In every debate over the federal budget, to answer "How do we balance the budget?" is to define the nation's priorities. That lesson can be found in this master class on national budgets from Australia:
Daniel Davies said "any budget proposal can be boiled down to its essentials in minutes." Essentially, there are two types of proposals: giveaways and takeaways. The giveaway budget consists of two elements: the giveaway, and the "fiscal jiggerypokery aimed at making the borrowing projections not look too hideous." The takeaway budget also consists of two elements: the takeaway, and "the hideously complicated bells and whistles aimed at mitigating the political impact of the takeaway." For both, there is an iron rule: "ignore anything in a budget that's not scheduled for the current fiscal year."
Barack Obama, for example, has proposed a takeaway budget, which doesn't gouge enough for the Republicans. (Short of abolishing most of the federal government, what would? In case it isn't obvious what this debate is not about, the actual rates of inflation are recorded here and the actual interest rates on government debt are recorded here.) Rotwang identified the White House's misdirection as "the song and dance on behalf of public investment. 'Winning the future.'" Because he remembers the Clinton Democrats of the 1990s, Rotwang justly said:
It's a total fraud. Not because spending in those areas is not well-founded. To the contrary, we could use a serious commitment to such objectives. The investment agenda is cover for net reductions in domestic spending. This is precisely the gambit of the extinct Democratic Leadership Conference, whose slogan for the Clinton Administration was 'cut and invest.' Their leader was Bruce Reed who, guess what, works in the White House. In the end we got cuts but no investment.
As Rudolf Goldscheid said, "The budget is the skeleton of the state stripped of all misleading ideologies."
Thanks to Yves Smith for the link to "Budgets. A Masterclass."
In the book Cows, Pigs, Wars, and Witches, Marvin Harris described the scene of a jungle airstrip in the mountains of New Guinea:
Nearby are thatch-roofed hangars, a radio shack, and a beacon tower made of bamboo. On the ground is an airplane made of sticks and leaves. The airstrip is manned twenty-four hours a day by a group of natives wearing nose ornaments and shell armbands. At night they keep a bonfire going to serve as a beacon. They are expecting the arrival of an important flight: cargo planes filled with canned food, clothing, portable radios, wrist watches, and motorcycles. The planes will be piloted by ancestors who have come back to life. Why the delay? A man goes inside the radio shack and gives instructions into the tin-can microphone. The message goes out over an antenna constructed of string and vines: "Do you read me? Roger and out." From time to time they watch a jet trail crossing the sky; occasionally they hear the sound of distant motors. The ancestors are overhead! They are looking for them. But the whites in the towns below are also sending messages. The ancestors are confused. They land at the wrong airport.
Waiting for ships or planes to bring dead ancestors and cargo began a long time ago. In the earliest cults the coastal people watched for a big canoe. Later, they watched for sails. In 1919 cult leaders searched the horizon for traces of smoke from steamships. After World War II, ancestors were expected in LSTs, troop carriers, and Liberator bombers. Now they're coming in "flying houses" that rise higher than airplanes.
The cargo itself has also undergone modernization. In the earliest days, matches, steel tools, and bolts of calico accounted for most of the phantom cargo. Later, it was sacks of rice, shoes, canned meat and sardines, rifles, knives, ammunition, and tobacco. Recently, phantom fleets have been carrying automobiles, radios, and motorcycles. Some West Irian cargo prophets are predicting steamships that will disgorge whole factories and steel mills.
Harris refused to dismiss these beliefs as "the ravings of primitive minds." Instead, he argued that they emanated from the mysteries of industrial wealth. Why are some countries rich and others poor? Why are there such differences in the distribution of wealth within modern nations?
Irving Kristol said we need a morally meaningful criteria for a society's distribution of power, privilege, and property. Kristol did not believe people could accept, as an enduring and legitimate entitlement, "the historical accidents of the marketplace—seen merely as accidents." Just as industrial production inspired the natives of New Guinea to pursue the "secret of cargo," so our market society excites, among the elite, its own prosperity prophets.
Markets are systems of social coordination. They are as varied as the apps for an iPhone. Some are valuable, some are worthless, and some are perverse. As with apps, there are bugs, and not every consequence is obvious or benign. (more here and here and here)
MarketSpeak, however, is their reification.† MarketSpeak invokes a competitive process that disciplines all actors, induces the greatest efforts, and compiles all relevant information. It both validates the winners and shifts responsibility from their shoulders onto an abstract process. Market processes are venerated as too inscrutable for any honest mortal to second guess. (more here)
Markets are social technology, but MarketSpeak is their fetishization. Any given tool has its uses and abuses, but a fetishist is someone who cannot or will not distinguish one from the other. They are like the deranged gynecologist in Dead Ringers, who invented his own grotesque instruments for surgery. When forced out of the operating room for mutilating a patient, he protested, "There's nothing the matter with the instrument, it's the body. The woman's body is all wrong!" The fetishist does not adjust the tool to fit the subject; the fetishist expects the subject to fit the tool.
† – The American Heritage Dictionary definition of reify: "To regard or treat (an abstraction) as if it had concrete or material existence."
credit where credit is due: Tom Slee came up with the term MarketThink
We are all interested in the future, for that is where you and I are going to spend the rest of our lives. And remember my friend, future events such as these will affect you in the future.
Even a creaking, rusted Pinto can surpass expecations. There is no point guessing what mileage the odometer will read when the eyesore fails. At best, you can say, "It runs, for now."
In forecasting, the eternal bane is calling a breaking point. Few things are easier to get wrong. The surest way to save face—in the short run, where we tend to live—is to go with the crowd and project the latest trend into the future. Fortunately, Edward Harrison is not a lemming. Harrison is the only kind of forecaster worth considering: He knows the numbers. His assumptions are sound. He tells a qualitative story which is internally consistent.
These are Harrison's assumptions (with elaborating links here):
Kicking the can down the road is par for the course. Politicians are loath to take bitter pills and will usually do whatever they can to cover-up systemic problems.
Monetary and fiscal stimulus work. How do you cover up a systemic problem? Well, when one injects a lot of money into the system, it does boost the economy. Government has an unlimited arsenal of money printing and fiscal stimulus it can provide in a fiat currency system. The question is how much will they inject and how well spent is the money.
Government has a vested interest in the status quo. The reason government covers up is that crisis usually exposes bad decisions. It's Warren Buffett's aphorism "when the tide goes out, we see who's been swimming naked." If government is filled with people who can be blamed for the problem, basic human psychology says they will cover it up and hope for the best.
When bad things happen, government has the power to make these things go away by changing rules. The best way to cover up is to simply change the rules of the game—pass new legislation, not enforce rules, manipulate data, etc. This covering up can forestall a crisis for years. The question as to whether forestalling becomes prevention depends critically on whether the root causes of a crisis are dealt with.
Doom merchants lose credibility by not appreciating this. If you are going to market a story of angst and woe, you had better have some nice qualifiers in case things don't go pear-shaped, because you lose all credibility if they don't. Why? People don't like doom merchants. People want you to tell them all is well. Even Cassandra was not listened to; that's a parable for doom merchants to heed.
Usually, forestalling doesn't become prevention. 'Growing' your way out of a crisis is a bad way to deal with systemic issues. Usually what happens is that people lose their way because the forget about the systemic issues altogether until another downturn brings those issues into view.
Pollyannas will eventually also lose credibility. Because forestalling doesn't lead to prevention, those who cry, "It's all good" on the way down to an eventual bust are found out as charlatans. It's not all good. And there is nothing wrong with saying so. We should hope for a good outcome but we must also make the necessary preparations for downside risk—as individuals, companies and as a collective whole.
Here is Harrison's story:
My view is that we are in a secular phase of deleveraging, a balance sheet recession for households and financials. However, the balance sheet recession creating deleveraging pressure will not be overwhelming in all instances; excess liquidity and fiscal stimulus can counteract it, driving a cyclical recovery. When recession hits, the deleveraging resumes with a great vigour, made more extreme by defaults and financial distress.
In other words, "we are in a recovery. Consumers are not going all-in for deleveraging in that environment." Because "stock markets are up, hiring trends are improving, companies are making more widgets," consumers won't "hoard cash or increase precautionary savings" much more than they already have. They have increased their savings, but it appears that the personal savings rate peaked, for the moment, at around six percent.
Calculate Risk basically agrees, with this qualification: "There are several downside risks: European issues, state and local government budget cuts and some possible defaults, housing issues (falling house prices, more foreclosures), and rising commodity / oil prices." I would add to this list the threat of federal austerity.
In a slight counter, Marshall Auerback argues that while it seems American consumers have "savings fatigue," this rebound in consumption will not be sustainable without employment growth. Also, consumer spending growth, Auerback claims, has been concentrated among the upper classes.
Finally, the global imbalances that preceded the last crisis are returning. The systemic problems remain. But production is rising, for now.
[thanks to Tim Price for the links to Credit Writedowns]
As the sole explanation for the origin of modern economies, spontaneous evolution founders. As an excuse for those who thrive, it's viral. In his review of The Rational Optimist: How Prosperity Evolves, John Gray explained:
As the subtitle of his book indicates, [Matt] Ridley sees free markets as part of the evolutionary process. This is not evolution of the kind biologists understand, however. "Humanity is experiencing an extraordinary burst of evolutionary change, driven by good old-fashioned Darwinian natural selection," he writes. "But it is selection among ideas, not genes." Like Richard Dawkins, another neo-Darwinian missionary, Ridley is a believer in memes—units of meaning that supposedly explain human development. Applying the idea to economics, he writes that "whole economies evolve by natural selection". Just as biological evolution works by bringing together the genes of different individuals, cultural evolution occurs "when ideas meet and mate" in market exchange. "Exchange is to cultural evolution as sex is to biological evolution," he writes. The history of humankind is no more than the working out of this simple equation.
There is nothing new in this kind of thinking. It was the eccentric Victorian sage Herbert Spencer (1820-1903) who coined the expression "survival of the fittest" and promoted the idea that laissez-faire capitalism was the final stage of social evolution. Impressed by Spencer's work, Sidney and Beatrice Webb adopted his idea that economic systems evolve in competition with one another, but nominated Stalinist collectivism rather than the free market as the final winner. Laissez-faire was reinstated as the winning system towards the end of the 20th century, when Spencer's ideology was resurrected in the later writings of Friedrich Hayek. Ridley is doing little more than recycle some of the aged Hayek's dafter ideas.
Whatever political goals it is used to promote, the idea of cultural evolution is not much more than a misleading metaphor. Laissez-faire was not the result of any spontaneous process of social evolution; it was imposed on society through the use of state power. Memes are just a pseudo-scientific way of talking about ideas, not actually existing physical entities. There is nothing in society that resembles the natural selection of random genetic mutations; even if such a mechanism existed, there is nothing to say its workings would be benign. Bad ideas do not evolve into better ones. They tend to recur, as racist memes are doing at present in parts of the world where economic dislocation is reviving hatred of minorities and immigrants. Knowledge advances, but in ethics and politics the same old rubbish keeps on piling up. The idea of social evolution is rubbish of this kind, a virulent meme that continues to reproduce and spread despite having been refuted time and time again.
The best evidence against Ridley's claim that ideas evolve is the existence of this book, which reproduces some of the most pernicious myths of social Darwinism. Spencer and his disciples thought evolution was a progressive movement from lower to higher forms of life. But natural selection has nothing to do with progress—as Darwin put it in his Autobiography, it is like the wind, which blows without any design or purpose. Certainly human development has been affected by the material environment—geography, climate and resource scarcity, for example. But rather than evolving, societies regularly break down, and what comes next is determined by power, chance and (occasionally) human choices rather than any supposed evolutionary laws. Evolution is one thing, progress another, and human history something else again.
The history of America has been no exception. From the beginning, as Brad DeLong said, "the Founding Fathers were keen on redesigning the infant American economy. Alexander Hamilton was clear on the primacy of commerce and industry." DeLong elaborated:
In particular, Hamilton was convinced of the importance of a sophisticated banking system to support the growing economy. And he and his Federalist colleagues, including John Adams, believed strongly in providing infant industries with room to grow—even using money from the Department of War to fund experiments in high-tech industry.
When the Democratic-Republicans, led by Thomas Jefferson and James Madison, replaced the Federalists, they quickly decided that their small-government principles were an out-of-power luxury. Wars of conquest, territorial acquisition, continental surveying, and canal and then railroad subsidies were good for voters, immigrants, and pretty much everyone else except the outnumbered and outgunned Native Americans who got in the way.
Indeed, any government that builds infrastructure and allocates land titles on the scale of the nineteenth-century US government is "Big Government" incarnate. Add steep tariffs on imported manufactured goods—rammed through over the angry protests of farmers and southern planters—and you have the policies that intelligently designed much of nineteenth- and early twentieth-century America.
After World War II, it was again government that led the redesign of the US economy. The decisions to build an interstate highway system (and to spend most of that money on suburban commuter roads) and to jump-start the long-term mortgage market—reflecting the widespread belief that General Motors' interests were identical with America's—literally reconfigured the landscape. Combine that with the large-scale development of the world's leading research universities, which then educated tens of millions of people, and with the tradition of using defense money to finance high-tech research and development, and, voilá, you have the post-war US economy.
Drafting designs is a given, because economic growth is a controlled revolution. The honest debate is over how they should be drafted and whether any given design is worthwhile. What should keep the debate honest is history.
case in point: a provocative podcast on Interstate 69 and "the unfinished history of America's last great highway." This interview with Matt Dellinger has some fascinating stories of the designs within our economy since the second World War. As a bonus, it includes some sharp reflections on cargo cults and conspiranoia.
Social Security is a form of solidarity between citizens, not charity from the rich. "In an imaginary classless society," Michael Lind said, "where all workers made the same incomes, social insurance would consist solely of transfers from employed members of the universal middle class to members of the middle class who cannot or should not work—retirees, the sick, and the parents of newborns." That is the signal; the rest is noise.
Opponents, like Rand, reject the principle of solidarity that underlies the program as bankrupt—a Ponzi scheme. They are offended that the current generation of workers support the current generation of retirees, just as today's retirees supported yesterday's elders. Instead, they want commercial contracts to replace the societal bond—the transaction to replace the relationship.
As long as Americans are on payrolls, there is a sound foundation for Social Security. The more productive we are as a country, the greater our ability to support one another. The extent of our support is our choice. But the opponents of the program understand that it requires trust and reciprocity. If they convince the current generation of employees that the generations behind them will not support them in turn, then Social Security can be abolished.
The first duty of a state to the governed, the precondition for meaningful liberty, is security. Social Security, along with Medicare, insures citizens in the event that they are disabled, widowed dependents, infirm and elderly, or retired. Such programs enable those frail mortals who neither divine their future nor conjure wealth at will. Strengthen social insurance, and you strengthen them.
The 24/7 Happy Hour. Be positive, upbeat and perky at all times. Once, the job of corporate functionaries was to make things happen. Today, their mission is apparently to keep their colleagues company in the office. As "How Full Is Your Bucket?" asserts, "Ninety-nine out of every 100 people report that they want to be around more positive people." Every book in the genre enjoins a relentless positivity of outlook. In the "Tuesdays With Morrie"-like fable of "The Present," the anonymous "young man" chirps to the wise "old man," "So, if what I believe and do today is positive, I help create a better tomorrow!"
In fact, negative thoughts—as toward the boss who laid you off or passed you over for a promotion—will not only be visible to your comrades, they "can be harmful to your health and might even shorten your life span." If you happen to be downsized, right-sized or outsourced again, just grin and bear your smiley face to the next potential employer, as the happy folks in "We Got Fired! . . . And It's the Best Thing That Ever Happened to Us" advise.
Avoid Victimism and Anyone Who Indulges in It. People who fail at being positive—and dwell morbidly on their last demotion or downsizing, for example—easily fall into what "The 8th Habit" diagnoses as "the mind-set of victimism and culture of blame." Avoid them, even though "it's very easy to hang out and share suffering with people who are committed to lose." Poor people, we discover in "Secrets of the Millionaire Mind," are that way because they "choose to play the role of the victim." Avoid them too.
Masters of the Universe. Being positive and upbeat not only improves your health and popularity, it actually changes the world. Yes, your thoughts can alter the physical universe, which, according to "Secrets of the Millionaire Mind," "is akin to a big mail-order department," in which you " 'order' what you get by sending energetic messages out to the universe." The author ascribes this wisdom to the "Law of Attraction," which was explained scientifically in the 2001 book "The Ultimate Secret to Getting Absolutely Everything You Want." Thoughts exert a gravitational-type force on the world, so that "whenever you think something, the thought immediately attracts its physical equivalent." If you think money—in a totally urgent, focused and positive way, of course—it will come flying into your pockets.
The Mice Come Out Ahead. Although the plot of "Who Moved My Cheese?" centers on two tiny, maze-dwelling, cheese-dependent people named Hem and Haw, there are also two subsidiary characters, both mice. When the cheese is moved, the tiny people waste time ranting and raving "at the injustice of it all," as the book's title suggests. But the mice just scurry off to locate an alternative cheese source. They prevail, we learn, because they "kept life simple. They didn't overanalyze or overcomplicate things." In the mysteriously titled "QBQ! The Question Behind the Question," we are told that questions beginning with "who" or "why" are symptoms of "victim thinking." Happily, rodents are less prone to it than humans. That may be why we never learn the identity of the Cheese Mover; the who-question reveals a dangerous human tendency to "overanalyze," which could lead you to look upward, resentfully, toward the C-suites where the true Masters of the Universe dwell.
Passionate. According to "The 8th Habit," in the old days, it was good enough to be effective. But "being effective . . . is no longer optional in today's world—it's the price of entry to the playing field." The endlessly churning, cutthroat, 21st-century business world demands greatness—which means being not only enthusiastic but also passionate about your work. Presumably, you will pull all-nighters, neglect your family—whatever it takes. And when you do lose your job, you will embrace your next one—in, say, modular building construction—with the same raging passion for greatness.
These instructions may sound, as Ehrenreich said, "immoral, delusional or insulting to the human spirit." But it's not surprising when the winners cling to their sermons or antipathy to people who aren't like them to explain away the bitter losers.
William Greider, a stalwart of The Nation, has admitted defeat. The Democrats are no longer the party of the New Deal. Most Democrats, like the President, are politicians of an exclusive center. In American politics, however, there are two centers, and as Michael Lind explained, they oppose each other:
[T]he phrase "radical center" was originally used by the sociologist Donald Warren in the 1970s to describe swing voters who combined center-left economic views with center-right opinions on civil rights, illegal immigration and identity politics (though not necessarily on abortion or other issues more associated with the Protestant religious right). Thanks to the defection of these voters, the Democrats lost their domination of the presidency in 1968 and of Congress in 1994. But the Republicans were never able to consolidate their power, mainly because their small-government, free-market economics and their hostility to Social Security and Medicare were not shared by radical centrist voters.
To make things even more complicated, as journalists such as John Judis pointed out back in the 1990s, America's loose but real class system produces not one but two centers: the radical center, which is based in the white working class and lower middle class; and the "mushy middle" (or the "sensible center" or "moderate middle"), which is based in the corporate world, the corporate media and in many think tanks in Washington. While the socially downscale radical center is center-left in economics and center-right in cultural matters (in favor of lowering the Medicare retirement age, against race-based affirmative action), the socially upscale mushy middle is center-right in economics and center-left in culture (in favor of cutting Social Security and Medicare and also for promoting ethnic diversity in an elite that is homogeneous in class and worldview).
The mushy middle represents the class interests of the college-educated professional/managerial overclass, a group that makes up at most 10 or 20 percent of the U.S. population. That 10 or 20 percent, however, accounts for nearly 100 percent of the personnel in corporate management, news media and the universities. As a result, the only "center" that is ever represented in mainstream political discourse is the mushy middle, whose spokesmen include David Gergen and David Broder. Deprived of credentialed advocates in positions of power and influence, radical centrist voters are forced to find their tribunes among anti-system politicians or journalists, like Ross Perot and Lou Dobbs, whose theatrical styles and appeals to (sometimes justified) resentments allow the establishment spokesmen of the mushy middle to dismiss them as primitive Neanderthals and pitchfork-wielding populists.
Whereas the evolved and the sophisticated return to the same policies, expecting different results. In Washington, it's called "pragmatism."
Granted, where you stand depends on where you sit. But as we do not live in an antiseptic, tractable world where self-interest is self-evident, we do not have the honest luxury of ignoring ideas. Tony Judt gave one measure of the force of ideas. He said, "the thrall in which an ideology holds a people is best measured by their collective inability to imagine alternatives."
And yet the denial of alternatives is practical for those market liberals who refuse to own the worldly consequences of their grandiose beliefs. If there is no alternative, there can be no culpability.
[John Gray, the greatest living critic of market liberalism, described it as the utopia of the center.]