The Future ****s You, Tony

The most inopportune statement of the early aughts?  This album cover by The Coup.

Second worst?  This passage of Krugman’s (via The Atlantic blog) from 2002.

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. [E.A.]

The seeds of tomorrow’s problems are planted by today’s solutions.  My friends, I’m an idealist too.  I can see myself supporting land reform in turn-of-century Russia, or the Korean Armistice, or the Louisiana Purchase.  But disasters lie in wait like genies in the lamp eager for us to rub the world the wrong way.  Cowards die a thousand deaths, but a nation must be circumspect in being brave on behalf of others because courage is often costly in ways unforseen.  I console myself with the thought that whatever calamity is next to befall us likely is one which no one is worrying about.  ”Sufficient unto the day is the evil thereof.”

Brave Old World

De-globalization already underway.

[N]ot outright Smoot-Hawley-style protectionism but a coming policy of small tax, spending and regulatory changes that will encourage this quiet trend toward deglobalization. Like it or not, this shift reflects a growing Washington mind-set that globalization has gone too far. Witness the Buy American provisions on Capitol Hill. Obama is playing not only to his union supporters but also to a segment of the U.S. corporate community whose enthusiasm for the global supply chain and “just-in-time” inventory management is waning.

And the coming rise in shipping costs has the potential to turbocharge this deglobalization process. The U.N. agreement last October on sulfur-burning levels for ships (not to mention California’s own restrictions on ship emissions) are expected to send shipping costs skyrocketing. A decade from now, it may be profitable to send by sea only items with relatively high value to weight, such as laptops. Analyst Philip Verleger argues that the net result could well be that a lot of low-wage jobs that moved to China, India and other emerging markets will move back to the West. This is already happening in the furniture industry. [E.A.]

Like you, I worry mainly that this will interrupt the flow of game books from the Far East.

Human Bots

Ready to feel unsettled?  Labor is so cheap in India that people there are paid $2 for every 1000 CAPTCHA [anti-spambot puzzle] they solve.  If you’re waiting for the price of labor, i.e. your salary, to stop creeping downward, you’ll have to get in line behind a billion pairs of working hands and eyes.  The last time labor did well in North America was in the wake of a war that killed off the European competition.  Perhaps your local union can figure out how to promote a few nuclear exchanges in Asia?  Short of that, you can always move to a lower-rent country.  America the gated community–God Shed His Grace on Thee!

You-Usury [Long]

My interest was so strongly piqued by a blurb on Slate and a tease on Harper’s Magazine’s website that I spent $7 on their magazine, from which I here quote extensively:

First, we removed the possibility of creating real, binding contracts by allowing employers to bust the unions that had been entering into these agreements for millions of people.  Second, we allowed those same employers to cancel existing contracts, virtually at will, by transferring liability from one corporate shell to another, or letting a subsidiary go into Chapter 11 and then moving to “cancel” the contract rights, including lifetime health benefits and pensions.  As one company after another “reorganized” in Chapter 11 to shed contract rights, working people learned that it was not rational to count on those rights and guarantees, or even to think in these future-oriented ways.  No wonder people in our country began to live for the moment and take out loans and start running up debts.

And then we dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter’s term, and which had been so taken for granted that no one ever even mentioned it to us in law school.  That’s when we found out what happens when an advanced industrial economy tries to function with no cap at all on interest rates.

Here’s what happens: the financial sector bloats up.  With no law capping interest, the evil is not only that bans prey on the poor (they have always done so) but that capital gushes out of manufacturing and into banking.  When banks get 29 percent to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits, like auto manufacturing.  Sure, GM is awful.  Sure, it doesn’t innovate.  But the peope who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs.  All of this used to be so obvious as not to merit comment.  What is history, really, but a turf war between manufacturing, abor, and the banks?  In the United States, we shrank manufacturing.  We got rid of labor.  Now it’s just the banks.

Which is why the middle class is shrinking.  Basically, we’re all waiters now; we’re bowing and scraping and working for the banks.  Look closely at any American, and it’s even odds that he or she, directly or indirectly, is somehow employed by the “financial services sector,” which covers insurance and real estate and financial instruments of any kind.  As brokers, lawyers, loan collectors, loan consolidators, secretaries at big investment firms, chauffeurs of private limousines, or even the high-tech types who exist solely to service banks–all of us, millions of us, are part of it, living off it i some way, as three generations ago we lived off manufacturing.

One could take the author to task for calling the US a debtor’s prison when personal bankruptcy is easier here than in Europe or Asia, and was even easier a few years ago; the breaking of contracts he bemoans on the part of Industry has its counterpart in the proletariate [we're Welshers one and all].  He also could have helped sell his case if he knew the Bible better; it was a clear misstep to hurl the Golden Rule against bailed-out banks’ issuing of foreclosure when the parable of the forgiving master is the correct citation.  But a point-by-point analysis is beside the point.  This thesis, that the collapse of usury laws set into motion the cannibalization of the US economy by its heretofore backwaters financial sector, is the narrative that will be settled upon when the history of our current crisis is written, once the over-exposure of this guy blows over.

The Next Bubble

Firearms?

The way Jay Chambers sees it, the semiautomatic weapons in his firearm collection might be the most promising investment in his financial portfolio.

Like many gun enthusiasts, Mr. Chambers, a manager for a door wholesaler here, believes President Barack Obama and the Democrats in Congress soon will reimpose a version of an expired federal ban on the sale of so-called assault weapons. If such a law passes, he figures his collection — enough guns, ammo magazines and weapon parts to assemble about 30 AK-47s, AR-15s and other semiautomatic rifles — could triple in value.

“A guy could easily make a lot of money,” says Mr. Chambers, 47 years old, while at Autrey’s Armory, a gun store about 20 miles south of Atlanta.

The US is by far the largest maker of guns, and when at last the floor falls out of the price I’ll be able to pick up an automatic rifle for the cost of a dinner out.  See you then.

I, Pencil

This essay was meant as an argument against Marxism, but it reads better as an answer to the Intelligent Design assertion that a watch implies a watchmaker.  [There are pencils, but there is no pencil-maker.]