Tag Archives: Economics

Ancient Honor Is Not Dead

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A old friend — we were best friends in high school, but since then we’ve drifted apart — emailed me last night to tell me he’d been laid off. He’d worked for the same company for twenty-three years.

He tells me the news in the passive voice: he was notified; his job was eliminated. This is perfectly appropriate, I suppose. A turn of events like this makes one feel deprived of all agency, a patient, not an agent, suffering the slings and arrows of outrageous fortune, caught in the undertow, run aground or cast adrift as a huge economic wave breaks. Those twenty-three years, arguably the best years of a man’s life, don’t count for much these days; loyalty affords no blind, break or refuge.

My friend writes that he’s been soul searching; we’ve all been soul searching. The nation as whole is suffering from what one wag calls “free-floating economic anxiety.” It sounds very clever, but you have to wonder why anyone would want to be clever about all that’s happening around us. I suppose being witty is one way to keep your wits about you, especially if the alernative is to plug into the round the clock economic hysteria.

I was never a very good sleeper – maybe I’ve spent too much time searching the darker corners of my own soul to ever find my ease – and I couldn’t sleep last night thinking about that email from my friend, and what this layoff could mean for him and for his family, and what it might mean for me: the decisions I may have to face if things get worse, the decisions we all may have to face. I am not sure we are ready, or equipped, or willing to face them together. At four o’clock this morning, I was looking at news from the Nikkei.

Clarence Thomas in his remarks yesterday said we have grown self-indulgent and soft, ignorant of the constitution and used to feeling entitled to things our ancestors would have considered privileges. He’s probably right. Now I am all for asking what I can do for my country, but I am pretty sure I’m not ready for the prescription Justice Thomas wants to write to cure our social ills or strengthen our political will. Besides, our forebears were not necessarily cut from better cloth, as if the very genetic material from which Americans are made has degenerated and declined over the past fifty years of post-war prosperity. But it seems like bad form to argue the point.

Our grandparents and great-grandparents knew hardships — all their lives — we have never known. They didn’t feel entitled. And they didn’t hope for as much out of life. But loyalty counted more in those days, and – we’ve been told — a company man was a company man, until the day he got his gold watch and pension. Unless, of course, you weren’t a company man: in which case you just worked hard all your life and took what few pleasures came your way.

So the story goes. But I’m not sure how exactly that story illuminates our current situation. I am not even sure that we are very close to knowing the truth about our current situation. John Stewart excoriates Jim Cramer on national television and America chalks one up for the good guys; but Cramer and company were just along for the ride, singing for their supper, flattering the princes who hired them for jest. (And I couldn’t help but feel that Stewart came off as a scold playing for easy applause.)

It may be fun to hate the big, fat greedy cigar-chomping AIG executives who took the bonuses; but cartoons are not reality, and most of us would demand compensation we’d been promised and contracted for. No, it wasn’t right; no, it didn’t look right: but considering AIG currently still has 1.6 trillion in outstanding derivatives exposure, we need to clean up that mess and do that in an orderly fashion. Litigation over bonuses won’t help accomplish that. So maybe Ron Shelp’s piece in today’s Wall Street Journal has it right: “the bonuses stick in my craw,” writes Shelp, but the bonuses may be “justifiable… because the executives in the financial unit are trying to undo and wind down very difficult agreements. It is in everybody’s interest, AIG’s and the government’s, to get them cleaned up and to close down the unit.”

New York Attorney General Andrew Cuomo is taking issue with that view now. But when Senator Charles Grassley of Iowa suggests the executives at AIG should all commit Seppuku, he’s not taking a stand for ancient honor; he’s just feeding populist rage, and he’s not helping anyone figure out the trouble we are in, the trouble we need to face.

Indeed, I wonder if all the theatrics around AIG and the catastrophic failures of the past six months or so aren’t doing more to obscure the problem we have than to illuminate it. There’s good reason to believe, isn’t there, that the “systemic” and structural problems we are facing now are not exactly new, but new and dreadful manifestations of problems kept from view by the housing bubble from 2003-2006 and by the Internet or dot.com bubble that burst in 2000.

In those days, we used to celebrate systemic and catastrophic structural change as “creative destruction”; the more mild-mannered among us would talk about the the emergence of a “new economy,” the shift from manufacturing to information services. Whole industries and supply chains would be “disintermediated”; once American industry had given up the ghost, or just moved offshore, the military industrial complex would evolve, yes, evolve into a new information economy.

Evolution, though, is brutal sport. I’ve noticed that it’s a word business-people like to use when they want to avoid the word revolution. But you don’t need Naomi Klein to know that capitalists are revolutionaries, and revel in catastrophe and the overturning of old orders. Some will emerge from the ashes triumphant. Others will not survive. It’s not really a question of who is made of better stuff. It’s a question of whether we can master the forces we ourselves have unleashed on the world, and turn them to our good.

A Second Question for Brad DeLong

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Yesterday The Economist opened an online debate on Keynesian principles by asking two economists, Brad DeLong and Luigi Zingales, to take up the proposition, We are all Keynesians now.

The debate allowed comments from readers, and many of the comments pointed out that the nous-sommes-tous proposition itself was badly phrased. But there was wisdom in the house’s folly, and it turned out that putting things in this broad way actually helped get the debate off to a promising start: both DeLong and Zingales had to spend some time in the first round trying to figure out what the proposition meant, or could mean.

DeLong was charged with holding up the “pro” side of the question. His intellectual honesty wouldn’t allow him to defend the proposition outright; so instead he took the tack that he wished it were true that we were all Keynesians, or that we all should be.

The crux of his argument, at least as I read it, involved a refutation of Say’s Law. Those who have misgivings about government spending, or who argue that spending (from the government or any other quarter) cannot spur economic growth, create jobs or raise production are appealing, whether they know it or not, to Say’s Law. That law holds — wrongly, says DeLong — that demand is created by supply, not vice-versa. If government spends (to create demand), increased supply (which brings job and production figures up) will not necessarily follow; indeed, say the proponents of Say’s Law, the private sector or consumers may cut back on spending. Supply will stagnate.

For DeLong, Say’s Law is patently false. “In general,” writes DeLong, “spending works to spur the economy, and the government’s money when spent is as good as anybody else’s.” To back up this assertion, he adduces two examples: the first, oddly, is the creation of the housing bubble from 2003-2006, made possible by capital inflows from Asia and easy money from the Fed; the second is the creation of the dot-com bubble from 1996-2000, “when the assembled investors of America discovered the internet and in response businesses spent money like water on computers and telephones.”

While there’s no doubt that IT spend was a driver of growth at the end of the last century, I would question whether bubbles are really the best example of growth, or whether either the housing or dot-com bubble disproves Say’s Law once and for all, as DeLong seems to suggest.

There is, after all, a difference between actually creating demand and simulating demand — isn’t there? And more importantly there is a difference between sustainable growth and growth that turns out to be illusory — a mere bubble. Isn’t there?

Zingales brought the whole issue more clearly into focus when he argued that Keynesian economic policy cannot be the solution to the current crisis; to assume that you can fix the current crisis by simulating (or, DeLong would say, creating) demand is to misunderstand our trouble: “The current crisis is not a demand crisis,” wrote Zingale, “it is a trust crisis.”

In a comment, I asked DeLong to take up the point, and to say a few words about how the current wave of government spending might help to restore trust and confidence.
He posted his reply:

We have a banking trust crisis. Fixing that requires fixing the banking system. Keynesian deficit spending policies don’t help fix that crisis.

But the banking trust crisis–which has been rolling forward for eighteen months now–has in the past six months generated another crisis: a collapse of spending and collapse of employment crisis.

Keynesian deficit-spending policies can help keep this second crisis from growing much worse. Indeed, they are about the only thing that can.

First, a clarification, or an admission that I might have misread the remark that prompted my question in the first place. I am not an economist, so I take words like “trust” in the way most ordinary people do, according to the meanings they have in everyday conversation. So I didn’t understand, from the outset, that Zingales was confining himself to “banking trust,” the trust that allows credit to flow; I assumed that the breakdown of the banking system had eroded trust in a more fundamental and pervasive way. Indeed, that’s been my understanding since this whole mess started, and it seems I brought those broader concerns about trust to my reading of Zingales.

But let’s confine ourselves for the moment to the banking trust crisis. DeLong admits that Keynesian deficit-spending policies won’t — or “don’t” — fix “the banking trust crisis”; so the answer to my question seems to be: the current wave of government spending will do nothing to restore trust and confidence. But Keynesian policies will help prop up spending and employment, DeLong adds, which are collapsing due to, or in the wake of, the banking trust crisis.

This may seem a bit like trying to make repairs to a house built on quicksand, which is why, I suppose, DeLong prefaces his remark about Keynesian policies by noting that we have to fix “the banking system” in order to restore banking trust. Apparently the Keynesians are going to leave us on our own to perform that Herculean feat, while they take care of the spending.

My fear is that the Keynesians will go for the quick fix, because that is what Keynesians and policy-makers of every stripe do. But still, I wonder whether DeLong wishes to leave open the possibility that addressing the spending and employment collapse will help restore “trust” in some broader sense? And if so, how might that play out in real world terms? Would he at least admit that you can’t create demand without restoring trust? How, for that matter, can we talk about demand without talking about trust? Isn’t trust an essential component of demand? If not, then what, exactly, is demand?

For non-economists at least, demand and trust are not mere ideas, abstractions or models. Perhaps some deeper and broader appreciation of the workings of trust in our lives — in our jobs, in our everyday associations — would strengthen the Keynesian position DeLong espouses; or reveal the insufficiency of Keynesianism that DeLong seems on the verge of admitting.

Then again, maybe this is really just all about my misreading of the word “trust.” As I say, I read it broadly; and I consider it essential to the workings of the free market and a free society. So my concern is not just with the flow of capital but with a loss of social capital.

We can’t confine “trust” to the banking system, or build a firewall between the “trust” that makes the banking system work, on the one hand, and the broader social trust on which we rely in our economic life (what Yeats called “getting and spending”) on the other. Doing so may only blind us to the true nature of our current problems — which, I’d argue, aren’t just worries over our economic problems, but which are more deeply rooted in a widespread anxiety and uncertainty about what American life promises and offers.

As Dale Launer, another Economist reader, put it, we’re “spooked.”

Nostalgia Hour at the Club for Growth

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Daniel Henninger has one thing right: the Republicans had better start talking about economic growth. But first they have to stop dithering and consorting with buffoons like Rush Limbaugh or threatening to go beyond the cutting edge and get really hip hop.

Then (one hopes) they will join the conversation about growth that’s already underway in many quarters — not just within the Obama administration, but also and especially in the private sector, which, if we are to believe Henninger, is the Republicans’ political bailiwick.

But (please) the public should not have to suffer through more teary-eyed sentiments or television specials about Ronald Reagan. Nor should we be asked to consider Ronald Reagan one of the great economic minds of the 20th century. He was not; and to put Reagan on a par with Milton Friedman or Henry Hazlitt is to misread history and to ignore the difference between political leadership (which Reagan provided) and philosophical range and depth.

What’s more, invoking the ghost of Ronald Reagan and hoping that he offers a way out of the darkness is just bad political strategy, unless of course the Republicans are intent on being the party of — well — sentimental old Republicans. Many young voters (most of whom were Obama voters this time around) were born during Reagan’s second term. To them, I’ll wager, “Ronald Reagan” sounds a bit like “William McKinley” or “Teddy Roosevelt.”

Schumacher’s Burma

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If there is a theme that ties together the entries I’ve made on this blog, it would be that “social science” may account for society but fails to account for humanity, and that that failure manifests itself in the shortcomings of social science’s legitimate offspring (e.g., economics) and in the deformities and defects of its bastard children — management theory and management consulting, the new literary theory, social theory passing itself off as a guide to practice or as philosophy, etc.. It seems there’s no shortage of examples of the deficiencies of theory and its malign influence.

So I was pleasantly surprised when I found echoes of this concern in the opening chapters of E.F. Schumacher’s critique of economics, Small is Beautiful. Schumacher’s book discovers in the “small” — the local, small scale, low-impact, communitarian — a salutary alternative to reckless, unsustainable economic growth. He is careful to distinguish the “wisdom” we need to find a more sustainable way from the “fragmentary judgments” of economists. The promotion of unbridled self-interest — of greed and envy — as the great motive of human behavior and the reality of human life he finds restrictive and reductive at best, and, at worst, a criminal and immoral denial of human dignity and possibility, of our nature as beings made in the image of God.

Fair enough, and reason enough to read the book if you haven’t yet done so. But on my reading things go awry when Schumacher starts to look for an alternative to all this bad living and bad philosophy in a chapter called “Buddhist Economics.”

It’s not that Buddhism doesn’t offer some good remedies for what ails the West. It probably does, as do the other great religions of the world. (And, in an odd passage, Schumacher says that his choice of Buddhism for the purposes of his discussion is “purely incidental”; the critique of materialism and the discussion of economics that follows, he says, could have been developed just as well from Judaic, Christian, or Islamic sources. This is disingenuous at best, and history would seem to suggest otherwise: just consider the intellectual history covered in Weber’s Protestant Ethic and the Spirit of Capitalism, or the accommodations that both Judaism and Christianity made in the medieval and early modern period around usury in response to changing economic realities, religious persecution, and so forth.) For me the real problem is not a question of religious history or the liberation religion promises from history: instead I am trying to understand why Schumacher would hold up Burma as the exemplar of Buddhist economics and its central tenet of “Right Livelihood.”

Now I don’t pretend to be an expert on Burma, but I do know that even in 1973, when Schumacher was writing his book, Burma was hardly the shining example of enlightened economics, social justice and equity that he makes it out to be. Put aside, if you can, for the moment, that since its independence from British rule in 1948 Burma has been ruled badly, and since the 1960s by a repressive military junta, which is responsible for squelching democracy, imprisoning those who advocate democratic reform and for creating an “atrocious” human rights situation. Focus instead only on economic life there at the time that Schumacher was writing.

It must surely be Ne Win’s policy of The Burmese Way to Socialism that Schumacher means to glorify in his portrait of Burma as an economic Utopia. But this is dangerous folly, especially for a writer who claims that from the right ordering of economic life we can create the conditions for peace. With its state-sponsored Buddhism, the Burmese Way not only brought Burma to the brink of economic collapse; it also created the conditions for a military revolt that led to the even more repressive conditions that prevail in Myanmar today. Was it the fog of the incense or the ringing of the little bells that allowed Schumacher to overlook the inconvenient, bloody facts of Burma’s history?

That history had been unfolding for over a decade by the time that Schumacher wrote his book, and at the time many Western intellectuals, frustrated or repulsed by developments in the rich world, had, like Schumacher, looked to the East to find another, humbler, more peaceful way. Some ended up returning to the West, a little wiser for their Eastern experience; others were enthralled and lost all critical perspective. It’s not just that Schumacher now seems to have been terribly wrong and naive; it’s as if he and many intellectuals of his generation had become so disenchanted with the West that they were all too easily enchanted by those offering to disclose to them the mysteries of the East. Or were they simply hiding from the hard questions that it was their responsiblity to face?

In any case, it’s no exaggeration to say that we are just now beginning to cope with the intellectual legacy of the choices that generation made. And legacy is a nice way of putting it. Indeed, the question is whether in the West we will ever be able to recover our footing, especially given how slippery it is out there these days.