Friday, October 24, 2008
Tuesday, October 21, 2008
Saturday, October 18, 2008
Sunday, October 12, 2008
We know there are uncanny similarities to the onset of the Great Depression: as in the late 1920s, credit has locked up, for all the reasons we pretty much understand. We know that a pyramid scheme ran out of bottom, only homes, not stocks, were the bubbled assets. We know that some people made fortunes from the scheme, and inequalities in income are now a disgrace and macro-economic problem: in the short term, not enough buying power is stored up in the middle-class, whose incomes have eroded; whose net worth has taken a hit with the stock market plunge. In the long run, if unemployment rises, there will be a further spiraling down of the consumption that prompts growth.
BUT WE KNOW other things, too. Why forget them, of all times, now?
We know that the speed of moving information and capital today is unimaginably faster than in the early 1930s.
We know that the barriers to entering new business are unimaginably lower: that about 60,000 new business were created every year in the 1950s, and a million a year are created these days.
We know that product development cycles, once a decade long, are now, in an age of shared networks for prototyping and component sourcing, months.
We know (as former HBR editor Joel Kurtzman notes) US productivity--constant dollars per worker--has grown from about $71,000 in 1998 to about $85,000 today; so the "all-in-price" for manufacturing in the US is, given the weakened dollar, starting to look like China's in many cases. (IKEA, for example, recently announced it would manufacture for the US market in the US, not China.)
We know that trillions in capital has been accumulated by Asian and Middle Eastern sovereign wealth funds, and that they have no ways to earn acceptable rates of return unless they invest here.
We know that, if we can keep up more or less current levels of employment, we can retard a new cycle of mortgage defaults, and thus allow the government, and the financial institutions it will own, to eventually redeem much of the paper it is acquiring at fire-sale prices.
We know that, since governments have studied the Great Depression, they will act to shore up banks and new lending. We know that most Western governments will be prepared to provide stimulus and new levels of coordination.
We know, then, that growth will not be hampered by an absence of capital, skill, or will; that the key is quickly coordinating the match of capital to the enterprises that can use capital productively; that we can quickly prompt the next cycle of growth.
We know that an Obama administration would have broad support for investments in health care, energy infrastructure, education, and roads, trains and bridges--thus stimulating the economy, and sustaining reasonably high levels of employment.
We know, in short, that even if we have another "depression," its half-life can be months, not years; that the same (astonishing) information networks that allowed not-sufficiently-regulated financial services corporations to get us into this mess over months, not years, will allow new investments to fund innovations in months, not years; but that we urgently need the US government to signal that it will not only be the partner-insurer of last resort, but the partner-investor of first resort.
OH, THERE IS something we don't know. It is, as George Packer reminds us, how many people plausibly terrified by this crisis, barely educated people, and thus anxious not only about unemployment, but unemployability--people fattened by fast-food, narcotized by junk television, incited against talking heads, hungry for a loyal father, unsettled by sexual teasing, consoled by healthy-minded religion, inspired by do-or-die sacrifice, suspicious of retaliating others, raging at "New York": people who think like 1930s mobs, but who also think "history" is for elitists--will be bringing their panicked prejudices, not their cool-headed interests, into the polling booth.
Saturday, October 11, 2008
Mostly, today, we stipulate our faults and plead for forgiveness. I want to revisit this morning some things we seem to know in our bones but don’t really discuss very much. Yom Kippur’s liturgical parts—I don’t just mean the Torah and Avodah services, but the prayers and piyutim themselves—are fascinating for many reasons, but most of all perhaps for their often morbid overtones, which produce, ironically, a kind of crescendo of meaning by the end of the day. How does this work?
It is obvious, I suppose, why the contemplation of death, and inevitably one’s own death, is so gripping. But why should the poetics of death—not afterlife, but oblivion–seem so consonant with, of all things, relief? Let me ask this another way—still in keeping with the metaphoric of the day. Why, if we are merely clay in the hands of a potter—and an apparently indifferent potter at that—do we feel more, not less, substantial? Why, if we are matter, do we matter?
Read the entire sermon here.
Tuesday, October 7, 2008
Friday, October 3, 2008
On the surface, this seems a responsible, if unfortunate, plan. Jim Lehrer's relentless, smug debate question--"What are you prepared to give up?"--implicitly pointed to McCain's answer. But the question was simple-minded. And McCain's response shows that he understands how we got here about as well as he understands how Iraqis get to democracy.
MCCAIN, LIKE BUSH, thinks a surge of "shopping" will follow the bail-out--and it might. Obama's middle class tax cuts may, indeed, make sense if we want to mitigate an immediate recession. The problem is that, like Anbar warlords, American consumers will continue to be subsidized by more of the money we borrow from overseas lenders. We consume about two billion more a day than we produce. What can we do about that?
Put this another way. What would a competent bond-rating agency say about U.S. debt denominated in a steadily devalued currency? Would an auditor endorse a corporate strategy that shows no way of getting past a pattern of spending more than it earns? Worse, will sane venture capitalists invest in college graduates like, well, Sarah Palin?
Palin told Katie Couric--she was talking about climate change--that it doesn't matter how we got here, it matters that we act. But, no, if we don't know how we got here, we won't know how to act. So let's assume, with the House acting today, that our current crisis of short-term credit can be overcome. What will happen to long-term investment when it becomes clear how the worsening structural imbalances producing the current crisis persist. How did we get here?
One. Chinese companies, banks and funds have accumulated about one and a half trillion dollars in recent years, largely by manufacturing (though not mostly designing) our stuff, and they've invested much of this back in Western capital markets. The sovereign wealth funds of the petroGulf, with as much a three trillion in accumulated capital, have also pumped about sixty percent of their assets back into Western capital markets.
Here's the deal: by linking their currencies to the falling U.S. dollar they have deliberately kept their currencies undervalued (in effect, a subsidy by their emerging entrepreneurs of our consumption) in the forlorn hope of keeping our growing number of stagnant-wage-workers--people who cannot move from closing factories to knowledge businesses--buying at Walmart and putting gas in Chevy (or increasingly, Toyota) trucks.
Two. Since money was so plentiful, what financial services company would not try to cash in by collecting fees lending it in all kinds of new-fangled ways? With easy credit, easy mortgages, etc., housing prices rose--and looked like they'd never come down. Families took on more and more debt, that is, to buy what they needed and make up for the money they were not earning in wages.
Three. The debtors' bubble predictably burst.
Four. This also became the creditors' bubble.
THERE IS ONE way out: invest now, and heavily, in people and infrastructure.
"Wall Street's success in generating wealth beyond their expectations led to an overconfidence in their abilities to properly judge the riskiness of their own investments," says Steve Cucchiaro, the President and Chief Investment Officer of Boston's Windward Investment Management, "so they finally over-leveraged themselves, not just the struggling people they sold debt to.
"Bailing-out financial services companies is for now; we have to do it. But the long term problem remains. Who works, who earns what, what do we make, and what do we buy?" The picture, he suggests, has not been pretty: too few of our people making the things the world needs, too many of people borrowing to buy oil and junk. But there is another way to think about this:
"Boston has just seen the Big Dig," Steve continues, "nearly $15 billion invested in opening up Boston's harbor to ten times that sum in new investment. The Big Dig was ridiculed for marginal cost over-runs. But it created more efficient roads and tunnels, taught engineers, inspired architects, and created great jobs for a generation of logistics experts, builders and contractors, whose children had more stable homes.
"Would it have been better if the $15 billion had come into the economy as a stimulus program ultimately financed by borrowing from foreign sources, money that sent the very rich to buy yet more luxury goods and the middle class to the malls to buy things, and often frivolous things, made in China?"
NONE OF THIS is new, perhaps. But I'm flogging it because we have to keep the big picture in mind and not get distracted with purely psychological game theories. Labor productivity (that is, the ratio of smart machines to people) is rising in American companies that are surviving global markets. But if as Warren Buffet says, we get to 11% unemployment, that is a different crisis than 6%. And if the 89% that is working is earning (in real terms) 20% less than workers did a generation ago, what eventually becomes of demand at the malls?
There is obviously a crisis of confidence. But flocking behavior does not explain everything. If lenders are going to have confidence in our future, they will not be counting on old ways of getting us into stores: borrowed tax cuts, borrowed government give-backs, borrowed equity loans, etc. They want to see not just Main Street with the confidence to consume. They need to have confidence that Main Street has the education and infrastructure to produce.