As American consumption continues its long howling plummet off the cliff of the credit bubble, some might find comfort in the magic of rebranding:
The rebalancing of the U.S. economy is ongoing. The savings rate is rising, consumption is falling, and the trade deficit is declining ... (Source: Calculated Risk)
"Rebalancing" seems an awfully peachy term to describe what might very well turn out to be the worst economic collapse since the 1930s. But undeniably, the times they are a-changing. As consumption falls, we are seeing a counter-trend in our trade balance. If GDP is defined as the net product of consumption, investment, government spending and net exports (the difference between exports and imports),
Since GDP = C + I + G + (X − M), the decline in C is being offset by the improvement in net trade (X - M)
Accounting-wise, I'm a bit suspicious of this. If our trade deficit is declining (and I am making an ass out of both you and me here), I assume this has very little to do with increasing exports (our dollar is very high and foreign consumption is pretty low) and everything to do with declining imports (nobody in America is buying much of anything and that includes cheap crap from China). If that's the case, the decline in imports is just a ripple effect of the decline in comsumption.
To provide a really simplistic example, if we set the following values so that C = 50 I = 30 G = 30 X = 50 M = 60
Therefore, GDP = 100. To make the balancing act work out, let's first assume that "C" falls by 10, so that overall GDP also declines by 10. If this is to be counter-acted by a change in net-exports, we would have to assume an "exogenous" change in net exports; that is, that the change has nothing to do with the decline in consumption. Such a change might result from a sudden increase in demand from China and Japan. The surge in exports would push our trade deficit of -10 to a perfectly balanced net export level of 0. If we do the math with our new "C" equal to 40 and our new X = 60, GDP is still at 100.
But I don't think the change in net exports is exogenous. While consumption and imports are removed from one another in the GDP accounting formula, I think it's fair to assume that for every dollar spent by an American consumer, a certain percentage of that dollar is on average spent on an imported good. This decrease in import spending is therefore by definition smaller than the decrease in consumption and represents no net increase in GDP. Therefore as C declines by 10 above, "M" declines by 2 or 3. The so-called "marginal propensity to import" is considered a stabilizer of GDP fluctuations, but the stabilization of a trend doesn't imply reversion.
To be fair to the CR post, I don't think that they were assuming a perfect and painless switch from an American economy that consumes a lot to an American economy that exports a lot. While their discussion of this rebalancing act mentions an offset between C and M, I think its fair to assume that nobody believes the offset will be anywhere near complete. We are spending less and saving more. That is perhaps the major point.
And a well taken one at that. With consumption falling, at least for now, the U.S. is in need of a long-term source of economic growth. While imports into the U.S. are falling, improving the net export portion of the GDP, is there any chance that exports will eventually pick up?
Given the current value of the dollar, the answer seems an obvious no. But currency values are notorious volatile and with all the spending that's coming up this year, severe depreciation is always possible.
So assuming away the problem of an uncompetitive currency value, can America "rebalance" its economy in the long-run towards export-orientation (or at the very least, self-sustaining trade practices)?
I took a quick look over at the U.S. Census Bureau's Foreign Trade Statistics website to see if I could pull a conclusion out of my ass. Here it is:
Our top six export partners are, as ordered respectively by total value not netted by imports, Canada, Mexico, China, Japan, Germany and the U.K. Together those countries buy-up almost exactly 50% of our exports. And what are those exports exactly? Within NAFTA it seems to be largely cars and car parts, followed by metals, plastics, chemicals, industrial machinery and miscellaneous industrial supplies. China and Japan make similar demands upon the U.S. economy and throw in some agricultural produce orders to boot. Germany and the U.K. like us for our metal, airplanes and pharmaceutical drugs particularly, but on top of that, there's the standard list of industrial supplies.
What does this say about the future prospect of our trade balance? With industrial growth suspended in mid-air throughout the world, it may take a while to ride out any resulting gluts in commercial real estate development and capital investment (building factories and the required machinery). That's a big strike against any country banking on future demand for plastics, metals, chemicals and industrial supplies is going to be in the trough for a while. On top of that, I can't imagine that consumer demand for cars and airplane rides is going to accelerate (teehee) back to its normal levels for some time.
So what can the U.S. economy fall back on as American consumers tighten the elastic bands of their sweatpants? I wouldn't look to trade.
For a long time, I believed in two things: one, that making the decision to be a prominent politician is incredibly dumb, and two, that that is a very good thing. It should be an unpleasant and demeaning process, discouraging those who don't have the stomach for it or are simply too crazy to run a country. Now, obviously, this doesn't work very well at all, because it actually just discourages sane people from participating, leaving plenty of room for all the wack-jobs, snake-oil peddlers, and ego-maniacs of the world to swoop in and build big gold statues of themselves, the precise opposite of what I (once) felt would happen. And so, I have a confession to make: secretly, so secretly that I did not realize it until today, I really like crazy politicians. Good governance? Fuck it. I want a crack addict.
What bought me to this realization? Two people, one of whom I am truly sad to see leave the national stage, and the other of whom I am rooting for wholeheartedly to stick around for years to come. Maybe, just maybe, they will pair up in some kind of cross-over universe to run for super-double-president. I am talking, of course, about Rod Blagojevich and Terry McAuliffe.
I'll admit, I wasn't a fan of either of them at first. McAuliffe, who I'd only heard of from his role in Hillary Clinton's campaign, drove me insane all through the primaries, showing up for Meet The Press in a hawaiian shirt mid-May talking about how Hillary still had the whole thing locked down and Barack Obama was being overconfident, and Blagojevich, who was so astronomically stupid as to get caught on a phone he knew was tapped talking about selling Obama's seat. But you know what? It's lines like these that make me wish they'd stick around forever, giving weekly interviews on Larry King:
As governor, he explains, he would transform the nearly half-a-million tons of chicken poop the state produces every year into an alternative energy source. "Ew," murmurs one elderly man. But, if McAuliffe recognizes any shade of absurdity in all this, he never lets it show. "Fifty thousand tons of chicken waste equals forty megawatts of power, which could power forty thousand homes!"
or
At moments during the day, Mr. Blagojevich reflected on what was ahead, most immediately how best to pay his mortgage come March 1 without his $177,000-a-year salary. He spoke of the guilt he felt toward his family for entering a political life, the “personal Greek tragedy” that he said he saw as his circumstances, and, all the while, his love of his job. His biggest error, he said, was the friends he had picked.
Chicken waste? Personal Greek Tragedy? So, so, so money.
Now, I realize I'm being pretty hypocritical. Sarah Palin is significantly more deranged than McAuliffe or Blagojevich, and yet I still hope that she wanders off into the Alaskan hinterland before 2012 rolls around. I also realize that both Blagojevich and McAuliffe are woefully unqualified for gubernatorial office (I will say, though, that McAuliffe is very, very good at raising money for democratic causes, and I don't know of any skeletons in his closet). But love, it's a tricky thing. I just can't fight it anymore.
Dan Savage of Savage Love, the smartest sex columnist I've ever read (though I guess I haven't read many, because he's the best) has fought back, albeit a week and a half late, at Rick Warren's presence at the inauguration by announcing the following definition for the new verb "to saddleback," in honour of Warren's California megachurch:
"Saddlebacking: the phenomenon of Christian teens engaging in unprotected anal sex in order to preserve their virginities." After attending the Purity Ball, Heather and Bill saddlebacked all night because she's saving herself for marriage.
I for one think it's perfect.
Savage was responsible for coining "santorum" as "the frothy mixture of lube and fecal matter that is sometimes the byproduct of anal sex" in honour of Rick Santorum of Pennsylvania. To be honest I don't know if I've ever heard anyone use the term outside of his own column but from what I hear it's fairly widespread. So it's now our duty to get the word into the parlance of our times.
I mention this just because I posted about it before.
For the past week or so everyone has been expecting the digital TV transition to be postponed to sometime in the spring as the Obama administration requested. Surprisingly today this measure failed to reach the 2 thirds majority required to pass. There is a proposal now to keep the original deadline but provide emergency funding.
Personally I think this whole subject is not too interesting anymore. I don't think its a big enough issue to warrant a delay but providing emergency funding may be a good compromise.
Ive got a few post Id like to do in the future on patents, copyright, and trademark stuff but I have to learn more myself and find time. I find that most of my informative posts are really learning experiences for me in areas I am interested. Areas where I know a fair bit but can't yet put all the pieces together coherently.
So, apropos of Lion and Ben's comments over the last few weeks about the nature of economics - how it isn't a science, really, how the entire discipline lacks much predictive value, and how those who know economics really really well still miss the really obvious stuffaroundthem. This, to me, is inarguable, and it's part of the reason that this crisis is keeping me up at night (this, too). Economists got us into this mess; can we trust them to get us out of it?
I got to thinking, though, and it seems to me like this criticism is pretty easily leveled at political science as well. As is noted here, all the predictive powers of political science combined failed to see Obama coming, even four years ago. As Jennifer Hochschild puts it:
I come to this question after catching up over Christmas vacation on a lot of journal reading, almost none of which would lead one to predict that voters in Iowa etc. would support a black man with the middle name of Hussein for president, especially over a Clinton and/or a war hero. So have we political scientists screwed up again in our ability to understand and analyze contemporary politics?
As I was reading that, I initially thought to myself "Well, anyone who looked at this election from a systemic-level would have expected a Democratic victory in November. The economy was bad, and the party who controls the White House after two terms usually doesn't get a third." But Obama is not an insert-name-here-style Democrat. He's no Mondale, Kerry, Gore, or Clinton. And the point still stands: no one predicted that Iowans would be ready to vote for a black man. Except, I guess, for the Obama campaign.
Just so you don't think I'm picking on American political scientists, here's another example. International relations theorists have long prided themselves on their ability to understand, on a very basic level, the behaviour of states in the international system. No matter what their theoretical persuasion, they all consider a state's ability to defend itself through force as one of it's key characteristics, one that ensures the survival of the state. This, as I learned in my sole class on Monday, is what makes Japan so difficult for IR theorists to understand. Yes, Japan has a sordid history that makes Article 9 of its constitution understandable, but IR theorists (for the most part) have long felt that history is an unnecessary dimension for explanatory or predictive models. It makes abstraction difficult, which in turn makes explaining and predicting difficult.
Anyway, Japan has renounced war as a means of doing much of anything, is willingly ensconced in a series of really disadvantageous security guarantees with the United States (by this I mean they pay America a great deal and benefit America a lot, far more than they help themselves), and yet is surrounded by countries that are either a) bat-shit crazy (North Korea) or b) terrified of it (China, South Korea, most of Asia really). No one would have predicted this; it simply does not correspond easily with any existing theoretical paradigms in IR.
So what's my point? Just that political scientists, like economists, are given privileged status as interpreters and oracles, even as they repeatedly demonstrate how inadequate their tool-kits are to understand the things they study. My question is, how do we fix this? As an archaeologist, I've always felt that political scientists and economists are overly obsessed with a very limited spectrum of human behavior: namely, modern nation-states and modern marketplaces. Humans have been interacting with each other for millions of years, in millions of different ways - life didn't start in 1648 or 1776 - and real predictive abilities may develop only once we've worked backwards a bit. However, I'm biased. What does everyone else think?
as most major news networks will be reporting today (as i usually do, i've chosen the financial times's story to be my reference), housing prices in major metropolitan areas have fallen by 18.2% year-on-year since december 2007. and despite a last-minute jump in the total volume of sales at the end of 2008, the median american home price fell 8%. because we haven't moved far enough beyond the moment of crisis, these figures, which largely consist of contracts locked in before september, understate the housing market's reckoning. expect far more dismal results in the approaching quarters. what is interesting about the ft's report is that its focus is metropolitan real estate's suffering. you can bet that if city properties, which are by far the most overvalued in the country, have been hit so hard in such a short period of time, that there is and will be a serious retrenchment in the highest income brackets. a drop in prices has less of an immediate effect on the less mobile--the poor--who, when buying a home, are making a more-or-less long-term committment. low-income families face the much more wrenching, but also menacingly slower, creep of a reduced quality of life; the cycle begins with falling property tax receipts, which in turn reduces municipal services, itself reinforcing the drop in home prices and further reductions in the taxable portions of home values. the rich, on the other hand, will lose big initially, and only afterwards will those who survive seek safer places to hide their gold. t-bills, anyone?
macroeconomically, what is most important about the demise of the housing bubble is the additional squeeze it places on credit and, therefore, on the american way of life (you can't see it, but my tongue is almost goring my cheek as i write that). such a profound collapse in the primary source of equity in the states correspondingly puts the kaibosh on the largest chunk of the consumer credit market. if houses can't be credit cards, and credit cards can't be credit cards, expectations of a rebound in consumer spending powering us out of the recession are entirely in vain. in addition, the state of the housing market almost guarantees that those americans who have already refinanced (my guess is that represents the clear majority of property owners) will use any income returned by the feds in tax cuts to pay down their debt, as they look to cut their losses before further 'corrections' widen the gap between the value of their homes and the amount they were able to borrow with them at the market's peak. in other words, the C is definitely on the ropes for the next little while; our hopes for recovery rest, then, with G and I.
This afternoon, Dave and I were discussing something his professor had said in class about the sources of the financial crisis. To summarize a summary (I wasn't in the class, so Dave is invited to correct my presumptuous ass), the unnamed professor pointed out that a great deal of blame for this whole mess should be placed at the bounded feet of the Chinese. By pegging their currency at an artificially low level through massive purchases of U.S. treasury bonds, the United States was drowned in an ocean of cheap money which allowed too much investment and too much spending to occur too quickly with too little oversight or forethought.
I've seen this argument before. In a New Yorker article on Ben Bernanke, John Cassidy portrays the chairman as a soft-spoken, gee-is-he-a-nice-guy but a bizarrely dogmatic chamption of, among other theories populur within the administration, the notion of a so-called "global savings glut." As I paraphrased before, this is basically the idea that the Chinese (with a devalued currency) were saving "too" much, which allowed the U.S. to spend "too" much. Without knowing too much about it, I was struck while reading the article at the convenience of the argument. Perhaps oversight was lax in the U.S., yes, and perhaps interest rates were held too low by the Fed, and mabye in retrospect it wasn't quite such a good idea to deregulate such a vast segment of the financial and banking industry, but it isn't our fault or that of any of our ideological predecessors. It was the Chinese. If you leave bacon on the living room floor, you can't blame the dog for eating it.
But this seems like a bit of a cop-out. Yes, the Chinese government allowed interest rates in the U.S. to fall (which not only exacerbated silly lending in the real economy, but also drove many of the poorer financial choices as investment banks sought out higher yields and finding them in riskier bonds and instruments), but U.S. montetary authorities slurped up that liquidity with the eagerness of a paid professional. And given the hatchet that has been tearing into the aeorta of the financial regulations and taxcodes of America since the late 1990s, as the blog post which provided the imputus for this one writes,
"Maybe it's time to revisit the "saving glut" hypothesis, and say that perhaps capital [was] "sucked" into America, rather than "pushed""(Source: Econbrowser)
I didn't write this post as a "fuck you" to a professor whom I've never met. I just meant to take his point, summarized by Dave and taken out of context by myself, and add to it: while China (and any other implausably wealthy "developing" countries you might wish to blame) have perhaps* been the pushers in the international trade narrative of the financial crisis, the U.S. has consistantly and unapologetically played the role of the ichy-skinned, lice-ridden, toothless adict. In international economics it takes two to make frottage cheese.
*There is also the possibility that the imbalance is fundamentally not a matter of excess supply (of savings in China), but one of excess demand (for more borrowing in the U.S.). Throughout much of the 19th century, it was generally believed that "supply creates its own demand," otherwise known as Say's Law, a theory considered by most non-loonies to be a theoretical relic, put out of its misery by John Maynard Keynes sometime during the 1930s. Is the savings glut hypothesis just an international capital market version of Say's Law. A more coherent, concise critique:
"I think that the conventional wisdom is more plausible: there is a savings scarcity in the United States, driven largely by the federal budget deficit, and it is this savings drought in the United States that has been sucking in excess savings from the rest of the world for most of the past five years. What about the low interest rates? In my view, the low interest rates are more the function of expansionary monetary policy, and corporate savings at home, rather than excess savings abroad."(Source: Econbrowser)
As I have now cornered the local market in economics-themed posts of questionable relevance and little focus, I was hoping to talk a little bit about everyone favorite financial derivative, the Credit Default Swap. In case you've been living under a rock and this is the first time you've heard the term, I'd ask that you kindly invite me to stay with you under that rock, because according to just about everyarticlein the worldever, CDSs are the sulfurous products of Satan's sweatshop that have ruined all Christmases henceforth and, incidentally, are the sole reason that global capitalism is neither quite so grand nor so likely to inspire the Charleston as it was in the glory days of 2006.
Above: These women will never touch any of you again.
Maybe this seems an awful big fuss to be making over some insurance contracts. Because as much as anyone talks about how incomprehensibly complex so many of these destructive financial instruments are, the seemingly most destructive among them, the "credit default swap," is simply insurance that you can take out on a bond. And, were the world a little bit shorter on its stock of dickheads, the reasonable and legitimate practice of insuring against potential losses would be about as sinister as anything gets.
Lets imagine that world:
Imagine that the diabolical and nebulous conglomerate Groves Pharmaceutical, Weapons and Sorrow Incorporated wishes to raise a little bit of extra cash. To do this, it might sell a few bonds---I.O.U.s which anyone can "buy," that is lend money to GPWSI, for an expected rate of return. Sol Klein, a well known investment banker and Jew wishes to buy a $10,000 GPWSI bond which matures (that is pays back in full) by the end of next year. However, while the rate of return is quite high and up to Klein's Talmudic standards of usury against Christians and their children, he is worried that GPWSI may in fact go bankrupt between now and next year and therefore default on Sol's bond.
In order to hedge--that is, counterbalance--this risk, Sol goes to Prudent Pinnington Financials to buy a credit default swap. Though Prudent Pinnington Financials is currently under investigation by the SEC, it still wishes to increase its profitability. Therefore, realizing that there is money to be made in the short-term, PPF sells what is essentially insurance on the GPWSI bond to Sol. Sol will pay PPF a certain fixed amount every quarter for the duration of the bond (say, $250 a quarter for a total of $1000 by the end of the year). In exchange, if GPWSI goes bankrupt between now and next year and cannot pay Sol back, PPF steps in and makes Sol whole again. If, on the other hand, GPWSI does not go bankrupt, Sol still makes a handsome profit from the bond, despite the $1000 CDS cost, PPF has made $1000 for taking on the risk, and GPWSI has in the process been enabled to more easily sell its bonds to an insurable market. Everyone wins!
So why do we call bond insurance "credit default swaps"? Most likely because if we started calling credit default swaps insurance we might have to start treating them like insurance. And if we started treating CDSs like insurance, that might mean we would start imposing all kinds of restrictive and unreasonable regulation on them like, just to throw out a wild example, that a person can't buy insurance on a bond unless he or she owns it. And its just that kind of slippery-slope that gave the world Stalinism. If that kind of regulation were imposed, the following blessing of uninhibited financial capitalism would not be able to take place:
Sol Klien purchases a $10,000 bond from GPWSI. Lion Summerbell, who has absolutely nothing at all to do with either Sol Klien or GPSWI and who is in all likelihood both a tax-cheat and a pedophile, decides that GPSWI isn't looking so hot right now and is probably going to go bankrupt. Summerbell thus decides to buy a CDS on a particular GPSWI bond from PPF, paying the $1000 cost over the year and hoping that GPSWI will go bankrupt which would trigger PPF to cover the default, and thus reward Lion a handsome $10,000 - $1000 in CDS price assuming the default occurs around maturity. $9000 profit for a maximum $1000 investment.
On the other hand, while Lion Summerbell is hustlin' and scammin', Elias Gardiner discovers that, though he also doesn't have anything do with either GPWSI or Sol Klein, he could make quite a bit of money selling these insurance contracts. After all, Elias figures, GPSWI will probably not go bankrupt, will probably not default on its bonds, and so he could make a quick $1000, just like PPF by assuming the risk of a default. $1000 profit. For absolutely nothing.
The wonders of the market do boggle the mind. Especially when you consider that instead of just one Lion Summerbell and Elias Gardiner buying and selling insurance on a GPSWI, there may be two, or three, or seven essentially betting for or against a default. Just think: for a single bond, there might be seven different insurance contracts (fourteen daring entrepreneurs!), the total payoff value of which exceeds the value of the bond seven-fold!
Of course a cynical mind might imagine what could occur if GPWSI really does go bankrupt and really does default on its bonds. Instead of Sol Klein's initial $10,000 loss, with the CDS market left unregulated, the total loss might be amplified to $70,000 or $80,000 or $100,000. Of course in the event of such a default, for every loser (Elias loses his bet as a CDS seller) there is winner (Lion, the buyer).
Unless there isn't.
Remember Bear Stearns? That was that bank held up to $2.5 trillion dollars in CDS contracts. Bear Stearns was a big seller of CDSs--assuming house prices, bank stock, and financial profitability could only go up, it sold insurance on bonds and collateralized debt obligations (essentially a big cocktail of various kinds of securities) assuming that the risk of default was negligible. And when the impossible ended up happening, Bear Stearns, the loser in the above example, couldn't pay off all of the winners because it had insured so many bonds (perhaps the same ones repeatedly) that is liabilities exceeding the total value of company. Maybe regulation could have prevented such fantastic overstretching on their part. And maybe I want a pony.
So where do things stand now? How many CDS contracts remain outstanding and how many of them should we worry about? According to the New York Times:
While the amount of credit insurance outstanding is around $30 trillion, Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn., says he believes fully half that amount isn’t problematic because it consists of winning and losing stakes that offset each other.
But that still leaves $15 trillion worth of contracts that may be in need of triage. (Source: Gretchen Morgenson)
At the moment, the entire CDS market stands at about $64 trillion (or some other incomprehensibly enormous figure), but to assume losses of this proportion assumes that every house, bank and factory in America will spontaneous burst into flames. On the other hand, $15 trillion contracts that might potentially be left unfulfilled is nothing to sneeze at. Unless you're practicing for the typhus you will invariably get when we all end up living in modern-day Hoovervilles.
So what to do to stop the hemorrhaging? One proposal I remember hearing last September, and one which I thought had long since been killed and buried with a shovel, was to suspend so-called "mark-to-market" regulation. Mark-to-Market is the radical principle occasionally and loosely upheld by the S.E.C. that financial assets and products ought to be valued by the market price. That is, that their price reflects the approximate and legitimate value of that asset. If Sol purchases a $10,000 bond for $9,000, mark-to-market regulations would put that bond at...surprise, $9000.
Of course, it does get a little bit more complicated than that. If Sol purchases the bond for $9,000 in January and then a few months later, the hypothetical corporation GPWSI announces it has lost an enormous amount of money, there is a certain risk that Sol's bond will in the very near future be worth a sum total of $0, since GPWSI might very well go out of business. The selling price for Sol's bond might therefore plummet to $4000. The market, the regulation framework assumes, judges risk relatively well so if the bond is priced at $4000, that must be because there is a substantial risk of default which acts a heavy discount against the value of the bond.
Of course, if Sol had purchased a CDS on the bond, depending on how the swap contract had been written (there is no standard CDS model since up until recently it was a completely unregulated market), a drop in price of over 50% might constitute a "credit event," leading his "insurer," the hypothetical PPF, to pay Sol $10,000 in exchange for the junk-ish bond.
Noting that the PPFs of the world have been having a great deal of difficulty paying of their respective Sol's, many great minds out there have proposed that we simply stop paying attention to prices altogether. If the drop in price of Sol's bond from $9000 to $4000 is dismissed as a product of market myopia, panic, and irrationality, perhaps we ought to value the bond somewhat higher. This in turn would might not trigger so many of these CDS payments, leading to quite so many bank losses, failures, and the need for bailouts.
Abandoning mark-to-market principals extends beyond the CDS market. If a bank has to consistently devalue its assets as housing prices fall and confidence within financial markets continues to plummet, this only forces them to lend less in order to meet a certain degree of capital requirements. In this light, maybe the proposal isn't quite so dumb. In its oh-so-subtly titled article, "Does Fair Value Accounting + Credit Default Swaps = Global Deflation?," one blog makes the case:
The fact is, normal people are simply not able to react to and understand the torrent of short-term swings in assets prices, thus the net effect of FVA is not greater understanding, but instead fear, panic and systemic instability...The subjective, speculative perspective that is the essence of FVA, when applied to illiquid assets has, we believe, the net effect of increasing the instability in the global economy. (Source: IRA)
To be fair, this is probably one of the more coherent arguments against mark-to-market regulation that I've read. In most cases, and maybe counter-intuitively, its been screaming Wall Street Journal conservatives bemoaning the existence of any kind of regulation. The IRA blog, on the other hand, writes that financial markets are anything but efficient and rational. Prices reflect mania and "irrational exuberance" in boom years, and panicked hysteria during busts. This kind of volatility is bad for investment confidence but, in the case of CDS, actively exacerbates the crisis by triggering "credit events" when the actual bond might still be considered "performing"--that is, not expected to default just yet.
What all criticisms of mark-to-market seem to lack in my mind, however, is a viable alternative. The hysterical Republicans in September had simply proposed that asset valued be determined "internally." That is, by the company which owns the asset. Which is kind of like allowing a serial killer write the law defining murder.
From what I could grasp of it, it seemed that IRA was proposing a somewhat more "objective" standard of valuation; a regulatory formula of some sort that would take into account volatility and derive some sort of mean value.
We might even construct some type of averaging rule for FVA [fair value accounting=marking asset prices to market prices] swings in assets, affecting income and even reserves once the swing in value if confirmed over time, but the notion of instantaneous and immediate price discovery, disclosure and financial adjustment is a childishly idealized notion that must be gently restrained.
I find this somewhat convincing, but I think I would need to see something concrete before really hopping on board. Until then, there seems something a bit perverse to me about blaming prices for the low value of an asset. I completely agree that massive financial volatility is in no way conducive to healthy investment activity, even if the price swings are supported by so-called fundamentals (which I think they often are not). But until a new mechanism is proposed that would somehow distinguish "real" changes in value from those resulting from irrational fear or mania, I think the following analogy is pretty appropriate:
"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick." (Source: Calculated Risk) analyst Dane Mott, JPMorgan Chase & Co., Bloomberg
So this started as a comment on Ben's comment on Lion's last post, but it's ballooned into a post itself. Totally Web 2.0, eh?
Ben, optimistically, had this to say about the pathetically small amount of money that the stimulus contains for rail transportation, something we all seem to agree is a really awesome place to put infrastructure money:
My brightest of hopes is that the infrastructure allocation is so discouragingly low-ballin' because Obama and his economic advisers assume that it will be into that area where most of the hot, buttered pork will flow. Is that a fair assumption or could there just as easily be post-offices and monuments to nowhere for every bridge?
Nate Silver actually had a post on this a little while ago, although it was on the actual size of the stimulus in general. His theory is that Obama is deliberately shooting low in order to transform the negotiating process over the content of the bill into one that shuts out the republicans - the administration crowds out the right end of the spectrum, and the senate democrats hold up the left, leaving no room for a strong republican presence. It's an interesting theory, and the suggestion seems to be that Obama will play the tough guy and build up an image of a pragmatic spender while he lets the Senate democrats toss tons of options around (which he accepts faux-resignedly). In the process, the republicans, who are already having a lot of trouble trying to figure out where to stand on this bail-out altogether, get tossed out into the bargaining wilderness - while, simultaneously, Obama has nice friendly meetings with them and makes them feel included. This highly satisfying exchange adds a little weight to the theory: he's making it clear that they can participate, but only up to a point.
Now, Nate Silver is a political god, and I don't want to come across as hubristic here, but the price-is-right strategy is a little too cute for me. You're right, Ben, to speculate that this stimulus is going to be a Rabbi's nightmare, and that some of that will translate into infrastructure or rail funding, but really, I don't think the administration is subtly trying to lock the republicans out of the negotiations. For one, they would have a field day in the media, screaming bloody obstructionism. Say what you will about the state of American conservatism, but they still know how to get attention, and we're probably moving into an Obama-critical phase in national coverage anyway after the recent hagiographical overdose. Secondly, I'm positive that, no matter how necessary it is, this stimulus is a pox on the house of whoever touches it. There will inevitably be loads and loads of pork, graft, fraud, and good old-fashioned swindling going down - and that means that 2010, which we can already assume will be a defensive year for the democrats, is going to be a slaughter if republicans can convincingly argue that they had nothing to do with it. If the republicans don't sign off on it, if it comes down to a vote and it splits perfectly down party lines, then the democrats will definitely lose some seats (and Obama will lose a lot of his clout with the more centrist house democrats up for re-election). I'm sure, too, that the republican leadership is aware of this, and therefore they absolutely will not be ignored outright.
So Obama needs to give the republicans just enough to convince them that they can't abandon the bill, at least not their leadership. Therefore, a better explanation for why he's low-balling the stimulus is because he wants them to know he's receptive and willing to listen to them (to a point). Obviously, this is the part of the sausage-making process that everyone hates - compromising good policy for the sake of political survival - and it's unclear, to me, whether Obama has signaled that he will abandon this strategy if the success of the stimulus becomes unlikely. Yesterday, Chuck Todd asked Robert Gibbs if Obama would veto any stimulus that passed without republican support, a seemingly inane question that now has me thinking Todd is seeing something other people aren't. Would Obama let the stimulus pass with a big (D) next to it, virtually guaranteeing a shitty 2010 and a possibly disastrous 2012?
as a follow up to dave's quantitative question, and in response to ben's well-taken point about quality, i'm going to break down the stimulus package piece by piece and give my thoughts. $825 billion is the price tag. what are we buying? first, $167 billion in what i'd call direct capital improvements; these include measures to improve the energy efficiency of public buildings as well as traditional road-and-bridge projects (though only a modest $32 billion went in that direction). then, we have $71.5 billion for direct aid to the poor and unemployed, $159 billion for education, $154.5 billion for health care, $13 billion for 'housing' (under which they include money to combat homelessness), $4 billion for law enforcement, $140 billion in tax cuts to individuals and, finally, $116 billion in tax credits for businesses.
because the size of tax cuts vs. that of direct stimulus spending is already the belle of the economists' ball, i won't struggle to address it here. what most interests is the decisions made in infrastructure spending. it's hard to see why free marketeers would really be up in arms about the plan, given that, as one writer in the new york times noted today, the amount of money earmarked to improve transportation is insultingly small. i mentioned before that $32 billion had been allocated to rebuild highways and bridges. that doesn't compare favorably to the $1.6 trillion price tag the national society of civil engineers put on fixing all of our leaky pipes and half-finished overpasses (even if you reduce that number to allow for the overambitions of so many fresh-faced engineers looking to win battles and spill blood for the glory of science, it would still be big).
but even that number looks good next to the $10 billion that's being tossed over our shoulders at railways; are they joking? anybody who has had to take the 8:25 from new york to montreal knows the magnitude of our rail problem. in scientific terms, the problem is that we don't really have, you know, rail roads. there are, of course, sound fiscal reasons not to give the railways undue attention at this juncture. rail projects are time-expensive, and one thing that people seem sure of right now is that, far more so than money, our wallets are light on time. i wouldn't, therefore, be over hard on the obama administration for not reuniting the coasts. that having been said, if we are going to even begin to approach efficiency in public transportation--and thereby reduce overall CO2 emissions--we are going to have to have trains. that is a simple fact of the moment. the crisis has also given us the unique opportunity to introduce projects with a grander vision (health care, anyone?). and what seems like a cost of railroads, time, may, at a slightly later date, be an advantage: rather than being a one-time measure involving a quick splurge of cash, railroads will require sustained infusions of public- and private-sector money over many years, as well as providing a consistent source of labor demand over the same period. not only that, but with a proper subsidy regimen, we could be looking at a budding railroad-infrastructure industry. given how important providing a solid sectoral alternative to consumer spending will be in generating a sustained recovery, i don't think we can afford to pass up anything that may give us a competitive advantage in production. there're also the secondary benefits that will accrue from reducing transportation costs both for commercial and individual freight. obama, give us the iron horse.
So I was giving some thought to that Israeli poll I cited showing the right making big leaps ahead and how weird it seems to me that in a country with the draft so many people would favour sending more of their kids to war. Of course it's possible that Israelis are just horrible people or fierce nationalists or whatever. But then I started to consider it in terms of what I learned from Nate Silver over the past months, and one thing in particular occurred to me: cell phone bias. If you went to Israel ten or twenty years ago, the first thing that would have struck you would have been that everyone, and I mean every single fucking person old enough to speak, owned a cell phone. This was because for a very long time it was cheaper for each person in a household to have their own cell phone than it was to get a landline for the house. This might not be so striking now that everyone in Canada has a cell phone too, but they really are even more culturally pervasive in Israel (if you can believe it). So, my question is, do Israeli pollsters cal cell phones? A lot of American pollsters this year didn't and that was a big reason that Obama overperformed the predictions of many polling firms; more and more young people (i.e. Obama supporters) are cell phone-only and so were not a part of the sample polled by these firms.
On one hand, thinking that Israeli pollsters don't call cellphones seems like wishful thinking on my part, trying to justify why the right is making gains when I just really, really don't them to. It seems pretty ridiculous that they wouldn't poll cell phones when everyone has one. HOWEVER, if they don't, or even if a few firms don't while the rest do, it would probably be a huge factor in these polls. For one thing, the huge jump in seats for Avigdor Lieberman and Yisrael Beiteinu would be easily explained, seeing as their support comes largely from middle-aged and elderly Russian immigrants, a group I imagine would probably not be among the highest cell phone-using demographic in the country. Meanwhile, the young folks who would actually have to go to war if Netanyahu and Likud get enough seats would have no voice at all in the polls.
Some simple Googling isn't helping out much in terms of determining whether or not cell phones are called. The only information I could find is here, and all it says is that they polled "500 Israeli adults." I'll keep looking later, but for now there are two people furiously making out on the couch beside me in the SSMU lounge, so I'm going to walk to the train station. See you all next week.
So, I don't want to read Ben's post. In order to mollify my ebbing guilt for this, I will make another post on Israel.
You might have heard that a couple things have happened lately. The important ones are, in order:
a) Israel and Hamas declared a cease-fire b) Barack Obama became President of the United States (who knew?) c) Barack Obama had group phone sex (I believe these are known as "conference balls") with PM Olmert, President Mubarak, King Abdullah II, and PM Abbas. d) The most recent poll shows that Kadima and Friends (i.e. centre-left and on) losing seats in the Knesset, with Likud gaining a couple and wackjobs gaining more than they're supposed to e) Hamas has issued a statement saying that Obama has "poopypants" and does not represent real change from his predecessor (predecessor? When did that happen?)
So what is the relationship between these?
a) and b) are easy. Israel realized that a big, scary black man named Hussein (or a liberal) is going to be President and it's probably a good idea to start off on the right foot with him, by not murdering innocent civilians on what's supposed to be his special day. At the same time, Hamas realized that a American politician is going to be President, do it's a good idea if they stop inconveniencing the lives of Israelis or they're never going to get anywhere. Of course, lets remember that in most Semitic languages (and maybe Dan can back me up on this) "cease fire" carries the connotation of "a six-year-old promising that his smaller friend can play Pokemon just after this fight while snickering and holding his crossed fingers behind his back," which is largely lost in translation. So just like last time the "ceasefire" was "broken," it's not a good idea to say that the first side to land a projectile is the one that did it (as has, frankly, often been said, particularly on our beloved campus. Listen, people: it doesn't matter who "breaks the ceasefire" if fire never ceased.) So, "liberal in White House" plus "America not having undergone hostile foreign takeover" means "ceasefire." It's not complicated, though my misguided quips and garbled analogies may make it seem to be.
b) and c), Obama is gettin' shit done. Good for him. I'm not sure phone sex is part of the Road Map, but it couldn't hurt, right? Note, however, that Hamas was not involved. Remember: Obama is still American, according to his altered birth certificate.
Now we get into the scary stuff: c) and d). Now, I hesitate to talk about polls without Nate Silver here to hold my hand, but this does not look good; something in the Israeli water (rockets, maybe?) is making people shift right. As the article points out, this is early, and Netanyahu has apparently been doing all sorts of publicity stuff like unveiling sexy new personalities for his cabinet and bungee jumping off a helicopter into a Palestinian home to steal bread, so this might be like when John McCain was ahead way back when, and I'm sure we all remember how scary though short-lived that was (if you were reading 538.com as religiously as I was.) But it also might not. In short: scary at best, and hopefully not too intimately connected with b) and c). If the Israeli public doesn't like Obama for some reason, that is not going to make them any cuddlier internationally.
And e). This seems like a standard thing that any extremist group America doesn't like is going to send out after an election. It's hard to believe that Hamas isn't ecstatic over Obama not wanting to shoot Ahmedinejad with a hunting rifle from Kmart, considering that if anything bad happens to Iran Hamas'll have to rely on Syria for arms, and those guys totally bogart. I also don't think that Hamas expects Obama to like them. So, yes, this is probably standard boilerplate, although it might have something to do with wanting to launch more rockets.
I apologize for such a long post before hand but...
Akaash, Lion and I were in the kitchen last night talking over one another, trying to make sense of an economic theory that can't be made sense of, when Dave rudely interrupted us with a question that was actually relevant:
"Is the Obama fiscal stimulus package too big or too small?"
Obviously, I am not an economist. I will therefore answer--and hopefully kick off a broader economically-oriented discussion not exclusively devoted to the number of new ones China will be tearing us--in a way that no self-respecting gainfully employed economist ever would: I have no idea. Economics, as Lion has repeatedly and rightly pointed out, is not a hard science despite what some may have you believe. Conceptually speaking, an "economy" is the sum total of all transactions within an arbitrarily defined space (or among an arbitrarily defined group of people), with all the seemingly infinite and infinitely complicated and unquantifiable incentives, assumptions and externalities that may correspond. Which is just a needlessly wordy/douchy way of saying that this shit is complicated and so predicting anything is pretty hard. Right now, we face a recession and a pretty nasty one at that. But with all the variables involved, it might serve us well to think of a recession like a snowflake. Or, better yet, a flesh-eating bacterium. Each one is entirely unique and uniquely horrible. And so while each school of economic thought has its very own toolbox full of policy prescriptions (ranging from the most intensive Keynesian intervention to the old "sit on our hands and hum" method favored by those with a more laissez-faire oriented outlook), each economic clusterfuck is its very own little miracle.
That being said, most mainstream economists think a pretty much tried and in some cases true Keynesian economic stimulus package is the way to go. According to Keynes, a recession like that of the Great Depression and (in most cases) like the one that is currently making it so damn difficult for me to find a job...
About: what I am not referring to
...is a problem of "deficient demand." In short, this means that people are not buying enough stuff and not investing enough money. If people aren't spending enough, companies can't afford to keep paying employees, which causes those employees to spend less, which leads more people to be laid off, etc. Right now, with housing prices falling, job insecurity on the rise, and common commercial interest rates riding high, most individuals are cutting back--understandably so. It is therefore the government's place, so the argument goes, to supplement that "deficiency" with spending or tax cuts.
The traditional critiques (that is, those levied by some of the more hard-line neoclassical schools) can summarized as follows:
a) The unregulated economy is inherently efficient--that is, demand and supply will rapidly converge upon a new so-called "market clearing price". On the broadest possible level, the implication is that if aggregate demand has fallen throughout the economy, this may lead to a temporary decrease in output and therefore an increase in unemployment, but that the decrease in the wage rate resulting from that increase in unemployment and all other falling input prices resulting from the general fall in aggregate demand will all constitute declines in costs for firms. Firms will therefore be able to start producing more, which pushes prices down further, which convinces more people to start buying stuff, which increase employment. In the end then, the economy in real terms is back to where it was at the beginning, without the help of the socialists in Washington, thank you very much. The failure of the economy to react this way, so this criticism goes, must have to do with regulations imposing rigidities on the ability of firms to adjust in this way. Thanks a lot, minimum wage.
b) Government spending is not dictated by market signals and therefore is prone towards inefficiency. Whereas investors are thought to spend their money prudently so that the maximum return is guaranteed (haha), and whereas market prices are an indication of the social value of a good, government bureaucrats are supposedly blind to such considerations. If a private businessman sees it fit to invest in the materials, labor and time to build a road, so the argument goes, it is because he expects a return on his investment that will exceed by some margin the sum of material, labor and time costs. While his estimation may not be perfect, it is likely that in having to raise the funds to make this investment, his estimation will be re-evaluated by his financial backers. On the other hand, when a bureaucrat decides to spend money on a road, he/she is subject to no such considerations. Therefore, so the argument goes, it would be better for the government to leave that tax money/borrowed money in the hands of others. If you're thinking that its possible that it might be in the public interest for the government to spend money on certain things that the private sector does not provide equitably or sufficiently, it's because you're anti-American.
c) Crowding Out: when the government spends money, it must often do so by borrowing money. If the government has to borrow quite a bit of money, that puts upward pressure on interest rates (since there is at any time a fixed constraint on available loanable funds). Therefore, again so the argument goes, any stimulatory effect that government spending has will be offset by the increased interest rate resulting from the borrowing.
d) "Ricardian Equivalence": If I may editorialize, this is pretty silly. The concept, attributed falsely to the 18th century philosophy David Ricardo by world-renowned dumb-dumb Robert Barro, is that for the government to spend more money it must either borrow money now, tax now, tax in the future, or just print more money. The common citizen, an avid follower of his own government's fiscal policies, will take this into account. Knowing then that this government spending increase will result in either an interest rate increase (see point c), an immediate tax hike, a future tax hike, or an increase in inflation, he or she will save a little bit more and spend a little bit less to compensate.
Above: a knowledgeable and well-informed citizen taking a break between studying fiscal spending bills
The above critiques are are worth knowing and understanding but will always exist for any proposed government spending bill, almost regardless of economic conditions. That said, for the most part, in my humble opinion its largely a bunch of phooey.
What I think is more interesting are those critiques of the current stimulus proposal coming not from a strictly and predictably Anti-Keynesian perspective. The two most notable ones that I've come across (and I'd be interested to see some more if any of you should come across them) relate to first, the sensitivity of the treasuries market to a flood in supply and, second, America's chronic trade imbalance.
First, the United States government borrows money by authorizing the Treasury Department to sell various kinds of bonds. These bonds, essentially interest-paying IOUs to the U.S. government that anyone can buy, are particularly important because, as they are considered the safest of all financial investments, their yields (the interest rates at which they pay back the lender/buyer) guide interest rates throughout the entire economy. The U.S. government has been selling quite a lot of these in order to support its sizable debt-burden. This is quite different from the 1929-early 1930s scenario when it was the United States that was playing banker to the world. So the question is, given the enormous amount of debt the government current has, can we afford to increase our debt by another few trillion-dollars in a relatively short period of time? At what point do those who are buying these treasury bonds, both at home and abroad, decide that all this spending might lead to inflation (or worse yet, a default), and therefore demand a higher return?
I don’t believe the US has either the external credibility or the goodwill capital any longer to ask, Oliver Twist-like, for a little more leeway, a little more latitude. I believe that markets - both the private players and the large public players managing the foreign exchange reserves of the PRC, Hong Kong, Taiwan, Singapore, the Gulf states, Japan and other nations - will make this clear. There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place. (Source: William Buiter)
Essentially, what Buiter is saying is that before too long, the U.S. will have to start paying a little bit more for its loans. If this transition occurs in as dramatic a way as Buiter suggests (which may or may not be likely), the U.S. treasury market will suffer a severe downturn, interest rates will rise dramatically, the dollar will fall, and suddenly its diet time for Uncle Sam who has for the past thirty years been mainlining imports into his eyeballs like it was piping hot french fry grease.
Again, I don't know how accurate Buiter's analysis is, but it certainly is food for bed wetting thought.
The second possible problem with pushing forward fiscal stimulus right now is that our current trade dynamic severely dampens the effect of any stimulus package. As the argument goes, because the U.S. relies so much on imports, any stimulus of domestic consumption will go in a large part towards propping up the economies of our import partners. Given that so much of our spending is going towards goods from China and Taiwan and Korea and Mexico and a few other countries that I've never heard of, spending a bunch of tax money to stimulate domestic consumption isn't going to do anything effectively except increase our import bill. In the words of one economist:
"[T]rying to stimulate the economy without fixing the trade deficit is like trying to pump up a tire without fixing the leak...THE STIMULUS PACKAGE WON'T WORK UNLESS TRADE IS BROUGHT TOWARD BALANCE AT THE SAME TIME"(Source: TradeandTaxes)
While I'm sure there is some truth to this, and though I'm partly swayed by their enthusiastic use of the caps lock, I think it overstates the so-called "marginal propensity to import" of the U.S. economy. This is just yet another douchy way of saying, yeah, the U.S. spends a lot of money on imports, but given the enormous task of changing the entire structure of an economy and the urgent need for some form of stimulus right now this minute, mending the tire can wait. To switch up the metaphor, if a syphilitic patient has just experienced heart failure, the first priority should be to get that heart beating again, not begin the antibiotic regimen.
And yes, I've been watching a lot of House lately.
Ultimately, none of this has really answered Dave's initial question. Is the stimulus too big? According to any of the arguments above, probably. On the other hand, a lot of economists, the most notable of whom is Paul Krugman, think the package is too small. Almost everyone thinks it too heavy on the tax cut side, but that's a different issue.
For now, all I can say is that the size of the package is only as important as its effectiveness. How, for example, will the credit market react to extensive government spending? And if banks start lending again, will that money go towards the expansion of production? On top of that, will less panic in the financial market pop the bubble in the treasury market, like Buiter suggests? And as for the spending itself, how productive will it be? What kinds of things will the money go towards and how much will these projects stimulate long-term economic activity as well as short-term job creation? And once the government starts hiring people and contracting with firms, how much of that wage and contract money will be spent? How much of that spending will go towards domestically produced goods? How much will go towards durable goods or investments rather than non-durable, unproductive goods? Looking at the package itself, how much of the stimulus package will be in the form of tax-cuts and toward which groups will these tax cuts and rebates be aimed?
If you really want to get into it, Paul Krugman has run through some numerical estimates about the efficacy of fiscal spending--the "fiscal multiplier" in economese. As for how good those estimates are, I can't say. Like I said, I'm not an economist.
i used 'you' a lot, but that doesn't refer to you, necessarily. it is a theoretical you. i apologize for using as examples names of people that we know. i am not implicating them in anything. it's all just friendly speculation.
i'll make this short, sweet, and point-focused. as we have all been trained to believe since infancy, generalizations are bad things that often leave out many exceptions. what i was doing was describing a mindset that appeared in a trend. that it is a trend is unmistakable. here's a government report that will tell you all about kids moving out of suburbs and going to cities. do you think that's because they like the schools or how safe the neighborhoods are? no, it's a generational thing: cities are cool, now, and cool is a very complex qualification based heavily on worldliness and disaffection (i know that is a radical oversimplification, though not, i think, a distortion). the only reason cities could be cool is if the people who were imagining them thought that the places they were already in were not. the same is true for people who live in some cities who want to go to others.
the way that you describe yourself, sarah, is not like the people i am describing in my post, and not, i think, like the majority of people who end up moving to bigger, more glamorous places. you love everywhere you've ever lived. how can someone argue with that? zak, however, hates calgary, along with most of the people i've met who grew up there; and, almost to a t, the people i know who've moved to new york, inside or outside school, premised their relocation story with "i come from a shitty, boring place which is shitty and boring for reasons x and y." the very aesthetic of the modern, 'international' city should be enough to satisfy any doubts about the zeitgeist of urban migration: fast, heavily commercialized, high in the type of sanitized and deradicalized cultural activity that fits well on walls and friday nights, and self-obsessed. to punch the last tooth out of dave's mouth, the reason why a man like jason smith is not representative of new york (i.e. is not a new yorker) is because his fetishizing of the city is the distinctive mark of the outsider. people in new york do not talk about new york like it is a thing. that's why there are so few blogs run by new yorkers and so many run about new york. the same, i'm sure, is true of montreal or other attractive cities. image informs it, regardless of where your particular metaphor came from television, the movies, eric b & rakim tapes or the orthodox jewish man that you so obsessively follow down the street. remember, to the man, there's nothing special about being an orthodox jew, nor is there anything special about it to his neighbors who've known him for x number of years. it's only a thing when it's part of an image, and image, i think, is something acquired in a very particular setting, one that is somewhat claustrophobic and oversaturated with simplistic information, and therefore ripe for developing obsessions.
This started as a comment to Lion's post and then grew. When I came to visit McGill during the University tour, my mother and I parked downtown, walked around campus, and then drove back to Toronto to continue our marathon campus-visiting trip. At that time, what attracted me to the city was probably something to do with the campus or the fact that McGill is (arguably) the best university in Canada. I never visited college-age friends here, nor do I have any family in the city. The first night I spent in Montreal was the night before I had to take my Spanish placement test in August 2005. I guess what I am trying to say is that I love this city, and I love living here, but as far as I remember I wasn't really attracted to any kind of image or particular lifestyle.
Now, I've chosen to live in a safe, residential area with lots of families. Outremont is a "nice" neighbourhood and I'm very close to Mile End, but what really revs me up about my neighbourhood are the following: - babies - good grocery stores - proximity to work - safety
I understand your point, but I do also want to say that I don't have the experience of growing up in a single place and being able to develop an attachment to it. I love Ottawa (cue laughter) and could easily imagine living there. It's a city with a very pretty downtown core, and while it is somewhat lacking in decent restaurants or bars, there's plenty to do - especially if you actually like going to museums. When the bus system is not on strike, I can get pretty much anywhere I need on my own steam, but our neighbourhood is also close to the river, quiet, peaceful, safe, and full of kids.
I came to McGill from Brussels, and I was hardly trying to escape some kind of hometown-induced ennui. I also liked Brussels and Dublin. Obviously I lived in a diplomatic bubble during these experiences, so in the course of my stay here in Montreal I've tried to break out of that. Even so, one of the things about moving so much is that while new places do hold some degree of romanticism, I'm also quite realistic about what living there will ential. I guess what I mean is that without the experience of staying in one place for such a long time, I've managed to lose the ability to view others as outsiders, and at the same time I'm much more conscious of my impact and my integration into new places. I don't want to feel like a visitor or a tourist if I'm going to be spending years in a place - I want a cheap apartment in an okay neighbourhood, even if it means I have to trek a little bit to the hot spots.
While living here, I've made a concerted effort to learn French, to expand my life outside of a campus or hipster-based bubble, and at the same time to make the most of the experience of living in a different city. Montreal may be an normal average-sized city, but it seems to me that it is a particularly nice one. I don't "love" Montreal because it is exotic or so very different from the ROC - I love it because I have a life and a home here, because rent and food are cheap(er), and because it is a walkable, friendly, safe city. It has a fantastic public transportation system and for those of us whose lives revolve around our stomachs, great restaurants and grocery stores. Maybe I'm projecting, but I get the impression that for many of the people I know who have moved here for some reason or another, those are all points in the city's favour.
Of course there's a Montreal mystique, just as there are local and national legends about the laid-back west coast, the flat prairies peopled with tough and resilient frontiersmen and women, the small-town hospitality and ethnic enclaves scattered throughout Ontario, the distinctiveness of Quebec culture, the friendliness and weird accents on the Atlantic coast, and of course the frozen ethereal beauty of the North. Add a lot of national pride in our natural wonders and you have the Canadian mythology. You don't have to love all of it, nor do you have to buy into any of it, but the fact is that these are the myths that are perpetuated, often with basis in fact, by tourism boards and diplomats. The fact is that when you've grown up smack dab on top of the largest cultural exporter in the world and have to struggle to maintain some kind of identity amid the tugging of increasingly decentralized provincial or regional identities, it's easy to fall back on somewhat trite symbolism in order to drum up some sense of national feeling.
None of this means that a little bit of mysticism surrounding Montreal is necessarily a bad thing. As a suburban Ottawan living in the big city, I have felt out of place, like I'm intruding on the lives of people already established here moving in. But I've also brought my own contributions to my neighbourhood. I work, I'm paying provincial as well as federal taxes, and as far as I can tell I'm the only person in a three-apartment building who shovels the front walk. In the course of its lifetime, my neighbourhood has gone from an immigrant neighbourhood with students looking for cheap housing to a yuppie suburb and back, and even now it spans these two extremes. Outremont reminds of me a microcosm of Montreal because its residential patterns are constantly shifting and changing, and the French Canadian secularists protesting the influx of Orthdox Jews can go fuck themselves.
Someone can feel a strong attachment to a city and "belong" within a month of living there, while others may live their entire lives in one place without ever feeling like they belong. I am jealous of Lion's commitment and devotion to his hometown, because I've never felt anything rivalling that about a place. I do love living here, though, just as I love my parents' house in Ottawa and I loved our time in Ireland. Moving and changing surroundings may not be at an entirely egalitarian equilibrium, with Minnesotans moving to Mozambique, but the increased mobility that is available to people is not, in and of itself, a bad thing.
Everything's cool now, guys. Israel is back to the perfect Utopia it always was.
And here we have again everyone's (my) favourite buttshit apehole MK Avigdor Lieberman, saying that the Supreme Court's overturn is "unfortunate, since no boundary was established to prevent the disloyalty of some of the Arab MKs toward the state of Israel" and that during the next Knesset his party will "pass a citizenship law that will prevent the disloyalty of some of Israel's Arabs." I can only imagine that this involves a large auditorium, eye-hooks, and Beethoven's Ninth Symphony.
what significance does it have to have been born somewhere? along with all the other corners of the soul which the financial crisis has prompted us to search, our citizenship, and to what or whom we now owe allegiance, has come to the fore once again. the most popular buzz word for this identity crisis is, of course, globalization, but it's another catch phrase, 'world citizenship', that i have in mind right now. i was actually brought to write this by a comment dave made on a very short post of mine about montreal made a while ago. dave, defending the point that people from new york are completely out of touch with reality, made what i consider a huge overreach when he said that choosing to identify yourself with a place automatically makes you representative of it. after uncurling my fingers from around his imaginary throat and stopping to think it through, i realized it was worth postponing his violent death to gather my thoughts. here they are, in the order they came to me.
now, most of you know that i have a pretty strong stance on the dynamic between locals and newcomers in my home town, strong enough, anyway, to make it a constant source of amusement to some. most of the time i couldn't care less about seeming like a whinging geriatric waving his cane at the march of time; i know i'm right, i know you're all philistines; what, me worry? sometimes, though, it rankles to know that something that feels very significant inspires none of the same sense of urgency in others. i usually let the feeling pass, dismissing it as wounded pride or else channeling it into an overwhelming counterattack of vitriol designed to inspire the recipient to suicide (the best defense is still offense). i realize now, however, that my initial reaction deserves thought, and having given it is fair share, i've come to the conclusion that the fact that my existential crisis means nothing to others has a lot to do with the fact that the attachment i feel to the five boroughs is exceptional. the fact is, you hate calgary and you've been waiting to escape it for a long time. that's why, though nobody could answer what the source of their affection for montreal was--it's a nice medium-sized city--they nevertheless were ecstatic and have been ecstatic to have moved to montreal. i asked for specifics and didn't get any, so i can only conclude that the culprit is something less substantial and more irrational, something like an image. what, after all, did you actually know about montreal before you arrived? you'd heard about it, you'd seen it in movies; it had been packaged in certain guises for an audience outside of it, an audience very hungry for whatever was under the wrapping.
image is the fundament of modern consciousness. image is the source of our explanatory metaphor for everything. think about what you know of china; think about the jokes you make about china--kung fu, rice, let a hundred flowers bloom--and how much you are dependent on a streamlined visual interpretation when you come to think about it. it's not the process of simplification or stereotyping that i'm talking about. i know enough to believe that reducing 'dimensionality', to borrow a phrase from the hard sciences, is a mechanism of the mind, and a useful one at that. it's the mode of delivery and the information it chooses to deliver that i'm referring to. nobody makes a choice to move to montreal thinking, "i've heard that the metro runs every six minutes during rush hour. boss!" the things that actually constitute quotidian life, things which are largely the same no matter where you are, are not selling points in brochures. you all chose to come to montreal because it had an image that you liked: it was 'diverse', it was a 'cultural' center, blah and blah and onwards. this kind of language has been adopted by nearly any city with international ambitions, no matter its disingenuousness (madison, wisconsin, for instance, claims to have both the most restaurants and the most diversity in restaurants per capita in the world), and it has been used to sell you an image. this is an image that you bought, disliking where you were from, and believing that where you would end up would be an unmeasurably vast improvement. not, of course, that you could say what it was about your new location that really did it for you, or that really revolutionized the way you lived. no, it wasn't that things had fundamentally changed; it was more that you had achieved the image marketed to you and were basking in its glow--at least until the glow faded and you began again your search for greener pastures.
this kind of advertising relies heavily on two principles also ubiquitous to modernity. one is middle-class dissatisfaction. children of the moderately well-to-do grind at the bit to be let free from their 'stifling' surroundings, convinced, as they are, that their environment does not understand why they are different and, of course, superior. and, to all of you who want to hit me with the long-view, simple demographic trends prove that it is especially within the last handful of decades that internal population movement has shifted from intra-city or region to extra-state or country. first it was affluence moving from cities to suburbs, and now that suburbs are supposed to be the pits for budding intellectuals and all other manner of the self-absorbed, it's back into those gritty cities for a little face time with 'culture'. kids with money need novelty like they need something shiny on christmas. they don't put down 'roots'--a word also used by the person i apparently hate most in the world, david--because they don't know what those are. roots go deep: for someone born and raised in a suburb, what is invisible to them is that their are there and will always be there. you don't escape your values or expectations that quickly, no matter what clothes you choose to wear this season.
the second argos to marketing's argonauts is free movement itself. internationally, people refer to this as globalization, but i'm not so convinced that europeans and americans trading places overseas a global trend makes. until large colonies of minnesotans set up shop in mozambique, while mozambiquers take over the twin cities, highly specific will this trend stay. no, the globalization i'm referring to is intranational, and it's part and parcel of the very obvious process of erosion which regional particularity has succumbed to in the past half of a century. this process is partly technological and partly aesthetic--since memphis is dallas is seattle is sacramento, it's hard to determine why anybody should feel particularly attached to the streets they done come up on. it's also correspondingly more obvious why people flock to a few key locations in search of something unique. if only they realized that they and so many of the people they thought they were fleeing had the same idea, they might realize that they were pretty much indistinguishable from those people, and would start taking west kansas city's real estate market more seriously.
canada may not have an imagination, as dave seems confused as to what that might be, but america does, and at its peak is new york city. people like me have the misfortune of being from somewhere that the unwashed hordes west of the hudson are screaming like mad to get into, all of them intoxicated by not one but many images of new york, images that are contradictory--both dirty and high-rolling, mean and dangerous while with a $40 glass of chardonnay in its hand--but are reconciled by the irrational constant present in the human mind. most especially, in their search not just for image, but for identity, for the salve which will cure their affluent discontent, they seek desperately to fill the gaps in themselves with the place they arrive at. you must understand how bizarre that looks from the inside looking out. new york as a phenomenon is bizarre, because to the local, it's just like anywhere else: you get friends, you get a place, you get a job and you get by. there is nothing magical about tall buildings or bars with no last call, and you could honestly give a fuck about museums. most of them are uptown and packed, and how many times can you see a stuffed mammoth or a suit or armor? you eat pizza if you're out with your friends and you don't think about how good it is; you don't think that the restaurants around represent such stunning diversity because they just serve food, food you eat when you're hungry. the turkish guy who gives you a gyro doesn't make your neighborhood some kind of modern babel. he gave you a sandwich and, furthermore, he probably lives in queens because he can afford to put his family up there.
in the end, the projects are quiet buildings you hang out in because the cops don't check them out too much, and broadway is a street you avoid at night because it's packed and the guys pushing comedy club tickets on the corners annoy the shit out of you. life, in other words, is life, and you don't worry about it too much. it therefore becomes all the stranger to see wave after wave of experience-seekers pouring in, not only because they all sound like something out of a surfing movie, but also because in their craving for a location that complements their self-image, they avoid everything that makes the city a regular place. it's like they are deliberately avoiding the rituals of everyday life; they build tacky theme bars and galleries in warehouses reserved for junk deals, and you gotta think to yourself, why? what hunger drives them on, and what is that they expect will satisfy it?
what's missing for the local, and why we can't understand, and are often offended by, outsiders, is the image of new york, and the uprootedness of the newcomers. equilibrium, however, persists, while the subculture they build for themselves remains small and confined only to the shittiest parts of the city. if they want to pay through the nose to live in a dump, well, they're just suckers. the problem for us is when the pressure from the outside changes from a slow, dull thud to an unstoppable force, as the suburbs begin to claw and bite their way in. to see all of these kids so frantic to start living THE life is, again, bizarre, unbelievably so. to see them put brooklyn on their shirts and call themselves new yorkers, when they live a life so completely removed from ours and so out of synch with the way the city itself is and has always been, is bizarre. and when they decide that the real city is, well, not right for them, and isn't going to be the city anymore? well, you know the rest.
My mum's aunt is always sending me chain emails, many of which deal with Jewish humour, Jewish culture, history, etc. Recently, a lot of these have been more pro-Isreal than usual.
She did send me one today that I thought was fairly interesting. I'll include it below the jump for length. I also take no responsibility for its spelling or grammar. Basically, it lists a number of pro-Israel companies (defined by virtue of their founder/owner's beliefs, investments, donations, actions, etc.) and encourages support as a way of supporting Israel's cause.
I don't think it's particularly revolutionary to say how pervasive targeted buying - or boycotting - has become as a way of showing support for a particular cause or another. There have been numerous protests in front of Chapters and Indigo bookstores around the country because Heather Reisman, the owner, is an active and vocal supporter of Isreal. It stems from the same vein as choosing organic or fair-trade products as a matter of principle, or buying only apparel that is union-made. I try to buy organic/FT/local food and household products as much as possible (organic more because I am a paranoid health freak than anything else), but I will confess that when it comes to clothing I am a bit of a cheap fashion whore and will buy fair-trade and union-made as long as my budget allows it. Unfortunately, when it comes to clothing ethical buying is often prohibitively expensive.
However, not buying something based on principle is a lot easier and cheaper than buying something based on principle. My own position on Israel is somewhat conflicted, and while they are definitely in my bad moral books right now, I doubt that I would actively boycott any companies that support them. There are plenty of reasons for which I will avoid shopping at certain places. If I have to choose a big-box store in my suburban neighbourhood, it will be the Loblaws rather than the Wal-Mart. At the same time, I am more likely to seek out a company and buy their products based on environmental impact, the principle of supporting small business or endeavours (either locally, nationally, or globally), and their business practices, rather than not taking my business to company X based on one principle or another. Does that make sense?
The reason that I am so fascinated by the idea of ethical or moral purchasing is because I love to shop - for anything. Sometimes I try to rationalize it as stimulating the economy, but we all know that's not true. I dawdle in front of clothing store windows and love to just look around. Grocery shopping can take me hours (as many of you probably know), as I try to juggle buying within a budget and satisfying my above-listed principles. I know that throughout recent history, it has been women who are the most suceptible to ethical or moral purchasing campaigns because they have done the vast majority of the purchasing. I am interested in whether any of you (or our non-contributing readers) take these kinds of things into account when purchasing.
EDIT can't figure out how to hide the email so let me know if you want to see it.
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