Party of 1

New York University economics professor Nouriel Roubini has come to be known as “Dr. Doom” because of his prescience in forecasting the ongoing financial crisis.  He has offered his thoughts on the outlook for the world economy in an interview with Germany’s Der Spiegel. “I’m not a perma-bear. I am not always negative about the future. Rather, I want to assess the situation correctly. But if I look at the economic picture of the world now, I still see plenty of dark clouds.”

I’d like to focus on one aspect of Dr. Roubini’s remarks. He asserts that “crises are part of capitalism’s DNA. They are not the exception but rather the rule. Many elements vital to capitalism, like innovation and risk taking, also trigger frequent collapse. And what we just went through could get much worse in the future.… They are not inevitable. But if you look at history, you will see patterns repeated — such as excessively loose monetary policy, leveraged vulnerabilities and weak regulation. And we will see them again. Probably we will have even more crises in the future.”

In the aftermath of 1989 we were browbeaten with triumphalist rhetoric that proclaimed the superiority of capitalist economics, which had won such a comprehensive victory that it amounted to an “end of history.” Skeptics noted that the the system nevertheless harbored a tendency to lurch from crisis to crisis. Looking at the last two decades alone, we have seen currency crises in Mexico and throughout Asia, not to mention the difficulties dating back to September 2008 or before.

We tend to associate capitalism with the Industrial Revolution, so that its lifespan may be considered to have run about two hundred years now, give or take a few decades.  Depending on one’s perspective, that length of time may be regarded as no more than the blink of an eye. The system has indeed suffered periodic crises, in the aftermath of which it had to be reformed, with measures introduced to get through the emergencies and prevent, or at least delay, their recurrence. Every time, the ideologues resisted the emergency measures, denouncing them as violations of the system’s highest principles. Revisionist histories of the crises were pumped out ex post facto, proclaiming that everything would have been fine if only the principles of laizzez-faire had been adhered to strictly.

It may be conjectured that people will continue to accept the system if, and only if, the recurring crises are not so severe as to be unbearable. If the system is indeed susceptible to crisis, and if the ideologues continue to object in principle to measures aimed at ameliorating the crises, can this be a stable situation in the long run?

Some months ago I blogged on a Wall Street Journal op-ed by Whole Foods Market CEO John Mackey, whose libertarian views on the health-care reform issue provoked some efforts at a consumer boycott. At the time, I mentioned that the WSJ editorial board was happy to embrace Mackey — for the moment.  From a “macro” perspective, however, I observed that the very existence of Mackey’s company was problematical from a libertarian perspective. Setting aside the health-care issue, the attitude of the free-market crowd toward the natural-foods phenomenon generally is one of at least mild belittlement, I argued.

Sure enough, Tuesday’s WSJ brings a review of a new offering by Canadian journalist Andrew Potter, entitled The Authenticity Hoax. We learn that “the ever-narrowing search for just the right kind of food has less to do with saving the environment or pursuing a healthy lifestyle than with achieving a certain self-image…. the search for authenticity often ends up as a status-seeking game…. By competing against one another to see who is more authentic, he says, we just become bigger phonies than we were before.” Affluent consumers have fallen prey to a new form of status-seeking in the form of “conspicuous authenticity.” Reviewer Paul Beston of the Manhattan Institute concludes that “Mr. Potter is here to tell us what should be obvious: that there is no paradise back there, that we moderns have never had it so good and that authenticity in the way we’ve defined it is a sham,” although he does allow as that “while much of the authenticity search is absurd, not all of it is so easily separable from the self-criticism that has been foundational to Western success.”

In my opinion, the article reflects not so much on the author or the reviewer as on the editorial board that solicited the review.  The rhetorical pressure exerted by the review is anything but “traditionalist” — no matter that it serves the purposes of this editorial board to pose at times as defenders of “traditional values.” Indeed, the pressure is all in the direction of “hyper-modernism” — you’ve never had it so good, so don’t give a second thought to what might be going on behind the scenes.  As I mentioned some months ago, you might think this would prompt John Mackey to have a second thought or two about his libertarianism. The very existence of his company suggests that there is something wrong with the superabundance of foodstuffs to be found in the supermarkets and supercenters that the market economy has supplied so lavishly. Generally, free-market enthusiasts are unwilling to take the organic-food movement sitting down.

Only the most affluent are able to take much of their time seeking out organic or locally-produced food – and their enthusiasms leave them open to caricature.  Still, our economic system, with its chain stores and mass production, while it confers considerable benefits, also prompts unease.  Some people may alter their purchasing habits out of a consumerist search for “authenticity,” but others may be concerned that, while human biology hasn’t changed radically in the past century or so, what we eat and the way it is produced has changed radically.

In some senses, a more localized agricultural economy with organic methods of production might be better. However, I don’t see how it can come about until and unless the economy as a whole moves in the same direction — which probably will require much higher energy prices. That might be better on the whole, although the transition to it might be wrenching in the extreme….

Momentum appears to be building on behalf of the idea of anti-obesity taxes on sugary sodas. Last week’s New York Times featured a piece on New York State health commissioner Dr. Richard F. Daines, who is outraged by highway billboards promoting “Any Size Soda, One Dollar.” (“Who would go in and order the petite size?… It’s just a signal to consume.”)

Years ago, late-night talk-show hosts and comedians used to joke about it.  Taxes on beer, taxes on cigarettes — what’s next, a tax on Big Macs? I can’t think of a better idea — if what you want to do is incite anti-government “tea party” sentiment and drive away voters of low to moderate incomes. It’s a good illustration of the chasm between suburban professionals and the working-class, blue-collar grassroots. Christopher Lasch, an irascible and eclectic thinker, wrote in his 1991 book, The True and Only Heaven, of suburbanite progressives who “proposed to reduce the deficit not only by cuts in the defense budget but by heavy taxes on tobacco, beer, and hard liquor — the traditional consolations of the working class.”

This situation evokes the image of the boxer who let his guard down, and left himself open to a roundhouse right.  Is obesity a serious problem? Absolutely.  Are the soda companies lobbying aggressively against the proposed taxes? Without a doubt. My suggestion would be that we find another way to address the matter….

Bruce Bartlett, an economist who served briefly in Ronald Reagan’s White House, became disaffected from the policies of George W. Bush, which has caused him to be regarded as something of an apostate on the right.  Writing last week on the website of Forbes magazine, he reminds us that, whatever we might make of the current administration’s economic policies, freedom is more than a matter of government spending as a share of GNP. “Perhaps we are moving toward European levels of taxation and spending. While I would prefer not to live that way, I certainly don’t view those in Scandinavia, where the level of government is twice what it is here, as twice as close to slavery as we are.”

The entire article by Bartlett is well worth reading. I would add that there is good reason to insist that our freedom is, in the first instance, political rather than economic. That may not be easy for many of us to swallow, considering that economics is a preoccupation for almost everyone, whereas many of us are politically passive. Furthermore, the view is widespread that political freedom is nothing but the “freedom” to rob Peter to pay Paul. According to that view, political freedom as it might be exercised by the “have-nots” is something like a criminal conspiracy. Why not then impose an authoritarian regime, for the sake of enforcing fair rules of the economic game as understood by the laissez-faire school of economics? Would we then be more free?

Under an arrangement like that, perhaps the “captains of industry” would be able to go about their business unfettered by government — a prospect that would warm the hearts of the admirers of Miss Rand. The problem would be that the same regime that grants unlimited prerogative to economic actors could also take it away. Without political freedom, no one would be in a position to speak up or do anything about it.

As much seemed to be the view of Hannah Arendt, whom I have discussed on the “About” page of this site. She wrote of the individual who “would be flattered at being called a power-thirsty animal, although actually society would force him to surrender all his natural forces, his virtues and vices, and would make him the poor meek little fellow who has not even the right to rise against tyranny, and who, far from striving for power, submits to any existing government and does not stir even when his best friend falls an innocent victim to an incomprehensible raison d’etat….”

The size of the deficit in the most recent budget has the public spooked, and pressure is building for some sort of deficit-reduction plan, which has prompted President Obama to create a commission for this purpose, headed by Republican Alan Simpson and Democrat Erskine Bowles. The commission was created by executive order; Congressional Republicans refused to support a congressional commission, deeming it a scheme to get bipartisan support for tax increases.

Deficits and their reduction are a preoccupation of the affluent rather than those less well-off, which explains why we hear so much about the issue in a system dominated by affluent voters. Dr. Jamie Galbraith (son of John Kenneth), a faculty member at the LBJ School at the University of Texas, has a different take on the matter in the current issue of the Nation. Highlights:

“To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession–even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment….

“For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like…. And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.

“It’s true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation–though with the world in recession, that’s not an immediate risk. Wasteful spending–on unnecessary military adventures, say–burns real resources. But no government can ever be forced to default on debts in a currency it controls…. Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

“If we could revive private lending, should we do it? Well, yes, up to a point there is good reason to have a robust private lending sector…. But right now, we don’t have functional big banks…. You don’t have to like budget deficits to realize that we must have them, on whatever scale necessary to restore growth and jobs. And we will need them not just now but for a long while, until we’ve shaped a strategic program for investment, energy and the environment, financed in part by a reformed, restored and disciplined financial sector.”

In the New York Times‘ online-only “Opinionator” feature, Timothy Egan reports from a development in Lathrop, California that has turned into something of a suburban ghost town. “Dirty flags advertise rock-bottom discounts on empty starter mansions. On the ground, foreclosure signs are tagged with gang graffiti…. In strip malls where tenants seem to last no longer than the life cycle of a gold fish, the bottom-feeders have moved in. ‘Coming soon: Cigarette City,’ reads one sign here in Lathrop, near a ‘Cash Advance’ outlet.”

Among Egan’s conclusions: “San Francisco, Portland, Seattle and San Diego … have fairly strict development codes, trying to hem in their excess sprawl. Developers, many of them, hate these restrictions. They said the coastal cities would eventually price the middle class out, and start to empty.

“It hasn’t happened. Just the opposite. The developers’ favorite role models, the laissez faire free-for-alls — Las Vegas, the Phoenix metro area, South Florida, this valley — are the most troubled, the suburban slums.

“Come see: this is what happens when money and market, alone, guide the way we live.”

The Washington Post reports on a study issued by a nonprofit that advocates for restaurant workers. It’s representative of what so many people are going to face for the next decade or two, I fear. It’s also a good illustration of why we need unions, or wages-and-hours laws, or some combination of the two. According to the document, “90 percent of industry staff members are not offered health insurance or sick days, 67 percent go to work sick, and 38 percent are forced to work off the clock.” Of course, a spokesman for the National Restaurant Association objected.

“The industry’s bad jobs hurt more than just workers; they harm society, [Jose Oliva of the Restaurant Opportunities Centers United] said. Low wages and lack of job security lead to increased reliance on social-assistance programs, an indirect subsidy to employers engaging in poor practices. For example, ROC reported that 26.5 percent of workers said they or a family member had visited an emergency room without being able to pay for treatment.”

With the Obama administration marking its first anniversary in office, and with the debacle of the Massachusetts special election, Mort Zuckerman, an important mover and shaker, expresses impatience with the president at the Daily Beast. Zuckerman endorsed and voted for Obama, but now he appears to be suffering from buyer’s remorse. “It’s unbelievable. Everybody says so. You can’t believe how dismayed people are. That’s why he’s plunging in the polls.”

For me, there’s one remark in Zuckerman’s lengthy commentary that hits extremely close to the mark. “He should have jammed a stimulus plan into Congress and said, ‘This is it. No changes. Don’t give me that bullshit. We have a national emergency.’ Instead they turned it over to Harry Reid and Nancy Pelosi who can run circles around him.”

The president had a difficult decision to make, and we should remember that it has indeed been said that the job has become too much for a single individual. Carter and Clinton had tried and failed to win battles with Congress, even when the legislature was under Democratic control. Deference to Reid and Pelosi looked like the order of the day. With retrospect, however, it appears clear that that approach was not adequate to the moment.

I don’t know whether the president has been well served by his chief of staff, so notorious for his insistence that a crisis should not be allowed to go to waste. The stimulus was handled after the fashion of Chicago machine politics, reinforcing the notion that everything government does amounts to feeding at the public trough. During what looked like a national emergency, they acted as though it was business as usual.

They may have blown a chance to alter a dynamic that makes people cynical about government — in which government becomes big but at the same time weak, in the sense that it cannot say “no” to any organized interest. Those who lack graduate-level training in political science will find this dynamic analyzed and diagnosed here….

“Haiti has some of the weakest property protections in the world, as well as some of the most burdensome business regulations.” Bret Stephens, Wall Street Journal, Tuesday.

“Haiti has a notoriously weak state—the sort that couldn’t enforce building codes, or prevent the deforestation that has left the soil unable to deflect routine flooding.” Dayo Olopade, The Root, same day.

I suppose these statements are not flat-out contradictory, since they both make reference to the weakness of the Haitian state, in one respect or another….

Saturday’s Wall Street Journal brings a thoughtful essay by Kevin Rozario, on the prospects for post-earthquake Haiti to benefit from a version of Joseph Shumpeter’s “creative destruction.” In the case that, from the 1755 Lisbon earthquake to the 1871 Chicago fire to the post-World War II German “economic miracle,” natural and man-made disasters have occasioned economic dynamism. To a critical eye, it looks like a perverse dynamic, as though the recommended way to bring about an economic boom is to have your territory blown to smithereens. But, would it have been preferable to leave postwar Germany in ruins?

Rozario notes that little of the creative side of the destruction has been seen in post-Katrina New Orleans, where many flooded neighborhoods remain barely resettled. If New Orleans — which, after all, is a relatively poor city in a rich country — cannot be rebuilt quickly, what can the future hold for Haiti?

Rozario: “On the day after the earthquake, James Roberts, a research fellow at the Heritage Foundation, laid out an expansive vision of the prospect this disaster presented for a ‘bold and decisive’ U.S. intervention to impose the democratic and economic reforms that would turn Haiti into a stable state and trading partner. Disaster, once again, figures as agent of progress.” Neoliberalism, we may suppose, is to be proposed as the cure for Haiti’s ills. Indeed, in a recent overnight press review I mentioned this column by David Brooks, which emphasized the cultural hurdles to economic development in Haiti. Progressives probably will regard this commentary as a species of the “blaming the victim” genre, although surely its argument is more subtle than most such polemic.

Rozario, to his credit, did not neglect to mention the progressive retort to the neoliberal narrative. “The country—impoverished over the centuries by slavery, the extraction of its resources to imperial metropolises, international occupations, dictatorships—has been dependent on IMF loans since the 1980s, but these have come with strings attached. Haiti, once self-sufficient in rice production, was forced to remove barriers to heavily subsidized American rice. This led to the decimation of local farming and the migration of country-dwellers to the city in search of work, contributing to overcrowding in Port-au-Prince. With recent escalating world food prices, Haitians, unable to grow their own food, have sunk deeper into poverty, locked into a cycle of dependency that contributed to the scale of the destruction and loss of life in the wake of the earthquake.” Just the sort of thing that Limbaugh and his dittoheads do not want to hear, refusing as they do to contribute to earthquake relief….