Bird that Sings

October 31, 2008

The Great Recession

Filed under: Politics,Uncategorized — admin @ 1:41 pm

“Everyday the bucket go to the well. One day the bottom will drop out”—Bob Marley

“What we have now is Capitalism on the way up and Socialism on the way down.”—Rep Jeb Hensarling, R-Tex

“ . . . there is a huge amount of important thinking in Marx as to what is wrong with Capitalism, but not very much on what to do about it.  As such, in figuring out where we go from here, we are really on our own.” —Robert Pollin

“We’re all Keynesians now”—Richard Nixon

By this time, two years from now, Joe the Plumber will be begging for Socialism. Just in time for Halloween, a specter is once again haunting Europe, not to mention the rest of us. No Virginia, not Communism, it is the specter of deflation.

While many people have heard of deflation, most of us have never experienced it. I think we’re about to. Typically a deflationary cycle is the ugly term that describes the most salient characteristic of an economic depression. Assets lose value, stocks lose value, commodities lose value: Kind of like now. So much value is lost that it becomes a vicious circle—a negative feedback loop as the economists like to say— that is extremely difficult for an economy to break out of.

During the Great Depression unemployment went to twenty five percent and GDP fell by half, so Depression is probably not a term to toss around lightly. Let’s just call the  current downturn, “The Great Recession.”

Before we ask, as Lenin so elegantly put it, “what is to be done,” a quick description of what brought us to this pass is in order.

As George Soros has recently said, the bursting of the US housing bubble had the effect of busting the larger bubble of leveraged debt that floated the world economy for the past generation. It is the busting of this Sixty trillion dollar debt bubble that is now washing over the world.

What we are witnessing is the collapse of Finance Capitalism, or what the late Marxist economist Ernest Mandel might have called “Late Capitalism.” However Capitalism has failed before. You could probably argue that the crash of 1929 brought down the “Free Market” phase of classical Capitalism. Similarly, you could argue that the Arab Oil Embargo of 1973 and the subsequent “stagflation” crisis of the ‘70’s ended the post-War period of Keynesian, “mixed market,” government supported, Capitalism.

To end “stagflation,” along with it’s ruinous inflation rate which peaked at 13.5% in 1981, then Fed Chairman Paul Volcker basically stopped printing money—or at least so much of it— and engineered a ruinous recession that drove unemployment to it’s highest point since the 30’s. However the Volcker recession also brought inflation down to 3.2 percent, and as such was judged a success of monetary policy.

The problem for Volcker’s Fed coming out of the ‘82-’83 recession was that the growth engine of the US economy since the end of WWII had been manufacturing, and in the US, manufacturing was in decline. The US was however, and indeed remains, the largest consumer economy the World had ever seen.

Volcker’s pragmatic solution to the problem of declining production was to free up the administrative, finance and service sectors of the economy: to “commoditize,” and take proper competitive advantage of, the vast consumer market itself. They called the regime, “Deregulation.”

In the early 80’s, manufacturing made up almost 24% of the US economy while the Finance economy—Banks, Wall Street, Insurance companies— made up about 7% of the economy. Twenty-five years later these numbers are pretty much reversed. The Finance Economy, particularly from the late 80’s on, produced an incalculable, staggering mountain of wealth for the US and the World. This wealth, of course, was then redistributed upward in staggeringly disproportionate measure to the already rich, at the expense of a shrinking middle class and an emiserated working class, many of who were forced deeply into debt just to keep up.

As it turned out, it was the accumulation of this massive amount of consumer debt that made the spectacular rise of the finance economy—and the concomitant rise of the superrich financiers— possible.

The neo-conservatives, led by former Republican Party Chairman Ken Mehlman, even tried to enshrine this upwards wealth redistribution principle as the ideological cornerstone of the second Bush administration. They called it “the ownership society.”
What this meant in practical terms was that anyone who was willing to go so deeply into debt that they would never be able to get out of it, would be able to buy what they wanted in George Bush’s America. You could even buy an overpriced house in an exploding, speculative market on credit with nothing down.  It was a kind of civic compact.

We can see how that turned out.  Now, as they say on the street, the Banks have played themselves out of position and some of the great names among them sit squarely on the brink of insolvency.

What is to be done?
Internationally, French President Sarkozy has called for new Bretton Woods agreement to govern the international financial system. Fed Chairman Ben Bernanke has already signaled that under the next, Obama Administration, there will have to be a massive monetary stimulus package. There is now a debate among economists how much this stimulus should be, and what it should consist of.

Nouriel Roubini, who predicted this disaster with amazing prescience, is talking about five hundred billion dollars to be used for infrastructure and support of financially stressed states. Others are talking about re fashioning a regime that can regulate and police the markets domestically.

The problem with the proposed solutions however is that it feels a little like putting Humpty Dumpty back together again.

These ideas assume that the collapse of the financial system was a mistake—letting Lehman Brothers fail, lax regulation and the like—and not the inevitable result of building an empire on debt, rather than utility.

Structural and moral concerns aside, these ideas also assume that the collapse of the financial system was a “one in a hundred years event” that won’t be repeated anytime soon. As economist Jeffery Sachs—himself a booster of the massive stimulus package—has said, there is a non-linear nature to busts and crashes that makes them unpredictable; that we should probably expect to be shocked again, possibly by nature itself, as catastrophic climate change really kicks in over the next decade or so.

Recently, former Secretary of Labor Robert Reich asked out loud, if, in allowing Banks like Chase and BOFA to buy up smaller failing banks, we weren’t just setting the table for more epic collapses of key systemic institutions that really were too big to fail.

Meanwhile Economist Jeff Faux proposed in the Huffington Post, October 10, that one of the Banks the Treasury Department is forced to Nationalize stay Nationalized. The “First National Bank” would then serve as a model doing, among other things, the kind of community lending smaller Banks used to do before they were knocked out of business by the logic of economies of scale.

I would propose that Faux’s model be applied across the economy. If the Government is forced to bail out—as seems increasingly likely—Ford, GM and Chrysler, why not just buy Chrysler (which is looking for a buyer anyway) and use it as a model for what a competitive American Car company could be?

The key problems that a new Bretton Woods agreement—as doubtful as that might be—or a stimulus package, do not address, are the key problems we face in rebuilding the economy. One, what to do with economies of scale, where there is a irresistible tendency toward capital concentration and monopoly and two, what to do about a system of trade that doesn’t factor the real cost of Carbon into pricing?

The answer would seem to be a system not rooted so much in Marx as in the US Constitution. We need an economic system of checks and balances where the public sector competes with, and keeps the private sector honest, and vice versa.

The big question is, would President Barack Obama even consider such an outlandish proposal?

The answer is, of course not: At least, not until everything else fails.

In the words of Bob Marley, “You think it’s the end, but it’s just the beginning.”

September 24, 2008

The Great Compromise: a Populist plan for the markets

Filed under: Politics,Uncategorized — admin @ 11:17 pm

     All the so-called grown-ups in the room seem to agree. Wall Street greed and malfeasance ran the financial system into the ground, but now we can’t afford to let the financial system fail, even if that means bailing out the bankers and financiers who created this mess and made huge, obscene profits for themselves in the process.

Truthfully, I’ve never liked grown-ups anyway. There has to be some kind of bailout alright, but the terms of this one, even the “Democratic” terms proposed by Chris Dodd and Barney Frank, are not only unacceptable but politically tone deaf.

On this issue the unwashed masses of the Democratic Left and the Republican Right pretty much agree: as a first principle any bailout must be punitive. Taxpayers should not have to bail out the Banks unless Wall Street takes more of the pain than Main Street.

This means that first, any loans and/or straight capital injections made by the US Treasury have to be in exchange for an equity stake in the companies as with the Swedish bailout of their banks in the Nineties. Like in Sweden, the government must have the ability to liquidate insolvent banks and shareholders of rescued banks must invest more of their own capital before public money can be used.

Second, there has to be a lower than market rate limit set on executive compensation by the bi-partisan government review board that will police the “loans”. In other words, there’s no way any of these Wall Street miscreants should be making more than a cop, a schoolteacher or an IRS employee.

Third, there should be no bailout of homeowners who are underwater on their mortgages. It might seem harsh, but the immediate macro-economic reason for the current crisis is the asset bubble that was created by Alan Greenspan to pull the economy out of the dot com crash and post 9/11 panic in 2001.

The era of the asset bubble is over. Home prices have to find their true level even if it hurts. However here, economist Dean Bakers’s idea of some kind of public entity to buy back at least some of these homes—at current market rates—and rent them to the people already living there at current market rates makes sense.

As for the other liberal amelioratives that Pelosi and Frank want to put on Paulson’s bailout to make it more palatable, fugettaboutit. For one, this is a systemic problem, not a political one and their well-meaning efforts are just muddying the waters.

For another thing, in this matter we can no more trust the liberals than we can the conservatives. Chris Dodd, though long a reliable liberal, has also long been in bed with the insurance industry, and though one can be sure his current motivations are completely beyond reproach, money has a funny way of skewing people’s judgment. This goes for most everyone in the House and Senate, not just Dodd. The current system of lobbying and campaign finance is as untenable as this sham of a market system, but it has to be addressed as a whole, hopefully by the next administration.

Now of course there is a big problem with the Great Populist Compromise: Paulson and Bernanke say it won’t work. They say that under the onerous conditions proposed here, banks simply won’t accept the Government bailout. They will then refuse to lend each other money, freezing up credit for the entire system, bringing on a “Great Recession,” or worse.

The bankers are going to hold their breath and, clutching their worthless securities in their gummy little hands, bring down the entire system around them unless they get a bailout on their own terms.

And who are the grown ups now?

September 18, 2008

The Republicans bring Socialism to America

Filed under: Politics — admin @ 5:21 am

The Republicans bring Socialism to America and of course the Markets aren’t happy.

Just as it takes a village to raise a child, it takes a crisis to change the system, but give the Republicans their due; they’ve taken the ball and run with it.

Secretary of the Treasury Henry “Vladimir Illyich” Paulson and Fed Chairman Ben “Keynes” Bernanke have in the course of one week, nationalized over half the home mortgage Industry and bought eighty percent of the world’s biggest Insurance Company in the name of “We, the people.” Talk about ten days that shook the world. And we all know that Paulson and Bernanke are not through yet.

The financial system remains in deep, deep, crisis. Before “Lenin” and “Keynes” are done, they’re going to end up nationalizing Ford, GM, Goldman-Sachs, your auntie’s beauty parlor and the crack house on the corner. Even John McCain can read the writing on the wall.

As Robert Scheer put it in a recent column, McCain has taken to channeling “his inner Marx,” calling the American worker, “the fundamental of the US economy.” Then the next day McCain said he intended to end “reckless conduct, corruption and unbridled greed on Wall Street.”

McCain said “Government has a clear responsibility to act in defense of the public interest and that’s exactly what I intend to do. In my administration, we’re going to hold people on Wall Street responsible. And we’re going to enact and enforce reforms to make sure these outrages never happen in the first place.”

Wow. To hear John-Marx McCain these days, it seems almost a no-brainer that he’s the man to take on the predations of the market system. Of course the Democrats say not so fast. They argue that there are two John McCain’s: John-Marx and “bald faced, lying John.”

They say that the place John-Marx McCain should begin his campaign against the corruption of Wall Street is with a public burning of his own demented health care plan that actually calls for new taxes on your employer based health care benefits. The Democrats say that the reason McCain want to tax our health care is drive us all—singly—into the wonderland of the free market health care environment (so that the magic of the market can do it’s work)

The Democrats say this slick corporate front man is the real McCain and that Jean-Marx is a fraud.

The Democrats may be right about the two McCain’s, but meanwhile, “Lenin” and “Keynes” are busy with a massive—and admittedly desperate—Soviet style nationalization of  “the commanding heights of the economy.”

The Republicans bring Socialism to America and all the Democrats can do is pick, pick, pick.

August 28, 2008

Play along with Putin

Filed under: Politics — admin @ 9:08 am

The Russian invasion of Georgia is off the front pages now, having been replaced in the news by the sometimes desultory spectacle of the Democratic Convention.

Which is probably just as Vladimir Putin planned it. Let’s face it, Putin is a lot smarter than the idiots who run our permanent, floating, National Security regime. If this were a chess match, we’d be praying we had that lunatic Bobby Fischer back. However rather than be frightened by Mr. Putin, those of us in the West should at least feel a certain pride of ownership.

Putin heard all the crap about Democracy and Free Market Capitalism the West heaped on the Russians after the fall of the Soviet Union and then watched as the West helped install a kleptocracy to take the place of the Soviet Communist Party. Putin probably even read “Managed Consent,” Noam Chomsky’s dry little tome on how the rulers of America and the West manipulate and marginalize the participation of their media and entertainment sodden public in the real business of running society.

One imagines Putin reading “Managed Consent” ruefully and thinking, wow, what a great idea. The results are on obvious display. Putin does Managed Consent better than we do.

Putin is obviously not a democrat but he is a patriot who has the best interests of his country—as he sees them—at heart. In his 10/25/07 NY Times op-ed, “Putin will always be with us,” the conservative, once-upon-a-time Soviet émigré, Leon Aron hypothesized how Putin would cling to power forever: how he would devise a way to continue on as President for life.

As we can see now, Aron didn’t quite get it right. Putin figured out a way to maintain himself in power without compromising his legitimacy or the legitimacy of the quasi-Democratic system he had constructed. Putin’s smarter than Leon Aron too.

Aron though, does bump against the truth when he quotes Lenin on what appears to be Putin’s modus operandi, “first we get into fight, then we see what happens.”

The larger truth is that nobody can really know what Putin is going to do long term because he doesn’t know himself. However what we do know is that Putin operates out of a given set of assumptions. He is, one, looking out for what is best for Russia. And two, he is a both a true believer in realpolitik in foreign affairs, and pragmatism, domestically. Rather than operate with ideological blinders on, Putin makes his foreign and domestic policy decisions out of an objective assessment of a given problem as well as what he thinks is achievable.

And so given these assumptions the best way to figure out what Putin is going to do, is what you would do yourself in the same situation. That’s why this game is called “Play Along with Putin© 2008.” (For more information, check back. Or better yet write back and we’ll discuss among ourselves)

In the case of Georgia, the neo-cons who advise Georgian President Shakashvili and Republican Presidential Candidate John McCain—in this case both represented in the same suspect person of Randy Scheunemann—appear to have a horrible miscalculation.

The truth which Putin and his fast learning junior partner President Medvedev seemed to have grasped much more quickly than either Condi Rice or the equally moronic Richard Holbrooke, is that proverbial worm has turned.

After rubbing Russia’s face in the loss of the Cold War for almost twenty years, suddenly the objective truth is that Russia doesn’t have to take it anymore. For one thing the US has completely played itself out of geo-political position in Iraq and for another, Putin, to paraphrase Keith Richards, “has got the silver, he’s got the gold.”

Putin’s moves of recent years to effectively re-nationalize Russia’s oil and natural gas wealth have left the US and Europe, objectively speaking, in debt to him.

The good news about all this is that since the US has refused to conduct a rational foreign policy voluntarily, it’s going to be forced to by events. Short term that means that the West will need to negotiate with Russia, not only on a coherent strategy for containing Iran but also on a smart, big picture strategy for a just peace in the entire Middle East.

Long term, the hope is that finally, in a new multi-polar world poised on the brink of ecological disaster of epic, Malthusian proportions, a new regime that takes into account our dire—and objective—situation can take hold.

March 6, 2008

The Conventional Wisdom

Filed under: Politics — admin @ 10:18 pm

The Clinton’s are like vampires, they’re hard to kill.

Nonetheless, after the dust from Tuesday primaries settles, one thing will be clear; Hillary probably can’t win the nomination herself but she can stop Obama from winning. Obama has now twice failed to drive the stake through Hillary’s undead heart and I’m not sure he’ll get another chance.

Having stopped the inevitability of an Obama victory, Hillary will now be able to leverage a win in Pennsylvania, where she has the natural electoral advantage, into several other wins down the road. Looking at the primary calendar, it’s not particularly farfetched to see Hillary winning Pennsylvania, and then Indiana, North Carolina, West Virginia, Kentucky, and Puerto Rico among others. If Florida actually has a re-election, she might almost be able to catch up to Obama in raw delegate count by the convention, and that doesn’t take into account her natural affinity with the majority of Super Delegates representing the Party establishment.

Whatever the case, she would certainly have the momentum going into the Convention, even though I can’t foresee a scenario in which the super delegates will have the gall to give her the nomination if she comes in behind.

But all of this begs the question; what exactly is the point of this half a billion dollar exercise?

The Democrats, having abandoned the issues of “the change election” for the rhetoric of “change” and the cheap champagne of the race itself, are now in danger running the party off the rails.

There is no obvious institutional answer to the macabre Hillary-Obama electoral dance of death—just don’t look at it directly without protective glasses.

Nonetheless, there is always . . . hope. If the Democrats return to a debate about the structural problems underlying the triple crises of governmental dysfunction, incipient economic and ecological collapse that are afflicting the nation—and much of the world—there is a chance they can get their electoral train back on track.

In terms of the Conventional Wisdom, there are two routes for the Democrats to get to Denver with the party intact.

The first would be a move of uncommitted super delegates to the undeclared candidacy of the implicit third force in the race, Al Gore. Under normal circumstances one could not imagine any situation in which Hillary would allow this nomination to be pried from her cold, dead fingers, but these are not normal circumstances and Gore is no longer a normal politician.

America may not owe you or me, but America owes Al Gore. To borrow from Isaac Deutscher’s description of Trotsky, Gore is now “the Prophet Armed.” After winning the 2000 election and then having it stolen from him, the old stodgy Al Gore was somehow transformed into Al, the oracle wonk.

Gore was not only one of the first establishment figures to attack Bush and Cheney’s motives for going to War, he was among the first to call Bush and Cheney what they were, and remain, shameless shills for the corporate interests.

However the most compelling reason for a Gore candidacy is his leadership in the struggle against ecological catastrophe and his insistence that the fight against climate change be seen as part of a systemic crisis, requiring a systemic solution.

A Gore candidacy would be the best solution to the Democrats current conundrum. Gore would not only win the election overwhelmingly, his win would stand to advance the cause of suffering humanity. However getting Gore to the nomination is extremely problematic.

Certainly neither Obama nor Hillary is going to drop out in favor of him. The only way Gore becomes the nominee is on the second ballot of the Democratic Convention in the last week of August, which then leaves Gore only ten weeks to campaign before the general election. If Gore were to be a serious candidate, a sort of shadow candidacy would have to be established now and run through an organizational intermediary—perhaps Howard and Jim Dean’s DFA— while super delegate support was rounded up.

In the meantime, this shadow candidacy would no doubt earn Gore the kind of enmity among Democratic partisans currently reserved for Ralph Nader, and might have the effect of scuttling the candidacy before it even got started. These are all big problems, however the biggest thing standing in the way of a Gore candidacy is probably Gore himself.

I’m not sure if Gore has the fire in the belly to run for President—and forgive me for saying, that’s sure a mighty big belly of late. To get the nomination, Gore would have to want to run.

This leaves the second route for the Democrats to pull out of the Hillary-Obama blind in time. The idea is courtesy of a friend of mine—a Republican nurse, whose union is currently locked in a death struggle, mostly over understaffing, with the big corporate health care conglomerate that owns the hospital where she works. For her, the collapse of the health care system is a daily reality and it’s the main thing she’s concerned with.

Last week, when it looked like Obama was going to be the inevitable Democratic nominee, her idea was that Obama make Edwards his Vice Presidential running mate. Obama would then adopt Edwards Universal Health care plan—which as we all know is better than Obama’s—and have Edwards serve as a sort of Health Care Marshall, in charge of getting Universal Health Care and taking down the Insurance companies standing in the way.

I was prepared to laugh off her idea, but the more I thought about it, the more it worked on a number of levels.

To begin with, it works practically. I don’t think Edwards is going want to be anybody’s Vice Presidential candidate this time around unless it’s a means to a bigger end than getting Obama elected President. Ironically, after all the crap that Edwards has taken about his lean and hungry look, my guess is that five years of non stop campaigning have left him most interested now in actually getting something done for his country, something big. The chance to achieve Universal Health Care qualifies.

It also gives Obama a graceful way out of his current health care proposal, which is an even worse starting point to achieve Universal Health Care than was the Clinton’s proposal fifteen years ago. The chance to harmonize the Edwards and Obama proposals awakens the possibility of coming up with something that works better than either plan on its own.

Edwards himself, pointed the way towards this, in the latter days of his campaign. When asked about the merits of a Single Payer health plan, Edwards admitted the attractiveness of the idea but thought it difficult to achieve politically. He said that with his own plan though, he saw the possibility that setting up a competition between a Medicare-for-All plan and the existing private plans, could lead to the victory of Medicare, which would ultimately become, Single Payer.

This is the idea that appealed to my friend, the Republican nurse. She knows the current system is a disaster, that the Insurance companies are the root of the problem, but she hates what she calls “Socialized Medicine.”

What she likes is the idea of public-private competition in an environment where everyone is covered. And it is here where the practical policy implications of an Obama-Edwards partnership are symbolic of the possibility of a broader social-political agenda.

With the non-candidacy of Gore and the knocking off of Edwards, the two remaining candidates for the Democratic nomination have fallen back onto an older style of electoral politics: pandering.

This pandering was especially evident in Ohio over the past couple weeks and with her primary victory on Tuesday, the verdict is in: Hillary is the Pander Queen. Perhaps someday she can rule with her consort Mitt Romney, the Pander King.

In Ohio, Hillary campaigned against NAFTA which her current husband pushed through and signed into law, all the while assuring Ohioans that she was somehow going to get those lost factory jobs back with her hard work and experience. Obama meanwhile was also making reassuring protectionist noises, even while his chief economist was apparently privately assuring foreign governments that he didn’t really mean it.

John “Hundred Years War” McCain for his part, let it be known that he thinks NAFTA is a good thing, free trade is a good thing, and that he’s the only one still running honest enough to say it.

McCain is, in fact, only voicing the Conventional Wisdom. You can read and hear the same arguments from ex officio Hillary economic advisers. They say that Globalization is here to stay and that in Globalization “there are winners and losers”; losers like the people of Ohio.

The problem for the Democrats is one, many of them believe this, and two, these so-called losers are their electoral base. The truth is that in this country and in the world as a whole, the vast majority of people are either working class or poor.

“Globalization,” as currently constituted, works against the interests of working class and poor people and advantages the interests of mobile Capital. The truth is that the only places in the world where globalization has been successfully managed to any extent are places where the state—no matter its politics— maintains a mediating, ameliorative and/or a competitive role in the economy. These are places like China, Putin’s Russia, Korea, some of the OPEC states, Venezuela, and increasingly, Argentina, Chile and Brazil.The truth about Globalization is that, while it may seem inevitable, the losers far outnumber the winners, not just in Ohio, but everywhere in the world.

The free market ideology that has dominated economic debate and economic life in this country since 1980 is now as discredited and dysfunctional as was the ideology of the Command economies of the Soviet Union and its satellite states in the last years of the Soviet Empire. It only remains for the media and majority of our fellow citizens to figure this out.

Beyond that, as Al Gore has, no doubt reluctantly, been pointing out, Globalization is no longer ecologically feasible. It simply costs “too much carbon” to be shipping food and raw materials from one end of the planet to the other. If we’re going to save this particular planet, the real social and environmental cost of this carbon is going to have be factored into the cost of most products. Stuff is either going to become prohibitively expensive, or local, regional and national economies are going to have become more self-sufficient.

These of course are the kinds of things that should be debated in this election, at least on the Democratic side, but for obvious reasons, no one—with the exception of Ralph Nader, God bless him—is going to endanger their political career talking about them. This though, is where the symbolism of the Edwards Public-Private Health Care Plan is so powerful. It provides a model for what needs to be done throughout the economy to create new industry and new jobs for real people.

That’s pretty catchy, maybe Obama will buy it.

An Obama-Edwards partnership dedicated to giving hope and voice to working class and poor people in the country would steamroller Hillary on its way to the nomination.

In my opinion, it’s Obama’s 3rd and final chance to get it done.

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