Archive for April, 2010

Saving the PIIGS

Posted: 29 April 2010 in Uncategorized
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The latest news is, they’ve settled on a package of 120 billion euros (about $160 billion) to save the Greek economy. And the other PIIGS (Portugal, Italy, Ireland, and Spain). And the European Union. Not to mention the global economy.

That’s what all the pundits are writing about: the problem of “contagion” and whether or not Greece has the “discipline” to get its fiscal house in order. Or, alternatively, whether Greece will be forced to default and leave the Eurozone. And, if so, what the effects will be on other countries.

What they’re mostly not discussing are the conditions that will be imposed in Greece to receive the bailout funds. And who will benefit from the bailout.

Only one commentator, Daniel Gros, has had the temerity to outline the proposed austerity measures. The goal, within Greece, is to lower unit labor costs—to boost profits (in the export sector) and guarantee higher profits (by lowering the fiscal deficit). The goal, outside of Greece, is to repay the bankers that hold Greek debt. Both sides were only too willing until now to shift the burden onto public debt. The Greek state didn’t tax employers for government programs. And bankers throughout Western Europe made handsome profits on Greek debt.

That Ponzi scheme came to an abrupt end (although one could see it coming years ago), and the new deal is going to shift the burden of “adjustment” onto Greek workers. Now. And massively.

Gros explains that unit labor costs need to be cut by 10 percent. To do that, the Greek government and Greek employers will be called on to lower nominal wages (in both the public and private sectors), extend working hours and years, change the tax structure (lower social security taxes and higher value-added taxes), cut social programs. That’s the plan—for Greece and, by extension, for the other countries that are threatening default.

It’s capitalism’s way of saving the PIIGS and its own porcine elites.

Beyond MaxU

Posted: 28 April 2010 in Uncategorized
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René Magritte, "The False Mirror" (1928)

Much of contemporary neoclassical economics remains wedded to an analytical approach based on utility-maximizing individuals. And, as Nick Krafft discovered, neoclassical economists just don’t want to give it up.

Notwithstanding all the criticisms of the idea of MaxU over the years, including the exceptions to utility-maximizing behavior discovered by behavioral economists, the official line is “don’t throw out the baby with the bathwater.” Why? Because they just can’t imagine doing economics without rational, self-interested, utility-maximizing economic subjects. The fact is, letting go of MaxU probably involves moving beyond neoclassical economics but it certainly doesn’t mean the end of economic analysis.

One exception is the work of Deirdre McCloskey, who has, in the name of Bourgeois Virtues, attempted to expand the concept of the individual, beyond utility-maximization. And, of course, she remains firmly rooted in neoclassical economics (what she considers to be old-style Chicago economics, as against Samuelsonian versions of neoclassical theory).

But there are two other alternatives. One is to produce a different concept of the individual economic subject, a nonunitary subject, for which there are many possibilities: the no-self self (as in Buddhist thought), multiple selves (as discussed by Paul Bloom, in “First Person Plural”), the decentered self (favored by postmodern theorists), the Lacanian self, and so on. Each and every one of them would give rise to a distinctly non-neoclassical form of economic analysis—but still an approach to economics grounded in the human subject.

The second alternative is to decenter economics from the subject. This would involve analyzing economic events and institutions without grounding such analysis on a given concept of the human subject. It is, in other words, a post-humanist economics—or, in Louis Althusser’s famous phrase, an economics based on a “process without a subject.”

I can’t take the time here to spell out what such different economic theories look like. My only point is, both approaches—the decentered subject and the decentering of economics from the subject—offer viable alternatives to MaxU and neoclassical economics. And that’s the problem Nick encountered in stubborn resistance to his question: moving beyond MaxU does (with the exception of McCloskey) involve throwing out the neoclassical baby with the dirty bathwater.

Quote of the day

Posted: 28 April 2010 in Uncategorized
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“When I think that I had some input into the creation of this product (which by the way is a product of pure intellectual masturbation, the type of thing which you invent telling yourself: ‘Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?’) it sickens the heart to see it shot down in mid-flight. . .It’s a little like Frankenstein turning against his own inventor ;)”

Fabrice (Fabulous Fab) Tourre, email from 29 January 2007

Mexican travel warning

Posted: 28 April 2010 in Uncategorized
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No, not this one.

I’m referring to the warning by the Mexican government about travel to the United States.

“There is an adverse political environment for migrant communities and all Mexican visitors,” Mexico’s ministry said. “It’s important to act carefully and respect the local laws.”

The problem is, acting carefully and respecting local laws don’t protect people from being detained in Arizona if there is “reasonable suspicion” they’re in the country without authorization. All they need to do is be or look Mexican. . .

That’s the expression borrowed from an internal Goldman Sachs email that Sen, Carl Levin chose to cite, again and again, in his questioning of current and former Goldman Sachs executives during this morning’s investigative hearings into the financial crisis.

Actually, as I was listening to the committee’s hearings, it was Sen. Claire McCaskill who was the toughest questioner of the lot.

“It’s gambling, pure and simple, raw gambling. They’re called synthetic because there’s nothing there but the gamble, but the bet.”

“You all are the house. You’re the bookie.”

“People are booking their bets with you. That’s what they’re doing. That’s what a synthetic CDO is. I don’t know why we need to dress it up. It’s just a bet.”

“What’s your vig, Mr. Sparks, on these deals?”

And here’s a link to Zero Hedge’s annotation of Lloyd Blankfein’s written testimony for the committee.

Tyler Cowen and I have one thing (and, perhaps, only one thing) in common: an interest in mutton barbecue.

Owensboro, Kentucky is the capital of mutton barbecue in the United States. I’ve had the pleasure of sampling this rare of form of barbecue (in comparison with pork, in the South, and beef, in Texas) in a number of local restaurants, including the Moon-Lite, and it’s pretty amazing stuff.

Apparently, mutton barbecues have long been important church fund-raisers in Owensboro. Its first recorded mutton barbecue, on 4 July 1834, was held at a Baptist church,

but local Catholics have been particularly active barbecuers. Mount St. Joseph’s convent school alone sells about two tons of barbecued mutton at its annual barbecue. Today there’s at least one fund-raising picnic in the Owensboro area nearly every week in May and June.

So, if you’re in or near western Kentucky—in May, June, or any time of the year—don’t forget to try the mutton barbecue.

Not working

Posted: 27 April 2010 in Uncategorized
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Capitalism’s not working. Which means that millions of people are not working. And they’re not working for a very long time.

That’s the conclusion of a new study by the Pew Fiscal Analysis Initiative, which includes calculations of the number and percentage of people who have been unemployed for a year or more. Among the report’s findings:

  • The official unemployment rate in March was 9.7 percent (which means that about 15 million people were actively searching for employment but were unsuccessful) while the underemployment rate was 16.9 percent (much higher than the comparable rate after the 2001 recession, which was 10.4 percent).
  • Over 44 percent of the currently unemployed have been out of work for a period of 6 months or longer. By comparison, during the severe recession of the early 1980s, the percentage of workers unemployed for six months or longer peaked at 26 percent in 1983.
  • The high long-term unemployment rate represents the continuation of a decades-long trend, one that has worsened after downturns but has persisted even during periods of growth. inmarch 2004, at its most recent peak, the percentage of people who had been unemployed for at least six months was 23.4 percent. In November 2007, the last month of economic expansion before the current recession, 19.5 percent of the unemployed had been jobless for at least six months.
  • in December 2009, nearly three and a half million Americans, or 23 percent of the unemployed, had been jobless for a year or longer.
  • Minorities, men, younger workers and less-educated workers are over-represented on the unemployment rolls. In December 2009, the overall unemployment rate for whites was 8.8 percent, but 15.6 percent of African Americans and 12.9 percent of hispanics were unemployed. Unemployment among workers between the ages of 20 and 24 rose from 8.7 percent in December 2007 to 14.7 percent in December 2009. The unemployment rate for workers 25 or older without a high-school diploma rose from8.2 percent in December 2007 to 15.7 percent in December 2009.
  • Once older workers become unemployed, they are more likely than younger workers to stay unemployed for a long period of time. Among unemployed people between the ages of 20 and 24, only 18 percent had been out of work for a year or longer in December 2009. The percentage steadily increases with age: more than 29 percent of unemployed people older than 55 had been out of work for a year or more—a higher rate than any younger age group.

And it’s likely this situation will persist for some time. . .

Capitalism will continue not to work. As a result, millions of people will continue not to be able to work. And, as things stand right now, they’ll be out of work for a very long time.