Apr 22 2012
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A capitalist fable

Consider an enterprising trader tasked with commanding a team of sled dogs across a vast northern tundra. To increase his efficiency, the trader devises a novel strategy of allowing the weakest of his sled dogs to perish, replacing them with the progeny of the strongest. At first this seems to work brilliantly, with observers in awe at the ever-increasing speed of the Hayekian huskies and their Malthusian musher. Traditionalists express concern at the carnage left in its wake, but admirers begin to justify this as the “creative destruction” necessary to power the emerging rocket-sled.

With time, however, certain problems begin to arise. The trader notices that increasingly his hounds are surviving not by emulating Balto, but by offloading their burden onto one another. Initially, the trader manages to discipline the most egregious misbehavior, but after further evolution the increasingly wolf-like creatures begin to evade their master’s limited control, eventually turning on him as he attempts the mildest corrective measures. With time, the wolves have taken command of the sled, dragging their former master along as a their servant. The man is finally led at breakneck speed onto a patch of perilously thin ice, his memory honored by local natives in a cautionary aphorism: “do not become the tool of your tools”.

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Apr 08 2012
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Marx and Keynes

Varoufakis:

Marx’s theory of capitalism is, thus, a splendidly narrated tragic tale which captures beautifully the basic contradictions built into capitalism’s foundations. However, and here I think Keynes’ contribution enters the stage, there is something important missing in Marx’s analysis of crashes and crises. What? The possibility that, when the ‘faeces hits the fan’, and some monumental, as opposed to run-of-the-mill, Crash occurs (as it did in 1929 and then again in 2008), capitalists will simply fail to play the game that Marx said they will… Keynes rejects a standard assumption all his predecessors made, including Marx: that all profits are automatically re-invested.

Why did Marx not consider the possibility that a recession, a crisis, can lead to a depression, a capital ‘c’ Crisis? Because, the answer is, he was in the business of, what David and I refer to, immanent criticism… You take the establishment theory, the dominant paradigm, and you refrain from criticising its basic presumptions. What you do is to show that, by its own criteria, on the basis of its own assumptions, the model (or theory) which the Establishment accepts as valid, produces ‘subversive’ results… what Marx did was to take the model of capitalism that had the most kudos in his time (i.e. the theories of Adam Smith ad David Ricardo) and show that, by their own criteria, and under the force of their own assumptions, even the most efficient, most competitive, corruption-free capitalism would, unavoidably generate crises. To show this, Marx strove to demonstrate that, even if all profits were automatically saved, capitalism would periodically fall in deep holes of its own making.

And Keynes? Without ever having acknowledged Marx’s contribution, he instinctively understood something important about capitalism that Marx did not allow himself to dwell upon: that when capitalism digs a hole and then falls into it, it is perfectly capable of failing to climb out again. You see, the difference between Keynes and Marx was that Keynes believed in capitalism; he thought of it a little like Churchill thought of democracy (a terrible form of government but the best of all available alternatives). In fact, Keynes was eager to save capitalism from itself; to identify faults in its functioning and fix them so as to prevent crises from turning into implosions with the capacity to undermine its long term future.

Marx, on the other hand, had an agenda for transcending capitalism (socialism, he called the ‘next’, more developed, phase). For this reason, his analytical endeavours were all about concentrating on a utopian capitalism (one in which, for example, all profits are automatically invested) in order to show that, even in its utopian guise, capitalism is irrational, inefficient, unnatural, wasteful.

There is at least one other difference between the Marx and Keynes, one that likely has a little to do with their differing views on capitalism. Keynes:

How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?

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Apr 07 2012
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Capitalism and Democracy, a Package Deal?

There is a long history in the West of conflating capitalism and democracy, as though each is a necessary precondition for the other. In retrospect, this was a brilliant capitalist rhetorical maneuver, to insert the entirely undemocratic Trojan Horse of capitalism along with the appealing notion of democracy (is there anyone left who doesn’t at least feign respect for some notion of democracy?) Of course, the existence of totalitarian state socialism in large parts of the world made the job of these free-marketers quite simple.

The latest issue of Dissent has a nice piece (paywalled) by Kristen Ghodsee exploring this issue from the perspective of Eastern Europe. Ghodsee recounts the buyer’s remorse of a Bulgarian colleague, who had fought for democratization of the Soviet satellite:

“I can’t tell you how disgusted I am, Kristen. I feel like such an idiot. I thought we were fighting on the right side. I thought we were fighting for freedom, for democracy, for principles that I believed in. But it was all a lie. What we have now is worse than what we had before. I used to think that maybe we did something wrong, but now I realize that the whole thing was rotten from the start; 1989 was not about bringing liberty to the people of Eastern Europe; it was about expanding markets for Western companies. They used the language of freedom and democracy, but it was all about money. I was so stupid.”

“You were idealistic. That’s different.”

“No, it’s worse, from my point of view. I never understood how people could have supported a terrible system like communism, but now I see that they made the same mistake that I made. They believed in something that they thought was good, but that turned out to be very bad. I did the exact same thing. Only the system I helped to build is maybe worse than the system that they did.”

The article goes on to discuss how many Eastern Europeans of various nationalities were desirous of some form of democratic socialism, but were railroaded into accepting democracy and capitalism as a package deal. Many are now experiencing buyer’s remorse, with some opinion polls showing heightened nostalgia for the old totalitarian regimes.

The great conflation of capitalism with democracy (and liberty) is the largest impediment to a renewed socialist project. The association of socialism with bureaucratic management is the second major impediment – and many socialists are guilty of lacking the imagination of anything beyond top-down state management. Hopefully the increasingly technocratic and authoritarian nature of capitalist states will be what is needed to reintroduce the notion of a democratic bottom-up socialism – socialism 2.0 (dare I say communism 2.0?)

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Mar 08 2012
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Watson: the perfect Wall Street trader

Not satisfied with securities fraud, foreclosure fraud, and their full-out coup d’etat of the United States government, here Wall Street has gone and corrupted one of the few joys we have left: JEOPARDY!

Watson, IBM’s supercomputer that created a sensation last year by defeating two human champions in the quiz show Jeopardy – after its forbears had crushed chess maestros – is going to work on Wall Street.

Citigroup Inc, whose CEO is the India-born Vikram Pandit, will be the first financial services client of Watson (whose principal minder is BITS-Pilani alumnus Manoj Saxena), IBM said. Watson, the company said, will help analyze customer needs and process financial, economic and client data to advance and personalize digital banking.

Watson is, of course, the reigning JEOPARDY! champion, having defeated uber-nerds Ken Jennings and Brad Rutter in a two-game promotion for IBM. Watson gets his name from former IBM chairman and alleged Nazi collaborator Thomas J. Watson.

The above article makes it seem like Watson will only be involved in personal banking – but in the post-Glass-Steagall world it is only a matter of time until Citi deploys Watson and his deep machine learning brethren in the high-stakes world of derivatives trading. If past performance is any indication, it is here that Watson would shine. Not only is Watson able to work long hours without runaway cocaine expenses, but more importantly he typifies the current Wall Street trading zeitgeist: usually razor sharp, but occasionally spectacularly wrong. In his appearance on JEOPARDY!, Watson answered 66 questions correct, to eight incorrect (yes, believe it or not, that link is to a website that tracks statistics for ever JEOPARDY! match). In Wall Street terms, that type of performance would qualify Watson for eight-figure bonus checks and a fancy place in Greenwich. When the black swan hits, like answering ‘Toronto’ in the Final Jeopardy! category ‘US Cities’, Watson will likely be leveraged 50-to-1, thus tanking the entire global economy – but what does that matter to a master of the digital universe? Watson will be able to retire in comfort like Jon Corzine, with the rest of us left footing the bill and lamenting the good old days:

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Mar 03 2012
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The Success and Future of Chile’s Student Movement

This month’s Against the Current features a nice update on the current situation of Chile’s ‘Penguin’ student movement. For those who haven’t been following:

Even against the backdrop of the Arab Spring, the Occupy Wall Street upsurge and European resistance to austerity, the Penguin rebellion stood out for its magnitude and diversity. It’s been estimated that in the course of eight months there were no fewer than 40 massive demonstrations, some reaching 500,000 participants (in of country of 17 million — 3% of the country’s population!), and over 150 total actions, more than one every other day. Nothing even approaching such continual mobilization had been seen since the mid-1980s, when Chileans participated in the historic days of protest which precipitated the end of the military regime, in power since the 1973 coup that overthrew Socialist Salvador Allende.

Author René Rojas summarizes the students’ demands:

Students raise a simple and basic demand: free, renationalized and quality education for all. Though there have been some improvements since the military regime gutted the school system, they have been minor and in fact reveal the very source of the educational crisis: While education spending has grown from 3.9% to 6.9% of GDP, public funding has only grown from 1.5% to 2.7% of GDP. The difference (over four GDP percentage points or 350% of the state’s share!) is accounted for by private and household expenditures, stretching working families to the breaking point.

And the importance of the movement as much more than merely a students movement:

this was the first time that broad sectors, particularly labor and poor urban dwellers, not only sympathized but claimed the movement as their own precisely because they agreed with the target — the neoliberal state.

I don’t really have much to add, but would recommend reading the entire article, as it nicely summarizes the alliances, conflicts and divisions that the movement has generated in Chilean politics. In particularly, the division between those willing to work with the established parties (in this case nominally Communist) vs. the more radical ‘new New Left’ is a familiar one.

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Mar 03 2012
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Yanis Varoufakis on Greece

Yanis Varoufakis is a professor of economics at Athens University and former advisor to George Papandreou. He has written two recent books, The Global Minotaur on the financial crisis, and Modern Political Economics offering a skeptical look at the failures of economics as a discipline (co-authored with Joseph Halevi, and Nicholas J. Theocarakis). Both are currently on my must-read least.

The Occupied Times of London has an interview with Varoufakis which provides an accessible look at what is really happening in Greece. On the cause of the crisis:

OT: People talk about “the Greek malaise”. What exactly is it?

YV: Let me remind you that until 2008, Greece was doing rather well. The economy was growing faster than the average in Europe, investment was on the rise both in the public and the private domains. So, why did Greece implode in 2009/10? The reason is both simple and complex. The simple story is that Greek industry retreated in the late 1970s, following the combined shocks of the oil crises (that boosted energy costs) and the removal of tariff protection, so as to support Greece’s entry into the EEC – the predecessor of the EU. At that point, the losses of the private sector were transferred to the state sector, inflating public debt (especially as the state was utilized to employ workers and employees that industry was shedding). Add to this mix a chronic dose of tax evasion (that began with the rich and then spread down to the ‘lower’ classes) and you have the makings of strains in the public purse. Before the euro, Greece managed to avoid crises through frequent devaluations. But once we were in the euro, the shock absorber of devaluations was gone. That was a time when rivers of cheap toxic money (mostly produced by Wall Street, the City and the large Northern European banks) were flooding their way into countries like Ireland, Spain etc. They gave everyone a false sense of complacency, but in reality they were creating a consumption-led boom. So, when the Crash of 2008 hit us, it was just a matter of time before the capital which had flown in flew again, leaving nothing more than devastation behind. And given the impossibility of a fall in Greece’s currency, to absorb the shock, the result is that something else had to give – Greece’s social economy.

On what is happening now:

YV: It is important to emphasise that the worst aspect of the Greek ‘bailouts’ is that their purpose is not to asset-strip Greece. Their purpose is to hide the true, sorry state of northern European banks. For this reason, the insolvent Greek state, and its battered citizenry, is being asked to take on loans that it cannot repay for a simple reason: so as to pass them on to the insolvent banks. But to pass these loans through the German parliament, whose members do not want to pass these loans, the German government must demonstrate to its MPs that Greece ‘deserves’ its loans because it is suffering, bleeding and selling out. Thus, Greece is asset-stripped in order to placate German parliamentarians to pass loans to the bankrupt banks.

Or more succinctly:

we live under a system I call Bankruptocracy – rule by the bankrupt banks. The greater the black hole in their midst, the greater their capacity to mobilise the state in order to extract rents from the rest of the social economy.

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Feb 29 2012
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Classics in Oligarchy

Last night I started reading John Dunn’s Democracy: A History. I was a little skeptical, considering positive mentions by The Economist and Cato, but so far I have no complaints.

In the section on Athenian democracy, Dunn contrasts a defense of Athenian democracy attributed to Pericles with a criticism, whose author is unknown and conventionally referred to as the ‘Old Oligarch’. This gives nice insight into how little the views of the oligarchs have changed in nearly 2500 years:

And as for the fact that the Athenians have chosen the kind of constitution that they have, I do not think well of their doing this inasmuch as in making their choice they have chosen to let the worst people be better off than the good.
…
they everywhere assign more to the worst persons, to the poor, and to the popular types than to the good men: in this very point they will be found manifestly preserving their democracy. For the poor, the popular, and the base, inasmuch as they are well off and the likes of them are numerous, will increase the democracy; but if the wealthy, good men are well off, the men of the people create a strong opposition to themselves. And everywhere on earth the best element is opposed to democracy. For among the best people there is minimal wantonness and injustice but a maximum of scrupulous care for what is good, whereas among the people there is a maximum of ignorance, disorder, and wickedness; for poverty draws them rather to disgraceful actions, and because of a lack of money some men are uneducated and ignorant.
…
Bad government is of little concern to them. What you consider bad government is the very source of the people’s strength and freedom. If it is good government you seek, you will first observe the cleverest men establishing the laws in their own interest. Then the good men will punish the bad; they will make policy for the city and not allow madmen to participate or to speak their minds or to meet in assembly. As a result of these excellent measures the people would swiftly fall into slavery.

To the old oligarch, this appears to be a good thing. He continues:

Now among the slaves and metics at Athens there is the greatest uncontrolled wantonness; you can’t hit them there, and a slave will not stand aside for you. I shall point out why this is their native practice: if it were customary for a slave (or metic or freedman) to be struck by one who is free, you would often hit an Athenian citizen by mistake on the assumption that he was a slave. For the people there are no better dressed than the slaves and metics, nor are they any more handsome.

In defense of the greatness of the oligarchs:

The people have spoiled the athletic and musical activities at Athens because they thought them unfitting (they know they can’t do them). In the training of dramatic choruses and in providing for athletic contests and the fitting out of triremes, they know that it is the wealthy who lead the choruses but the people who are led in them, and it is the wealthy who provide for athletic contests, but the people who are presided over in the triremes and in the games.

And their victimization by the ignorant rabble:

The Athenian populace realizes that it is impossible for each of the poor to offer sacrifices, to give lavish feasts, to set up shrines, and to manage a city which will be beautiful and great, and yet the populace has discovered how to have sacrifices, shrines, banquets, and temples. The city sacrifices at public expense many victims, but it is the people who enjoy the feasts and to whom the victims are allotted. Some rich persons have private gymnasia, baths, and dressing-rooms, but the people have built for their own use many wrestling-quarters, dressing-rooms, and public baths. The rabble has more enjoyment of these things than the well-to-do members of the upper class.

The oligarch does, however, have one sharp insight into a repeated failure of democracy:

Further, for oligarchic cities it is necessary to keep to alliances and oaths. If they do not abide by agreements or if injustice is done, there are the names of the few who made the agreement. But whatever agreements the populace makes can be repudiated by referring the blame to the one who spoke or took the vote, while the others declare that they were absent or did not approve of the agreement made in the full assembly. If it seems advisable for their decisions not to be effective, they invent myriad excuses for not doing what they do not want to do. And if there are any bad results from the people’s plans, they charge that a few persons, working against them, ruined their plans; but if there is a good result, they take the credit for themselves.

Incidentally, this last part is one of the few features democracy shares with capitalism.

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Feb 28 2012
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Proletariat of the Ivory Tower, Continued

On the theme as last week’s post, students at the University of Virginia have begun a hunger strike for a living wage for university employees. College junior and football player Joseph Williams describes why he is participating:

Our University seeks to distinguish itself as a caring community and prides itself on traditions of honor and student self-governance. However, in our “caring community,” hundreds of contract employees may make as little as $7.25/hour while six out of the top ten highest paid state employees in Virginia hold administrative positions at the University. Many employees, mostly women and African Americans, do not receive enough pay for their basic necessities to exist in Charlottesville, where the cost of living is nearly 10% higher than the national average. This extreme inequality has disturbed and disillusioned students for decades, many of whom have tried to grapple with issues of race, class, and poverty in and out of the classroom. We have taken every conventional route towards this goal, garnered wide student, faculty and community support – yet our pleas have been consistently ignored and workers are still paid unjust wages.

On a personal level, this cause is one that hits very close to home. As one of four children supported by a single mother, I have experienced many periods of economic hardship in my life. Growing up, I moved over 30 times – including various stays in homeless shelters, the homes of family friends, and church basements. As a result of these experiences, I know firsthand what the economic struggle is like for many of these underpaid workers. One UVa employee anonymously shared that though she works full time for the University, over 40 hours a week, her family was still forced to go without electricity for nearly 3 months, unable to pay for the rent, electric bill and other basic necessities on the meager wages she is paid by the University. Such stories are the reason that I and countless other Living Wage supporters have chosen to take up this cause and give a voice to the many University employees who often cannot speak up for fear of retaliation from the administration.

The hunger strikers are now on day 11.

Feb 23 2012
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The Unscrupulous Libertarian

This afternoon I was reading through the primary literature on political morality, particularly regarding Jonathan Haidt’s 5-dimensional morality scale. In summary, Haidt models morality as consisting of five components:

  • Harm/Care
  • Fairness/Reciprocity
  • Ingroup/Loyalty
  • Authority/Respect
  • Purity/Sancity

In other words, what one finds morally right or wrong can be decomposed into contributions along these dimensions. Haidt has also argued quite convincingly that the foundations of morality are intuitive, rather than reasoned – that is, the reasons given for morality are post hoc constructions of intuitive evaluations that can be broken down into these five components.

Haidt and colleagues argue here that liberals and conservatives differ in the relative contributions of these five components to their intuitive morality:

Here, Haidt and colleagues ask self-identified liberals and conservatives to evaluate a series of statements designed to assess the respect contributions of each to their morality. For example:

  • Harm/Care: “Compassion for those who are suffering is the most crucial virtue”
  • Fairness/Reciprocity: “If a friend wanted to cut in with me on a long line, I would feel uncomfortable because it wouldn’t be fair to those behind me”
  • Ingroup/Loyalty: “The government should strive to improve the well-being of people
    in our nation, even if it sometimes happens at the expense ofpeople in other nations”
  • Authority/Respect: “If I were a soldier and disagreed with my commanding officer’s orders, I would obey anyway because that is my duty”
  • Purity/Sancity: “People should not do things that are revolting to others, even if noone is harmed”

Haidt’s main finding, as seen on the graph, is that conservative morality has increased contributions from ingroup/loyalty, authority/respect, and purity/sanctity. Of course, this is all quite intuitive for anybody who knows the conservative mind, but it is worth reminding liberals that there are fundamental differences in morality across the political spectrum – incidentally, there exists preliminary work in neuroscience linking these differences to changes in brain structure, particularly the amygdala and anterior cingulate cortex, something I will post on another day.

However, the part of this study that I wanted to draw attention to was ‘Study 3′. Here they ask individuals ‘to indicate how much money someone would have to pay you’ to violate each of the different categories. For instance:

  • Harm/Care: Kick a dog in the head, hard
  • Fairness/Reciprocity: Steal from a poor person and use the money to buy a gift for a rich person
  • Ingroup/Loyalty: Publicly bet against your favorite sports team
  • Authority/Respect: Curse the founders or early heroes of your country
  • Purity/Sancity: Cook and eat your dog, after it dies of natural cause

Again here, Haidt and colleagues find that conservatives require greater incentive to violate the three latter moral dimensions (and slightly less incentive to violate the harm dimension).

But the interesting part to me was this:

Because we had a large sample of libertarians, who are usually ignored in political–psychological research, we compared their sacredness reactions to those of liberals and conservatives. Overall, libertarians showed less refusal to violate the foundations for money than did liberals or conservatives.

The libertarian, in every category, was more likely to sell out morality than both liberals and conservatives. Yes, we can add important caveats (i.e. this is based on self-report; it would be nice to see some controls for age/sex), but I found this quite striking. In some respects it’s obvious – libertarians don’t see any need for regulations, since they have fewer moral scrupples – but it was nice to see this quantified.

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Feb 21 2012
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Obama campaign shakes down Wall Street

When you see a story like this the first response is “*sigh*, what else is new?”

Jim Messina, President Barack Obama’s campaign manager, assured a group of Democratic donors from the financial services industry that Obama won’t demonize Wall Street as he stresses populist appeals in his re-election campaign, according to two people at the meeting.

Just the Obama campaign hypocritically raising money from Wall Street, right? But, stopping to read between the lines, what is being said is that the Obama campaign won’t be hard on the bankers if they keep the money flowing. The implication of this is that the Obama campaign might just have to go populist on the bankers if they don’t cough up some cash. Now you wouldn’t want that to happen, would you guys?

It’s an important point to remember. Political parties are not just passively corrupted by big money interests. Parties realize the power they hold, both directly and in this case the bully pulpit, and they actively seek to monetize it. They aren’t in the business of giving things away for free. In other words, they extort any financial interest they can, and there’s no bigger shakedown target than Wall Street banks.

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