Down To The Last Arrows
With a dysfunctional Duma and Administration, lonely eyes turn to Joe DiMaggio the Fed for economic hope. Krugman advises don’t expect much. We agree. It’s always a comfort to know the Fed sees the same color sky as the rest of us. Still, in practical terms, there’s not much it can do. The easiest course is play to market and consumer psychologies. Which is what this piece in the WaPo is all about. ‘There’s alot we can still do.’ Except there isn’t.
Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.
The main floated idea? It’s a recycle. Even before Bernanke became Fed Chairman, based on his study of Japan’s ‘Lost Decade’, he noted that the Fed could do more than drive short term rates to zero or historic lows re mortgages, etc. The Fed could venture into influencing long term and private debt. How? By ‘signaling’ markets its commitment to keep such rates ‘exceptionally low’ for an ‘extended period’. To be effective this language would require an implicit commitment to embark upon (most likely) a public asset (bond) repurchasing program. This ‘comfort letter’ would in turn stimulate economic activity.
Except that even here, the Fed’s hands are largely tied, despite assurances offered by, say, the President of the St Louis Federal Reserve Bank in the WaPo item. Krugman refers (ironically) to a Goldman analysis as a guesstimate: to achieve our current near zero short term rates would be the equivalent of the Fed embarking on $10 trillion in asset purchases. If the short-lived Fed 2008-2009 actual long term asset purchase program of around $2 trillion is perceived as unprecedented and ‘massive’? So we take Krugman’s point.
Obama’s folly of premature ‘bi-partisan’ surrender to ineffectual tax cut demands gutted the already inadequate stimulus package. The ‘Summer of Jobs’ comes home to roost. ‘Mission Accomplished’, indeed. Wither economic policy now with a radicalized demos? Disturbing data suggests Democrats in power have accomplished the once unthinkable — nudging Boomers generationally to embrace the irrational Rightists. Losing this demographic is more than just a partisan political body blow per supra.
We haven’t seen the generational preference data ourselves. We don’t dismiss it, however. David Winston, while a proud partisan, is deeply committed to the empirical. This from personal experience. We tend to give both his analysis as well as generalized glosses more credence than from others that come to mind.
Go team.
On Andy Grove, Mercantilist Schwerpunkts And Free Trade Kool Aid
If one is serious about re-industrializing the United States to create high wage manufacturing jobs, one probably should shun hapless pundits and other ideological purveyors. To be fair the braying comes from all sides: ‘Free Markets’ cant or the tiresome “What Would Hamilton Do Today”? As par for the course, the most visible ‘experts’ provided to us on the cable news wall often can’t read a spreadsheet, think EBITDA is a new social networking site, haven’t actually worked for an industrial company or consistently met a payroll.
Economic development requires a more serious mind. But then, one could say the same about war. And look at that.
Even more than killing dark people, a sustained development concept in Bubble-addicted America is particularly challenging. Americans expect to earn inflated income by performing essentially meaningless and frivolous output. Haven’t we essentially outsourced the wars, too?
Andy Grove laments the decline of the hi-tech industry’s domestic manufacturing. He’s right that it is essentially now a (temporary) branding and marketing channel for Asian manufacturers. “Made in China, Designed By Apple In California”. Our friend comment shared this link from Grove on point: Sadly, one has to ask: where precisely have you been for the last 30 years, Andy? (Let’s overlook the Intel billions invested in India, Malaysia and China along the way.)
Americans we will assert seem generally uninterested in development matters, especially historical economic development. So it’s important to put forth first principles to frame a conversation. Say a president visits a failed state like Michigan. He declares ‘new manufacturing jobs in America’ [cue ritual applause] will come. But before that can happen, we should be clear on what’s the goal of American economic activity? To promote *consumer* welfare measured in the here and now? Or to develop a social and economic infrastructure that maximizes *societal* welfare in the medium to long term? An infrastructure to enable other economic and social expenditures (military, standard of living, life expectancy, etc.)?
The first is America 1960-2010; ‘consumer welfare’ is the metric. The second? Delayed consumption, lower standards of living and capital accumulation for the future. How one answers these questions determines divergent paths.
For statesmen or serious students of Great Power history (this excludes by definition march of trumpets Boys Life ‘history’ ala Victor Davis Hanson et. al.), there are 4 essential, successful modern development models: (a) the British until 1870s (the end of the mercantalist First Empire and commingling with ‘Wealth of Nations’ and ‘White Man’s Burden’ era); (b) the Germans from 1870-1914; (c) the American from 1880s-1960s; (d) the Soviets 1917-1970s; (e) Japan from 1945-1991; (f) the Four Tigers (copying Japan); and (g) China (1980s-today). The latter three are essentially variations on the Japanese dual economy mercantalist approach. (The BRICs are more notional, still in China’s shadow).
The Conservative Movement Elites Pine For Thermidor
How odd to see the Movement Establishment fragment so. Some dig in for their Stand against the tea bagger sans culottes. Just a year ago *they* were Jacobins. Now they are bewildered, revealed wearing Versailles finery, muttering about the divine right of Original Direct Mailers. Others want to throw down their handkerchiefs and join the ‘rabble’ (at the front, naturally).
CPAC 2010 — to switch revolutionary references — also reminds one of Stalin’s victory against his internal opposition 1924-1937. Recall he maneuvered first against Trotsky from the right and then against Zinoviev, Kamenev and Bukharin from the left. How? Stalin was an organization man. He knew he had to destroy the Old Bolshevik Guard who controlled the Party. They remembered Lenin and more importantly knew the truth about Stalin and his marginal achievements before, during and after 1917. One of Stalin’s weapons? Open Party membership flood gates to the vast masses. He overwhelmed and diluted the Old Bolsheviks until they were nothing. And the new Party owed Stalin personally everything.
We know the analogy is a caricature. The Movement Establishment’s not there yet. And more importantly, there is no single malevolent will orchestrating events. The sua sponte dilution still wreaks havoc. Some ‘Left’ [sic] and progressive blogs noticed the unusually large youth contingent. It’s true. It’s also more than twenty somethings on a ‘most excellent’ road trip. This wave of new cohorts destabilized CPAC’s club psychology and sensibilities. We’ve attended CPAC on and off since Reagan’s early years. The Movement Establishment is rocked on its heels. Values wedge entrepreneurs suffered unheard of irrelevance and the indignity of an openly gay presence. The Movement Establishment’s gagged silence provoked bitter recriminations among many CPAC old timers. Only one obscure figure really ranted, and then unwisely before a Ron Paul audience. (Talk about not knowing his demographic).
Paul’s ‘f u’ straw poll win underscores the Movement Establishment’s dismay. CPAC hijacked from within. They may not quite feel Zinoviev and Kamenev’s bewilderment at their expulsion from the CPSU. After all, it’s still their institutions the party crashers want to join. But the uncertainty is real. Even as some like Newt try to ride the tiger for all it’s worth others want to put the rabble in their place.
Some conservatives we know point to the pre-CPAC ‘Mount Vernon’ kumbaya manifesto, seeking to paper over differences in the anti-Obama factions. The scrap of paper/html code refers in part to a more sane, rational conservatism. This, we are told, shows conservatives can be content to participate in liberal democratic pluralism. It’s doomed.
Upon reflection we think our earlier seemingly flippant comparison of the tea partiers to punk rock does apply. A Movement dedicated to nihilism and social destruction find themselves as out of touch, self-indulgent, insufficiently radical or nihilist. They are now, to quote Dr. Evil, ‘the Diet Coke of nihilsm.’ Spitting indeed. Amid all his incoherence, that was Beck’s clarion call. If the tea partiers are to be more than punk’s flash in the pan they will need that single will (or collectively single) to put their dilution to practical political effect.
Some famous Movement figures say to us quietly they wait for their own Thermidor. Even as they hedge bets and praise the new era. A time for ‘reaction’ to tamp down, er . . . Reaction. It’s a 360 degree firefight. All still despise the James Bakers, the GHWB’s ‘we have mortgages, not ideologies’ RINOs (and one supposes Carly’s FCINOs). If history is any guide, their Thermidor is still a ways off. Radicalism must overreach its climax. CPAC 2010 suggests we’re not even close. And who in the Movement Establishment has the spine to act in any event?
The Democrats deservedly face a political nightmare of their own making. Their problems are so much more pervasive and systemic than the Movement schism (so far). Americans are being treated to the spectacle of two disintegrating political forces grasping for power. But there is one difference. One of them is totally energized, consciously craving power for an admittedly incoherent, eliminationist, zero-sum Manichean agenda. The other? They’re playing badminton waiting for a third party referee.
‘How’s that bi-partisanshipy thing working out for ya, Mr. President?’
The American Disease
Among the chattering classes and discount store habitues, the conversation for once is the same: how low and how long? The Times finally writes about Bernake’s Princeton background and his multi-year (decade) study of Japan’s “Lost Decade”. Nice for them to read their own Op-Ed page — Krugman addressed this almost three weeks ago. How embarrassing for them both that USA Today first ran a far more in depth and useful article earlier in January.
American financial leaders (such as they are) and economically illiterate political leadership do have the advantage of studying the Japan case (as in a Harvard or Wharton “case study”). All of the above links emphasize differences remain. Yet none, however, address the most important: what Japan expert Chalmers Johnson and Ron Paul both hammer home — the overt and hidden costs of Empire. Japan in the 1990s did not run massive deficits to maintain a Syracuse Expedition (again) to occupy Micronesia. Their deficits, while unproductive, at least were directed towards infrastructure improvement (and Diet crony construction companies). Our deficits have no productive ROI at all -short or long term.
Most of the Japanese first tier economy (those keiretsu formed to attack global markets; the second tier is the protected, amazingly inefficient Japanese domestics economy) eventually succumbed to the Pearl River complex. Sony and other famous brands now manufacture everything from TVs to computers there. Others are determined to retain control of their technological destiny. These few fight ferociously to retain both R&D and manufacturing in Japan. It may be a losing cause.
As you know well, the U.S. long ago abandoned all of this, and wrote off the foundations for the middle and aspiring middle class. Now the oursourcing migrates upwards to the intellectual and technical class — R&D and manufacturing both go to China, Malaysia, Taiwan and elsewhere. Or H1(B) visas for importing less expensive talent here.
Financial returns to institutional private equity are all that matters. This is the other side of American fragility — there is no there there to cushion reverses in an American financial abritrage facade. Greenwich Connecticut and other small, opulent oasises of liquidity are shrinking in a growing desert. Brittle? One is reminded of Liberty Ships snapping in half in the middle of the Atlantic due to faulty welds. Snap. And gone. Paulson in his recent trip to Tokyo engaged in “frank” talks about the U.S. economy and finances.
This didn’t happen overnight. We remember sitting in on some of the largest trade and commerce organizations meetings in the early 1990s to 2000s. They would bring Chinese officials to meet privately with senior American executives. Outsource and all will be yours. While offering lessons and success stories on how to do it well. John Chambers of Cisco famously said he wanted to turn Cisco into a Chinese company. His fault? Candor. A few footsteps they say determine a path. We are five miles down that trek.
Tragically, Clyde Prestowitz and others in the 1980s foresaw much of this (although his analysis is similar but distinct from Buchanan’s more racially nativist approach). One of Prestowitz’s more colorful stories involved negotiating “fair trade” with the Japanese — i.e., we would allow them to hollow out the American economy with subsidized keiretsu (turning Detroit much to Japanese delight into a modern Dresden, something unachievable in 1941-45) but ask them to buy the few remaining items we actually did produce, in this case satellites. In typical Japanese fashion, they complied and visited Hughes (at that time a meaningful company that did more than advertise for broadband to remote rural areas). Hughes’ officials called Prestowitz, enraged. All the Japanese wanted to buy? The blueprints. Eventually the American concept of purchase of actual goods prevailed. The Japanese offered to buy mops and buckets (according to Prestowitz).
American ideology long ago allowed the Japanese to act so. And now the Chinese similarly eviscerate our economy and social infrastructure. The famous case of Zenith v. Matsushita comes to mind. There, Zenith, an actual American-based manufacturer of televisions, claimed the Japanese dumped TVs on America below costs and thus fair market value. American jurists schooled in the pernicious “Chicago School” and others on the bench ruled in favor of the Japanese. How absurd. Matsushita is a company. A company exits to make profits and return value to shareholders. Ipso facto it cannot and would not sell mass quantities below cost when it is not in a monopoly position (or allegedly seeking such). You know the rest. What you may not know how many Japanese cackled at the stupid Americans openly in print and books. Americans, of course, don’t read Japanese. And Ambassadors at the time Mansfield and later Armacost suppressed many – the majority — of ‘negative’ cables back to Washington. We have little reason much changed until the mid 1990s. Perhaps the most recent covered Elvis impersonators in Tokyo.
But we digress. The American housing slump promises to be merely one of the last nails in the artificially inflated American lifestyle. We agree the swaggering “Bring ‘Em On” Imperial self image will suffer a deflation more lasting than strategic stalemate or defeat in Iraq. Long term $100 oil is a cruel additional cut. It used to be that an Empire of Liberty referred to (at the time massive) North American continent. A first step is a necessary audit of our strategic commitments abroad and to realign our force structure accordingly.
This will be a challenge. Consider the Japanese predicament of the early 1990s mentioned in the links, supra. Theirs was limited to the stunning Chinese expansion. Throughout the 1990s, for example, the Chinese were building a Verizon or SBC (now purchaser of AT&T) a year (think of that for a moment). You may have seen Tom Brokaw mention something along these lines for 35 seconds in 1997 after covering a chemical fire in Strawberry Point, Iowa. We face something far different: a strategic challenge with our largest creditor. We can not think of any historical parallel. A Suez Crisis will not even be needed. One phone call. Or shift in holdings. And it’s over.
Can this conundrum be overcome by Stakhanovite Audacity? Even if the second flight after Tehran would be to Tianamen Square with an interest payment cheque? Doubtful. The Chinese have centuries of eloquence and Confucian respect for experience to rebuff orations from a 40 something.
Reality is often cruel to lofty rhetoric. A more arduous path lies ahead: sustained, coherent and explicit explanation in direct and often blunt terms to the American people. A period of possibly painful realignment and rebirth is the needed ‘change’. The goal? An escape from seemingly eggshell disintegration to a more stable and maintainable future. (Please save hollow posturing of “You are too negative and Yankee ingenuity and genius always wins blah blah blah”).
Can one find the political skills while avoiding “malaise” impotence? Projecting visceral demonstration of proactive executive action — while avoiding the impotence of the “Rose Garden strategy”? The horizon is not promising. Still, the easiest part is realigning foreign policy ends and means. Strategic calculations based on interest rather than romantic (or camouflaged as such) ideology are more within Executive means — as we have painfully learned under this regime — even if pursued without Addington’s destructive zeal. Add a Commission or three, some hearings, and one at least has a beginning.
Rebirth? More difficult. Restoration of a viable middle class and the willing (one hopes) or frankly political recognition by the plutocratic elites that this too is in their self interest will invite a maelstrom. Yet even those elites are beginning to feel the pinch but don’t understand why and blame Sarbanes Oxley, legislation enacted after the Enron, MCI and other fiascos of corporate deception. Regardless, a viable middle class will not be based on selling services to each other. The most obvious reason? Services are not exportable in sufficient scale to make a meaningful impact (except when we outsourced the whole bathtub to Bangalore). The political combat involved on any of this will be explosive. Beyond the most dynamic moments of the 1990s — or even 1960s.
A key barometer of success will be eliminating the cant that America should maintain the by now socially suicidal notion of “free trade” or even its pathetic cousin “fair trade” as a substitute for thought. Even TMZ viewers feel in their bones this to be untrue. At some primal level, they recognize that exporters overseas simply want access to the temporarily most lucrative consumptive market. How to finesse rebirth when our rival and creditor holds the cards?
We must also ask, even if this is accomplished, will Americans actually want to work making things? Will they recognize the addiction of buying electronic trinkets that become obsolete in 18 months and return nothing to the American industrial or social fabric is a debilitating habit? It’s a non-trivial question. Americans are bombarded by TV, magazines and neighbors to seek careers where offices are work free, cars are expensive and almost everyone sleeps with everyone else. Knowing this is fantasy while trapped by “golden handcuffs” in a hated office job offers no reprieve. Work still consists of sitting at a desk in an air conditioned office. Or filled with endless meetings with other ‘similarly productive’ colleagues.
Perhaps it is all asking too much. To realign foreign strategic interests while seeking domestic realignment is a gargantuan task. Each alone is a huge undertaking. Both or one could fail — perhaps in epic electoral disaster. Oh, the humanity indeed. Yet we see few other ways out.
McCain sadly offers not even a sliver of hope. (We say this acknowledging we drank the Kool Aid there in 2000 contra the Warlord). HRC? Difficult to say. Triangulation is always a gnawing legacy. Though she has the guts we think to make hard calls. Perhaps compromise might be worse than a course pursued and articulated in full. The Crown Prince? His new era of Change we still believe will get crushed like a bug by the permanent Imperial City and plutocratic interests. Once he is in office — to mix metaphors — the schools of political reality pirahanas will swerve in for the kill. And the 25 year olds now lionized on news magazine covers will play Radiohead some more, tune out and talk about the fix. Maybe not, and Obamamania will be more than a car wreck. Still not a roll of dice we are willing to take at this remove.
Perhaps MoDo will guide us.