Saturday, January 26, 2002


Limited Inc had beer last night with a faithful reader, who made comments about Limited Inc's Enron obsession. The hint over the table was that we are becoming, shall we say, a little tedious on the subject. Without, this reader also implied, being particularly acute.

Well, that hurts. We are drawn to this story for the same reason a shark is drawn onward by the thrashing of the wounded swimmer -- it is the frenzy of instinct, against which man and beast strive in vain. We are, after all, caught in the net of our blood before we are caught in any other net, God help us all. Given our limited resources, we can't sift through documents given to us late at night by anonymous sources, but we have hoped to develop, for our readers, a sense of the connections between politics and the liberalized financial markets that are sometimes not adumbrated in the daily paper. The daily paper, after all, has to have room for the funnies, and often seems to pitch its prose to the level of your average reader of Beetle Bailey, and the precincts of the night in which oil forwards are traded between punks in highrises might disturb such a reader -- worse, might cause his eyes to glaze over.

Turn to James Ridgeway's column in the Village Voice this week. Here's a trail which surely needs scouting down:

"One unexplored approach to unraveling the Enron scandal may lie in the company's use of offshore tax havens, which have scant banking-disclosure laws. The company had over 2800 subsidiaries, some 800 of which were headquartered in nations officially designated as tax havens, including the Cayman Islands. In its lengthy study of Enron, the watchdog Public Citizen argues that by stashing money in this myriad of subsidiaries, Enron could conceivably hide from a growing list of creditors as well as U.S. tax investigators. Indeed, Enron appears not only to have paid no taxes for four of the past five years, but also may have been eligible for hundreds of millions in refunds."

[-- next graf: The Clinton administration tired to pressure the tax havens}

"With Bush, everything changed. Less than a month after his inauguration last year, his Treasury announced the Clinton deals had been placed under review. Last spring the administration told OECD that it wouldn't be going along with the Clinton agreements. Instead, on November 27 of last year, in the midst of the gathering Enron scandal and a few days before the company formally filed for bankruptcy, Treasury Secretary Paul O'Neill said the Cayman Islands had agreed to start cooperating with U.S. investigators in 2004. That might sound tough, but it actually gives Enron and other companies a 25-month breather to clear the decks and find somewhere else to stash their money. Even then, as Manhattan District Attorney Robert M. Morgenthau charged, the Cayman Islands could back out of an agreement with three months' notice and suffer no repercussions."

The Bushies must be aware that the Cayman deal could blow up in their face. Here's a typical ass covering story from that front:

It isn't clear if Enron Corp.'s use of Caribbean tax havens is linked to the illicit financial activities that the U.S. is seeking to crack down on through tax treaties with offshore financial havens, U.S. Treasury Secretary Paul O'Neill said Friday.

"It's not clear that it's related in any way to the issue of illicit financial activities," O'Neill told reporters when asked whether he was worried about the use of offshore subsidiaries by bankrupt energy-trading giant Enron

What isn't clear to O'Neill could be clarified, with high resolution intensity, by a congressional investigation with teeth.

Friday, January 25, 2002


Limited Inc can't remember - was it T.S. Eliot who said that every strong writer creates the tradition he follows? By which he meant that literature is not sequential, even if its chronology, by mundane necessity, is. A writer picks out, from the vantage point of those instincts found in his prose, those of his predecessors who tended towards him. Blake thought the same thing - Milton dreamed of Blake, and then Blake dreamed of Milton. Mixing memory and desire indeed.

Well, the same can be said for �. economic history. When bubbles are blowing, the historians turn a revisionist eye on previously dissed speculators. In the nineties, there was an outpouring of sympathy for, of all people, J.P. Morgan. So cultured! So right, so often! This acquisitive weasel, this man whose name was rightly cursed by every farmer and Pullman porter in the 1890s, the classic photograph of whom, stick raised, WC Fields proboscis burning, pig like eyes shining with malice and outrage, was muckraking enough. There's a nice review of the Strouse bio in the TNR which takes the reasonable tack that the rich are rare, and that their interests might not be the interests of their servants and others not so gifted with the Midas touch. Upstairs is not downstairs. For Strouse, and for her readers no doubt, dear Pierpont turns out to be less ogre than Clinton Democrat avant la letter, managing us into the tiered prosperity we so knew and loved during the boom and boomer years.

It has been the same story with the flood of dreary CEO autobiographies, a nineties genre to which any decent man would prefer seventies porn. This mass of self congratulation culminated with Jack Welch's this year. These CEOs believe their ghostwriters and pr men - they believe that leadership is a secret, yes, that it exist behind door number one in their ever so sharp minds. To read them, one would think that they all possess the magnetism of Rasputin, and the chess playing skills of Morphy. The deluded leading the manic - isn't this what irrational exuberance is all about? Give your leadership stock options and watch your accounting standards become all mysterious. Because the thing is - when you depend on those options, you are going to make the prices jump come hell or high water. And then you can refer fondly to those numbers in your book - proof positive that your secret skills were ace!

Jack Beatty has a little review in the Atlantic of a book about an earlier kind of titan - guys who made their money leading corporations that made things. Not financial innovators of Morgan's type. Yes, I know, curious as that sounds in our asset-lite corporate era. Curious as that sounds when the punchline is - you are in the business of selling information. This earlier group was a nasty bunch. Some of them were clearly bonkers. But they were all much more interesting than a dozen Jack Welches. Their very cruelty was spacious.

Here's a beautiful story about Henry Ford.

"Henry Ford persecuted initiative. Returning from a trip to Europe he discovered that his engineers had made small improvements to the Model T. "It was a better, smoother-riding vehicle, and his associates hoped to surprise and please him," David Halberstam writes in The Reckoning.

Ford walked around it several times. Finally he approached the left-hand door and ripped it off. Then he ripped off the other door. Then he bashed the windshield. Then he threw out the back seat and bashed the roof of the car with his shoe. During all this time he said nothing. There was no doubt whose car the T was and no doubt who was the only man permitted to change it."

Thursday, January 24, 2002


The Financial Times is pleased that Joe Lieberman is leading the Senate investigation into Enron. He will lead it quickly, sensibly, painlessly ... nowhere. Lieberman is a centrist, or perhaps it is better to say self-centrist, Democrat. Supposedly, he sees himself as the next president. His philosophy is to the right of Nelson Rockefeller -- which is why you can bet that nothing he uncovers with the Enron probe is going to rock his support for deregulation. The FT comments that many were dismayed to see him tugged leftward as Al Gore's vp -- yes, all that radical mouthing on maintaining the surplus. Emma Goldman returns, talking them fiscal prudence blues. Or was this Herbert Hoover in his itchier hours? Emma, to tell the truth, might have spit. Anyway, the FT is confidant that Lieberman will sink the Enron inquiry under so many fathoms of technicalities, long winded spiels, and his trademark rebarbative moralizing, that it will do minimum harm to Bush. Limited Inc agrees. Here's the final three grafs:

"But since then [the election of 2000], the pro-free-trade, pro-business message of New Democrats has again become one of Mr Lieberman's main calling cards.

For that reason, many Democrats hope Mr Lieberman gives them the patina of credibility that a more leftist, business-bashing member of their ranks would not. "Joe is the best possible person to have in the lead slot," says one senior Democratic policy adviser. "He will not conduct a witch-hunt."

To some Democrats, who would like to see a little more Republican blood on the floor, that is not ideal. But, with both parties feeling the political heat from the bankruptcy, it may be the most sensible approach."

Wednesday, January 23, 2002


The nineties have yet to earn a definitive moniker as a decade. Limited Inc. suggest that it be called the New Math decade. Remember, a few years ago, the dispute over metrics? Okay, those of you who weren't swept up in the Net biz bubble might not remember the dispute over metrics, or care, but for a while, the argument, made by highly paid stock analysts, was that the metric that counted was not quarterly earnings, which had the mildewy, moth ball scent of Old Economics. No, we were another generation, and we wanted the more intangible numbers associated with number of hits, or expected number of hits, or the amount of energy, in watts, given off by the synergies and efficiencies the disintermediation of commodities effected in Seattle on an average Wednesday. Etc. Numbers suddenly became ineffable. They were so impressive, the new numbers - the sudden spike in productivity if you jiggered the way you measured it, the trickle down that was finally sticking in the average household, the wondrous surpluses. Here, finally, was the justification for every gutted social service. Ah those numbers ... too bad they were so, uh, wrong. The homework was turned in, and now we are turning it back with red marks scrawled across it. Listen to the sound of tumbling dice in this story from the AP:

"Federal surpluses over the next decade have plunged 71 percent from last year's estimates and annual deficits are back for the next two years, says a new congressional forecast that heralds a budget squeeze sure to color this fall's elections.

The nonpartisan Congressional Budget Office estimated on Wednesday a 10-year surplus of $1.6 trillion, a staggering $4 trillion less than the $5.6 trillion the office estimated only a year ago. Both projections by CBO, Congress' official budget analyst, are for 2002 through 2011, and assume no changes in current tax or spending programs."

The Center for Budget and Policy Priorities issued a report a few days ago foreshadowing the CBO report. It analyzes what happened. Here's a long three grafs from that report:

"A tax cut reduces federal revenues and thus reduces projected budget surpluses. Similarly, increases in funding for federal programs boost federal expenditures and thereby reduce the surpluses. The decreases in revenues and increases in expenditures that occur as a result of a recession also shrink the surplus. In each of these cases, the reduction in the surplus results in an increase in the federal debt, compared with the level of debt that CBO had assumed in its previous budget projections. This increase in the debt automatically causes federal interest payments to rise, since interest must be paid on a higher level of debt. Moreover, the increase in the amount the federal government must pay in interest itself causes the surplus to shrink further. The new CBO estimates are likely to show that interest payments on the debt will cost the government roughly $1 trillion more between 2002 and 2011 than CBO projected just one year ago.

These increases in interest payments are a major factor in the deterioration of the surplus. To measure accurately the budgetary consequences of a tax cut, a spending increase, or any other change in the budget, one must include the resulting increase in interest payments caused by the tax cut, spending increase, or change in economic or other conditions.

The third trap that can lead to misuse of the CBO numbers occurs when someone includes the resulting increase in interest payments when measuring the effect on the surplus of some budget changes � such as the reduction in revenues and increase in expenditures that has occurred because of the recession � but then excludes the resulting interest increases when measuring the effects of other budgetary changes such as the tax cut. Such inconsistent treatment of interest payments leads to apples-to-oranges comparisons when assessing the relative impact of various factors on the change in the surplus."

Well, the CBPP, being properly wonkish, doesn't go for the jugular about the CBO projections. We will. Being 71 percent wrong on your projections gives you, what, a D? no, surely an F, here. It's one of those who-flicked-the-switch-on-the-Chernobyl- control-board kind of mistakes. In a more rational world, the admission that one's projections were that far off should lead to peremptory firing. At the very least, we should pack up the CBO, lock stock and barrel, and send it to Houston, to work with their confreres in the Arthur Andersen office. This is what comes of having a politics in total disconnect with reality: a presidential election fought over prescription drug prices for the Floridian elderly, an issue that burned out December 17, 2000; a tax cut using figures so wildly off that they are more like dreams of a madman; and a President who has decided that his best strategy, as the economy continues sour, is to remind people that there's a war on. But like all disconnects, there's a purpose to the politics of illusion -- the purpose is to reward the haves, at no matter what cost to the country.

Tuesday, January 22, 2002


The prophets of Baal.

Elijah was one of the more sensible prophets in the Old Testament, combining Houdini's magic tricks and Commandante Marcos' light show of manifestos and media bravado. Plus he had an experimental attitude rare among the credulous prestidigitator set, dimly foreshadowing Bacon's aphorism: : " the true course of experiment, and in extending it to new effects, we should imitate the Divine foresight and order. For God, on the first day, only created light, and assigned a whole day to that work, without creating any material substance thereon. In like manner, we must first, by every kind of experiment, elicit the discovery of causes and true axioms, and seek for experiments which may afford light rather than profit."

It was in this spirit Elijah devised the first consumer comparison test. Here's the passage from Kings 1: 18:

19: Now therefore send, and gather to me all Israel unto mount Carmel, and the prophets of Baal four hundred and fifty, and the prophets of the groves four hundred, which eat at Jezebel's table.
20 So Ahab sent unto all the children of Israel, and gathered the prophets together unto mount Carmel.
21 And Elijah came unto all the people, and said, How long halt ye between 1two opinions? if the LORD be God, follow him: but if Baal, then follow him. And the people answered him not a word.
22 Then said Elijah unto the people, I, even I only, remain a prophet of the LORD; but Baal's prophets are four hundred and fifty men.
23 Let them therefore give us two bullocks; and let them choose one bullock for themselves, and cut it in pieces, and lay it on wood, and put no fire under: and I will dress the other bullock, and lay it on wood, and put no fire under:
24 And call ye on the name of your gods, and I will call on the 1name of the LORD: and the God that answereth by fire, let him be God. And all the people answered and said, It is well spoken.
25 And Elijah said unto the prophets of Baal, Choose you one bullock for yourselves, and dress it first; for ye are many; and call on the name of your gods, but put no fire under.
26 And they took the bullock which was given them, and they dressed it, and called on the name of Baal from morning even until noon, saying, O Baal, hear us. But there was no voice, nor any that answered. And they leaped upon the altar which was made.
27 And it came to pass at noon, that Elijah mocked them, and said, Cry aloud: for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.
28 And they cried aloud, and cut themselves after their manner with knives and lancets, till the blood gushed out upon them.
29 And it came to pass, when midday was past, and they prophesied until the time of the offering of the evening sacrifice, that there was neither voice, nor any to answer, nor any that regarded.

Now, readers, you know that Jehovah was on point that day. The Lord of Hosts rose to the experimental task, and sent flame down to the altar. The conclusion of the story is this:

"And Elijah said unto them, Take the prophets of Baal; let not one of them escape. And they took them: and Elijah brought them down to the brook Kishon, and slew them there."

Why is Limited Inc delivering this sermon? Trust me, reader, to have an (eventual) point. The prophets of Baal are still with us, and still calling for the sacrifice of the children. But they have a different name today: they are called, for instance, Chicago School Economists. And they are also averse to experiment, when it conflicts with theory. They would as easily explain the failure of divine conflagration as they explained the debacle of energy deregulation in California: it is always a matter of not having deregulated enough. And their numerous failures aren't succeeded by a healthy hacking up on the shores of the brook Kishon, but by commentary on Fox TV stuffing the worship of Baal down the people's throats. In numerous forums the Jezebels of the right would attack all Elijahs as essentially treasonous liberals, and King Ahab, no bright bulb he, appoints, as ocassion arises, commissions made up of prophets of Baal to investigate the bankruptcy of Baal.

Bringing us to Larry Eliot's column in the Guardian. It begins with a nice graf about the current state of inequality :

"Everybody knows that the world isn't fair. Inequality is part of the human condition. Always has been, always will be. What has never really been clear is just how unequal life is. Now, thanks to an economist at the World Bank, it is clear. The richest 50m people, huddled in Europe and North America, have the same income as 2.7bn poor people. The slice of the cake taken by 1% is the same size as that handed to the poorest 57%."

Ah, the prophets of Baal squeak, just think what would happen if those 50m people didn't have their wealth! Why, the poorest 57% would be getting no drippings at all!

In light of the recent plummeting of Argentina (a paradise of Baal theory) and Enron (a company that "got it"), the Baalistas should be on the defensive. They aren't, however, having the utopist's immunity to the evidence of the senses. Eliot's column goes on to compare Australia and New Zealand. Although it isn't well known in this country, New Zealand experienced the shock therapy of Thatcherism in the most thorough manner in the 80s:

"Starting in 1984, the country's Labour government said that this all had to change. It started by deregulating interest rates, removing international capital restrictions, floating the currency and removing agricultural subsidies.

Having got the taste for change, it then scrapped regulations on business, abolished import quotas, enshrined price stability in law as the sole object of monetary policy, forced workers into individual contracts, announced that budget deficits would eventually be banned, cut income taxes and slashed welfare benefits. This was not a detox regime: it was cold turkey."

Australia, on the other hand, didn't get it. It lumbered around in the Old Economy. It cut a little bit from its welfare state, it mouthed the usual claptrap about market solutions rather than government interference, and in the usual 80s manner the unions were undermined -- but not totally.

Well, children of Israel, guess what:

"The latest edition of Political Economy (Volume 14 number 1) contains a fascinating comparison of the track records of the two Australasian nations by Paul Dalziel, a New Zealand academic. His first conclusion is that New Zealand's living standards have suffered badly when compared to those in Australia." Dalziel quantifies "badly" like this: "... had output in New Zealand matched that in Australia, per capita incomes in New Zealand would have been almost NZ$5,000 (�1,473) higher by 1998 than they actually were. The cumulative loss to each individual was NZ$30,000 and the cost to the country was a chunky NZ$114bn."

And so it goes. Although we are supposed to be beyond all that crass class warfare stuff in the 21st century, class was never really abolished in the last twenty years. When we are asked to pursue economic policies that systematically benefit one class and systematically injure another class, we should recognize this advice for what it is: an old strategem in the old war of the ruling class against its subjects. It is a conflict that is not going to abate any time soon. I should point out that the parallel between the prophets of Baal and economists is not perfect. While the old style prophets "cut themselves after their manner with knives and lancets, till the blood gushed out upon them," the new style prophets prefer to practice their bloodletting upon entirely other bodies: preferably the work force.

Monday, January 21, 2002


Black and conservative...

There's a story in the NYT Magazine about Glenn Loury, the economist and former totem black conservative -- a position that has now fallen to Shelby Steele (and no, Limited Inc. means totem, not token). Almost all stories about Glenn Loury begin by a cursory survey of his ideas before jettisoning them for a more gossipy, and perhaps interesting, survey of his life. It is a life that Ellison, or Leon Forrest, might have written, literature loose in the wild hinterlands of America -- or perhaps not so wild, since Loury's lifeline goes from the working class South Side of Chicago to the Reaganite high of the 80s. Recently, Loury has defected from the conservative movement, even resigning from the American Enterprise Institute after they sponsored Dinesh D'Souza's book on race. Fair has this appraisal of the D'Souza book:

"... D�Souza advocates legalizing racial discrimination. "What we need is a long-term strategy that holds the government to a rigorous standard of race neutrality," he wrote in The End of Racism, "while allowing private actors to be free to discriminate as they wish." In D�Souza�s vision, "individuals and companies would be allowed to discriminate in private transactions such as renting an apartment or hiring for a job." Lest there be any doubt as to his intent, D�Souza states: "Am I calling for the repeal of the Civil Rights Act of 1964? Actually, yes."

Here's a graf from the the NYT Mag article that shows Columbus discovering the world is round:

"In a column called ''What's Wrong With the Right,'' published in the January-February 1996 issue of The American Enterprise journal, Loury wrote that while ''liberal methods'' on questions of race were certainly flawed, ''liberals sought to heal the rift in our body politic engendered by the institution of chattel slavery, and their goal of securing racial justice in America was, and is, a noble one. I cannot say with confidence that conservatism as a movement is much concerned to pursue that goal.''

When the Loury-D'Souza thrilla in D.C. was playing out, Paul Krugman wrote a sympathetic column about Loury in Slate. Krugman describes it thusly:

"But at some point Loury made the discovery that eventually confronts every honest intellectual who gets drawn into the political arena: The enemies of your enemies are not necessarily your friends. The Glenn Loury who wrote that 1976 thesis was not a conservative. He criticized the simplistic anti-racism of the liberal establishment because he wanted society to tackle the real problems, not because he wanted it to stand aside. His seeming allies on the right, however, turned out to be interested only in the critique, not in the next step. (According to Loury, "When I told one gathering of conservatives that their seeming hostility to every social program smacks of indifference to the poor, I was told that a surgeon cannot properly be said to have no concern for a terminally ill patient simply because he had moved on to the next case.") Loury found out that the apparent regard for his ideas by conservative intellectuals was entirely conditional. Any questioning of conservative orthodoxy was viewed as an act of betrayal, giving aid and comfort to the liberal enemy. It was the loyalty test all over again."

There is something very funny about the idea that intellectuals are above a loyalty test. Of course they aren't. Krugman, an exemplary Ivy League herd man who once had the audacity to question the free trade orthodoxy and retreated, precipitantly, from his own work once it got denounced by the right people, should know better. But the Krugman article does adumbrate Loury's original thesis better than the NYT Mag article, and that thesis is definitely interesting. Robert Sobel, the business history writer, made a point similar to Loury's in his last book, The Great Boom, when he described the foundations of the great American middle class in the post WWII period. The wealth of the great middle is founded, Sobel claims, in large part on property -- namely, housing. This is as true today as it was in 1952, despite 401K plans and other investments -- when you strip the wealth of your average bourgois down to its skivvies, you find an asset -- the great American home. Well, for thirty some years, that market was simply denied to blacks. Loury's original point, if Krugman is to be believed, is that past descrimination has effects on the present racial composition of wealth. Loury's sub-point is that the limit to Afro-American achievement is currently found in black behavior, rather than white racism. This point doesn't really follow, however, from his main thesis. It defines racism too narrowly, as merely a moral fact. It can't be emphasized enough that racism isn't simply unmotivated malevolence, a wallowing in hatred done by white men in KKK regalia. Rather, it plays a social function. It operates to give a definite economic lift to a certain segment of the populace. When that populace has incorporated its advantage over time, the advantage of overt racism diminishes. What guarded the white middle class in 1950 from competition can be cast off, as an unnecessary luxury, by that class' descendents, because the competitive edge has already been won. And of course I'm not even going to talk about the upper 5 percentile, the racial composition of which can be studied by looking at the pictures in Forbes magazines. If you see a picture of a black man or woman, it is almost always either a., an ad, or b., a picture of a grateful worker or manager posed with an indulgent CEO. What can't be questioned, once the hegemony of anti-racism as a feeling, rather than an economic factor, has been achieved, is the legitimacy of present gains, even though it has been admitted that those gains were the results of illegitimate means. In essence, you get the best of both worlds -- having renounced the devil of racism, one can feel that equal opportunity reigns, while at the same time one can enjoy the devil's bounty, in the form of ten generations of greater opportunity. As a game theoretical device, White America has played an unconsciously brilliant strategy. One even Krugman should appreciate.

Elia meets Karl Marx at the South Sea House

    When Charles Lamb, a scholarship boy at Christ’s Hospital, was fifteen, one of his patrons, Thomas Coventry, had a discussion with a...