rich have figured out the government exists to be looted, and the key political question is how to perpetuate and mask that process at the same time. One good way of doing that is through expanding the "submerged state" and generating policies that confront people with decisions that they are not sophisticated enough to make on their own and make them into more vulnerable prey. Private retirement accounts, for example, are far more lootable by financial advisors, etc., than the guaranteed-benefit pensions they have supplanted. (In the mean time, conservatives have succeeded in convincing many of us that our Social Security benefits are insecure and that the U.S. government is perfectly capable of simply reneging on its debts.)
If neoliberal reform is intended to let markets govern more and more of our everyday lives, then it's not surprising that the tactics of exploitation rife in market exchange -- things akin to price discrimination and exploiting asymmetrical information and implementing hidden fees through confusing contracts -- will also come into play. Markets are often good at incentivizing complexity, which produces the ignorance they need as an alibi. Cell-phone service providers, mortgage originators, used-car salespeople, the travel industry (hotels, rental cars, airlines) are the classic exemplars of these tactics, but they are endemic in a consumer economy whose firms frequently depend on stratifying customers to maximize profits. But when applied to the distribution of tax obligations and government services, these tactics become the legitimized means for reproducing and expanding existing disparities between classes while making it seem as though that is the fault of the disadvantaged -- it's their fault for being ignorant, too "lazy" to master the tax code, or to drive hard bargains of their own.
In his response to Konzal's post, Corey Robin notes the needless complexity of the arrangement, "all the time and energy we as individuals now have to devote to doing the things that the state used to do for us" thanks to neoliberalism and privatization. Robin adds, "The right thinks of that as freedom—they hear the words 'state is doing for you' and they imagine patients etherized on a table—but I think of it as tyranny." Peter Frase concurs in this response, pointing out that "in a highly unequal society, greater complexity in the institutions of the state will generally favor the interests of the rich." He concludes that "the right has gotten a lot of mileage of out of the demand for small government. Maybe it’s time for the left to make a bigger deal out of simple government." That seems like a pretty good idea to me, though the logic may lead to supporting policies like the flat tax. Also, our tendency to overrate our pleasure in making decisions for ourselves (and underestimate the problem of ego depletion) makes us vulnerable to believing that it is generally simpler for us to do things ourselves and assume total responsibility for them. The celebration of individualism in American society is such that there is already ideological momentum behind the idea that self-managing everything is somehow always convenient, even in the face of frustrating experiences to the contrary, which are seen as isolated exceptions.
Showing posts with label financial crisis. Show all posts
Showing posts with label financial crisis. Show all posts
Friday, August 19, 2011
Deficit deceit and the rentier class (10 June 2011)
It drives me a little crazy when I read any kind of reporting or polling on the U.S. deficit and all the phony concern people feel obliged to exhibit about it. It's a bit like when people complain about how many thousands of dollars a baseball player gets paid per at bat or something -- that fact that we know about it to complain is testimony to why the player deserves it. Fears about the deficit size has nothing to do with any impact it will have on most ordinary people and everything to do with media coverage of big numbers and the admonitory tone that is reflexively adopted. Matt Yglesias linked to an image that gets at the problem; it depicts a van covered in anti-abortion and anti-debt-limit-raising slogans. Yglesias writes, "It’s a problem for the country when strong emotional and ideological views about abortion get intimately linked in people’s ideas with views about much more technical questions about the merits of raising the debt ceiling or whether we have too much inflation or too little." When these things are lumped together, it means that both have become subject to demagoguery and tribalism, about winning at the expense of enemies, who in the case of the deficit are wholly imagined.
The losers in the deficit-reduction scenarios being worked out in Washington are basically everyone who is not a rentier, as this recent Krugman column argues: "Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense." Who, exactly, are the rentiers? Krugman has some data here. He concludes that "it’s very much about benefits to the wealthy versus benefits to the middle class."
Krugman is elucidating a case made by Robert Kuttner in this essay (pdf) for the American Prospect, which inspired Mike Konczal to do some good analysis here and assemble a bunch of useful links here. Kuttner's basic point is that debt politics is about protecting previous creditors from accepting any losses (full repayment, despite the risk premium they had already been earning as interest) and protecting them from inflation, which reduces the value of their claims. (An argument for why inflation -- most obviously wage inflation -- would help most of us here.) Here's how Konczal puts it, in the context of the financial sector's recent recovery in profits (while the rest of the economy sputters):
At Interfluidty, Steve Randy Waldman points out that big banks become rentiers because of implicit government guarantees that they won't be allowed to fail. Those guarantees in turn are perpetuated by bankers' outsize influence in politics:
Rentiers always argue from their interests that austerity is necessary and whip up support for their position with a bunch of misleading rhetoric about how reduced debt generates economic confidence that encourages business owners to expand and hire. There's not much evidence to support this idea; the recent experiment with austerity in the UK suggests that ruthless budget cutting removes demand from the economy by impoverishing everyone but the rentiers, and this stifles growth across the board. Everyone loses, not just the people who were once supposedly "winning" by benefiting from spendthrift government bureaucrats and their allegedly indefensible spending programs. But that doesn't prevent the idea from taking hold among regular voters, who are presumably seduced by the fallacious logic of budget cutting as inherently virtuous, as though government debt and personal debt were analogous (they aren't) and as if debt is a moral failing (it's not, especially in an economy that explicitly relies on entrepreneurialism).
No one who is not living entirely on bondholdings -- no one who has to work -- should be rooting for austerity or bothering at all with deficit worries. Such worries are not really their worries; they are the transferred worries of elites who need to manipulate voters to protect their financial interests and their privilege in a democracy.
Konczal linked to this 1943 article by Michael Kalecki, "Political Aspects of Full Employment," which serves as a useful reminder about what is at stake in austerity debates -- not fiscal responsibility or the insecure future of welfare spending but labor discipline:
But capitalists are always fighting a two-front war in democracies, against workers and against their representatives in the government, who might begin to change the social framework to give workers more bargaining power. Capitalism is predicated on the asymmetries of power, on capital's ability to compel workers to sell their labor power. Capitalists must fight anything that threatens that imbalance, regardless of whether it leads to an aggregate increase of social wealth or even improves their individual profits.
UPDATE: In this post Yglesias links to a paper called “Financialization, Rentier Interests, and Central Bank Policy” (pdf) which describes central bank policy as serving the interests of keeping asset prices stable rather than raising employment levels. As Yglesias puts it: "For all the rising salience of goldbug cranks whining about fiat money, the Fed has hardly been indifferent to the potential for monetary expansion. It’s just that the goal of monetary expansion has been to do just enough to stabilize financial asset prices without going far enough to produce catch-up growth in the labor market.
What’s more, from the point of view of capital maybe it’s better not to catch up. As long as growth is positive and unemployment isn’t rising then maintaining a large 8-9% of the labor force out of work could be a useful tool of wage restraint."
Not to be too functionalist about it, but it often seems like a good idea to work backward from the need for labor discipline to understand certain vagaries of economic policy; at the level of policy and not individual firms, class struggle and getting leverage over workers matters more than efficiency or profit or even growth.
The losers in the deficit-reduction scenarios being worked out in Washington are basically everyone who is not a rentier, as this recent Krugman column argues: "Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense." Who, exactly, are the rentiers? Krugman has some data here. He concludes that "it’s very much about benefits to the wealthy versus benefits to the middle class."
Krugman is elucidating a case made by Robert Kuttner in this essay (pdf) for the American Prospect, which inspired Mike Konczal to do some good analysis here and assemble a bunch of useful links here. Kuttner's basic point is that debt politics is about protecting previous creditors from accepting any losses (full repayment, despite the risk premium they had already been earning as interest) and protecting them from inflation, which reduces the value of their claims. (An argument for why inflation -- most obviously wage inflation -- would help most of us here.) Here's how Konczal puts it, in the context of the financial sector's recent recovery in profits (while the rest of the economy sputters):
Whatever you think of the financial sector being that profitable, it is important to remember what those post-crisis profits represent. Those profits aren’t the reward for effectively allocating capital to a recovering economy. The financial sector actually did a terrible job of that in the past decade. And capital isn’t being allocated anyway. Much of the capital in the economy is sitting on the balance sheets of banks and large corporations.
These profits are based off milking the bad debts of the housing and credit bubbles while Americans struggling under a crushing debt load. Instead of sharing the losses, the financial sector has locked itself into the profit stream and left the real economy to deal with the mess. These profits reflect, in Kuttner’s excellent phrasing, the claims of the past, not the potential of the future.
At Interfluidty, Steve Randy Waldman points out that big banks become rentiers because of implicit government guarantees that they won't be allowed to fail. Those guarantees in turn are perpetuated by bankers' outsize influence in politics:
when we modified accounting standards to eliminate the risk that bad loans on the books would translate to failures, when we funded their recapitalization on the sly, we changed banks. We transformed them from nervous debtors into pure rentiers, who see a lot more upside in squeezing borrowers than in eliminating a crippling debt overhang. And since banks are, shall we say, not entirely disenfranchised among policymakers, we increased the difficulty of making policy that includes accommodations between creditors and debtors, accommodations that permit the economy to move forward rather than stare back over its shoulder, nervously and greedily, at a gigantic pile of old debt.As a result, politicians serve banks' interests and unemployment starts to be regarded as a permanent feature of the economic landscape, unfortunate but "structural" and not at all related to the suffocating claims of the rentier class.
Rentiers always argue from their interests that austerity is necessary and whip up support for their position with a bunch of misleading rhetoric about how reduced debt generates economic confidence that encourages business owners to expand and hire. There's not much evidence to support this idea; the recent experiment with austerity in the UK suggests that ruthless budget cutting removes demand from the economy by impoverishing everyone but the rentiers, and this stifles growth across the board. Everyone loses, not just the people who were once supposedly "winning" by benefiting from spendthrift government bureaucrats and their allegedly indefensible spending programs. But that doesn't prevent the idea from taking hold among regular voters, who are presumably seduced by the fallacious logic of budget cutting as inherently virtuous, as though government debt and personal debt were analogous (they aren't) and as if debt is a moral failing (it's not, especially in an economy that explicitly relies on entrepreneurialism).
No one who is not living entirely on bondholdings -- no one who has to work -- should be rooting for austerity or bothering at all with deficit worries. Such worries are not really their worries; they are the transferred worries of elites who need to manipulate voters to protect their financial interests and their privilege in a democracy.
Konczal linked to this 1943 article by Michael Kalecki, "Political Aspects of Full Employment," which serves as a useful reminder about what is at stake in austerity debates -- not fiscal responsibility or the insecure future of welfare spending but labor discipline:
One might expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat' -- unless you happen to have private means.... The maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.This seems more true than ever with "factory discipline" dissolved for many workers into post-Fordist arrangements of self-exploitation. Independent "free agents" and flexible workers have even less bargaining power and less of a basis for solidarity, less grounds to demand their share of profits earned from the increased productivity that has come from workers' devoting ever more time to work -- from all aspects of everyday life, in effect, becoming work, as consumption becomes a mode of immaterial production.
But capitalists are always fighting a two-front war in democracies, against workers and against their representatives in the government, who might begin to change the social framework to give workers more bargaining power. Capitalism is predicated on the asymmetries of power, on capital's ability to compel workers to sell their labor power. Capitalists must fight anything that threatens that imbalance, regardless of whether it leads to an aggregate increase of social wealth or even improves their individual profits.
UPDATE: In this post Yglesias links to a paper called “Financialization, Rentier Interests, and Central Bank Policy” (pdf) which describes central bank policy as serving the interests of keeping asset prices stable rather than raising employment levels. As Yglesias puts it: "For all the rising salience of goldbug cranks whining about fiat money, the Fed has hardly been indifferent to the potential for monetary expansion. It’s just that the goal of monetary expansion has been to do just enough to stabilize financial asset prices without going far enough to produce catch-up growth in the labor market.
What’s more, from the point of view of capital maybe it’s better not to catch up. As long as growth is positive and unemployment isn’t rising then maintaining a large 8-9% of the labor force out of work could be a useful tool of wage restraint."
Not to be too functionalist about it, but it often seems like a good idea to work backward from the need for labor discipline to understand certain vagaries of economic policy; at the level of policy and not individual firms, class struggle and getting leverage over workers matters more than efficiency or profit or even growth.
Thursday, August 18, 2011
Middle class stagnation (20 April 2011)
Chrystia Freeland (who wrote the Atlantic story about the "new global elite" a few months ago) wrote about a recent paper (pdf) from the Council on Foreign Relations by economist Michael Spence and researcher Sandile Hlatshwayo. Her takeaway is that "Global capitalism isn’t working for the American middle class" and that this isn't the consequence of any market anomaly but of globalized markets working precisely as expected.
Steven Pearlstein, in a Washington Post piece about the same paper, regards it as a prescription for the return of industrial policy. But I was intrigued by the implications of something Freeland mentioned. She paraphrases something AT&T CEO Randall Stephenson said at a CFR talk: "Stephenson enthused that the technology revolution was the most transformative shift in the world economy since the invention of the combustion engine and electrification, leading to a huge increase in 'the velocity of commerce' and therefore in productivity." I would need to have someone explain to me why productivity is linked to the "velocity of commerce" -- I see why faster commerce would lead to more things being exchanged, but not how it would lead to more being made with less. What Stephenson is saying implies that mere circulation of goods leads to their "valorization" -- leads value to be created -- or in other words, exchange itself is a form of production.
It makes sense that a communications company CEO would suggest that is true. Their consumers make the end product by exchanging language among themselves, and of course the more people talk, the more they need to say to clarify what they actually mean, and so on to infinity. (See, Derrida has important economic implications!) Will Davies has several good essays that get at the way telecoms try to prompt us to increase the amount of communication we engage in. "As the scarcity of Everything gradually wanes, the companies are becoming bolder in their branding of the infinite... Infinite opportunity to say, share, broadcast everything all the time anywhere has to be sold as a positive achievement, with a tangible result" -- though he argues it only leads mainly to restless anxiety, a twitchy subjectivity. (I also like how he updates Žižek's definition of neoliberalism -- "'you can do whatever you like, as long as it involves shopping" to "you can do whatever you like, as long as it involves an iPhone." Is it our destiny to turn shopping and self-fashioning and communicating about it constantly into the fulfillment of our species being?)
Anyway, Davies writes about the importance of an "ethic of inconvenience": slowing down the pace of commerce that is facilitated by communications technology, since this acceleration tends to push people toward a kind of one-dimensionality -- fixated on quantity and not quality, etc. This becomes a potentially more compelling idea in the macro context provided by the Spence paper, which suggests that increasing the "velocity of commerce" initiates a chain of consequences that ends with middle-class stagnation.
Spence says that as he was doing his research, he was often asked what “market failure” was responsible for these outcomes: Where were the skewed incentives, flawed regulations or missing information that led to this poor result? That question, Spence says, misses the point. “Multinational companies,” he said, “are doing exactly what one would expect them to do. The resulting efficiency of the global system is high and rising. So there is no market failure.”If that's so, that means the justificatory economic arguments for pro-globalization policy must be pitched at hiding the consequences of who benefits and who doesn't. Globalization has helped capital and impoverished workers in developing economies, but has hurt every one else in the U.S. Maybe U.S. voters are egalitarian and internationalist in their outlook and would happily stagnate so that China could build a middle class of its own. But it may be that if voters knew that, as Spence puts it (and these quotes come from Freeland's article), "many of the middle-income group ... are seeing employment options narrow and incomes stagnate" thanks to neoliberalism, perhaps they would demand a different sort of policy. Spence writes, "One possible response to these trends would be to assert that market outcomes, especially efficient ones, always make everyone better off in the long run. That seems clearly incorrect and is supported by neither theory nor experience.” In other words, there are winners and losers, and one doesn't need to spend too much time studying the income distribution in the U.S. to figure out who is winning here.
Steven Pearlstein, in a Washington Post piece about the same paper, regards it as a prescription for the return of industrial policy. But I was intrigued by the implications of something Freeland mentioned. She paraphrases something AT&T CEO Randall Stephenson said at a CFR talk: "Stephenson enthused that the technology revolution was the most transformative shift in the world economy since the invention of the combustion engine and electrification, leading to a huge increase in 'the velocity of commerce' and therefore in productivity." I would need to have someone explain to me why productivity is linked to the "velocity of commerce" -- I see why faster commerce would lead to more things being exchanged, but not how it would lead to more being made with less. What Stephenson is saying implies that mere circulation of goods leads to their "valorization" -- leads value to be created -- or in other words, exchange itself is a form of production.
It makes sense that a communications company CEO would suggest that is true. Their consumers make the end product by exchanging language among themselves, and of course the more people talk, the more they need to say to clarify what they actually mean, and so on to infinity. (See, Derrida has important economic implications!) Will Davies has several good essays that get at the way telecoms try to prompt us to increase the amount of communication we engage in. "As the scarcity of Everything gradually wanes, the companies are becoming bolder in their branding of the infinite... Infinite opportunity to say, share, broadcast everything all the time anywhere has to be sold as a positive achievement, with a tangible result" -- though he argues it only leads mainly to restless anxiety, a twitchy subjectivity. (I also like how he updates Žižek's definition of neoliberalism -- "'you can do whatever you like, as long as it involves shopping" to "you can do whatever you like, as long as it involves an iPhone." Is it our destiny to turn shopping and self-fashioning and communicating about it constantly into the fulfillment of our species being?)
Anyway, Davies writes about the importance of an "ethic of inconvenience": slowing down the pace of commerce that is facilitated by communications technology, since this acceleration tends to push people toward a kind of one-dimensionality -- fixated on quantity and not quality, etc. This becomes a potentially more compelling idea in the macro context provided by the Spence paper, which suggests that increasing the "velocity of commerce" initiates a chain of consequences that ends with middle-class stagnation.
Wednesday, August 17, 2011
Breaking the Iron Rice Bowl (19 Jan 2011)
I've read several interesting articles about China and not one of them has to do with tiger moms. Many people have noted this Francis Fukuyama op-ed in the FT about China: "Americans have long hoped China might undergo a democratic transition as it got wealthier, and before it became powerful enough to become a strategic and political threat. This seems unlikely, however. The government knows how to cater to the interests of Chinese elites and the emerging middle classes, and builds on their fear of populism. This is why there is little support for genuine multi-party democracy." He argues that China's authoritarianism will thrive as long as it can continue to provide economic growth from the commanding heights, regardless of the inequality its governance seems to be generating. Protests remain local and marginalized, and those who aren't reduced to apathy by their immiseration likely focus on improving their personal lot rather than figuring out how to forge solidarity. A useful by product of the state's having "broken the iron rice bowl" and done away with most of the social safety net.
Ads Without Products offers some thoughts on Chinese workers, inspired by Ai Weiwei's installation featuring 100 million handmade porcelain seeds.
Nouriel Roubini has an item in Newsweek about the "Confucian conusmer" that explores those "tipped scales" in macro terms. Roubini covers the longstanding problem of global imbalances: the "Chinese model of economic growth required the U.S. and a few other countries to be consumers of first and last resort, spending more than their income and running ever-larger trade deficits—so that China could be the producer of first and last resort, spending less than its income and building ever-larger trade surpluses." He then speculates as to why the Chinese don't consume more. I always find this question fascinating, because I wonder whether China is hatching an alternative to the consumerism with which we've been inculcated in the West, and if so, whether it is more or less corrosive to personal identity. Roubini lists seven "structural reasons" why the Chinese savings rate is so high, including some of the usual suspects -- the broken iron rice bowl, the demographic troubles brought on by the one-child policy (one grandchild must support four elderly grandparents). This recent VoxEU paper makes the case that much of the savings rate can be explained by "increased income uncertainty" and unfavorable pension reforms.
Neither Roubini nor the VoxEU paper mention the alleged "Confucian character" of the Chinese people that is sometimes presumed to make them less interested in material prosperity and invidious distinction. Presumably the "iron rice bowl" would have facilitated that attitude as well any traditional tenets about social stability. Roubini stresses corporate oversaving, which stems from underdeveloped financial markets: "a whopping 25 percent of savings in China is in the form of the retained earnings of the corporate sector, mostly state-owned enterprises (SOEs). In most private economies, those firms’ profits would become dividends that would increase household income and thus consumption. In China, they become retained profits that go into more capital accumulation and excess capacity." In other words, the profits from all those manufacturing firms making our iPods and the like don't go into wages and they don't go into dividends -- they go into building even more factories, which has the effect of making the global imbalances worse.
That eventually trickles down to the level of ordinary American consumers, who face an even cheaper and more tempting flood of consumer goods, making it that much more difficult to transition out of a wasteful lifestyle and into one that's more austere, self-sufficient, and environmentally responsible. Or into one that revolves less around the consumerist values of novelty and convenience and disposability and isolation and so forth. Thus Chinese economic policy exerts material pressure on the ideology governing our behavior in the West. Even if they were Confucian consumers there, they could not export that approach to consumerism to us -- they actually export our own attitude about consumerism to us, anchoring it, supplying its base. And breaking the iron rice bowl hasn't acclimated Chinese to increased personal choice and consumption in a market society as might be expected; instead it has fomented insecurity and rational miserliness. I wonder if this is what conservatives hope to bring to the U.S. when they fantasize about undoing health care reform -- more insecurity and less consumer spending seems like a great recipe to stop the "job killing."
Ads Without Products offers some thoughts on Chinese workers, inspired by Ai Weiwei's installation featuring 100 million handmade porcelain seeds.
When the visual titanicness of the display meets your recognition that each of the 100,000,000 seeds was painstakingly handpainted by human beings working for a wage, one comes as close as one can – as I ever have – to a painfully concrete yet at the same time marvellously abstract sense of the absurd scales, absurdly tipped scales, that orchestrate our world today.It is very hard to fathom the scope of the labor whose availability in the global economy we have come to take for granted. What does it mean? For the workers, it means stultifying alienation: AWP cites a BusinessWeek article about Foxconn, the megamanufacturing firm that makes Apple's goods, among many other things.
“Life is meaningless,” said Ah Wei, his fingernails stained black with the dust from the hundreds of mobile phones he has burnished over the course of a 12-hour overnight shift. “Everyday, I repeat the same thing I did yesterday. We get yelled at all the time. It’s very tough around here.”For us, it means a life more thoroughly saturated with consumerism
Nouriel Roubini has an item in Newsweek about the "Confucian conusmer" that explores those "tipped scales" in macro terms. Roubini covers the longstanding problem of global imbalances: the "Chinese model of economic growth required the U.S. and a few other countries to be consumers of first and last resort, spending more than their income and running ever-larger trade deficits—so that China could be the producer of first and last resort, spending less than its income and building ever-larger trade surpluses." He then speculates as to why the Chinese don't consume more. I always find this question fascinating, because I wonder whether China is hatching an alternative to the consumerism with which we've been inculcated in the West, and if so, whether it is more or less corrosive to personal identity. Roubini lists seven "structural reasons" why the Chinese savings rate is so high, including some of the usual suspects -- the broken iron rice bowl, the demographic troubles brought on by the one-child policy (one grandchild must support four elderly grandparents). This recent VoxEU paper makes the case that much of the savings rate can be explained by "increased income uncertainty" and unfavorable pension reforms.
Neither Roubini nor the VoxEU paper mention the alleged "Confucian character" of the Chinese people that is sometimes presumed to make them less interested in material prosperity and invidious distinction. Presumably the "iron rice bowl" would have facilitated that attitude as well any traditional tenets about social stability. Roubini stresses corporate oversaving, which stems from underdeveloped financial markets: "a whopping 25 percent of savings in China is in the form of the retained earnings of the corporate sector, mostly state-owned enterprises (SOEs). In most private economies, those firms’ profits would become dividends that would increase household income and thus consumption. In China, they become retained profits that go into more capital accumulation and excess capacity." In other words, the profits from all those manufacturing firms making our iPods and the like don't go into wages and they don't go into dividends -- they go into building even more factories, which has the effect of making the global imbalances worse.
That eventually trickles down to the level of ordinary American consumers, who face an even cheaper and more tempting flood of consumer goods, making it that much more difficult to transition out of a wasteful lifestyle and into one that's more austere, self-sufficient, and environmentally responsible. Or into one that revolves less around the consumerist values of novelty and convenience and disposability and isolation and so forth. Thus Chinese economic policy exerts material pressure on the ideology governing our behavior in the West. Even if they were Confucian consumers there, they could not export that approach to consumerism to us -- they actually export our own attitude about consumerism to us, anchoring it, supplying its base. And breaking the iron rice bowl hasn't acclimated Chinese to increased personal choice and consumption in a market society as might be expected; instead it has fomented insecurity and rational miserliness. I wonder if this is what conservatives hope to bring to the U.S. when they fantasize about undoing health care reform -- more insecurity and less consumer spending seems like a great recipe to stop the "job killing."
Plutonomy (4 Jan 2011)
I didn't see Michael Moore's Capitalism: A Love Story but apparently in the documentary he references this memo, written by some global-equities analysts at Citigroup, in which they describe the U.S., U.K. and Canada as "plutonomies" -- economies in which income inequality is so vast, the spending propensity of nonrich people is statistically insignificant. The memo has cropped up again in this Atlantic article by Chrystia Freeland about the "new global elite." Guess what: there are actual people behind those statistics about the top 1% earners, and reading about their lives will probably make you sick. Freeland notes (as the Citi memos also point out in graphs) that these wealthy people didn't inherit their wealth and grow it from rents and asset appreciation; thus she suggests they are "economic meritocrats, preoccupied not merely with consuming wealth but with creating it." How much merit has to do with it is debatable, but i does seem inarguable that the recentness of their rise has made them more actively concerned with adjusting the playing field to protect their wealth -- keeping finance deregulated, securing tax cuts, etc. They had to earn their money by aggressively leveraging inequities and asymmetries in the economy, and thus learned how to create new opportunities along the same lines. This is what makes them the "working rich" -- they work to make capitalism more unfair and generally less efficient and productive so that inequality can become even more obscene. Since they are internationally oriented and are loyal only to profit, not any country or people, they thrive on regulatory arbitrage schemes and other global shell games and are heedless of the damage their activities cause to the little people in local economies. (It helps, as Freeland notes, that the plutocrats' sense of having to work to rise to the top makes them have no sympathy for those little people.) Of course, this doesn't prevent governments from bailing their companies out or protecting the value of their bond holdings. The lesson, Freeland suggests, is that helping out Big Business and finance is basically helping them gut U.S. middle-class prosperity.
That sounds almost egalitarian and certainly utilitarian, but hedge funds don't particularly care about the greatest happiness for the greatest number. That you can make poor people in developing economies slightly less poor for far less than it costs to keep middle-class Americans at the standard of living they're used to is just an excuse to distract from the greater proportion they are raking out from economies everywhere.
In short, the new global elite sound a lot like the old "power elite" described by Wright Mills in the 1950s, only more horrible and with less a sense of responsibility for the damage they do from their position at the commanding heights. I am with Felix Salmon: "If the angry bankers went off to destabilize some other financial system, they wouldn’t actually be missed."
Anyway, the Citi memo is definitely worth reading. It lays out the conditions of neoliberalism with no-nonsense aplomb:
I don't know if the arch tone of the Citi document is or isn't typical of analyst memos, but it's not any kind of smoking gun. If you want to see evidence that the economy is skewed toward the wealthy and the plutocrats are pleased with that arrangement, just watch CNBC or read any day's edition of the Wall Street Journal, where the ideology that capital matters and laborers don't underwrites just about everything there. Controlling labor costs and increasing companies' share of profits is always good and almost always described as if no people are affected adversely by those developments. And then there are the abhorrent lifestyle sections (like the FT's How to Spend It), which detail the glories of luxury spending and facilitate the sort of heedless consumption that supports the investment strategy the Citi memo details -- namely, buy stocks of luxury-goods companies, because given the political climate in the U.S., the rich will continue to get richer and this makes them comfortable with wasting money on yachts and things.
The Citi analysts gleefully track a Forbes "Cost of Living Rich" index, which shows how the cost of a basket of ridiculous luxury goods are rising faster than a basket of staples for ordinary people. Apologists for income inequality like to cite this sort of data as proof that inequality is overreported because it costs more to be rich, as though the lifestyle of outrageous wealth was an inescapable burden to be upheld. The Citi analysts at least have the intellectual honesty to present the data for more straightforward purposes, not to argue that inequality isn't as bad as it might seem, but to suggest that inequality is a plain fact, a boon for the wealthy that expresses itself in their positional goods' jumping in price. (The analysts go so far as to label luxury items "Giffen goods," the demand for which increase as the cost of them rises). The wealthy spend more because they are making more; this doesn't diminish the reality of income inequality; it's a consequence of it.
The analysts also have an interesting explanation for the negative savings rate of the pre-recession mid-decade period. Many commentators (me included) would read into that the idea that too many ordinary Americans were spending beyond their means. The Citi memo argues that in a plutonomy, the flush and confident rich cut their savings and spend more on the increasingly expensive luxury goods, and their lack of savings skews the averages.
The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.
That sounds almost egalitarian and certainly utilitarian, but hedge funds don't particularly care about the greatest happiness for the greatest number. That you can make poor people in developing economies slightly less poor for far less than it costs to keep middle-class Americans at the standard of living they're used to is just an excuse to distract from the greater proportion they are raking out from economies everywhere.
In short, the new global elite sound a lot like the old "power elite" described by Wright Mills in the 1950s, only more horrible and with less a sense of responsibility for the damage they do from their position at the commanding heights. I am with Felix Salmon: "If the angry bankers went off to destabilize some other financial system, they wouldn’t actually be missed."
Anyway, the Citi memo is definitely worth reading. It lays out the conditions of neoliberalism with no-nonsense aplomb:
we postulated a number of key tenets for the creation of plutonomy. As a reminder, these were: 1) an ongoing technology/biotechnology revolution, 2) capitalist-friendly governments and tax regimes, 3) globalization that re-arranges global supply chains with mobile well-capitalized elites and immigrants, 4) greater financial complexity and innovation, 5) the rule of law, and 6) patent protection.... The wave of globalization that the world is currently surfing, is clearly to the benefit of global capitalists, as we have highlighted. But it is also to the disadvantage of developed market labor, especially at the lower end of the food-chain... In general, on-going globalization is making it easier for companies to either outsource manufacturing (source from cheap emerging markets like China and India) or “offshore” manufacturing (move production to lower cost countries).They assess the risk of a backlash against plutonomy but decide it is unlikely in the short term: "So long as economies continue to grow, and enough of the electorates feel that they are benefiting and getting rich in absolute terms, even if they are less well off in relative terms, there is little threat to Plutonomy in the U.S., UK, etc." The memo dates from before the 2007 crash, but nothing that has happened since seems to have threatened it either. The U.S. has elected a rabidly pro-business Congress, and the financial regulation bill that passed did little to change the playing field, and in fact fits the analysts' contention that "the cleaning up of business practice, by high-profile champions of fair play, might actually prolong plutonomy" by creating a broader-based illusion of systemic fairness.
I don't know if the arch tone of the Citi document is or isn't typical of analyst memos, but it's not any kind of smoking gun. If you want to see evidence that the economy is skewed toward the wealthy and the plutocrats are pleased with that arrangement, just watch CNBC or read any day's edition of the Wall Street Journal, where the ideology that capital matters and laborers don't underwrites just about everything there. Controlling labor costs and increasing companies' share of profits is always good and almost always described as if no people are affected adversely by those developments. And then there are the abhorrent lifestyle sections (like the FT's How to Spend It), which detail the glories of luxury spending and facilitate the sort of heedless consumption that supports the investment strategy the Citi memo details -- namely, buy stocks of luxury-goods companies, because given the political climate in the U.S., the rich will continue to get richer and this makes them comfortable with wasting money on yachts and things.
The Citi analysts gleefully track a Forbes "Cost of Living Rich" index, which shows how the cost of a basket of ridiculous luxury goods are rising faster than a basket of staples for ordinary people. Apologists for income inequality like to cite this sort of data as proof that inequality is overreported because it costs more to be rich, as though the lifestyle of outrageous wealth was an inescapable burden to be upheld. The Citi analysts at least have the intellectual honesty to present the data for more straightforward purposes, not to argue that inequality isn't as bad as it might seem, but to suggest that inequality is a plain fact, a boon for the wealthy that expresses itself in their positional goods' jumping in price. (The analysts go so far as to label luxury items "Giffen goods," the demand for which increase as the cost of them rises). The wealthy spend more because they are making more; this doesn't diminish the reality of income inequality; it's a consequence of it.
The analysts also have an interesting explanation for the negative savings rate of the pre-recession mid-decade period. Many commentators (me included) would read into that the idea that too many ordinary Americans were spending beyond their means. The Citi memo argues that in a plutonomy, the flush and confident rich cut their savings and spend more on the increasingly expensive luxury goods, and their lack of savings skews the averages.
when the top, say 1% of households in a country see their share of income rise sharply, i.e., a plutonomy emerges, this is often in times of frenetic technology/financial innovation driven wealth waves, accompanied by asset booms, equity and/or property. Feeling wealthier, the rich decide to consume a part of their capital gains right away. In other words, they save less from their income, the well-known wealth effect. The key point though is that this new lower savings rate is applied to their newer massive income. Remember they got a much bigger chunk of the economy, that’s how it became a plutonomy. The consequent decline in absolute savings for them (and the country) is huge when this happens. They just account for too large a part of the national economy; even a small fall in their savings rate overwhelms the decisions of all the rest.But of course if ordinary consumers are regarded as the problem, as being spendthrift and spoiled, then that's all the better. Economic hard times can be made to seem like its their fault, a result of their alleged irresponsibility, and not the result of malfeasance by the superwealthy.
Tuesday, August 16, 2011
"Hipster on food stamps" (2 Nov 2010)
I haven't posted for a while, so I thought something with an SEO-friendly title would be a good idea. And I thought this was a pretty interesting essay by the Jacobin's Peter Frase, about misguided hatred for the "hipster on food stamps" discussed in this Salon piece from March. He points out how that phraseology invites contempt, because it trades on the idea that anyone who is arty and "creative" obviously has cultural capital and other ideological resources that should prevent him from being poor. Therefore the impoverished hipster must simply be a slacker (to reference a 90s-era proto-hipster archetype) who is voluntarily destitute, slumming it for hipster cred, thereby abusing a system designed to help the deserving poor, i.e. those social disadvantaged folks who, as Neil Young put it, "never go to school, never get to fall in love, never get to be cool".
Frase thinks working-class people who were enraged by "hipsters on food stamps" should stop scapegoating them and start, like Duke in Repo Man, blaming society. Frase writes:
Obviously, those thefts belittle and caricature an entire social group's lived experience, ironizing it, cutting away whatever integrity members of that group might feel about what they do from beneath their feet. Not only do hipsters seem to be playing at being poor (which may or may not be true) but they add insult to injury by seeming to make fun of working class culture, treating it like a costume. At play in such appropriations is the kind of capital that allows various folk practices (for lack of a better term) to become suddenly recognized as creative or hip when a non-native adopts them and exports them out of the ignored niche and into "society" -- the realm recognized by the media. The culture is then understood as a fashion choice, not the product of social realities.
What that process does is make "creativity" something that by definition is not accessible to the working class. The appropriators are lauded as "creative" (that is, they seize upon the symbolic usefulness of deracinated practices and bring that meaning value to a broader public), not the poor whites, who are treated as though they are some anthropological artifact, as though they fundamentally lack the ability to be reflexive about what they do. They are, as workers always are, a resource to be exploited. As a result of that, hipsters and the working class are mutually exclusive; by definition, you can't belong to both sets. Starving artists are not proles. The very ability to be recognized as "creative" already sets one apart and above. Rich or poor, hipsters everywhere are a sign of social expropriation, of the semiotic value of denying full humanity to certain social groups.
Frase wants to resolve the opposition between artists and proles by positing a sort of post-work future beyond the alienation of wages, where all will receive a social wage: "Against the invidious politics of the work ethic, it's time to argue that some things should be granted to everyone, simply by virtue of their humanity. Even hipsters."
Interestingly, he doesn't take this argument to the next level: free from having to do work that is necessary merely for capital's valorization, workers are liberated to pursue meaningful, socially necessary work, which all will appreciate and understand as a kind of social art. In such conditions, with no basis for connoisseurial superiority in how one lives and works (which would become synonymous), hipsters would necessarily cease to exist.
(A better title for this post, I think, would be "Artists only.")
Frase thinks working-class people who were enraged by "hipsters on food stamps" should stop scapegoating them and start, like Duke in Repo Man, blaming society. Frase writes:
People see others whom they perceive to have lives that are easier, cooler or more fun than theirs, and instead of questioning the society that gave them their lot, they demand conformity and misery out of others. But why? ... Even if creative and enjoyable lives are only accessible to the privileged, that’s not a damning fact about them so much as it is an indictment of a society that has so much wealth and yet only allows a select few to take advantage of it, while others are forced to waste their lives chained to their useless jobs and bloated mortgages.The working-class Joe's hatred for the hipster, Frase argues, stems from an ideology that perverts the work ethic and regards art-making as worthless and working-class drudgery as a heroic embrace of duty or something. Maybe so. The working class suspicion toward the would-be bohemian fringe certainly has a long history. For example, check out the end of this clip from the 1968 film Psych Out, where the hippies are mocked and menaced by Reagan Democrat types. And as Mark Greif of n+1 reminds us in this essay, the 2000s vintage hipster began by appropriating motifs from poor-white culture. "Let me recall a string of keywords: trucker hats; undershirts called 'wifebeaters,' worn alone; the aesthetic of basement rec-room pornography, flash-lit Polaroids, and fake-wood paneling; Pabst Blue Ribbon; 'porno' or 'pedophile' mustaches; aviator glasses; Americana T-shirts from church socials and pig roasts; tube socks; the late albums of Johnny Cash; tattoos." No wonder there's some skepticism toward the "hipster on food stamps," who can be understood as merely taking this appropriational logic to its endpoint.
Obviously, those thefts belittle and caricature an entire social group's lived experience, ironizing it, cutting away whatever integrity members of that group might feel about what they do from beneath their feet. Not only do hipsters seem to be playing at being poor (which may or may not be true) but they add insult to injury by seeming to make fun of working class culture, treating it like a costume. At play in such appropriations is the kind of capital that allows various folk practices (for lack of a better term) to become suddenly recognized as creative or hip when a non-native adopts them and exports them out of the ignored niche and into "society" -- the realm recognized by the media. The culture is then understood as a fashion choice, not the product of social realities.
What that process does is make "creativity" something that by definition is not accessible to the working class. The appropriators are lauded as "creative" (that is, they seize upon the symbolic usefulness of deracinated practices and bring that meaning value to a broader public), not the poor whites, who are treated as though they are some anthropological artifact, as though they fundamentally lack the ability to be reflexive about what they do. They are, as workers always are, a resource to be exploited. As a result of that, hipsters and the working class are mutually exclusive; by definition, you can't belong to both sets. Starving artists are not proles. The very ability to be recognized as "creative" already sets one apart and above. Rich or poor, hipsters everywhere are a sign of social expropriation, of the semiotic value of denying full humanity to certain social groups.
Frase wants to resolve the opposition between artists and proles by positing a sort of post-work future beyond the alienation of wages, where all will receive a social wage: "Against the invidious politics of the work ethic, it's time to argue that some things should be granted to everyone, simply by virtue of their humanity. Even hipsters."
Interestingly, he doesn't take this argument to the next level: free from having to do work that is necessary merely for capital's valorization, workers are liberated to pursue meaningful, socially necessary work, which all will appreciate and understand as a kind of social art. In such conditions, with no basis for connoisseurial superiority in how one lives and works (which would become synonymous), hipsters would necessarily cease to exist.
(A better title for this post, I think, would be "Artists only.")
Monday, August 15, 2011
Income Inequality Actually Sucks (25 Oct 2010)
Thanks to expiring airline miles, I am once again a subscriber of BusinessWeek, or rather, as it is known now, BloombergBusinessWeek. I like the new design, I like that it feels much more stuffed with content, Economist style, and I even don't mind the way they reprise the deckline at the end of stories as "the bottom line" for the morons in their audience who they assume can't be bothered to read what they've bothered to print. But I didn't at all care for this leader (to use the Economist terminology) about "the inequality delusion" by Drake Bennett, whose byline is ordinarily found on the Boston Globe Ideas page and not in the charnel house where right-wing ideology is made. Bennett is writing about recent polls that revealed that most Americans are fairly muddled about the full extent of income inequality in America, though the continue to espouse a desire for a more egalitarian society. Citing libertarian-leaning GMU economist Bryan Caplan, Bennett seems to suggest that Americans' ignorance about the growing levels of inequality is probably good, since they are likely to be too stupid to appreciate all the good things inequality does for society -- that is, motivate the genius class who might otherwise go Galt to build things to improve the lives of proles. That's not the kind of thing I want polluting my mailbox. If BusinessWeek was on Facebook and put that junk in a status update, I would de-friend it.
I was happy to see that Chris Lehmann was also irritated enough by the piece to write an intemperate take-down. He responds to this choice piece of anti-tax dogma from Bennett -- "Any attempt to reimpose that sort of tax rate today would lead to a flight of wealth and talent from the U.S. And with apologies to the social scientists, other ideas for dramatically reducing the income gap are in short supply" -- with some justifiably righteous indignation.
I was happy to see that Chris Lehmann was also irritated enough by the piece to write an intemperate take-down. He responds to this choice piece of anti-tax dogma from Bennett -- "Any attempt to reimpose that sort of tax rate today would lead to a flight of wealth and talent from the U.S. And with apologies to the social scientists, other ideas for dramatically reducing the income gap are in short supply" -- with some justifiably righteous indignation.
Hmm, where have we heard that “talent flight” mantra before? That’s right—from the defenders of the outlandish executive bonuses doled out under the misbegotten early days of the TARP bailouts. It would indeed be a shame to have to send the Fabrice Tourres of the world packing for greener pastures. And with apologies to Bloomberg savants, there are plenty of ideas for reducing our objectively perilous levels of wealth inequality, from single-payer health care to nationalized universities to unionized workplaces. Most industrialized western democracies have all these things, and as a result, the pain of massive economic contractions like the one we’ve been enduring is actually less lethal in exotic far-off lands like Canada and France.Lehmann then explains how income inequality actually makes life worse for most people:
So there you have it: the great inequality debate waved away with the assurances of a sloganeering libertarian. So much for the abundant evidence that high levels of inequality help to precipitate, and certainly to prolong, depressions. So much as well for the striking range of positive social goods associated with more equal societies, from higher life expectancy to diminished crime rates to greater literacy rates and lower infant mortality.Unequal societies are ones that have fragmented into separate classes who experience life from perspectives so different that they lose the ability to compromise with one another and perceive a common good. The logic of income inequality leads to the gated city and the ghetto.
n+1's Diary of a Very Bad Year (5 Oct 2010)
I had read some of the interviews that n+1 had conducted with an anonymous hedge fund manager when they first appeared online, as the financial crisis was unfolding, but they have a much different impact when collected as a book -- the recently published Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. Just about everything in that title is off. The hedge-fund manager isn't really confessing to anything, and the interviews that make up the book took place over several years, 2007 to 2009. It's not a diary at all; it's not the ruminative voice of someone talking to themselves but a series of informal talks where someone who knows a lot about something deliberately explains it to someone who is relatively ignorant. Also, the way the book has been marketed as a financial-crisis postmortem is somewhat misleading. The hedge fund manager (HFM) discusses possible causes of the crisis, as well as its impact and some of its consequences, but it's less an analysis of the 2008 meltdown than it is an elucidation of how the financial world operates in general -- how capital flows work, what different kinds of debt are, what risk means, how financial players' minds calculate odds and find their edge on others, how they habituate to a zero-sum environment and try to tame irrational animal spirits and waves of panic, how they administer their nonrenewable and ever-depleting stock of "emotional resiliency" as HFM calls it. The book gives a concrete sense of what investment banks and hedge funds do, what trading at that level consists of and how it struggles to get financed.
Keith Gessen, the n+1 interviewer, admits in his introduction to having been "shockingly and embarrassingly ill-informed" about how capitalism works, despite having a political investment in critiquing it. I completely empathize with that; after quitting grad school, I put myself through a kind of baptism by fire several years ago, reading every section of the Wall Street Journal every day (before it was a Murdoch-run waste product) to try to get a grip on the business world, which suddenly came in to focus as being far more relevant to "the struggle" than the use of metaphoric language by late 18th-century novelists (even if they are arguably intertwined in the grand scheme of things, as I once wanted to argue in a dissertation). It dawned on me that my gripes with consumerism didn't reckon with the structural forces that generated it, or with the good faith efforts of the many people making their living to make consumerism so. It seemed willfully blinkered to analyze culture -- pop culture, material culture, consumer culture -- without taking into account the business context that produced and distributed it and in certain, inarguable ways determined it. Only then can one make pertinent suggestions about how to change things, about where vulnerabilities exist, where processes can be subverted or resisted.
The n+1 book speaks to the same intuition. If you really want to criticize capitalism, it is incumbent to learn how it works, to understand the sort of people it rewards and why. And that means admitting ignorance and listening to those people. It means wrestling with their logic, respecting their mastery of the system as it is, accepting that their ideological precepts have real, practical consequences that hardens them into a kind of wisdom about how things "really" work and people "really" act.
You can't read the n+1 book without coming away impressed by HFM's lucidity and eminent reasonability. He is the personification in some ways of the poor ghoul Marx evokes in Chapter 24 of Capital -- the capitalist compelled beyond his individual will or pleasure to accumulate. Marx describes the fate of those who become "capital personified":
Gessen notes that HFM exemplifies how the financial world has become "a place where the best of human reason, science and intuition are applied to the question of whether credit spreads will widen or tighten in the next 24 hours." And that's certainly the impression the book gives, though it reveals how that question is not as narrow as it may seem but can be unfolded to encompass all sorts of broader issues -- how credit spreads are so intensely overdetermined that their movements could credibly seem to intimate the movements of the spheres. You can see hints of how capitalistic thinking is so labile and accommodating in practice despite its bottom-line fixation. In some ways, the bottom line is never really drawn but instead represents a horizon, an ideal, something akin to Gatsby's green light across the bay.
The bottom line is always being redrawn. In other words, capital is a process, it must be in motion -- there must be a constant concern with liquidity, with what is convertible. Capital is never a pile of money one can take hold of. As HFM notes, it's not as though the money cycling through the financial world is ever "like the pool that Scrooge McDuck has, with gold coins, and he swims around in that, and when the money is needed he takes the gold coins out of the pool and uses them to pay for things." Money, as HFM explains, is "consuming power moved intertemporally." He almost sounds like he espouses the labor theory of value when he argues that when someone has money, it means "they've produced more than they've consumed in the past, so they have a right to consume more than they are producing in the future." This means that money is always a credit -- an implied debt somewhere in time counterbalances it. "My money, through an extended chain of financial relationships, is someone else's debt, it's a credit to somebody else." The financial world is basically all about playing with that chain, with manipulating the idea of value in the time dimension -- that is, with pricing risk. HFM points out that "what you do when you're trading is apportioning risk. It's about moving consumption from today to tomorrow, or vice versa, and about the risk associated with that, about transferring the risk associated with that. If nobody wants to take the risk, then nothing happens."
That's a pretty stark explanation of capitalist political economy. All activity essentially takes the form of risk -- or animal spirits, as Keynes called it. Risk is akin to effective demand and the propensity to consume -- it's all understood as risk. Consumption as well as production carries risks. All human endeavor is thrown into the calculus of risk, and capitalism convinces us that it could not be otherwise, that is the realistic way to view collective action and personal decisionmaking. Capitalism is a foundationally insecure society, it knows itself only in terms of insecurity and deliberately produces insecure subjects.
Keith Gessen, the n+1 interviewer, admits in his introduction to having been "shockingly and embarrassingly ill-informed" about how capitalism works, despite having a political investment in critiquing it. I completely empathize with that; after quitting grad school, I put myself through a kind of baptism by fire several years ago, reading every section of the Wall Street Journal every day (before it was a Murdoch-run waste product) to try to get a grip on the business world, which suddenly came in to focus as being far more relevant to "the struggle" than the use of metaphoric language by late 18th-century novelists (even if they are arguably intertwined in the grand scheme of things, as I once wanted to argue in a dissertation). It dawned on me that my gripes with consumerism didn't reckon with the structural forces that generated it, or with the good faith efforts of the many people making their living to make consumerism so. It seemed willfully blinkered to analyze culture -- pop culture, material culture, consumer culture -- without taking into account the business context that produced and distributed it and in certain, inarguable ways determined it. Only then can one make pertinent suggestions about how to change things, about where vulnerabilities exist, where processes can be subverted or resisted.
The n+1 book speaks to the same intuition. If you really want to criticize capitalism, it is incumbent to learn how it works, to understand the sort of people it rewards and why. And that means admitting ignorance and listening to those people. It means wrestling with their logic, respecting their mastery of the system as it is, accepting that their ideological precepts have real, practical consequences that hardens them into a kind of wisdom about how things "really" work and people "really" act.
You can't read the n+1 book without coming away impressed by HFM's lucidity and eminent reasonability. He is the personification in some ways of the poor ghoul Marx evokes in Chapter 24 of Capital -- the capitalist compelled beyond his individual will or pleasure to accumulate. Marx describes the fate of those who become "capital personified":
But, so far as he is personified capital, it is not values in use and the enjoyment of them but exchange-value and its augmentation that spur him into action. Fanatically bent on making value expand itself, he ruthlessly forces the human race to produce for production’s sake; he thus forces the development of the productive powers of society, and creates those material conditions, which alone can form the real basis of a higher form of society, a society in which the full and free development of every individual forms the ruling principle. Only as personified capital is the capitalist respectable. As such, he shares with the miser the passion for wealth as wealth. But that which in the miser is a mere idiosyncrasy, is, in the capitalist, the effect of the social mechanism, of which he is but one of the wheels. Moreover, the development of capitalist production makes it constantly necessary to keep increasing the amount of the capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation.HFM often comes across this way, as someone who has become divorced from the ideological incentives of capitalism but continues to exercise its calculating logic because it has become a weapon he can brandish so adroitly. Toward the end, he seems to recognize this, in the form of "stress" and discomfort at constantly having to deal with other ruthless capitalists, and he plans to retire.
Gessen notes that HFM exemplifies how the financial world has become "a place where the best of human reason, science and intuition are applied to the question of whether credit spreads will widen or tighten in the next 24 hours." And that's certainly the impression the book gives, though it reveals how that question is not as narrow as it may seem but can be unfolded to encompass all sorts of broader issues -- how credit spreads are so intensely overdetermined that their movements could credibly seem to intimate the movements of the spheres. You can see hints of how capitalistic thinking is so labile and accommodating in practice despite its bottom-line fixation. In some ways, the bottom line is never really drawn but instead represents a horizon, an ideal, something akin to Gatsby's green light across the bay.
The bottom line is always being redrawn. In other words, capital is a process, it must be in motion -- there must be a constant concern with liquidity, with what is convertible. Capital is never a pile of money one can take hold of. As HFM notes, it's not as though the money cycling through the financial world is ever "like the pool that Scrooge McDuck has, with gold coins, and he swims around in that, and when the money is needed he takes the gold coins out of the pool and uses them to pay for things." Money, as HFM explains, is "consuming power moved intertemporally." He almost sounds like he espouses the labor theory of value when he argues that when someone has money, it means "they've produced more than they've consumed in the past, so they have a right to consume more than they are producing in the future." This means that money is always a credit -- an implied debt somewhere in time counterbalances it. "My money, through an extended chain of financial relationships, is someone else's debt, it's a credit to somebody else." The financial world is basically all about playing with that chain, with manipulating the idea of value in the time dimension -- that is, with pricing risk. HFM points out that "what you do when you're trading is apportioning risk. It's about moving consumption from today to tomorrow, or vice versa, and about the risk associated with that, about transferring the risk associated with that. If nobody wants to take the risk, then nothing happens."
That's a pretty stark explanation of capitalist political economy. All activity essentially takes the form of risk -- or animal spirits, as Keynes called it. Risk is akin to effective demand and the propensity to consume -- it's all understood as risk. Consumption as well as production carries risks. All human endeavor is thrown into the calculus of risk, and capitalism convinces us that it could not be otherwise, that is the realistic way to view collective action and personal decisionmaking. Capitalism is a foundationally insecure society, it knows itself only in terms of insecurity and deliberately produces insecure subjects.
The Treasury Officials and the Bloggers (24 Aug 2010)
I know I would feel much better informed about what is going on in government if all press conferences were like the one the Treasury Department held with a group of econobloggers last week and all corrospondents were as frank, thorough and perceptive as Steve Waldman is in this recounting. There's not much reason for optimism in what he reports, but the very fact of his report seems itself a reason to be somewhat optimistic at least about some of the changes in the public sphere and the media. Conversations about policy that once never circulated beyond the upper crust of the power elite are now accessible to the likes of us, if we bother to seek them out.
But as Waldman suggests, this may be a subtle way to placate those most likely to articulate criticism of various policies without those policies being altered. He begins by emphasizing that the Treasury officials are by and large friendly and intelligent:
This strikes me as a basic and important point of how power functions. There are not really evil geniuses in government or elsewhere plotting to be cruel and relishing the misery of the little people -- such people are rare sociopathic anomalies, even if capitalism as a system fosters incentives to developing a sociopathic subjectivity. Because they are situated within a bureaucracy, people in positions of power lose sight of the big picture and reconfigure their typically good intentions in terms of the limited scope of their job responsibilities and, most important, make a ethical priority of being warm and human in their personal exchanges with the people their work brings them into contact with.
Anyway, that is what the technostructure is all about, I think -- bureaucratizing away unpleasant realities about the overall effects of what we are doing while bringing us into enough "team" situations and interpersonal exchanges to allow us to feel good and cooperative and successful at caring about people and not greed or profit.
So it does little good to attack the good intentions of the people in government if you want to have a grown-up discussion about politics or the economy; unfortunately the commercial media does virtually nothing but discuss politics and policy in terms of personality and character. (Richard Sennett's The Fall of Public Man assesses some of the reasons for this; maybe if I wasn't on vacation and had the book with me I'd cite some of them.) But it also means that we have to go against our own grain and put aside the collegiality and self-regard that is our general reward for participating in society in order to sustain a critical view. Waldman explains how this process fans out, defining the hierarchy behind the bureaucracy:
His own reservations notwithstanding, Waldman offers a good critique of the state of financial reform and economic policy. Here are some points that jumped out at me.
1. "Like a gas under pressure, the financial sector pushes and prods for places where high returns can be earned at someone else’s risk." This is the financial sector's reason for being in capitalism; the sector collectively overrides any ethical reasons people might have for not testing the regulatory boundaries and forces every actor to play at the margin of legality. It generates the capitalist ethos over and against our personal inclinations to be considerate and reciprocal in our dealings. It generates systemic greed that exposes all possible modes of exploitation. Waldman notes "how well aligned the incentives of equityholders, bank managers, and traders are at highly levered institutions. All three groups benefit by putting creditors’ resources at risk and earning outsize profit against limited costs (loss of equity value or loss of a job)." They don't check and balance each other; the balance must come from outside regulation.
The systemic nature of the pressure to test limits to find the most extreme profits points to why Waldman and others are always arguing for "structural rather than supervisory regulation" -- hard-and-fast rules that are easy to assess and comparatively transparent. The point is to erect an obstacle that changes the banks' incentives from profiting by gaming regulations (and shifting risk to the taxpayers by being too big to fail) to finding socially productive uses for capital. Waldman has a long footnote that elaborates his reasoning on this that is impossible to excerpt but is crucial reading.
2. About HAMP, a Treasury program meant to deal with the mass of underwater mortgages:
The alternative is a form of power that takes an explicitly revolutionary and "dangerous" form that typically threatens personal identity. One is no longer a collaborative and cooperative part of society but its enemy.
To return to the case of big banks, their interests are fundamentally opposed to those of ordinary Americans, who bear the risks for their speculations under the existing economic arrangements. Treasury officials have talked themselves out of that recognition as a condition of their job. Waldman writes:
3. "I view the current macro-sluggishness as a function of insufficient demand, yet stand with the hypothetical public in being hesitant to support 'stimulus' and 'jobs' programs that strike me as haphazardly targeted and sometimes wasteful or corrupt." This highlights the conflict between the goals of the bureaucracy, the goals of the individuals who populate it and the personal goals we have as citizens in a democracy. What specifically should be "demanded" in order to increase demand? What are the appropriate channels for stimulating it, and should it even be stimulated if it can only be done in a way we would regard as socially corrupt? We want to put our collective productive capacity to use, but we have evolved a system that has undermined our capability to believe in the signals indicating what we might need as a society. Profit has come unmoored from social necessity, or the ideological overlay that associates the two has unraveled. People can find "productive" ways to spend their time but the economy is not set up to reward their efforts, and stakeholders seem to have exposed as looting the system rather than facilitating the appropriate investment of our productive capacities. That is to say the government and the banks, from the view of "ordinary people", seem to have their interests aligned in protecting their ability to loot the system. And there is no clear alternative politics for shifting those interests, or bringing in new people with different interests -- people who might make a difference rather than assume the mantle of the bureaucracy as it already exists.
But as Waldman suggests, this may be a subtle way to placate those most likely to articulate criticism of various policies without those policies being altered. He begins by emphasizing that the Treasury officials are by and large friendly and intelligent:
I am very, very angry at Treasury, and the administration it serves. But put me at a table with smart, articulate people who are willing to argue but who are otherwise pleasant towards me, and I will like them. One or two of the “senior Treasury officials” had the grace to be a bit creepy in their demeanor. But, cruelly, the rest were lively, thoughtful, and willing to engage as though we were equals. Occasionally, under attack, they expressed hints of frustration in their body language — the indignation of hardworking people unjustly accused. But they kept on in good spirits until their time was up. I like these people, and that renders me untrustworthy. Abstractly, I think some of them should be replaced and perhaps disgraced. But having chatted so cordially, I’m far less likely to take up pitchforks against them.
This strikes me as a basic and important point of how power functions. There are not really evil geniuses in government or elsewhere plotting to be cruel and relishing the misery of the little people -- such people are rare sociopathic anomalies, even if capitalism as a system fosters incentives to developing a sociopathic subjectivity. Because they are situated within a bureaucracy, people in positions of power lose sight of the big picture and reconfigure their typically good intentions in terms of the limited scope of their job responsibilities and, most important, make a ethical priority of being warm and human in their personal exchanges with the people their work brings them into contact with.
Anyway, that is what the technostructure is all about, I think -- bureaucratizing away unpleasant realities about the overall effects of what we are doing while bringing us into enough "team" situations and interpersonal exchanges to allow us to feel good and cooperative and successful at caring about people and not greed or profit.
So it does little good to attack the good intentions of the people in government if you want to have a grown-up discussion about politics or the economy; unfortunately the commercial media does virtually nothing but discuss politics and policy in terms of personality and character. (Richard Sennett's The Fall of Public Man assesses some of the reasons for this; maybe if I wasn't on vacation and had the book with me I'd cite some of them.) But it also means that we have to go against our own grain and put aside the collegiality and self-regard that is our general reward for participating in society in order to sustain a critical view. Waldman explains how this process fans out, defining the hierarchy behind the bureaucracy:
Drawn to the Secretary’s conference room by curiosity, vanity, ambition, and conceit, I’ve been neutered a bit. There’s an irony to that, because some of the people I met with may have been neutered, in precisely the same way and to disastrous effect, by their own meetings and mentorings with the Robert Rubins and Jamie Dimons of the world.
His own reservations notwithstanding, Waldman offers a good critique of the state of financial reform and economic policy. Here are some points that jumped out at me.
1. "Like a gas under pressure, the financial sector pushes and prods for places where high returns can be earned at someone else’s risk." This is the financial sector's reason for being in capitalism; the sector collectively overrides any ethical reasons people might have for not testing the regulatory boundaries and forces every actor to play at the margin of legality. It generates the capitalist ethos over and against our personal inclinations to be considerate and reciprocal in our dealings. It generates systemic greed that exposes all possible modes of exploitation. Waldman notes "how well aligned the incentives of equityholders, bank managers, and traders are at highly levered institutions. All three groups benefit by putting creditors’ resources at risk and earning outsize profit against limited costs (loss of equity value or loss of a job)." They don't check and balance each other; the balance must come from outside regulation.
The systemic nature of the pressure to test limits to find the most extreme profits points to why Waldman and others are always arguing for "structural rather than supervisory regulation" -- hard-and-fast rules that are easy to assess and comparatively transparent. The point is to erect an obstacle that changes the banks' incentives from profiting by gaming regulations (and shifting risk to the taxpayers by being too big to fail) to finding socially productive uses for capital. Waldman has a long footnote that elaborates his reasoning on this that is impossible to excerpt but is crucial reading.
2. About HAMP, a Treasury program meant to deal with the mass of underwater mortgages:
I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.The degree to which the officials are not "cruel people" is the degree to which they can convince themselves that helping the "system" helps ordinary people. But to have any kind of critical perspective on society, you have to be able to recognize the status quo -- the people who are already profiting from existing relations -- as something that is not inherently worth defending in order to explore possible relations that might be more equitable, more just. The problem is that power invests us in the status quo and at the same time makes us feel moral only by preserving that status quo. To put that a different way, power is contingent on the ability to sell the status quo as necessary -- to qualify for power within bureaucracy one must convincingly demonstrate that one has made that association of incumbent interests with the "good".
The alternative is a form of power that takes an explicitly revolutionary and "dangerous" form that typically threatens personal identity. One is no longer a collaborative and cooperative part of society but its enemy.
To return to the case of big banks, their interests are fundamentally opposed to those of ordinary Americans, who bear the risks for their speculations under the existing economic arrangements. Treasury officials have talked themselves out of that recognition as a condition of their job. Waldman writes:
Perhaps Treasury officials really can’t see how limiting “size” might help. But I don’t think that’s right. These are very, very smart people. I think they understand the merits of the structural approach to financial regulation, but view the transition costs as simply too large to bear. But that begs the question of costs to whom, and whether (per the HAMP conversation above) it is wise to conflate the health of status quo financial institutions with the welfare of the economy as a whole.How can that conflation be prevented? How can transition "costs" be reconceived as social progress?
3. "I view the current macro-sluggishness as a function of insufficient demand, yet stand with the hypothetical public in being hesitant to support 'stimulus' and 'jobs' programs that strike me as haphazardly targeted and sometimes wasteful or corrupt." This highlights the conflict between the goals of the bureaucracy, the goals of the individuals who populate it and the personal goals we have as citizens in a democracy. What specifically should be "demanded" in order to increase demand? What are the appropriate channels for stimulating it, and should it even be stimulated if it can only be done in a way we would regard as socially corrupt? We want to put our collective productive capacity to use, but we have evolved a system that has undermined our capability to believe in the signals indicating what we might need as a society. Profit has come unmoored from social necessity, or the ideological overlay that associates the two has unraveled. People can find "productive" ways to spend their time but the economy is not set up to reward their efforts, and stakeholders seem to have exposed as looting the system rather than facilitating the appropriate investment of our productive capacities. That is to say the government and the banks, from the view of "ordinary people", seem to have their interests aligned in protecting their ability to loot the system. And there is no clear alternative politics for shifting those interests, or bringing in new people with different interests -- people who might make a difference rather than assume the mantle of the bureaucracy as it already exists.
Friday, August 12, 2011
Denouncing Deadbeats As Political Strategy (14 July 2010)
Via Ezra Klein comes this chart from Daniel Indiviglio:
That depicts the gap between available job openings and the number of unemployed people -- both the official measure and the more comprehensive U5, which includes "discouraged" and "loosely attached" members of the prospective workforce (i.e. upstanding members of the reserve army of the unemployed). It appears quite obvious that many unemployed people would struggle to get a job no matter how hard they tried, and the resulting discouragement would make them feel worse about themselves and their skills than if they did go in for a stint of funemployment. So extending jobless benefits would seem like a humane and sensible thing for the U.S. government to do, especially considering it would function as economic stimulus to put money in the hands of those who urgently need to spend it.
But humanity and sensibility are not what mediated politics are about. Steve Benen calls attention to "the ways in which Republican lawmakers and candidates seem to actively dislike -- on a personal level -- those who've lost their jobs in the recession" -- that is, the Republicans' apparent eagerness to campaign on a theme of "to hell with the deadbeats." Benen cites, among other examples, Pennsylvania gubernatorial hopeful Tom Corbett, who claims that "if we keep extending unemployment, people are just going to sit there," as well as Sharron Angle, the Senate candidate in Nevada, who believes the unemployed are "spoiled."
How could such a strategy succeed, particularly when the data is plainly against such notions and such assertions seemingly come across as heartless? Part of the calculation probably involves writing off the vote of the unemployed, who may be too discouraged or congenitally unlikely to vote in the first place. Then one can factor in the consolation such rants provide those who managed not to lose their jobs and who may be suffering from survivor guilt. There's solace in the message coming from ostensibly respectable candidates that those others had it coming it some obscure way that has been borne out by their willingness to remain unemployed.
And there is even the chance the deadbeats line will resonate among the deadbeats themselves. Inherent in the argument is an insistence on the relevance of individual agency, that one really can get a job if they try. The chart suggests that isn't true, that individual agency matters only insofar as one can outcompete an ever growing number of competitors for a position, and for the losers no amount of agency will secure them a nonexistent position. But faith in the illusion of individual agency is hard to do without, especially in a society already so insistent about the glory of individualism. Who wants pity and reaffirmed powerlessness?
Republicans thinking strategically probably figure they can eke out a small majority by cobbling together those groups under the bogus banner of individualism and the respect for "hard work," though their rhetoric in practice is negated by their policies of transferring the inherent risks of business on to workers and rendering the worker's level of effort somewhat beside the point outside the realm of ideology.
But humanity and sensibility are not what mediated politics are about. Steve Benen calls attention to "the ways in which Republican lawmakers and candidates seem to actively dislike -- on a personal level -- those who've lost their jobs in the recession" -- that is, the Republicans' apparent eagerness to campaign on a theme of "to hell with the deadbeats." Benen cites, among other examples, Pennsylvania gubernatorial hopeful Tom Corbett, who claims that "if we keep extending unemployment, people are just going to sit there," as well as Sharron Angle, the Senate candidate in Nevada, who believes the unemployed are "spoiled."
How could such a strategy succeed, particularly when the data is plainly against such notions and such assertions seemingly come across as heartless? Part of the calculation probably involves writing off the vote of the unemployed, who may be too discouraged or congenitally unlikely to vote in the first place. Then one can factor in the consolation such rants provide those who managed not to lose their jobs and who may be suffering from survivor guilt. There's solace in the message coming from ostensibly respectable candidates that those others had it coming it some obscure way that has been borne out by their willingness to remain unemployed.
And there is even the chance the deadbeats line will resonate among the deadbeats themselves. Inherent in the argument is an insistence on the relevance of individual agency, that one really can get a job if they try. The chart suggests that isn't true, that individual agency matters only insofar as one can outcompete an ever growing number of competitors for a position, and for the losers no amount of agency will secure them a nonexistent position. But faith in the illusion of individual agency is hard to do without, especially in a society already so insistent about the glory of individualism. Who wants pity and reaffirmed powerlessness?
Republicans thinking strategically probably figure they can eke out a small majority by cobbling together those groups under the bogus banner of individualism and the respect for "hard work," though their rhetoric in practice is negated by their policies of transferring the inherent risks of business on to workers and rendering the worker's level of effort somewhat beside the point outside the realm of ideology.
Conservative class warfare (12 July 2010)
It appears that NYT columnist Ross Douthat also has class war on his mind after reading that article about strategic defaults on jumbo mortgages mentioned in the previous post. He begins with the proposition that "The rich are different from you and me. They know how to game the system." Another way of putting that is that they know the system is set up for their benefit, so they need not concern themselves with its mores.
What to do about this? Douthat suggests we need "conservative class warfare" -- an oxymoron if ever there was one -- "which would force the million-dollar defaulters to pay their own way from here on out." Much of what he then proposes sounds pretty good to me, and it would be great of conservatives signed on to this sort of conservatism: eliminating the federal subsidy on mortgage-interest payments, which are tax deductible; eliminating corporate subsidies; "attacking Washington’s wasteful spending on the well-connected." (He also wants means-testing for Social Security, a supposed solution for a nonexistent problem with the system's solvency.) He urges conservatives "to recognize that the most pernicious sort of redistribution isn’t from the successful to the poor. It’s from savers to speculators, from outsiders to insiders, and from the industrious middle class to the reckless, unproductive rich."
Agreed. But being "well-connected" by definition means that Washington doesn't take away any of your favors. And the ethos of conservatism tends to regard well-connectedness as some sort of deserved state of exception worth preserving for the overall stability of society. If there must be corruption,the implication often seems to be, let's at least make sure only the right people can get away with being corrupt. And the right people are the ones who already have been getting away with it for longer than anyone can remember.
What to do about this? Douthat suggests we need "conservative class warfare" -- an oxymoron if ever there was one -- "which would force the million-dollar defaulters to pay their own way from here on out." Much of what he then proposes sounds pretty good to me, and it would be great of conservatives signed on to this sort of conservatism: eliminating the federal subsidy on mortgage-interest payments, which are tax deductible; eliminating corporate subsidies; "attacking Washington’s wasteful spending on the well-connected." (He also wants means-testing for Social Security, a supposed solution for a nonexistent problem with the system's solvency.) He urges conservatives "to recognize that the most pernicious sort of redistribution isn’t from the successful to the poor. It’s from savers to speculators, from outsiders to insiders, and from the industrious middle class to the reckless, unproductive rich."
Agreed. But being "well-connected" by definition means that Washington doesn't take away any of your favors. And the ethos of conservatism tends to regard well-connectedness as some sort of deserved state of exception worth preserving for the overall stability of society. If there must be corruption,the implication often seems to be, let's at least make sure only the right people can get away with being corrupt. And the right people are the ones who already have been getting away with it for longer than anyone can remember.
Strategic Defaults of the Rich and Famous (10 July 2010)
Here is what class warfare and ideology are all about: this NYT article by David Streitfeld looks at the strategic-defaulting practices of the rich, after data the paper commissioned revealed that "the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population." I know you must be shocked that the wealthy would do something so heinous as dishonor a financial contract that is not in their best interests to uphold. No one ever got wealthy by not following the rules, which is why the wealthy are always as fastidious about paying their taxes as the little people are.
What caught my attention in particular in the article was this:
Apparently being vulnerable to shame and fear-mongering is for the little people too. The middle classes are obliged to think of the social fabric when trying to puzzle out what their best interests are -- as the broad base of society they are expected to take into concern ethics, and what others think, and what is morally considerate and will contribute to the general good. We are expected to worry about what's "right." Rich people are under no such obligation. They are in position to in effect dictate what is right. Our moral concern is the opposite of practical power and is possibly the empty consolation for our lacking power.
UPDATE: For some reason I can't add a comment, but Anton: I know. It's enough to make one a nihilist. What is best in life, to feel proud of oneself for having done the "right thing" or to feel like one has been the victor for convincing others to do the "right thing" you thought of?
What caught my attention in particular in the article was this:
The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.
“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”
The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.
“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.
Apparently being vulnerable to shame and fear-mongering is for the little people too. The middle classes are obliged to think of the social fabric when trying to puzzle out what their best interests are -- as the broad base of society they are expected to take into concern ethics, and what others think, and what is morally considerate and will contribute to the general good. We are expected to worry about what's "right." Rich people are under no such obligation. They are in position to in effect dictate what is right. Our moral concern is the opposite of practical power and is possibly the empty consolation for our lacking power.
UPDATE: For some reason I can't add a comment, but Anton: I know. It's enough to make one a nihilist. What is best in life, to feel proud of oneself for having done the "right thing" or to feel like one has been the victor for convincing others to do the "right thing" you thought of?
Jobless-Future Watch (2 July 2010)
Data out today from the Labor Department in the U.S. shows that job creation simply isn't happening in the American economy. The end of Census work meant that jobs were down 125,000, with the private sector creating only 83,000. The New York Times story notes that this doesn't keep pace with population growth.
So, the reserve army of discouraged workers is growing, even despite the noble efforts of the U.S. Senate to deny lazy slobs an extension of unemployment benefits. (As Sharron Angle, the Republican candidate for U.S. Senate in Nevada has insisted, "there are jobs that do exist" -- never mind all the jobless people contending for them. Meanwhile Nevada's unemployment rate is tops in the nation, at 14%.)
The WSJ's Sudeep Reddy elaborates:
At what level of nonparticipation will the vast numbers of jobless become a concern? And to what degree should it be a concern, if the work not being done by these nonparticipants in the economy could serve no socially necessary function (other than supporting their own well-being, perhaps). Matt Yglesias argues that "There are millions of Americans who were gainfully employed in 2006 who are no longer gainfully employed today but who have the physical capacity to produce useful goods and services. There are also millions of young Americans who weren’t in the labor force in 2006 but who have all the basic attributes of people capable of producing useful goods and services, who are currently sitting idle." Most of us sort of take for granted that this proposition is true, that there is no finite lump of labor in the world that needs doing, and no more. But what really joins the labor we do for self-actualization, to please ourselves, with the broader economy of socially necessary activity? What defines the necessary? And would they be joined at all, or would we try to join them, if not for capitalist organization? Is there a necessary relation between what we feel like doing and what needs being done? What would we all do if automation reached the point where all the "necessary labor" was easily taken care of? Have we reached that point, with the broad edifice of consumerism build up to give us all something seemingly meaningful to do? What is the relationship between growth in capitalist economies and improvements in the standard of living -- does growth equate to socially useful innovations, or just wheel-spinning? (Do I need to read Player Piano?)
Tyler Cowen, living currently in Berlin, posted recently about the city, making me wonder if I should be living there:
As the nonparticipation rate continues to rise, one has to wonder how much of the U.S. is trending in this direction. Are there semi-Utopian pockets in the country where you can buy a house for cheap and do your own thing? Or are such places just full of forgotten people who have no avenue to the dignity that having a job affords? I don't know if we could create a Berlin in Detroit, no matter how devalued property gets. But I wonder if we should be trying, or if that would merely intensify submerged conflicts in the American psyche.
Indeed, the overall Labor Department numbers remain weak. The median forecast from economists was that the nation would add 110,000 jobs. The economy needs about 130,000 to 150,000 jobs just to keep pace with new workers entering the market. The labor pool is already packed with 15 million Americans looking for work.
Construction, hurt by plummeting home sales and depressed office market, shed 22,000 jobs — on top of 30,000 lost in May — and state and local governments cut another 10,000 jobs, numbers that most expect to accelerate sharply in coming months.
And the underlying data shows many signs of slippage. The labor-force participation rate — that is, the number of workers counted as participating in the national economy — fell by 0.3 percentage point, and there were slight decreases in the number of hours worked and average hourly earnings....
Digging a little deeper, the recovery from the Great Recession appears to be leaving more and more Americans behind. In June, about 2.6 million people were marginally attached to the labor force, an increase of 415,000 from a year earlier. This means they are not counted in the unemployment numbers but that they have looked during the past year and they want a job.
So, the reserve army of discouraged workers is growing, even despite the noble efforts of the U.S. Senate to deny lazy slobs an extension of unemployment benefits. (As Sharron Angle, the Republican candidate for U.S. Senate in Nevada has insisted, "there are jobs that do exist" -- never mind all the jobless people contending for them. Meanwhile Nevada's unemployment rate is tops in the nation, at 14%.)
The WSJ's Sudeep Reddy elaborates:
June’s decline in the civilian labor force of 652,000 was the sharpest one-month decline in 15 years in the Labor Department’s survey of households. Some people could be frustrated with their job searches, choosing to take time off or pursue other options like school. Some could be experiencing the end of their unemployment benefits, which required them to maintain an active job search. Whatever the cause, over the past two months almost one million people simply stopped looking for work. And over those two months, the U.S. population grew by 361,000 — with more than half of that gain coming in June.
At what level of nonparticipation will the vast numbers of jobless become a concern? And to what degree should it be a concern, if the work not being done by these nonparticipants in the economy could serve no socially necessary function (other than supporting their own well-being, perhaps). Matt Yglesias argues that "There are millions of Americans who were gainfully employed in 2006 who are no longer gainfully employed today but who have the physical capacity to produce useful goods and services. There are also millions of young Americans who weren’t in the labor force in 2006 but who have all the basic attributes of people capable of producing useful goods and services, who are currently sitting idle." Most of us sort of take for granted that this proposition is true, that there is no finite lump of labor in the world that needs doing, and no more. But what really joins the labor we do for self-actualization, to please ourselves, with the broader economy of socially necessary activity? What defines the necessary? And would they be joined at all, or would we try to join them, if not for capitalist organization? Is there a necessary relation between what we feel like doing and what needs being done? What would we all do if automation reached the point where all the "necessary labor" was easily taken care of? Have we reached that point, with the broad edifice of consumerism build up to give us all something seemingly meaningful to do? What is the relationship between growth in capitalist economies and improvements in the standard of living -- does growth equate to socially useful innovations, or just wheel-spinning? (Do I need to read Player Piano?)
Tyler Cowen, living currently in Berlin, posted recently about the city, making me wonder if I should be living there:
As I've noted before, neither land nor labor are remarkably scarce here, and so most items and apartments are very cheap, especially by European standards but even by south German standards. Could it be that marginal cost pricing reigns at the retail level?
The cheapness makes Berlin a magnet. I am told that large numbers of people -- especially foreigners -- live here part of the year but earn most of their money elsewhere. Think of a twenty-something writing a novel or a dancer or singer in training.
Did you know that only about forty percent of the German population is employed? I would be surprised if it were that much in Berlin. You can view that figure as a realization of (temporary) utopia, the result of screwy anti-work economic policies, or a bit of both.
As the nonparticipation rate continues to rise, one has to wonder how much of the U.S. is trending in this direction. Are there semi-Utopian pockets in the country where you can buy a house for cheap and do your own thing? Or are such places just full of forgotten people who have no avenue to the dignity that having a job affords? I don't know if we could create a Berlin in Detroit, no matter how devalued property gets. But I wonder if we should be trying, or if that would merely intensify submerged conflicts in the American psyche.
Thursday, August 11, 2011
Freegan Identity (23 June 2010)
The Buffalo freegans profiled by Jake Halpern in this NYT magazine piece from a few weeks ago seem like a case for some Kranton-Akerlof identity economics, the basic concepts of which are well presented in this review by Tom Slee.
Freegans purport to be proud freeloaders off the wasteful consumer society: they are "dedicated to salvaging what others waste and — when possible — living without the use of currency," Halpern writes. Yet the identity is a fragile facade, and not merely because it is incoherent, as Halpern explains: "Freegans maintain that by salvaging waste, they diminish their need for money, which allows them to live a more thoughtful, responsible and deliberate existence. But if they succeed in their overriding goal, and society ends up becoming less wasteful, the freegan lifestyle will no longer be possible." The freegan identity, in the case that Halpern covers in the article, relies on institutional support that masks the way they actually help the society they profess to scorn.
The freegans' oppositional identity is something that can be factored in, game theory style, by institutional agents when dealing with them and trying to orient them toward helping contribute to the system they think they are leeching off of. That is, freegans want to provide useful services to the existing economy, but only if it makes them feel like outcasts from that economy. Their practices can only produce the outsider identity they hope for with the help of some ideologically oriented playacting from the broader establishment:
The freegans had basically embraced the quintessential bourgeois ethos of property improvement and had only a veil of radicalism to prevent themselves from recognizing that. Insiders -- the bourgeois neighbors -- had to try to accommodate the freegans' outsider status to continue to reap the benefits of their dirty work. Eventually they had to buy into the system overtly:
The obvious question at that point is, What does the "project" consist of? Is it still a freegan project, or has it evolved into an experiment in cooperative living within the institutions of consumer capitalism? It seems to me that freegan identity is probably a liability that prevents the more widespread acceptance of such experiments that might actually alter the institutions of capitalism for the better. But is there a way to motivate individuals to participate in such projects without baiting the hook with the promise of a oppositional, self-aggrandizing identity?
The complexity of that problem -- how to cultivate people who want to live in a "community economy" without their being stuck in capitalism's model of individuality -- is evoked in this introduction to J.K. Gibson-Graham's The End of Capitalism (As We Knew It), which is a condensation of A Postcapitalist Politics by the same author. Freeganism could potentially reveal alternatives to capitalism, alternative subject positions to inhabit (i.e. a different way to go about living, with entirely different guiding values and principles), but only if it abandons an ideology that is parasitical upon capitalism and emphasize instead communal approaches to production, consumption, distribution, and subjectivity -- reorganizing the sorts of markets we have and the sorts of people we become when we inhabit them.
Freegans purport to be proud freeloaders off the wasteful consumer society: they are "dedicated to salvaging what others waste and — when possible — living without the use of currency," Halpern writes. Yet the identity is a fragile facade, and not merely because it is incoherent, as Halpern explains: "Freegans maintain that by salvaging waste, they diminish their need for money, which allows them to live a more thoughtful, responsible and deliberate existence. But if they succeed in their overriding goal, and society ends up becoming less wasteful, the freegan lifestyle will no longer be possible." The freegan identity, in the case that Halpern covers in the article, relies on institutional support that masks the way they actually help the society they profess to scorn.
The freegans' oppositional identity is something that can be factored in, game theory style, by institutional agents when dealing with them and trying to orient them toward helping contribute to the system they think they are leeching off of. That is, freegans want to provide useful services to the existing economy, but only if it makes them feel like outcasts from that economy. Their practices can only produce the outsider identity they hope for with the help of some ideologically oriented playacting from the broader establishment:
Eventually, one of the city’s “board-up crews,” which seal off abandoned homes, discovered the squatters and reported them to Judge Henry Nowak at the city’s housing court.... He was approached by a group of neighbors who lived near the mansion. They said they wanted to discuss the squatters. To the judge’s astonishment, the neighbors praised the young people, saying that they had kept the thieves, drug dealers and arsonists away. What’s more, they attested, the squatters were fixing up the place, making it less of an eyesore. Their presence, and the fact that the mansion was now occupied, had made it easier for people on the block to get homeowners’ insurance. Odd as it seemed, the freegan kids helped stabilize the neighborhood, and the concerned neighbors wanted them to stay. “They said, ‘Don’t you dare kick those kids out of the house!’ ” Judge Nowak told me.
After this encounter, the judge found himself in a difficult situation. “I was left with two options essentially,” he told me. “One would be to put the house in receivership, where I would tell all of these children that if they want to stay, they have to now pay rent.” This option was problematic, Nowak said, because the squatters were “enamored with the fact that they moved into a house that wasn’t theirs,” and given their freegan sensibilities, they would not consent to paying rent. Or, Judge Nowak explained, “I could essentially let things stay as they are and trust that the children are going to make the repairs to the property.”
For the time being, the judge decided to let the squatters stay. “It was a close call,” he told me. “It was an awfully close call.”
The freegans had basically embraced the quintessential bourgeois ethos of property improvement and had only a veil of radicalism to prevent themselves from recognizing that. Insiders -- the bourgeois neighbors -- had to try to accommodate the freegans' outsider status to continue to reap the benefits of their dirty work. Eventually they had to buy into the system overtly:
The squatters had already paid off back taxes and were paying utility bills — not the most orthodox of freegan practices — but, as they saw it, they were still beating the system. Ownership would, arguably, catapult them into the ranks of propertied classes.
“Many of us in the house see the whole system of private property as being something that oppresses people,” Tim said. “And if we owned the place, suddenly we’d be the ones kicking people out or the ones calling the cops.” But, in the end, Tim said, ownership was “a necessary step to keep the project alive.”
The obvious question at that point is, What does the "project" consist of? Is it still a freegan project, or has it evolved into an experiment in cooperative living within the institutions of consumer capitalism? It seems to me that freegan identity is probably a liability that prevents the more widespread acceptance of such experiments that might actually alter the institutions of capitalism for the better. But is there a way to motivate individuals to participate in such projects without baiting the hook with the promise of a oppositional, self-aggrandizing identity?
The complexity of that problem -- how to cultivate people who want to live in a "community economy" without their being stuck in capitalism's model of individuality -- is evoked in this introduction to J.K. Gibson-Graham's The End of Capitalism (As We Knew It), which is a condensation of A Postcapitalist Politics by the same author. Freeganism could potentially reveal alternatives to capitalism, alternative subject positions to inhabit (i.e. a different way to go about living, with entirely different guiding values and principles), but only if it abandons an ideology that is parasitical upon capitalism and emphasize instead communal approaches to production, consumption, distribution, and subjectivity -- reorganizing the sorts of markets we have and the sorts of people we become when we inhabit them.
The Austerity Debate (18 June 2010)
Steve Randy Waldman delivers, as usual, a clarifying post on the ongoing "austerity debate" -- the discussion among economists and pundits and politicians about whether the government should engage in more stimulus spending to support an economic recovery that may or may not be starting and help create jobs to reduce the unemployment rate (still hovering near 10%), or whether it should impose austerity measures to control the deficit and ostensibly protect the currency and prod the jobless into looking harder for work by cutting off their unemployment benefits. Waldman links to several posts that set the stage.
This debate has come to head recently with the Senate voting to block an extension of unemployment benefits, among other fiscal measures. This infuriates a lot of people (me included) because it seems to privilege political demagoguery about deficits and the interests of the leisure class over economic growth and the rest of us. It plays upon the idea that the unemployed are merely too lazy or fussy about taking jobs, not that they lack relevant skills or that employers aren't willing to hire. It also depicts downward mobility as something the unemployed should simply accept, as if moving down the wage-chain in jobs doesn't have a permanent effect on one's earning potential and prospects.
Also, austerity preaching from government sends the signal to businesses that the climate will be unfavorable, and prompts them to buy back shares rather than seek out other investment opportunities or expand. And everyone around the world can't be austere at the same time; that just amounts to worldwide depression.
Waldman's entire post is well worth reading, but a few things jumped out at me:
1. This is relevant to the notion of free labor, of the sort the networked economy has made more prominent. Waldman is question the idea of austerity at the expense of putting unemployed people to work: "Doing paid work has social meaning beyond the fact of the activity, and doing what is ordinarily paid work for free has a very different social meaning. It is perfectly possible, and perfectly common, that a person’s gains from doing work are greater than their total pay, so that in theory you could confiscate their wages or pay them nothing and they would still do the job. But in practice, you can’t do that, because if you don’t actually pay them, it is no longer paid work. The nonmonetary benefits of work are inconveniently bundled with a paycheck." I'm perhaps under the influence of all sorts of quasi-utopian "end of work" literature, but I wonder if the pleasures of work are inseparable from the paycheck. Perhaps under capitalism, the "in practice" Waldman is talking about, it is. The point I take away from this is that as our society is configured, free work is irreparably stigmatized and thus demoralizing. You have to be working for wages first in order to secure what capitalism makes into the second-order benefits -- job satisfaction, meaning, participation in the "general intellect" or what have you.
2. Waldman is worried that increased fiscal intervention could promote an aura of corruption: "Transfers of relative purchasing power from other citizens to the beneficiaries of government spending may call into question the legitimacy of the distribution of opportunity, wealth, and influence and of the government itself. Perceptions of make-work or corrupt contracting are deeply corrosive." This is what Tea Party types tend to harp on -- freeloaders soaking up their hard-earned tax dollars, etc. Demagoguery certainly helps encourage this attitude; it is easy to put across in sensationalist terms and highly divisive and useful politically. Strangely, no one seems to have much incentive to sell the idea of stimulus; the establishment media is apparently more interested in maintaining an appearance of political balance than in encouraging the economic growth that might in turn help their businesses. But some corruption is probably inevitable with government handouts, particularly since the alibi of "market forces" cannot be invoked to explain unfair distributions. And there is the Hayekian fear of the central planner, unconditioned by meaningful price signals, using resources inefficiently. Waldman suggests such effects are not merely a danger in the short-term; rather, they acquire momentum: "Since economic activity is habit forming and temporary interventions become permanent, the cost of poor government choices can be high. It matters very much what work the government is paying for. Work must be well-tailored to the talents, interests, and future prospects of individuals. Employing people badly is much worse than just giving them money." One might point to the farm-subsidies situation in that regard.
3. This is just well-put, clarifying what is ultimately at stake in these often abstract discussions: "Savers really could flee the euro, dollar, yen or yuan. Interest rates here or there could suddenly spike. A sudden dash to gold is possible. None of these financial market events would directly affect the real resources at our disposal, but any of them could devastate our ability to organize economic behavior, and would call into question the legitimacy of economic outcomes and the stability of governments." The "real resources" of an economy can't put themselves to work for our benefit automatically -- we can't put ourselves to work in a socially beneficial way through sheer force of will. There needs to be a communicative system that relays what society actually needs, revealing what uses of resources are desirable and useful and which are corrupt and which are wasteful and so on. Markets, for better or worse, are the main way this information is revealed, but the markets themselves need to be regulated so that they serve this purpose (and not the purpose of further enriching the fat-cat class and their running dogs). Production must be socially organized in such a way that the outcomes are recognized as legitimate -- are markets the only way to secure social legitimacy when capitalism has become hegemonic? -- and this legitimacy redounds to the ruling order, legitimizing the government as serving the people and not itself.
4. Waldman says we should expect, perhaps even hope for more "austerity theater" -- political noise about austerity while stimulus continues in the shadows. "We should expect policymakers to justify their actions with a lot of intuitive but awful theory. As the Modern Monetary Theorists remind us, the analogy between a fiat-currency-issuing government and a budget-constrained household is poor. It is, nevertheless, the framework under which most citizens and savers understand government accounts, and forms the basis of conventional discourse." Basically, governments are not like households (I can't just go and print more money for myself to pay my rent, for instance), but voters can seemingly only understand discussions about the federal budgets in terms of what they themselves have to do to make ends meet. And politicians feel obliged to cater to this ignorance, helping reproduce it by endorsing the "common-sense" view that you can't go on running deficits for ever and that the piper must be eventually be paid.
5. His conclusion: "We have intellectual work to do that goes beyond choosing a deficit level. The austerity/stimulus debate is make-work for the chattering classes." In other words, the austerity debate is a stalling tactic to prevent the consideration of specific interventions that might allow policymakers to assert some control over the economic cycle. Engaging in the debate is tantamount to conceding there's nothing we can do.
This debate has come to head recently with the Senate voting to block an extension of unemployment benefits, among other fiscal measures. This infuriates a lot of people (me included) because it seems to privilege political demagoguery about deficits and the interests of the leisure class over economic growth and the rest of us. It plays upon the idea that the unemployed are merely too lazy or fussy about taking jobs, not that they lack relevant skills or that employers aren't willing to hire. It also depicts downward mobility as something the unemployed should simply accept, as if moving down the wage-chain in jobs doesn't have a permanent effect on one's earning potential and prospects.
Also, austerity preaching from government sends the signal to businesses that the climate will be unfavorable, and prompts them to buy back shares rather than seek out other investment opportunities or expand. And everyone around the world can't be austere at the same time; that just amounts to worldwide depression.
Waldman's entire post is well worth reading, but a few things jumped out at me:
1. This is relevant to the notion of free labor, of the sort the networked economy has made more prominent. Waldman is question the idea of austerity at the expense of putting unemployed people to work: "Doing paid work has social meaning beyond the fact of the activity, and doing what is ordinarily paid work for free has a very different social meaning. It is perfectly possible, and perfectly common, that a person’s gains from doing work are greater than their total pay, so that in theory you could confiscate their wages or pay them nothing and they would still do the job. But in practice, you can’t do that, because if you don’t actually pay them, it is no longer paid work. The nonmonetary benefits of work are inconveniently bundled with a paycheck." I'm perhaps under the influence of all sorts of quasi-utopian "end of work" literature, but I wonder if the pleasures of work are inseparable from the paycheck. Perhaps under capitalism, the "in practice" Waldman is talking about, it is. The point I take away from this is that as our society is configured, free work is irreparably stigmatized and thus demoralizing. You have to be working for wages first in order to secure what capitalism makes into the second-order benefits -- job satisfaction, meaning, participation in the "general intellect" or what have you.
2. Waldman is worried that increased fiscal intervention could promote an aura of corruption: "Transfers of relative purchasing power from other citizens to the beneficiaries of government spending may call into question the legitimacy of the distribution of opportunity, wealth, and influence and of the government itself. Perceptions of make-work or corrupt contracting are deeply corrosive." This is what Tea Party types tend to harp on -- freeloaders soaking up their hard-earned tax dollars, etc. Demagoguery certainly helps encourage this attitude; it is easy to put across in sensationalist terms and highly divisive and useful politically. Strangely, no one seems to have much incentive to sell the idea of stimulus; the establishment media is apparently more interested in maintaining an appearance of political balance than in encouraging the economic growth that might in turn help their businesses. But some corruption is probably inevitable with government handouts, particularly since the alibi of "market forces" cannot be invoked to explain unfair distributions. And there is the Hayekian fear of the central planner, unconditioned by meaningful price signals, using resources inefficiently. Waldman suggests such effects are not merely a danger in the short-term; rather, they acquire momentum: "Since economic activity is habit forming and temporary interventions become permanent, the cost of poor government choices can be high. It matters very much what work the government is paying for. Work must be well-tailored to the talents, interests, and future prospects of individuals. Employing people badly is much worse than just giving them money." One might point to the farm-subsidies situation in that regard.
3. This is just well-put, clarifying what is ultimately at stake in these often abstract discussions: "Savers really could flee the euro, dollar, yen or yuan. Interest rates here or there could suddenly spike. A sudden dash to gold is possible. None of these financial market events would directly affect the real resources at our disposal, but any of them could devastate our ability to organize economic behavior, and would call into question the legitimacy of economic outcomes and the stability of governments." The "real resources" of an economy can't put themselves to work for our benefit automatically -- we can't put ourselves to work in a socially beneficial way through sheer force of will. There needs to be a communicative system that relays what society actually needs, revealing what uses of resources are desirable and useful and which are corrupt and which are wasteful and so on. Markets, for better or worse, are the main way this information is revealed, but the markets themselves need to be regulated so that they serve this purpose (and not the purpose of further enriching the fat-cat class and their running dogs). Production must be socially organized in such a way that the outcomes are recognized as legitimate -- are markets the only way to secure social legitimacy when capitalism has become hegemonic? -- and this legitimacy redounds to the ruling order, legitimizing the government as serving the people and not itself.
4. Waldman says we should expect, perhaps even hope for more "austerity theater" -- political noise about austerity while stimulus continues in the shadows. "We should expect policymakers to justify their actions with a lot of intuitive but awful theory. As the Modern Monetary Theorists remind us, the analogy between a fiat-currency-issuing government and a budget-constrained household is poor. It is, nevertheless, the framework under which most citizens and savers understand government accounts, and forms the basis of conventional discourse." Basically, governments are not like households (I can't just go and print more money for myself to pay my rent, for instance), but voters can seemingly only understand discussions about the federal budgets in terms of what they themselves have to do to make ends meet. And politicians feel obliged to cater to this ignorance, helping reproduce it by endorsing the "common-sense" view that you can't go on running deficits for ever and that the piper must be eventually be paid.
5. His conclusion: "We have intellectual work to do that goes beyond choosing a deficit level. The austerity/stimulus debate is make-work for the chattering classes." In other words, the austerity debate is a stalling tactic to prevent the consideration of specific interventions that might allow policymakers to assert some control over the economic cycle. Engaging in the debate is tantamount to conceding there's nothing we can do.
Wednesday, August 10, 2011
Michael Lewis's 'The Big Short' (5 May 2010)
I borrowed The Big Short by Michael Lewis from a friend the other day and am rapidly reading my way through. I'm glad I waited until now to read it, because it makes for a smoother ride having already tried to digested the mechanics of Goldman Sachs's Abacus deal and the Magnetar trade. Some of it was familiar from my Portfolio days as well. The book masquerades as an aw-shucks account of some of the people who figured out that all the subprime lending made for a titanic house of cards and how they managed to get rich from their insight, but beyond that it's a pretty far-reaching critique of financial capitalism.
The way ideologues defend the inherent instability of the capitalist system ("creative destruction," etc.) is that competitive innovation may destroy individual firms but overall society reaps benefits from their espousing better ways of doing things. A firm that makes, say, steel cheaper buts the inefficient steelmakers out of business but lets society do more with steel.
But when capitalism is dominated by finance (and finance by 2007 was responsible for over 40% of all business profit in the U.S. by the mid-00s), competition and innovation become a matter of merely betting against fools rather than fixing the system that produced them. Financial innovation didn't allocate capital for the betterment of society; it allocated capital for the enrichment of Wall Street douches.
The people Lewis writes about don't seem especially douchy, and Lewis tends to try hard to make them sympathetic Cassandra figures who were on a quixotic quest to expose a financial system that had become systemically irrational. And they were merely acting on the basis of the prevailing ideology when they recognized that the whole financial system could meltdown but did nothing to prevent it and everything they could to profit from it -- their profiting from it, according to capitalist ideology, was supposed to be an expression of the system fixing itself. In reality, their wisdom that could have prevented financial calamity instead helped enable and intensify it. The glorification of markets presumes that everything of social worth and everything about human behavior is a matter of incentives, and anything worth doing will ultimately be incentivized. But there was no way to incentivize the prevention of financial disaster.
So Lewis's protagonists could have been heroes, might have mitigated a catastrophe, but instead fomented a profitable disaster because capitalism suggests that heroism is measured in profit and that profit can't be wrong. And many people probably still think that (what could be wrong with making money?), despite all the collateral damage to those who had nothing to do with subprime lending but ended up out of a job anyway, or the people who are still paying off an oversize mortgage on a house that got to be way, way, way overpriced thanks to the investment bankers' heedless rapaciousness inflating housing bubbles with insanely easy credit.
Market fundamentalists still probably think it's better to let a "self-regulating" system crash completely -- making a few winners and a society of losers -- then to have regulation (of derivatives, of rating agencies, etc.) designed to prevent such things from happening. That's the essence of Goldman's eagerness to hide behind the "sophistication" excuse that Thomas Frank points out in this WSJ op-ed. Nothing could be wrong with the gambling proclivities of sophisticated, consenting bankers, regardless of the collateral damage of their actions, which they seem simply to ignore as irrelevant. Lewis's book reveals that no matter how smart investors were, nothing they could do would prevent economic disaster. Frank's op-ed (a recapitulation of some of the arguments he made in One Market Under God) points out how the supposed sophistication of players in financial markets is used as an excuse to eschew regulation.
Paul Krugman argues here how regulation could have prevented what Lewis describes -- what Krugman calls "white-collar looting." And in this statement to a congressional subcommittee, Jamie Galbraith explains how the assumptions of market fundamentalism provided ideological cover for fraud.
Further discussion from James Kwak of the pros and cons of the financial regulation debate taking place now in Congress can be found here.
The way ideologues defend the inherent instability of the capitalist system ("creative destruction," etc.) is that competitive innovation may destroy individual firms but overall society reaps benefits from their espousing better ways of doing things. A firm that makes, say, steel cheaper buts the inefficient steelmakers out of business but lets society do more with steel.
But when capitalism is dominated by finance (and finance by 2007 was responsible for over 40% of all business profit in the U.S. by the mid-00s), competition and innovation become a matter of merely betting against fools rather than fixing the system that produced them. Financial innovation didn't allocate capital for the betterment of society; it allocated capital for the enrichment of Wall Street douches.
The people Lewis writes about don't seem especially douchy, and Lewis tends to try hard to make them sympathetic Cassandra figures who were on a quixotic quest to expose a financial system that had become systemically irrational. And they were merely acting on the basis of the prevailing ideology when they recognized that the whole financial system could meltdown but did nothing to prevent it and everything they could to profit from it -- their profiting from it, according to capitalist ideology, was supposed to be an expression of the system fixing itself. In reality, their wisdom that could have prevented financial calamity instead helped enable and intensify it. The glorification of markets presumes that everything of social worth and everything about human behavior is a matter of incentives, and anything worth doing will ultimately be incentivized. But there was no way to incentivize the prevention of financial disaster.
So Lewis's protagonists could have been heroes, might have mitigated a catastrophe, but instead fomented a profitable disaster because capitalism suggests that heroism is measured in profit and that profit can't be wrong. And many people probably still think that (what could be wrong with making money?), despite all the collateral damage to those who had nothing to do with subprime lending but ended up out of a job anyway, or the people who are still paying off an oversize mortgage on a house that got to be way, way, way overpriced thanks to the investment bankers' heedless rapaciousness inflating housing bubbles with insanely easy credit.
Market fundamentalists still probably think it's better to let a "self-regulating" system crash completely -- making a few winners and a society of losers -- then to have regulation (of derivatives, of rating agencies, etc.) designed to prevent such things from happening. That's the essence of Goldman's eagerness to hide behind the "sophistication" excuse that Thomas Frank points out in this WSJ op-ed. Nothing could be wrong with the gambling proclivities of sophisticated, consenting bankers, regardless of the collateral damage of their actions, which they seem simply to ignore as irrelevant. Lewis's book reveals that no matter how smart investors were, nothing they could do would prevent economic disaster. Frank's op-ed (a recapitulation of some of the arguments he made in One Market Under God) points out how the supposed sophistication of players in financial markets is used as an excuse to eschew regulation.
If the public is "smart," then who needs the nanny state? Meanwhile, as the familiar expression goes, those who support regulation "think you're stupid." So: Goldman Sachs builds up the "sophistication" of its counterparties because that, apparently, is what will get Goldman itself off the hook. And the boosters for the broader market build up the "sophistication" of small investors because that will get the market generally off the hook, by summoning up an "investor class" that will carry on Wall Street's war against the regulators.(A variant on this is the idea that regulators are inevitably the people too stupid to hack it at the banks they are hired to regulate, so it all is a big waste of time.) Regulation, the banks allege, prohibits smart people from acting on their intelligence in the markets, thus wasting it. But what really happened in the past decade was that all the sophistication deployed in markets led only to making a bigger and bigger meltdown. The sophistication on various sides of trades doesn't balance out and produce optimal outcomes; it swirls and eddies and produces economic death spirals. Everyone tries to find the bigger fool, and everyone ends up getting made a fool of.
Paul Krugman argues here how regulation could have prevented what Lewis describes -- what Krugman calls "white-collar looting." And in this statement to a congressional subcommittee, Jamie Galbraith explains how the assumptions of market fundamentalism provided ideological cover for fraud.
Latter-day financial economics ... necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?
Further discussion from James Kwak of the pros and cons of the financial regulation debate taking place now in Congress can be found here.
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