Month: July 2010

We’ve spent decades sanctifying expedients as if they were worthy substitutes for restraint, discipline, justice or common sense.

The debt of G. W. Bush and dishonest Republicans:

2008 $ 10,024,724,896,912.49
2007 $ 9,007,653,372,262.48
2006 $ 8,506,973,899,215.23
2005 $ 7,932,709,661,723.50
2004 $ 7,379,052,696,330.32
2003 $ 6,783,231,062,743.62
2002 $ 6,228,235,965,597.16
2001 $ 5,807,463,412,200.06
2000 $ 5,674,178,209,886.86

Government spending has accounted for about 20% of US GDP. More spending may boost the economy in the short term. Reducing debt is important in the medium term. But fiscal and monetary policy are not universally potent tools, and politically motivated austerity could be an abject failure.

70% of our economy is consumption and 30% is debt and finance. In the aftermath of crisis there’s revulsion to both, but the result might be permanent sluggishness and unemployment. How do we shift from one kind of economy to another?

Steve Ludlum:

Work is the activity that generates the return from capital.

Without work the value of capital by itself is zero.

This is the real hazard of the current world-wide rise in unemployment.

Workers are getting poorer and cannot afford high prices.

The productive work of each wage earner is worth less than the oil each worker requires to do the work.

The only way out of the ongoing economic/energy crisis is for nations to revalue labor upward – by increasing worker productive capacity, skill and capability – and by going off oil as they went off gold 70+ years ago.

The only alternative is to find four or so extra Saudi Arabias.

The structural problem began in the late 1970s when a wave of new technologies reduced the costs of outsourcing jobs abroad. Technologies took over many (remember bank tellers? telephone operators? service station attendants?).

Meanwhile, as the pay of most workers flattened or dropped, the pay of well-connected graduates of prestigious colleges and MBA programs—the so-called ‘talent’ who reached the pinnacles of power in executive suites and on Wall Street—soared.

Companies slashed jobs and wages, cut benefits, shift risks to employees, bust unions, and flee offshore. Regulation shriveled.

The puzzle is why so little was done to counteract these forces.

Robert Reich:

With increasing fervor over three decades, government deregulated and privatized.

It increased the cost of education and cut public transportation. It shredded safety nets. It halved the top tax rates, boosted sales and payroll taxes, taking a bigger chunk out of the middle class and the poor than of the well-off.

It’s not that our wobbly economy was healthy and suddenly crashed.
We’ve been going nowhere and suddenly crashed. Flat line & chaos.

The easy-peasy-it-hasn’t-been-this-bad-since-the-roaring-twenties question is “Who’s really diluting our prize?” Since wealth is what counts, we can say it’s the 10% that own the United States of America.

The top 10% have about 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. The top one percent have about 40% of all privately held stock, 60% of financial securities, and 62% of business equity.

15 Mind-Blowing Facts About Wealth And Inequality In America.

Pure interests – expressed through lobbying power – were undoubtedly important to several key deregulation measures in the US, whose political system and campaign-finance rules are peculiarly conducive to the power of specific lobbies.

Adair Turner, Chairman of the UK’s Financial Services Authority:

But the belief system of regulators and policymakers … tended to exclude the possibility that rational profit-seeking by professional market participants might generate rent-seeking behavior and financial instability rather than social benefit – even though several economists had clearly shown why that could happen.

Policymakers’ conventional wisdom reflected, therefore, a belief that only interventions aimed at identifying and correcting the very specific imperfections blocking attainment of the nirvana of market equilibrium were legitimate.

…[I]t was beyond the ideology to recognize that information imperfections might be so deep as to be unfixable, and that some forms of trading activity, however transparent, might be socially useless. …

Here, I suspect, is where the greatest challenge for the future lies.

Toolpusher control console at BP Macondo. Installing the new 80-ton valve stack. Free pizza. Panic button.

Deepwater Horizon was a top performing rig. In a wake of scorn, if you can’t drill in the Gulf, where will you drill?

Again and again it’s easy to see the lazy but loud ideology of Reagan Republicans that built this crash. As the NYFed points out too late, “The shadow banking system contributed significantly to asset bubbles in residential and commercial real estate markets prior to the financial crisis.”

Unfettered markets gain heat that too easily burns us. Tax cuts for the wealthy, pork barrel to favorites, and concession to factions are the voodoo that brought us a zombie economy. Much more disturbing, crisis is Republican politics.

“Prosperity comes from everybody working for everybody else.”

Matt Ridley:

Throughout history, the engine of human progress has been the meeting and mating of ideas to make new ideas. It’s not important how clever individuals are.

If we pull back and take a long-horizon perspective, the free exchange between people of goods, services and especially ideas leads to trust between strangers and prosperity for more people.

Think of it as ideas having sex.

Exchange is to cultural evolution as sex is to biological evolution.

Matt Ridley’s TED presentation: When ideas have sex

Matt Ridley’s mating of ideas at Scientific American.

What’s free market laissez-faire left us?
Six people looking for work for every job opening.

Our corps of leaders struggle with intense challenges, yet argue abstract and impotent issues as if to hide under political sophistry. When not pilfering, today’s leaders seem sloppy and generally very very poor-witted.

Of every dollar of real income growth between 1976 and 2007,
58 cents went to the top 1 per cent. – Fault Lines, University of Chicago

Mark Thoma asserts: “I have argued for a long time that one sign that we are finally in a self-sustaining recovery will be private money coming off the sidelines and taking risks without government inducements to do so.

“So far, we aren’t seeing that to any significant degree. The president can talk all he wants about how confident we should be in the economy (perhaps at risk to his own credibility since it’s obvious we still have problems to solve), but confidence won’t build until the private sector takes the lead.

“The mistake has been that the government has not done enough to prime the economic pump so that the private sector can then take over on its own, not that it has done too much.”

Social contracts are breaking down in the US and Europe:

I think of it as the end of ‘The Deal’. What was that deal? It was the post-second-world-war settlement: in the US, the deal centered on full employment and high individual consumption. In Europe, it centered on state-provided welfare.

“Well we can no longer afford that.” But that’s simplistic and misleading. We DID afford it.

What led to the change in the deal was the staflationary 1970, which was driven both by a commodity prices (most notably the oil crisis) and labor bargaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, stasis became self-reinforcing).

So the new program was to reduce workers’ bargaining power, both by combating unions, and by tolerating un- and under-employment. Rising worker wages that had been seen as crucial to greater prosperity was quietly abandoned as a policy goal. But this has profound implications.

As rising income inequality demonstrates, the benefits of growth accrued substantially to those at the very top. Absent a few wastrels, people with that level of income are not going to spend as much of their income on consumption as those less well off. Thus (in very crude terms) Keynes’ problem of the paradox of thrift, that the understandable desire of households to save can result in insufficient demand, becomes even more acute when it is pretty much only the rich who are getting richer.

We too often believe our crashed economy was ‘sparked by unbridled binging on cheap money by a very large part of the American population’.

No, everybody was not doing it. Only enough people more than a few, and from there the whole thing was whipped up by the media and encouraged by the credit industry and Greenspan himself. Otherwise most people wouldn’t even know you can do such a thing, never mind get the idea of doing it themselves.

Charlie Petit:

What’s lacking is the obvious.

Which is that if BP and the oil industry and the Minerals Management Service has been acting like grownups for the last 20 years or so, there would have been developed a blow out preventer with a fitting for a backup on top, without customized on-the-fly engineering, that could be added to finish the job.

Think about it. All a B.O.P. does is to act like a faucet.

That means there is no reason to think good engineering would not have found more than one way to replace the tap should it go bad. Or entirely different strings of valves, some at depth, to turn off a runaway well. The deep kill drill mud method may be the one that shuts it off forever and forget it.

This good news is, in reality, the scandal. It underscores the laxity of imagination and penny pinching that got BP and the gulf coast into this mess in the first place.

That’s the story: it is not fundamentally difficult to turn off an oil well. One has only to invest time and money up front in the way to do it.

There is much talk about failure of the press to get the ultimate reason for the disaster right, our “addiction” to oil and other energy that is cheap to produce. That’s a fine, philosophical position. But just as important is to report why the technology failed and whether it had to be that way.

I’d say the press and gov’t regulators alike must demand immediate development of smart, 21st century hardware that gives oil drillers a whole set of proven, robust hardware for rebuilding the top of an oil well, complete with shut-off systems and backup shut-off systems, to start deploying the day a major leak begins.

These guys practically started from scratch. If they came up with this in a few months of near-panic conditions, think what could have been done over the last few decades had there been proper leadership and oversight.