Book - The Law (Frederic Bastiat)
Movie - Rebel without a cause
Music - Plain White Ts - Big Bad World
Article - Paul Krugmans' monday NYT column
Blog - Andrew Sullivans' blog at The Atlantic
Monday, October 27, 2008
The Widening Gyre
The Widening Gyre
Economic data rarely inspire poetic thoughts. But as I was contemplating the latest set of numbers, I realized that I had William Butler Yeats running through my head: “Turning and turning in the widening gyre / The falcon cannot hear the falconer; / Things fall apart; the center cannot hold.”
The widening gyre, in this case, would be the feedback loops (so much for poetry) causing the financial crisis to spin ever further out of control. The hapless falconer would, I guess, be Henry Paulson, the Treasury secretary.
And the gyre continues to widen in new and scary ways. Even as Mr. Paulson and his counterparts in other countries moved to rescue the banks, fresh disasters mounted on other fronts.
Some of these disasters were more or less anticipated. Economists have wondered for some time why hedge funds weren’t suffering more amid the financial carnage. They need wonder no longer: investors are pulling their money out of these funds, forcing fund managers to raise cash with fire sales of stocks and other assets.
The really shocking thing, however, is the way the crisis is spreading to emerging markets — countries like Russia, Korea and Brazil.
These countries were at the core of the last global financial crisis, in the late 1990s (which seemed like a big deal at the time, but was a day at the beach compared with what we’re going through now). They responded to that experience by building up huge war chests of dollars and euros, which were supposed to protect them in the event of any future emergency. And not long ago everyone was talking about “decoupling,” the supposed ability of emerging market economies to keep growing even if the United States fell into recession. “Decoupling is no myth,” The Economist assured its readers back in March. “Indeed, it may yet save the world economy.”
That was then. Now the emerging markets are in big trouble. In fact, says Stephen Jen, the chief currency economist at Morgan Stanley, the “hard landing” in emerging markets may become the “second epicenter” of the global crisis. (U.S. financial markets were the first.)
What happened? In the 1990s, emerging market governments were vulnerable because they had made a habit of borrowing abroad; when the inflow of dollars dried up, they were pushed to the brink. Since then they have been careful to borrow mainly in domestic markets, while building up lots of dollar reserves. But all their caution was undone by the private sector’s obliviousness to risk.
In Russia, for example, banks and corporations rushed to borrow abroad, because dollar interest rates were lower than ruble rates. So while the Russian government was accumulating an impressive hoard of foreign exchange, Russian corporations and banks were running up equally impressive foreign debts. Now their credit lines have been cut off, and they’re in desperate straits.
Needless to say, the existing troubles in the banking system, plus the new troubles at hedge funds and in emerging markets, are all mutually reinforcing. Bad news begets bad news, and the circle of pain just keeps getting wider.
Meanwhile, U.S. policy makers are still balking when it comes to doing what’s necessary to contain the crisis.
It was good news when Mr. Paulson finally agreed to funnel capital into the banking system in return for partial ownership. But last week Joe Nocera of The Times pointed out a key weakness in the U.S. Treasury’s bank rescue plan: it contains no safeguards against the possibility that banks will simply sit on the money. “Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead.” And sure enough, the banks seem to be hoarding the cash.
There’s also bizarre stuff going on with regard to the mortgage market. I thought that the whole point of the federal takeover of Fannie Mae and Freddie Mac, the lending agencies, was to remove fears about their solvency and thereby lower mortgage rates. But top officials have made a point of denying that Fannie and Freddie debt is backed by the “full faith and credit” of the U.S. government — and as a result, markets are still treating the agencies’ debt as a risky asset, driving mortgage rates up at a time when they should be going down.
What’s happening, I suspect, is that the Bush administration’s anti-government ideology still stands in the way of effective action. Events have forced Mr. Paulson into a partial nationalization of the financial system — but he refuses to use the power that comes with ownership.
Whatever the reasons for the continuing weakness of policy, the situation is manifestly not coming under control. Things continue to fall apart.Tuesday, October 21, 2008
Arise
Arise
dedicated to Nigeria
East to west you are blessed
North to south you are bound
Arise O sleeping Giant
Arise and falter no more
Arise and take your rightful place,
as the sun rises in the morning.
Rejoice for you are a great nation
There will be no more
sleep nor slumber,
no more pain nor hunger,
your sorrow will not last till tommorrow.
With your rivers and fountains
Your forests and mountains,
you shall shine like a nova.
So Arise and behold your glory,
that it may end
A sweet story.
Abayomi Sadiq Adesanya
The Real Plumbers of Ohio
The Real Plumbers of Ohio
Forty years ago, Richard Nixon made a remarkable marketing discovery. By exploiting America’s divisions — divisions over Vietnam, divisions over cultural change and, above all, racial divisions — he was able to reinvent the Republican brand. The party of plutocrats was repackaged as the party of the “silent majority,” the regular guys — white guys, it went without saying — who didn’t like the social changes taking place.
It was a winning formula. And the great thing was that the new packaging didn’t require any change in the product’s actual contents — in fact, the G.O.P. was able to keep winning elections even as its actual policies became more pro-plutocrat, and less favorable to working Americans, than ever.
John McCain’s strategy, in this final stretch, is based on the belief that the old formula still has life in it.
Thus we have Sarah Palin expressing her joy at visiting the “pro-America” parts of the country — yep, we’re all traitors here in central New Jersey. Meanwhile we’ve got Mr. McCain making Samuel J. Wurzelbacher, a k a Joe the Plumber — who had confronted Barack Obama on the campaign trail, alleging that the Democratic candidate would raise his taxes — the centerpiece of his attack on Mr. Obama’s economic proposals.
And when it turned out that the right’s new icon had a few issues, like not being licensed and comparing Mr. Obama to Sammy Davis Jr., conservatives played victim: see how much those snooty elitists hate the common man?
But what’s really happening to the plumbers of Ohio, and to working Americans in general?
First of all, they aren’t making a lot of money. You may recall that in one of the early Democratic debates Charles Gibson of ABC suggested that $200,000 a year was a middle-class income. Tell that to Ohio plumbers: according to the May 2007 occupational earnings report from the Bureau of Labor Statistics, the average annual income of “plumbers, pipefitters and steamfitters” in Ohio was $47,930.
Second, their real incomes have stagnated or fallen, even in supposedly good years. The Bush administration assured us that the economy was booming in 2007 — but the average Ohio plumber’s income in that 2007 report was only 15.5 percent higher than in the 2000 report, not enough to keep up with the 17.7 percent rise in consumer prices in the Midwest. As Ohio plumbers went, so went the nation: median household income, adjusted for inflation, was lower in 2007 than it had been in 2000.
Third, Ohio plumbers have been having growing trouble getting health insurance, especially if, like many craftsmen, they work for small firms. According to the Kaiser Family Foundation, in 2007 only 45 percent of companies with fewer than 10 employees offered health benefits, down from 57 percent in 2000.
And bear in mind that all these data pertain to 2007 — which was as good as it got in recent years. Now that the “Bush boom,” such as it was, is over, we can see that it achieved a dismal distinction: for the first time on record, an economic expansion failed to raise most Americans’ incomes above their previous peak.
Since then, of course, things have gone rapidly downhill, as millions of working Americans have lost their jobs and their homes. And all indicators suggest that things will get much worse in the months and years ahead.
So what does all this say about the candidates? Who’s really standing up for Ohio’s plumbers?
Mr. McCain claims that Mr. Obama’s policies would lead to economic disaster. But President Bush’s policies have already led to disaster — and whatever he may say, Mr. McCain proposes continuing Mr. Bush’s policies in all essential respects, and he shares Mr. Bush’s anti-government, anti-regulation philosophy.
What about the claim, based on Joe the Plumber’s complaint, that ordinary working Americans would face higher taxes under Mr. Obama? Well, Mr. Obama proposes raising rates on only the top two income tax brackets — and the second-highest bracket for a head of household starts at an income, after deductions, of $182,400 a year.
Maybe there are plumbers out there who earn that much, or who would end up suffering from Mr. Obama’s proposed modest increases in taxes on dividends and capital gains — America is a big country, and there’s probably a high-income plumber with a huge stock market portfolio out there somewhere. But the typical plumber would pay lower, not higher, taxes under an Obama administration, and would have a much better chance of getting health insurance.
I don’t want to suggest that everyone would be better off under the Obama tax plan. Joe the plumber would almost certainly be better off, but Richie the hedge fund manager would take a serious hit.
But that’s the point. Whatever today’s G.O.P. is, it isn’t the party of working Americans.Here the People Rule
Here the People Rule
According to the silver-penned Peggy Noonan, writing in The Wall Street Journal over the weekend, “In the end the Palin candidacy is a symptom and expression of a new vulgarization in American politics.”
Leave aside Noonan’s negative judgment on Sarah Palin’s candidacy, a judgment I don’t share. Are we really seeing “a new vulgarization in American politics”? As opposed to the good old non-vulgar days?
Politics in a democracy are always “vulgar” — since democracy is rule by the “vulgus,” the common people, the crowd. Many conservatives have never been entirely comfortable with this rather important characteristic of democracy. Conservatives’ hearts have always beaten a little faster when they read Horace’s famous line: “Odi profanum vulgus et arceo.” “I hate the ignorant crowd and I keep them at a distance.”
But is the ignorant crowd really our problem today? Are populism and anti-intellectualism rampant in the land? Does the common man too thoroughly dominate our national life? I don’t think so.
Last week, the Pew Research Center for the People and the Press released its latest national survey, taken from Oct. 9 to 12. Americans are dissatisfied with the way things are going in the country and of course concerned about the economy. But, as Pew summarized, “there is little indication that the nation’s financial crisis has triggered public panic or despair.”
In fact, “There is a broad public consensus regarding the causes of the current problems with financial institutions and markets: 79 percent say people taking on too much debt has contributed a lot to the crisis, while 72 percent say the same about banks making risky loans.”
This seems sensible. Indeed, as Sept. 11 did not result in a much-feared (by intellectuals) wave of popular Islamophobia or xenophobia, so the market crash has resulted in remarkably little popular hysteria or scapegoating.
And considering what has happened, the vulgar public on Main Street has been surprisingly forgiving of those well-educated types on Wall Street — the ones who devised and marketed the sophisticated financial instruments that have brought the financial system to the brink of collapse.
Most of the recent mistakes of American public policy, and most of the contemporary delusions of American public life, haven’t come from an ignorant and excitable public. They’ve been produced by highly educated and sophisticated elites.
Needless to say, the public’s not always right, and public opinion’s not always responsible. But as publics go, the American public has a pretty good track record.
In the 1930s, the American people didn’t fall — unlike so many of their supposed intellectual betters — for either fascism or Communism. Since World War II, the American people have resisted the temptations of isolationism and protectionism, and have turned their backs on a history of bigotry.
Now, the Pew poll I cited earlier also showed Barack Obama holding a 50 percent to 40 percent lead over John McCain in the race for the White House. You might think this data point poses a challenge to my encomium to the good sense of the American people.
It does. But it’s hard to blame the public for preferring Obama at this stage — given the understandable desire to kick the Republicans out of the White House, and given the failure of the McCain campaign to make its case effectively. And some number of the public may change their minds in the final two weeks of the campaign, and may decide McCain-Palin offers a better kind of change — perhaps enough to give McCain-Palin a victory.
The media elites really hate that idea. Not just because so many of them prefer Obama. But because they like telling us what’s going to happen. They’re always annoyed when the people cross them up. Pundits spent all spring telling Hillary Clinton to give up in her contest against Obama — and the public kept on ignoring them and keeping her hopes alive.
Why do elites like to proclaim premature closure — not just in elections, but also in wars and in social struggles? Because it makes them the imperial arbiters, or at least the perspicacious announcers, of what history is going to bring. This puts the elite prognosticators ahead of the curve, ahead of the simple-minded people who might entertain the delusion that they still have a choice.
But as Gerald Ford said after assuming the presidency on Aug. 9, 1974, ”Here the people rule.”
One of those people is Joe Wurzelbacher, a k a Joe the Plumber. He’s the latest ordinary American to do a star turn in our vulgar democratic circus. He seems like a sensible man to me.
And to Peggy Noonan, who wrote that Joe “in an extended cable interview Thursday made a better case for the Republican ticket than the Republican ticket has made.” At least McCain and Palin have had the good sense to embrace him. I join them in taking my stand with Joe the Plumber — in defiance of Horace the Poet.
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