“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Saturday, December 29, 2001

Remora
On the Optimism Front

We packed our Schopenhauer for our LA jaunt last week -- which should tell you that Limited Inc is not a member of the Optimists club, if you were wondering. However, Schopenhauer's extensive pessimism -- the sort of grief only a philosopher could manage, shedding tears over the pain and irrationality of individuation, and even more tears, acidically tinged, over the incongruous and unheard of reputation of Hegel, the contemporary Schopenhauer most despised -- is not a good guide to short range economic forecasts for first quarter GDP growth.

An optimism about such things has reigned in the columns of American newspapers for the past month. One wonders if this is a real boomlet, or if this is mere puffery. Although short term memory loss is the norm in this wonderful land of ours, still, there are those who remember the Y2K year -- the year that the Dow became unhinged, the year that lunatic predictions from George Gilder and James Glassman were seriously debated, even as the stuffing was dropping out of the structure.

Here's the WP today:

Reports Suggest Economic Recovery
Experts See Clear Signs Recession Is Fading by John Berry

"For the first time in many months, a series of economic indicators, released yesterday, all contained solidly positive news, suggesting to many analysts that the recession that hit the U.S. economy last spring may end soon.

The Labor Department reported that initial claims for unemployment benefits last week remained below the 400,000 level for the third week in a row....

Meanwhile, the Conference Board, a New York-based business research group, said its consumer confidence index jumped nearly nine points, to 93.7 this month, after being depressed in October and November following the Sept. 11 terrorist attacks. The increase brought the confidence index back in line with the University of Michigan's consumer sentiment index, which began to recover last month."

But let's look at what that index means. Here's the AP version:

"The Conference Board said consumers� assessment of the current economic climate was slightly more positive in December than November. Consumers rating current business conditions as good increased to 17 percent from 16.8 percent.

However, the board said consumers who felt business conditions were bad rose to 21.7 percent from 20.7 percent last month.

Nontheless Americans are still feeling more optimistic about the near future. The percentage of consumers who expect business conditions to improve rose to 22.2 percent from 17.7 percent in November, the report said. Those expecting conditions to sour declined from 11.6 percent from 16.9 percent."

In essence, Schopenhauerians still seem to outnumber optimists among the hoi polloi.

Limited Inc would like to be optimistic. No, that's not quite right -- Limited Inc would like to benefit from the optimism of others by placing beaucoup articles among the resurgent media. But Limited Inc would also like to be contrarian and hip and regard it all as a bubble. And the small contradiction can only be maintained if there is some wave of money coming in from the East. In the media world, though, it is hard to see that wave. More newspapers are cracking down on freelancers, shrinking book sections, getting the business editor to take over the recipe section when the old coot that used to do it died, etc. Magazines are still not seeing that advertising outreach to the highly confident consumer postulated by the Conference Board. And there's the gnawing question of debt -- as was remarked in the nineties, public debt shrank while private debt exploded. Now public debt is growing -- and there's only so much room in debt space, even with the whacky Fed jiggling us down to 0 down, O percent. I do have to say that the Fed has the best spin in the business -- articles like the WP one are routinely full of the goodies that Greenspan has given us because we were nice, not naughty -- all those car sales! all those home sales! without paying attention to the red that is accumulating because of all those car sales! and the debt load that is not shifting because of all those home sales! and the propadeutic example of Japan, liquidity trap city, which we are all politely avoiding -- a car wreck we are passing by, or at least we hope we are passing by.

Friday, December 28, 2001

Remora

As our readers probably expect, Limited Inc is a devotee of William Greider. We loved the Fed book, we loved that it was so thick, so textured, so bought, so little read. We loved the story of Jimmy Carter accidentally causing a crisis in the economy by getting consumers to stop using their credit cards (a mistake we will never make again -- conservative Bushies would rather have consumers max their Visas on porno than not whip those cards out at all). We loved One world, ready or not. We loved to compare it to the Olive and the Lexus Tree, a relic of the nineties that ranks up there, as an artifact of decade delusions, with Strachey's thirties book on the inevitability of communism, The Coming Struggle for Power. Which okay, we probably have readers who aren't exactly conversant with agit-prop from the thirties. So our references are esoteric. Sue me.
Anyway, given our admiration, what is it that keeps us from reading Greider's pieces in the Nation? It is, we think, a sense that we have to make a long slog with this guy. Through some very depressing stuff. Still, we recommend his latest on the relationship of China to the rest of the underpaid third world, especially the maquilladora zone of Mexico. Greider writes that the contrast between the 1.25 per hour wage in Mexico and the .25 per hour wage in China is tipping the GEs and Toshibas of the world. So Mexico is finding itself in the unique position of railing against cheap labor. Two grafs of especial note:


"Achieving more meaningful economic and social integration obviously involves huge, complex issues, from Mexican immigration and US development aid to the relationships between currencies, legal systems and environmental standards. But the most difficult issue, one that cannot be evaded, is wages. No one should pretend that US-Mexican wage tensions can be entirely reconciled--of course not--but what is required is a wage-floor trade agreement that, as labor likes to say, "brings the bottom up, instead of pulling the top down." Mexico could only accept this arrangement if it had a genuine preferential status with the United States and Canada--including both significant trade privileges and investor guarantees of long-term commitments as well as serious aid for education, health and infrastructure. Think of this "North American union" as a first step toward someday imposing an international "living wage" standard on the production of traded goods, enforced by penalty tariffs on countries and companies that decline to participate. Producers would have a choice: Pay decent wages to their workers or pay penalty tariffs on their exports, the money to be recycled into development aid.

Obviously, the world is not ready for this (neither are Mexican and American politics), but the road to global reform has to start with a few like-minded nations willing to experiment with new terms because they see mutual self-interest in the bargain. A healthier, self-sustaining Mexico would be a lot better for the United States than a cheap-labor export zone that makes a few people very rich but survives on the backs of desperate immigrants and drug smugglers. US consumers might have to pay marginally higher prices on some items, but US commerce would gain a far more promising market for its exports, and that would help to reduce US trade deficits. Mexico would regain a measure of self-determination, the ability to chart its own course free of the neoliberal straitjacket. "

I think this is a point to make over and over again - while Capital has long internationalized, labor remains the last redoubt of the antiquarian position. Labor has thereby lost its great advantage. There's no reason that the Boeing's Chinese factories and their American factories can't join at the grassroots. Along the border, it is more than time to wake up.

Thursday, December 27, 2001

Remora
Tyson Slocum in Public Citizen has written an article (malheureusement, reader, it is a PDF document) which states the case against the current form of energy deregulation. He gets off to a rousing start:

"If the purpose of electricity deregulation is really to imporve the quality of people's lives by lowering the cost of a critical commodity, it has obviously failed, as demonstrated in every state which has chosen to deregulate. Power companies, free from the oversight of state regulators, have quadrupled prices for Montana industrial consumers, doubled prices in many Northeast and Ne England states, and driven one of California's utilities to bankruptcy. Whereas consumers have been left to pay higher prices, energy corporations in dergulated markets have made record profits."

Slocum is not completely convincing, since his case depends on tacitly defending the old system. That old system was, to say the least, environmentally harmful, and as Slocum acknowledges, deregulation became attractive partly because state regulatory commissions and monopoly energy suppliers basically laid a plutonium egg with the building of vastly expensive nuclear power plants, the costs of which were distributed to the consumer. Although why the past tense? These costs are still being destributed -- Slocum explains the beautiful phrase, 'stranded costs,' which is the justification, written into many state legislative energy deregulation bills, for having the taxpayer cushion the always stressed energy companies with pleasing pillows of tax dollars -- 28 billion, to be exact, in California alone - to pay for their enthusiastic building of white elephants in the seventies and eighties.

Yet Slocum has a point about electricity and its marketing. The pressure on power companies came partly from their decreasing rate of return on investment, compared to other industrial sectors. To become attractive to investors, the power industry needed to make itself 'sexy'. There's a certain irony here: in game theoretical terms, the very force of rationality, ie the profit motive, turns the rational game player into an irrational enthusiast. Here's a quote from an executive of a Michigan energy company, GE Power, from a 1999 Forbes article written by Debby Scheinholtz and Julie Koerner about power deregulation:

"We are actively engaged in helping these companies achieve the synergy they expect from the reaggregation of resources taking place in the energy sector." In the first quarter of this year, Nardelli reports, GE closed 20 long-term service agreements that range from 8- to 15-year terms and represent $1 billion in future revenue. "That�s a business we weren�t even thinking about four years ago," says Nardelli. "By developing product and service offerings throughout this expanded, outside-in view, we can continue to grow our business and, more importantly, help make our customers more successful."

Notice the fallacy, here: that one can treat electricity much like one treats a bond, buying and selling 8 to 15 years in advance on a product that (a) can't be stored, (b) has vastly uncertain transmission costs, (c) has a fragmented customer base, and (d) is unpredictably generated. This isn't wheat we are talking about. Notice, too, the seed for what Enron apparently did -- selling and reselling energy futures, Enron booked profits to itself in real time that would only exist ten years from now, if ever.

As for the end consumer, as Slocum points out, the slight profit margin accrued from selling energy to, say, Limited Inc, gives the power companies an incentive to skew their pricing in a strange tier -- on average, big industrial consumers are charged a fourth to a half less than individual consumers. Since those larger customers have an advantage in negotiating energy futures, if for some reason energy costs go up, who is going to subsidize power company losses? You got it: the miserable private consumer. The Limited Incs of the world, god bless 'em.

The old solution to this was price caps. And Slocum makes a pretty good case that price caps work -- that is, that prices go down without supply going down. The peculiarity of the energy market is embodied in the paradox that when prices go up, supply can go down -- that is, it is possible to squeeze the end consumer for more money by limiting energy generation. This is California's claim about the power company gang bang of the year 2000. In a market in which competition is tied to less strict supply parameters -- say, bread -- the limitation of supply by a few market makers would simply encourage smaller bread companies to compete. But the only people who really compete in the energy market are the sellers of energy 'instruments' -- those, like Enron, who sold an abstract representing the power produced by some other company and transmitted, often, through a system owned by yet another company. Enron's goal was to be, in essence, asset free -- to make a cost free profit by exchanging instruments it had neither to produce nor transmit. Enron's business model has been endlessly discussed, but it seems pretty simple when you look at it: like the confidence men/tailors in Hans Christian Andersen's story about the emperor's new clothes, these guys were weaving invisible garments out of immaterial thread.
Dope

Limited Inc, with a disgruntled expression on our face, could be found staring out at the jets taxing up and down the concourse at the Phoenix airport yesterday. A considerable portion of our Christmas was lost to the greed of America West. This airline has apparently taken as it's motto the famous words of J.P. Morgan: the public be damned. Damning that small section of the public which had bought tickets on a one o'clock flight from Phoenix to Austin in the naive faith that there actually was a one o'clock flight from Phoenix to Austin, America West gave us a little lesson in corporate irresponsibility that made those of us who had some knowledge of airline deregulation long for the days of the CAB. We approached the representatives of AW, poor sods, who produced this excuse: somehow, a flight crew couldn't be assembled for this flight. Now, let's try to look beyond the implication that America West is run in much the same way as high school plays are mounted ("hey everybody, let's buy a jet or somethin', and like fly it for people and all, and like they can buy tickets and everything... let's pretend to be an airline!"), there is something odious about a company that is willing not only to cut corners -- for surely the real reason Limited Inc and his fellow Austinites were stranded for four hours was that there weren't enough tickets sold for this particular flight -- but to cut those corners while blaming its staff.

Well, we had too good a time in LA to post regularly. We know that there are issues (the fall of the Argentine government, the mole like behavior of Osama Bin Laden, the whole "will these shoes go with my new plastique bomb kit" fashion scene) with which we should manfully grapple. But today our host, blogspot, is experiencing trouble of some cyber-weird kind. We will resume tomorrow with the bons mots, don't worry.