Wednesday, October 26, 2011

Dexia and Little Old Rhode Island

The Dexia Conundrum and Little Old Rhode Island

Dexia is large Belgian-French bank with offices in many countries, including the United States. Rhode Island is a small state in New England, with population a bit over 1,000,000. 

Despite their apparent dissimilarities Dexia and Rhode Island have something in common.  Neither has the ability to fully meet its future obligations; Dexia to its creditors and counterparties, and Rhode Island to its citizen-pensioners.  Their experience highlights a central practical and philosophical conflict that policy makers have to resolve.  Governments are the mechanism of income and asset redistribution.  They choose how to allocate risk and reward, and who to pick as winners and losers.  How they do that going forward is tremendously important in the evolving conception of the social contract.  What obligations does government have to its citizens, and what obligations does it have to private capital?

Dexia has now had two near death experiences. In 2008, it was near bankruptcy, and bailed out.  This past week, it returned to the public trough, with the governments of France and Belgium rescuing it from collapse. Public money was funneled into a private corporation, sparing creditors and trading partners capital losses. The New York Times had an excellent piece on this

Rhode Island’s situation is less acute, but the Times reports it has a “looming pension crisis.”  In Rhode Island, politicians, led by the Democratic State Treasurer Gina Raimundo, have begun to think about the unthinkable-what happens when there just isn’t enough money to pay state workers their full pensions, and keep up the rest of the services that the State already provides.

There’s a tendency among politicians (and Tea Party and Occupy Wall Street types) to conflate TARP with bailouts.  But they are not exactly the same. While it’s an oversimplification, TARP advanced cash on a temporary basis to large financial institutions to stabilize them and provide liquidity during a credit crunch.  The cash was paid back.  What the French and Belgian governments are doing with Dexia is not TARP-it is really what our government did with AIG.  Dexia, like AIG, is essentially a conduit for public money to permanently pass to private companies. AIG and Dexia were gamblers who made bets, and when they couldn’t pay those bets, the taxpayer stepped in to pay off the winners.

Mitt Romney has made a case that TARP, for all its flaws, was essential, and as much as I rue the lost opportunities to reign in the irresponsible behavior that led to the 2008 panic, I agree with him.  He deserves some credit for bucking the trend.

But AIG and Dexia are fundamentally different.  They don’t merely seek to stabilize; they seek to make private capital whole at the expense of the taxpayer.  Why should a capitalist society do this?  When we enter into a contract-any contract-with a third party-we take some degree of risk.  My parents owned a mom and pop pharmacy for thirty years.  They risked their own capital to buy goods.  When they handed someone his prescription, and that customer had a charge account, they trusted that person to pay them later.  When a charge account went delinquent, they ended up taking the loss.  No government agency came by with a check.  If that is true for a small hometown business, why shouldn’t it also be true for the mightiest of the mighty?  Why shouldn’t the shareholders of Goldman Sachs also be risking their capital when management enters into a contract that goes bad?

The same can be said of the pensioners in Rhode Island.  The balance here is a trickier one.  These are state promises to the individual-essentially deferred compensation.  Why aren’t pensioners entitled to 100 cents on the dollar? Well, in an ideal world, they should be.  The government has an obligation to keep its promises to its citizens.  It also has an equal obligation to maintain basic services and to treat all its citizens equally.  Just as it cannot morally ask pensioners to take nothing, it cannot ask taxpayers for a infinite amount. These are wrenching decisions-they aren't about how many billions in bonuses can be paid to senior management, but whether to close a firehouse or a library.   One hopes that reasonable people can sit down in a spirit of compromise to try to minimize the damage. 

One also hopes that our politicians are up to the task of making fair and prudent choices, although it is hard to have optimism at this point.  Both major parties are binary in their thinking.  The GOP position appears to be cut programs, pensions and entitlements because they are deemed unaffordable, and then plow the savings into tax cuts for the affluent on the dubious assumption that they  “create jobs.”  Then eliminate regulations on the financial services industry (so they can be free to fail again, with no risk to capital?).  The GOP views the European example as a vindication of their own view that the wealthy need even more (see Greg Mankiw, an economist currently advising Romney, in his opinion piece.) Democrats, in their own way, are just as bad-they seem unable to think about serious reforms, and if they are unable to think about it, then they cannot articulate it to those of their constituents who would have to make sacrifices.  You can’t have a “Grand Bargain” when neither party wants to negotiate.

That’s a real problem, because if we were to take a moment to look around us, the signs of instability are everywhere.  The Tea Party and OWS are sideshows compared to the riots going on in Europe right now.  If there’s strong medicine to be administered, there needs to be the perception that it is being doled out fairly. 

And yet, one wonders if there is the will to do this.  Who wins, and who loses?

At Dexia, we have the answer.  It's private capital at the expense of the public.  Alexandre Joly, the head of strategy, portfolios and market activities at Dexia, is quoted as saying that the idea of forcing Dexia’s trading partners to accept a discount on what they are owed “is a monstrous idea.”

A “monstrous idea?”  As monstrous as asking the public to pay for it?


Thursday, October 20, 2011

Fight Night in Vegas

Fight Night in Vegas; Fun and Games With Rick and Mitt

The Republican Party held a debate this past Tuesday in Las Vegas.  It was the 87th debate in the last three months, and, fitting with the setting, it was as much a boxing tournament as “a full and frank discussion of the issues”.

The pregame analysis focused on preparation, particularly that of two heavyweights.  In previous debates, the smooth and agile Romney had slipped punches like a dancer, demeanor (and hair) unruffled.  Perry, on the other hand, had shown up undertrained and slightly above the optimal fighting weight, relying on more on sheer aggression.   This time, he promised, it would be different.

The crowd was also primed to cheer for the undercards.  Promising light-heavy Herman Cain had showed both flair and charm.  The Pennsylvania welterweight Rick Santorum was winning fans for his pugnacity and willingness to try to punch above his weight, and Michelle Bachman had thrilled before.  And there was a lot of love for grizzled veterans Newt Gingrich and Ron Paul:  no one expected them to win, but they could still teach the younger generation a thing or two.  As to Jon Huntsman, expectations were high that he would keep his record perfect-not a mark on his face, nor any on his gloves

The bookie’s early line was Romney, with a lot of the “smart money” coming in from the New York syndicate.  But there were plenty of ten-gallon hats and bolo ties in the crowd, and Perry was holding his own.  Cain had surprising support, much of it coming in a single wager (rumored to be the Koch boys). 

The contestants were introduced; the crowd cheered its favorites.  Of the two heavies, Romney is taller and has a longer reach.  He fights upright, using his jab and his leverage to keep opponents at bay.  Perry, however, looks a little thicker through the chest, and you get the feeling if he can get inside, he could work the body over quite a bit.  Romney may be more Sugar Ray Robinson.  Perry is definitely Jake LaMotta.

Respected Referee Anderson Cooper had been selected; some said for his fitness as much as for his verbal ability.  Rules were pretty simple; no speaking after the bell, no hitting in the clinches (in the actual event, both these were often ignored). 

I could go on like this (especially since Mitt actually put his hand on Rick), but I’m veering too much off point.  The Las Vegas debate, because of its format, had the greatest potential for substance.  Unfortunately (although tremendously entertaining) it mostly highlighted the real flaw of the primary system-the overwhelming temptation for all the contestants to substitute red-meat slogans for specifics.

So, at the risk of turning what was a lot of fun sour, I’m going to hunt for specifics amongst the bloodletting.  Without in any way intending to ignore Michelle Bachmann, Newt, Ron Paul, or the empty chair formerly known as Jon Huntsman, I want to assay the views of the primary pugilists.

Let’s start with Herman Cain.  The 9-9-9 system, he seems to be claiming, is both revenue neutral and a positive good for all.  That’s an oxymoronic position, since the plan clearly and unequivocally benefits the affluent.  So, if 9-9-9 were revenue neutral, it would logically follow that the revenue shortfall comes from the less affluent. Perhaps this conclusion is an unfair application of the laws of addition and subtraction.  If so, I’d like to see that demonstrated, in a manner that uses other than fruit analogies. 

Mitt Romney continues to insist that Romneycare in Massachusetts is a continuing blessing to the people of that state, however, Obamacare, for all its similarities, is a catastrophe to the country and demands immediate repeal.  I’d like him to explain that.  Is there something in the Bay State resident’s genetic makeup that makes them hardier than the average American?  Are they less likely to use medical services?  Are the insurance companies there kinder and gentler?  Is it diet-perhaps all that fish?  Just to be clear, I’m not suggesting that Obamacare is an unadulterated good thing.  I would just like Mr. Romney to explain why it is an unmitigated disaster for the non-Red Sox fan.

Rick Perry seems to have a plan (which will be announced on the Friday following whatever debate is taking place at the time).  His plan seems to involve the elimination of all environmental regulations and drilling and mining until the entire country will appear to have been invaded by gophers from another planet.  He also likes a flat tax.  His flat tax may suffer from the same deficiencies that Mr. Cain’s 9-9-9 plan (although, of course, it is, no doubt, far superior), so, once again, I would like a simple illustration, in hard numbers, of how it would affect my family.  And, if it’s not revenue neutral, what programs does Governor Perry intend to cut to pay for it?  I think that’s a reasonable question.

Rick Santorum, a former tag team member gone rogue, has a plan.  He’s for a host of conservative social values, and I think it’s laudable that he is as steadfast on those issues.  He’s against Obamacare (not surprising in this group).  And he’s against Mitt Romney and Rick Perry.  But I have to ask the former Senator, other than telling me how you would like me to live my personal life, what do you stand for?  I couldn’t learn much from the debate, so I went to his website.  And, after making my way through the thicket of contribution “asks” and self-adulation, I was able to find Rick’s “Where I Stand”.  He’s a “Defender of the Taxpayer”, and “Believer in American Exceptionalism”.  Not much meat there.  I’m a taxpayer (an aging taxpayer), and I’m actually very patriotic.  I’d love to know what Mr. Santorum has in mind for aging, taxpaying patriots.

The problem for me is that, after all these debates, and hearing all the cheers, I have a very good idea why Republican primary voters should want one of these people in the White House in 2013, starting, first and foremost, with the simple fact that none of them are named Obama.  What I don’t have is a single reason why I should vote for any of them-except to out the current incumbent.  But I’m a moderate Democrat.  If I agree with your premise that Obama is a poor President, sell me on voting for you.   Tell what my country will look like in January 2014 if the GOP controls Washington in 2013 so I can decide whether I want to choose you.  What are my taxes going to be?  How about Social Security and Medicare?  What programs will be cut?  What wars will we be still be fighting, and/or what new ones are we going to start?  How about the privacy of my home? The curriculum in my daughter’s school?  The environment? These are things I care about-tell me what you are going to do.

Sadly, all I can do is speculate.  Here’s the dirty little secret of primaries.  To get through them you tell your partisans everything they want to hear, while hoping that no one else is actually listening to what you might really mean.  With Rick and Mitt, there’s a parallel narrative going on.  Rick talks about being an “authentic conservative”.  His demeanor is one that is directed to the primary voter and says, in effect “I’m going to take out all my aggression on Democrats”.  To the rest of America, he says, “I’m good with jobs and the economy”.  Mitt is subtler.  He soothes the skeptical primary voter with “you may not like me that much, but I can get elected and, when I do, you will achieve your policy goals.”  To the rest of the country, it’s “Mitt Romney is not an ideologue-I’m a problem solver.”

President Obama, the focus of all of this highly concentrated scorn (including today’s failing, the death of Qaddafi), has his own issues.  These will likely not be explored during his primary season, since he doesn’t (yet) have a Democratic challenger.  He, does, of course, have a record.  More on that in a later post, as the bell has rung for me this evening, and I need to spend a few minutes with my manager.


Saturday, October 15, 2011

The Romney Inevitability Principle (or, is that the Romney Uncertainty Principle?)

The Romney Inevitability Principle (or, is that the Romney Uncertainty Principle?)

“The more precisely the position is determined, the less precisely the momentum is known in this instant, and vice versa.  Walter Heisenberg, 1927, physicist and a founder of quantum mechanics. 

Mitt Romney is going to be the Republican Presidential Nominee.   Well, perhaps he is.  It certainly looks that way, with Rick Perry’s stop, drop, and roll into the Texas tumbleweed, Michelle Bachmann’s slowly fading Cheshire Cat grin, Newt Gingrich’s turn as the slightly-off relative with a gift for the inappropriate,  Rick Santorum’s earnest Nurse Ratched, and Ron Paul’s…Ron Paul?

I know, I forgot John Huntsman, who might make a good President if he could restrain himself from cracking bad jokes and stop looking like an actor who got a call back for the show he didn’t audition for.  And Herman Cain, who has an odd affinity for numerology, reminds me more and more of H. Ross Perot and somehow will get about 19% of the vote without actually saying anything concrete. 

So, Mitt Romney is going to be the Republican Presidential Nominee?  Well, he has a solid record as a Governor, he was a successful businessman, and he did wonders for the Olympics.  He looks like a President, in a sort of a Michael Rennie “The Day The Earth Stood Still” kind of way.  He’s obviously smart.  He’s been running nonstop since the 2008 primaries. He’s raised tons of money and has Wall Street behind him.  He’s smooth and unruffled: the pundits have crowned him the winner of the debates.  Nary a wrinkle creases his rather noble brow.

But there are these strange little boomlets.  Bachmann performs well at a debate, and draws even with Mitt.  Perry gets in the race, and leapfrogs Romney.  Now Herman Cain is polling better.  Still, Romney soldiers on, never too high, never too low.  He’s a bit like George Bush (the good one), who “reminded every woman of her first husband.”  Not much of a sense of humor, but he’s a solid guy: the one who wore a tie all the time, the one who picked you up at the train station in his sedan when you lost your wallet, the one who never missed a Rotary Club meeting.

And it’s all paying off.  Strange coincidences, the unseen hand, all move things in Mitt’s direction.  Tim Pawlenty, Minnesota Nice, gets off the zinger of the year with “ObamneyCare,” and then backs away from it.  His star falls into the night, and he endorses Romney a few weeks later.  Bachmann talks about vaccines and autism, and reinforces her fringe image.  Perry soars out of the box, and then, unaccountably, completely loses his footing and starts speaking in tongues.  Palin keeps popping up like a jack-in-the-box wherever there’s a camera, and suddenly, on the same day, is identified as the model for the psycho Veep in a novel by a McCain staffer, and Roger Ailes of Fox says he hired her “because she was hot and got ratings.”  Hours later, she’s out.  Chris Christie steps into the ruby slippers, and, just as quickly, steps out of them, endorsing Romney.  The Republican establishment, the true elite, is quietly and firmly closing ranks.  They will pick the nominee, not the noisy (and possibly unelectable) Tea Party types.  So Romney is inevitable.  He’s going to be the nominee, and since Barack Obama is destined to be a one term President, it is Romney who will occupy the White House in 2013, and a new Gilded Age can begin.  The Romney Inevitability Principle.  It’s like the XFiles.  You know something is going on (perhaps in that hanger back there), you are not sure how, but it’s going to happen.

Except, there’s one problem.  No one willing to get out front is actually inspired by Mitt Romney.  The string-pullers who really run everything like the privacy of their boardrooms.  And those folk aren’t ideological, except in believing that their self-interest is in the best interest of the country.  There’s a quiet, almost clammy feel to all this.  It was said of Obama that he was a blank slate onto whom people projected their hopes.  Romney has no fixed positions.  He’s currently a Conservative’s Conservative, except that he was a moderate Republican governor of a very Blue state and the architect of the model for the very health plan that drives so many so crazy.  He had a positive record on the environment, a moderate record on social issues, except now he doesn’t.  Yes, he was a Republican, but, as a Perry aide rather brutally noted just a couple of days ago, after the Christie endorsement, a “Northeast Republican,” and that is surely not a Real Republican.  Perhaps the real Mitt Romney, the possibly “President Mitt Romney,” is that Conservative’s Conservative.  But none of us really know what Mitt Romney actually believes in (besides a profound yearning for the office), so you don’t know what you are voting for.  You can’t measure his positions, and his momentum, at the same time. 

The Romney Uncertainty Principle.


Tuesday, October 11, 2011

Steve Jobs and Sarah Palin

Steve Jobs and Sarah Palin

You might have heard that Steve Jobs died this past week.

His death was mourned everywhere.  Candles, apples with a bite taken out of them, signs, flowers, digital eulogies.  Every major newspaper ran multiple articles about him.  Tributes have come in from over the globe.

How is this possible?  A billionaire, a person by all accounts fierce, judgmental, exacting, uncompromising, and irascible.  No public record of huge charitable donations, no libraries, no hospital wings, no museums, nothing ostentatious to love him for, except the products he became synonymous with.

Steve Jobs had a genius for making products we loved, a genius in creating loyalty, and a genius for making us feel good about ourselves. Jobs' genius is that of inspiration.

In other news,  Sarah Palin decided not to run for President in 2012.  She went on Greta’s show on Fox, got the Oprah soft-core, gauzy treatment, and announced she would be looking out for all of us from…somewhere.

Sarah’s poll numbers have been dropping precipitously recently, and she’s been publicaly dissed by members of the GOP establishment.  She’s going to return to marketing a product she’s had phenomenal success with:  Sarah Palin.  "SarahPac."  "Sarah's Story."  Her look, her down-home malapropisms, her studied ignorance, her “aw shucks just plain old common sense” appeal.  It sells.  Millions of Americans still hang on her every word. Palin's genius is that of celebrity.

Jobs and Palin represent two sides of the economic spectrum that Saskia Sassen described, and in the middle, sits Dell Computer.  Jobs is the quintessence of the older American economy-creative, daring, innovative, risk taking.  There’s a line stretching from Edison to Henry Ford to Jobs-their products helped democratize and open up possibilities for the average person.  Dell used its creativity purely on the production and supply side-it makes nothing new, but it does make profits. Palin, however, is the new American economy-the “extractive” one-the economy of high finance without actual production, of reality shows, of inane tweets.  Jobs conceptualized products that helped people do things. Dell takes other people’s ideas and sells them, and, in doing so, it fulfills a need, albeit prosaically.   Palin’s product produces nothing-it's glossy, it's fun, but it just needs to be passively watched. 

There’s a wonderful fifteen-minute video on YouTube of Jobs giving the commencement address at Stanford in 2005.  Watch it all the way through  -I don’t want to spoil it, other than to say the man had great passion.

Much has been made of Jobs’ statement that it’s up to him to decide what the public wants, not the other way around.  If that’s arrogance, it’s never expressed in his products.  Walk into an Apple store and your initial reaction is that it’s airy and beautiful, but once you get over that, you aren’t a consumer anymore, you are a participant.  Go into a conventional electronics store, or a place like Staples, and the products are remote, mute,  often hidden behind locked glass.  In an Apple store, you can pick up an expensive machine, feel its weight, and play with its keyboard.  Apple trusts you with its product and it trusts its product can stand close scrutiny.  Want to know how it works?  An Apple person whisks by and with a couple keyboard strokes, clicks, and twists of the finger and thumb, she’s performed magic.  Thirty seconds later, you are performing magic. Apple doesn’t say “I will make your life better”.  It says, “I’m here, take me home, use me, and you will make your life better-and have fun doing it”.   Apple products are liberating.  

Dell, on the other hand, is not.  There are no cool Dell stores with hip salespeople who love the product. I have owned several Dells over the years, each one alienating me more and more.  While Apple sought to add value to their products through appealing design and engaging user interfaces, Dell cared only about cost, carefully calibrating the power/performance price curve.  Apple sold quality with an experience.  Dell sold cheap specs. Those two very different strategies led to a very different set of approaches to outsourcing. For Apple it meant finding the lowest cost manufacturer of Apple designs. For Dell it meant finding the lowest cost producer of products-any products-that Dell could sell.  If you want to see the trajectory of success of these two companies, you could look at market capitalization.  In the last six years, Dell’s market valuation has increased by about 40%.  Apple, on the other hand, is up over 1300%.  People buy Dell because they need cheap computing power, like they buy socks on sale.  People buy Apple because they want to.  HP could merge with Dell tomorrow, fold it into their existing business, and no one would notice the difference.  In its entire history, Dell hasn’t produced a single innovative product that anyone cared a hoot about.  To the extent it was admired, it was for its production and sales methods only, the triumph of the bean counter.  

There is something about the Dell model, self sustaining, self-replicating, that is permeating our political discourse right now.  Sarah Palin is doing exactly the same thing she was doing three years ago.  She hasn’t advanced a single new idea-she’s kept exactly the same packaging and design.  Her poll numbers may be flagging, but the product still sells and still makes money. 

Palin isn’t alone in emulating the Dell model.  Across the spectrum; Republicans and Democrats, Conservatives and Liberals, everyone is just selling an old product, designed years ago, maybe re-wrapped in some glossy paper and the empowering energy of anger.  Assay the crowd of current Republican Presidential candidates and you stand in awe of their bland predictability.  Each phrase is carefully poll tested to appeal to the most extreme elements of their party.  They repeat the same tired nostrums over and over again, reach for the same applause lines.  Each has his or her own commercial calling card.  Rick Perry is all fist: he will give those Liberals what for, show them a little “Texas Justice”.  He gets cheered.  Michelle Bachmann repeats far-right absurdities and conspiracy theories, with absolutely no connection to reality, and she gets cheered.  Ron Paul brings his special brand of weirdness sprinkled with odd moments of crystalline insight, and he gets wildly cheered.  Santorum looks to recreate the Puritan society, and he gets cheered.  Herman Cain spouts slogan after slogan, and he gets cheered.  And Romney; he’s the amnesia causing “blue light” from Men In Black.  Blue light for the similarities between Romneycare and Obamacare.  Blue light for his previous support for reproductive rights and generally moderate social views. Blue light for his tax increases on the wealthy when he was Governor and his support of the environment.  Blue light for anything and everything in his record that deviates from present Republican orthodoxy.  Blue light at tepid applause for Romney- no one really likes the guy, but, let’s not be picky if he beats Obama and delivers the spoils to the GOP.

The Democrats are just as bad, starting at the top.  Thomas Friedman has an excellent Op-Ed in The New York Times this past weekend, in which he skewers Obama for not being Steve Jobs, for not thinking big, not going for the grand bargain.  Lead, Friedman says.  Friedman is right, but Obama is in survival mode.  He took a big gamble on Obamacare, and has been torched for it for the last couple of years.  He knows that, right now, he could walk into a meeting with Boehner, McConnell, and Cantor,  say he is getting behind the dissolution of Social Security, Medicare, and Medicaid (and throw in the complete elimination of all taxes on people making more that $500,000.00 per year) and they would walk out, complaining he wasn’t being bipartisan. And, from his left, Paul Krugman (a Nobel Prize winner), criticizes Obama for not not going after the "Plutocrats"  and not channeling his inner Samuel Gompers.  Obama needs to do “more, more, more”; more stimulus, more public works, more government payments.

The fact is that no one is sure.  At the Columbia conference a couple of weeks ago, we had some of the most brilliant minds in the world, and there was no consensus. Thomas Donlan, in a series of editorials in Barron’s going back over the last few weeks, has grown ever more insistent that only the application of classical economic theory will cure.   Joe Nocera has an article in today’s New York Times, citing a new work by Daniel Alpert, Robert Hockett, and Nouriel Roubini, which, in part, advocates a massive infrastructure build-out.  This level of disagreement, which goes to highest level of academia and finance, merely serves to highlight the obvious-which is that there is no one true path. 

As in all times of uncertainty, this causes politicians to dig in even further, and to traffic in in the poisonous currency of angry anti-intellectualism.  Nuance, experimentation, risk-taking are jettisoned.  And engagement of the electorate, except at the most elemental level, is jettisoned as well. 

The reasons for this are pretty clear.  First, the primary system forces people to the extreme to satisfy the ideologues that nominate.  Second, special interest money, enhanced in the Citizen United era, demands ever-greater fealty to obscure and complex pledges and punishes any heresy.  But the third is most pernicious.  Politicians don’t trust us with anything more than a sound bite. They don’t think we are smart enough to participate in the marketplace of ideas.  And this lack of trust leads to greater and greater estrangement from the democratic process. 

We all should face facts-we are at an inflection point.  There are tectonic demographic changes going on.  We are older, and need more services.  We are very close to having a population that is less than 50% white European in ancestry, and the soon-to-be majority is vastly unrepresented among our political and economic elites  Our manufacturing base is eroding.  The gap between wealth and poverty has never been higher.  We need major structural reform of the big three entitlement programs, and the tax code.  These are massive societal issues that can’t be permanently solved by one side imposing their will, nor one set of ideas. The Occupy Wall Street protests may seem silly (as were pictures of seniors at Tea Party rallies screaming about “socialist medicine”), but they are occurring because our current discourse seems deaf to their needs.  

The irony of this is that Apple has shown us that participation and intellectual engagement leads to emotional commitment.  Capitalism itself works best when the maximum number of people participate.   Edmund Phelps sought employment subsidies to strengthen popular support for capitalism.  Sassen says “(the) valuing of people as workers and consumers was critical for the deepening of capitalism."  This is true as well for democracy.  Read a transcript of just one of the 1858 Lincoln Douglas Debates-open debates without teleprompters, cameras, makeup, a spin section, and you will find great substance discussed in great detail.  All to an audience that largely lacked much formal education.  We have the capacity to evaluate complex issues, if only the politicians would ask.

Steve Jobs knew painful failure-he knew when the market rejected him.  He talks about it eloquently in his Stanford address.  His response was to innovate: to think of the next product to build, the next mountain to climb.  He embodied the creative economy until literally the last days of his life.  Does Sarah Palin know failure, when her next step is a return to the extractive economy of well-compensated celebrity?  Do other politicians?  Or do they just follow the Dell model, finding what sells, counting votes and campaign contributions as the script of success,  seemingly indifferent to how well they perform their jobs? If we want our leaders to challenge orthodoxy, to be creative,  to seek solutions rather than just votes, we need to demand it of them. Loudly, since they seem not to have ears to hear.


Sunday, October 2, 2011

Among the Nobel Laureates II

Among the Nobel Laureates II.

The philosopher Martin Buber once wrote the “stopping one’s ears so as not to hear the voice from above breaks the connection between existence and the meaning of existence.”

It is difficult to think about modern American politics without also taking into account the role that religion, or at least professed religion, plays.  Of the current crop of Republican candidates, three, Perry, Bachmann and Santorum, make faith an integral part of their appeal to the voters and two others, Romney and Huntsman, studiously avoid the subject because of their Mormon beliefs. 

This weekend, pastors are engaging in a coordinated large-scale act of civil disobedience-they will explicitly talk about politics from the pulpit, which, in theory, puts at risk their IRS exemptions.  The New York Times has a report on this at

In contemporary American politics we associate religion (largely Evangelical) with hard-right Republicanism.  It hasn’t always been this way.  In the past, churches were often at the forefront of the civil rights movement and were associated with emergent environmentalism.  And, as Ron Paul noted in one of the primary debates, religious institutions often dedicated themselves to the care of charity cases, both through direct subsidies and affiliated hospitals.  But as liberalism has become associated with mushy do-gooders and a permissive attitude about personal choices, the most powerful religious movements have lined up on the conservative side.  The fundamentalism that expresses itself on social issues (abortion, contraception, prayer in schools, gender issues, evolution) has also made common cause with conservative business values.  Thus conservative religious organizations now see a faith-based link to low taxes and regulation, to doubts about global warming, to energy exploration and immigration policy, etc.  This isn’t necessarily monolithic, but it is the dominant movement right now when it comes to political expression.  Some of us (on the Left, mostly) may fail to see the theological underpinnings for the objections to cap and trade, but as Lincoln said in a different context, “The Almighty has His own purposes.”

Two of the most tantalizing comments in last week’s conference merged economics and religion; Mark Taylor’s equating Calvinism and the Scottish political economists such as Adam Smith, and Edmund Phelps's almost throwaway remark that a government policy that favored the wealthy was not in and of itself bad: if part of the object of government was to help foster an atmosphere where the individual may achieve self-realization and growth, the rich were citizens too.

I have to say that by focusing on an isolated comment by Ned Phelps, I’m not doing justice to his work at all.  For more depth, please look at his Nobel Speech in 2006: you can find it at
In that presentation, Phelps finds a dichotomy that supports both the under-included and recognizes and incentivizes achievement and creativity.  “In the West, it is believed by many, with no foundation I know of, that a fiscal policy aimed at broad economic inclusion would substantially preclude ample economic dynamism and thus a vitalist society. I have argued that, on the contrary, suitably designed employment subsidies would restore the Bourgeois culture, revive the ethic of self-support and increase prosperity in low-wage communities. That would boost a country’s dynamism, not weaken it, and also strengthen popular support for capitalist institutions.”

But, during his remarks at this conference, Phelps asserted the value of government policies that seem to disproportionately (although perhaps coincidentally) benefit the affluent, if it leads to greater happiness by that group.

I wasn’t the only one who noticed Phelp’s remark.  He spoke just before a coffee break, and while I was on line looking for a cookie and a Diet Coke, I was questioned sharply by a woman who had formerly worked in a senior position at the World Bank.  Had I heard what Phelps said?  Did he not realize that most of the world’s governments were kleptocracies, in which the powerful and influential derived all the benefits? 

Her concerns were apparently echoed the following day by some of the participants. Jianguo Wang presented a paper on the instability of China stemming, in part, from massive influence peddling, unbridled exploitation of natural resources without effective regulatory and safety controls which have led to wide-spread pollution and poisonings, and the extraordinary amassing of wealth. And Saskia Sassen echoed these concerns in her paper discussing the U.S. (particularly in relation to the sub-prime lending fiasco) as well as other economies.  “In the last two decades there has been a sharp growth in the numbers of people that have been “expelled” from the economy in much of the world. The active expanding of a middle class in that earlier period has been replaced by the impoverishment and shrinking of the middle class. This holds in extreme form for particular countries, notably the United States and several African countries that once had strong manufacturing economies but now have become mainly extractive economies.”  Sassen goes on to say, “We have left behind the varieties of Keynesian periods that thrived on the accelerated expansion of prosperous working and middle classes -- though not in today’s emergent economies, especially in Asia. Keynesianism’s valuing of people as workers and consumers was critical for the deepening of capitalism.”  You can find both Wang’s and Sassen’s papers in the links below (they are 5 and 6).

Of course, if Phelps is correct, then Sassen must be wrong, because, presumably,  Phelps must be anticipating a neutral impact on the rest of society when the government adopts a policy favorable to the wealthy. He trusts the democratic process to provide equity where the kleptocrats do not.

Phelps, in his Nobel speech, says, “(I)t is axiomatic that one’s conception of the good economy depends upon one’s conception of the good life. For Calvin (1536) the good life consisted of hard work and wealth accumulation. For Hayek (1944) and Friedman (1962) the good life was a life of freedom.”

That conception of the “good life”, the Calvinist “hard work and wealth accumulation” and Friedman’s “life of freedom” would surely be something that Republican Presidential candidates would support.  Most of us would.   The real question is whether the reality of American economic life lies in Phelp’s hoped for neutrality or in Sassen’s observations about the marginalization, exploitation and "expulsion" of large swathes of American society. That's clearly open to debate.

But, to return to the opening paragraphs of this post; Martin Buber and the overwhelming support of conservative and Republican policies by the Evangelical Right, would it be moral to enact "pro-wealthy" policies,  even if they would require higher taxes on everyone else to make up for lost revenue, or the reduction in programs that benefit the rank and file citizen or the poor?  And, if you feel, as many conservatives do, that we are simply correcting a government imbalance that currently gives too much to the poor and middle class, would it still be moral if Sassen were right? 

In short, from a purely moral perspective, does government policy that overtly favors the wealthy and "expels" others from the economy fail the Buber test; in adopting it, are we “stopping one’s ears so as not to hear the voice from above breaks the connection between existence and the meaning of existence.”

Once again, for the links to the conference/papers, please go to: