What to Do with "Deception and Deviltry”

By Rudolph Lewis

Paul Krugman, the Nobel-winning economist, made another stab at answering “What to Do” about the ongoing economic crisis. The response involves some nationalization of commercial banks and other financial institutions—a contemporary measure, until the federal government has satisfied the capital appetites of too-big-to-fail financial institutions. But on the whole the what to do involves recapitalization of lending institutions and Keynesian initiatives, including spending in infrastructure projects.

The overarching problem, many have concluded, is the nature of global finance and the connectedness of economic institutions in developed and developing nations. Krugman concludes that the financial output to prop up these institutions is much too small. There needs to be trillions and trillions of American and foreign currency thrown in the laps of the wealthy, most often in the dark of night without accountability. In any event, to avoid future global downturns more and more of the sensible will demand a greater regulatory cooperation of international financial institutions, if not what Stiglitz suggests something that approximates it.

I do not understand the "shadow banking system" and what can be done about it. Except for one CNN program, most of the bankers and financial managers have been kept well out of the spotlight. The character of it is Mafia-like and criminal. Doubtful, the Justice Department will seek indictments of bankers and other money wizards who got us into the present economic doldrums. But clearly all reasonable economists seem to call for financial reform. The nature (or details) of that reform have yet to be thought out by “experts.” Reforms seem to be a dangerous activity. But for Krugman, reform should be done in the aftermath of the crisis rather than during the present recession. Translated: the necessary reforms will not be done at all. Bubbles are profitable. The severity and complexity of the present economic crisis suggest it may go beyond Obama's four years with unemployment rising above ten per cent (another profit mechanism), despite hundreds of billions allotted for cities and states.

Krugman ends his article with the following words: "I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men" (“What to Do”). “Men” here means those who are wealthy and powerful. We should expect they will act in their own interest. They will not, in the words of John McCain, place “country first,” that is, the me-and-you that the cap-wearing McCain pretended to be for. What is consistent with Krugman is that he always leaves us hanging with a lack of specifics.

Another item: Have you ever read Melville's The Confidence Man? As English major I took a course in Melville. That was 30 years ago. Much of Melville I did not understand. I still lack a full understanding of his social criticism. But, viscerally, I find that he remains relevant today. The Confidence Man came to mind in thinking of Obama and the role he has played during his presidential transition, namely, providing confidence to stop the fall of the Dow. 

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I read online last night sections of The Confidence Man and found a couple early chapters of great interest. As the following passage:

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Today, in the present economic crisis, it is the commercial bankers and other lending institutions which are the “bears.” They increase their working capital by placing a hit on the US Treasury and the less wealthy, commonly called, “American taxpayers.”

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Chapter 6 in The Confidence Man is quite amusing as well:

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In any case, in these times of lack of confidence, The Confidence Man seems like a good read for those who wish to be amused by “deception and deviltry.”

On the whole, I agree with American taxpayers, all these fellows—Henry Paulson, Ben Bernanke, Laura Tyson, Alan Greenspan, Joseph Stiglitz, Paul Krugman, and others—are fumbling around in the dark. The primary game ends in charity (profits) for the rich, and for the other 90 per cent a ruse for rescue.

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News Update

Deficits and the Future—The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans. . . . One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run. . . . But right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more. NYTimes

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Cutting wages won't solve Detroit 3's crisis— In the 1980s, Chevrolet proclaimed itself the "Heartbeat of America," but today the American auto industry barely registers a pulse. As Washington considers Detroit's plea for life support, the only place where pundits, politicians and Big Three executives seem to agree is that auto workers must make do with less or watch their jobs disappear.

Some lawmakers have complained that unions are the source of the problem, but they fail to understand some inconvenient truths. According to the latest figures from the U.S. Commerce Department, every worker in Big Three factories could work for free and only shave 5 percent off the cost of their cars. The auto companies pay as much for hubcaps and fenders as they do in wages.

Data from the Harbour Report -- the industry's gold standard -- reveal that even including their benefits, labor costs in the Big Three's plants account for less than 10 percent of the sticker price.

No matter how you cut the numbers, demolishing auto workers' living standards will not transform the industry. The Big Three have been trying for years. They have slashed at least 200,000 jobs since 2004, and they last year wrung billions of dollars in concessions from the United Auto Workers. The union instituted a second-tier wage of $14.50 an hour for new hires, lower than pay in the nonunion, foreign-owned auto companies in the South. .  .  . Automakers need direction as much as financial support from Washington, just as Japan's government molded Toyota into a world-class performer.

In every other industrialized nation, government has stepped in and given their auto companies a significant edge. Most important, they all adopted national health care and pension systems decades ago.

General Motors alone provides health coverage to a million people—workers, retirees and families. The annual price tag is about $5 billion, which, as CEO Rick Wagoner is fond of pointing out, is more than GM spends on steel.

That burden could be lifted, to the benefit of 47 million uninsured Americans, by adopting a Medicare-style program for everyone. It would save the nation as much as $350 billion per year now spent for insurance companies to shuffle paper and deny claims.

The fate of the Motor City captivates us because it speaks to our future. For 30 years, politicians have bowed to Wall Street, sitting by while wages for most workers stagnated. Big Three workers have maintained their living standards better than most, in no small part because they have a union. In a country where investment bankers gave themselves $30 billion in bonuses last Christmas, have we reached a point where $58,000 a year with benefits is too much to ask? Detroit News

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Support Autoworkers: A Living Wage and Benefits

Black politics is an attempt to get a cat to walk backwards. There is no problem in conjuring up the cat even a black one. The problem in times of danger it is usually nonfunctional, even if it is in the cat's own interest. We go for the cultural aspects of black politics but we let the real politics (the economics) really slide by us.

We saw it recently in the vote for the Senate seat in Georgia—trying to get that 60 Democrat filibuster proof Senate so that Obama could get his shots off and bag the coon. Obama, the candidate capable of becoming black president No. 1, just wasn't on the Georgia ballot nor was he in Atlanta town and so black folks just did not go to the polls in the same numbers as on November 4 (they got their minds on 20 January) and so the Republican Saxby Chambliss won in a landslide. Sarah Palin by his side. The black cat just did not walk backward. Sending Ludicrous down there was a rapper's joke. It just didn't help. It just wasn't serious. You can't get a cat to walk backward. He'll turn and scratch you. Moreover, what black person in Georgia can tell two crackers a part.

It is the same with the Big Three controversy and the United Autoworkers. Black folks can't tell the difference between the two and so they don't have any comment. They can't see beyond the skin color to the real economic issues.  And the idea that their fellow workers are making $50,000 a year with benefits stirs envy and jealousy and so as in The Color Purple the response is beat'em down so that we can all be in the barrel together, or the slave quarters huddled in poverty.

It is the same with the women libbers: they can jump on the PA governor for "insensitivity" but they have no feeling for their gender on the assembly line making a living wage now threatened by Right to Work Republican Senators from Texas, Mississippi, Alabama, Tennessee, Kentucky, and South Carolina who have their hands in the moneybags of Asian automakers (capitalists exploiting a reactionary sectional divide). ("Where unions are free and strong, wages rise. Where unions are hampered and weak, wages lag.") So they beat down a good living for white, black, and female and other minority workers in northern and Midwestern automaker cities and towns: crushing workers for higher profits, always higher profits on the backs of the poor.

Well, of course, that's not the Christian spirit. You don't wish your brother (or your sister) ill just because you are down and the devil is getting the better of you. So nobody is calling their congressman telling them keep hope alive for $15 an hour living wage and benefits, and legacy maintenance.—Rudy

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More News

Democrats Set to Offer Loans for Carmakers— Faced with staggering new unemployment figures, Democratic Congressional leaders said on Friday that they were ready to provide a short-term rescue plan for American automakers, and that they expected to hold a vote on the legislation in a special session next week. Seeking to end a weeks-long stalemate between the Bush administration and House Speaker Nancy Pelosi, senior Congressional aides said that the money would most likely come from $25 billion in federally subsidized loans intended for developing fuel-efficient cars. . . . G.M. is seeking $18 billion in loans, but says it needs $4 billion immediately to survive past the year. Chrysler, which is also running out of cash, wants $7 billion. Ford, the healthiest of the three, is asking for a $9 billion line of credit. NYTimes

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posted 1 December 2008