Wednesday, June 30, 2010

The Phoney War

I spent my recent vacation in North Carolina actively enjoying a heat wave that produced temperatures comparable to those in the Keys, yet my dog and I were under the trees on the tops of the mountains ridges of Appalachia, enjoying shade and greenery far from the apparent cares of the world, threatened by neither oil spills or hurricane season.
The thought did cross my mind that if things go seriously, badly, wrong my wife and dog and I might end up living here, wards of my wife's sister and their down home, vegetable growing mountain lifestyle. It was not a thought that made me feel very good but that sort of doubling up among families is happening across America.

We live in interesting times and they are about to get fascinating as we witness the implosion of a way of life that most of us middle aged baby boomers have grown up in. We known nothing else, comfort, choices, certainty and a promise of continual improvement. Even the economic dip ( plunge really but let's be cheerful for a moment) of 2008 was presented to the credulous as a mere "correction" and after some debate Democrats forced through the remainder of the Republican stimulus plan and staved off catastrophe. So far so good.

What the stimulus and Tarp actually achieved was to give the bankers, those shadowy figures that fund our political leaders, our money to correct their bubble and set them up for a further round of money making as the markets they had wrecked imploded before all our eyes. They profited on the downturn because now it was easy to short the trajectory of an economy in crisis. We the people meanwhile have seen all certainty, all promise of future growth and prosperity wiped off the blackboards of our collective future. We are helpless by standers, spectators at a world cup football game watching USA get wiped out of the tournament by China.

This is a Depression now and Paul Krugman has acknowledged as much, at long last. he says government stimulus money should have been far greater to sustain job creation, instead the funds are drying up and Congress, facing elections is freaking out. That's the mainstream media line and I don't believe it.

From my perspective we the people have failed to demand reform, substantive change, in the way banks do business, such that Wall Street is hiring once again and guaranteed bonuses are part of the benefits package banks are offering. We the people have failed to demand accountability from those who have continued to benefit from the failures of the economic system, we have depended on and it has become clear to the bankers that they have carte blanche to continue to sweep up the benefits of a system in collapse as we look on.

Now the demand is for cuts in public budgets, fiscal austerity, reductions in wages and ending all stimulus to try to get people working. The private sector isn't hiring so politicians put it about that the long term unemployed are lazy and will be stimulated to seek non existent jobs by cuts in benefits. Voices in support of continued stimulus efforts are downed out by the demands of the formerly profligate politicians suddenly turned deficit hawks. "Cut the deficit!" they cry and the call is taken up by the compliant press. Naturally the cuts will come on the backs of the poor, the dispossessed, the people too stupid and morally bankrupt to have made a fortune on the backs of their neighbors during the bubble years.

For now we watch the trickle of stimulus money run out. And the summer of 2010 unwinds. I wonder if my wife and I are being smart to spend money on a road trip. It's the quiet before the storm, and perhaps it's better to take one more ride rather than sit at home and chew the fingernails wondering how the next act of the Great Depression of the 21st century will unfold. Nothing good for little people I'm sure.

Monday, June 28, 2010

Oil Spill Benefits

From Truthdig.

Saturday, June 26, 2010

Bottom Of The Heap

From the Naked Capitalism Blog:

In case you have any doubts, not only does the US rank badly on health care metrics, the US has ranked at or next to the bottom of this survey in past years. But be careful in pressing these findings too hard on unreceptive audiences; I lost a friend who insisted the US had the best care in the world when I brought the results from 2007 to her.

From the Commonwealth Fund (hat tip reader Paul S):

Despite having the most expensive health care system, the United States ranks last overall compared to six other industrialized countries—Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom—on measures of health system performance in five areas: quality, efficiency, access to care, equity and the ability to lead long, healthy, productive lives, according to a new Commonwealth Fund report. While there is room for improvement in every country, the U.S. stands out for not getting good value for its health care dollars, ranking last despite spending $7,290 per capita on health care in 2007 compared to the $3,837 spent per capita in the Netherlands, which ranked first overall…

Earlier editions of the report, produced in 2004, 2006, and 2007, showed similar results. This year’s version incorporates data from patient and physician surveys conducted in seven countries in 2007, 2008, and 2009.

Key findings include:

On measures of quality the United States ranked 6th out of 7 countries. On two of four measures of quality—effective care and patient-centered care—the U.S. ranks in the middle (4th out of 7 countries). However, the U.S. ranks last when it comes to providing safe care, and next to last on coordinated care. U.S. patients with chronic conditions are the most likely to report being given the wrong medication or the wrong dose of their medication, and experiencing delays in being notified about an abnormal test result.

On measures of efficiency, the U.S ranked last due to low marks when it comes to spending on administrative costs, use of information technology, re-hospitalization, and duplicative medical testing. Nineteen percent of U.S. adults with chronic conditions reported they visited an emergency department for a condition that could have been treated by a regular doctor, had one been available, more than three times the rate of patients in Germany or the Netherlands (6%).

On measures of access to care, people in the U.S. have the hardest time affording the health care they need—with the U.S. ranking last on every measure of cost-related access problems. For example, 54 percent of adults with chronic conditions reported problems getting a recommended test, treatment or follow-up care because of cost. In the Netherlands, which ranked first on this measure, only 7 percent of adults with chronic conditions reported this problem.

On measures of healthy lives, the U.S. does poorly, ranking last when it comes to infant mortality and deaths before age 75 that were potentially preventable with timely access to effective health care, and second to last on healthy life expectancy at age 60.

On measures of equity, the U.S. ranks last. Among adults with chronic conditions almost half (45%) with below average incomes in the U.S. reported they went without needed care in the past year because of costs, compared with just 4 percent in the Netherlands. Lower-income U.S. adults with chronic conditions were significantly more likely than those in the six other countries surveyed to report not going to the doctor when they’re sick, not filling a prescription, or not getting recommended follow-up care because of costs.

Yves here. In theory, ObamaCare will improve some of these metrics, particularly equity, but it is entirely conceivable given the effectiveness of the other health care systems in this survey that the US’s relative standing will not improve. I was extremely impressed with the caliber of the care I received when I lived in Australia, particularly given how inexpensive it was (and I was not a participant in the official health care scheme).

Monday, June 14, 2010

Batteries For All

One should never suggest that there is no good news coming from our leaders. It turns out Afghanistan is a massive repository of lithium. How cool is that? Which I suppose means that those thousand dead Americans and thousands more injured alongside the rafts of dead Afghans all died for a reason. Lithium batteries don't sound like much of a reason to me but better than the discredited Caspian oil fields, which used to be touted as the real reason for owning Afghanistan. Under that scenario vast oil and gas wealth around the Caspian Sea would be safely sent to western refiners through the captive state of Afghanistan. Instead there isn't much easily accessible useful oil in Central Asia so now a new reason to own Afghanistan, and to die in Afghanistan is needed. Miraculously, just as the oil situation in the Gulf is revealed as a terminal disaster lithium is found in huge quantities in our vassal state. So presumably if enough Americans die we will have enough battery power to make up for the loss of oil. Which is presuming too much. The Gulf is an unspeakable disaster, the Taliban are ghastly, Osama Bin Ladin is at large, the world's most wanted man can't be caught, but we now have all the lithium we will need for a while. And, it turns out, someone somewhere thinks Tiger Woods fathered a love child. Lithium or love child? I wonder which story will get the most play.

Saturday, June 12, 2010


I am going on vacation and feel fortunate that a car trip or two is in my future. Intermittent photo essays on my other blog are easier to organize ahead of time but this blog is a reaction to current events so it will be rather sparser than has been the case. Until late July probably.

Thursday, June 10, 2010

FDR's Second Bill Of Rights

As enunciated by President Roosevelt in January 1944, looking forward to the end of World War Two and a better future, the four term President had a very different vision of what constituted a good place to live:It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.

This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

As our nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.”[2] People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.

Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

For unless there is security here at home there cannot be lasting peace in the world.

Wednesday, June 9, 2010

The New Fascism

My mother was born in 1924 in Rome in the second year of the Fascist Era, a time of huge social upheaval in Italy. Benito Mussolini, whose political career had started out as a socialist had taken a turn to the right and ended up espousing a bully boy political creed that mixed up fisticuffs, sloganeering and a weird new mix of government and big business. In the US the story of the rise and fall of Adolph Hitler and Nazism gets all the play, not least because Nazism is a story of brutality and evil that takes the breath away. Fascism is a sideshow on the stage of totalitarian nastiness. We read about neo-Nazis, "new" Nazis strutting about in the backwoods of the nation and in the dim recesses of the political stage but of Fascism we hear next to nothing. Perhaps because we exhibit more of the elements of a birth of neo-Fascism in this country than any leader wants to admit. Fascism may not be awful as Nazism but it's not the sort of political theory that any purported democratic politician wants to be associated with in any form.

Mussolini's idea was to combine the power of government with the economic drive of big business and create a "corporatist" state where the individual freedom was subservient to the needs of the state and where the profits of corporations funded the state. All in the service of the state. Fascism as Mussolini's followers created it was not an ideology so much of racism but of nationalism. Jews were party members (until 1943 when the Germans took over and killed them off as fast as they could) and dissenters, after the party gained total control of the country, were sent into internal exile to meditate on their sins (Christ Stopped at Eboli is a novel about that miserable form of political punishment). When I asked my mother about growing up in the fascist state she had two main criticisms, one being that she was forced by national decree to learn how to be right-handed which made her crazy (she was fiercely protective of my left-handedness as a result) and she hated wearing black, the national school uniform of the Fascist Era. From which we can deduce that my mother wasn't very political in her teenage years and that Fascism's reach controlled all aspects of life in the corporatist state. None of which sounds much like the US today, or does it?

So the question becomes how to support increased government oversight without sounding like a corporatist Fascist. Most likely that isn't possible in the current political climate. If you read the comment's of anonymous Milton's Freeman I am a statist, an evil by product of social democracy in the West, a political theory that believes that government oversight is beneficial and controls on corporate "freedom" need to be strictly enforced to the benefit of the population at large. To me, this broad outline of a theory doesn't sound too crazy or constricting at all. To me, FDR's Second Bill of Rights (which died alongside that heroic President) sounds like a reasonable balance of freedom and obligation. For extremists any government regulation or oversight is fundamentally immoral.

But beyond my relatively mild position is the corporatist theory of government oversight, Mussolini's Fascism more or less. Benito Mussolini adopted the Roman fasces, a bundle of rods (for corporal punishment) and an axe head (for capital punishment) which was the symbol of authority of the lictors of ancient Rome.

He believed the best way to run a country was to put corporate interests in the service of the state and operate the entire nation as one total corporate entity. Individual freedom? Huh? Corporate freedom? Huh? Do as you are told was pretty much the sum total of Fascist Political Theory.

Where my path as a social democrat crosses with the Libertarian in the US is in my well founded fear of modern day fascism. I'm not talking about bald white males beating up foreigners, but the real fascism of corporatism, where corporations and government work had in glove. These days it looks to me as though the US government today isn't in the driving seat, certainly not now that government has taken our money, handed it to the corporations and burdened itself (and us) with all their debts. We are now the serfs of a corporate-fascist state. Mussolini would be stunned by the complete take over of everything of value by his theory of corporatism. And this is not anything I support, or believe in or want.

Monday, June 7, 2010

Greenies Cause Oil Spills

I read this news item at Huffington Post:

In her latest note on Facebook, Sarah Palin is blaming "extreme 'environmentalists'" for causing the gulf oil disaster that has been unfolding for over a month. Her logic is that because environmentalists push for tougher drilling regulations onshore in places like the Arctic National Wildlife Refuge (also known as ANWR) it forces oil companies to explore deeper offshore drilling which has more risks.

Palin writes:

With [environmentalists'] nonsensical efforts to lock up safer drilling areas, all you're doing is outsourcing energy development, which makes us more controlled by foreign countries, less safe, and less prosperous on a dirtier planet. Your hypocrisy is showing. You're not preventing environmental hazards; you're outsourcing them and making drilling more dangerous.

Extreme deep water drilling is not the preferred choice to meet our country's energy needs, but your protests and lawsuits and lies about onshore and shallow water drilling have locked up safer areas. It's catching up with you. The tragic, unprecedented deep water Gulf oil spill proves it.

This is one of several comments about the oil spill Palin has made that has caused a stir, including a tweet in which she said we said we shouldn't trust BP because it is a foreign oil company. Palin's husband Todd worked for BP for 18 years.

I refer to Huffington Post for my mainstream news to try to keep vaguely abreast of the things my neighbors are discussing and when I read stuff like that reproduced above I find my head spinning. Why does Huffington Post carry such a news item? I think it's likely that because Huffington Post is partisan it reports this sort of nonsense as a way to show how nonsense is a political opponent's stock-in-trade. What bothers me is that Sarah Palin is treated as a serious political candidate and she has people who think the political sun shines out of her backside. If Palin says environmentalists are to blame for the Gulf Oil disaster- they believe it!

In these United States today a celebrity (define that stupidity as you will) can stand up and spout utter nonsense and it passes for news. It is reported, it is discussed it is weighed and put into the balance of fair and balanced reporting. And if anyone of any weight were to stand up and laugh at Sarah Palin for being a total dumb ass they would get routed as being partisan and not serious.

This country faces a series of extremely complex decisions that will need to be taken in the near future, problems of finance and economics, warfare, environmentalism, technological complexity and not least potential collapse. It is clear that president Obama cannot cope and he is struggling but then one asks oneself what the hell would happen were Sarah Palin in the driver's seat? Now I don't believe for one second that she stands a chance of getting elected in 2012 or ever, she is a loose cannon and the people who elect our Presidents for us don't like loose cannons. The Republican Party has been sucking lemons at Palin's feet for far too long and they don't want her in charge.

Yet she can stand up in public with her record of supporting drilling anywhere and everywhere and when the plan goes horribly wrong she can turn around and blame her political opponents and not one loud voice is raised to tell her she's full of shit? What is going to happen as things get worse (and they will. Patently we are not changing course, ergo things are bound to continue to deteriorate)? Who is going to tell people, our neighbors, the truth when gas prices rise, food choices shrink and jobs never come back? What are these neighbors going to do when they turn to Palin and she has no answers but to apportion blame?

This ability to say crap and be heard is what drove me out of journalism years ago. I interviewed people who were full of crap and I had to include their statements for "balance." To avoid this sort of complexity we turned to simple stories, neighborhood crime, car wrecks and so forth. I quit. Now I live in a country where spouting crap is a tactic that goes unanswered, because if you do call them on their crap their followers don't care. Don't confuse people with facts because they like to believe what they feel. I feel President Obama is doing his best but I know he isn't doing crap in the grand scheme of things. So what do I do? Do I continue to support the president because I believe him, or do I face the fact that he is in the pockets of people and corporations who wish us no good at all?

My favorite quotation at the moment is John Adams' statement when he was summing up his most famous defense in court: "Facts are stubborn things." Too bad by the time they reveal themselves, the national attention span has moved on to some other fad.

Sunday, June 6, 2010

Unsustainable Growth

The surface oil from the gulf oil eruption is closing in on the Dry Tortugas as I write, the group of islands 70 miles west of key west, home to coral, fish and turtle replenishment projects. The isolated islands have been designated a National Park to allow fish stocks to breed in peace and corals grow there away from the stresses of modern human intervention. It is becoming more common to take corals and fish bred in the Tortugas and use them to restock the main reef in the Keys in an attempt to restore some of the ecosystem lost to development in these islands. Now the oil is reaching these truly pristine islands with likely consequences we have already seen along the Gulf Coast.

Here's the thing: this fiasco is a direct result of our need for oil. So the question is, do we stop looking for oil or do we press on regardless? The desired outcome is the total cessation of offshore oil drilling, yet this "desired" outcome would raise howls of protest were a ban implemented. If we are to continue burning oil we need to drill for it and the only place left to look is offshore. And drilling is proposed in deeper and deeper waters. The current US ban is temporary and a diversion.

Oil companies aren't drilling under the ocean in some perverse way just to prove they can. The offshore search for oil is expanding because that is where the oil is, and there's no point in wishing we had more oil in easy locations. Oil companies drill in the ocean because they have to and if they could avoid the expense and complexity they would. Peak Oil Theory has predicted this outcome for some time, even though smart people have expressed nothing but contempt for the theory that cheap, easily accessible oil is going to dry up about now. Peak Oil doesn't mean there is no oil left, it just means that the cheap easily extracted light sweet crude is drying up. From here on out we have to run our lives on heavy dark, expensive to refine crude dredged up from deep under the ocean at enormous risk.

The line from the smart people has been that we have to have growth to sustain our economy. What we are seeing here, if we allow ourselves to see, is the limitations of growth. The Deepwater Horizon disaster has illuminated for all of us the true cost of unlimited cheap energy growth. Even though the supply of cheap oil that got us here has started to dry up, we continue to expect to enjoy the benefits of the cheap oil that we have already consumed. That oil isn't coming back and now we have to pay to extract expensive oil. If our energy is more expensive we have to cut back spending elsewhere to get our hands on it.

So the question then becomes: is it worth it? Is endless growth worth it? Is there an alternative? I don't have an easy answer, I'd like to think that there is a better future for us after we get over the need for abundant cheap energy to sustain an alienating lifestyle, but I haven't really got a clue. I hope for the best, certainly, but I have no certainty we can find our way there. I suppose modern Americans could be induced to live happy pastoral lives, largely electron free and filled with abundant free time and neighborhood socializing. How to get there with nearly 7 billion people cluttering the planet and demanding to be fed and housed and air conditioned, I just don't know. I do know that endless growth is not sustainable and whatever comes next most likely will come whether we like it or not.

Saturday, June 5, 2010

Whither Employment

It has never sat well with me but there is a school of thought that having 5% of the population unemployed is "about right." The thinking goes that having a certain number of people out of work keeps all wheels properly lubricated in the economy and turning smoothly. Which of course depends on whether you are one of the ones with a decent job. The fear among the employers is that if there really were full employment wages would have to go up to improve one's chances of hiring capable workers. Full employment also leads to arrogance and bad work habits on the part of the workers.

On the other hand those of us used to working to earn a living know full well that periods of high unemployment make the bosses particularly unpleasant and hard to live with (and work for). Arrogance is an all too human trait and it pops up on all sides of the employment divide. Causes of unemployment are always debated and no one seems to reach a conclusion as to why exactly a proportion of the population is always out of work. Some economists blame excessive government regulatory burdens, others argue an over supply of product reduces the need for workers and so it goes. Politically speaking unemployment is the touch of death for a politician in office. Not having a job cuts through all political rhetoric and blather and focuses the mind of a voter, and one hopes the unemployed voter will stay engaged enough to go to the polls. These would be the people labeled "lazy" who don't have work in the worst economy in a hundred years.

I have always been amazed by the ability of Americans to drop everything and move and pick up work elsewhere. The unemployed show anything but laziness in their pursuit of employment, but when I go back to Italy people are in the same places doing the same things and raising the children in the same spot. Go back thirty years after my death and unless the world as we know it has collapsed completely their descendent's will still be there, no doubt. In the US perhaps we will need to get used to the same way of life on this vast continent. Especially because I see unemployment as a tool of social oppression just as I see budgetary discipline as a way to destroy social safety nets. The drive has always been to take away scoial security to make workers more malleable and now that our economic leaders have wrecked the world's economy the chaos is just another way to pile the pressure on the working, or the unemployed class. The message loud and clear is to not lose your job, be a good worker and if you are lucky you won't join the ranks of the hopelessly unemployed. Social mobility works both ways, up and down and it's best not to forget it.

Thursday, June 3, 2010

Unions And Unemployment

I have predicted attacks on unionized workers as the next round in wrecking social cohesion in the United States, and to my great pleasure I found Yves Smith at Naked Capitalism headed in the same direction. In her essay of June 1st, Smith notes that unemployment numbers are huge and Democrats stand to lose power thanks in large part to their lackadaisical inability to simply be seen to be trying to do something, anything about this national scourge. I have been a member of the Teamsters for years and have never understood why the benefits of membership, even in a restricted state like Florida are not well understood.

Eugene Debs led the Pullman Strike of 1893

Here is an excerpt from Naked Capitalism considering the value of unionized labor.

The fact that Washington is wildly out of touch with America becomes more apparent with every passing day. Pat Caddell (pollster to Carter, who has since left the Democrats) has told me that he has never seen anything like the gap in responses on various issues between the population and the governing apparatus in the capital.

So what explains this bizarre, self-destructive posture? One simple explanation is that the neoclassical economics orthodoxy has become so hopelessly entrenched despite its manifest failure (witness the crisis) that few can see how deeply captured they are by its ideology. A key tenet is the demonization of organized labor, combined with a refusal to recognize that many forms of commercial activity tend to lead naturally to agglomeration of power. Thus unions serve as a useful counterweight to concentrations of corporate power.

Before I hear reader howls, it is important to recognize that anti-union sentiments have been marketed aggressively since the early 1980s. I grew up with a father who ran major manufacturing operations, dealt with multiple unions throughout his career, and was horribly right wing. I never once heard him say anything bad about unions. Similarly, I graduated from Harvard Business School in 1981. I cannot recall a single person at the school, either faculty or students, criticizing unions. And this was after a near-decade of stagflation, with Japanese and German manufacturers on the rise. Germany, then as now, had strong unions; Japan did not, but was famous for having enlightened policies towards workers. In other words, treating workers decently was not seen as contradictory to economic might.

It is perverse that unions for middle and lower income workers are demonized, but unions for the educated, like the legal, accounting, and medical professions, get nary a second thought. And how about CEOs? While not a formal union, there are mechanisms that help keep pay aloft (most important, comp consultants who are hired by the CEO human resources department who manage to persuade boards to set the standard for their CEOs pay in the top 50% of his peer group or higher. That assures constant leapfrogging of pay). Why is collusion among workers to achieve higher pay levels savaged, but far more egregious featherbedding by top executives and boards given a free pass?

But most of America appears to have deeply internalized the belief that labor lacks, and perhaps more important, ought not to have any bargaining power. This is a wonderful state of affairs for the managerial elite and investors. Having labor share in productivity gains was no impediment to growth; indeed, the record from the end of World War II through the mid-1970s versus the last two decades would suggest the reverse.

And the argument that US labor cannot compete with China et al is overblown. In most cases of outsourcing and offshoring, the results are disappointing (a dirty secret you will find if you burrow into the literature; for instance, IT, a popular candidate, has a particularly poor record). But it also serves to reduce lower-level labor costs and INCREASE managerial costs (greater coordination required). From the Wall Street Journal on IT outsourcing:

Dean Davidson, an analyst who follows outsourcing for Meta Group, in Stamford, Conn., says that companies usually find their actual cost savings from moving offshore are less than they would expect based on straight wage comparisons. “The reality is a general savings of 15%-20% during the first year,” Mr. Davidson says. That’s far less than the 50% to 80% savings based on hourly labor rates, he says.

Recall this is software: no shipping or inventory financing costs. The gap between the raw labor costs and the net savings is an increase in compensation to managers (which could be either via larger bonuses or an increase in headcount).

I’ve had corporate staff of manufacturing companies (not in the production part of the business, hence no dog in the fight) maintain, having seen the internal plans, that the case for offshoring and outsourcing were not compelling, and could easily be depicted as not worth the risk given transit times and greater business system rigidity. But their corporations went ahead anyhow because Wall Street looked favorably upon outsourcing. Yes, some jobs and activities probably would have been lost regardless, but far more was ceded than had to be.

A second reason for complacency about unemployment is just as deeply rooted. There is little confidence in conventional policy remedies. Neoclassical economics posits equilibrium, so near collapses of the world as we know it are not supposed to happen. The Austrian and Keynesian schools believe in disequilibria and have prescriptions. However, the risk of the social breakdown with the Austrian prescription is correctly seen as high (one of the reasons Roosevelt had a block of support among major corporations was they recognized the country really could fall apart, and they saw aggressive intervention as less dangerous than violence and an increasingly popular Communist movement).

The Keynesians have become discredited due to the perception in some circles that the government has been too quick trigger with stimulus, which has led to an aversion to using it in a deep downturn, when it is a useful tool (an analysis in chapter 8 of ECONNED indicates that fiscal stimulus was too aggressive in the 1990s).

But the real problem may be that all these approaches are past their sell-by dates, helpful around the margin but insufficient to provide lasting relief to our current malaise. We may be at the end of a paradigm. The US and its trade partners have engaged in a 30 year experiment of deregulation, financial liberalization, more open trade, and deep integration of markets. But most other countries had clear objectives: they wanted to protect their labor markets, which usually entailed running a trade surplus (or at least not a deficit). Many of them also had clear industrial policies. By contrast, the US pretended it was adhering to a “free markets” dogma so that whatever resulted from this experiment was virtuous. But in fact, we have had stagnant real worker wages, with a rising standard of living coming from rising household borrowings and to a much lesser degree, falling technology prices. We have also had industrial policy by default. Certain favored groups, such as Big Pharma and the sugar lobby, get special breaks.

And who has been the biggest beneficiary of our stealth industrial policy? The financial services industry. How many Treasury Secretaries have lobbied for more open financial markets with major trade partners? Has any other industry seen as extensive a reduction in regulations? And we’ve had first the Greenspan, now the Bernanke put, with the financial services well aware that the Fed will run to the rescue of the markets (ie the banksters) should any serious trouble arise, but the resulting low rates work to the detriment of savers, and push all investors to take undue risks to compensate for artificially low yields.

So the inaction over unemployment is yet another symptom of deep seated rot in the body politic. But recognizing the true nature of the problem is the first step to finding remedies.

Yves Smith.

Wednesday, June 2, 2010

David Versus Goliath

Addison Wiggin & Ian Mathias at Agora Financial 5 min forecast
( )

This short news item I liked not least because it is an example that deserves to be emulated, not least by us in the US .

Italian municipalities are taking banks to court, instead of facing $1.4 billion in losses on bad derivatives deals, Bloomberg reports. Just like… well… everywhere else in the world, banks snookered Italian municipalities into complicated interest rate swaps over the last 10 years. And just like everywhere else, the bankers (who understood what they were selling) made money while towns and cities (who did not do their homework) are getting pinched.

So Italy has chosen the “sue the bastards” route. It is currently in court with UBS, Deutsche Bank, JP Morgan and Depfa. The Italians have a formal investigation into Bank of America deals too.

What an interesting lineup of banks, no?:

Deutsche -- Biggest bank in Germany, second largest in eurozone
UBS -- Biggest bank in Switzerland
JP Morgan -- Healthiest mega bank in the U.S.
Bank of America -- Biggest bank in the U.S.
Depfa -- Nationalized by Germany last year

Heh… Italians take on the world! Buona fortuna, boys, you’re going to need it.

The Mindset Of Empire

It is said the five big banks, the ones too big to fail have employed an army of 2,000 lobbyists to bring down bank reform working it's way through the Senate. If ever there was a reason to argue in favor of public financing of elections this one piece of news should be it, but we are apparently used to the idea of bribery and corruption on Capitol Hill in the United States, so the chances of bank reforms actually being enacted are remote.

It happened that in 1999 under the direction of President Clinton the Depression era separation of commercial banking and investment banking was torn down. It was an act named for the two sponsoring members of Congress and Glass-Steagall is credited with keeping banks solvent and sensible throughout the 20th century. The limitations on banking made for a very peculiar system for a visitor such as myself in the early 1980's when commercial banks were strictly regulated. I found a patchwork quilt of small town banks as I crossed the USA. Savings and Loans were trying to attract customers with bizarre gimmicks, offering toasters to new account holders and my visits to banks to cash traveler's cheques were more like stops in local bazaars than any banks I'd ever seen. Furthermore banking was regulated by states and in some places, notably Texas, the number of branches was limited by state law, and other such restrictions prevailed. I thought it was all terribly old fashioned, though time proved me wrong.
Senator Carter Glass (D-Va) and Representative Henry Steagall (D-Ala), whose names are attached to the 1933 Banking Act which was all of 34 pages long.

The repeal of Glass-Steagall took time but Reaganomics and the drive to limit the power of government was a steam roller that crushed opposition from it's inception in 1981 right up to the present day. The idea was to starve government of money and thus force the destruction of social welfare programs that gave working people a modicum of security. These programs were hard to destroy during the Cold War when the nation's enemy was a socialised state that offered no freedom but total security. In the United States the promise was freedom with security, a promise that imploded with the self destruction of the Soviet Union. From 1989 on the gloves were off and freedom meant no social security at all. Ever since then there has been constant sniping seeking the "privatization" of Social Security and a refusal to support universal health care and promotion of no government oversight and absolute freedom for greed.

So pervasive was this theory of modern living that Democrats created a centrist approach to governance led by a group called the DLC, Democratic Leadership Council whose slogan is "modernizing the progressive tradition." Their idea was to hijack Republican slogans and make them Democratic. Thus Bill Clinton exploited the rift on the right between the Republican and the Independent White House candidates and got himself elected. He it was who repealed Glass-Steagall and opened the path to the destruction of the national economy in 2008. By allowing commercial banks to become investment bankers, lawmakers opened the doors to allowing bankers to play fast and loose with ordinary people's money. It did not go well as we have seen.

The great irony of the repeal of Glass-Steagall was the demand by investment bankers at the height of the 2008 crisis to be allowed to register as commercial banks in order to benefit from government hand outs. And further to that, now the bailouts have consumed trillions of public dollars the five big banks take no responsibility for the whole fiasco that brought this country, and the world's economy to it's knees. Now that Congress is contemplating bringing back a form of Glass-Steagall (known as the Volcker Rule after President Obama's sidelined economic adviser and much respected former head of the Federal Reserve) the banks are demanding any such restrictions be dropped. And it appears they will be. The crisis of 2008 is not over by a long chalk.

Interestingly enough economic observers have been debating why it is exactly that President Obama and many members of Congress don't want a return of Glass-Steagall and the theories run the gamut of conspiracies. Naturally one is inclined to assume that money talks and bankers have bought our leaders (which they have) yet there is another theory about the non-return of Glass-Steagall that I find much more interesting. For those theorists, the idea of restricting the scope of banks and bankers is a step away from the Imperial ambitions of the United States. You cannot have a world power, they argue without world banks, and to restrict banks in the modern world is to limit the power and reach of the American Empire, the unacknowledged empire that includes money and trade alongside military bases and wars. It is onconceivable for these thinkers that Glass-Steagall could come back and the donations from the banks are just incidental to this world view. I think they are wrong but there it is.

I find myself taking the protectionist line once again, the minimalist line of simplicity, anti-growth and inward looking nationalism. I suppose I shouldn't be surprised in light of the mess that unbridled empire building has caused, but I am growing more and more opposed to any expression of unregulated growth and expansion. I miss Glass-Steagall and I resent the lack of any restraints on banks or punishment for greedy bankers. They got us here, they should pay, through the nose, to get us out.