As you might have noticed, we’ve been hearing happy talk about the economy since March, with a spate of optimism around the time of the bank stress tests.

Now comes an expert to tell us the recession is all over. The expert is Robert Gordon, a professor at North-Western, a famous macro-economist, and one of the seven members of the elite Business Cycle Dating Committee of the National Bureau of Economic Analysis. Those are the people who officially date these things for the history book.

That does it for us. Dr. Gordon says it’s over. Whew. A close call that. What with the shipping industry in total bust, the truckers closing down, housing still in free fall, gold hovering in the $900s – almost double its value only 3 years ago – some of us had begun to worry. But nothing to see here, folks. Move right along. Dr. Gordon says we’re on track.

And what might be the reasoning behind this cheery thumbs up? Gordon says that in every recession since 1974, jobless claims peaked within weeks of the bottom of the recession, and that, says he, happened in early April this year. He also says that both in absolute terms (the total number of claims) and in relative terms (proportion of claims to the total work force) we haven’t exceeded the previous peak from the 1981-82 recession. In fact, in relative terms, we have just a bit over half of the jobless claims that were reported then.

If ever there were a suspect bit of reasoning in economics, this must be it.

How can anyone put such a burden on just one indicator?

And even that indicator is feeble, as it stands. The American economy bears a burden of debt far far greater than any in the early 1980s. The depth of the credit implosion has no precedent and the financial industry makes up a much greater proportion of the economy than it did then. The country was not involved in the 1980s in any war of the scale of the Iraq war. Nor was our spending on other things at the astronomic level it is today.

But even if you go along with this indicator, how can Dr. Gordon know for sure that jobless claims won’t make another peak? Because of patterns he sees in the chart, he says.

Am I reading something wrong here? Even your average garden astrologer has to come up with more patterns than that to make a claim.

Astrologers? Heck, even tea-leaf readers usually take a second or third squint at the muck at the bottom of the cup.

How Asian governments rob Asian citizens:

“When a Chinese business exports to the U.S., the dollars earned are exchanged in a Chinese bank for local currency. Those dollars are then recycled by the Chinese Central Bank to buy U.S. Treasuries. America then creates more dollars (inflation) so that it can redeem those outstanding Treasuries. This mechanism props up the dollar and holds down the RMB. As a result, the Chinese are poorer and America richer. “

John Browne (Euro Pacific Capital).

My Comment

This is the pattern in many Asian governments. Effectively, the savings of Asian citizens are being destroyed by their government’s short-sighted pro-export policy. But for how long? Anyone who can is going to be buying land, gold, and other tangible assets and getting out of weak currencies to avoid losing any more.

This looks as if it will be an interesting conference:

Rethinking Marxism Conference
To be held at the University of Massachusetts Amherst on November 5-8, 2009. (Other; English).

The sponsors are calling for papers on the subject of “Capital as Power”
Nitzan, Jonathan and Bichler, Shimshon. (2009).

Nitzan and Bichler’s (whose work I’ve posted on here before) look beyond a labor (Marxist) or utility (Neo-liberal/neo-classical) theory of value. Instead, they see prices reflecting power relations.

On that topic, here’s an interesting piece by Immanuel Wallerstein , the developer of ‘world systems theory.”
In it Wallerstein describes what he calls “hegemonic cycles.” Hegemonic cycles are cycles of power relations, as compared to economic cycles.

Hegemonic cycles are much longer than so-called Kondratieff cycles (50-60 years).

In terms of hegemonic cycles, the US reached a peak at 1945 and started to decline sharply from the 1970s onward. That decline matches the shorter Kondratieff cycle B-phase (the A-phase was the upswing from 1945 to 1967-73). This B-phase lasted a lot longer than any other only because of the intervention of the US Treasury, Federal Reserve and its supporters in Europe and Japan – which means prices and valuations during this period reflected nothing more than power relations.

The rest of the world, in other words, was subsidizing the valuation here….

Structural accounts of this kind sweep a lot under the carpet, but they can clarify what’s going on politically at the ground level. If the analysis is right, then greater and greater force will be needed to keep the lid on the pot here at home and elsewhere too. That explains the new efforts against “home -grown terrorists” (domestic dissidents) and against recalcitrant states abroad (Iraq, Afghanistan etc.)

In the news:

“Two weeks ago, Pakistan President Asif Ali Zadari suggested that Osama bin Laden might be dead, saying that U.S. and Pakistani intelligence agencies had been unable to detect any sign of the world’s most wanted man since an audio recording of his voice was released in March.

Sunday morning, Zadari went further: “I don’t think he’s alive,” the president told NBC’s David Gregory. “I have a strong feeling and reason to believe that.” Zadari continued: “I have asked my counterparts in the American intelligence services and they haven’t heard [from] him in seven years.”

More at Raw Story.

A libertarian solution to food shortage and increasing environmental damage – switch to organic farming voluntarily. You”’ have the satisfaction of knowing that you will be financing methods and trends that don’t damage the environment or the weakest part of the population. And the market is growing, as this VVH-TV News report Organic Farming on Eastern Long Island (Karl Grossman Chief Investigative Reporter) indicates.

From Tree-hugger blog:

“Rodale Institute has proved (explanation by downloadable PDF file here) that organic agricultural methods can remove about 7,000 pounds of carbon dioxide from the air each year and store it in an acre of farmland. If all 434 million acres of American cropland was converted to these practices, it would be the equivalent of eliminating 217 million cars from the road, or a car for every two acres of farmland.

Our studies, which are the longest-running side-by-side studies of conventional and organic farming in the nation, also show that the organic approach does not compromise yield – in fact in drought years it increases it since more carbon in the soil allows it to hold more water. In wet years, the additional organic matter in the soil wicks water away from plant roots, limiting erosion and keeping plants in place.

Organic, regenerative farming is a site-specific approach that can affordably be adapted to any location. Most importantly, it helps people feed themselves with the materials that they already have, without hooking them on an increasingly expensive dependency on chemical inputs and high-cost seeds that are bred to only work with synthetic herbicides and pesticides. This holds farmers hostage to patented varieties at prices that continually rise – a practice that hurts all farmers, but especially those in developing countries where such hikes can mean the difference between a subsistence crop and starvation.”

From Seeking Alpha:

“An actual debate on a receivership bill would be contentious and damaging, and might well involve the insertion of policy provisions that would make the whole thing too unwieldy to do any good. It would also require the appropriation of hundreds of billions of dollars for the banks, to make creditors whole enough to avoid financial panic; fiscal costs cannot be avoided. Money for banks obviously isn’t a popular priority these days. And if a bank takeover spooked depositors, who then began pulling money out of the bank, the administration might have to come back to Congress for even more money.

And that’s just the part of the trouble. Legal challenges would be likely, to either the receivership law or to a specific episode of nationalization. Even if nothing bad happened, markets might get jittery. And in the end, no one has any idea what might be necessary to handle the nationalization of a firm like Citigroup, in terms of personnel, finances, or time.”

That’s Ryan Avent at Seeking Alpha.

Avent points out that Simon Johnson is right to say that government policy is trapped in the web of financial interests (Lila: When was it ever any other way?).

But he also points out that Johnson is incorrect to say that objections to nationalization are simply ideological and a reaction to the label. There are real constraints involved.

Meanwhile at American Prospect Magazine, Tim Fenholz, substantiates this last point when he notes that the main obstacle to nationalization has been Congress, not the financial elites oligarchs

(Lila: of course, Congress is in the pockets of the elites oligarchs too)

My Comment:

As I blogged before, I’m not convinced by Simon Johnson, who seems to have been pushed out suddenly into the fray in the past few weeks, that is, as soon as the sheen had rubbed off Paul Krugman’s halo, as arch defender of the public good (and this isn’t to deny that Krugman was in the front in pointing out the huge inequities between top earners and the bottom in the 1990s and thereafter).

Then, Nouriel Roubini, who struck me as the administration’s ‘designated Dr. Doom,’ was found to have financial ties with Summers.

Not good.

So now, suddenly  Simon Johnson, a former IMF economist (he was there in 2007 when the crisis was breaking), who was actually favorably disposed to the bailout when it was first touted (September 2008),  is splashed across at The Atlantic, on NPR podcasts and everywhere else, urging immediate nationalization in full populist mode.

Here’s what Johnson said on September 27 2008, about the first bail out proposal.

Johnson:

People talk about how envy drives the poor. They forget that the rich, the intelligent and the successful are driven by envy too.

They envy anyone who can’t be bought and sold, because it makes their own values look shabby.

They envy people who are free and not enslaved by the need to impress anyone else with the size of their house, their bank balance, their resume, or anything else.

They envy a clean conscience and clean hands.

They envy guilelessness and an open nature.

They envy it and in a strange way, they are also attracted to it.

That’s been my perception over the years as I’ve watched similar characters on the national political scene.

The envious can sense the superiority of what they envy.

But being limited and passionless, they can only act to strike down or humiliate this thing over which they have no control.

In some cases, they will destroy it utterly.

Read Billy Budd.

What made Claggert hate the young sailor? What had the boy done to him? Nothing. Except be as his Creator made him. Honorable and generous. Billy sang because he had a song in his heart. But Claggert couldn’t abide either the song or the heart from which it sprang. He had to strike them down.

Melville:

“With no power to annul the elemental evil in him, though readily enough he could hide it; apprehending the good, but powerless to be it; a nature like Claggart’s, surcharged with energy as such natures almost invariably are, what recourse is left to it but to recoil upon itself and, like the scorpion for which the Creator alone is responsible, act out to the end the part alloted it.” (Chapter 12)

Lila:

Apprehending the good, but powerless to be it.

There you have the essence. It was Melville’s genius to understand how weakness of character allied to a strong intelligence could produce a pure malevolence that used intellect solely to manipulate and destroy what it ought to have admired and emulated.

What else is this but envy?

This evil can mask itself in the finest manners, the most discrete bearing, the most rational facade, but the heart it hides is a charnel house.

Melville:

“Though the man’s [Claggert’s] even temper and discreet bearing would seem to intimate a mind peculiarly subject to the law of reason, not the less in heart he would seem to riot in complete exemption from that law……

Now something such an one was Claggart, in whom was the mania of nature, not engendered by vicious training or corrupting books or licentious living, but born with him and innate, in short “a depravity according to nature.”

Dark sayings are these, some will say. But why? Is it because they somewhat savor of Holy Writ in its phrase “mystery of iniquity”? If they do, such savor was far enough from being intended, for little will it commend these pages to many a reader of today.”  (Chapter 11)

Lila (update):

Melville’s choice of words is notable.

He talks of “mania” hidden by rationality. This is something I touched on in Language of Empire – the irrationality at the heart of rationality.

Mobs – at least what I wrote and conceptualized in it  – was written with this mind.

Further Update:

To clarify in response to a comment –  Mobs deals with the herd instinct not simply as in “crowd behavior” ( ala Mackay) but also at the level of the individual and in terms of the nature of language.

I think I spent quite a bit of time in Chapter 10 on the misleading use of mathematics to convey certainty about things that are much more ambiguous and uncertain than we make them out to be. This is what I mean by the phrase, the “irrationality at the heart of rationality” —  the fact that every logical system has to have a foundational point that is assumed…and is irrational.

Now how does that relate to the individual, to Claggert?

In this way.  Claggert acts and behaves like those logical systems that aren’t aware of and don’t guard against their own foundational “irrationality”.  He  becomes a monster following his own arbitrary laws, just as they do.

The “mass” we talk about in Mobs is not solely the crowd of people in the market (or in the streets or rioting or doing whatever else crowds are famous for doing).  The mass, the herd, exists in every individual.

Ivan Eland of the Independent Institute has a piece at The San Francisco Chronicle on how presidents are evaluated….and how they should be evaluated:

“Surprisingly, Democrats Jimmy Carter and Bill Clinton actually reduced government spending as a fraction of GDP. Dwight Eisenhower, the best of the modern Republican presidents on this score, held spending roughly constant as a portion of GDP. Carter also deregulated four major industries – financial services, energy, communications and transportation – and eventually appointed a Federal Reserve chairman who set a precedent for a tight monetary policy, which ultimately led to national prosperity during the Reagan and Clinton years. Reagan continued Carter’s deregulation but weakened it.

Bias Toward Activism

The fact is: Most presidential scholars have a bias toward activism rather than outcomes.

A president who creates new government programs to deal with societal problems generally will be rated as a better president than one who deals more cautiously – and cost-effectively – with problems. This is true even if the activist president’s programs do little good or even exacerbate the problems they were intended to solve.

Thus,  Johnson and Roosevelt receive high ratings from most historians, though many of Roosevelt’s economic-recovery programs were wasteful and ineffective, and many of Johnson’s Great Society programs increased government dependency and made poverty more intractable. Bush added a Medicare drug benefit – the first new entitlement program since the Great Society – to a system more insolvent than Social Security. And while Reagan is remembered by historians as an advocate of small government, he expanded government substantially.

Presidents should be judged on results. And results should be measured not by the number of new laws passed, the size of a stimulus bill or the number of jobs added or saved during the president’s term.

Results should be measured by the degree to which his actions, or his deliberate inaction, contribute to peace, prosperity and liberty.”

My Comment:

This is a very thoughtful piece and it highlights one of the worst traits of democracy – the incessant pressure from voters to act, to show results.

Interestingly, that’s also one of the underlying reasons behind the increasing volatility of markets today. Firms and analysts are more and more driven by quarterly performances, which results in all-kinds of short-term juggling of balance-sheets. In turn, that contributes to overall market volatility.

In politics, the relentless pressure to act– to take charge – is equally dangerous, because it feeds the delusion that the economy can be made to do what you want in some direct, hands-on fashion.

Well, what about leadership, you might ask? Isn’t there something a leader can do?

This again depends on what you think of the notion of leadership.  I’ll reserve my thoughts on that for a separate post, but for now I’ll say that what seems to be required today is an appearance and demeanor acceptable to the masses of voters. That’s what “charisma” amounts to.

In practice, this means how well a person can read a teleprompter, how personable they are on TV, how personable their family is, how decisive their utterances seem, and so on.

Now, since that varies with the moods of the voters, it follows that opinion-testing (polls, focus groups) becomes very central to this notion of leadership. 

And, opinion-testing is often nothing more than opinion-forming. The leader molds the crowd, and the crowd in turn molds the leader.

This two-way dynamic is also influenced by expert opinion. You would normally suppose that that would exert a moderating influence on the activism of a president. Experts, you’d think, would provide some of the ballast, the weighting to hold back the crowd –  along the lines of the role originally conceived for the Senate, for instance.

But the expert class – and I’ve discussed this at length in The Language of Empire – also has an inbuilt bias toward activism.

Ergo, everything tends to make presidents more activist than it’s wise for them to be.