Wednesday, January 23, 2008

A modest proposal

There is now talk of a bailout of bond insurers. And that gives me an idea.

For those just tuning in, during the housing bubble a lot of financial institutions issued arcane, risky securities -- especially mortgage-backed securities and the CDOs derived from them -- and then cleverly sold them to large investors who had no idea what they were buying.

To make these shitpiles even more alluring to investors, the issuers purchased insurance policies from specialized bond insurers, called monoliners – reputed to be the keenest analysts of credit risk in the business! -- who in turn guaranteed the securities against loss.

If anyone happened to ask, it was enough to reply: “Hey, it’s insured!” And much money was made by all, and assholes merrily bought luxury condos and brunched at Balthazar and ruined great cities like London and New York.

Now we find out that the keenest credit analysts in the business were either clueless or just out to make a quick buck, leaving someone else holding the bag. The result: Losses on these securities are now so massive that they threaten to do the monoliners in. If that happens, investors holding them will finally be obliged to acknowledge that the losses are real, leading to what most people assume to be an inevitable cascade of defaults and writedowns and perhaps the total collapse of the credit economy.

So people are talking bailout.

Here’s my proposal. I offer it at no charge to any member of Congress, presidential candidate or editorial writer willing to bear the calvary of getting the stink-eye next time at Harry Cipriani. If it becomes necessary to bail out the monoliners to prevent a depression, there will be terms. For once, the highly-paid beneficiaries of a taxpayer-financed bailout will not get off scot-free.

Congress shall specify that no bailout will take place unless and until (a) every bailed out monoliner and (b) every financial institution holding a bailed-out policy certifies that its employees have voluntarily agreed to accept a 25% federal income tax surcharge on every dollar earned above $200,000 for a period of 5 years. A young hotshot earning $300,000 would see $25,000 added to his tax bill. An elder pulling down $1 million would owe an extra $200,000. Since some of the biggest Wall Street multinationals are policyholders, and since this would apply to every one of their employees over $200,000, we could be talking about a lot of people and a lot of money. It could even go some way towards making the bailout pay for itself.

Politically, it’s a winner. Fiscally, it’s sound. It’s extraordinarily well-targeted to precisely the assholes who got us into this mess in the first place. John Edwards: Have your staff contact me through the comments box.

Monday, January 7, 2008

English pounds and Eskimo pence

Sadly No flags this rather idiotic London Times article (picked up by the Daily Mail and recently posted by Drudge) that claims that the UK is surpassing the US in living standards. Although I agree with SN's sentiment, this was among the stupider things published in a newspaper in recent times.

The supposed shift in "living standards" is actually an artifact of the dollar's depreciation. The article admits this, which just makes it even stupider. Think about it: The dollar has fallen about 25% against the pound since 2000. Do you feel 25% poorer than you were eight years ago? Swings in exchange rates are only marginally related to living standards.

Suppose the dollar fell 50%. Imports make up less than 15% of what we buy. Holding all other things equal and assuming that in response import prices rose by 50% (they wouldn't: we'd switch from imports to domestic goods and foreign companies would cut their prices to stay in the US market), our standard of living would fall about 7%. A 25% dollar drop would cause a 3.5% fall in living standards. And with the actual behavior of import prices, the fall would in fact be a lot less than 3.5%.

No, the right way to do this sort of thing is to strip out the effect of exchange rates by converting pounds to dollars using purchasing power parity (PPP). Wikipedia has a nice chart which shows that, according to IMF data, in 2006 the UK's GDP per capita was about 22% lower than ours and that number hasn't changed much since then. (Although, just because they're poorer, doesn't mean they don't have lots of rich people to ruin London.)

Of course, if you really want to measure living standards -- taking into account the potential leisure as well as the potential consumption that an economy generates -- then you'd look at the value of what we produce per hour of labor (a.k.a the level of labor productivity, a.k.a. GDP per hour worked). Here the UK lags behind us by 18%.

In France, on the other hand, the level of labor productivity is 2.5% higher than it is here. Which makes it puzzling why Obama's economics guru closed his recent New York Times commentary about American productivity with the following apropos-of-nothing quip: "The world economy may be tough on your industry but look on the bright side: you could be French."

Under President Obama, we'll be eating freedom fries - but with such idealism!

Wednesday, January 2, 2008

These are my principles. If you don’t like them, I have 37 policy proposals.

So many interesting things are being said about why the new progressive movement is, or is not, fucked. I hope I’m not violating some cosmic blog law by responding to comments with a fresh post. If I am, at least let it be said that I feel terrible about it.

1. Now, some people are saying that the Right didn’t really work out an elaborate ideology over the last 40 years - it’s just an illusion. Or it’s not a real ideology, it’s just a bunch of hallucinations from crazy people; we can all safely ignore it. This argument seems to be associated with the mistaken belief that somehow in arguing for the existence of a coherent conservative ideology, I was saying it’s an attractive ideology that we should all stand in admiration of. To state what I thought would be obvious, I am not a conservative! Far, far from it. That’s the whole reason I wrote this post. There’s a difference between saying the Right has an elaborately worked-out ideology and saying you agree with it or think it should be emulated.

2. Nevertheless - at the enormous risk of making it seem even more like I’m defending conservatism (which I’m not!) - let me say that I think the attempts by some of the commenters to “prove” that the Right’s ideology is nothing but smoke and mirrors are misguided. And here, let me be clear that I’m not talking about the idiotic vulgarized ordure that gets flung by Sean Hannity or whoever - I’m talking about the ideas that Hannity is vulgarizing. First, it’s not vital that an ideology be entirely consistent or empirically well-grounded for it to win broad appeal. I recently read a brief little introductory textbook on political philosophy, written by a British professor. He dealt with all the classics – Hobbes, Locke, Rousseau, Mill, Marx, etc. For every one of these thinkers he was able to present a devastating counterargument (usually formulated by some later philosopher) that uncovered a fatal hole in the original author’s thesis. And these are the great thinkers of the Western tradition! Proving that a system of thought has serious flaws does not prove that the system is gibberish. That’s why the philosophy journals are still to this day publishing arguments by modern-day Lockeans, utilitarians, Marxists, etc., trying to improve and refine their arguments.

3. Some of the arguments attempting to prove that conservative ideology is nonsense don’t do a very good job of it. Worse, they do liberalism no favors. To say that “conservatism isn’t really about getting government off our backs” and pointing to abortion or gay marriage or wiretaps has two big problems. One is that it doesn’t work very well. The Right says it wants limited government – a government limited essentially to the task of protecting persons and property. But since they famously believe that fetuses are unborn persons – indeed, they won’t shut up about it! – banning abortions doesn’t really violate that stricture. Wiretaps are supposedly about protecting the nation from terrorists, so those are kosher. And as for gay marriage, permitting it is neither more nor less statist than outlawing it. For the state to refuse to marry gay couples is discriminatory, but it’s not a case of government interference.

4. But the real problem with the “they’re not consistent!” argument is the unstated message it sends. Every time I hear liberals critique conservatism by saying it’s not consistent about getting the government off our backs, I always think: Is that your objection? Does that mean you’d be for privatizing Social Security as long as the Republicans were consistent about all the other stuff? There is a strong odor of insecurity coming from such rejoinders; deep down, they seem to accept the premise of the ideology they claim to have contempt for.

5. I’m surprised no one has directly attacked the weakest point of my original post, which is that I never made a case for why a coherent ideology should even be necessary for a successful movement in the first place. Some people did say they thought an ideology isn’t desirable, though. There were two lines of thought here. Grodge said we should forget about ideologies - it’s pragmatism that you really need to govern a country. Anonymous said (I think): we have no time for abstruse theories and dogmas – we have to win an election and get these fascists out of office!

All I can say is that these comments represent a very different idea of what our goals should be than mine. Which is fine; for the moment, we’re all facing in the same general direction. But I do think these sentiments – once again - reflect how enormously successful the conservative movement has been. It’s a matter of scale. Many people don’t realize or remember how radically and fundamentally Reagan changed the political horizon. It’s become a cliché to say that Clinton was working within the parameters set by the Reagan Revolution. It’s true. It’s also a cliché to say that the radicalism of the Bush administration lay in its drive to push the Reagan movement forward even further. Also true. We’ve come a long, long way since 1980. (One modest indicator: The top marginal tax rate is now 35%. The Democratic candidates say they want to restore it to 39.6%. The Republicans want to make it permanent at 35%. When Reagan came in it was 70%.) What’s astonishing to me is the number of people who are absolutely up in arms over what Bush has done, ready to revolt, stiffened by righteous anger...And yet, if you probe a bit, you find that their idea of victory is more or less to get us back to 1997. Don’t get me wrong – 1997 is a lot better than 2002. But it still puts us snugly within the Reagan parameters. (And maybe that’s on purpose: So often you hear liberals saying things to the effect that “Reagan would never have done what Bush is doing.” Yeah. Good old Reagan.) Looking at it historically, the sheer scale of the difference between that vision and mine makes me dizzy. Personally, I’m fond of 1937.

6. But there’s still that lingering question of whether an ideology is even necessary for success. I can’t prove that it is. But I’ll say this. In the long term, politics only really changes because of passionate minorities. Only superficially is it affected by the average median swing voter. When passionate minorities take shape – sociologists call them social movements – they exert a powerful, gravitational force on the rest of the public.

Ordinary, day-to-day politics is about politicians and parties vying over who most faithfully embodies the electorate’s conventional wisdom. Social movements change the conventional wisdom. In fact, at any given moment, the conventional wisdom of the day is nothing more than a sedimented accretion of ideas that were once propagated by previous social movements. There are a limited number of social movements in U.S. history, but the main examples include the Republican/antislavery insurgency of the 1840’s-1850’s; the Populist movement, 1885-1896; the CIO organizing upsurge of 1935-38; the civil rights movement; and the conservative movement of the 1960’s.

We are living in an era whose conventional wisdom was largely scripted by that movement. And that will not fundamentally change unless a new social movement of some kind materializes. If it doesn’t, Mitt Romney might still lose in 2008 -- but I guarantee you another Mitt Romney will come along and win a few years later. And with just a touch of incompetence and a debt to his base, it will be more or less a repeat of the Bush years.

Here’s my point: There has never in history been such a thing as a genuine movement committed to pragmatism and throwing the bums out. It can only happen with an ideology, a creed.

No ideology, no movement. No movement, no change in conventional wisdom.

No change in conventional wisdom and we will be alternating between Bushism and Clintonism – between 2002 and 1997 -- for the rest of our lives.