Archives for category: Economics

I used to think I was poor. Then they told me I wasn’t poor, I was needy. Then they told me it was self-defeating to think of myself as needy. I was deprived. (Oh not deprived but rather underprivileged.) Then they told me that underprivileged was overused. I was disadvantaged. I still don’t have a dime. But I have a great vocabulary.

– Jules Feiffer

Roger Cohen’s New York Times Op-Ed piece on Greece’s fiscal fiasco, published yesterday, is worthy reading if only for introducing me to a new, perhaps era-defining, term. While I’ll admit that the word doesn’t have quite the effluence or verbal flourish or catchall potential or ease of pronunciation of other words deployed in various class-wars of the past to describe the people getting fucked (see proletariat, for instance), it does have a certain ring to it, the specific qualification of which I’m not entirely certain:

I’ve never seen Europe in such dire straits. Greece is full of the aganaktismenoi, or the outraged, who resent the sharp cuts and sales of state industries made necessary because there is no drachma to devalue in order to regain competitiveness.

Like protesters in Spain, they feel the poor and unemployed are paying for the errors of politicians, the evasions of the rich, and the whole globalized system that rewards the tech-savvy initiated while punishing those left behind.

Of course, categorizing is always problematic. History seems replete with one side (the fuckers) inventing names to describe the other (the fucked), and vice versa (from bon sauvage to robber baron; from welfare queen to yuppie); but I don’t frequently come across words or terms that go past the merely nominative and attempt to describe what the nominal group is actually feeling. This would require some empathy on the part of those creating the name. With that said, I wonder which side came up with “outraged” – the fuckers, the fucked, or (here’s a party I didn’t consider) the cognoscenti.

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Ortiz: Thomas Anderson/Newscom; Bonner: Danny Bollinger/Getty Images; Parros: Jeff Gross/Getty Images; Valdes: Adrian Dennis/AFP/Getty Images; Janikowski: Ezra Shaw/Getty Images

Roger Lowenstein’s review of Charley Rosen’s Bullpen Diaries: Mariano Rivera, Bronx Dreams, Pinstripe Legends, and the Future of the New York Yankees in Bloomberg Businessweek, provides some great insight, by way of an idiosyncratic look at baseball, into our culture’s illogical addiction to specialization and the general human tendency to become guided by misperceptions simply because they’re measurable:

The aphorism “You manage what you measure” can explain a great deal of the world’s foolish behavior. The corporate chief executive who tries to kowtow to Wall Street rather than attend to business is, after all, simply enhancing his company’s stock price—which is what we measure.

The most savory part of the piece, however, is Lowenstein’s unorthodox claim that the closing pitcher may be much less important than we think. Indeed, that the very notion of preserving a great pitcher until the closing innings of the game is almost tantamount to the Lakers saving Kobe for the second half.

To fully understand the illogic of designating the closer exclusively for ninth-inning work – and other so-called specialists for the seventh and eighth innings – one must remember that runs are equally valuable no matter the inning in which they are scored. This extreme specialization is motivated less by strategy than by managerial insecurity. A game lost in the eighth inning provokes the question of who was pitching and why the manager didn’t yank him. A game lost in the fourth is simply a loss.

So, by extension, the more than $130 million Mariano Rivera’s earned during his, albeit exceptional, career as a closer is illogical as well (Rivera’s role is so specialized he’s only called out of the bullpen in the ninth inning and only if the game’s close – a fact that jacked the nominal value of each out he pitched last year up to $83,000). One has to ask, taking Lowenstein’s cue, ‘Is an out that comes in the ninth inning worth that much more than one that comes in the first?’ Of course, not everything involving dollar signs is amenable to reason. But Rivera’s outrageous salary does serve  to demonstrate at least one truth -nowadays, contrary to the conventional wisdom, it obviously pays to be boxed-in.

Sign of the times: The lesson one should take away from the following videos is that a bad credit score is nothing to be depressed about.

There seems to be some conflicting information coming from people  who think they know what they’re talking about concerning the state and future state of the Chinese economy. Reuters reported on Monday that NYU economist Nouriel Roubini, the man renowned for not being stupid, believes that China faces a “‘meaningful probability’ of a hard economic landing” in 2013.

Roubini cited China’s over-investment (50% of GDP) as a perennial indicator of its future economic problems:

“Sixty years of data had shown that over- investment led to hard landings, he said, citing the Soviet Union in the 1960s and 70s, and East Asia before the 1997 financial crisis.

“‘I was recently in Shanghai and I took their high-speed train to Hangzhou,'” he said, referring to the new Maglev line that has cut traveling time between the two cities to less than an hour from four hours previously.

“‘The brand new high-speed train is half-empty and the brand new station is three-quarters empty. Parallel to that train line, there is a also a new highway that looked three-quarters empty. Next to the train station is also the new local airport of Shanghai and you can fly to Hangzhou’, he said.

“‘There is no rationale for a country at that level of economic development to have not just duplication but triplication of those infrastructure projects.'”

On the other hand, The Globe and Mail reported last Friday that trade data released that day showed that “worries of overheating have given way to predictions of a soft landing for the world’s biggest exporter…”

So, is the landing going to be soft or hard? Will China glide to a more ‘sustainable’ growth percentage (which some economists think is around 8%) or will it nosedive into a serious economic downturn?

I’m not an economist and I barely passed Micro my junior year of high school, but from the information that I’ve been able to access (thanks Google), I was able to come up with a potential explanation that might account for these differing prognoses. According to Anthony Harrington over at the blog on QFinance.com, it’s possible for China’s central bank to effect a slowdown (or ‘cooling’ period) in its economy by getting a handle on the excessive credit flowing into the country due to its enormous trade surplus, and yet still inadvertently trigger an abrupt collapse in the future. Harrington writes:

“What everyone fears, of course, is that a Chinese slowdown will cut demand for commodities. Yet […] Commodity prices have been overheating precisely because of the way China’s overheated economy is sucking in commodity imports at an enormous pace. Some backing off should be welcomed as generating space for commodity prices to shed some of that inflationary momentum.

“The other thing that is scaring the markets about China at the moment is that [it’s] in the process of winding down the $586 billion stimulus spending it uncorked as its policy response to the global crash. Chinese authorities also want to stem the flood of easy credit from China’s banks in order to get a grip on inflation, which is threatening to get out of hand […]

“The problem, as always, is that when a fund manager looks at an index that has suddenly started to dive he or she is immediately on the horns of a dilemma. If it is merely one of the endless jitters down and up that any daily pricing graph wanders through, it can be ignored. If, however, the downward dive is the signal that the market is going to go into a major pull back, then continuing to hold a long position in a whole bunch of stocks, particularly those heavily predicated on strong growth from China, no longer looks that sensible […] So if China is going to have a major growth hiccup, selling makes sense. The only problem is that if a whole bunch of long-only managers turn into sellers simultaneously, they drive prices down still faster and the market turns into a train wreck.”

My concern is that Harrington’s ‘fund manager’s dilemma,’ if you may, is more than a separate problem – it comprises one of the market’s fundamental flaws. Again, if I’m a fund manager with a lot of money invested over the long-run in a stock that I (defying logic) need to believe is going to grow indefinitely at rates that can only be maintained by false confidence (i.e. bubbles), how do I know which down-tick will be fatal, the one gush of wind that forces me off the cliff? I don’t. So I guess and cook-up rational stories about my decision that make it easier to swallow.

In the first stanza of Oliver Goldsmith’s “The Deserted Village,” a poem about the effects of the mass exodus of people from England’s sylvan villages to America, there’s a line that goes: “Dear lovely bowers of innocence and ease, / Seats of my youth, when every sport could please.” This, of course, describes Goldsmith’s representative village before everyone left, before the vitality went. The poem’s beginning is freighted with a strong pre-lapsarian nostalgia – these were the days of contentment, of community, of a healthy respect for natural cycles:

When toil remitting lent its turn to play,
And all the village train, from labour free,
Led up their sports beneath the spreading tree;
While many a pastime circled in the shade,
The young contending as the old survey’d;
And many a gambol frolick’d o’er the ground,
And sleights of art and feats of strength went round;
And still, as each repeated pleasure tir’d,
Succeeding sports the mirthful band inspir’d;
The dancing pair that simply sought renown
By holding out to tire each other down.

There’s a strong respect for, and satisfaction to be gained from, play or sport. Things are valued much more for what they are, by themselves, than for the marginal value that accrues to the villagers through their exploitation. All of this changes in the succeeding stanzas, where something extra is to be gained on top of the value one might get from the activities alone. The second and third stanzas introduce us to the imagery of kings, of princes, of tyrants accompanied by striking images of decadence and its logical extension – decay.

Which brings me to LeBron James’s despicable, shameful post-game press conference remarks on Sunday after the Miami Heat’s meltdown loss to the feisty (and much more respectable) Dallas Mavericks. There wasn’t too much that the King could say in response to all of those vassals who were salivating at his virtual decapitation by Dirk and his fellow executioners, so he put his own royal spin on the Schadenfreude:

“All the people that were rooting me on to fail, at the end of the day they have to wake up tomorrow and have the same life they had before…They have the same personal problems they had to today. I’m going to continue to live the way I want to live and continue to do the things that I want with me and my family and be happy with that.

“They can get a few days or a few months or whatever the case may be on being happy that not only myself, but the Miami Heat not accomplishing their goal…But they’ll have to get back to the real world at some point.”

The most interesting thing about James’s comments is how eerily similar they were to his game 6 performance – passive aggressive, cryptic, just plain random. Who are they? And if they are who I just have a gut feeling his comments suggest they are – low- and middle-class blue- and white-collar workers (read most Clevelanders) – what do their miserable working lives have to do with anything?

Before I go any further down this track, I must admit that James’s comments can be interpreted an infinite number of ways and that I’m aware that my response would simply be feeding the perpetual frenzy of interpretation and misinterpretation surrounding his every move and word. They might and might not mean what I think (or perhaps, for the sake of making a larger point, want) them to mean. This post is largely assumptive – I’m assuming that James assumed X, Y, and Z in what he said and if he didn’t I’ll consider this post to be as much a commentary on everyone else’s assumptions of what James meant as on mine (for aspiring lawyers, this post might be a lesson to take away for your LSAT preparations).

For instance, mattcw15 wrote, as a response to the YouTube video above:

Lebron’s translation: At the end of the day, all you people who hate on me will have the same miserable lives as you did yesterday. While I will continue to live my life with my family with the millions of dollars that I have. *smirk*

And ESPN.com’s Brian Windhurst wrote, immediately after including LeBron’s remarks in an article:

Yes, James could leave in his Bentley or Rolls Royce or Maybach or whatever vehicle he chose to drive. He could, indeed, go home to his mansion where his personal chef might have a five-star meal waiting. Then off to his plush bed with 1,500-thread-count sheets. In a few days, it’ll be off on a private jet for a needed vacation.

So, if the fallout to his comments offers any clues to their meaning, my analysis won’t be completely off, especially if everyone else (or at least a ‘critical mass’) has pretty much the same interpretation, which is that James was at least partially alluding to the comparatively petty, impoverished, unhappy, miserable, bottom 90%, 9 to 5 lives of most of his haters (read most Clevelanders).

My question then becomes: Why would James even want to bring everyone else’s misery into the picture? His comments are classic non sequitur. That is, until you think a few minutes more about the context in which this particular brand of superstar athlete was molded – both on the court and off of it.

To illuminate the extent to which James is (literally) a product of the culture, I’ll just put forth a brief scenario. Imagine Oscar Robertson or Bill Russell or even Magin Johnson (who actually went through the same kind of public whipping) in a post-game press conference, smoldering with James’s anger at being the object of so many people’s hatred and having to deal with the fact that his defeat will only indulge their satisfactions. Neither Robertson nor Russell had such vaunted, disproportionate wealth to even consider making a comment like James’s. And all three, however proud or even arrogant each might have been, shared the sobering, equalizing humility of times in which ‘winner-take-all’ could only describe transactions that happened on the court, during the course of a game that was still kind of pristine, when even superstars weren’t insured against confronting criticism, due or undue, from their failure to make a winning shot or carry their team in the closing minutes, by invoking truly unjust economic arrangements – “That’s why I get to fly jet-class when you can barely afford coach on Southwest. You may delight in me losing, but you’re still broke and thus unhappy and pathetic and not nearly as liberated as I am,” in so many words.

The saddest part about LeBron James’s comments is his utter ignorance of their implications. Only someone who feels entitled to his disproportionate affluence without realizing the arbitrariness and ultimate danger of that disproportion would say what James said. What makes him more deserving of multi- multi- millions than Oscar Robertson or Bob Cousy or Willis Reed or the man who invented the damn game or the engineer who contributed to making American Airlines Arena structurally sound enough for him to choke in? What makes him happier? What makes his contributions more significant to human civilization?

James doesn’t have to answer those questions. Neither does he have to answer questions about his self-coronation or his actions – these are mandated by God. “The Greater Man upstairs know [sic] when it’s my time. Right now isn’t the time,” tweeted the King. LeBron James is a member of the 1% now. He can afford to do what he wants.

But, really, he can’t. As Joseph Stiglitz’s penetrating article in Vanity Fair points out, there’s a price ALL Americans must pay for the ‘winner-take-all’ economy that finances LeBron’s parochial arrogance. There are consequences for the fact that the richest 1% control 40% of the wealth in this country, an 18% increase from just a decade ago. More than just reflecting the general corrosion of America’s human capital, a more inefficient economy, and a tremendous weakening of social capital and a sense of community, exuberant inequality makes a lot of people mad – particularly at the people in whose hands such wealth is concentrated and, as is often the case, hoarded, The result of this angst is that a lot of people with nothing to lose can make things, at best, very disagreeable for those with a lot more and at worst, disastrous for everyone, as Stiglitz articulates:

“The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.”

Yes, LeBron James is a product of a culture in which matters of wealth, especially individual wealth, have superseded matters of the soul, such that a benchwarmer is content to stay that way so long as he’s sitting on a million-dollar contract or a superstar is comfortable enough off of the court that losing on the court isn’t totalizing to the point where it cancels everything else out. But the James – the man, the individual, the character – isn’t exonerated entirely by the zeitgeist.

Michael Jordan, even more of the capitalist icon than James, was nonetheless such a fierce competitor, whose appreciation of the game itself – for the sport alone, stripped bare of the endorsements, the bonuses, the salary – seemed all-consuming, that it wasn’t enough that he could ride in his Corvette to his suburban mansion after his muscles were iced – while everyone else had to go work the following day. After that heartbreaking home loss in 2006 to the Miami Heat, Dirk Nowitzki stayed at American Airlines Center until 5 am the next day, sans the trappings of his uber wealth. When he won, one of his seminal statements to the media was, “Nobody can ever take this away from me.” Translation: You can have the money. I’ve got the ring.

LeBron James has become something of a totem for a nation, and a world, that’s become so privatized that even erstwhile money-neutral things like sport, the ultimate reservoir of our common concerns and identities, has become hostage to the concerns of the well-endowed few. This sense of a rigged game is the impetus for most people’s hatred for what they perceived as  Miami’s scheme to control the outcome of something Americans have always believed (or at least have wanted to believe) is free and democratic – competition.

I’ll venture to provide a deeper, if a bit stretched-out, analysis of the country’s general animus toward the Heat. Our collective booing showed how dynamic and organic is most Americans’ sense of fairness and equality – even in basketball. But more than that, it may have also revealed a larger discontent; that underneath our seething ESPN.com comments and tweets and YouTube rants about the Heat is a sense that we’ve been cosmically screwed by society, not just as sports fans, but as citizens. I want to believe that our collective booing constituted a ‘language of the unheard’ – and unemployed, and hungry, and broke, and uninsured, and undereducated, and underpaid… We’re all Goldsmith’s villagers now.

“Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay:
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made:
But a bold peasantry, their country’s pride,
When once destroy’d, can never be supplied”

If only we could redirect the common, but mostly symbolic, outrage we aimed at the Heat, towards a much more realistic threat. We can start by collectively agitating those other LeBrons: Congress. The Bush Tax Breaks. Citizens United

Ken Lay, Ex-CEO of Enron (Photo by Jessica Kourkounis, AP)

 

David Walker, Jared Bernstein, Paul Krugman and Kenneth Rogoff were on Charlie Rose recently to discuss the state of the economy and the government’s efforts at recovery. While personally, I’d rather watch a bunch of calculators speed date, the discussion was revealing in what it betrayed about experts (particularly those with academic bents) – they are not only boring, but dangerously myopic.

Here’s a warning: If you run into an economist or politician or policy wonk who thinks economics is about the economy; or the federal deficit is about money; or dealing with the budget amounts to either cutting back or spending more; or who talks about ‘recovery’ in the language of percentages, run away.

While reading Paul Roberts’s The End of Oil,  I had an epiphany.  Do you know the difference between big oil companies  and crackheads?  The oil companies get invited to career day:

“The larger impact of the merger mania was to create a new breed of oil company that simply needed more oil to survive.  Today, these ‘supermajors’ – ExxonMobil, ChevronTexaco, TotalFinaElf of France, and BP (which swallowed up both Amoco and Arco) – are so outsized that the task of maintaining their reserves – that is, of replacing every barrel sold with a freshly discovered barrel – has become an epic struggle.  Not only must these companies discover lots of oil each year, but because they are so large, with such high operating costs, each discovery must be huge in order to be profitable.  Exploration and production costs are now so high, for instance, that no large company can afford to search out and drill a great many smaller fields.  Instead, they need the efficiencies and economies of scale of a single massive score – a billion barrels or more – to operate profitably.”

We hate the Miami Heat for the same reason Sarah Palin hates ‘Socialism’ – there is that strange whiff of conspiracy, command, collusion, secrecy, control.  Something about them smells like an old Russian overcoat (moreover, Pat Riley looks like he could have been Putin’s successor).  Americans like to win, but we like the myths of merit and fairness and pure competition and bootstraps a little better.