Category: Economic issues

Scheduled air traffic, 2009. Wikipedia.

I owe a great deal to Nouriel Roubini. I had been a liberal prepper since 9/11. I was preparing for retirement as the Bush-Cheney financial bubble grew — and grew and grew. If you believed the horsewash and the noise in the media, it was a fine time to borrow money against your house and live it up — new cars, dream vacations, and granite countertops bought with borrowed money. I did not believe the horsewash, and I did the opposite. I got out of the stock market before it blew up. I carefully moved my retirement money out of tax-sheltered accounts, duly paid the taxes on it, and converted most of my assets into usable land and a paid-for house. I actually benefited from the financial crash, because I built Acorn Abbey during the trough of a recession, when materials prices were low and when people were hungry for work and bid low.

But my point is not just that we should be contrarians. Rather, it’s about the importance of beating the bushes for reliable information, especially in uncertain times. Much of the noise in the media comes from people who have lots of opinions, but not a lot of information. And, these days, the Republican Party and its propaganda organs just make up whatever information suits their agenda. Many people haven’t caught on to how their politics and religion can be used to take advantage of them.

But back to Nouriel Roubini. The fact that he was right about the financial crash of 2008 (and that his model was predicting it before 2006) does not necessarily mean that his current predictions will be accurate. But it does mean that he has a good model, and it does mean that we’d be wise to take his predictions seriously. His predictions are very, very scary — a global depression, a period of inflation, and even food riots.

Here’s a link to an interview in New York Magazine: Why Our Economy May Be Headed for a Decade of Depression.

One of the things we need to be trying to model right now is how this pandemic is going to permanently change the way we live. We need to be on the lookout for reliable information about what people are starting to do differently. And we need to pay attention to people like Nouriel Roubini, whose views are based on actual data and whose models are constantly updated. Data from the economic shock from Covid-19 obviously required that Roubini update his economic model. The New York Magazine piece, as far as I know, is the first piece available to the public on Roubini’s post-pandemic model.

Note the comparison to Germany in the New York Magazine piece. More than ever, we need competent government to get through what we’re probably facing.

John Rawls: Reticent Socialist, by William A. Edmundson. Cambridge University Press, 2017. 212 pages.

I am going to propose an answer to the question that I raise in the headline: The reason we know so little about socialism is that, for two generations, since the era of Margaret Thatcher and Ronald Reagan, the Overton window has been narrowed and pulled hard to the right. Socialism now lies outside the range of ideas tolerated in public discourse. Even Democrats are terrified of the word socialism, because it’s now a grenade word flung from the right to demonize and sabotage any idea that might reduce economic and political inequality or that might help the poor or hurt the rich. (Not that this is new. Decades ago, the right also saw the development of Social Security and Medicare as treacherous socialism.) The end of the Soviet Union in 1991 is believed to have been the last word on the viability of socialism.

Public discourse now holds that, on the matter of socialism, the case is closed. Yes, Bernie Sanders rudely brought up the subject. But few people really know what he might be talking about. If Sanders himself knows, he’s doing a very poor job of explaining it. The political problem for liberals seems to be, how can we make gains in justice and equality without being defeated at the outset by the s-word grenade?

But there is a very great irony here, though it is an irony that only the intelligentsia are aware of. That is that, while the idea of socialism was being driven out of public discourse, enormous progress in moral and political philosophy was being made behind the scenes, in academia. In 1971, John Rawls published A Theory of Justice. This book almost certainly will stand as the most important work of the 20th Century in moral and political philosophy. Rawls, in dialogue with other scholars, continued to develop his theory of justice throughout his life. He died in 2002. The year before his death, he published Justice as Fairness: A Restatement. Those were his last words on the subject.

Rawls’ theory of justice is still very active terrain in academia, though it rarely spills over into public discourse. Why is that? I would suggest that there are two reasons. The first is that justice as fairness lies outside the Overton window, and it is far too liberal to be tolerated in today’s public discourse. The second is that what has been written on the theory is very difficult to read. It is written by philosophers, for philosophers. I recently complained to a friend that, in other difficult subjects such as physics, we have science journalists who work to make progress in science known to the intelligent public. Scientists themselves often write books for lay readers. In philosophy, there is a wall between public discourse and the ivory tower. If there are journalists of philosophy, at least in English, I don’t know who they are. If you are, like me, an ordinary non-academic but motivated person, and you want to know about justice as fairness, you’ve got to climb a wall.

Edmundson’s John Rawls: Reticent Socialist, though it is as dense and difficult to read as Rawls, wants to make only one simple point. That is that Rawls eventually concluded that liberal democratic socialism is the only form of government that satisfies the requirements of justice as fairness. Five types of government are candidates. Four types fail: property-owning democracy, laissez-faire capitalism, welfare-state capitalism, and state socialism. (The Soviet Union, by the way, was an example of state socialism.)

Before Rawls, Karl Marx would have been the go-to source on socialism. The hippies of the 1960s had only Marx. (In fact, the hippies of the 1960s almost destroyed the manuscript for A Theory of Justice. Rawls was at Stanford University at the time, and the manuscript was in his office. In April 1970, students firebombed the building in which Rawls’ office was located. The adjoining office was completely destroyed. Rawls’ office had smoke and water damage. Rawls and his wife salvaged the soaked but legible manuscript, dried the pages, and retyped it.) After Rawls, I think it would be safe to say that Marx is now mostly obsolete and mostly of historical interest.

It would be similarly safe to say that, after Rawls, the previous state-of-the-art in moral philosophy is obsolete and has been replaced by justice as fairness. That would be utilitarianism, which boils down to the greatest good for the greatest number, a moral philosophy under which some can be permitted to suffer if it makes others better off. Justice as fairness does not allow the suffering of the few for the benefit of the many.

Of course Rawls has critics. It has been a while since I attempted a brief survey of arguments against Rawls. My impression, as I recall, was that many of Rawls’ critics are people such as academic theologians who don’t want what they see as the authority of “revealed” sources made obsolete and superseded by human reason.

Because Rawls almost never comes up in public discourse, it occurred to me to wonder how I became aware of Rawls in the first place. I believe that the answer to that is that Thomas Piketty refers to Rawls in Capital in the Twenty-First Century. There are four references to Rawls in that book’s index (only one is in the text; the other three are in the notes). The title of Rawls’ first book, A Theory of Justice, certainly would have caught my eye, and that’s probably when I looked into it and ordered the book from Amazon.

Rawls’ ideas — whether on justice as fairness or on socialism — are just too much for me to try to go into there. I can only encourage people to do their own reading. One reason that Rawls (not to mention Edmundson) is difficult to read is that there is a long list of concepts that must be understood. The concepts have names that often aren’t very helpful. For example, it’s not enough just to know the meaning of the English word “reciprocity,” because the term stands for a much more complicated concept in Rawls’ writing. Other terms are “the difference principle,” “fair value,” “the special psychologies,” “distributive justice,” “envy,” “excusable envy,” “ideal theory,” “non-ideal theory,” “lexical priority,” “the motivation principle,” “nearly just society,” “non-comparing groups,” “peace by satisfaction,” “perfectly ordered society,” “principle of continuity,” “pure procedural justice,” “pure ownership,” “reasonable pluralism,” “reconciliation requirement,” “reflective equilibrium,” “relative stability,” “restricted utility principle,” “self-esteem,” “self-respect,” “social minimum,” “socially dangerous extent,” “testamentary freedom,” “unusual risk aversion,” “well-ordered society,” and so on.

All of the above terms are of course defined somewhere, but the trick is to grasp the concept when you first encounter it and attach that concept to its term. I would suggest that anyone who wishes to read up on justice as fairness make a list of these terms as they are encountered, with one’s own notes on what they mean. The terms are used over and over again, and if you’ve forgotten the concept, then the text will be opaque.

The memory of relatively recent experiments in socialism (at least in the English-speaking world) also are being lost. I was born in 1948, and thus I have no memory of Clement Attlee, who followed Winston Churchill as Prime Minister of the United Kingdom in 1945. Attlee did deliver on his promise of bringing socialism to the United Kingdom. That form of government stood until Margaret Thatcher dismantled it. I know very little about this period, so a biography of Attlee and a history of that period in the United Kingdom are now on my reading list.

Ironically, academic philosophers are aware of how other and better alternatives to our current form of government are unknown to most people (though they’re doing next to nothing about it). Edmundson quotes Michael Walzer:

For many years now, I have been worrying about what might be called the cultural reproduction of the left. [I]n comparison with the different religious communities, the secular left does not seem able to pass on to its next generations a rich intellectual culture or an engaging popular culture. The tradition is thin. I worried about this with regard to the American left and also, in greater anxiety, with the regard to the Zionist left.

Indeed, the problem is general…. [C]ompare three national liberation movements — in India, Israel, and Algeria. In each case, the movement was secular and leftist; in each case, it succeeded in establishing a secular state; and in each case, this secular state was challenged some 30 years later by religious zealots. Three different religions but three similar versions of zealotry: modernized, politicized, ideological. The leaders of the secular liberationists, people like Nehru, Ben-Gurion, and Ben Bella, were convinced that secularization was inevitable — the disenchantment of the social world. But they did not succeed in creating a rich cultural alternative to the old religion. They thought they didn’t have to do that; modern science was the alternative. Modern science, however, does not produce emotionally appealing life-cycle celebrations or moving accounts of the value and purpose of our lives. That’s what religion does, and secular leftism, though often described on analogy with religion, has not been similarly creative.

What this all boils down to, I think, is that those of us on the left have a great deal of intellectual work to do. And, having done some of that work, it must be shared with the rational public.

I’ll attempt an analogy to cooking. I have sometimes made fun of some provincial Chinese restaurants in these parts after discovering that Mexicans are doing the cooking. That cooking is bound to be terrible, because the cooks don’t even understand what they’re trying to achieve. So it is with alternatives to our endangered American democracy, with its appalling injustices and its extreme economic and political inequalities. Something must be done about it. But we’re not even sure what we’re trying to achieve, or how to talk about it.

How did that happen? Partly, as Walzer said, we on the left have been doing a poor job. And partly it’s that the sheer meanness and glibness of the opposition, with their simple, cunning, and deceitful stories — have gotten way out ahead of us.

The left needs a clear vision of what it wants to achieve. The left needs the necessary concepts and language for a public discourse in which we can work out our differences, and for what Walzer calls “cultural reproduction.” And somehow this must be explained to the many, many people who would benefit but who have very hard heads addled by fundamentalist religion and opposition propaganda.

Increasingly, liberals are noticing that it’s very expensive to be poor. It may seem strange to those of us for whom bank accounts are an ordinary fact of life. But many people cannot afford bank accounts. Consequently poor people pay more for just about everything.

Often when I go to the post office, I see people buying money orders and paying with cash. Fortunately, money orders from the U.S. Postal Service aren’t expensive — $1.20 for up to $500. But cashing a check may have cost them up to 12 percent. Many people with precarious finances do have bank accounts, but they get eaten alive by fees. Americans paid $34.3 billion just in overdraft fees in 2017. The poorest are the most vulnerable, with a typical poor person with a bank account being charged about $450 each year.

Democrats — in particular Sen. Kirsten Gillibrand of New York — have proposed that all U.S. post offices offer retail banking services. Republicans, naturally, don’t like the idea. Even some centrists don’t like the idea. But it seems to me that any serious plan for reducing economic inequality must include a mechanism for giving poor people options that allow them to avoid financial predation, which is at present a lucrative and ugly business.

Meanwhile, on the other side of the tracks, those who are solvent and who know how to manage money make money from their banks. “Rewards” cards are the main vehicle for that.

Rewards cards are increasingly controversial, because merchants are charged more by credit card companies when customers pay with a rewards card. Some people have even made a hobby of juggling rewards cards to maximize cash back, using spreadsheets to track the best deals. According to the New York Magazine article that I just cited, more than 90 percent of credit card transactions now involve “rewards.” This is costing banks more and more money, so powerful financial interests are fighting for changes.

Though it is merchants who have to pay for the use of credit cards, we all pay for the credit card industry through higher prices charged by merchants. What rational person would not want to get some of that money back, if the banks let you do it?

I confess that I have two rewards card. Each year I earn a significant sum from my Bank of America rewards card by paying the full balance each month and collecting the rewards. Recently I acquired an Amazon Prime rewards card. I really didn’t want another credit card, but 5 percent cash back on everything I buy from Amazon and Whole Foods was just too good a deal to turn down, since Amazon and Whole Foods are my two main supply lines. And, strangely enough, Bank of America even sweetened the deal a bit last month by allowing customers to choose their 3 percent category, with online shopping as one of the categories. That probably was to compete with Amazon’s card. But the difference between 5 percent and 3 percent was too much to pass up.

The unfairness built into this system is apparent. Those who are financially stronger are making money off of those who are financially weaker, through higher prices on virtually everything from groceries to gasoline. Does that mean that I should abstain from using a rewards card? No, because the rewards that I don’t collect would be pocketed by the bank, not by the poor.

Instead, we should demand financial reform that is fair to the poor and less harsh on merchants — at the banks’ expense. If that means an end to rewards cards, I’ll understand. As long as merchants reduced their prices to reflect reduced expenses for accepting credit cards (would they?) then we’d still get the money back through lower prices.

A Facebook meme

One of the first rules of managing your money is never to give, or to accept, advice about money. I’m not giving any advice in this post. But I am suggesting that now is a good time to take a good hard look — according to one’s own lights — at the state of the U.S. (and the global) economy.

Yesterday, the yield curve on U.S. treasury bonds (2-year notes vs. 5-year notes) inverted for the first time since 2007. We all know what happened in 2008. An inverted yield curve, of all economic indicators, has proven to be as reliable a predictor of economic downturns as exists.

Here are some articles:

Bloomberg: The U.S. Yield Curve Just Inverted. That’s Huge.

Reuters: Dollar drops as U.S. Treasury yield curve inversion sparks recession fears

Forbes: The Yield Curve Just Inverted — Sort Of — And That Is A Sell Signal For Stocks

Am I blaming Trump? Not necessarily. Just as Trump gets zero credit for the past few years of economic growth, he may not get the blame for the next recession. Economic cycles and their causes don’t usually have a great deal to do with who is in the White House. But how a country responds to an economic downturn, though, is very important. Trump has plenty of room to screw up on that.

Back in the 1990s, as I got old enough to get serious about money and retirement, I did my best to study up on economics, investing, and economic cycles. I watched very carefully as the Dot-Com boom of the late 1990s turned into the enormous bubble burst of 2001. And as the housing and mortgage bubble grew during the Bush-Cheney years, I watched with horror (because I was very close to retirement). That bubble burst in 2008. But I landed on my feet without losing a nickel of my retirement money, because I knew the bust was coming.

During periods of economic growth, risk is less risky. Lots of people make money. But when an economic downturn is looming, it’s time to go defensive. Going defensive means taking a look at your investments. Is your money in the right places? Going defensive means taking a hard look at the economy, trying to figure out where the trouble spots are, and trying to figure out one’s vulnerabilities.

When big players in the stock market (often called “strong hands”) realize that the market is unsustainable and is going down, there is a huge retail effort to transfer stocks to “weak hands.” Weak hands are then forced to sell in a panic and absorb most of the losses. That’s why professional investing advice is often so corrupt. There is a famous (and possibly apocryphal) story about J.P. Morgan, who said that he knew it was time to sell his stocks when his shoeshine boy started talking about buying stocks. It’s true that the stock market is not the economy. But the economy and the stock market do tend to run on parallel tracks.

We all need our own crystal balls, because everyone’s situation is different. I’ll have more posts in the future on economic conditions. But, for the moment, I have only one point to make. That is that the warning lights are flashing that the time has come to go defensive. Thanks to globalization, we’re all in pretty much the same boat these days. Readers in Europe have plenty to think about, too, such as Brexit in the U.K., or the recent outbreak of economic discontent in France, which has forced President Macron to reverse course on fuel taxes.

As for me, I’m going to plant an extra-big garden next spring.

Update: Just after I posted this, the Dow Jones Industrial Average was down almost 800 points. The media are focused on a connection to American trade with China. But I suspect that it has much more to do with investors spooked by the yield curve, as large institutions unload stocks and go defensive. The Dow may well regain most of these losses tomorrow morning, as often happens. But this kind of churning in the stock market is typical of what occurs at this point in the economic cycle.

Update 2: This advertisement appeared in my Facebook feed a day after I wrote this post. This kind of deceit is typical at this point in the economic cycle. As “strong hands” work to sell off their holdings for as high a price as possible, retail efforts intensify to sell stocks to “weak hands,” who are not aware of where we are in the economic cycle and are left holding the bag. Notice that this ad is targeted at older people, and that Facebook knows my age.

Update 3: Here is what Fox watchers are being told:

The list of things that make American deplorables so deplorable is very long — racism, vile religion, anti-intellectualism, appalling ignorance, love of propaganda, and tolerance for violence, to name a few. But one of the worst vices — taught by their sorry politics as well as their sorry religion — is the glorification of the rich.

Sometimes I think that the state of the world today is best understood not by looking at the competing interests and activities of states (the U.S., Russia, China, Germany, etc.), but rather by looking at the competing interests and activities of global oligarchs. Our media, out of long habit, focuses its attention on states and their doings, while the doings of oligarchs fly under the radar.

The media do report on the doings of billionaire oligarchs, but in a piecemeal way. The media ignore, or cannot see, the larger pattern of how billionaire oligarchs now have the world by the throat and have tapped the power of the state to amplify the power of their money. (See links below.)

The key to understanding Trump is to understand that the global oligarchy, with which Trump is criminally entangled, intends to loot the United States the same way they have looted (and continue to loot) Russia, China, Africa, Latin America, and many smaller states such as North Korea and the Czech Republic. The test for the United States is whether the rule of law will be able to slow this process of looting, which has been going on since the Reagan administration. There is nothing new in Trump’s politics. It’s just that Trump is more flagrant. His intent is more transparent. He is rather obviously a tool of global oligarchs, for reasons that the Mueller investigation will surely expose. The Republican Party has gone along with Trump because the Republican Party has been working for years (though with disguised intentions) to loot the American commons, to weaken the American democracy, and to hand the country over to the oligarchy. Billionaires have learned an incredible new trick: How to masquerade as populists, which the ugliness of right-wing politics and the stupidity of the deplorables have made possible.

The question is whether democracies can muster the power to rid themselves of these billionaire parasites and their corruption. The solution is easy to describe, but much harder to actually do. The solution is to use the existing power of states to put billionaires in prison when they break the law, and then to tax them into the dirt.

As for the deplorables, I’m afraid they’ll never get it. They’ll probably continue to glorify the rich who are eating them alive, while blaming dark-skinned people, whose poverty and powerlessness they are destined to increasingly share if billionaires continue to get away with looting and murder.

Here are just a few reports on the doings of global billionaires:

Czech Republic: The New York Times: Scandal Around Billionaire Prime Minister Leaves Czechs in Limbo. What Andrej Babis is doing to the Czech Republic is remarkably similar to what Donald Trump is doing to the U.S.

Venezuela: The New York Times: Jets, Horses and Bribes: How a Venezuelan Official Became a Billionaire as His Country Crumbled. This is about how an oligarch family sucked up the assets of the Venezuelan people, Russian style.

China: The Guardian: Guo Wengui, the maverick Chinese billionaire who threatens to crash Xi’s party. This is about competing billionaire oligarchs in China. China is run by billionaire oligarchs.

North Korea: The Sun: Where does billionaire Kim Jong-un get all his money to spend on luxuries such as superyachts, top quality champagne and his favourite Swiss cheese? North Korea is just one country of many that is controlled by damned-fool oligarchs.

Africa: Quartz: There may now be more billionaires in Africa than in Latin America. Competing billionaires are sucking all the wealth out of Africa, while the people of Africa are increasingly impoverished.

Russia: The Irish Times: Oligarchs and ‘unexplained wealth’: London’s rich Russians. Russia, of course, is one of the most corrupt countries in the world. It’s a country run by oligarchs, for oligarchs.

Saudi Arabia: The New York Times: Saudi Arabia Arrests 11 Princes, Including Billionaire Alwaleed bin Talal. There is some sort of power struggle going on among the billionaires of Saudi Arabia, where Crown Prince Mohammed bin Salman has shown that, like billionaire oligarchs everywhere, he can get away with murder.

The United States: The American Prospect: The Trump Presidency: Oligarchs, Billionaires, Corporations, and Porn Stars. To quote from the article: “But the hate is not the point of this presidency. It’s a tool for protecting the massive looting of the public commons currently under way, and most importantly, the shady network of Russian oligarchs, U.S. billionaires, Kremlin cronies, hapless lawyers, and privately held corporations that brought Donald J. Trump to power. The U.S. billionaires and privately held corporations are in it for the looting.”