Monday, January 05, 2009

Annus horribilis... and you are pretty cute yourself

"My bucket's got a hole in it, and I can't buy no beer"
Hank Williams
David Seaton's News Links
I am getting the feeling that we are entering the most fascinating period since the Second World War, and we are entering it without a road map... if there ever was a road map. Part of me is excited by the idea of finally seeing some meaningful political thought and action and the rest of me is just plain scared.

Nobody seems to know what's going on or when the waves of the tsunami are going to sweep over us. We know how the crisis reads, but we have yet to really see how it plays.

Max Hastings writes in The Guardian:
What seems most striking about the credit crunch is that it reduces most people to silence, because they find its implications and possible solutions beyond their comprehension. It is rendered especially baffling because, metaphorically speaking, no bombs are falling. Shoppers still pack suburban malls, cars crowd motorways, passengers throng airports, the lights stay on. Thus far, for all except some hundreds of thousands who have already lost their jobs, only statistics reveal the bad news. The implications have yet to work through into real life. There seems an overwhelming public mood of fatalism. Anger must follow, sooner or later, and even perhaps social unrest. But this will come only when the consequences literally reach home. Meanwhile, number blindness has overtaken most of us. Max Hastings - Guardian
The huge stimulus plans look just like inflating another bubble to me... it was easy credit and low interest rates that created the mess in the first place

I find myself agreeing with some of the super-orthodox economists that think that all this will lead to hyperinflation and with it Wiemar-like destruction of the middle class which leaves a debt that future generations will curse all their lives or simply refuse to pay... And either choice will have catastrophic consequences.

I'd like to present a little collage of excerpts from articles that for me, alone and together, go some way in summing up the economic situation and the zeitgeist today.

First a well observed, artistic even, "slice of life", from Peggy Noonan:
At a certain point in the '00s, I began to notice, on the east side of Manhattan, that the 3-week-old infants, out for the first time in their sleek black Mercedes-like strollers, were amazingly, almost alarmingly, perfect. Perfect round heads, huge perfect eyes, none of the dents, bruises and imperfections that are normal and that tend to accompany birth. I would ask friends: Why are babies perfect now, how did that happen? The answers were the usual: a healthy, well-fed populace, etc. Then a friend said: "These are the children of the scheduled C-sections of the affluent. They are scooped out, perfect." They were little superbabies whose handsome, investment banking, asset-bundling, financial-instrument-creating parents commanded even Nature. Peggy Noonan- Wall Street Journal
Let's move farther into this with a quote from an article by Noam Chomsky on the election that, as always, should be read by anyone not satisfied with the pablum handed out by mainstream analysts. Here Chomsky talks about the recession-cum-depression and the president-elect's economic "new" team:
The power of financial institutions reflects the increasing shift of the economy from production to finance since the liberalization of finance in the 1970s, a root cause of the current economic malaise: the financial crisis, recession in the real economy, and the miserable performance of the economy for the large majority, whose real wages stagnated for 30 years, while benefits declined. The steward of this impressive record, Alan Greenspan, attributed his success to "growing worker insecurity," which led to "atypical restraint on compensation increases" - and corresponding increases into the pockets of those who matter. His failure even to perceive the dramatic housing bubble, following the collapse of the earlier tech bubble that he oversaw, was the immediate cause of the current financial crisis, as he ruefully conceded.(...) Obama's transition team is headed by John Podesta, Clinton's chief of staff. The leading figures in his economic team are Robert Rubin and Lawrence Summers, both enthusiasts for the deregulation that was a major factor in the current financial crisis. As Treasury Secretary, Rubin worked hard to abolish the Glass-Steagall act, which had separated commercial banks from financial institutions that incur high risks. Economist Tim Canova comments that Rubin had "a personal interest in the demise of Glass-Steagall." Soon after leaving his position as Treasury Secretary, he became "chair of Citigroup, a financial-services conglomerate that was facing the possibility of having to sell off its insurance underwriting subsidiary... the Clinton administration never brought charges against him for his obvious violations of the Ethics in Government Act." Rubin was replaced as Treasury Secretary by Summers, who presided over legislation barring federal regulation of derivatives, the "weapons of mass destruction" (Warren Buffett) that helped plunge financial markets to disaster. He ranks as "one of the main villains in the current economic crisis," according to Dean Baker, one of the few economists to have warned accurately of the impending crisis. Placing financial policy in the hands of Rubin and Summers is "a bit like turning to Osama Bin Laden for aid in the war on terrorism," Baker adds. The business press reviewed the records of Obama's Transition Economic Advisory Board, which met on November 7 to determine how to deal with the financial crisis. In Bloomberg News, Jonathan Weil concluded that "Many of them should be getting subpoenas as material witnesses right about now, not places in Obama's inner circle." About half "have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin, or both." Is it really plausible that "they won't mistake the nation's needs for their own corporate interests?" He also pointed out that chief of staff Emanuel "was a director at Freddie Mac in 2000 and 2001 while it was committing accounting fraud." Noam Chomsky
And back in 2005, James Fallows wrote an astoundingly prophetic piece called Countdown to a Meltdown that makes Nouriel Roubini sound like Little Mary Sunshine:
Half this country's households live on less than $50,000 a year. That sounds like a significant improvement from the $44,000 household median in 2003. But a year in private college now costs $83,000, a day in a hospital $1,350, a year in a nursing home $150,000—and a gallon of gasoline $9. Thus we start off knowing that for half our people there is no chance—none—of getting ahead of the game. And really, it's more like 80 percent of the public that is priced out of a chance for future opportunity. We have made a perfect circle—perfect in closing off options. There are fewer attractive jobs to be had, even though the ones at the top, for financiers or specialty doctors, are very attractive indeed. And those who don't start out with advantages in getting those jobs have less and less chance of moving up to them. Jobs in the middle of the skill-and-income distribution have steadily vanished if any aspect of them can be done more efficiently in China, India, or Vietnam. The K-12 schools, the universities, the ambitious research projects that could help the next generation qualify for better jobs, have weakened or dried up.39 A dynamic economy is always losing jobs. The problem with ours is that we're no longer any good at creating new ones. America is a less attractive place for new business because it's a less attractive place, period.40 In the past decade we've seen the telephone companies disappear. Programming, data, entertainment, conversation—they all go over the Internet now. Pharmaceuticals are no longer mass-produced but, rather, tailored to each patient's genetic makeup. The big airlines are all gone now, and much of publishing, too. The new industries are the ones we want. When their founders are deciding where to locate, though, they'll see us as a country with a big market—and with an undereducated work force, a rundown infrastructure, and a shaky currency. They'll see England as it lost its empire. They'll see Russia without the oil reserves, Brezhnev's Soviet Union without the repression. James Fallows: Countdown to a Meltdown - Atlantic
What Chomsky and Fallows are talking about has more the look of a systemic crisis and not just a recession. Some, like Niall Ferguson, think that the United States is better positioned than other countries to weather the storm... this is how he imagines Obama's New Years message in 2010:
The "unipolar moment" was over, no question. But power is a relative concept, as the president pointed out in his last press conference of the year: "They warned us that America was doomed to decline. And we certainly all got poorer this year. But they forgot that if everyone else declined even further, then America would still be out in front. After all, in the land of the blind, the one-eyed man is king." And, with a wink, President Barack Obama wished the world a happy new year. Niall Ferguson
I think Ferguson is whistling past the graveyard myself. I don't think that any country in world history is less prepared than the citizens of the United States of America: ideologically, culturally or morally for a serious failure of the capitalist system, less prepared for a failure which destroys social mobility and leaves a pauperized ex-middle class to carry wood and draw water for the super-rich that will float above the disaster, ... having the American dream chewed up and spat in their faces will finally mean blood. Of that I have no doubt.

Some observers predict that the global economic crisis will lead to "unrest" in Russia and China and this unrest will lead to greater "democracy" and "liberalization"...

They say this while the USA is effectively nationalizing banks and the auto industry and none of these observers seem to take into account that there might still be a "Communist" wing of the Chinese Communist Party or remember, in case the "villain" Putin falters, that Russia's largest opposition party is the Communist Party. I think the Chinese Communist Party could shift gears without missing a beat. Many if not most Russians already seem quite nostalgic for the good old days.

"Really-existing socialism", as it was called was dull, repressive and gray, but it guaranteed employment, housing and education to the entire population: nobody slept in the street or lacked medical care... "They pretend to pay us and we pretend to work" was how Iron-Curtain wags described the system. With double digit unemployment that might start to look like a pretty good deal again... and not just in Russia and China.

The greatest challenge in foreseeable future may be to keep the need for social justice of some sort compatible with an acceptable degree of freedom of speech and association.

In this line I'd close these reflections with this quote from my favorite historian Eric Hobsbawm:
"None of the major problems facing humanity in the 21st century can be solved by the principles that still dominate the developed countries of the west: unlimited economic growth and technical progress, the ideal of individual autonomy, freedom of choice, electoral democracy. As is evident in the case of the environmental crisis, facing these problems will require in practice regulation by institutions, in theory a revision of both the current political rhetoric and even the more reputable intellectual constructions of liberalism. The question is can this be done within the framework of the rationalist, secularist and civilised tradition of the Enlightenment. As for left vs right, it will plainly remain central in an era which is increasing the gap between haves and have-nots. However, today the danger is that this struggle is being subsumed in the irrationalist mobilisations of ethnic or religious or other group identity." Eric Hobsbawm, historian - Prospect Magazine - March, 2007
Hobsbawm is very old, when he dies I don't know how I'll go on... I survived Edward Said's passing with difficulty, but Hobsbawm? May Noam Chomsky live a hundred years. DS

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