No good news is no good news

Months ago, I recall writing a short post on the possibility of state debt crises with a very specific focus on California. I also mentioned the numerous state-run pension systems that were being used from late 2006 onwards as dumping grounds for investment banks' mortgage-market mistakes, and what kind of a burden that would translate into for those already-starved systems.

Well, according to the FT, those pension liabilities, when combined with healthcare obligations, have now risen to $1 trillion (and may be as much as $3 trillion in the long-run) above what states can pay. The piece's title, 'US states struggle in the shadow of Greece', is supposed to hint that, with states facing such a mounting gap between revenues and outlays, debt crises may threaten us on this side of the Atlantic as they do to our swarthy neighbors on the other.

Its author is quick to pull back the scare tactics, noting that municipal bond markets have remained stable despite a very poor budgetary outlook for the year. Many states are prohibited from borrowing, and for many others a balanced budget is non-negotiable, meaning that spending cuts and tax hikes have been pursued aggressively. What really challenges state governments is not necessarily the possibility of default, but the fact that the stickiness of the economic downturn is threatening their ability to slash-and-burn their way out of the red. At a certain point, taxes can't go any higher, and public outlays any lower, without a severe political backlash. There is a wall, and it's going to be hit sooner or later.

If revenues still don't match obligations, states will have no choice but to lean more heavily on bond markets. But, as I wrote all those months ago, new bond issuances are usually a terrible idea: they're relatively expensive (rates hover between 6 and 10 percent) and, used to plug immediate holes in payroll and essential services can't be invested for any return, exacerbating future budgetary distress. The Feds, as part of last year's stimulus package, introduced subsidized 'Build America' bonds, effectively guaranteeing a new source of debt for states and local governments and transferring the burden of servicing it to themselves. While not a bad idea, it's less a solution to the underlying problem (too many states have been bleeding cash for years) and more a bit of sleight-of-hand that delays a reckoning by following the age-old tradition of shipping our troubles off to the Potomac with a smile and a prayer.

In the end, in the absence of healthcare reform and an overhaul of public pension management, there will be no way to escape a collapse of state finances. Whether that comes as a slow deflation of budgetary balloons or a sudden nosedive is up to Washington, which needs to make an effective attempt to prevent a future financial crisis. It's too bad that, for now, that sort of federal muscularity is only a pipe dream.

It wouldn't let me write a comment so long

C'est pour toi, David:

Full disclosure: I had never heard even the tip of a tit about this book until you wrote about it, Dave. My research into it has gone no further than the summary on Amazon.com and a couple paragraphs on Wikipedia, because these are the things that come up first on Google. I am so poorly informed on the whole subject of contemporary radical thought that I might as well be discoursing on particle physics.

All of this having been said, here we go:

First, I admit that my hackles are uppened by the fact that the political tradition from which this springs is French post-modernism and deconstructionism. This response, however, represents nothing more than blanket prejudice. 'Deconstructionism', by being so unnatural on the tongue, is an automatically heinous word, and I don't intend to impune the intellectual credentials of the authors of 'The Coming Insurrection'. Before I do any such thing, I should of course read the book. Still, I am suspicious that the whole thing might be as far away from the ground as the clouds in the sky, as unfortunately so much in this genre tends to be.

This reaction is tempered by both the book's sales record on Amazon, and this summary of it, which gets me not a little hot and bothered:

"Hot-wired to the movement of '77 in Italy, its preferred historical reference point, The Coming Insurrection formulates an ethics that takes as its starting point theft, sabotage, the refusal to work, and the elaboration of collective, self-organized forms-of-life. It is a philosophical statement that addresses the growing number of those—in France, in the United States, and elsewhere—who refuse the idea that theory, politics, and life are separate realms."

The book, by the way, is priced at $7.77, a reference that the above passage allows us to shoot a knowing wink at, though I suspect that, given floating exchange rates, the joke is somewhat obscure for non-Americans.

Yet what a marvelous thought, that theory, politics and life might be understood to be married together (I'm guessing that we're all probably less sanguine about theory, but Bob's your uncle)! It is absolutely the case that nothing these days--not to my demonstrably spotty knowledge--has joined such a level of popular exposure with 'disproven' ideas. The fact that this is a French book is of course immediately telling, even if the publisher is American; there's barely anyone in the States these days who would agree that capitalism itself has some fundamental flaw. With everyone's values so transformed to meet the expectations of the status quo, nobody with a noteworthy launching pad for their rhetoric would dare make any such radical pronouncements. That I call them radical at all is proof itself that these ideas have passed far beyond the realm of 'relevant'--single quotes intended--and should automatically inspire no small amount of interest.

Dave, if I were you, I would buy this book. On the strength of your recommendation, I know I will. I think things have reached a point at which any non-totalitarian radicalism is worth paying attention to, so starved are we of departures from the common wisdom. Whether or not its specific prescriptions for social change, including schematics for the organization of revolutionary cells, are particularly utile, I can't say. It is absolutely the truth that, as Obama, the Democrats in the US, and centre-left parties everywhere demonstrate, something far beyond institutional methods of social change are necessary to overcome our global cultural malaise.

(If you do buy it, I would be careful under what name, and how. Whatever merits the book's content might have, it's very clearly been singled out as a threat by national security agencies on both sides of the Atlantic. I've read in several places that its authors have been arrested in France. I don't, naturally, mean to imply that any of us would be threatened in such a direct way, but I wouldn't be surprised if purchasing data from such a large site as Amazon wasn't going directly on some kind of watch list.)

In allying theory with politics and life, the trick is not to become mired in any one area. Each is attractive, depending on one's preconceptions; pragmatists lap up empiricism and the realities of dealing with established political conduits, tending therefore to shun the abstraction of the larger picture and to focus instead on the quotidian workings of government, and how their technical improvement; while the more academic are assuaged by the thought that for institutions into which they are not allowed, and are therefore opaque to them, the black box problem can be overcome by a solid edifice of ideas that tie all realms of social activity together by a common critique of the values which underlie them. Neither realm is less important than the other, I think. It takes real skill, though, to show why they are ultimately reflections of one another. Thus my skepticism of the intellectual tradition from which this springs: I don't know if this book demonstrates the kind of finesse capable of sitting unoperationalizable social analysis alongside the hard data while demonstrating where and how the two realms intersect, and, if possible, why they are not conflicting interpretations of our shared experience.

That having been said, a failed attempt is better than what we've got, which is no attempt at all. I'm going to give the book a go. It should be readily clear to anyone with the heart to worry that something is very, desperately wrong with us at this moment in time. If the very definition of a social aspiration is to effect outcomes that have a plural positivity--if, in other words, we get together to make sure we're all at least somehow better off--then we are looking at a serious human catastrophe on the horizon. It wouldn't be the first time that this happened, and I doubt that it will be the last. We could rest on those time-honored laurels and leave all up to fate, but then we'd be implicitly endorsing the inutility of knowledge, and eschewing our thusfar magnificent efforts in pursuit of it. If we can't learn from history then we might as well all go to work for Goldman, because we're guaranteed that no action we take will result in a better human society. That is a depressing thought, and is no help to any of us in this, the genesis of our aspirational years.

To summarize: at this point, it's either this or 'The Lexus and the Olive Branch', and, judging by the size of Friedman's pool, that's a no-brainer.

The New Poor

If you have time to read the whole thing, I'd recommend reading this article in this Sunday's New York Times. Maybe it's a predictable enough story--that this time, even more so than the last time, jobs are not likely to surge back with the rest of the economy--but worth reading anyway.

If you don't have the time, here are the highlights:

Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

[...]

Traditionally, three sectors have led the way out of recession: automobiles, home building and banking. But auto companies have been shrinking because strapped households have less buying power. Home building is limited by fears about a glut of foreclosed properties. Banking is expanding, but this seems largely a function of government support that is being withdrawn.

At the same time, the continued bite of the financial crisis has crimped the flow of money to small businesses and new ventures, which tend to be major sources of new jobs.

[...]

Yet as jobs have become harder to get, so has welfare: as of 2006, 44 states cut off anyone with a household income totaling 75 percent of the poverty level — then limited to $1,383 a month for a family of three — according to an analysis by Ms. [Randy] Albelda.

“We have a work-based safety net without any work,” said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, Madison. “People with more education and skills will probably figure something out once the economy picks up. It’s the ones with less education and skills: that’s the new poor.”

It's hard to imagine what the long-term policy solution to this will be. In the meantime, I think it's self-evidently important that the government extend unemployment benefits to keep people afloat, if for no other reason than to allow them to keep looking for work. But it also seems that the U.S. is structurally a very different animal than it was two decades ago. I know I'm not saying anything new here. The question was being asked even before the recession but it's obviously that much more pertinent now: where are the new jobs going to come from?

Harmonic Convergence

Well, Lion's screed left me blog-satisfied for a while, especially seeing as how my opinions of Obama have gotten closer and closer to Mssr. Summerbell's as the days of incompetence and dithering have passed. I had a moment of particularly intense frustration today, possibly coming off the post (which has been stewing in my head for a while), and opened my computer to see this:

The old saw that there is no such thing as bad publicity could be behind the success of The Coming Insurrection, published under the pen name the Invisible Committee, which rejects the official Left and aligns itself with the younger, wilder forms of resistance that have emerged in Europe against immigration control and the "war on terror." Published by Semiotext(e), a small California press, best known for works of French cultural theory by Jean Baudrillard and Michel Foucault, the book has spent much of the week on Amazon's top 10 bestsellers list, alongside better known titles like Game Change and The Help...

But even before the official pub date, The Coming Insurrection benefited from an "endorsement" from Glenn Beck. As part of a seven-minute rant on Fox News in July, he said, "I am not calling for a ban on this book. It's important that you read this book." Since then, each time Beck has talked about the book, sales have spiked, according to MIT Press associate publicist Diane Denner. It's latest jump came after Beck devoted an entire segment to The Coming Insurrection, which he called "quite possibly the most evil thing I've ever read."

First off, starting from a more meta-level, very interesting to see a book like that getting a real sales bump. Obviously, birthers and Beckites are out there picking it up in the hopes that it somehow reflects true liberal/progressive thought across all boundaries, and so not every purchase is a sympathetic one, but it's nice (having not read the book and all) to see a possible resurgence of radical political thought that seems to actually make a dent on the thinking of, say, more than some myopic university students. Also, I'm always happy to see a political book getting sales that isn't Wings of a Dreamer a glossy retrospective on Sen. Bumblefuck's life and calling that is unsubtly funneling profits into some PAC somewhere.

Second, I want to read it. I'm considering ordering it via the interwebs, but I wanted to know if you'd yet digested it, Lion, and if so, what your thoughts are. I'm obviously not expecting a revelatory experience or even really a convincing one, I'm just curious to see what the state of radical thought is in this particular mire of an era we live in.

Fuck you, Obama

I don't know if everyone has gotten to this yet; I saw it in three places simultaneously (thanks to my RSS feed) which is why I clicked on, and ultimately have decided to post about, it.

I guess it isn't just that the president tries to minimize the outlandish size of the bonuses by comparing them to sports salaries. That's a specious strategy to begin with; both athletes and investment bankers are paid vastly too much, so I'm not sure what kind of reassurance I'm supposed to take from the thought that one ekes out a bit more than the other. I think what really, really gets to me, what really makes me dislike Obama more than any Republican, is his naked spinelessness:

Obama sought to combat perceptions that his administration is anti-business and trumpeted the influence corporate leaders have had on his economic policies. He plans to reiterate that message when he speaks to the Business Roundtable, which represents the heads of many of the biggest U.S. companies, on Feb. 24 in Washington.

You see, Obama's only anti-business when he's speaking to MSNBC or on the street with Joe "Average Joe" American. Multiply the cost of the interviewer's suit by a considerable factor and suddenly he's got a Hayek tattoo on his forehead and his tie is supply-and-demand-striped. 'Trumpeted'? He trumpeted his administration's prostration before moneyed interests? That could be journalistic bombast, but even if it's only half-appropriate as a characterization of his tone, that is fucking appalling.

And through all of his public equivocation and cravenness, through every defeat and humiliation, it's as if the president never reads any of the commentary on himself. Does he not realize that everyone hates the guy who kisses all of their asses, regardless of how eagerly and how furiously he puts lips to cheek? People like people who stand up for things, I would hazard, because, however irrational it may be, they respect the strength of a position far more than they are personally invested in the transactional details of it. All the registered voters in the country won't necessarily stand behind such concreteness, but consistency inspires converts, especially when married to an inarguable ethics such as progressives claim to represent.

That's how politics works, isn't it? You represent something solid, and that's what gives you leverage over your opponents and wins you continued support from those who put you in office. Why is the president brown-nosing like his titty fell out on MTV? He's a Democrat: he should be working for the Democrats. Last time I checked, the party's selling point was that it was sorta less OK with sucking from the money-udder than the Republicans. What can he hope to gain by throwing that to the wind?

This is a majority democracy. I don't see a law anywhere that says everybody is supposed to be made happy. I honestly don't give two rats' asses on a flying fuck if the whole state of Arkansas is miserable with Obama as president, because by participating in this polity they've already decided that sometimes their team will not be the trophy-winners. Sorry, Buck and Chip: them's just the rules of the game. But more than anything else, that's a lesson that those grinning little fat-faced whitebread fucks in corporate boardrooms across the country should be taught by whatever means necessary. Otherwise, we're just ratifying a de facto dualism of social contracts: one, for the not-rich, full of responsibilities, the other, for the plutocrats, monopolizing all the rights.

Sorry, Mr. President, I realize that this arrangement doesn't make too much room for you. I suppose we can squeeze lackeys in, too.

Euro Crisis Update (Lazy Block-quote Edition)

First, Simon Johnson:

Some financial market participants cling to the hope that the stronger eurozone countries, particularly Germany, will soon help out the weaker countries in a generous manner. But this view completely misreads the situation.

The German authorities are happy to have the euro depreciate this far, and probably would not mind if it moves another 10-20 percent. They are convinced that they must – in fact, should – export their way back to acceptable growth levels.

Competitive depreciation is of course a no-no in international policy circles. But if your dissolute neighbors – with whom you happen to share a credit union – threaten to implode their debt rollovers, and markets react negatively, how can you be held responsible?
[...]
The euro depreciates, the dollar strengthens, and our path to recovery starts to run more uphill.

And if these European troubles start to be reflected in difficulties for leading global banks over the next few days or weeks, the negative impact will be much greater.

Then, Yves Smith:

We do have a factor here that could get the reluctant Europeans, meaning the Germans in particular, to act, namely, that Eurobanks are still wobbly and are not doubt exposed directly and indirectly to a European sovereign debt crisis. There is no way to avoid rescue operations of some sort, it’s merely a matter of picking which poison. Do they want to face the ugly bailout of countries they see as profligate, or wait till it morphs into a crisis and have to put their banks on emergency life support? The problem is the latter is politically more palatable, even though ultimately more destructive, since a lot of collateral damage will occur in the wave that hits the banks.

And just for the sake of reiteration, lastly, Paul Krugman:

Spain is an object lesson in the problems of having monetary union without fiscal and labor market integration. First, there was a huge boom in Spain, largely driven by a housing bubble — and financed by capital outflows from Germany. This boom pulled up Spanish wages. Then the bubble burst, leaving Spanish labor overpriced relative to Germany and France, and precipitating a surge in unemployment. It also led to large Spanish budget deficits, mainly because of collapsing revenue but also due to efforts to limit the rise in unemployment.

If Spain had its own currency, this would be a good time to devalue; but it doesn’t.

On the other hand, if Spain were like Florida, its problems wouldn’t be as severe. The budget deficit wouldn’t be as large, because social insurance payments would be coming from Brussels, just as Social Security and Medicare come from Washington. And there would be a safety valve for unemployment, as many workers would migrate to regions with better prospects. (Wages wouldn’t have gone up as much in the first place, because of in-migration).

The point is that this has nothing to do with a spendthrift government; what’s happening to Spain reflects the inherent problems with the euro, which now more than ever looks like a monetary union too far.

A thought

This is a casual observation so I'll be reserved about generalizing from it, but I'm struck again and again by what I would term a distortion of both perspective and self-image in the modern, North American psyche. I think I am guilty of it, too, only in myself I have the gall to assume that it doesn't have as negative a net social result, if only because I lack the resources to be of consequence to anyone but myself at the moment.

But in people of means, and here I don't refer solely to the paper-thin slice of the demographic pie that rakes in Blankfein-esque payouts, but to the well-off more generally, there appears to exist a tendency towards normalizing their standing to fit the ground level of the social hierarchy. In plainer English, what I'm trying to get at is that the rich and the middle-class seem to assume that they are in some ways the economic equivalent of the poor. It's usually from this stance that they then justify behavior with externalities as their consequence.

Now, I say North American psyche because I don't know enough about anyone else's to claim that they suffer from the same self-delusion. I probably can't even generalize too much about Americans, since there is nowhere in this portion of the Western hemisphere where inequality is more pronounced than New York. I assume the tendency to exist in other places if only because a dimmed estimation of others is something axiomatic to the natural informational limits of human beings.

Yet the sentiment pops up here again and again, and I'm shocked by its ferocity each time. Poor is redefined to mean ever greater states of material plenty that seem less only relative to the even more grossly inflated abundance of one's current economic standing. This psychic disconnect of course stands firmly in the way of any kind of positive redistributive action. It also prevents the United States, at least, from forming the fundamental tenets of social solidarity that I think are necessary to call a body of human beings a society at all.

Are we a society? Or are we fooled by physical proximity, contracts and their mechanism of enforcement into thinking that our collective existence is structured by a meaningful social latticework?

Oh, and fuck Locke.

My Big Fat Greek Debt Crisis

Evidently it took last week's €8 billion bond sale to alert bond and currency traders world-wide that, now that you mention it, with its massive debt and deficit to GDP ratios and its rapidly deteriorating economy, Greece might not be the primest of borrowers. Greek government and corporate bond yields have been steadily climbing this week and even the euro itself is beginning to feel the panic. In the meantime, having run to China for an emergency loan, only to be denied, it looks increasingly likely that the birthplace of European civilization will soon be structurally adjusting itself back into the good graces and deep pockets of its less swarthy neighbors up north like the best of the third world.

Whether or not the Greek government receives a string-laden emergency loan from the the richer Eurozone countries or, less likely, the I.M.F., the lack of a coherent response from within the E.U. is disturbing in its own right. This is particularly relevant given the respective economic profiles of countries like Spain, Portugal, Ireland, and to a certain extent, Latvia and Estonia, all of which look disturbingly similar to Greece. That is, encasing the creamy, rich center of Europe, we have a host of economies with highly indebted governments, declining incomes, and an unhealthy dependency on foreign creditors. These countries are also either operating on the euro, or currencies pegged to it.

"If fears of contagion become widespread, risk-averse investors could start to gun for even the larger or 'stronger' euro zone economies and their debt," said Geoffrey Yu, a currency strategist at UBS.

"Spain, Italy, Austria and Belgium -- together accounting for more than 35 percent of the euro zone economy versus just over 6 percent for Greece, Portugal and Ireland combined -- may then be next in the firing line," he added. (AP)

As significant and potentially awful as the immediate situation is, what I find to be the most interesting element of this story is how the development and eventual resolution of this crisis reveal and potentially address the structural and logical failings of the E.M.U. system.

Does it really make sense, for example, for an economic powerhouse like Germany to share a monetary policy and currency with a much more fragile economy like Greece's? As Yves Smith points out, Germany might see the logic in to the relationship during the boom where it can trade its way into a massive surplus upon a currency cheapened by its union members. Likewise, I suspect countries such as Greece spent the better half of the last decade enjoying their ability to borrow on better terms than would otherwise be available to them (all the better to fuel a financial or a real estate bubble). But in a downturn, say, like the one we're in, such an arrangement might suddenly seem a lot less attractive for both partners.

Paul Krugman wrote the following for a lecture he is about to give to the Allied Social Science Association. It's on the slightly different issue of currency crises, but I think this excerpt is still applicable:

Suppose that the underlying problem is a level of prices and wages that makes your production uncompetitive – typically the consequence of an earlier period of excessive capital inflows. Then what must happen, sooner or later, is a decline in prices and wages relative to those in your trading partners – a real depreciation. This can happen through nominal currency depreciation – but this has the unpleasant consequence that the real value of foreign currency debt will rise, creating a deleveraging crisis.

Unfortunately, the alternative is worse. Real depreciation without nominal depreciation must take place through deflation. And this means that the real value of all debt, not just foreign- currency debt, rises. So the deleveraging crisis will be even worse if you don’t depreciate. (Krugman)

That is, in the case of a pegged and overvalued currency, the inevitable readjustment during a debt (or broader economic) crisis can come in two flavors: a downward adjustment of the currency, the "external price" of all goods and services (which will be terrible for domestic borrowers using foreign cash and consumers of foreign goods) or a downward adjustment of all "internal" prices and wages, (which will be terrible for everyone). Of course, Greece does not have a peg (though the Baltic states do), but in using the euro, it is effectively using an overvalued currency. With the euro then, Greece's hands are tied: it has no ability to conduct monetary policy and currency values are determined by the larger economic aggregate of the Eurozone.

At the heart of the issue is the concept of the "optimal currency area." From its inception, because of the differentials in productivity, in language, in fiscal policies, in fiscal goals, and because of remaining constraints on factor mobility, many criticized the Eurozone for being definitively non-optimal. That is, that the European Union made more political and ideological sense--that the economic logic was missing. As Paul Krugman wrote on his blog last month:

Suppose that some members of the euro zone are hit much harder by a downturn than others, so that they have much higher-than-average unemployment; how will they adjust?

In the United States, such shocks are cushioned by the existence of a federal government: the Social Security and Medicare checks keep being sent to Florida, even after the bubble bursts. And we adjust to a large degree with labor mobility: workers move in large numbers from depressed states to those that are doing better.

Europe lacks both the centralized fiscal system and the high labor mobility. (Yes, some workers move, but not nearly on the US scale). (TCOAL)

However, in my mind, this is not necessarily an argument for the dissolution (or the inevitability of the dissolution of the EMU), but potentially just the opposite. If Athens and Berlin are considered illogical candidates for a mutual currency while rural Alabama and downtown Chicago are, this may very well be due to linguistic and cultural divisions, and it's certainly possible the productivity differential between those two countries is more extreme than that between those of the American example (I really have no idea). But if, as Krugman writes, more than anything else rural Alabama and downtown Chicago are able to share the almighty dollar because a broader political and economic framework exists to support that otherwise unequal pairing, that sounds like a case not for fragmentation, but further economic unification.

In this respect, the Eurozone stands in an illogical half-way house between a multi-currency system and an United States of Europe. Quoting Nouriel Roubini:

"The eurozone could drift, essentially with a bifurcation, with a strong centre and a weaker periphery, and eventually some countries might exit the monetary union," he warned.

For all the focus on Greece, however, he also said that Spain may eventually pose an even bigger threat to the eurozone because it is the region's fourth-largest economy and has higher unemployment and weaker banks. (Independent)

That is certainly a possibility. But it's also possible, though probably less so, that a crisis in Greece (or Spain, or Portugal, or Ireland, or...) will push the richer Eurozone members into taking the first crucial steps towards a comprehensive continental fiscal system. Either way, whether a bailout of Greece establishes an accidental precedent for future transfer payments or drachmas and pesos make a surprise reappearance in Europe, it seems like something will have to give. The maintenance of the status quo--either through a series of one-off bailouts on one hand, or total inactivity on the other, allowing the peripheral economies to wither, hoping the Eurozone will persist in its current state through pure inertia--will only postpone the resolution of Europe's structural inconsistencies until the next crisis.