Thursday, April 30, 2009

An Odd Email Phenomenon

For the last year or two, I've been conducting a sort of informal experiment with my email. I'm kind of old-school, and while I try to keep my messages telegram-short in respect of Internet-age attention spans, sometimes a message just takes whatever it takes to communicate. Sort of like those, you know, letters from ancient times.

I've always been liberal with the use of postscripts (no, not the printing language!) in my letters. Where else are you going to put those "oh, by the way" tidbits? In fact, I confess that in my passive-aggressive mode, sometimes the most important (or controversial) part of my messages is saved for the "P.S."

Here's the deal: I can't offhand recall a single time when anybody has responded to a comment or question I've put in the postscript of an email. It's like they're invisible! This is extraordinary to me. I mean, come on, people, are you really so time-stressed that you almost unconsciously decide that anything in a P.S. can't be that important, and it's OK to just ignore?

The experiment continues, but I'm not optimistic.

P.S. Gotcha!

Tuesday, April 28, 2009

It's the usury, stupid.

(cross-posted here)

Labor lawyer, progressive activist, and recent candidate for Rahm Emanual's House seat Tom Geoghegan has a great article in April Harper's, entitled Infinite Debt: How unlimited interest rates destroyed the economy.

I tend to be skeptical of "All-our-problems-are-due-to-(insert favorite bugaboo here)" screeds, but Geoghegan make a pretty convincing case that the removal of interest rate ceilings was the main trigger for the runaway expansion of the financial industry that got us where we are today.

The nut of the argument is pretty basic: as long as the government capped interest rates at something reasonable, financial services wasn't the most exciting place to be: the real action was in manufacturing.

And then we dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter's term…that's when we found out what happens when an advanced industrial economy tries to function with no cap at all on interest rates.
Here's what happens: the financial sector bloats up…capital gushes out out of manufacturing and into banking. When banks get 25 percent to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn't innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs.…we shrank manufacturing. We got rid of labor. Now it's just the banks.

Geoghegan points out that when Reagan left office (when interest rates were just beginning to really take off), the financial sector was "earning" 18% of all U.S. corporate profits. By 2002–2003, that had climbed to over 40%.

Everything followed from this. The bloating of the financial sector helped create the growing U.S. trade deficit, which brought in a flood of cheap money for borrowing—which helped further bloat the financial sector…Capital flowed out of manufacturing, with its "low" profits, and into the financial sector, where profits were much higher. We became less competitive in manufacturing because we could not accept the lower rate of profit—not vis-a-vis our competitors in Mexico, but vis-a-vis our competitors in New York City.

Geoghegan places the blame on three major changes:

  1. The stripping of the power of labor. Since 1972, worker productivity has nearly doubled, but wages have remained flat or declined. This isn't supposed to happen, and led to a paradoxical situation in which, as the economy grew, individuals were actually becoming worse off: working harder, with less leisure, they tried to fill the hole in their lives by buying things they couldn't afford.
  2. The ability of corporations to walk away from their obligations to their current and former employees. "…[R]ight around the time Reagan took office, companies began to figure out that they could go in and out of Chapter 11 in order to dump their obligations…Sure people stopped saving. Planning for the future no longer made much sense.…as they lost their rights as creditors [to their employers] in court, they were just in time to trade in their union cards for credit cards."
  3. The legalization of usury, a process that happened over several years around the start of the Reagan era. With no cap on rates, millions of consumers became permanent prisoners of debt, and with lending so incredibly profitable, banks abandoned the ancient moral principle that loans must be repaid. This made the worst credit risks suddenly the most attractive customers, and led to the deluge of credit card offers that clog our mailboxes.

To maintain the obscene profits it had become addicted to, the bloated financial industry needed a continuous stream of new and highly profitable "products" to sell. So they dreamed up credit default swaps and all the other alphabet soup that are now sinking the economic ship.

What to do? Geoghegan has a number of ideas, including the establishment of state-owned banks, the cancellation of some consumer debt (especially in cases where the borrower has already paid more in interest than the amount of the principal), and an increase in Social Security benefits to "inject equity" directly into the accounts of working people and help make up for defaulted private pensions.

We could aim to reach that goal gradually, over the next twenty years, but even announcing the goal encourages future-oriented thinking. It would encourage people to believe that they could invest in real things again, instead of pinning their hopes on the false and predatory promise of a big, Vegas-style payout. The promise of a real public pension that people can live on would lead fewer of us to chase bubbles in good times, even as it gave all of us the confidence to keep spending when times were bad.

Geoghegan's bottom line: European-style social democracy beats America's casino economy.