Archive for August 30, 2011

Could ‘Squatters’ Really Hold the Economy Down?


I love squatters. Thought to be fading into history as a self-conscious class, these intrepid refuseniks have not made much news for the past decade or thereabout. So when a friend sent me a link to a Time/Moneyland story about a new breed of squatters, I couldn’t wait to see what they were up to.

Despite being ridiculously titled “Is America Becoming a Nation of Squatters?” (hyperbole much?), the piece by Tara-Nicholle Nelson starts off good, introducing the phenomenon of squatting and the seemingly anomalous legal concept known as “adverse possession”, a doctrine under which in some states squatters can acquire legal title to real property simply by residing on it without permission for a certain period of years (usually ten). This is interesting stuff, and over the generations, lots of housing activists have made the case that squatting is a valuable social phenomenon. (Not a hard case to make, given that people need housing and so much of it is vacant.)

Nelson then introduces a “new class of squatters” — homeowners who default on their mortgages but stay in their houses. This is not exactly a social movement, and it’s kind of a no-brainer (if you’re broke but not yet being physically forced out of the structure you call “home”, where all your stuff is… why would you leave?), but it’s an interesting socioeconomic phenomenon, if you will.

What really threw me for a loop was the writer’s conclusion. I honestly did not see it coming. Nelson — notably a lawyer and a real-estate broker — suggests that this “squatting” phenomenon may be adversely affecting the housing market because it could taint Americans’ attitudes toward what she calls “the inherent rightness of paying for the right to live in a place”.

WOW! What a phrase, and what an overarching idea.

My objections are manifold. First, people cheerleading for housing values to rise again need to sit in the corner wearing a “real-estate agent” dunce cap. Second, people who suggest rights can be bought should sit in the corner with a “lawyer” dunce cap on. Third, get real — there is (unfortunately) no real “threat” of an attitude shift toward access to real property. Fourth, even if there were such a prospect, its impact would probably be immeasurably small, given that it would come up against the reality of how property is treated in our society. And it would only serve to anchor housing prices in ways that aren’t all bad.

Let’s take the philosophical point first and dispense with this notion that one can purchase rights. There is sadly no right to housing in this country. One can purchase the legal prerogative to occupy a dwelling either by obtaining deed or lease. Otherwise, with few exceptions, one has no expectation of any legal or even philosophical right to shelter. Overturning this would be a good thing; maybe not for the real estate market, depending on how it was implemented, but definitely a win for the human condition.

On to the threat of an attitudinal shift anchoring the housing market, which Nelson considers unhealthy. She writes:

I suspect this harm will manifest most evidently in consumers’ mindsets, as widespread squatting threatens to upend basic, important social beliefs about the inherent rightness of paying for the right to live in a place. If consumers perceive that a primary advantage of being a homeowner is that you can stick around for years without making a payment, strategic default and foreclosure rates might never decline back to their pre-recession rarity.

[…] The real danger is to our social norms and financial belief systems which, in turn, threaten a lasting recovery and future prosperity.

Economic recovery and (material) prosperity are indeed tied to the housing market. When the housing bubble predictably burst in 2008, the consumer credit system took a massive hit. Our economy is 70% consumer-driven. It depends on growth, and growth depends on credit. So while the stagnant housing market is probably (for now) holding back severe inflation as the Fed pushes a credit- and government-spending-based recovery dependent on an increased currency/reserves supply, that same moribund market is holding back the real flow of consumer credit. This everybody acknowledges.

Where onlookers differ is in the real social quality of this anchoring effect. First, the more affordable housing is, the better off society is, generally speaking. That’s not an economistic view — it’s just another of my pesky humanistic views. If our economic system gave a damn about sheltering Americans, we would be happy to see a gentler rate of increase in housing costs.

But besides this, holding back growth in a society that has too much housing (however misallocated) and too much consumption in terms of resource use and pollution/greenhouse-gas output, is not in and of itself a bad thing. An economic system that causes suffering when aggregate production contracts or even slows will tempt all of us to cheer for growth. But growth has severe consequences; it is not inherently good. The cost of ameliorating present economic misery for working and unemployed Americans may build in too many problems associated with overconsumption. These will hurt down the road. Severely.

The housing market needs never to return to unsustainable growth. It is amazing that this has to be said in a post-burst world, but apparently some people haven’t figured it out, including self-interested homeowners and real-estate brokers. As long as credit is made readily available and energy costs are artificially low (as they do not include the real environmental and social costs of hydrocarbon-based production and consumption), there will be a tendency for real estate prices to bubble, not just threatening sudden harm to the economy again, but also excluding poor people from decent housing.

This is why the notion that attitudes of entitlement to housing will hurt the market is absurd. First, this attitude isn’t going to come about by some spontaneous collective realization. It would take an organized social movement to reevaluate the concept of housing as a right (that can’t be purchased).

Besides, the market has too many systemic upward pressures; nuances that tamp it down have an upside, even if it really sucks for people who made poor real-estate investment choices in the last decade. We really don’t want to reinflate the bubble just to give those bad investments new life and prop up the credit-based overconsumption frenzy that put us in this sad state to begin with.

Now back to philosophy for a moment. This is just my own belief, to counter Nelson’s appreciation for the idea that people should pay market prices for the “right” to occupy a home. Shelter is a human right, and anyone who contributes to society should have comparable access to stable, secure, desirable housing. Shattering arcane notions that a suitable home is a privilege one must purchase would be good not just in terms of anchoring the housing market, but to transform this society into a halfway decent alternative.

Carol Simpson cartoon -- real estate agent shows family a homeless shelter.

Cartoon by Carol Simpson.


Linkage: Sachs on Happinomics, Baker Kicks Double-dippers, Yves Kicks Ezra, More


I read so damn many interesting commentaries and articles every day, I couldn’t hope to blog even a fraction of the most provocative here. So I’m going to start posting links to good stuff with (very uncharacteristically) brief comments here, if I remark at all. Right? Sure. I’ll try it.


First up, a great piece I by one of the few progressive economists who really convincingly cares about people: Jeffrey Sachs. We disagree on solutions and some other big areas, but I can’t help liking this guy, and not just because he’s buds with my little brother. His latest commentary is on “The Economics of Happiness“, and it made me smile. A quick excerpt:

[T]o promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act.

Baker Kicks Double-Dippers; Rasmus Kicks Back

Notoriously prescient economist Dean Baker, whose prediction of a housing bubble and its effects I started paying close attention to way back in 2003, gained lots of attention yesterday with remarks in his own blog about the prospect of a double-dip recession, or lack thereof:

Of course consumption is not really growing that fast, more likely it is increasing at near a 2.0 percent annual rate, but maybe this number will shut up the arithmetic challenged economists who keep talking about a double-dip recession.

The implication is that tens of millions of people will remain unemployed or underemployed because of the Wall Street sleazes and the incompetent economists who could not see an $8 trillion housing bubble and still don’t know a damn thing about the economy. It’s a crime that they still have their jobs.

These fighting words — which really just pile on to a more detailed argument from last week — got noticed by some economists who foresee a second dip, including one of my other favorites, Jack Rasmus, who took exception:

Baker conveniently forgets that some of the most prescient economists who predicted the recession and financial collapse back in 2007 are also now predicting that a double dip in the coming months is increasingly likely. In other words, not everyone forecasting double dip today were the polyannas predicting no recession back in 2007.

Dean isn’t without friends, though. Karl Smith over at Modeled Behavior backs him up, tentatively.

Yves Smith vs. Ezra Klein on Refi Ridiculousness

One of the Obama administration’s hairbrained ideas for boosting the slouched housing market and economy is to offer a new federal refinancing program that would of course work with private lenders to help homeowners get a new life on their equity or maybe get out from underwater.

This is dumb. Thanks to Naked Capitalism’s Yves Smith (heavily citing Adam Levitin) for speaking direct, simple truth to this silliness. Levitin shuts the idea down effectively, but Smith locks the door by pointing out that there are real opportunity costs to pursuing mediocre-at-best policies, a lesson the administration seems determined not to learn. Whereas administration pumper Ezra Klein had said “it’s worth a try”. No, Ezra, it’s really just not.

‘Who Will Help the Poor?’

This is the title question of a commentary by Dominique Moisi, who worries (as do I) that in a belt-tightening frenzy ravaging the West, the world’s most vulnerable populations are without a helping hand. I wish I had time to critique this one, as I don’t totally agree with the premises, but I am so hungry for anyone actually caring about this matter, I wanted to draw readers’ attention to it even without remark.


Managers Shifting Growth Gains from Labor to Capital


Even when the US economy is technically “growing”, it is not “recovering” in any meaningful sense of the word. Aggregate demand is down, unemployment shows no real signs of improvement, and the most productive workers in the world go unrewarded (or really penalized).

Robert J. Gordon’s keen analysis of the latest figures puts this all into perspective. The key findings here, for those mainly interested in the human impact of economics, are that corporate management has favored cutting jobs over other strategies for surviving the economic downturn since ’08. This hypothesis isn’t new, but these figures offer a pretty good illustration of just how it came about, the effect it has had, and why it persists.

When the economy begins to sink […] firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. […] My “disposable worker hypothesis” […] attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Gordon has been saying this for a while, so I’m eager to see if anyone can make a case that his latest analysis is somehow skewed to uphold earlier conclusions… or if he’s just been right all along.

Gordon’s analysis also demonstrates why aggregate demand and jobs have not recovered with growth. The technical causes are interesting (a “double hangover” effect rooted in the housing market — excess housing supply and excess consumer debt), but still it is the distinctly social factor of his findings that are most relevant, to my mind.

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management.

Now, if you’re thinking, “How can this be good for the capitalists in the long run?” — you’ve got a great point. In favor of fattening their short-term coffers, capitalism’s decision-makers are taking a huge bite out of domestic consumer demand, and this has an inevitable positive-feedback effect (that’s bad in this case) on the economy and thus private-sector revenues, not to mention government revenues.

This is just another failing of capitalism — it permits elites with inordinate power to make decisions that hurt working people and the economy overall, and even probably hurt themselves in the long run. Sure, capitalism allows them to not act irresponsibly, but given the nature of humans with elitist attitudes*, irresponsibility is what is to be expected, and there is no averting it without massive intervention against market forces — which won’t happen because Guess Who decides when and where the government intervenes.

* I won’t call it “human nature”, because it could be a self-selecting special “breed” that behaves this way; though I could be wrong, we’ll never find out, since capitalism will only ever allow the disproportionately greedy among us to be tested vis a vis how they prioritize constituents when setting major business policy.

Cartoon by Carol Simpson.


King’s Revolution, Now as Ever


Greatness from Cornel West commenting in the New York Times commemorating the legacy of Rev. Dr. Martin Luther King Jr.

The age of Obama has fallen tragically short of fulfilling King’s prophetic legacy. Instead of articulating a radical democratic vision and fighting for homeowners, workers and poor people in the form of mortgage relief, jobs and investment in education, infrastructure and housing, the administration gave us bailouts for banks, record profits for Wall Street and giant budget cuts on the backs of the vulnerable.

Couldn’t hope to say it better if I tried all day long. And the gorgeous conclusion:

King’s response to our crisis can be put in one word: revolution. A revolution in our priorities, a re-evaluation of our values, a reinvigoration of our public life and a fundamental transformation of our way of thinking and living that promotes a transfer of power from oligarchs and plutocrats to everyday people and ordinary citizens.

Well, the actual conclusion disappointingly advises us to support progressive politicians, which is a weird way to get the above… where I wish I’d stopped reading.


‘Stay Angry at the Plutonomists’

begger approaches rich man

Writing for the New Economic Foundation blog, Josh Ryan-Collins encourages us to “stay angry” at the tiny group of powerful Americans CitiGroup says enjoy the special status of “plutonomy” — you know, the people who matter.

Citigroup believed that we had moved in to a new kind of macro-economy, where growth was primarily driven by the rich and enjoyed by the rich.  Everyone else was fairly irrelevant, as was the global imbalance in trade between the US and everyone else and the strength of the dollar.  The fact that inequality was massively widening was not seen as a big issue – the important thing was to keep the rich and their stocks, getting richer.

Ryan-Collins is referring to the content of two leaked reports that should have been more widely embarrassing for Citigroup. It probably helps that Citi’s brands/subsidiaries advertise widely in American news media, or we might have seen more from the troublingly candid document.


The Promise of Capitalist Globalization, Predictably Unfulfilled


I swear it’s just coincidence that right after coming down so hard on Nouriel Roubini, I’m going to praise a piece appearing in his EconoMonitor blog, this one by investment executive Walter Molano.

In “The Summer of Discontent“, Molano cuts straight to the nitty gritty, squarely placing blame for the past year’s various grassroots grumblings (China labor tension, Arab Spring, London riots) on the shoulders of market capitalism — namely, its failed promise. And he doesn’t try to sugar coat it or tack on a hackneyed stupefaction proclaiming capitalism will make it all right.

Molano basically illustrates how the global game of musical chairs that was played for the last twenty years as new markets opened up and capital flooded in has, in the end, left much of the world standing, disgruntled. It’s a short piece (with dreadful paragraphing), but let me share some highlights:

The growth spurt driven by globalization expanded the economic pie, as billions of new consumers were incorporated into the marketplace. Rising commodity prices and expanding trade flows delivered huge windfalls to the developed and developing world. However, as the rapid rise of global integration began to plateau, and the effects of the downturn in the U.S. and Europe took hold, the vast aspirations of disparate societies dimmed. Not only is the American dream looking like an empty promise and the European socialist model a distant memory, the hopes for a better way of life by billions of people across the developing world is also in doubt.

It’s hard to argue with this, adding to the account that everyday people in the “developed and developing world” did not accrue benefits equitably from the windfalls, which Molano fully understands. An investment analyst has captured the spirit of the street, and he’s going to tie it into useful, plain-English macroeconomic analysis. Observe…

The mad scramble for productive and physical assets throughout the former communist states, such as Russia, China and Vietnam, created a cadre of super-rich individuals. However, the re-allocation process is over and most of the boundless opportunities are gone. Now, these populations are stratifying into the traditional class segmentations associated with modern capitalist societies, fostering disappointment and frustration for some.

Molano then actually presents a Marxist framework within which to understand the impact these changes on class in countries his colleagues typically refer to as “emerging markets” (Molano spares us this dreadful term). I actually found this to be the weakest aspect of the piece, as Molano is trying to wedge modern concepts into an arcane (if historically useful) model. Nevertheless, it’s interesting.

But Molano’s commentary isn’t done getting better (i.e., franker). I’m going to make you read his piece for the details, though.

I can’t help sharing his conclusion with you just in case you don’t take the hint and read the original:

The blurry images of the violence in London, Hama and Hangzhou are the precursors of similar events that will take place in other parts of the world, such as Istanbul, Jakarta and Bogota, when they realize that the dream of greater prosperity was dashed by the basic principles of market economics.

I’m not familiar with Molano’s prior work, so I don’t know what the rest of his take on capitalism is. His job title suggests he’s okay with taking advantage of it, but unlike many of his contemporaries examining the current hyper-crisis of capitalism, he seems to have some genuine understanding of if not sympathy for the people economics impacts most: workers (and the unemployed). His lens is still familiar to those of us who read economists and analysts speaking to an elite audience of investors, but he focuses it in a way Roubini and Jeremy Grantham don’t seem willing or able to. Not revolutionary, but kind of refreshing. Why can’t this become a trend?


Is Capitalism Doom?


I’ve been seeing a lot of commentaries by mainstream, liberal economists and economic observers (that’s my classification) declaring, more or less, “Capitalism is dead; long live capitalism.” These presentations are typically made by people who present detailed, fact-based, rational cases why their economic system of choice is destroying our habitat and our politics, ruining life for many while ending it for many others, or at least devouring itself and spoiling everything even for the people it’s served relatively well thus far. These same people invariably then make a nonrational, largely fact-free case for why only capitalism can save us from capitalism.

The cognitive dissonance is really quit astounding, and I must confess the urge to analyze it largely inspired this blog. I knew the next couple of years would see a rash of these all-but-admissions that capitalism is a fraud and it doesn’t “work”, and I wanted to be well positioned to pounce on them.

I probably could have predicted one of the first pieces of prey to come along once I launched FuturEconomy would be from none other than liberal economist Nouriel Roubini, who over the weekend declared that capitalism was doomed… but could still save itself. Roubini makes quite a case in his commentary that the contemporary practice of capitalism has all but devoured capitalism, but he couldn’t help declaring his hope for capitalism to save itself at the last minute if the US and Europe follow his prescription.

As with other recent examples, Roubini’s case against capitalism is substantial (though missing literally dozens of points), and the case for it pathetic, lacking even a lazy attempt at substantiation or even logic to support assertions. I don’t know Roubini, but I’ve seen this phenomenon enough to suspect a religious belief in the almighty capitalism is all that’s behind his thin veneer of optimism.

Devoid of Ethics

The commentary is called “Is Capitalism Doomed?” I love this title. It is kind of a “woe are we” approach to the inevitability of social change. There’s not really a shred of ethical interest in the piece, mind you. Roubini isn’t upset that people are suffering and are going to suffer whether capitalism succeeds or fails. He is apparently just worried for capitalism, the ideology/model, per se.

The first 13 paragraphs are a cogent pre-obituary. The failings, mind you, are not that billions of humans don’t have their needs met. That’s never been something legitimate to hold against capitalism. (Fuck ’em.) It’s off the radar. Roubini is more concerned about the system’s failure to function as it has — which incidentally includes exploitation on a scale never dreamed of by emperors of old. Roubini and his contemporaries are worried that capitalism will even stop serving those it has done well for: the privileged classes. If the technical backbone of capitalism (global finance) grinds to a halt, that’s bad for the capitalists. And Roubini seems aware it comes right on the heels of other privileged groups getting pinched:

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Note this is the only mention Roubini makes of popular discontent, and he lists the concerns as evidence of a threat to capitalism, which is what he appears to actually care about. The most charitable reading is that Roubini finds this discontent to be further evidence that capitalism is on the wrong track, but I think that’s too generous.

Here’s an example of the crassness so common in these discussions. Roubini also notes that “cutting jobs reduces labor income, increases inequality, and reduces final demand”. The problem with cutting jobs and reducing “labor income”, you see, is that it decreases demand — not that it causes hardship. It’s nice of Roubini to include inequality, but we know inequality is an objective problem of the kind economists can include in their analysis. The subjective aspect of it (exploitation and deprivation) aren’t notable factors.

In a sane economy, decreased demand would be a good thing, per se. If people wanted less stuff, everyone should be able to work less, not to mention saving on natural resources and reducing pollution. But this is an Achilles heel of capitalism (it has several). Decreased demand has a “positive feedback loop” effect on unemployment and wages in a market capitalist economy, and the cure for it (increased demand) means more resource use and more pollution. It is quite simply insane. Taking into account a world in which consumption is already way over sustainable limits, contraction = bad is a very ugly proposition. We need the biggest economies to contract or humanity and its habitat are in trouble (never mind capitalism). So we need contraction = good. But capitalism doesn’t play that way.

“Capitalism is Dead, But…

Stepping away from moral matters (which I’m never going to win economists over on anyway), Roubini’s commentary amounts to a strong case portraying capitalism’s downfall impending, basically illustrating how people and institutions are running out of shipwreckage to cling to.

The conundrums are lined up:

  • an expected third round of “quantitative easing” in the US “will be too little too late”;
  • “Italy and Spain are both too big to fail and too big to be bailed out”;
  • nearly all economies “need a weaker currency and better trade balance to restore growth, but they all cannot have it at the same time”;
  • European governments “are so distressed that bailouts” of European banks are “unaffordable”, and paradoxically sovereign risk is “fueling concern” about those banks’ health, cyclically putting them at greater threat because they “hold most of the increasingly shaky government paper”.

The case goes on and on, and even if you don’t understand the particulars of all these dilemmas, you get the gist. The contradictions of capitalism are on display. It’s a tour de force of arguments why capitalism is functionally on the brink. It falls way short of a complete case, but it’s pretty damning in and of itself.

…There Is No Alternative”

This prompts Roubini to write one of the most interesting conclusion sentences I’ve ever seen. Paragraph Ten begins:

So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).

What a sentence! It’s hard to tell what Roubini actually means by it. After all, he presents a case that Marx was totally right inasmuch as he said what Roubini demonstrates vis a vis capitalism, but then he declares that Marx was partly right. He never gets around to saying how Marx was not totally right about capitalism’s downfall. Roubini says “globalization, financial intermediation run amok, and redistribution of income and wealth” are killing capitalism, just as he says Marx predicted. So what makes Roubini’s rendition of Marx only partly right?*

One way to read the sentence is that Marx’s entire body of work was “partly right” because socialism isn’t better than capitalism. Marx is best known for two very broad theses. One was that capitalism would make its own demise, the other was that socialism would be better. So maybe Roubini wedges in that parenthetical statement about socialism being no better just to prove that Marx was wrong about something. Or maybe he wedges it in to remind us that we’re stuck with capitalism.

But how can Roubini suggest socialism has been proved not to have been better than capitalism? What kind of self-delusion would be required for a learned economist to write those words?

Here are some statements that could tread the waters of truth:

  1. Marx’s version of socialism, to the extent it is understood, has been largely demonstrated to be inadequate and even inferior to capitalism in some respects.
  2. Socialism as implemented by autocrats has been all but proven inadequate for meeting human needs or safeguarding basic freedoms.

One could argue the above statements either way, but at least there would be a logical case to be made. They’re not absolutist like Roubini’s dismissive socialism is no better). Having set out to implement something like Marx’s version of socialism or an autocratic version, practitioners have yet to come close to a model that could be considered clearly superior to capitalism, and in fact have largely established nightmares. It’s reasonable to believe this; I do in fact believe this. It’s just not the end of the story, except for the nonrational true believer.

I mean, how bizarre it is to declare that failed attempts to implement peculiar versions of a broad idea constitute proof that no version of that broad idea can ever work? By this logic, pre-Wright Brothers attempts to achieve manned flight would be considered proof that humans will never pilot aircraft.

It’s one thing to hear “there is no alternative” from capitalists making a case that capitalism is doing well — “…besides, there’s no alternative.” But when the capitalist apologist is up against the ropes — even admitting piles of evidence that its contradictions put capitalism three jabs and a right hook away from a self-knockout — it’s strange to see them quoting Margaret Thatcher not just to explain why they refuse to throw in the towel, but actually to somehow provide hope and rally for their cause.

Capitalist, Heal Thyself

Mercifully, Roubini doesn’t leave us hanging. He’s not saying capitalism is dead and socialism can’t work, so we’re doomed. He sort of kind of answers the title question, “Is Capitalism Doomed?” by hinting that if a bunch of changes are made just right, it is not doomed.

Now, I have major objections to this. First, as I mentioned before, Roubini entirely fails to substantiate why he thinks his recommendations will save capitalism from itself. He just says that they will, and sophisticated fanboys worldwide will take comfort in that assertion. Roubini lays out an antidote, in three paragraphs, that will miraculously resurrect his ideology. This is unsatisfying to me, because I’m a critical thinker. People who love capitalism probably find hope in Roubini’s faith.

They should not.

But what if we stipulate that Roubini’s blueprint could save capitalism? Is it a real possibility? Is it what we should hope and maybe work for?

My answer is hell no. It wouldn’t be worth the trouble, and it has profound opportunity costs.

Resurrecting capitalism mostly just means making it functional again, and this isn’t worth lifting a solitary finger for. The problems endemic to it will still mostly be there, if softened. The next crises are not financial as much as they are existential; Earth is running out of resources at an alarming rate, and the planet is cooking. So Roubini’s best case scenario puts us in position to grow economies that should be shrinking. This is not just not great, it is catastrophic. Roubini’s antidote is out of the frying pan into the fire.

Besides this, Roubini’s prescription is nearly impossible to imagine. It will mean major transformations and gargantuan policy reforms that are very hard to fathom. This is not a reason not to try, though. “Demand the impossible” is one of my favorite slogans. It doesn’t mean “act unreasonably”, it means “strive for the things they say you can’t achieve”. But as long as we’re going to try for the impossible, why should we break our backs trying to resurrect a zombie that will try to eat our brains? Why not try for something that is next to impossible but is fundamentally better in nearly every way? Why not a new economic system?

End stipulation. Now let’s review Roubini’s suggested remedies, in case you’re still thinking resuscitating capitalism is desirable.

His first suggestion is that we “return to the right balance between markets and provision of public goods.” No more supply-side economics or free-market silliness, but also do away with the “deficit-driven welfare states.” He says we need infrastructure investment, progressive taxation, “short-term fiscal stimulus with medium- and long-term fiscal discipline”, “reduction of the debt burden for insolvent households”, breaking up too-big-to-fail banks, and tighter regulation of financial markets.

These are the typical liberal solutions to the recession and the threat of increased discontent and further economic turmoil. But do they really address the host of problems Roubini himself listed as potentially dooming capitalism? Not even close! Dr. Roubini has listed numerous symptoms of multiple terminal diseases and then effectively said, “I’m pretty sure I can treat that nasty rash you’ve got.”

But this commentary was widely hailed. Bloggers and aggregators looked up at Dr. Roubini and said, “That’d be swell, Doc. This rash has been bothering me somethin’ awful!”

Then Roubini gets a little more philosophical; he departs from reality a even more.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy.

Increase productivity in order to enable workers to compete? His solution to the dilemma of international trade being one of the downfalls detailed earlier is to “be flexible”? That’s it?

In order to save itself, capitalism needs to learn to invest more in human capital. In case you didn’t hate capitalists and their rationalizing apologists before, try that statement out for size.

“But Dr. Roubini,” a rational patient complains, “I’d like to hear all the options. There must be something else we can try. I mean, I felt pretty sick before I got the rash. I’ve got cancer and congestive heart failure.”

Roubini’s answer:

The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

And that’s it. Hilariously, that’s where the commentary ends. Finito. There is no alternative to his prescription. It’s Roubini’s way or doom.

Roubini’s review of capitalism is like that archetypical television scene where the sheriff sits on the edge of his desk, arms folded, and declares with forlorn: “Boys, I don’t approve of what you’ve done. You’ve been reckless, you’ve endangered lives, you’ve crashed several cars and half the town burned to ashes. That said, it appears I’ve got nothing to hold you on, so you’re free to go. Now scram, and stay out of trouble.”

But capitalism is not the moral equivalent of Bo and Luke Duke; it’s not a good-natured country bumpkin just trying to get by in a confusing world. It is the confusion.

What we’re really seeing from Roubini and others is self-interested terror combined with a dearth of ethical concern finally infused with a profound lack of imagination. It’s typically presented in a fashion that is practically self-conscious; the critic will make a strong case using facts and reason to explain why capitalism is to blame for our current condition… and then he or she will make what amounts to a religious case, lacking facts and reasoning, to argue that capitalism can or will turn everything around, if we’ll just tinker here and there.

This is remarkable, if you think about it. It requires a dual failure of imagination that is close to pristine in its self-delusion. The critic must fail to carry market capitalism’s structural implications to their logical conclusion, usually by ignoring all but a subset of problems that are in and of themselves pretty damn damning. It’s like showing how a plastic bag will rise and fall on the wind but then claiming it will never finally hit the ground or get stuck in a tree. This requires nonrational faith.

Roubini starts off with the wrong question: Is capitalism doomed? Who cares? There’s just one question worth asking: Is humanity doomed? My answer is, If we stick with capitalism, humanity is in deep trouble.

Roubini and the unimaginative see these questions as one and the same. They want to stay on the ship with the massively compromised hull on the off chance that some Sisyphus will come along and bail out the bilge indefinitely, despite a lack of apparent interest in the endeavor. They cling either because the ship is the only place they’ve ever called home and they can’t bear leaving it, or because on this ship they’re in first class, and on the lifeboats or the rescue vessel, class disappears.

Just imagine the near certainty of a figurative death by drowning frightening you less than the idea of having to live in a society that offers everyone roughly equal dignity. That’s the only impetus I can figure is behind these ridiculous declarations that there is no alternative to a system pretty much everyone from center leftward knows is a pile of garbage.


* I actually disagree that capitalism eating itself in the ways that it is now demonstrates that Marx was totally or even largely right, but in presenting a limited, carefully distilled sample of Marx’s claims, Roubini makes Marx seem positively ingenious in his forethought! (For people with religious beliefs in the predictive capacities of markets, the bar on predictive capacities is so low even 19th Century meteorology must seem positively prescient).


Will the New York Times Profit Off an Elitist Profile?

very fat cat

It never ceases to amaze me how disconnected, or just plain unconcerned, the privileged can be when it comes to worrying about the future of the world. Believing they’re safe from the worst pains of anthropogenic climate change and contrived resource scarcity, their main concern tends to be how they are going to continue to grow their personal wealth when the shit hits the fan…

Long-term business analyst Jeremy Grantham has been noticed recently for what some see as economistic doomsday predictions, usually in the form of open “letters” to the investor class. In these communiques, Grantham says the same thing progressive economists and scientists have been saying for decades, citing roughly the same evidence (if far less of it!) and drawing essentially the same mid-term conclusions, with updated numbers. But Grantham has credibility because he’s not remotely radical, or really even progressive — he’s a late-to-the-game mainstream financial analyst… and more importantly, he’s got the interests of elites in mind, which means the New York Times will perk its ears up and give unconventional observations the kind of attention only a Magazine feature profile can provide.

Grantham and some fanboys drive the conversation of an August 11 NYTM piece titled “Can Jeremy Grantham Profit From Ecological Mayhem?” In a way only the extraordinarily privileged could swallow with a straight face, source after source lavishes Grantham with praise for looking out for the vulnerable, neglected investor class. Unless you’re made of money, it would be hard not to get outraged by the cavalier attitude of this whole story. But if you are a big investor, how “objective” and “unbiased” the feature must seem.

Let’s start with writer Carlo Rotella’s gushing treatment of Grantham:

Doomsayers are always plentiful, and the economic and environmental news has encouraged even more doomsaying than usual of late, but Grantham compels attention, in part because he’s not simply prophesying doom. […] And, crucially, the consequences will be unevenly distributed, creating angles for you to make money and look out for your interests, however you define them.

[emphasis added]

The New York Times is saying a man deserves attention not because he is pointing out how much trouble lies ahead (however inadequately); it’s because he inspires us to call our stockbrokers rather than run to the woods. In other words, it’s newsworthy because he can help people with capital exploit volatility, the rest of us be damned.

Bailout Nation author and prolific business blogger Barry Ritholtz, whose work I have followed for a couple of years now, appreciates Grantham as a fellow straight shooter. But with praise like the following in the NYTM story, it’s easy to see which side these guys are shooting for:

He’s not telling people to stockpile water and dehydrated food. He’s saying this asset class will underperform or not.

And what about those of us who can’t invest in assets of any class? (The ugly irony, of course, is that if a major collapse happens, it’s unlikely all the asset holdings in the world are going to keep these guys and their families fed and protected, but on the way to “doomsday” they can get filthier rich on paper!)

The whole piece is such a fawn fest, the Times even quotes sources with financial conflicts of interest. We’re treated to praise of Grantham from the head of the Environmental Defense Fund, a group backed by the Grantham Foundation for the Protection of the Environment. We also hear from the executive director of that same Foundation, whose job no doubt depends on Grantham’s good graces. On what planet is that legitimate journalism?

The article includes no critics of Grantham or his attitude. In fact, the only bit that could be conceivably construed as criticism is mixed praise of the quarterly letters, coming from another employee of Grantham, who notes some investors complain that Grantham’s advice isn’t immediately applicable enough for them to exploit!

No source points out how bizarre it is that someone notes potential suffering only to dismiss or distract from it, making no real mention of current suffering. No one offers alternative analysis. No one even challenges Grantham’s numbers from any perspective, Left, Right, or Martian.

Enough views about Grantham. What about Grantham’s views? Let’s start with a zinger. In Rotella’s words from the Times piece:

The world’s population could reach 10 billion within half a century — perhaps twice as many human beings as the planet’s overtaxed resources can sustainably support, perhaps six times too many.

We aren’t told that this is only true if we assume the planetary elite — that tiny percentage of the global population that consumes a massive share of resources that could otherwise be used to feed, clothe, heal, shelter, and educate the 60 percent or so that live on less than $2 a day — is permitted to maintain its sickening dominance of global wealth and resources. This status quo is a given for the Times and people who look at Grantham as a prophet of profit angles.

Rotella quotes Grantham’s open letter from July:

We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and profits, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.

The above statement is just plain wrong. First, it ignores the “suffering on a vast scale” that is already underway! On Day Zero, we’ve got suffering on a vast scale. Who can look around and consider that the horrors already caused by “scarcity” that is in turn caused by market capitalism’s wicked misallocation of goods and resources is anything other than “vast” — I’d rate it as “epic”, even.

Worse, it’s absurd to suggest by implication that the suffering of the world’s poorest can be averted. Some of it can be curbed — perhaps much, even — but the trajectory we are on offers no option for sparing a great many, no matter what radical changes are made. (See, for instance, the recent work of fellow market optimist Paul Gilding, who at least has the integrity to admit widespread suffering caused by climate change and scarcity will be hellish and is inevitable and underway.) And make no mistake, Grantham is not advocating radical changes anyway, least of all those with the most vulnerable in mind.

It isn’t actually clear what “suffering” Grantham is referring to. But even if he’s talking about the “suffering” of wealthy investor class that risks losing its $300 shirts if they don’t play their dollars right, that hardship can be but delayed as Grantham and his friends trample to the aft rim of the Titanic.

Grantham does give some indication of who he’s looking out for, noting that a drastic change in economic priorities will likely come “too late in the sense of failing to protect much of what we enjoy and value today.” By we, he probably doesn’t mean the world’s poorest.

Grantham wisely wants to tie the issue of climate change to that of resource depletion, which he thinks will have a greater impact on the American conscience than that abstract bogey man of global warming. “Global warming is bad news,” Grantham tells the Times. “Finite resources is investment advice.” Again we’re back to those real interests. You’re not going to ride out Grantham’s storm on your 401k.

Cynics like me will have to agree with Grantham to an extent: it’s true that Americans are more interested in their short-term concerns than looking down the road. But Grantham goes a step further; he considers this unfortunate attribute a strength, saying Americans “respond to a market signal better than almost anyone.” How great that we don’t care about those who will be first and most severely affected by climate change — by gosh, we’ll respond when it puts the economic pinch on us… after all, we’re Americans. Meanwhile, the Global South is collectively begging us to respond for their sake (and our own), but the virtuous Americans are awaiting the proper signal.

The Times feature ends unsurprisingly on a note of praise for Grantham.

But I’m not done with him yet.

Grantham’s most-recent letter — the one that has garnered him cult-like attention (that I contributed to because his numbers are very interesting) — is a moral disgrace.

Grantham is extremely smart and insightful. He has a keen eye for some of the limitations of the system he lives by.

Capitalism does not address these very long-term issues easily or well.  It seems to me that capitalism’s effectiveness moves along the spectrum of time horizons, brilliant at the short end but lost, irrelevant, and even plain dangerous at the very long end.

Again, how capitalism can be considered brilliant in the short term when billions of humans are food-insecure or at risk of dying from curable diseases is kind of hard for us non-elites to understand. But it’s important for business analysts to comprehend, as Grantham does, that capitalism isn’t even good at keeping their interests steadily shaping up, because markets have extremely limited predictive capabilities.

Grantham tentatively advocates reducing the human population of Earth in such a way that “might leave us with a world population of anywhere from 1.5 billion to 5 billion.” Well, we certainly could go a long way toward solving our resource problem by eliminating the wealthiest billion humans, but something tells me that isn’t who Grantham is thinking about. (I don’t advocate it either, for the record.)

We could more palatably solve many of our resource concerns by knocking out excess consumption by the wealthiest 15 percent of the global population, even while raising the standard of living for the lowest 60 percent or so. But of course that’s not a serious option for the Paper of Record or anyone they’d herald in a praise piece.

Grantham’s letter is devoid of the following words: hunger, poverty, refugee, famine, disease. These are hazards that even the most cynical of elite analysts doesn’t take seriously. Malnutrition and starvation are both mentioned, but one is a historical reference. One use of the terms is in a bullet point glancing over the fact that there will be “increases” in Africa and Asia, and nothing will be done about it. Another mention is used to crassly bolster Grantham’s case against US ethanol subsidies.

Grantham’s letter focuses heavily on agricultural issues, lending some very good analysis of soil and water problems that are worth reading. But it conspicuously ignores the root causes of the soil and water problems he notes: factory farming, livestock dependence, and monocropping. He’s either just learning about the cornucopia of deep-seeded oh-shit crises already facing humanity, or he’s burying most of them for whatever reason. Either way, his agricultural analysis is embarrassingly amateurish.

Perhaps worst of all, Grantham naively exhibits symptoms of a very typical chronic optimism disorder that is virtually religious in nature. This is not uncommon among elites trying earnestly to look down the road. After lamenting (while the Fukushima crisis is still at a high simmer in Japan) that humanity probably won’t make a revolutionary switch to nuclear fission energy, Grantham brightens up:

I believe that in 50 or so years – after many and severe economic and, possibly, social problems – we will emerge with sufficient, reasonably priced energy for everyone to live a decent life (if we assume other non-energy problems away for a moment) even if we don’t radically improve our behavior and make true sustainability our number one goal. In other words, current capitalist responses to higher prices should get the job done.

I’ll stick to the worst of this quotation’s many offenses: the belief, based on nothing but faith, that markets and humanity will somehow, magically, make everything peachy again mid-century. No need to switch economic systems or do anything too radical; after some undisclosed “social problems” that we can assume away, we don’t even need to “radically improve our behavior” in the meantime — everything will fix itself.

Substantiation of such a bizarre claim is unnecessary, because Grantham is telling the financial elite what they want to hear. Worst case scenario: everything will sort itself out after some problems. No worrying about that whole screwing-over-future-generations conundrum. Even the chief doomsayer says they’ll be fine.

That must be comforting for the kind of people the Times finds relevant.


‘Financial Terrorism’ in America


Wow. This powerful, data-heavy paper comes off pretty bombastic, and I admit I’ve only given it a cursory read, but I’ve spot-checked the sourcing, and it holds up better than a lot of this kind of stuff that I come across. I’ve never seen the source before — Amped Status — but I’ll be taking a deeper look at that, too. It has a kind of Alex Jones (crazy) vibe, but I think it may actually be rooted in sanity.

I wish I had time to do a more thorough analysis, but I do not, so I wanted to make sure I shared this. You should just go read it. But in case you need some inducement, here are a few zingers from the report.

  • According to most recent Census Bureau data, from 2005 – 2009, average US household wealth declined by 28%. This represents a loss of $27,000 per household. Currently, at least 62 million Americans, 20% of US households, have zero or negative net worth.
  • In 2005, 25.7 million Americans needed food stamps, currently 45.8 million people rely on them.
  • While 68.3 million Americans struggle to get enough food to eat and wages are declining for 90% of the population, US millionaire household wealth has reached an unprecedented level.

Via Nomi Prins on Twitter.


Revolt is Inevitable; Riot is Not


To any insightful observer of the sociology of riots, the only thing that’s hard to understand about these extraordinary social phenomena is why they occur so seldom. As irrational as rioting may seem in terms of who bears the costs of the immediate damage and violence, there’s a difference between irrationality and senselessness. Riots tend to erupt without much historical consciousness on the part of instigators, so contextual disincentives (e.g., wariness of aftermath) are not fully in effect. In any case, something can seem irrational from the perspective of a distant observer, even while that same event can make total sense to the people engaged in the action (or for that matter, strongly sympathetic bystanders).

Riots and revolutions alike tend to be sparked by an incident or other concrete injustice from which moral outrage spreads. The differences between riots and revolutions, as two distinct types of uprisings, have to do with the level of organization of the response and whether the intentions are expressive or transformative.

In the current UK turmoil, it was the murder by police of a young black Londoner that set things off. The visceral, localized response to the frustration of never seeing injustices sufficiently addressed is understandable. In this case, it has spread to envelope people from many areas of England carrying myriad torches they believe are not being validated by anyone in position to make a difference. I doubt anyone has ever put it better than Rev. Martin Luther King Jr did in 1963:

When you cut facilities, slash jobs, abuse power, discriminate, drive people into deeper poverty, and shoot people dead whilst refusing to provide answers or justice, the people will rise up and express their anger and frustration if you refuse to hear their cries. A riot is the language of the unheard.

Nothing fundamental has changed since MLK spoke those words. For all the social progress that has been made, governments still act on behalf of their wealthy sponsors and underwriters, and the most privileged race still sees itself as superior and specially deserving while pretending to abhor that very idea. Almost nobody in a position to be heard states the obvious: that wealth is power, and a system that fosters the accrual and concentration of power will before long so silence and disenfranchise some that they will seek to be noticed however they possibly can. Furthermore, it is easiest to disenfranchise an underprivileged class if that class is divided against itself on superficial lines of race, gender, age, and so forth, and when that class is kept quiet and complacent.

When it comes to articulating their discontent, the poor are reliant on the corporate news media to convey their plight. But mainstream outlets have a static handful of perspectives on poverty, youth, and race: ignorance, patronization, scapegoating, demonization, and distortion. In societies where media outlets mediate nearly all interfaces between the poor and the privileged, and where police conspire with geography to protect the privileged from those they exploit, the self-destructive orgy of chaotic looting and burning is one of the only available options for sending messages.

Here’s another apt quote that’s gone viral. An NBC News reporter asked a participant of the riots were achieving anything. He replied:

Yes. You wouldn’t be talking to me now if we didn’t riot, would you? Two months ago we marched to Scotland Yard, more than 2,000 of us, all blacks, and it was peaceful and calm; and you know what? Not a word in the press.

Of course, such rare glimpses of explicit conveyance notwithstanding, the message typically received by the voiceful when they look at rioting is, “Insulate yourselves from us so we can’t burn your house down or hurt your kids.” It’s doubtful that many people in positions of power hear the proper message: “Give us some justice and share your shit with us or we’re coming for it.” The power elite take their cues from the fire department during riots: stand back, maybe spray some water here and there, try to contain the blazes to the poorest neighborhoods.

The political and economic dimensions of the riots rocking British cities are too big to ignore, no matter how earnestly politicians and members of the media insist the events are acts of crazed criminality. Jérôme E. Roos assesses the “structural causes” of the riots in an excellent backgrounder:

While it would be ridiculous to use [youth unemployment and child poverty] statistics as a justification for the dangerous, irresponsible and anti-social behavior of the rioters, it would be just as foolish to simply ignore this crucial social context and only focus on the “aberrant behavior” of “deviant individuals.” The violence and thievery may be entirely indiscriminate and a-political, but the root causes of it are profoundly political and carry a very clear discriminatory component.

See Dan Poulton’s “Riot in the Age of Austerity” for more context.

The question in our minds shouldn’t be whether civil society will respond to intolerable conditions like wealth disparity, alienation, and discrimination imposed upon the populace by elites. The question is simply how will we respond? We can do it in an organized, intentional fashion, with preparation, cohesion, and foresight. Or we can do it in a chaotic climax of rage.

We will revolt. But will our upheaval take the form of organized revolution or spontaneous spasm? That latter, default option isn’t “pointless” or “senseless” as many would depict it. But it only achieves the goal of scratching an itch. Revolution serves that goal, too, but it also can exchange itchy, dead skin for healthy new flesh.

Still, given all that I’ve said about corporate media forming a status-quo-protecting shield between the privileged and the exploited, what is the practical alternative to rioting? Please, you urge, because you’re anti-lameness… don’t prescribe more of that passive demonstrating and those sniveling petitions! That stuff only reminds us that we’re itchy; it scratches nothing!

The answer is organized direct action. Premeditated campaigns of operations that are considerate and self-conscious, not merely reactive. Campaigns carried out in concert with a system for implementing a new mode of truly just and equitable social relations. Such is where mob rule yields to grassroots democracy. Easier said than done? Hell yes. Still easier than dealing with the repercussions of riot? Just maybe.

So if you expect rioting to visit your neighborhood as “austerity measures” and heavy handed policing increase, maybe it’s time to think about organizing to channel all that outrage toward productive goals using forward-looking strategies and tactics. Build recognizable alternative institutions that are precious so services and supplies can be maintained while previously dominant institutions of dependence go up in figurative or literal flames. Target only otherwise-unaccountable property and materiel that is itself used as a weapon of exploitation.

There will be revolt. The choice between riot and revolution is ours.

Top image credit: Phil Noble; Second image credit: Lewis Whyld.