Friday, October 05, 2012

Zona and the Ponzi scheme


  
-New Masses.                                                                                                              I have a tendency to relapse into simple minded Marxist explanations, a habit that has served me well as the Great Recession mangles on. One of Marx's contentions was that capitalism tends to immiserate the proles. This is an often laughed at contention - what ho, all the prosperity generated in the freemarket West lo these many years! And in fact much prosperity was generated when there was a strong union factor able to swing the government - naturally, the ally of the rich - into using its countervailing power. But as we look at the facts and figures that stream in about the Great Moderation over the last coupla decades, one thing is striking: the average household in America owes as much as it owns. Or in other words - in practical accounting terms, Marx scores! The great moderation is so called because the condition under which the regime in which credit substitutes for wage increases had to be moderate - a matter of slowly, deliberately constructing a system of pinches from the outside, no single one of which hurt that much. Oh, a little more unpaid overtime. Oh, a little higher insurance premium. Oh, a little change in the credit laws to the disadvantage of the borrower. And then of course we got the bump, and our pluto-presidents, Bush and Obama, made sure  that the gigantic capitalists were helped, and basically pissed on the majority of Americans. So we are now on the downslope of the Great Moderation. And if Marx is right, the immiserative machinery is going to get a little more fierce. In spite of having had a bad night debating, really, Obama looks set to be re-elected, barring utter disaster, the GOP will still own the House, the Dems the senate, and we will play this game one more time.
But in the longer view -  Karl has been right on the money. The neo-liberal dream, with its fundamental misunderstanding of the nature of capitalism, has been, on the other hand, absolutely wrong. That is, the sincere third way people - not the Tom Friedmans. The third way - which dominates the Dems and Labour - can be simmered down to this core principle: the guarantor state that arose in the thirties and provided social insurance for the populace can be replaced by a private sector version of the guarantor state, where the work of social  insurance is performed by investment. The wage worker invests in capital and reaps the fruit of capital's growth and profitability. Of course, we overlook the fact that this profitability comes about by freezing the wage worker's wages and eventually shipping his job to someplace where it can be done more cheaply. The idea, here, has a utopian roots in various socialist schemes of the 1830s, which also wanted to put the prole on both sides of the table. The problem is that this ignores the fact that the money that is made on one side of the table - capital's profit - comes from the surplus labor that comes from the other side of the table. What the third way, or neo-liberalism is, is ... a Ponzi scheme. And that Ponzi scheme is the major determinant of our politics at the present time.

Thursday, October 04, 2012

On the death of character


On June 18, 1944, a detachment of prisoners from Auschwitz were unloaded at Kaufering, five kilometers from Landsberg  Germany, and collected into a concentration camp there. The prisoners were set to work building large underground bunkers that were intended to protect an airplane parts factory. According to a secret account kept by one of the prisoners, a priest, Jules Jost, about 28,838 Jewish prisoners were kept there, including 4200 women and 850 children.

At the same time, an army doctor named Gottfried Benn was stationed in Landsberg. Benn is of course one of Germany’s most famous twentieth century poets. In 1933, he had sided with Hitler, and written a famous letter addressed to emigrés writers – and really to Klaus Mann – in which he wrote that their complaints were besides the point. When they called Hitlerism “barbaric”, Benn wrote, they were betraying their own intellectual inadequacy and obsolescence: “… this is my counter-question, how do you imagine history moves itself? Do you think it is particularly active in French spa resorts? How do you imagine the 12th century, the transition from the Romanesque to the Gothic feeling: do you think that this was discussed? Do you think, in the North of the land from the South of which you now write to me, someone dreamed up a new architectural style? That we voted for domes or towers? That one debated over Apsides, round or polygon?”

The emphasized words were all connected to the weak mode of politics that Thomas Mann, in the Observations of a Non-political man, had connected  to the complex made up of civilization and the intellectual (associated with France) as opposed to culture and the bürgerlich (associated with Germany). But Benn had moved on from the conservatism of Mann – like Ernst Junger, he had moved towards a politics of masculine decision, in which things like debate, discussion, dreaming would be crushed. Crushing –this was what history did. It smashed. It crushed. And it shaped the way nature shaped.

Of course, Benn had left his enthusiasm for Hitler behind him by 1944, but he had not entirely left this idea that history and nature were one inhuman thing. And this ideology – with its proximity to the real crushing of human material going on in a concentration camp five kilometers from Landsberg – was part of the sweep of the Novel of the Phenotype he wrote, with its subtitle, Landsberg Fragments. In the first fragment he poses the aesthetic question in terms that resonate with his notion of a sort of anonymous collective history deciding on domes or towers, when he considers the notion of narrative itself: “Why knead together thoughts in someone, in a figure, in shapes, when there are no more shapes? Invent persons, names, relations, when they are simply futile?” In a sense, Benn is writing about the post concentration camp world –the world in which persons, names and relations truly are futile. And still, one has to ask whether we are not simply being asked, once more, to see an aesthetic category crushed by history; and whether “history” hasn’t been given virtues it does not have, causal powers that are, in truth, tautological: whether we aren’t being sold history as, in fact, the scheme of causes, which would mean that it naturally causes events. Cause, in other words, causes events.

Yet if we take a more generous interpretive approach, we see, in Benn’s notes, indications of a way of thinking about character that preceded the concentration camp. This way of thinking began to emerge in the modernism of the 1914 generation as a response to mechanization, to the artificial paradise of chemistry and consumerism, to newspapers and films, as much as to war.  In the post-war period, the same reasoning under different styles – structuralist, post-structuralist, Marxist – came to the same conclusion: that the bourgeois realism of the character was obsolete. Roland Barthes, in the first cool,scientific phase of his career treats the figure, the personage, in the realist tradition as one that is wholly constructed within the text’s discourse, radically dividing it from its off-the-page correlates: from the critical point of view, it is thus as false to suppress the personage as it would be to make it jump off the paper [faire sortir du papier] in order to make it a psychological personage (endowed with possible motives)…” (SZ) The paper that intrudes here and does such decisive ontological work allows us to understand on the personage on the paper functions in that universe – but in the same gesture it invalidates the ethos in which both sides, paper and off-the-paper, are joined in one social whole.

In Barthes second, hedonistic phase there is a retreat from this high modern ascetism. The text becomes, again, an object of pleasure – an off-the-page pleasure that is satisfied somehow on the page. The text becomes porous, readable, fragmentable, and paper becomes a more enigmatic matter altogether. This retreat does not erase the high modern moment but quotes it – delivering it to the maximum ambivalence in which all liminal creatures, zombies, vampires, leaders, characters, reside.  



Wednesday, October 03, 2012

myths of american capitalism


Myths of American Capitalism

Inspired by Joseph Stiglitz discovery that the American Dream is a “myth” – which would seem tautological to me, but I’m not an economist – I have been thinking about current myths in American capitalism. It seems to me that the top one, at the moment, has to do with upper management. It goes like this: upper management in American companies are paid top dollar because, like athletes, they have certain irreplaceable skills that make them worth it.
This idea is hauled out every time a company has a good couple of years. GE makes fifty billion dollars in profit over four or five years, and Jack Welch is hosannahed as a genius.

There are two parts to this myth. The first part is that upper management and professional athletes are in the same category.

The best answer to this is: nobody ever bought a gadget from Microsoft because they had seen Steve Jobs manage the product from R and D to the market. 

Athletes and movie stars aren’t paid for their skills – they are paid because there is a demand for their skills. These skills are theatrical and visible. If basketball was played in secret, the wages of the players would soon diminish to zero, or around that amount. There is a great deal of marketing that goes into making sure that the players are seen. That is the point. Unfortunately, nobody was bringing up this point in the 1980s, when Harvard Business Journal, among others, was floating the idea that upper management needed to be paid vastly more. The figures are stark – CEOs, who were once paid 20 times the median wage of workers in their companies, were soon taking home one hundred times, two hundred times, four hundred times their median employee. Because athletes and stars are public figures with very public salaries, and because these salaries were going up, the CEO propagandist set – including most mainstream economists – latched onto the easy comparison. In fact, though, the comparison is completely bogus. Salaries in entertainment and salaries in fortune five hundred executive suites are moved for very different reasons.

However, there is a second part of the myth. In this part of the myth, what the firm does is conflated with the upper management. If a clerk at a store processes twenty more people on a good day, we don’t conflate the clerk and the store’s increased revenue. But somehow, we are supposed to conflate the management and the business phenotype.

A good way to get a handle on this is to look at two things: the company’s record in relation to other companies in its sector, and the company’s record over time.

Now, the indexes  for a  company’s record differ. Is it profit, or is it stock prices? In the eighties, there was a definite turn to the company’s stock price as the ultimate index of company merit. Now, this seems, to me, to be reductive and wrong, but even so, it was often trotted out as the alpha and omega of company mightiness. In the stock boom that occurred from 1981 to 2000, this was a very favorable record for the upper management.

Notice, however, that one average, the stocks of Fortune five hundred companies stagnated for ten years – from 2000 to 2010. In fact, they went down enormously from 2008-2010. Notice, too, that this had no effect on the salaries of management. They did not slip down from being 200 times the median wage to, say, 10 times the median wage.

Notice, too, that outliers would, sooner or later, converge with their sector. GE is a great example. Jack Welch pumped up profits at GE by creating a very exaggerated financial unit. In 1997, Fortune magazine published one of those “let’s drool over a CEO” article about the great and transcendent genius of Welch, “scaring  the hell” out of competitors, entitled: GE CAPITAL: JACK WELCH'S SECRET WEAPON. Here’s a graf:

“Capital, as it's known inside GE, is less a business than an energy source, radiating growth through a mature--some might say lackluster--conglomerate. You can see it in GE's third-quarter results, where Capital comfortably outgrew its parent. But not until you break down GE's performance in recent years are you struck by the glow of its nuclear core. Nicholas Heymann, an analyst at Prudential Securities, calculates that from 1991 to 1996, GE's revenues would have increased just 4% a year were it not for Capital, which more than doubled the growth rate to 9.1%. And its 27 businesses, ranging from credit cards to computer programming to satellite leasing, now generate 39% of GE's earnings, up from 29% in 1990. As some analysts see it, Wall Street's confidence in Capital is the main reason GE stock is rising at a rate that makes the overall market advance look modest, up 123% in two years, vs. 63% for the S&P 500.”
 Running the tape forward, we get to 2009. Here’s the Business Insider headline: The Man who destroyed GE
  And here’s a graf:

As GE's stock struggles to hold $7 $6, a level at which it is still arguably expensive (17X cash flow), shareholders are calling for CEO Jeff Immelt's head.
And it's true: Jeff has had 7 years to reduce GE's dependence on the business that is sinking the ship--GE Capital--and he has chosen not to do so.  Until last fall.  When it was too late.
But let's not forget who built GE Capital in the first place: GE's legendary CEO, Jack Welch.”
Incidently, who rescued GE Capital?
I said the Fed/
I kept them from bleeding and bleeding the red/
until they were good and stone cold and dead.
Here’s a story from Bloomberg:

General Electric Co. sold about $16 billion of commercial paper through a Federal Reserve program to unlock credit markets frozen in September 2008, making up 2 percent of the central bank’s total purchases.
GE, whose GE Capital unit was the biggest U.S. issuer of commercial paper in 2008, said in October of that year that it planned to use the Commercial Paper Funding Facility to support the Fed’s efforts to make credit available at the height of the crisis. The program purchased a total of $738.3 billion, according to documents that the Fed released today.
Under the plan’s rules, GE could have issued as much as $98 billion, according to the company’s regulatory filing for 2008. The $16 billion was repaid as it came due in January and February 2009, the Fairfield, Connecticut-based company said. GE’s finance unit remained profitable throughout the crisis, helped in part by tax credits.”

Notice the words of this announcement are nicely phrased to make one think that GE is simply ‘supporting’  the Fed. This is like a drowning swimmer supporting the lifeguard. Warren Buffett loaned General Electric money at this time on a ten percent interest schedule. Uncle Sam, well, he charged 1 percent or below. However, we pretend that this unfortunate episode didn't happen. We built it, as all the white boys from Bain shout. This, of course, is also part of American Capitalist mythology, but more on that at another time.

So the question is why upper management was so successful in going on a peculative run that tilted the very composition of wealth. This is where myth – also known as economic models – intersects with certain odd facts about the labor market.

As the CEOs were becoming world dominating plutocrats, an odd thing was happening in the world of education: business schools were becoming dominant at universities. What this means is that there was more talent pouring into the management labor pool. But hark! Notice that in this supply and demand story, salaries went up instead of down. Lands sakes, it is as if the labor market is… another myth.

What happened in the 80s was simply good old fashion guilding. Guilds now stretch across thirty percent of the American work force. These are the invisible barriers to entry that prevent, say, myself from setting up a business as a doctor. The state comes down like a ton of bricks to support the doctor’s monopoly, and would put me in jail, thus spitting on free markets and the right of people to decide for themselves. The same thing would happen if I set myself up in many a licenced position. These are, of course, guilds. On the one side, they operate to protect the public. On the other hand, the public pays for that protection. It is the other hand that gets erased, of course, in the stories guilds tell about themselves. Upper management monopolies, however, while having a guild like structure, don’t represent the convergence of the state and private power. This actually makes the actors in the upper management guilds very nervous. What they have, instead, is a rigged up power involving doubledealing by the representatives of the investors. In form, upper management is more like the mafia than like doctors or lawyers. And having the power to shut off the kind of bargaining moves that would send their compensation packages down, they use it.

Imagine, for a moment, a world in which we actually used the technology we have not just to get robots to make parts of cars on assembly lines, but also to manage companies. Impossible? All that tacit knowledge?  If we look at the way companies converge in their sectors over time, we see something that at least theoretically cries out for formalization. And in fact we have the systems: we have expert systems that could, for instance, have pretty much advised GE on how to invest and manage the company as a whole. The top level of management, far from being creative decision makers, are mostly dealers in what computers do best: algorithms. ROI algorithms. If GE had computerized most of its upper management functions back in the 90s, and reduced Jack Welch’s salary to around 150 – that is, 150,000 per year – they would not only have saved the perhaps billion he cost  them over ten years, but they would have ended up pretty much converging with their sector -  which, of course, they did. GE’s common stock price when Welch left in 2000 was 60 dollars and fifty cents, while in 2010 it had declined by almost forty dollars. Was this because Welch was a better CEO than Immelt?

Well, he may have been. On the other hand, he was pretty much the same old same old when compared to his predecessor, Reg Jones.

John Francis Welch (i.e., Jack) took the reins at GE in 1981, following a long, exhaustive, and competitive succession process overseen by his predecessor, Reg Jones. But, contrary to the notion that Welch inherited a moribund company, things were going pretty well already. Over the course of Jones's stint at the top, which began in 1972, revenue had grown at an average annual rate of 12 percent, and earnings had grown at 16 percent. The spin offered by Robert Slater, author of The New GE: How Jack Welch Revived an American Institution (as well as three other Welch volumes), is that Welch "did not want to wait until General Electric was in trouble.... To keep those figures from declining, Welch knew he had to push the company to become more competitive." Janet Lowe, author of Jack Welch Speaks and the recent biography Welch: An American Icon, echoes this line: "The challenge for Welch was to spot trouble before it occurred, to take preventative measures, and to make the most of GE's tremendous momentum."
Fine. And in fact GE has averaged a solid 12 percent annual earnings growth throughout Welch's time at the top, and about 15 percent over the last eight years. But if no trouble had yet "occurred" when he took over, and GE already boasted "tremendous momentum," why credit Welch with a revival rather than with maintaining a past record of excellence? The truth is that while CEO biographers need a larger-than-life hero, GE did not. Indeed, as James C. Collins and Jerry I. Porras explain in their celebrated and insightful 1994 book Built to Last, the firm has enjoyed success under a series of innovative chief executives stretching back to the early 1900s.” http://www.robwalker.net/contents/mm_welch.html
So, how much did Reg Jones make, as compared to Jack Welch?

In 1975, the most widely acclaimed CEO in the United States was Reginald Jones, the chief executive at General Electric. Reginald Jones took home $500,000 in 1975, a sum that equaled 36 times the income of that year’s typical American family.

In 2000, the most widely acclaimed CEO in the United States was Jack Welch, who also happened to be the chief executive at General Electric. Welsh took home $144.5 million in the year 2000, a sum that equaled 3,500 times the income of that year’s typical American family.”





 


Sunday, September 30, 2012

Life without resistance


Watching Hollande move to Sarkozy-lite policies, and his economics minister, Moscovici, respond to a question about Keynesian politics as though Keynes were the new devil (poor Marx, downgraded to second devil status!), one … lurches between disbelief and the sense that this was all pre-ordained. Both the Left and the Right in Europe accepted the neo-liberal straight-jacket long ago. It has worked out well – for the upper tier of bureaucrats in both the public and private sectors. The social distance between this tier and the man I came upon, yesterday, sleeping in the street before the post office on the Rue des Archives, yawns as wide as ever the distance between the 18th century aristocracy and the peasantry. Chamfort, one of my favorite dark writers, tells an anecdote in his Maxims and Portraits about one of the daughters of one of the Princesses, that is, one of the granddaughters of  Louis XV. She was playing with one of the maid servants and she looked at the maid’s hand, and then she looked at her own. And she asked why the maid had as many fingers as she did. A perfect anecdote. Of course, our leaders know that we all have the same number of fingers, and you can even make it up the bling bling ladder if you serve the appetites of the rich in some way, but in most ways, the gulf is wide and the interests are disparate between those at the top and the rest.

In 1989, when the Berlin Wall fell, Robert Heilbroner, the guy any non-economics major has to love for having provided the most well written short guide to economics (The Worldly Philosophers), wrote an essay for the New Yorker on how much the triumph of capitalism invalidated the predictions not only of the Marxists, but of the founding fathers of capitalism itself – Adam Smith, David Ricardo, Thomas Malthus, John Stuart Mill, etc. Their central model always involved declining return to investment – and, society wide, this would mean either decline or – in Mill’s case – the famous stationary state. None of them, in other words, bought the story of growth as the new and necessary horizon of the future. Marx, ironically, seemed much closer to that view, but he disentangled growth from the capitalist engine of growth,  private enterprise. It was the latter which would eventually fail, while the horizon of growth it had driven would split away from it.

Heilbroner thought that capitalist had outlasted the predictions of the prophets for a number of reasons: one was that they thought of growth in too narrow a sense. The substitution of commodity for commodity, for instance, turns out not to be, as it would be in logic, a matter that leaves an economic state of affairs alone, but instead creates new opportunity niches that produce more growth in directions that were unseen before. Heilbroner puts it like this: … the special province of capitalism has always been finding ways of expanding its commodity frontiers by moving activities from the sphere of personallifeinto that of profitable business. Particularly in modern times, every generation has extricated itself from satiety by reinventing its own standard of living. Even Marx,who was keenly alive to capitalism’s capacity for generating outlets of expansion, would have been nonplussed by the extent to which such once wholly noneconomic pursuits as family entertainment, meal preparation, housework and exercise have been ‘commoditized’ by TV, precooked foods, detergents and running shoes.” All of which, I would point out, are technologies that produced new spheres of substitution, which is a necessary element of the dialectic that creates technological change. The latter is considered by mainstream economists as something “exogenous” to the economy – hence, the myth that the economy changes through technological shocks, and their ain’t anything planners can do about it. This is the pulling the rabbit out of the hat point of view about technology, or, more simply, magical thinking. Unfortunately, it is the magical thinking that has governed the plan de-industrialization of much of the developed countries, which was in full bore as Heilbroner was writing in 1989.

But a more important marker that one finds in this essay, and that will help us measure how we have arrived at our present paradoxes, is Heibroner’s important sense that capitalism is a regime. Underneath the separation of politics and economics that characterizes it (that is, the officially political institutions do not produce, devolving that function to the private sphere), capitalism resists internal and external revolts in the same way any regime does – by creating a sort of ideal spokes-class for the entire society. That class is the businessman. It is a class that is protected by infinite amounts of footwork in the media world. Within that class, however, things have shifted from 1989. It has become more financialized, more self-reflective about what it is doing and how to take advantage of areas for profit, and – from the outside -  more greedy. Greed, however, doesn’t really describe the rich – it is rather an attempt to use an archaic ethical vocabulary to describe a shift in ethics – in ethos, in character, in self-identification. In a sense, the businessman class has become ever more sensitive to resistance. Money operates, at the highest level, to produce a smooth world. It is a smooth world legally – if you are a Russian oligarch with a seedy past and might have abetted a few murders on the way to wealth, you can still easily get residence in the UK, for instance – whereas if you are a Somali fleeing famine, tough luck. Money crashes down line-time – the queuing time that determines the shape of access for everything from medical care to groceries for most people. I could list the number of areas in which resistance is liquidated for the wealthy, but we have all seen the standard amount of Hollywood films, so we know this already. Hollywood in fact imagined the resistless life in such a way that the businessman – not usually talented in imagining lifestyles – has accepted it as fact.

It is the businessman’s sense of the resistless world which is really at play in such things as taxes. Why would a man with one hundred million dollars worry if the tax bill cuts into a portion of that wealth that has zero marginal utility for him? Because that wealth is him. The wealthy identify with their wealth. Taxes are, in this sense, pure resistance. And resistance is intolerable.

One is often astonished at the things that CEOs negotiate. Jack Welch, for instance, negotiated a contract with GE in which GE basically bought and gave Welch all the commodities that are usually associated with domestic  life: a place to say, transportation, food. Welch earned millions, and buying these things would have meant little to him. But the symbolic power of having everything bought for him – of overcoming the resistance of the cash nexus itself –was the aphrodisiac.  

Heibroner, picking up from Schumpeter, did have a sense that the businessman who represents the capitalist regime might be the Achilles heal of the regime:  “Capitalists, in whose name the system is organized, no longer possess the basic powers that accrue to persons of similar importance under earlier systems; unlike the most minor feudal lords, for instance, they cannot try, imprison, or forcibly muster “their” workforces, or enjoy the privileges of a legal code different from that applicable to other groups..”

This gap is perceived by the capitalist, in the present state of our regime, as  resistance; the policymaking elite that has grown up since 1989 finds it increasingly intolerable that such resistance exists. Hence, the policies that have been adopted since the crisis are characterized by two things: massive immunity for the financial elite that crashed the system; and massive, punitive economic policies for the wage class. The immunity is, on the one hand, a small thing – but it looms large symbolically. That the banks could simply defraud Libor and remain comparatively unpunished for it – punished as though they had jaywalked – speaks to a larger issue: the inability of states to resist socializing the debts of banks, while at the same time refusing to nationalize them. This is of the essence of the current plutocratic system. And that it has not emerged as an issue in any of the democracies that have held elections since the crash – in the UK, France, Spain, Greece, and now the U.S. – is a definite sign that we have moved further into a regime in which the capitalist is closing that gap, liquidating that resistance.

The query letter gag: an American tale

  The “sell your novel tool-kit.” The “How to write Irresistable Query Letters”. The “50 Successful Query Letters”. The flourishing subgen...