Archive for August, 2011

Das Anti-Star Trek

August 29th, 2011  |  Published in anti-Star Trek, Shameless self-promotion

It's pretty cool to discover that someone likes your writing enough to translate it for free. So I'm happy to report that my [most popular post of all time]( is now available [in German]( at, which was described to me as "a blog platform with a broadly left-libertarian and anarchist focus."

Thanks to Chris from systempunkte for doing the translation. If any of my readers happen to be Deutsch-speaking, let me know what you think of it.

The Return of the Politics of Debt

August 24th, 2011  |  Published in anti-Star Trek, Political Economy, Politics

Yesterday I saw Doug Henwood [interview]( the anthropologist David Graeber about his new [book about debt]( It was a fascinating discussion, and it made me decide that I'm going to have to read the book, despite it coming in at 500 pages and being a bit overpriced in its e-book edition.

One of the themes that came up a lot in the discussion was the way that debt has historically functioned as the foundation of economic domination in a lot of different social formations. As Graeber wryly put it, conquering invaders will happily tell their new subjects that they now owe a debt that must be repaid for the cost of conquering them. And rulers in various times and places have canceled debts as a way of keeping the peace, as in the tradition of the [Jubilee year](

Graeber cited the historian Moses Finley, who [identified]( "the perennial revolutionary programme of antiquity, cancel debts and redistribute the land, the slogan of a peasantry, not of a working class". And as Mike Konczal (who was also there last night) [notes](!/rortybomb/status/106417920141295616), "The balance-sheet recession policy for USA is basically: 'abolish the debts, and redistribute the land.'".

But if we seem to be returning to a millenia-old politics of debt, that only highlights the anomaly of the past two centuries. In at least some places, "cancel the debts, redistribute the land" hasn't been the primary slogan. Rather, the demands were for ["eight hours labor, eight hours recreation, eight hours rest"](, and later for more jobs, or higher wages, or more job security.

These demands, of course, all presuppose a society of generalized wage labor, in which people think of it as normal or inevitable to work for a boss in order to procure the means of subsistence. And it is the presence of generalized wage labor--and therefore, of capitalism--that marks out the 19th and 20th centuries as anomalous. When we think about this in relation to debt, we can see that one of the distinctive features of capitalism is that it is a system that can, in principle, control the exploited classes *without* pervasive debt relations. That is, the archetypal wage laborer does not necessarily have any debt. But they also don't have the means of production to produce for themselves, hence they are forced to work for a wage. Thus, [the worker is]( "free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power."

In practice, of course, individual debt has always been an important part of capitalism, and debt and credit are indispensable to other parts of the system as well. Nevertheless, it seems to me that there is something significant about the increasing [importance of debt]( in our political economy. It may be indicative not merely of a short-term debt bubble, but a longer-term shift away from the canonical form of capitalism I just described. This is related to my previous [discussions]( of rentier capitalism, since one of the problems I've spent a lot of time thinking about is how one could maintain relations of class power if it becomes possible for people to survive outside of wage labor. I've mostly been concerned with the way in which the state can create artificial scarcity through intellectual property laws and the like (e.g., [anti-Star Trek]( But debt is an equally important part of the picture, and one which I think I've tended to overlook.

This suggests one source of the left's political confusion today. Leftists and liberals are used to viewing issues of jobs, hours and wages as the core problem facing workers. And insofar as most people are still wage laborers, that still appears to be the case. Yet it seems to me that we could easily arrive at a situation where it is technically possible for people to opt out of wage labor (due to the wonders of the Internet, [3D printers](, small-scale [communal production](, and so on) but where people are still compelled to work for bosses in order to pay off their debts. (And we can only guess at what new forms of debt will be concocted to cement this system in place. Perhaps we will all one day be born with debt, for the privilege of being born in America?) In that situation, it might appear that the fundamental problem was inadequate demand, or low wages, or something else to do with the labor market. But the real problem would be the existence of all this inviolable debt.

Indeed, widespread and large debt loads are one of the most important ways in which [my generation]( differs from those that immediately preceded it. The need to service debts--chiefly student loan debt, but also credit card debt in many cases--shapes every decision people make in their early adulthood. People who might otherwise want to sacrifice some income in order to pursue their goals are forced into corporate careers in order to pay off their debts. This has direct implications for the left: more than once, older comrades have noted to me that it has become much more difficult to live in the kind of bohemian poverty that sustained an earlier generation of young radicals and activists.

As a matter of political consciousness, it's important to drive home the point that insofar as we are burdened with debt, we are not free people--not even in the impoverished sense in which Marx spoke of the "free" laborer. In the spirit of Corey Robin's [call]( to reclaim the politics of freedom, it's time to demand freedom from debt.

And there may be some advantages to a politics centered around debt rather than wage labor. The problem confronting the wage laborer is that they are, in fact, dependent on the boss for their sustenance, unless they can solve the collective action problem of getting everyone together to [expropriate the expropriators]( Debt, on the other hand, is just an agreed-upon social fiction denoting an obligation for some act of consumption that has *already occurred*. The only way to make people respect debt is through some combination of brute force and ideological legitimacy--a legitimacy that we can only hope is [starting to slip away](

The Recession and the Decline in Driving

August 19th, 2011  |  Published in Data, Social Science, Statistical Graphics, Statistics

Jared Bernstein [recently posted]( the graph of U.S. Vehicle Miles Traveled released by the Federal Highway Administration. Bernstein notes that normally, recessions and unemployment don't affect our driving habits very much--until the recent recession, miles traveled just kept going up. That has changed in recent years, as VMT still hasn't gotten back to the pre-recession peak. Bernstein:

> What you see in __the current period is a quite different—a massive decline in driving over the downturn with little uptick since.__ Again, both high unemployment and high [gas] prices are in play here, so there may be a bounce back out there once the economy gets back on track. But it bears watching—__there may be a new behavioral response in play, with people's driving habits a lot more responsive to these economic changes than they used to be.__

> Ok, but what's the big deal? Well, I've generally been skeptical of arguments about "the new normal," thinking that __much of what we're going through is cyclical__, not structural, meaning things pretty much revert back to the old normal once we're growing in earnest again. __But it's worth tracking signals like this that remind one that at some point, if it goes on long enough, cyclical morphs into structural.__

Brad Plumer [elaborates](

> __What could explain this cultural shift? Maybe more young people are worried about the price of gas or the environment.__ But—and this is just a theory—technology could play a role, too. Once upon a time, newly licensed teens would pile all their friends into their new car and drive around aimlessly. For young suburban Americans, it was practically a rite of passage. Nowadays, however, __teens can socialize via Facebook or texting__ instead—in the Zipcar survey, more than half of all young adults said they'd rather chat online than drive to meet their friends.

> But that's all just speculation at this point. As Bernstein says, __it's still unclear whether the decline in driving is a structural change or just a cyclical shift that will disappear once (if) the U.S. economy starts growing again.__

Is it really plausible to posit this kind of cultural shift, particularly given the evidence about the [price elasticity of oil]( As it happens, I did a bit of analysis on this point a couple of years ago. Back then, Nate Silver wrote a [column]( in which he tried to use a regression model to address this question of whether the decline in driving was a response to economic factors or an indication of a cultural trend. Silver argued that economic factors--in his model, unemployment and gas prices--couldn't completely explain the decline in driving. If true, that result would support the "cultural shift" argument against the "cyclical downturn" argument.

I wrote a [series]( [of]( [posts]( in which I argued that with a more complete model--including wealth and the lagged effect of gas prices--the discrepancies in Silver's model seemed to disappear. That suggests that we don't need to hypothesize any cultural change to explain the decline in driving. You can go to those older posts for the gory methodological details; in this post, I'm just going to post an updated version of one of my old graphs:

Vehicle Miles Traveled: Actual and Regression Predictions

The blue line is the 12-month moving average of Vehicle Miles Travelled--the same thing Bernstein posted. The green and red lines are 12-month moving averages of *predicted* VMT from two different regression models--the Nate Silver model and my expanded model, as described in the earlier post I linked. The underlying models haven't changed since my earlier version of this graph, except that I updated the data to include the most recent information, and switched to the 10-city Case Shiller average for my house price measure, rather than the OFHEO House Price Index that I was using before, but which seems to be an [inferior measure](

The basic conclusion I draw here is the same as it was before: a complete set of economic covariates does a pretty good job of predicting miles traveled. In fact, even Nate Silver's simple "gas prices and unemployment" model does fine for recent months, although it greatly overpredicts during the depths of the recession.\* So I don't see any cultural shift away from driving here--much as I would like to, since I personally hate to drive and I wish America wasn't built around car ownership. Instead, the story seems to be that Americans, collectively, have experienced an unprecedented combination of lost wealth, lost income, and high gas prices. That's consistent with graphs like [these](, which look a lot like the VMT graph.

The larger point here is that we can't count on shifts in individual preferences to get us away from car culture. The entire built environment of the United States is designed around the car--sprawling suburbs, massive highways, meager public transit, and so on. A lot of people can't afford to live in walkable, bikeable, or transit-accessible places even if they want to. Changing that is going to require a long-term change in government priorities, not just a cultural shift.

Below are the coefficients for my model. The data is [here](, and the code to generate the models and graph is [here](

Coef. s.e.

(Intercept) 111.55 2.09

unemp -1.57 0.27

gasprice -0.08 0.01

gasprice_lag12 -0.03 0.01

date 0.01 0.00

stocks 0.58 0.23

housing 0.10 0.01

monthAugust 17.52 1.01

monthDecember -9.21 1.02

monthFebruary -31.83 1.03

monthJanuary -22.90 1.02

monthJuly 17.84 1.02

monthJune 11.31 1.03

monthMarch -0.09 1.03

monthMay 12.08 1.02

monthNovember -10.46 1.01

monthOctober 5.82 1.01

monthSeptember -2.73 1.01


n = 234, k = 18

residual sd = 3.16, R-Squared = 0.99

\* *That's important, since you could otherwise argue that the housing variable in my model--which has seen an unprecedented drop in recent years--is actually proxying a cultural change. I doubt that for other reasons, though. If housing is removed from the model, it underpredicts VMT during the runup of the bubble, just as Silver's model does. That suggests that there is some real wealth effect of house prices on driving.*

If you’re not dying, you’re not learning

August 18th, 2011  |  Published in Games

I've been making an effort to read and engage more with blogs written by women, because the recent online conversations I've been involved with have been oppressively dude-heavy. I've also been meaning to write about gaming, because I think people who love games and take them seriously should be out of the closet about it, and not give in to the stigma that still tends to relegate games to a status below that of other art forms. Fortuitously, I spotted an opportunity to hit both targets at once.

Alyssa Rosenberg is writing about [her experience playing *Portal*]( It's a wonderful game, which I may have more to say about later, but what caught my eye was something more general about games. Rosenberg says that one thing holding her back in that game, and in games in general, is a discomfort with dying:

> I’ve figured out one of the things that kept me from playing games regularly for a long time: I find dying in-game incredibly stressful.


> I’m surprised that there isn’t more conversation about what dying in game makes us feel about our own deaths.

I completely agree that constant player death is both a central feature of video games, and one that gets insufficient discussion. But either Rosenberg just reacts to games differently than I do, or else she has yet to get past something that I eventually dealt with when I was getting back into video games. Because while I understand the first sentiment I quoted, I think that the second is really pointing in the wrong direction in terms of helping us (or at least me) understand the meaning of video game death.

I got back into games a couple of years ago, after hardly playing them at all since the 16-bit era. And I initially struggled with in-game death as well, but I would characterize the issue a bit differently. As strange as this seems, I don't view video game death as a signifier for real world death at all; rather, death in games is a metaphor for *failure* in life. After all, death in games is unlike real world death in the only way that really matters: after you die, you get to go back and try again.

This argument sort of relates to a long-running debate in games criticism between so-called "narratologists", who treat games as vehicles for story and character and hence tend to take the story elements of the game more literally, and "ludologists" who view games chiefly as formal systems and ludic experiences (see for instance this [this debate]( between Tom Bissell and Simon Ferrari). But I think it cuts across it in some ways.

I really came to terms with the nature of in-game death when I was playing through the *Mass Effect* games, which are some of my favorites of recent years. Being bad at games and out of practice, I wasn't very good at the action portions of the games. And yet I didn't want to turn down the difficulty to "easy" just to get through the story--that felt wrong, unsatisfying, and cheap. I wanted to beat the game on one of the higher difficulties, in order to feel like I had really mastered it, and really overcome a challenge.

But doing that meant dying. A lot. And I eventually realized that what I disliked about that wasn't that dying somehow reminded me of my own mortality, but that it dredged up my fear of failure. It was as though the game was constantly reminding me how inept I was, how far my abilities fell short of my ambitions. And so the only way to get myself through the experience, and to accept repeatedly dying, was to recontextualize what failure meant. Dying no longer meant that I was bad at the game (although, proximately, it did mean that). Instead, dying meant that I had the game on a high enough difficulty level. Dying was proof that I was challenging myself, putting myself in situations where I would be forced to get better, forced to learn new ways of getting through each level.

In that way, I came to see dying as a positive sign over the course of those *Mass Effect* play-throughs. In fact, if I went too long without dying, I would take this as a sign that I needed to turn the difficulty slider up to the next level. I even coined a motto that I'd repeat to myself, in order to ward off complacency: *If you're not dying, you're not learning*. And if playing games has any positive value for the rest of my life, it's summed up in that slogan. One thing that I think has tended to hold me back in a lot of areas--and I think this is true for a lot of people who are used to being successful and precocious--is a fear of trying something and failing, and thereby being exposed somehow as an incompetent or a fraud. Games helped me get a little bit better at accepting failure as a natural part of the learning process, a way of figuring out what you need to do to be successful in the future.

That's an important thing to internalize, whether you apply it to submitting papers to journals, applying for jobs, asking people out on dates, or suggesting guitar parts to your band. Which isn't to say that games have to be ["moral vitamins"]( in order to be artistically legitimate, just that in this particular case they did sort of work that way for me.

Now I just need [Horning]( to tell me how I'm actually brainwashing myself into neoliberal subjectivity...

La loi, dans un grand souci d’égalité…

August 17th, 2011  |  Published in Politics

Sometimes, I read a couple of apparently unrelated blog posts in quick succession, and immediately spot a connection between them. I'm never sure whether I'm being insightful, or just giving in to the incorrigible tendency of the primate *homo sapiens* to find patterns in everything. Anyway, take this for what you will.

Kevin Drum [points us]( to a particularly galling story of the rich using lawsuits to push people around and get their way, in this case by harassing hot-air balloon operators for disrupting their "Moorish fortress castle" for "ultra high net worth individuals".

This made me think of [this recent post]( by Corey Robin, also discussed by [Mike Konczal]( with follow-up [here]( They're talking about Mitt Romney's new proposal to replace Unemployment Insurance with individual UI savings accounts, instead of the pooled public insurance fund we have now.

See Konczal's first post for an explanation of all the ways in which private accounts are inferior as a way of dealing with unemployment. What I'm interested in is that managing a personal UI account would be much more cumbersome than just having UI paycheck deductions go into a general fund, and that this is part of a more general neoliberal phenomenon where, as Corey Robin puts it, "all of us are forced to spend an inordinate amount of time keeping track of each and every facet of our economic lives".

This is where I made the connection with the balloonist lawsuits. The underlying theme here is that in a highly unequal society, greater complexity in the institutions of the state will generally favor the interests of the rich. The more complex the law is, the more victory in court comes to depend not on who is legally in the right, but on who can spend more money on their legal team. The value of a personalized UI account will be greater, and the associated hassle smaller, for those who can afford to pay someone to professionally manage their assets. The other great example of this is the tax code, since only the rich can hire accountants to take advantage of its many intricacies and loopholes--which is why I suspect that the Republicans will never really be interested in the "lower the rates, broaden the base" genre of tax reform, even if they like to pay lip service to it.

The right has gotten a lot of mileage of out of the demand for small government. Maybe it's time for the left to make a bigger deal out of *simple* government.

Working Time and Feminism

August 16th, 2011  |  Published in Political Economy, Politics, Time, Work

NPR has a [nice little feature]( on parental leave policy in Sweden. This relates to my own research on working time, and I think parental leave is a particularly interesting case when it comes to the politics and sociology of time. That's because I've come around to thinking--partly under [the influence]( of my adviser, [Janet Gornick]( the issue of reducing working hours is connected to feminism and gender equality at a fundamental level.

That's because paid work time isn't the only working time we need to think about--there's also the unpaid cooking, cleaning, shopping, care of children and elders, and so on, that's done for free. This work is still disproportionately done [by women]( Given that fact, it's highly likely that any reform that makes it easier to reduce paid working time will inadvertently tend to reinforce the gender division of labor, in which men do paid work and women do unpaid work in the home that is not as highly valued. This moves us away from the ["dual caregiver, dual earner"]( model that I think would be preferable from the standpoint of gender equality.

As things stand now, women will generally be more likely to reduce their hours than men when the opportunity presents itself. Women may then face discrimination in the labor market because employers start to assume that men will work longer hours. This is a concern even in [a country like the Netherlands](, which has a lot of protections for part-timers and a huge number of part-time jobs, and hence is a beguiling model for shorter-hours advocates like me.

Even if men and women do reduce hours equally, there's no guarantee that the man will contribute to the unpaid labor of the household even if he's around. In the long run, the only solution to this dilemma is to figure out how to make men do their share of the housework--which means that to some extent this is a matter of cultural change that the state doesn't have much control over. Still, getting the guy to spend time in the home is a good start, and so there is still a role for well-designed policy that facilitates reductions in paid working time for everyone.

This brings us back to the Swedish parental leave model: Swedish couples are guaranteed a total of 480 days of paid parental leave, but 75 percent of this is taken by women. The Swedes are aware of this imbalance, which is why 60 of the 480 days are set aside specifically for men, and cannot be used by the woman in a couple. This is a good start, and it seems to be having some genuine impact on the gender division of labor, although it would probably be even better if we could move closer to a 50/50 split.

But since traditional gender roles are a pretty tough nut to crack, more aggressive policy is probably warranted. For instance, [this article]( suggests a policy that doesn't just replace a man's wage when he's on paternity leave, but actually pays *more* than he was making at his job. I'd be in favor of that kind of approach if that's what it takes to make us guys take equal responsibility for unpaid work.

And if Don Peck [is right]( that men are likely to face increasing difficulty in the labor market as the transition away from an industrial economy proceeds, then us guys may have no choice but to rethink our relationship to wages and labor.

The Big Short, Germany, and Toxic Financial Products

August 15th, 2011  |  Published in Political Economy

Michael Lewis's [new article]( about Germany is getting some play (although Kevin Drum [hates it](, so I figured this was a good time to dust off and extend some notes I wrote after I read Lewis's *The Big Short*. After some general reflections about the financial crisis, I deal specifically with the Germans at the end.

*The Big Short* tells the story of the financial crisis by following a few individuals who saw it coming early and placed bets against the edifice of home mortgage-based structured finance. This personalization has clear storytelling benefits, but it tends to occlude the structural basis of the entire system; nonetheless, it's possible to back out a more interesting institutional story from the book.

Throughout the book there is an implicit tension between two ways of seeing the crisis. This tension turns on the distinction between idiots and crooks--or to put it another way, between rationality and madness. One popular interpretation of the crisis, and of Lewis's book, is that the explosion of sub-prime lending and securitization was the result of mass stupidity, and that huge numbers of people simply failed to understand or account for the incredible financial risks they were taking. This is basically [the approach Ezra Klein takes]( when he quotes Larry Summers' famous remark that "there are idiots" and concludes that the crisis was a consequence of human weakness and error in the context of a system with few regulatory restraints. He reiterated this claim later, in a post [criticizing]( the documentary *Inside Job*.

Yet idiocy does not stand up as a the central causal factor behind the crisis. For one thing, it seems odd that there would be such a concentration of idiocy in the most lucrative field of the American economy, one which has been leeching the brightest minds out of the rest of the society for decades. Moreover, it is necessary to explain not only the preponderance of idiots, but the tendency for their idiocy to work systematically *in the same direction.* At one point in Lewis's book, Greg Lippmann, the Deutsche Bank trader who made millions short-selling subprime mortgage debt, refers to the market as a "tug of war", with him and the other short sellers pulling against all those who were promoting and buying mortgage-based financial instruments. Yet up until fairly late in the game, almost everyone was pulling in one direction, to the extent that Lippmann and others actually had to call new financial instruments into existence in order to short the market after 2005. This is not what we would expect from people who were just being stupid. In academic finance, the technical term for idiots is "noise traders", and they are thought to provide erratic and irrational actions that may destabilize markets but do not systematically move them in one particular direction.

As it turns out, the story Michael Lewis actually tells is about something much worse than idiots. The two most significant lines in the book are this one:

> If you wanted to predict how people would behave, [Warren Buffet's partner Charlie] Munger said, you only had to look at their incentives.

And this one:

> What's strange and complicated about it, however, is that pretty much all the important people on both sides of the gamble [on subprime mortgages] left the table rich.

This last point bears reiterating, as it's what makes the story Lewis tells so infuriating. Though the financial crisis produced a great deal of institutional calamity--the disappearance of Bear Stearns, Lehman, and many smaller banks and investment houses--the individual people responsible for the worst decisions of the last decade managed to greatly enrich themselves even as they nearly annihilated the global economy. No doubt, some of them could have made even more money had they been more astute about the system they were building. And it's undeniable that some of them, particularly toward the end, were getting high on their own supply, taking the the bogus triple-A ratings on toxic subprime garbage at face value even though they had an inside understanding of the con game they represented.  But ultimately, these people--who in a just world would be penniless and serving extended prison terms--walked away with millions of dollars. There are plenty of apt descriptions for people like that, but "idiots" isn't the one I would choose.

Much of the dramatic action in *The Big Short* turns on some variant of the old gambler's adage that if you don't know who the fool at the table is, it's you. His protagonists spend page after page desperately trying to find the fool in the financial markets, lest it be them. And yet reading between the lines, we can see why they had such trouble: the fool was not at the table. The fool was all of the *rest* of us: it was the taxpayer, and the U.S. government, which ultimately took responsibility for picking up the pieces and stabilizing the financial system after its cataclysmic meltdown. We've come to accept that the high ratings given to subprime mortgage bonds were a fiction or a fraud, but in a sense they were accurate: their risk had been implicitly moved elsewhere, to the government. The key participants in the events of Lewis's book were never in any great danger of not getting rich, and hence it could be argued that they correctly perceived their risk and that they successfully followed their incentives.

Nevertheless, there are some particular cases of idiocy that are interesting in their own right. One particularly important one concerns a recurring customer who became very important to the subprime market: German institutional investors, or as they are called at one point, simply "Dusseldorf". Lewis never really tries to explain their outsized appetite for murky subprime instruments. But if you know something about how German capitalism works, and how it differs from its Anglo-American counterpart, then passages like this make perfect sense:

> By early 2005 Howie Hubler had found a sufficient number of fools in the market to acquire 2 billion dollars' worth of these bespoke credit default swaps. From the point of view of the fools, the credit default swaps Howie Hubler was looking to buy must have looked like free money: Morgan Stanley would pay them 2.5 percent a year over the risk-free rate to own, in effect, investment-grade (triple-B-rate) asset-backed bonds. The idea appealed especially to German institutional investors, who either failed to read the fine print or took the ratings at face value.

In the language of the ["varieties of capitalism"]( school of comparative political economy, Germany is what is known as a "coordinated market economy" or CME, whereas the U.S. is a "liberal market economy" or LME. The structure of the market in a CME is fundamentally different in that it relies heavily on coordination between firms, based on tight long-term inter-linkages and above all, trust. This contrasts with the more ruthlessly competitive ethic of the LME, in which formal contracts take the place of reciprocal trust relations. As Peter Hall says in the linked essay:

> In coordinated market economies, firms depend more heavily on non-market relationships to coordinate their endeavors with other actors and to construct their core competencies. These non-market modes of coordination generally entail more extensive relational or incomplete contracting, network monitoring based on the exchange of private information inside networks, and more reliance on collaborative, as opposed to competitive, relationships to build the competencies of the firm. In contrast to liberal market economies (LMEs), where the equilibrium outcomes of firm behavior are usually given by demand and supply conditions in competitive markets, the equilibria on which firms coordinate in coordinated market economies (CMEs) are more often the result of strategic interaction among firms and other actors.

Both "failing to read the fine print" and "taking the ratings at face value" are therefore more defensible positions in a CME, event at the level of a purely pecuniary economic logic: deceiving one's counterparty would be counterproductive, since the cost of the long-run damages to one's trustworthiness and relations to other firms would outweigh any short-term financial benefit. Needless to say, that's not how things work in the United States; perhaps the best advice to the Germans in future negotiations is that when you're dealing with Americans, you should always read the contract carefully!

What's more, German banks were latecomers to the high-flying finance game. Says [Richard Deeg](

> The reform and transformation of the German financial and corporate governance systems goes back to the mid-1980s when the large German banks launched a concerted effort to promote Germany's 'underdeveloped' securities markets. This effort accorded with the beginnings of a major reorientation in the banks' business strategies from a traditional focus on commercial banking to a focus on securities market-oriented investment banking. During the 1990s many large non-financial firms also became reform supporters because they, no longer relying on bank loans for external funds, instead preferred to see the introduction of modern capital market products in Germany that could increase their financial flexibility. Because German investors could not be expected to increase their demand for securities as rapidly as the banks needed, the strategy came to rest importantly upon wooing foreign institutional investors. The reform coalition thus found itself increasingly compelled to adopt many of the Anglo-Saxon market regulations and norms demanded by these investors.

So German bankers and investors were a) relative novices at modern securities wizardry; b) steeped in a capitalist culture quite different from the dog-eat-dog rapacity of the American version. Lewis hints at these explanations in places in his recent essay on Germany. Here's something about the Germans as latecomers:

> Everyone thought that German bankers were more conservative, and more isolated from the outside world, than, say, the French. And it wasn’t true. "There had never been any innovation in German banking," says Enderlein. "You gave money to some company, and the company paid you back. They went [virtually overnight] from this to being American. And they weren’t any good at it."

And there's this bit about a banker projecting his CME norms onto Americans:

> In the bargain, he tells me why the current financial crisis has left so unsettled the German banker's view of the financial universe. In the early 1970s, after he started at Commerzbank, the bank opened the first New York branch of any German bank, and he went to work in it. He mists up a bit when he tells stories about the Americans he did business with back then: __in one story an American investment banker who had inadvertently shut him out of a deal hunts him down and hands him an envelope with 75 grand in it, because he hadn't meant for the German bank to get stiffed.__ "You have to understand," he says emphatically, "this is where I get my view of Americans." In the past few years, he adds, that view has changed.

> "How much did you lose?" I ask.

> "I don't want to tell you," he says.

> He laughs and then continues. "For 40 years we didn't lose a penny on anything with a triple-A rating," he says. "We stopped building the portfolio in subprime in 2006. I had the idea that there was something wrong with your market." He pauses. __"I was in the belief that the best supervised of all banking systems was in New York.__ To me the Fed and the S.E.C. were second to none. I did not believe that there would be e-mail traffic between investment bankers saying that they were selling … " He pauses and decides he shouldn't say "shit." "Dirt," he says instead. "This is by far my biggest professional disappointment. I was in a much too positive way U.S.-biased. __I had a set of beliefs about U.S. values."__

What Lewis doesn't seem to get is that this trusting attitude isn't just some ineffable quality of Germanness. It's built into the structure of German political economy. And I think that's a better explanation of what happened in Germany than Lewis' appeal to national stereotypes.

The Waning of the Bond Market Vigilantes

August 12th, 2011  |  Published in Political Economy, Politics

It wasn't so long ago that American politicians lived in fear of the bond market. During the Clinton administration, James Carville [famously said]( that "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." That phenomenon gave rise to the concept of the "bond market vigilantes", which Krugman [loves to employ](

But today, the bond market vigilantes are not much in evidence. Or rather, they are in evidence, but they suddenly seem unable to have much of an impact on U.S. fiscal policy. Bill Gross, of the ludicrously enormous bond fund PIMCO, is running around screaming about [the need for more borrowing]( and [more stimulus]( But he has no effect, because it turns out that while bond investors have powerful ways of constraining U.S. government borrowing, they have only indirect and weak means of expanding it.

The United States has a large debt that is routinely [rolled over](, and it generally runs a budget deficit (Clinton interregnum aside). If bond investors start demanding higher interest rates on government debts, this immediately raises the cost of borrowing for the U.S. government. This, in turn, has knock-on effects throughout the economy, as interest rates rise for everyone and economic activity is thereby constrained. For these reasons, the U.S. government has powerful incentives to avoid doing things that cause the interest rate on treasuries to rise.

Today, however, we find ourselves in the opposite situation: what the bond market seems to want most of all is for the U.S. to borrow more money and stimulate the economy. That's the best explanation for the incredibly low yield on Treasury bonds, which is [negative in real terms]( over some time periods. And yet the U.S. is not borrowing more; instead both parties are demanding [insane policies]( that will cause a second recession, ostensibly based on fallacious notions about the magical effects of budget cutting and a [nonsensical conception]( of the relationship between government and household finances.

The problem here is that the power of the bond market is asymmetrical. When the interest rate on Treasuries go up, this immediately makes all of the government's activities more expensive, and hence forces changes in fiscal planning. But when the interest rate falls to near zero, this only presents an *opportunity* for expanded borrowing, an opportunity that can easily be thrown away if the political system is too insane and dysfunctional to take advantage of it.

Hence the bond vigilantes sit on the sidelines, impotent and hopeless. Just like the rest of us.

On the Productivity of Unemployment

August 11th, 2011  |  Published in Political Economy, Work

There's a joke [going]( [around](, due originally to [Daniel Davies](*, to the effect that unemployment is an extremely low productivity "industry", and that "There have been no major efficiency gains in unemployment in the last hundred years." All of the linked bloggers use this to make a case for an "industrial policy" of sorts, oriented toward moving people out of unemployment into some higher-productivity activity.

That's all well and good, but it made me think: maybe we should also be figuring out ways to increase the productivity of unemployment! That's a point that's sort of implicit in some of my [recent]( [posts](, where I argue against the standard paradigm in which wage labor seems to be the [cause of, and solution to, all of life's problems]( If you believe, as I do, that it's a good idea to reduce the amount of time people spend in paid employment, it would also be nice to increase the productivity of whatever they do in the time thus freed up.

And I would argue that we *have*, in fact, seen improvements in the productivity of unemployment--or at least, of *non*-employment. People without jobs can work in a community garden, or contribute to Wikipedia, or post funny videos on YouTube. Those may be small things, but they do improve our collective well-being--and two of them would have been impossible ten years ago.

Improving the productivity of non-employment is what I think Juliet Schor is on about in her recent book, [*Plenitude*](

> It’s based on an idea that’s novel to the sustainability discourse, but is has been around in standard economics since the 1960s: __when the returns from one activity fall, shift one’s energy and time into others.__ This is the theory of time allocation pioneered by Chicago economist Gary Becker. It’s also just plain common sense.

> In the year 2010 __this approach counsels shifting out of [Business As Usual] jobs, to local, small-scale activity that helps reduce dependence on the market system__ and lowers ecological footprint. Why is this attractive? One reason is that the BAU market has less to offer. It is failing to provide adequate jobs on a staggering scale. __An estimated 26 million Americans are either unemployed, under-employed or have gotten discouraged and stopped looking for work. That problem won’t go away even if the recovery continues.__ Incomes have fallen and government services are being cut. Wall Street and the wealthy have protected their outsized share of society’s production, but for the vast majority the prognosis is austerity.

There's some localist, "small is beautiful" stuff going on here that I don't particularly care for, but this is still a valiant attempt at crafting a new paradigm. And Schor does at least understand the importance of [replicators](

\* *By the way, Daniel Davies is the best blogger in the world. That's just a fact, you should read him if for some reason you don't already. [Who are the greatest bloggers of all time?]( Think about it. D-squared, d-squared, d-squared, d-squared and d-squared. Because he spits hot fire.*

The Dialectic of Peak Oil

August 10th, 2011  |  Published in Political Economy

Years ago, I had a brief infatuation the theory of [peak oil]( This is the idea that we are now reaching, or will soon reach, a point at which the total amount of oil being produced in the world begins to decline due to a lack of new discoveries. Since the global economy is still highly dependent on oil to fuel economic growth, this is obviously a big problem.

People often talk about "running out" of oil, but that is not really the right way to think about it--the effects of diminishing reserves of easily accessible oil will be more complex than that. Hegel and Marx liked to talk about the dialectical relationship between "essence" and "form of appearance": the former is the more fundamental but not directly perceptible substance of things, while the latter is the concrete form in which those essences are reflected. Marx saw his work as an attempt to work from capitalism's form of appearance--wages, profits and rent, markets, business cycles, and so on--to its underlying essential forms, which turned out to be value and the process of capital accumulation.

With regard to oil, the essence of the situation is more or less as the peak oilers have it: less new oil reserves are being discovered, and what is discovered is much more difficult to extract. However, the form of appearance of this crisis will not necessarily be skyrocketing oil prices, as everyone seems to assume. Paradoxically, the aftermath of peak oil may turn out to be a period of *low* oil prices, accompanied by a prolonged global economic slump.

How is this possible? Well, think about the sequence of events that would unfold as the supply of oil declines. It's true that all things being equal, an additional barrel of oil should become more expensive. With most commodities, we would expect this to lead to people consuming less oil, leading to the price falling again. This is more or less the optimistic view of the situation: as oil becomes expensive, there will be an incentive to switch to other more sustainable energy sources, and everything will be OK in the long run.

However, oil is not a normal commodity--it is [highly inelastic](, meaning that large changes in price have only a small effect on the demand for oil. This is because we are so dependent on oil, and there are still no good large-scale substitutes for it. It is, at the very least, uncertain whether we will actually be able to make a smooth transition to solar, wind, and other green sources of energy.

But if demand for oil is inelastic, then a rise in price will mean that everyone in the economy will have to spend more money on oil and oil-derived products, and less on anything else. This additional revenue will mostly be captured by oil companies and the governments of the big oil-producing countries, which will seek to reinvest their profits in the economy. But there will be a major shortfall in demand, precisely because the rest of the economy is being starved of demand because of high oil and gas prices.

This shortfall in aggregate demand, in turn, [leads to an economic slowdown]( If the economy slows down enough, and there are enough idled resources, then demand for oil will also fall--leading to a fall in energy prices. Indeed, there is evidence that this is [exactly what has happened]( in our recent recessions. And now, with stock markets tanking and another recession looming, oil prices are [down again]( Thus it turns out that the form of appearance of peak oil is low oil prices combined with a weak economy.

This dynamic is also relevant to ["Great Stagnation"]( theories that explain weak economic growth as a function of slowing innovation. Tyler Cowen has an [interesting post]( today in which he shows multifactor productivity in Canada, broken down by sector. It turns out that productivity is way up in the goods and manufacturing sector, but way down in mining, oil, and gas extraction. As Cowen notes, this "reflects Canada’s move from 'suck it up with a straw' oil to complex, high cost extraction tar sands projects and the like."

I don't think this dynamic is inevitable--we could, if we wanted to, invest a lot more money in de-carbonizing the economy and finding new energy sources. But that requires understanding the problem correctly, and unfortunately most people aren't very good at thinking dialectically. So if we are in for a prolonged period of slow economic growth, people will become susceptible to all kinds of [false explanations](, and will be reluctant to consider the possibility that a resource constraint lies beneath the phenomenon of economic weakness.


This argument isn't really original to me. I picked it up from Mark Jones, who was an early Internet Marxist, a founding editor of the journal *Capital and Class*, and an all around strange and beguiling intellectual figure. He died a number of years ago, and it's sadly quite difficult to track down his various online writings these days. But here's [a post]( that lays out a somewhat more hyperbolic version of the same theory I've just described:

> This is first of all and above all, an accumulation crisis, not a resource crisis. The oil will never run out, and most of even known, easily-accessible conventional oil reserves will probably stay underground forever and never be pumped. As for non-conventional resources like tar-sands--let alone hydrogen--they will remain mere fantasy. In the wake of a severe slow-down, neither capital--nor, crucially, effective demand--will exist capable of bringing the alternatives onstream. World capitalism can slip into a post-crash equilibrium state which can endure for decades or longer, amid unprecedented social stress and immiseration. To say this is not (obviously) to seek it or to welcome it; but only by resolutely analysing historical processes, and not by hiding from them, can we hope to positively influence outcomes.