Discipline, Hard Work and Obscene Wealth

It’s taken a day for this to settle in, but I find myself to be really embarrassed on Tyler Cowen’s behalf.  Yesterday he published a New York Times op-ed on the subject of why American’s don’t revere the rich, even though riches are usually the result of discipline and hard work.

Put aside his indirect reference to Steve Jobs (“earning money through production for consumers, as Apple has done”).  Rightly or wrongly, Jobs was admired because he brought industrial design values—beauty arising out of function—to high-tech products; he seemed to be as much an artist as an entrepreneur.  Over at Microsoft, Steve Ballmer has a work ethic second to none, and he will die a very rich man, but I doubt there will be much public outpouring of grief.

Let’s get to the core issue.  Assume there are four individuals, A, B, C, and D.  A and B are at the struggling end of the working class, C and D are rich.  A and C have only an average attachment to work and self-discipline; B and D drive themselves to the limit.  Suppose their annual incomes look like this:

A: $20,000
B: $30,000
C: $200,000
D: $2,000,000

If you had a lot of observations like this, and if you could somehow measure “work ethic”, you would find a healthy coefficient on it in an income regression.  But what would this have to do with the popular revulsion against an income distribution so skewed to the top?  The problem is not that there is a return to hard work, but that the return is so obscenely large at the high end and so small at the bottom.  Think of that old Jesse Jackson speech:

I know they work. I'm a witness. They catch the early bus. They work every day. They raise other people's children. They work every day. They clean streets. They work every day. They drive vans with cabs. They work every day. They change the beds you slept in these hotels last night and can't get a union contract. They work every day. No more. They're not lazy. Someone must defend them because it's right, and they cannot speak for themselves. They work in hospitals. I know they do. They wipe the bodies of those who are sick with fever and pain. They empty their bedpans. They clean out their commode. No job is beneath them, and yet when they get sick, they cannot lie in the bed they made up every day. America, that is not right. We are a better nation than that.

What does it mean when someone can see the self-discipline of the millionaire but not the double- and triple-shifts of the working poor?  Like I said, I’m embarrassed for Tyler Cowen.

OWS and its “Leaders”: A Lesson from the 60s

To a large extent, the New York Times sets the news agenda for American journalism.  Today’s Times backgrounder becomes tomorrow’s conventional wisdom throughout the broadcast media and the regional press.  So we should take notice when Arthur Brisbane, the Times’ “public editor”, writes of Occupy Wall Street

An investigation into origins would lead to the identities of early leaders, at least, and the search for the broader leadership of the movement should continue from there. I polled a group of journalism educators on the question of how The Times should direct its coverage henceforth. Not all agreed on this, but most said it was important to understand who the leaders were and what demographics they represented.

This brings me back in time, to the late 60s and early 70s, when another largely formless movement was making itself felt in America.  On the ground, this radical upsurge was composed of affinity groups, underground newspapers, community storefront projects and streetcorner networks.  It had a visceral distrust of leaders and authority, of having others speak for you.

Nevertheless, a pathological symbiosis developed between the media and a relatively small number of movement self-aggrandizers.  The ambitious would-be leaders discovered that they would be anointed by the media as long as they adopted ever more outrageous postures and rhetoric, and the media found that by focusing on them they had a story they could cover in a convenient, template-satisfying way.  Unfortunately, that was not all.  Because the movements of the time had weak institutional structures, they ultimately depended on media coverage to attract new recruits and hang onto old ones.  Thus, when “leaders” like the Weathermen and the Black Panther Party flamed out, they sucked the rest of us down with them.

But here’s the thing: neither I nor anyone I knew in this movement chose these “leaders”, nor did we feel represented by them in the slightest.  Our story, whatever it was, had little to do with its representation in the media.  We were seeking something completely different, but this quest was cut off and even our memory of it was gradually erased by years of repetitive, fixated discussion of our Promethean but, alas, flawed “leadership”.

Lessons?  They are partly about the role of the media in refashioning social movements so they fit the standard journalistic model of who they are and how they should function.  Even more, they are a warning to the movements themselves, that they have to give thought to their own self-defined structures that convey who they are, what they believe, who is permitted to represent them, and how new recruits can join in.

Naomi Klein on the Politics and Economics of Climate Change: Hit and Miss

Klein got her start, at least outside her native Canada, as a cultural critic in the wonderful book No Logo.  Since then, with each project she has dipped further into economics, with a weird bifurcation: her political and cultural analysis has become even more insightful, but her understanding of economics has not kept pace.  This was a problem in The Shock Doctrine, and it is a problem in her missive on climate change on view in the current Nation.

A first time investigation of the architecture of the international ownership network

It seems incredible that any economist, as late as this year, would claim that for the very first time in history there has been performed an investigation into the network of owners of global capital. But that is indeed what authors Vitali, Glattfelder and Battiston state in the opening paragraph of their abstract entitled 'The network of global corporate control'.

“The first investigation of the architecture of the international ownership network is presented, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers… network control is much more unequally distributed than wealth. In particular, the top ranked actors hold a control ten times bigger than what could be expected based on their wealth…”

"...nearly 4/10 of the control over the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of 147 TNCs in the core, which has almost full control over itself. The top holders within the core can thus be thought of as an economic “super-entity” in the global network of corporations. A relevant additional fact at this point is that 3/4 of the core are financial intermediaries...."

The implications are mind boggling. How incredibly fragile must the global economy be when such an incredible lack of diversity of enterprise (and therefore also of intellect and strategic resilience) are present.

It is possible to see our world now facing very serious global trading and current account imbalances due to these enormous organisations having moved their gigantic 'enterprises' into pockets of cheap labour, land and currencies to gain an artificial economic advantage. As one big TNC after another diversifies into many enterprises there is a simultaneous loss of diversity for the economic system as a whole. This problem escalates when TNCs combine strategies through global networks. It's not surprising that vast portions of world trade have long metamorphosed into non-trade intracorporate transactions.

Major Economic Reporting Breakdown at the New York Times

I sometimes carp about minor missteps, but this is big.  In a front page “explanation” of how the eurozone got into a sovereign debt crisis, there is criticism of myopic banks, lax regulators and spendthrift peripheral governments, but no mention of the fundamental underlying cause, the swelling imbalances between surplus and deficit countries in the currency union.

The Times reporters and editors need a refresher in introductory economics.  The fundamental identity that connects financial balances to a country’s international position is

BP + BG ≡ CA

where BP is the net savings of the private sector (income minus spending for households and firms), BG is the government's fiscal surplus or deficit, and CA is the current account balance (mostly trade).

Over the decade of the 00's, the peripheral countries were running ever larger trade deficits with the core countries, especially Germany.  At first these deficits were financed by private sector borrowing, but after the financial crisis hit private sector leverage froze, economies contracted, and governments stepped in to do the borrowing themselves.  Before 2008 the problem was too much borrowing in real estate, banking and other sectors; after it was too much borrowing by the government.  Yet, as long as the trade imbalances grew, one or the other was unavoidable.

(From a macro identity point of view, if governments had not increased their deficits post-2008, incomes would have collapsed.  This would sustain the identity by curbing imports on the right hand side, but would have allowed an economic freefall.)

So the real story, the one that the Times should have told, is about how the imbalances grew, why few noticed, and how the eurozone framework, with its utterly irrelevant “Stability and Growth” criteria, was unable to cope.

Skip the Times and get your news and views from the econ blogosphere.

Footnote: Nothing Greece and Italy do by way of budget policies or “reforms” can solve their sovereign debt problems.  They might as well sacrifice goats to the gods.  The only practical significance of the current political drama is that it will or won’t persuade the core countries to open the liquidity spigots, write down debts and resolve the banks.

Moral Mythology and Economic Reality in the Eurozone

What more is there to say?  Europe is on a precipice, political as well as economic.  Eurozone leaders think they have time to slowly habituate their constituencies to incrementally greater commitments, as if we didn’t know from centuries of experience that financial crises descend with terrifying speed in the form of bank runs, panicked asset dumps, and other spasms of runaway positive feedback.  Greece, Portugal, Spain and Italy will not edge gently toward insolvency; one or more of them will undergo a sudden phase change, and the game will be up as soon as it has started.

And incantations of austerity and reform are pointless.  Simple arithmetic demonstrates that the peripheral countries cannot pay their way out of debt through primary fiscal surpluses: at current real interest rates and debt loads it just can’t be done.  Moreover, fiscal tightening throughout the zone can only lead to a severe recession, and as indicators of the slump materialize the panic dynamics will intensify.

Worse, the “reform” imperative—the demand that deficit countries privatize and deregulate—is punitive nonsense.  Politics in the surplus countries seems to demand that there be a story about wayward prodigals to the south who must be stripped of their comforts and put to the yoke.  Put aside this morality tale and there is no economic logic whatsoever.  There is no theoretical or empirical reason to believe that Greece, Italy and the rest are in deficit because they have too much public employment or their workers have too many rights.  (Where there is corruption and clientelism, any sort of employment, public or private, can be uneconomic.)  In fact, those who want to force-feed these reforms, with public displays of abject political submission to them, have never even tried to make this case.  There is no argument to critique, no evidence to rebut.  “Reform” is not a rational economic program for restoring trade balances; it is about exacting a cruel price on entire populations so that bailouts come with a quid pro quo.  Receive a transfer and you must sacrifice.

Of course, the bailout funds go directly to the creditors, mainly private banks, so even this attempt at moral equivalence is beside the point.

Eurozone policy, and most journalistic coverage of it, is in a parallel universe of virtue and vice, benefactors and supplicants, industrious and indolent, modern and honest versus traditional and corrupt.  It satisfies a craving for moral order.  Unfortunately, the real universe is about to crash into it and smash it to pieces.

Only Once In A Century: 11/11/11/11/11/11

At eleven seconds past eleven minutes after 11 AM this Friday, November 11, 2011, the time/date in succeeding digits will be for the only time this century a sequence of a single digit repeated a dozen times, 11/11/11/11/11/11. Enjoy it while it lasts.

Since the century began on 01/01/01 (no year zero, 2000 was indeed the last year of the 20th century), I have been thinking about those once a year days when one has the same two-digit number repeated three times for the date. There will be one more of those next year for this century on 12/12/12. I think the only one of these that got much attention was 07/07/07, which somehow became a faddish day to get married, one of my faculty colleagues (not in my dept) doing so then.

While thinking about this upcoming event this year, I was thinking about the fact that it was the old Armistice Day and remembered hearing when much younger that the armistice that ended WW I between France, Germany, Britain (and its empire), and the US was signed on "the eleventh hour of the eleventh day of the eleventh month" in 1918 (the war went on for several more years in some other locations). This got me thinking about time as well as date and how this one was full of elevens.

Then on Nov. 1 I was sitting in a piazza in Trento, Italy drinking some macchiato (gave a lecture there the next day) and saw a sign for the date, 1/11/11, and realized that we were dealing this time with a sequence of a single digit. Putting that together with my thoughts about both time and date led me to the conclusion I am posting on now here, which I think I am the first person to point out.

So, on Friday, when the moment comes for you wherever you are, have a happy onece-in-a-century 11/11/11/11/11/11.

Bribing Doctors to Abandon the Poor

Do I have this right?  The New York Times has an article today about the Cuban medical mission in Haiti.  After describing the modest perks doctors get for signing up, it says:

They are not allowed to bring their families with them, but the other incentives make it “a pretty good deal,” she [Katrin Hansing, a Baruch College professor] said, that has helped keep down defections. Still, a program the United States has run since 2006 that is tailored to attract Cuban medical professionals abroad has enticed several hundred to defect.  

Does the US really have a program to bribe Cuban doctors who are serving the poorest and most at risk populations in the world to quit, emigrate, and join the dysfunctional American medical establishment?  Is this cynical or what?

If the article is saying what I think it says, I have even more respect for the Cuban medical authorities, who continue their life-giving services abroad even though they lose many of their best and brightest in the process.

Tomorrow’s News Today

Care to know the future?  Then read Michael Pettis, who has been on top of things for many years running.  Nothing is certain, but I think his scenario, where a bank run crashes eurozone policy and forces Greece (for starters) out of the common currency, is the one we’ll probably see.

Euro Clarity

Let’s take a moment to sort out the euro mess.

The missing link

Science and Random Trials

Don't read this while drinking coffee, as you might snort it out your nose laughing !

http://www.bmj.com/content/327/7429/1459.long

Attack of the Killer Seniors

They are gathering in coffee shops, gyms and multiplexes, conspiring to wreak havoc on the US economy.  You know who they are: the boomers and near-boomers, the demographic bulge that will rip a giant hole in fiscal budgets and push working-age taxpayers into martyrdom or worse.

Don’t take it from me.  David Leonhardt, in today’s New York Times, talks about the impending collision of slow economic growth with “sharply increasing claims” that “come from the aging of the population”.  He quotes Benjamin Friedman of Harvard: “These are very difficult moral issues.  We are really talking about the level at which we support the elderly retired population.”

This is common wisdom, one I’ve heard more times than I care to remember.  Does it matter that it’s wrong?

1. Aging, and increases in the proportion of the population no longer active in the labor force, is nothing new.  The US and other industrialized countries have been adapting to this trend for generations.  In fact, the increase in retirees we face in the future is not nearly as dramatic as those we’ve dealt with in the past.

2. The secret weapon against the attack of the seniors is not growth per se but productivity growth, output per worker.  As long as this increases faster than the ratio of retirees to active workers—and it has ever since we started gathering statistics on it—we can afford to take of our elders and improve living standards for the young and spry simultaneously.

Demographics is a false issue.  I’ll trust the motives of those who pound that drum when I start seeing articles about how the economic burden of the defense (i.e. war) budget poses a moral issue that demands courage and sacrifice, etc.  The demographic bulge I worry about is predator drones.

Question

How can the right wing blame unemployment on educational (skill) deficiencies and then shortchange the entire educational system?

This day in 1963 - The President of South Vietnam assassinated.

1963 was a pivotal year. It was the year that OPEC acted unilaterally to raise prices for the first time. It was a time when a charismatic new American president, John Fitzgeral Kennedy, presented his proposals for tax reform for his nation. Included was a plan for the removal of the special-privilege oil depletion allowance enjoyed by large oil companies. He also issued Executive Order 11110. Its aim was to strip the US Federal Reserve Bank of its power to loan money to the United States Federal Government at interest. Kennedy ordered the printing and release of $4.2 billion in US notes, paper money issued through the Treasury Department ‘without paying interest’ to the Federal Reserve System.


In 1963 E Howard Hunt, Chief of Covert Action in America's Central Intelligence Organisation's Domestic Operations Division was involved in the subsidizing and manipulation of news and publishing organisations. Hunt was eventually implicated in the November 1963 assassination of President Kennedy .

But on this day, 2nd November, of that year, the assassination of the President of South Vietnam was another careless step toward the long drawn-out Vietnam War that cast such an ugly shadow over the decade that followed.

"The coup was very swift. On November 1, 1963, with only the palace guard remaining to defend President Diem and his younger brother, Ngô Ðình Nhu, the generals called the palace offering Diem safe exile out of the country if he surrendered. However, that evening, Diem and his entourage escaped via an underground passage to Cholon, where they were captured the following morning, November 2. The brothers were executed in the back of an armoured personnel carrier by Captain Nguyen Van Nhung ...Diem was buried in an unmarked grave in a cemetery next to the house of the US ambassador.
...
Upon learning of Diem's ouster and death, Ho Chi Minh is reported to have said, "I can scarcely believe the Americans would be so stupid." ....After Diem's assassination, South Vietnam was unable to establish a stable government and numerous coups took place during the first several years after his death...."[1]

A White House tape of President Kennedy and his advisers, published in 2003, confirmed that top U.S. officials sought the coup against Ngo Dinh Diem "without apparently considering the physical consequences for Diem personally." [2]

The previous month US President John Fitzgerald Kennedy had been insisting that one thousand U.S. troops in Vietnam, "euphemistically referred to as advisers", be recalled.

"He was a prudent executive, not inclined to heavy investments in lost causes. His whole presidency was marked precisely by his capacity to refuse escalation-as in Laos, the Bay of Pigs, the Berlin Wall, the missile crisis. [3]"

Indeed, Kennedy was deeply skeptical of the recommendations presented by his Joint Chiefs of Staff for military intervention in South Vietnam.

"The military proposals for Vietnam, he said, were based on assumptions and predictions that could not be verified - on help from Laos and Cambodia to halt infiltration from the North, on agreement by Diem to reorganisation of his army and government, on more popular support for Diem in the countryside and on sealing off Communist supply routes. Estimates of both time and cost were either absent or wholly unrealistic. [4]"

In an interview with one of America's cold war warriors, Dr Walt Rostow was asked to comment about the consequences of "the war for South East Asia?"

WR: Well, for South East Asia it's turned out to be fine, because at last Indonesia has gone in to take off very fast, seven per cent now, and Singapore, Malaysia, Thailand, Taiwan, Hong Kong, South Korea are doing fine, even Philippines is coming along. So, South East Asia is... Lyndon Johnson achieved what he was after in South East Asia. ...As a development economist I have to say, when a country does well, like South Korea or Taiwan or something, it's because of the people in the country, otherwise you're pushing on a string. But we did play a very useful part in helping them. It's amazing, but in this period of 1960 to, what 1975, '80, they were going on average at eight per cent a year for wages. That means they more than doubled in ten years. So they're four times the size, as it were, GNP per capita at the end of this period and the beginning. They were different countries....[5]"

War to increase GNP: 'managed' capitalism.

[1] http://en.wikipedia.org/wiki/Ngo_Dinh_Diem
[2] JFK and the Diem Coup, by John Prados
Posted - November 5, 2003
http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB101/index.htm
[3]Arthur Schlesinger
http://www.spartacus.schoolnet.co.uk/JFKschlesinger.htm
[4] 'Kennedy', Theordore C Sorenson, special counsel to the late president. Hodder and Stoughton 1965. Page 652-653.
[5] INTERVIEW WITH WALT ROSTOW
http://www.gwu.edu/~nsarchiv/coldwar/interviews/episode-9/rostow1.html