via [ the Washington Note ]
Columbia University Professor and world renowned economist Joseph Stiglitz spoke at a New America Foundation/Economic Growth Program public policy forum about his new book, Freefall: America, Free Markets, and the Sinking of the World Economy.
[ Frontline ] The Warning
What’s the hidden history of the derivatives market? Who might have tried to stop the meltdown? What were the forces at play that created this rarified and for some highly lucrative financial space? After nearly 40-years of experimenting with this unregulated financial space what conclusions are free-market libertarian’s taking from this body of evidence? It appears to me that free-market economist were provided enough time to demonstrate their theory that markets correct themselves and that financial interests act in there own best interest.
The story of the President’s working group: Fed Chairman Allan Greenspan, Treasury Secretary Robert Rubin, Assistant Treasury Secretary Larry Summers and then there was Commodity Futures Trading Commissioner Brooksley Born.
With a $500 trillion black market in free fall and consequently the world’s economy what option does a new President have but the keep up front the major players to calm those within the black market and a world economy which is dependent on them. I wonder if Obama has some advisors watching over people like Summers. My concern moving forward is not that we won’t regulate these markets, but that these markets will move on and diversify, essentially creating black markets in all sorts of places.
I find it difficult to accept Allan Greenspan’s mia culpa. It wasn’t an ideology he was operating and protecting, it was a $500 trillion black market with hidden players and hidden rules he was operating and protecting.
via [ Newsweek ] by Fareed Zakaria
The great surprise of 2009 has been the resilience of the big emerging markets—India, China, Indonesia—whose economies have stayed vibrant. But one country has not just survived but thrived: China. The Chinese economy will grow at 8.5 percent this year, exports have rebounded to where they were in early 2008, foreign-exchange reserves have hit an all-time high of $2.3 trillion, and Beijing’s stimulus package has launched the next great phase of infrastructure building in the country. Much of this has been driven by remarkably effective government policies. Charles Kaye, CEO of the global private-equity firm Warburg Pincus, lived in Hong Kong for years. After his last trip to China a few months ago he said to me, “All other governments have responded to this crisis defensively, protecting their weak spots. China has used it to move aggressively forward.” It is fair to say that the winner of the global economic crisis is Beijing.
Almost every country in the Western world entered the crisis ill prepared. Governments were spending too much money and running high deficits, so when they had to spend massively to stabilize the economy, deficits zoomed into the stratosphere. Three years ago, European countries were required to have a budget deficit of less than 3 percent of GDP to qualify for EU membership. Next year, many will have deficits of about 8 percent of GDP. The U.S. deficit will be higher, in percentage terms, than at any point since World War II.
China entered the crisis in an entirely different position. It was running a budget surplus and had been raising interest rates to tamp down excessive growth.
China: The Recession’s Real Winner | Newsweek Voices - Fareed Zakaria | Newsweek.com.
Via [ Bitch Ph.D. ] by Taddyporter:
Remember a year ago, when capitalism was in full panicy retreat? Remember how we were told we had to give up our savings and our pensions and our 401K’s and our wages and our jobs and our homes and our health insurance and our kids’ college funds and we had to pledge our taxes to redeem all the bullshit schemes of the buccaneer bankers and brokers and hedge fund fools.
Remember how we were told how if we didn’t pay this ransom, things would get really, really bad and our whole vast and elegant free market economy would be lost to some unspecified enemy?
So we paid up.
I kind of expected there would be investigations, though. You know, since we own their asses, I thought we might have a look the books of the enterprises we paid for and see just what they’d been up to. Find out just what the fuck went wrong. And who was responsible.
And I expected there would be arrests. Mass arrests. And confiscations of property and bank accounts.
Not just ours. Theirs, too.
And clawbacks of bonuses and inflated salaries. And seizures of yachts and Bentleys and beach houses and Falcon jets. I expected they would be put up for sale at public auction. You know, like they do to our houses when we have a problem with our payments.
I expected a nice surtax slapped on upper incomes. I expected a tax on stock sales to pay back the working class for bailing them out.
[ Green for All ]
“When we think of a green economy, it should be an economy where we don’t have any throw away resources. We don’t have any throw away species. We don’t have any throw away children or neighborhood either. We don’t have any throw away nations either.”
- Van Jones
As a resident of East Chicago Indiana this message resonates with me.
Update (9-6-09): Van Jones resigns.
Update (9-5-09): Since the right has turned the heat up on Van Jones in an effort to discredit him and weaken the efforts he has championed, I thought it important to repost this video.
I live in an industrial fenceline community which is home to mostly poor minorities, and I have been apart of regional planning efforts that have not been too kind to them. If you follow this blog you will undoubtedly recognize that the population that lives here does not share in the quality of live most Americans have come to know.
Based on my experience I would say Van Jones’ criticism of industrial policy isn’t strong enough. Not only do East Chicago and Gary receive a disproportionate share of the negative externalities of industry (pollution, disinvestment, congestion, neglect, and the occasional explosion), they also receive a disproportionate share of the benefits. With a low industrial tax rate, these communities receive very little tax benefit. The political leadership has also awarded these industries with tax abatements (BP recently received a $165 million tax abatement in East Chicago). These communities also receive very little wage benefit to support the local population, as most wage earners and contractors choose to live in other less polluted middle-class communities. Most economic development dollars received by industry also go to other less polluted middle-class communities.
One other very important fact that needs to be better articulated is how these industries crowd out, or hold down other markets. This can be attributed to the negative externalities, and the general lack of quality of life.
One example of how this has effected other markets is what happened twenty-five years ago when BP, then Standard Oil, was forced to relocate there professional training facility from Whiting Indiana to Naperville Illinois. They simply could no longer attract professionals to the region due to quality of life issues. They ended up donating their whiting facilities to St. Joseph College. Today, BP’s Naperville facility is a LEED certified campus.
You can find many examples in the housing and retail markets…
clunk·er (cl
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The Clunker Stimulus and Emerging Markets
Could the Obama administration be seen as a major turning point in environmental and economic history because of something called the “Cash for Clunkers” Program?
“In virtually no time, the clunker program has become a national pastime. It has captured the public’s imagination in a way that no other federal stimulus has. Everyone is talking about it. And I truly believe that consumer spirits have been buoyed by the prospect of going out and buying a new car — even with federal assistance, and even under the duress of federal mileage standards. After a very dreary year or two, people might just have fun trading in their clunkers and buying something new,”
Now that everyone seems happy with Obama’s Clunker Program, it’s time to look at maximizing the benefits. A very clear and obvious question has to do with using tax payer money as a loss leader to finance the program. Certainly the program was meant to kick start a faltering auto industry, and begin to replace older inefficient and environmentally suspect products, but if we take this opportunity we could kick start emerging markets as well. By privatizing the clunker programs we could potentially open a number of new cradle to cradle markets to incentivize the reuse and recycling of materials.
Granted this model wouldn’t replace the regime of “design obsolescence,” but it would replace basing design obsolescence on the production of inferior materials, manufacturing processes, and technology, with superior materials, manufacturing processes, and technology. This is exactly what we accomplished in the computer industry these past thirty years.
Yesterday I heard on NPR how “Clunkers” are being “killed” and then recycled. As it turns out only the ferous metals are being recycled back into production, everything else is sent to land fills - not a very sustaining prospect for an ecologically minded Administration.
In my mind, it no longer makes sense for governments to clean up behind dirty and wasteful industries to maintain the balance of a sustainable earth. We have lived through the abundance of managing scare resources to having few remaining resources, and now we must manage through a determination of risk. The public burden of excess pollution and waste has become too large to be sustainable. The costs of clean-up projects and waste storage facilities are too taxing on the public wallet, and for those who would like to see lower taxes and a smaller government, they may find shrinking what we put into our land fills as one way to go.
Beside expanding the salvage market a Clunkers market could lead to the creation of a whole new manufacturing model that incentivizes the design of materials and processes for their life-cycle use and reuse, while limiting waste. In so doing auto manufacturers have the opportunity to expand the resell and reuse of materials from used vehicles. Who knows, some one may even develop a business plan to mine our land fills for used raw materials.
via [ Treehugger ]
[ RecycleBank ] sets up pilot program in Chicago.
The idea is simple - instead of mandating recycling, or charging people for throwing out trash, RecycleBank offers rewards for what and how much you recycle.
Starting in wards 5, 8 and 19, recycling bins will be retrofitted with an ID tag that will be scanned each time a pick up is made - with credits appearing on the household’s RecycleBank account depending on how much they recycle. Points can redeemed for rewards, gift cards, groceries, and products at more than 1,900 local and national RecycleBank Reward Partners, including Coca-Cola, Kraft Foods, Target.com, Ruby Tuesday’s and CVS/pharmacy, as well as local participating Chicago businesses, such as Leona’s, Moo and Oink, ‘city sponsor’ Carson Pirie Scott, County Fair, Treasure Island, the Chicago White Sox and the Children’s Museum. RecycleBank Points can also be donated to local school environmental programs, charities and non-profits. If that weren’t incentive enough, the White Sox are giving away 2 free tickets to the first two hundred households to activate their RecycleBank rewards account - which should prove a popular incentive in the windy city.
Of course the deep greenie in me worries that folks are still getting rewarded for the amount of trash they produce - even if that trash is recycled - and those rewards are redeemable for more consumer goods which will in turn generate more trash. But sometimes I have to tell the deep greenie in me to shut up. As with most things, this program is not the answer in and of itself, but it is a step in the right direction. The more we can get our markets and social structures to reward and encourage more sustainable behaviors, the sooner we’ll get to where we need to go.
If you view capitalism as a simulacrum of reproducing oneself then Floyd Norris’ chart of Durable Goods Production from the U.S. economy may help clarify the American identity. The military side of the American economy appears to be expanding enormously, while nonmilitary production and exports have been in steep decline. It appears America is relying on the Military Industrial Complex to pull it out of this recession.
[ NYT: "Why a Recovery May Still Feel Like a Recession" ]
For the past five years I have repeatedly spoken about the correlation between Education Attainment and the Unemployment rate and what that means for East Chicagoans. But first some data on East Chicago:
For a community like East Chicago the data presented in the graphs below are especially poignant. What I find rather remarkable about the graph is that you can clearly see, in the last 17 years, as educational attainment increases the less vulnerable you are to market fluctuations. You can see how the red line is so much more eradicate with a steep increase in reaction to todays recession. This may begin to flatten out as America rededicates more of it economy to manufacturing. Yet, unlike 20 years ago manufacturing has become an educated affair, requiring at minimum an associates degree.
Forty years ago when nearly 70% of jobs were found in unskilled labor, most East Chicago graduates were able to go to the Mills for one of a 100,000 steel or steel related jobs in East Chicago. Today 70% of jobs are found in professional services that require a College education. With the advances in technology and globalization East Chicago now employs less than 5,000 workers in steel and steel related jobs, all while production has increased a hundred fold. So, if you are preparing a population for where the vast majority of the jobs are (70%), then you are preparing them to receive a College education. That is the easiest solution towards employing a population. The more difficult solution is to find jobs for the under-educated.
via [ Calculated Risk ] In today’s employment market:
Based on the BLS 2008 data: Education pays
This data does not bode well for East Chicago’s education system (here, and here) which ranks last in the state of Indiana on multiply measures. Indiana has also instituted a Core-40 program to track students and to ensure they receive the necessary skills to succeed. However, Core-40 will leave most East Chicago students without the proper credentials to apply to universities such as Purdue or Indiana University which now require Core-40 Honors. Despite the efforts of non-government agencies most parents of East Chicago freshmen are unaware of these requirements and the process for applying into the proper program. The Challenge is to set up an education system that incentives populations like East Chicago.
[ Green for All ]
“When we think of a green economy, it should be an economy where we don’t have any throw away resources. We don’t have any throw away species. We don’t have any throw away children or neighborhood either. We don’t have any throw away nations either.”
- Van Jones
Living in East Chicago this is a message I can believe in and it is exactly what regional leaders need to hear.
Sometimes economics is not that difficult to decipher. Unless of course you lack memory as CNBC seems to. This kind of comedy is too simple, all you have to is put in the time to review tapes.
Every one knows that much of economics is a confidence game and business is built on relationships of trust. Today confidence and trust have been decoupled from empirical evidence and facts. It has descended into tribal alliances. This poses two problems:
What strikes me about this video is the apparent overall level of comfort these victims live. In the whole scheme of things I would expect this class of people to get justice and some sort of reparation from Madoff. A class of people who believe “America always helps the victim.”
I wonder if they ever lived in Gary or East Chicago. Just wondering.
<Looking back at November 2006>This conference occurred more than 2 years ago at Indiana University Northwest. This is the kind of stuff that peeks my interests and tickles my hand. There was great significance to hosting such a conference at this time and place. Northwest Indiana had been looking for strategies to revitalize the region. They had developed the Marquette Plan, the Regional Development Authority, transportation projects, etc. This was in a continuation of efforts to move things along.
This brings to mind two issues.
Drawing the Lines: International Perspectives on Urban Renewal through the Arts
This conference promotes conversation about art and urban renewal on the broader international scale alongside more local applications in Northwest Indiana. Drawing the Lines brings together the multiple constituencies whose perspectives are necessary to evaluating the merits of urban revitalization models.
Drawing the lines seeks to:
Conference Abstracts:
Case Studies, Economics, General Arts, Multi-media, Northwest Indiana, Regional
Just as Charles Ponzi’s name became synonymous with the Ponzi scheme. “Madoff” is a perfect container for all his regulatory enablers, and legal gamblers who bankrupted the country in a symbiotic relationship between Public and Private entities. Through the 1990’s and well into this century we have seen an explosion in these types of relationships. These networked partnerships allow for all sorts of unscrupulous activities, from wall street investment firms, to community block-grants, enterprise zones, TIF districts, regulating safety, and the environment.
Case Study: Environment
Pre-1990 regulatory regimes found themselves ineffectual in bringing about improved environmental practices by industry. The system was oppositional, and industry was quite happy and successful at gaming it. Thus instead of chasing uncompliant industries, in the 1990’s, the USEPA changed approaches and began to partner with these industry’s interests. This led to two decades of meager incremental improvements, creating unsustainable communities e.g. East Chicago, and placing humankind at odds with maintaining a life-sustaining environment on earth. The same industries who gamed the environmental regulatory regime from the outside (pre-1990) are now gaming the regime from within.
I am not against these partnerships - I think it is necessary to base these types of relationships on common interests. They just are not incentivising the the desired result, and we are not getting the desired result. Incrementalism has not worked. It just puts off the difficult work ahead.
<jump to media>The media is creating the myth of Madoff as a lone criminal in the private sector. At $50 billion, this was a criminal enterprise, extending well into the halls of government. We are now discovering hundreds of Madoff’s in the investment banking sector. What we are not doing is naming the hundreds Madoff’s in Government. These criminals can be found up and down our political culture and at the local level.
There is not just one hole in our boat, there are thousands of holes.
Here is one:
<jump to East Chicago> George Pabey: Mayor of East Chicago.
From the Stimulus Watch
Ah, we can do better than that.
How do you help a community when the Mayor and his cohorts are under indictment. Can you believe the projects he has put forward are critical to the well being of the community?
There are many critical issues that could be addressed with the proper funding. I would like to look at one vital issue - The Grand Calumet River.
East Chicago is home to the Grand Calumet River, considered THE MOST polluted waterway in the country, which feeds into the Lake Michigan - the source of our drinking water. The leading cause contamination - 100 years of INDUSTRY. East Chicago also has the poorest census tracts in the state. Maybe government agencies ought to begin to do something about it. Like a PUBLIC / PRIVATE partnership (before this industry declares bankruptcy and wiggles out of responsibility).
After 30 years of the Clear Water Act not a single effort has been initiated to clear this body of water -The plans are there, the funding is not. So why isn’t cleaning of the Grand Calumet river apart of the Stimulus plan? I believe it is shovel ready.
Cleaning this river would stimulate new uses and open opportunities to the communities along its banks. The multipliers of this project are rich with opportunities, but so long as this polluted body of water continues to run through our community, opportunities will run dry. Just a thought.
The Marque project in the region is the Marquette Plan. From a previous post, here is what is happening in Portage: a middle-class community
From Financialgraphart.com via Brad Delong.
Although this graph has been swirling around the internet and it is well conceived, it is very difficult to view online.
The graph above tracks the Dow Jones. There is nothing unusual about that. We have become accustomed to equating the health of our economy with this index. But is a good indicator? Matt Igelesias has second thoughts.
Not only is it obviously stupid for political commentators to be assessing the quality of economic policy by tracking the ups-and-downs of the stock market but the fact that the commentators who want to do this keep wanting to specifically use the Dow Jones Industrial Average just highlights their ignorance. Not only is there no particular significance to the stock market as such, but there’s no particular significance to this index. It just happens to be the thing that cable networks have chosen to highlight most prominently in their on-screen data. But it’s only 30 companies! Admittedly, they’re large and widely held companies.
But why not use the S&P 500? Or the Wilshire 5000?
To be clear, that wouldn’t make this idea any less dumb on the merits. But if we’re going to have stock-based punditry then it could at least be informed stock-based punditry. Back in the real world, the key issues are the trajectory of employment and income. Right now, they’re heading down. The hope is for that trend to turn around. First, employment starts trending up. Then incomes start treading up. And with incomes and employment moving upward, asset prices increase. But to expect the White House to pull a stock boom out of its ass in the midst of falling employment doesn’t even begin to make sense.
I particularly like the “stock-based punditry” line. Doesn’t wall street refer to Maria Bartiromo as a money bunny? I wonder, with the the recession, Is Maria Bartiromo and her husband Jonathan Stienberg still worth >$1 billion?
The fiscal conservative finds themselves betrayed by the rise to power of their own icons. The best way to test an idea is to put it out into the free market. Then observe what happens and collect the empirical data.
Conservatives like to refer to the Reagan Era as the moment when their values found their way to the White House. In their own minds Reagan reversed decades of a weakening economy, moral degradation, and our National standing in the world. But evidence tells otherwise.
Via zFacts.com
The gross national debt compared to GDP (how rich we are) reached its lowest level since 1931 as Reagan took office in 1981. It skyrocketed for 12 years through Bush senior. Clinton reversed it at a peak of 67%. Bush junior crossed that line on Sept. 22 and hit 69% on Sept 30. That’s the highest it’s been since 1955Bush did three things to skyrocket the debt from $5.7 trillion to $10 trillion:1. He lowered taxes on the rich (by far the biggest item).
2. He invaded Iraq instead of winning in Afghan-Pakistan (another $600 B).
3. He deregulated Wall Street speculators. That bailout has now “invested” $1T
A few resources: There is always a good reason to review how we got ourselves into mess.
Comments of CNBC Interview from TPM:
TPM Reader JC sent me to this interview with Nouriel Roubini and Nassim Taleb on CNBC. Here’s what JC wrote: “In this clip, Nouriel Roubini and Nassim Taleb are still being treated as a circus sideshow by CNBC… They’re predicting the end of finance, and offering the only clear path out of this mess that I’ve seen offered (with the knowledge to back it up), and CNBC keeps asking them for stock tips. It’s ludicrous. Wall Street media — CNBC at least — doesn’t realize how bad this is yet. They’re stuck in a bubble where they think everything will go back to normal in a few months….”
He hits it spot on. These two guys are talking about a deep structural crisis in the world economy. And these CNBC yahoos can’t stop asking for stock tips. Really surreal.
I’m watching it again now. This is a seminal piece of video. You have to see it. I’m not sure I’ve seen anything that captures — albeit unintentionally — the vast disconnect over what is happening today in the US economy
A good timely article in the Atlantic by Richard Florida. I recommend this to everyone who is interested in economic geography and the rise and sustainability of mega-regions.
How the Crash Will Reshape America - The Atlantic
(March 2009)
Image by Sean McCabe
“No place in the United States is likely to escape a long and deep recession. Nonetheless, as the crisis continues to spread outward from New York, through industrial centers like Detroit, and into the Sun Belt, it will undoubtedly settle much more heavily on some places than on others. Some cities and regions will eventually spring back stronger than before. Others may never come back at all. As the crisis deepens, it will permanently and profoundly alter the country’s economic landscape. I believe it marks the end of a chapter in American economic history, and indeed, the end of a whole way of life…”
“… Economic crises tend to reinforce and accelerate the underlying, long-term trends within an economy. Our economy is in the midst of a fundamental long-term transformation—similar to that of the late 19th century, when people streamed off farms and into new and rising industrial cities. In this case, the economy is shifting away from manufacturing and toward idea-driven creative industries—and that, too, favors America’s talent-rich, fast-metabolizing places. Sadly and unjustly, the places likely to suffer most from the crash—especially in the long run—are the ones least associated with high finance. While the crisis may have begun in New York, it will likely find its fullest bloom in the interior of the country—in older, manufacturing regions whose heydays are long past and in newer, shallow-rooted Sun Belt communities whose recent booms have been fueled in part by real-estate speculation, overdevelopment, and fictitious housing wealth. These typically less affluent places are likely to become less wealthy still in the coming years, and will continue to struggle long after the mega-regional hubs and creative cities have put the crisis behind them.
The Rust Belt in particular looks likely to shed vast numbers of jobs, and some of its cities and towns, from Cleveland to St. Louis to Buffalo to Detroit, will have a hard time recovering. Since 1950, the manufacturing sector has shrunk from 32 percent of nonfarm employment to just 10 percent. This decline is the result of long-term trends—increasing foreign competition and, especially, the relentless replacement of people with machines—that look unlikely to abate. But the job losses themselves have proceeded not steadily, but rather in sharp bursts, as recessions have killed off older plants and resulted in mass layoffs that are never fully reversed during subsequent upswings.
In November, nationwide unemployment in manufacturing and production occupations was already 9.4 percent. Compare that with the professional occupations, where it was just a little over 3 percent. According to an analysis done by Michael Mandel, the chief economist atBusinessWeek, jobs in the “tangible” sector—that is, production, construction, extraction, and transport—declined by nearly 1.8 million between December 2007 and November 2008, while those in the intangible sector—what I call the “creative class” of scientists, engineers, managers, and professionals—increased by more than 500,000. Both sorts of jobs are regionally concentrated. Paul Krugman has noted that the worst of the crisis, so far at least, can be seen in a “Slump Belt,” heavy with manufacturing centers, running from the industrial Midwest down into the Carolinas. Large swaths of the Northeast, with its professional and creative centers, have been better insulated.”
By Richard Florida
Another good companion read
