Archive for March, 2011

Bhagwati gets it wrong!

Posted: 31 March 2011 in Uncategorized

The following post was contributed by Lamia Karim.

Jagdish Bhagwati gets two important points wrong in the context of Bangladeshi politics. In a democracy, it should not matter whether one is the daughter of the Father of the Nation. First, Sheikh Mujibur Rahman abandoned democratic principles and instituted one-party rule in 1974 (BAKSAL), which among other things led to his downfall. Second, his daughter, the current prime minister Sheikh Hasina, had spent time on the streets demonstrating against the former prime minster Khaleda Zia instead of working out their differences in parliament. Is that upholding the principles of democracy? Bangladesh is not an Islamic state; it is a Muslim majority country. Nor is it under Islamic sharia laws. The two elected prime ministers to date have both been women. Similar to India, we have dynastic democracy. Elite women play important roles in the country by virtue of their familial ties.

I am not surprised that Bhagwati as a proponent of free trade supports Hasina unconditionally. She has been good for the Indian government and economy. Since coming to power in 2008, she has given India the right to transit through Bangladesh to reach its northern states known as the seven sisters (Assam, Meghalaya, Tripura. Mizoram, Manipur, Nagaland, Arunachal). There are ongoing insurgent movements against the Indian government in all of these provinces. Currently, trade access is through the northern tip of West Bengal (close to the foothills of the Himalayas). It is a narrow stretch of dangerous terrain and prohibitively expensive. Thus, with free transit through Bangladesh, the Indian government will be able to move goods easily and inexpensively into the region, and open it up for market access. Along with trade, the Indian army will roll into this region to crush the separatist movements in northeastern India. This will lead to cross-border coalitions among insurgent groups in the region (NE India, Bangladesh, and Myanmar), smuggling, environmental degradation, and a rise in the trafficking in women. Remember, too, that China is building a road link from Kunming (Yunnan province) through Myanmar to reach a proposed deep-sea port in southeastern Bangladesh. Thus, this is an extremely volatile region with both Chinese and Indian trade interests that will be played on the backs of these peripheral states and people.

Regarding microfinance and Yunus, let us give credit where credit is due. While Yunus is not the first proponent of microfinance, he is credited with making the idea go global. As a friend noted, while SEWA was started in 1974, neither the Indian Central Bank nor its leader (Ella Bhatt) saw its potential of making it into a global institution. And very possibly, Bhatt probably did not want it to go global! Whether one likes the concept of microfinance or not, one cannot discredit Yunus’s contribution in this specific area. His rise to fame was supported by financial assistance from Western donors, as well as the World Bank and the IMF, institutions that promote structural adjustments and market deregulation. So, perhaps the blame really lies with these donor organizations that are trying to find a magic bullet to solve global poverty.

The key difference between the Grameen Bank and SEWA is the following: SEWA works with small traders and artisans, and it operates as a trade union with workers’ rights. These women already have marketable skills and market access. They need small sums of money at low-interest to manage their businesses. In contrast, Grameen is composed of rural women who are housewives with little or no trade skills or market access for that matter. Grameen operates on the following principle: the borrower knows best, and the role of the institution is to offer credit (loans), and leave it to the invisible hand of the market. In the context of rural Bangladesh where women are situated within dense networks of social and family obligations, one should not be surprised that this does not work as imagined. Loans to poor women result in all sorts of unanticipated consequences from the creation of women as moneylenders to increased violence against women, both at the household and community levels. Moreover, Grameen constructs the poor as consumers who can purchase the goods and services that the middle-class has access to without addressing the structural inequalities that produce poverty in society. See my forthcoming book for an analysis of social relations mediated by microfinance in Bangladesh.

Its charismatic founder is an advocate that the Western donors can identify with. He is humble in his manner, dedicated, and a proponent for capitalism for the poor (“capitalism should not be the handmaiden of the rich”). This sounds like an elixir of hope for the world’s poor. All we have to do is extend them loans, and the market will take care of the rest! Given Bhagwati’s scholarship, I am surprised that he lauds SEWA over Grameen, given that SEWA is a trade union organization, and Grameen works on the neoliberal notion of individual entrepreneurship.

Please see my op-ed for a more detailed analysis of the conflict between the Nobel laureate and Sheikh Hasina.

First, Republicans went after William Cronon (whose name they misspelled) at the University of Wisconsin. Now, they’re after professors in labor studies departments at the University of Michigan, Michigan State, and Wayne State University.

There are two important lessons to be drawn from these affairs: McCarythism was not an isolated episode in U.S. history, and we don’t own our university email accounts.

That’s how capitalism works!

John Taylor (and, following him, Gregory Mankiw) presents the graph above as if they’ve made some brilliant new discovery: there’s a negative correlation between unemployment and private investment (such that, as unemployment declines private investment goes up—and, conversely, as private investment rises unemployment falls). They’ve discovered nothing but that, within capitalism, private investment is related—as a consequence and determinant (since they’ve measured a correlation, not a relationship of causation in either direction)—to how many jobs are created and people employed.

But, of course, it’s not an iron law. What they’d like to show is that higher capitalist profits lead to more investment and then to lower unemployment. The problem is, first, profits can rise while corporate investment remains stagnant (because of “animal spirits” and capitalists’ unwillingness to make new investments at a particular point in time, as against using profits to buy back equity or to engage in mergers and acquisitions) and, even if investment does go up, it’s quite possible not enough new jobs will be created to keep up with the growth of the labor force (if, for example, the capital-labor ratio rises).

And that’s a pretty good description of what’s happening with U.S. capitalism right now. But you won’t hear that from Professors Taylor and Mankiw, who prefer to stop at the lessons of Capitalism 101.

Update

As it turns out, Taylor arbitrarily chose the initial year—and thus cherry-picked the data—to get the nice correlation he was looking for (and that Mankiw liked so much). According to Justin Wolfers, here’s what the scatter plot looks like if data going back to 1970 are included:

Cartoon of the day

Posted: 30 March 2011 in Uncategorized
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The Economic Policy Institute has just completed two studies that assist us in understanding the nature and causes of the stagnation of wages and the increasingly unequal distribution of wealth in the United States.

In the first study, “The Sad but True Story of Wages in America,” Lawrence Mishel and Heidi Shierholz analyze the relationship between productivity and wages in the United States from 1989 to 2010. Their conclusion is that productivity grew far more than wages: 62.5 percent versus 12 percent.

The result was, of course, an increasingly unequal distribution of income.

In the second study, “The State of Working America’s Wealth, 2011,” Sylvia A. Allegretto shows that the distribution of wealth in the United States is even more unequal than that of income. It was unequal before 2007 and it’s become even more unequal since the onset of the Second Great Depression. Why? Because even as the pie shrank, the share of wealth held by the richest fifth of American households increased by 2.2 percentage points to 87.2 percent, while the remaining four-fifths gave up those 2.2 percentage points and held onto just 12.8 percent of all wealth. The result was that the wealthiest 1 percent of U.S. households had net worth that was 225 times greater than the median or typical household’s net worth in 2009, the highest ratio on record.

It is not from the benevolence of the butcher, the brewer, or the banker, that we’ve seen the distribution of income and wealth become increasingly unequal in the United States, but from their regard to their own self interest. As a nation, we have addressed ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

And now we’re suffering the consequences.

Does capitalism have a future? It may, writes Paul Mattick [ht: mfa], but it’s not going to be particularly pretty. In fact, he argues, it looks like it’s going to be downright dismal.

First, depressions have a been a constant feature of the capitalist economy since the Industrial Revolution.

From the early 1800s to the late 1930s, in fact, capitalism spent between a third and a half of its history in depressions (depending on how they are dated by different authorities), which increased steadily in seriousness up to the Big One in 1929. It was only the relative shallowness of the recessions since World War II that gave rise to the idea that capitalism would no longer undergo the ups and downs characteristic of its first 150 years as the dominant social form.

Second, the current crisis was caused by the reappearance in 2007 of the depression avoided in the 1970s.

When the Golden Age came to a definitive end in the mid-1970s, the huge increase in government spending that avoided a return to depression conditions then was another step on the way to today’s increasingly problematic deficits. The very reason for the increase in government spending—insufficient profits—made it impossible to pay off the resulting state debt.

Meanwhile, government debt was joined by soaring amounts of corporate and private debt, making possible the apparent prosperity of the last two decades. Promises to pay sometime in the future took the place of the money the slowing capitalist economy failed to generate. Since governments, businesses, and, to an ever-increasing degree, individuals used borrowed funds to purchase goods and services, public, corporate, and household debt appeared on bank and other business balance sheets as profits. But the repayment of debt requires money made by the profitable production and sale of goods and services.

Third, the current crisis of capitalism is accompanied, and exacerbated, by two other looming problems:

Gloomy though such considerations are, they leave out two paradoxically related factors that promise further dire effects for the future of capitalism: the coming decline of oil—the basis of the whole industrial system at present—as a source of energy, and the global warming caused by the consumption of fossil fuels. Even if continuing stagnation should slow greenhouse gas-caused climate change, the damage already done is extremely serious.

Together, these problems foreshadow a dismal future:

What both of these continuing social stresses promise is that the decline of the economy, however cyclically inflected, will simply be the lead-in to a crisis of the social system that, because it is based on the laws of physics and chemistry, will transcend strictly economic issues. If the peaking of oil supplies and the catastrophes of climate change do not provoke a major transformation of social life, then it’s hard to imagine what could. This idea may seem unreal today to those of us who still live, for the most part, in what remains of the material prosperity wrought by postwar capitalism, much as the misery and terror of the inhabitants of war-torn Congo are hard to grasp for the inhabitants of New York or Buenos Aires. But this demonstrates only imagination’s weakness, not the unreality of the challenges in store for us, as local disasters like the flood of oil that poured out from BP’s drilling rig into the Gulf of Mexico in 2010 will perhaps make it easier to understand.

The question is, can anything be done?

The social relation between employers and wage earners, one that joins mutual dependence to inherent conflict, has become basic to all the world’s nations. It will decisively shape the ways the future is experienced and responded to. No doubt, as in the past, workers will demand that industry or governments provide them with jobs, but if the former could profitably employ more people, they would already be doing so, while the latter are even now coming up against the limits of sovereign debt. As unemployment continues to expand, perhaps it will occur to workers with and without jobs that factories, offices, farms, schools, and other workplaces will still exist, even if they cannot be run profitably, and can be set into motion to produce goods and services that people need. Even if there are not enough jobs—paid employment, working for business or the state—there is plenty of work to be done if people organize production and distribution for themselves, outside the constraints of the business economy. This would mean, of course, constructing a new form of society.

In Mattick’s view, capitalism has reached its limits, suggesting “the need finally to take seriously the idea, as the saying goes, that another world is possible.”

The Left seems to have come out squarely against the U.S. and allies’ intervention into Libya. Unfortunately, their arguments seem to mirror those of the Right, combining isolationism with a quick dismissal of any intervention lead by the United States and its allies. I, for one, remain unconvinced—but I’m very interested in readers’ reactions.

Three examples of the Left’s response to the decision to intervene militarily in Libya are Tariq Ali, Paul Craig Roberts, and Andrew Levine. Each of them concludes that the military intervention is wrong-headed and should be opposed.

On one hand, I’m in full agreement with some of the arguments they make, such as the double standard of (a) intervening in Libya but not in Bahrain, Yemen, Saudi Arabia, and continuing to maim and kill innocent civilians in Iraq, Afghanistan, and elsewhere, and (b) finding the money to finance a military intervention in Libya but not to create jobs in the United States. That’s certainly one of the things the Left should do: hold the elite accountable and identify the hypocrisy in their pious pronouncements concerning war and budget deficits.

On the other hand, the arguments put forth by Ali, Roberts, and Levine combine a kind of isolationism and apriori rejection of Western intervention that is more difficult to accept. One argument is that, because the money could be used at home, it shouldn’t be used to intervene in Libya. The problem is, one of the hallmarks of left-wing thought has long been its internationalism—a solidarity with victims and a rejection of injustice wherever it occurs, whether at “home” or “abroad.” The other argument is that, because the United States and its allies have historically been involved in military misadventures and imperialist plotting to arrange and rearrange the world in their interests, this particular military intervention must also be misguided (at best) or an attempt to “to bring the Arab rebellions to an end by asserting western control, confiscating their impetus and spontaneity and trying to restore the status quo ante” (at worst).

To my mind, these are not valid arguments against the attempt to create a no-flight zone and to attack Qaddafi’s forces to protect civilians and to give the opposition the opportunity to defend themselves and perhaps eventually to topple the regime. They are too sweeping in their generalizations and formulaic in their suppositions that the intervention must be a form of Western imperialism.

They are a reminder that we shouldn’t take the case for intervention at face value and we should remain attentive to the cruel twists and turns of history. That much I will give them. No one yet knows what will come after the successful movements to overthrow the regimes in Tunisia and Egypt—or, for that matter, what the United States or NATO will do as events unfold in those countries and Libya. But knee-jerk reactions against any and all military interventions by the United States and its allies are perhaps not the best way to think through and make sense of what is going on in North Africa or the Middle East today.

Cartoon of the day

Posted: 29 March 2011 in Uncategorized
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Yinka Shonibare, "The Age of Enlightenment—Antoine Lavoisier" (2008)

The Wall Street Journal is engaged in a smear campaign against Elizabeth Warren and the Consumer Financial Protection Bureau

Corporate profits have reached record highs, and they’re being used for everything except to create new jobs.

Big banks are saving billions of dollars, by taking shortcuts in processing troubled borrowers’ home loans, while billions of dollars of mortgages remain underwater.

Elite colleges mostly serve the sons and daughters of the elite.

The Republican governor of Michigan, where the unemployment rate has topped 10 percent longer than that of any other state, has decided to cut back on unemployment benefits.

Maybe economics is a science, maybe it isn’t.

There’s probably some kind of congruence between excessive formalization in economics, fraudulent claims to scientific power, ideological claims surreptitiously sneaked in, and mercenary dirty work done for the market.