Saturday, October 22, 2011

insurance for the wealthy, bandaids for the rest

Over at Crooked Timber, there is a short but clarifying post about the cause of the 2008 crash, put in the form of a reply to Brad Delong, who has maintained that what I will call the inequality view of the crash is not true - that is, it isn't true that “we are in a recession basically because of the disppearance of a huge amount of household sector wealth”.

The Crooked Timber post arms itself with an arresting statistic from, I suppose, the Census, recycled through Nate Silver's column in the NYT: "The median American’s non-household wealth declined by 14% between 2001 and 2007. So when household wealth evaporated, guess what happened?"

Although Brian doesn't go into it in depth, he does use this statistic to point out that the 'boom' in the 2000s covered a bust - the bust in income. Which should lead us to some reflection about the policies that were and are being pursued that contributed to that bust.

I have urged the view that it is wrong to view the housing bubble solely as an accident or a disaster - a point of view fatally colored by the bubble's bust. The housing bubble, far from being an accident, was a necessity – that is, if we were to pursue the remedies to the solution to the recession of 2000-2001 suggested by Bush, and that are being recycled, in a more pernicious form, by both Obama and the Republicans in this round. The tax cuts – the most important of which may well have been the cut to capital gains taxes – and the deficit financial policy that was enacted via war spending, an enormous increase in Medicare due to the new drug supplement package, are important factors here. The third leg of the political economy of the 2000s was Fed policy. Famously, the interest rate was used by the Fed not as an index reflecting the real state of the American economy, but increasingly as a tool to maintain financial security wealth - in fact, Bernanke became so obsessed with trying to maintain stock market values, as we saw in 2007, that he pursued an utterly bizarre policy, dictated solely by an attempt to keep the stock market from sliding. All three parts of this policy were responses to the long range crisis, which was squarely and simply one of wealth inequality. That is at the very basis of these crises, and that will continue to be at the basis of the crises as the Reps and the Dems do everything they can to ignore it. Unfortunately, this inequality crisis can only be solved politically – and no political player on the horizon even sees it.

Thus, to understand the recession of 2008, you have to understand the effects of the solution to the recession of 2001. I don’t think the name for the sum of those solutions is “Bush” – the Democrats made no attempt to make inequality an issue, because they had neutered themselves on that front in the 90s. Let’s call it, instead, neo-liberalism. The neo-liberal model is always going to lead, is structurally dedicated to, increasing wealth inequality – for which it uses the government as a backstop, as we saw in the Treasury-Fed program of feeding trillions of dollars to Wall Street in the form of 1 percent or below loans, and as a dispensor of band-aids, as we saw with the marginal increases in EITC.
French political scientists around Foucault liked to talk about l’etat providence – the welfare state, if you like. Neoliberalism does not, as its proponents like to say, break with l’etat providence – they simply change its focus. The state now operates as a Wallfare state – redistributing upwards.

Friday, October 21, 2011

Are the clerks on the barricades this time?

One day Tolstoy, who was at that time an officer in the army, confronted a fellow officer who he had seen whipping a peasant and asked him: Have you never read the New Testament? The officer replied with a question of his own: ‘have you never read the army’s rules and regulations? Julien Benda put this story as an emblem at the beginning of La Trahison des Clercs, a pamphlet that became famous in the late twenties, because to Benda, Tolstoy’s question was central to what it used to mean to be a clerk – that is, an educated person who defends humanistic values. And the nameless officer’s reply, Benda thought, was what it meant to be a clerk, as the intellectuals abandoned the side of the eternal for the side of pure doxa. The clerk now serves a political passion, and speaks for the interests of a temporal and limited group, whether economic, national, or party. The clerk now sides with the army’s rules and regulations.

I, too, am interested in the clerk as a figure, although I betray humanity, in Benda’s eyes, by thinking of the clerk as, primordially, in the Great Transformation to an industrial and market economy, an agent of circulation. On the other hand, the clerk is dialectically riven – both the promoter of those routines that, in the countryside, the factory, and the store, generated a capitalist mentality, and the first responders to the elevation of the level of alienation this entailed. The clerks are the poets of the routinized world.

It is in this sense that Benda’s fight for eternal and against the engaged ‘intellectual’ is not, as it would seem to be at first glance, simply a reactionary gesture, a Christian nostalgia.

Benda started writing for the dreyfusard part of the press – he was published in Peguy’s Cahiers – and his career lasted well into the era of the existentialists, against which he took aim with furious quotations in his long second preface to The Betrayal of the Clerks, when it was reissued after WWII.

So: I want to look at Benda, Thomas Mann’s Reflections of an Non-political Man, and Russell Jacoby’s book on the last intellectuals – all in the light of the Occupy Wall Street movement – in some upcoming posts.

Wednesday, October 19, 2011

Don't let the Fed enact another quiet bailout!

Suggestion for a Occupy Wall Street Sign: Stop Bank of America from Getting FREE US INSURANCE on ITS DERIVATIVES!

And here's today's story:

Ben Bernanke apparently used a rear entrance in Boston, yesterday, to avoid the Occupy Boston protestors.
That's par for the course, as Bernanke and his Fed are masters of the rear entrance.
For example, take the Bank of America announcement of its 6 + billion dollars in profits for this quarter. Doesn't that mean that bailing out the banks worked? Our 16 trillion in loans for the behemoths can be criticized on many levels, but surely we can't criticize the techno genius that resulted in a solvent bank system, eh?
Well, apparently not. This is what is happening before our eyes, from the Economic populist site:

"It appears Bank of America moved Merrill Lynch derivatives to a FDIC insured subsidiary. Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

By moving toxic assets, i.e. derivatives, into a FDIC insured subsidiary, gives BoA's Merrill derivative holdings indirect access to the Federal Reserve discount window and also if the bank fails where the derivatives are now located, the FDIC is required to pay depositors through their insurance guarantee. It appears from Bloomberg's report that $53 trillion of BoA's derivatives are being tied into depositors*, which implies the Federal Reserve and the U.S. taxpayer have the potential to be on the hook.

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

Nice huh? Bank of America just transferred risk to the taxpayer with no approval by regulators, Congress and of course the public."

I'm reminded of the scene in Chinatown in which Jack Nicholson discovers that the city has been dumping water during a drought - in the service of a land development scheme, as it turns out. He goes to the water department and talks with the head of it, a man beaufitully named Yelburton, yed there, who tells him:

"Wait -- please sit down, Mr. Gittes.
We're... well, we're not anxious
for this to get around, but we have
been diverting a little water
to irrigate avocado and walnut
groves in the northwest
valley. As you know, the farmers
there have no legal right to our
water, and since the drought we've
had to cut them off -- the city
comes first, naturally. But,
well, we've been trying to help
some of them out, keep them from
going under. Naturally when you
divert water -- you get a little

A little runoff. That is what the 99 percent is living through! But the Fed has a beautiful system all in place to help the people who really count.

Tuesday, October 18, 2011

destruction is the ultimate luxury

I'm dredging this up from a post I wrote in 2002, because I think it is relevant to the psychology of the Occupy Wall Street movement. And to the psychology of the academic and policy elite who criticize the movement.

In 2002, two British professors, Andrew Oswald and Daniel Zizzo, reported on an experiment in which various subjects were gathered together and given cash, distributed – by arbitrary gift and betting – in such a way that some got more and some got less. Then, subjects were allowed to anonymously burn other people’s money – only, however, if they were willing to reduce their own.

62% of those tested chose to destroy part of other test subjects' cash, and half of all the cash was destroyed by other subjects.

A story about this experiment on the site Mindpixel contains this summing up of the burners:

"The researchers found that those who gained the most additional money at the betting stage burned poor and rich alike, while disadvantaged laboratory subjects mainly targeted those subjects they saw getting what they perceived as undeserved financial windfalls."

The libertarian magazine Reason reported on Oswald and Zizzo's experiment, too, under the headline, Burn the Rich. This is, in fact, not so far from the way Oswald and Zizzo presented their results themselves. Curiously, what the experiment clearly shows is that the rich also burned the poor and the rich. The difference is that the poor showed solidarity – they burned only those with higher amounts of cash – while the rich did not.
That the rich burned the poor and the rich seems not to have impressed itself on Reason, even though, as they correctly reported:
"Zizzo and Oswald found that nearly two-thirds of players happily paid for the privilege of impoverishing their fellow participants. Even as the price of burning went up, the percentage of people who chose to burn other players did not fall substantially."

Z. and O. had labels for two classes of burnings, depending on the rank of the burner. One they call rank egalitarianism. Most of the burners who were poorer sacrificed to burn the rich. The other they call reciprocity. Their thesis is that the rich burners were simply responding to being burned.

"In the case of our money burning experiment, advantaged and disadvantaged subjects may,
because of the existence of the advantage, perceive the game differently. This different game
perception implies that subjects prime differently two social categories, one based on deservingness and one on reciprocity. For disadvantaged subjects, what matters is the fact that advantaged subjects got the advantage undeservedly, and they did not. Advantaged subjects may think not only in terms of deservingness, but also in a different light, namely, in the light of the fact that disadvantaged subjects will burn them. They may then want to reciprocate the favour.'"

But how does this explain their earlier result, that the rich burn the rich? Moreover, hidden in the paper is an interesting paragraph about the behavior of the "undeserving" rich -- those who accrued money arbitrarily (in the experiment, money could be made by betting, but money was also randomly allocated at intervals, thus randomly favoring certain individuals).

"In the twin experiment run in Oxford, Zizzo (1999) crossed advantage and deservingness in a factorial design, and found that deservingness mattered. More specifically, he found significantly more negative interdependent preferences in sessions where the advantage was induced unfairly than when it was induced according to a relatively fair procedure. Moreover, in one condition of that experiment, stealing was possible. Zizzo then found that there was substantially more stealing by advantaged subjects if they had got the advantage undeservedly. One possible interpretation of this interaction effect was that undeservedly advantaged subjects expected themselves to be stolen or burnt significantly more, and behaved using a reciprocity logic, in defending their own gains significantly more."

It is interesting how neoclassical models and ‘rational’ choice has bent the minds of academics, which is the only reason I can think of for calling the rich burning the poor or each other a reciprocity hypothesis. After all, O. and Z. assumes that the rich are the very epitome of rationality. They are profit maximizers. Thus, they couldn’t be burning because, well, they could get away with it. Oswald and Zizzo accord the egalitarian strategy a sequential primacy that exists psychologically, even if it doesn't exist empirically. That is, the rich could be striking in the expectation that they will be struck.
However, one should notice -- or an old deconstructive veteran like myself notices -- the binary which is operating here. While the rich are operating on "intention" -- that is cognitively -- the poor are operating on "passion" -- the envy aroused by riches. Why, actually, don't we think that the poor are striking pre-emptively, like the rich? Especially as Zizzo's earlier experiment shows that the perception of the "unfair" accrual of wealth, which is prevalant among its benificiaries as well as among its victims, prompts further "unfair" action among its benificiaries. I.e., the undeserving rich steal. The unconscious bias of the experimenter consists in this: poverty denies one a full sense of self-interest. Thus, we interpret the actions of the poor, sacrificing to burn the rich, as envy, while we accord a sense of intellectual strategy to the wealthy who do the same thing. Oswald and Zizzo show themselves to be the worthy heirs of those nineteenth century economists who saw the laboring classes as so much betail, so much dangerous animality. An entity to be organized by the police, always liable to filch from the fortunate.

To put this another way -- we think the reciprocal thesis explains too much, is bounded by a circular definition, and is ultimately inseparable from passion itself. This passion expresses itself in the wealthy burning the wealthy -- surely, here, we aren't seeing a response to rank egalitarianism, but the play of pure power. Let's suggest to Z. and O. a most non-Anglo explanation for their findings, one explored by Mauss in his classic essai sur la don: one of the attributes of being rich is the ability to destroy. Destruction is the ultimate luxury. This is as true among Manhattanites as among the Kwaikutl. Zizzo and Oswald might want to reference such classics, in this vein, as various Beverly Hillbilly episodes, the tv show Dallas, and the dot com parties of 1999.
It is such power that the Occupy Wall Street people are protesting. Nobody gets wealthy just to continue getting wealthy – the miser is an obsolete figure. More and more wealth is needed to reinforce another passion, the cruel and relentless passion for power. At the heart of power is the power to destroy. Far from simply being envious, the poor are wise enough not to be deluded by the veil of rationality. The same can’t be said for many social scientists.

Sunday, October 16, 2011

my own humble attempt at tax simplification

Simplifying the tax system on the 9-9-9 system (which, fans of the Book will notice, is 6-6-6 upside down) is all the rage right now.

I have an even simpler plan. It is based on a phrase used over and over by the anti-tax (the rich) crowd. The phrase is simple – taxes take dollars from your pocketbook. Or your wallet.

My plan takes this phrase very seriously, because it gives us a nice way to visualize money. The anthropologist, George Marcus, has theorized, from his ethnographic research among the rich, that one of the salient characteristics of fortune is its invisibility. That invisibility has many semiotic effects: one of them is obviously to reverse the marginal disutility thesis, which would make it seem like the millionaire of the billionaire would discount the added dollar. Invisibility melds together all money as one thing – which means that the 4.9 billion dollars made by hedgefund manager John Paulson (the man who, in conjunction with Goldman Sachs, shorted mortgage backed securities while Goldman sold its suckers, er, clients, mortgage backed security ) is to him one unified thing. Not perhaps in all instances. Paulson could well chip off a bit of that 4.9 billion for a coupla yachts, or a home. For instance, a nice 25 million dollar ranch in Aspen. The 3 million dollar Olympic tower “pad”. But when it comes to taxes, every invisible bit needs defending.

This is where my tax plan comes in. It is called the envision the wealth tax plan, and it is pretty simple. It uses a standard – the Tommy Hilfinger Men’s Tilton Front Pocket Wallet. According to the specs, it is made of Soft Polished Lamb, and features 4 credit card pockets, an ID window, and a metal hinged moneyclip – just the kind of wallet that the rightwing pundit wants to conjure up with the government taking dollars out of it!

So, here’s the scheme. It is pretty easy to assess how many Tommy Hilfinger Tilton Front Pocket Wallets would be needed to contain 4.9 billion dollars. A bill has a width of around .005 inches. You need to stuff 49 million of them in the wallets. The capacity of those wallets is, at best, able to accommodate, say, 50 one hundred dollar bills, or 5,000 dollars. That gives us nine hundred eighty thousand Tommy Hilfinger Tilton Front Pocket Wallets. Now, lets compare this to, say, the janitor who works in thePaulson and company building. The average salary for a janitor in NYC comes to a whopping 21,000 per year, which is the equivalent of four THFP wallets, and a little change. So we have four of these wallets, and we line them up against nine hundred eighty thousand THTFP wallets, and we ask – is it fair that the four wallet guy didn’t pay the same percentage tax as the guy with nine hundred eighty thousand THTFP wallets?

And then we hit ourselves on the head and go, dude, are you on acid?
And then we do our tax reform! Which is simple – no tax for the janitor. No tax for even people who have 20 THTFP wallets. No, make it 40. After that, the government starts seriously collecting your THTFP wallets. After you reach 100 hundred, it really gets down to business, going with the 90 percent marginal rate that was common in good king Dwight D. Eisenhower’s day.
See how simple this is? It is called the visualize their fuckin’ fortunes tax. It is beautiful, and will save the country a load of grief from self pitying people who have done nothing world historical, or even necessary, to earn nine hundred eighty thousand THTFP wallets stuffed to the gills with 100 dollar bills.