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Revisiting Recession

 
No sooner had I posted my note on recession over the weekend than I got a message from my friend and colleague Christopher Holmes Smith on, yes, the recession and the fraught economic times that we confront.

I’m posting this because Chris makes some typically insightful points, and because in a fit of pique I supposed, I went into a fair bit of detail on some of the points that I touched on in the previous post. I hope this further illuminates what’s going on. 

Special thanks to the redoubtable Joshua Wallman for his prodding and conversations on economic matters.

No sooner had I posted my note on recession over the weekend than I got a message from my friend and colleague Christopher Holmes Smith on, yes, the recession and the fraught economic times that we confront.

I’m posting this because Chris makes some typically insightful points, and because in a fit of pique I supposed, I went into a fair bit of detail on some of the points that I touched on in the previous post. I hope this further illuminates what’s going on. 

Special thanks to the redoubtable Joshua Wallman for his prodding and conversations on economic matters that helped to  clarify my thinking  for this post.

--

So let’s start with Chris… this came in my email box as the the economy looked ever shakier... 

-----Original Message-----
Sent: Monday, March 17, 2008 10:50 AM

Subject: Bringing Our B-Game

T,

Given all the crazy economic news these days, I feel compelled to write to get you skinny on it all and offer a bit of my own.
W/respect to the market turbulence that's been weighing down the Dow and related indexes, I have been maintaining for some time that now is not the time - and hasn't been for awhile - for the Average Joe to be prospecting for individual stocks. Last July, when I had an argument with a Bear Sterns private wealth manager (the ironies abound) over at his house in Westwood, it became very clear to me that a perfect storm of economic uncertainty was brewing. I'd like to think that the downturn might not be as enduring or as deep as some forecasters predict, yet with key aspects of our energy and food supply waning (I was just reading today that the entire California Chinook salmon stock is literally MISSING (M.I.A.) this season and that the typically thriving Bay Area fishery will have to CLOSE), with the dollar falling, and with the Average Joes' wages falling in real terms, it is not a pretty picture.

Meanwhile all the Shrub can do is give us his version of a "huck-a-buck" routine:

If he weren't white, and we weren't -- as Americans -- prone to pegging certain cultural codings to unnecessarily narrowly-defined racial and ethnic boundaries -- I'd have no choice but to label Bush's "dancin' wit da prez" charade as some seriously niggerish coon tomfoolery straight outta the New Millennium Minstrel Show that his two failed administrations have come to represent.

When not tap dancing around this issue -- literally -- he chooses to offer buffoonishly mangled syntax and malapropisms, perhaps thinking he can simply bamboozle us with ill-chosen wordplay into a stupefied state of optimism:

Whichever route he goes, the man -- this shameful niggardly excuse of a man -- is just reprehensibly ill-suited for the grim task the nation has at hand. If the Dems prove to be wise, we will stop w/all the racial and gendered rhetorical shenanigans and get to the hard business of explaining to the American people why John McCain would be more of the same bad news. I mean for goodness sake, the guy as much as admitted he doesn't know a bank's discount rate from a discount on a loaf of bread:

In some respects, my brotha, as much as it saddens me to say so, we deserve some pain right now, albeit hopefully not of the mortal kind. Save that dire extreme, perhaps we will finally wake up to the reality of how wrong we've been on a whole host of policy initiatives (even those made palpable by mere inaction alone) right to the depths of our national soul. How smug, how self-satisfied, how contemptuous of our domestic and international fellows we've been -- at our worst even to the point of cruelty. As a sage philosopher-prophet-poet once told me: "This is what you get when you bring your B-Game to the tournament of Globalization." Well, we've brought our B-Game alright, and we are so much the poorer for it, metaphorically, and now quite literally.

Hold tight, the ride might get very bumpy....

Peace & love,

C

 --

Here's my reply to Chris' note…

-

We have real choices to make. This is the problem. And compounding it: we've tried to grow our way out of having to make hard choices. The "growth button" (or is it a lever?) is officially out-of-order and will be for a while. This will drag on for a while because we've built the economy around consumption, and because we're leveraged up to our necks, at the federal, state, local, and personal level, there's not a lot of slack left in the system.  That isn't to say that we' couldn’t get back on track, but we're going to get back on track doing things in a fundamentally different and much braver way. Moving on to this new track will be a tough transition and transitions are difficult and messy. But I think we have to make these changes so that the economy will move toward producing real value rather than a lot of crap and speculative money.

Not that we should play pile-on, but I would love to take your Bear Sterns guy out for drinks... and enough to really lubricate his inhibitions now that it's all going down. I'd like to know how much he knew, what he thought was going on, if he can now see the extent of the gap between his perception when he was arguing with you and the reality of things then and now. My guess is that he might not have had a clue.

So much of what is happening now seems like a deliberate money grab to many, but the older I get, the more I see cluelessness, malign neglect, and laziness undermining all sorts of systems. But that's just my bias. And this doesn’t make me sleep any better at night. While true malevolence is nothing to kid about, true ineptitude and incompetence are damn near evil on some level. One reason why things are so spooky at the moment is that we literally don’t know what’s going on. And neither do the people supposedly in charge of this mess. Yikes.

So I think we need to go collect some data and analyze it. For many this probably sounds like a drop-dead-dull thing to do, but in the absence of reliable data, I can’t we have to start somewhere. This is like diagnosing the patient. Right now we’re relying on guesses, but that’s not good enough. We cannot make informed policy choices, temporary remedies, or personal choices in an environment of near complete ignorance. Lots of folks are making all sorts of prognostications, but no one really knows what's going on. We need a full-on, top-to-bottom audit of the financial services sector. We need to see just how badly the worms have gotten into it. I think a lot of these "specialized securities" are really just a fancy way of say "bullshit." As in its so thick that I'm not even sure if the people serving it up really know how thick it is or what might be hiding in the pile. (I should have warned you: good friends of mine are, sooner or later, subjected to my infamous scatological metaphors and examples. They come out, er, automatically.)

I think you’re right that JQ Public should stay out of the water; we may have gotten to the point that the so-called pros might want to rethink how swim with the sharks as well. Let's face it; some of these guys went all-in for packages and "investments" (more on that in a moment) in complete violation of the basic notion of risk-spreading and portfolio diversification. Money truly can make folks lose they min'. But money is seductive. And even though Kissinger meant it in a different context, power really is a huge aphrodisiac for some people.

-

What you hit on with regard to the salmon is a big, largely unreported story. It’s not just the salmon, it's the whole biosphere. This is what I was getting at when we were sampling that bottle of Presidente back in December: human beings are in a lot of trouble. And what's scarier to me as an economist is that prices aren't reflecting the reality of the situation. You go to store and salmon is still, what, 7 bucks a pound in some places; double that for the good stuff. But whole fisheries are either gone or tottering on collapse. If you go to high-end restaurants they serve swordfish, but they don't tell you that the fish you're eating is probably an adolescent. Now you tell me: if you are catching and eating adolescents, who's left to reproduce the species?

Again: we are in a lot of trouble.

Right now the mainstream media report that America's wheat harvest is a bumper crop AND that it is fetching record prices because of high demand for basic grains and crop failures in places like Australia that have cut into the global supply. Sure enough. What they aren't reporting is that yield per acre is falling and has been for a while. They aren't telling you that a key reason for price increases is the rising price of oil. They aren't telling you that in spite of all the whiz-bang technology at work in herbicides and pesticides, crops remain about as vulnerable as ever. And what they really, really don't tell you is that we're losing topsoil at almost the same rate as we were back in the run-up to the Dustbowl Days. Is it March 2008 or October 1929? Well, history doesn’t repeat itself, but it echoes.

WAIALOT. (WAIALOT… WAIALOT… )

As a media guy I'm disconcerted because the media are essential and fundamental to making sound policy and reasonable personal decisions at the global, regional, national, local, and personal level in a world as complex and interrelated as ours. And yet the media just run from one story to the next and haven't a clue. They don't know what questions to ask. They ask a lot of the wrong ones when they do ask. This is not only aggravating, it's truly dangerous.

-

Before I leave this topic, I want to get back to the point I made above about speculation and investment:

We have confounded value with money.

We have conflated speculation with investment.

We have confused growth for benefit.

These three things lie near the heart of what we're going through.

First: money can veer far from true value. Note the relatively small change in the price of salmon even as some salmon stocks, and more importantly total fisheries, slide toward collapse.

Second: in speculative periods money can have little to do with real value because goods and services in the midst of a speculative rush, as well as those that are directly and indirectly tied to the object of our infatuation, are priced way out of line with their utility. So when houses in LA go up to a median price of $550,000, you have to stop and ask, "How many families can really afford those payments?" Median household income in 2006 was just over $48K.  That's about $4K/mo; 33% -- about as much as a household should spend on housing -- of that is about $1300/mo. A family making median income can't buy the median house. This is not a sustainable system. (Granted I’m mixing national averages and local averages, but you get the gist of my argument.)

This goes into social values more than economic valuation, but we've lost our grip on the difference between utility and prices. A house, first-and-foremost is about shelter, storage, and security. Or as one friend puts it: it's a place to sleep, shit, shower, and shave. Its greatest value is not as an asset or a piggy bank. When abstractions get piled one on top of the other we sometimes forget what it is that we're looking at. We lose track of fundamentals.

BTW, Chris, in many ways, you taught me this through your work on Hip-Hop and the “bling mentality.” I certainly have thought about it harder since reading your work. In economics we take prices as being “correct,” but when external forces (things outside of market mechanisms, including social forces) grow to a large enough magnitude, the market does some perverse things. Anyway, I’m still waiting to see all this spelled out in your book when it comes out.

Finally, about growth...

GDP includes a lot of garbage in it, so what we call growth may include some good things but it will include a lot of junk as well. Journalists are not well enough informed about economics to point this out routinely, so folks hear "growth," they figure that "growth is good," and on we go. But growth is more than just "more." I just posted a little explainer on the That’s Capital blog about this a few days ago.

Another quick aside: nowhere is the GDP growth rhetoric gilded with greater volumes of BS than in China. Even as GDP growth steams along at double-digit rates, the Central Government commissioned a different GDP calculation that took into consideration environmental damage, asset depletion, and so forth. This so-called “Green GDP” came in at less than half of the official number. Needless to say, provincial leaders, who are the drivers of economic growth and investment, put up such a fuss that the whole thing was scuttled before it was widely circulated.

When in doubt, kill the messenger.

-

Meanwhile, the son of the former ambassador to China continues to play out a true tragedy while taking us along for the ride...

I thought I would start with this quote because it so completely sums up my thoughts on the Shrub:

If a psychiatric and scientific inquiry were to be made upon our rulers, mankind would be appalled at the disclosures.

Alfred Korzybski (the founder of General Semantics)

Sadly, the truth is finally known: George Bush is impaired. He should be under care; he's in a world of his own. It's scary because we are on a train with a drunken, clueless, blind-deaf-and-especially-dumb (the other meaning) conductor. Bush, in essence, is "shuckin', jivin', and signifyin'." It's tragic, it's scary, and it's deeply strange.

In some sense he is the perfect president, the perfect symbol of our nation and our times. He asks the wrong questions. He's distracted by bullshit. He's clueless. He’s isolated and provincial. He can't think systemically. And as with the neocons generally, he believes with almost absolute faith thinks that positive thinking will intersect with wish fulfillment and lead to nothing but wished for, happy outcomes. While leaps of faith have their place, I'd say this isn't what Kierkegaard had in mind. (Remember that Twilight Zone where the guy dies and in the Afterlife he gets everything he wants until he becomes bored and thinks that Heaven is a bit of a let down only to figure out that he isn’t in Heaven. Where’s Rod Serling lurking right now?)

I may ruffle some feathers by saying it, but faith is a very dicey approach to many aspects of human affairs. It can be twisted and perverted. It has way too much to do with longing and can become detached from reality. BTW, W isn't the only one to suffer this problem: check out Bill Kirstol sometime.

It's unsetting to see grown men behave so childishly; it's distressing to see millions of people actually take the bait. It's unsettling that they still have a platform for dispensing their BS.I'd say we should buckle up, but there are no seatbelts on trains.

-

Keep in mind that a lot of what comes out of Bush's mouth is from speechwriters. So not only is he lost, the whole ship is rudderless.  (Sorry to mix my transport metaphors; bear with me.) And it's been that way since he came to office. The geopolitical and economic crises in play have only made this more and more apparent.

Also keep in mind that his speech writers gave us the "crusade" language only days after September 11th. These people live in a parallel universe, but they keep commenting on and tampering with ours. This needs to stop and never come back.

I think it's also worth noting that when The Bush Dyslexicon: The Sayings of President Dubya came out, a lot of folks found it mildly amusing, but that missed the real punchline: that Bush gets his words out spot-on when he's threatening or bragging, but can't get analytical or sympathetic language out to save his neck.  That's indicative of a borderline sociopath.-

You're right about McCain. Just that "100 years war" comment should be enough to stop him in his tracks.  And his prevaricating on that YouTube clip... day-yum. I would admire so-called “leaders” a lot more if they would just come out and say, "I don't know." That would say more to me, but instead, one has to posture and look like Big Daddy. The scary thing is that the Big Daddy act may get him elected. Americans are spooked, and when Americans get spooked they run to Daddy, and McCain looks more like Daddy than Hillary or Obama.

-

So: we have screwed up royally and we are going to pay. This could be a good (if very painful) thing if we can learn from it. My fear is that we'll keep dodging reality. This will drag out the problems we have and allow them to metastasize.

Our sense of neglect and avoidance spills over into the geopolitical and the humane realms from the economic and policy fields. From my POV we have been exceptionally cruel. And like a drunk who wakes up in TJ with a hangover and says, "Never again" (is what you swore the time before), we keep falling off the wagon

Truth to be told, it's hard. But this latest episode in Iraqis just our latest bender.  And what we keep overlooking is the harm we cause. Millions lost in The Middle Passage.  Millions in the Old West.  Close to a million in the Philippines. Maybe half-a-million in Indonesia.   More than three million in

Indochina. (What do we have against the Southeast Asians?)  Well over a million in KoreaAnd now at least a quarter million have died in clashes with Iraq (but we don’t do death counts, at least not of those “other” people, so it’s hard to be precise).  Not to mention we murder more than 17,000 of our countrymen per year. How exactly does a country overlook death tolls like these? We're a scary tribe. -

Yeah, it's our B-game, alright. And it's a weak B-game at that. It's so bad that we squandered numerous opportunities to produce positive change in the geopolitical environment and get the global economy redirected toward a more sustainable way of doing business. This has damaged  the “game” – the economy and the ecosphere – for everyone else. It reminds me of the hockey-playing-Knicks team under Pat Riley that took the "basket" out of "basketball."

In spite of all my rantings, I’m short term pessimistic, but long-term optimistic. I think we – Americans and humans – will learn. We'll figure out how to adjust. We will rediscover the difference between shit and shinola. And we will be better for it. So will the world. When we figure this out, we will "discover" that we have enough. This discovery will vastly reduce the suffering we will inflict on ourselves, others, and the planet. And mostly, this comes down to getting "back to basics." And I mean the real basics:

1: Air
If the air is in good shape, generally speaking, so is the larger biosphere.

2: Water
Other than air, lack of this will kill people and most other living things faster than anything -- that's real value. What is "portfolio performance" compared to this?

3: Food
We need agricultural productivity without, what my pal Edgard Pisani (who was Minister of Agriculture for France
) calls "torturing the Earth.

4: Shelter and warmth
Read: that's housing without the asset/speculative aspects. Keep it simple.

5: Security
We don’t have to call it "democracy," but stability and some say-so over one's fate politically and economically, is essential for long-term stability.

6: Dignified work
By dignified I mean largely devoted to the other items on this list and less driven by purely financial concerns and the BS it often produces.

7: Universal, lifelong education
I mean real education, not bullshit education. This should include something beyond the technical and technocratic. We need to learn how to be more attentive, aware, and thoughtful. Too much of our current educational system is driven by narrowing our focus around specific knowledge rather than broadening our understanding of how things fit together.

Yeah, we're in for turbulent skies and bumpy roads. The most important thing I can say about getting through this is to simply pay attention. With attentiveness you can adjust. And this is why media are so crucial now: information really is power. Or at least a decent shield against what will be flying at the fan for quite a while.

Titus Levi

 

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