Ian Welsh

the students:

Rowdy protesters blocked major gates at two California universities and smashed the windows of a car Thursday amid campus protests across the nation against deep cuts in education funding.

Protesters at the University of California, Santa Cruz surrounded the car while its driver was inside.

The uninjured driver was not trying to get onto campus and appeared to have been singled out at random, Santa Cruz police Capt. Steve Clark said.

University provost David Kliger said there were reports of protesters carrying clubs and knives, but Clark could not confirm those reports.

California higher education has been cut significantly and students have been hit with tuition hikes around 30%.  That’s rather a lot.  The students are, of course, correct, that it is ludicrous that California, which is wealthier than most countries, can’t fund higher education properly.  But, as I’ve said before, this is what Californians have voted for, again and again.  Without a rewrite of the California constitution, including allowing the legislature to overturn referendum results, it isn’t going to get fixed.

Especially since fixing it would require allowing property tax increases and increasing high end income tax rates significantly.

Too many people in California are clinging to their little slice of heaven, no realizing that they are dooming themselves and everyone else.

This is the US, writ large.  California is the bellweather of America.

Of course, if enough people get upset enough to protest, beyond just students, and to do so in whether “allowed” or not, then California and America’s elites might get the message that they’re threatened.

When the first set of Greek riots happened last year the EU’s elites let them go on—until they spread beyond Greece.  This time, when the Greeks started rioting, they suddenly started talking seriously about helping Greece.  Such help will come with some pretty ugly terms, but it’s better than no help.

Rioting tends to concentrate the mind of elites.  People forget the huge riots, marches, factories being occupied and all out wars between police, private dicks and unions that were common occurances in the US right through the Great Depression.

FDR saved capitalism because it needed saving from the American population, who had had it with the excesses of unregulated capitalism and financial games run amok.

He did so by making capitalism and the government work for ordinary people.  Since then, with a couple major exceptions, most of what he did has been undone, but Americans are only beginning to realize what that will mean, and brainwashed by years of big lie propaganda, there is a real danger they may respond by demanding not that capitalism be made to work for everyone, but instead for ideological policies like a flat tax which will make the situation even worse.

If so, they’ll get what they demand, but not what they want.

(A reprint, still as accurate today as when it was first published January 6, 2008)

The financial crisis currently unfolding slow-motion before our eyes was inevitable and predictable. I say this because it was predicted by numbers of people. It was obvious, anyone with sense (which apparently includes very few people) knew it was coming and despite the fact that we’ve known for years it was going to happen, it happened anyway.

And the same was true of the dot-com bubble. It was obvious, at least as far back as 96/97. Everyone who wasn’t paid not to know it, knew it, and it happened anyway and burst anyway. Now part of that is a question of deliberate government policy–both bubbles were fostered and grown from tiny soap-suds with the aid of Alan Greenspan’s Fed and various other government and private and semi-private actors (like Fannie Mae and Freddie Mac.)

But creating the bubble took the cooperation and encouragement of a lot of people beyond the government, people who benefitted a great deal from it. Let’s take Chuck Prince, the ex-CEO of Citigroup. Chuckie walked away from his near-destruction of Citigroup with about 41.5 million, including a 12 million dollar bonus for his performance. Drive the place into the ground, get paid well. Then there’s Merrill Lynch’s Stan O’Neal who walked away with 160 million.

Nice work if you can get it.

But if the rot was limited to the top, it wouldn’t be nearly as big a problem.

Mortgage brokers were paid to sell what everyone knew were mortgages that probably couldn’t be repaid. Why? Because the banks knew that they were going to slice-and-dice the mortgages into Collateralized Debt Obligations (CDOs) and sell them to suckers investors. When the loans went bad they wouldn’t be on the bank’s books. It didn’t (and isn’t) quite working out like that, for the banks, but in a more real sense it is.

Because the mortgage brokers still got their commissions. The real-estate agents got their commissions. In many cases they made enough money to live on for the rest of their lives. The executives in the banks and in the Wall Street firms like Morgan Stanley, who created these CDOs also got rich. They made millions. If they were smart and saved some of it, they will never ever have to work again.

The system did what it was supposed to do. It made the people who run the system stinking filthy rich. If you’re reading this, odds are you expect to work to 65 or so and pray that when you retire you’ll have enough money to support yourself in a style that doesn’t require you to eat cat food. You’ll work forty or forty-five years to get that retirement.

What would you do, or rather, what wouldn’t you do, if you knew that by working hard for five years you’d have enough money that you need never, ever, work again for the rest of your life? Not just that, but for most executives, you would be rich. Want a house on the Riviera? Want to spend the rest of you life travelling? Have a hobby? Whatever it is, you’ll be able to indulge it, because you’ll be rich and money is freedom.

So even if, in the end, Merrill Lynch was going to be stuck with a bunch of bad debt, or Citigroup was going to have problems, why should you give a damn? Making record profits for a few years allows you pay yourself, or to be awarded commissions and bonuses, that add up to more money than a normal person earns in 45 years.

From the perspective of self-interest you’d have to be a fool not to do it. And for most people, even some CEOs, even if you don’t like it you’d still be a fool not to do it, because if you opt out, someone else will just take your place, run the scams and reap the windfall of ill-gotten gains.

What is good for the economy, the country and for the long term health of your company is not what’s good for you. That’s a recipe for disaster for everyone, possibly even for you, if you aren’t real smart. (Money is only worth what the country behind it is worth, after all. Trash your country, or your world, and you trash your own wealth.)

As a result of this incentive system, if it is possible to have another financial bubble after this one crashes out, there will be one. Guaranteed. There is no way to avoid it unless the economic circumstances are so bad it can’t get off the ground (which is possible, if the monetary base starts collapsing.)

The answer is fairly simple, mind you. These sorts of bubbles didn’t happen in the post war period. They didn’t happen because you couldn’t pay enough people enough to make it worth their while. After a certain amount of income, in most western countries, you got taxed at a marginal rate of over 90%. A few CEOs might be able to make it, but most of the executive suite was going to need more than 5 years–they were going to need a career.

At this point to wring the excesses out of the system and to stop the systemic incentives to keep blowing bubbles is going to require doing something to make it so it doesn’t pay. There are two parts to any solution. The first and simplest way is to put a very progressive tax on all income no matter how or where earned that probably comes in at over 95% of all income over, say, $500,000 or a million at the most. Suddenly, needing to actually keep the companies sound, and knowing that in 7 years when the loans go bad, they’ll still be there taking the heat for it, will tend to concentrate the mind not on “can I make enough money to be in a yacht in 3 years” but into “does this deal make sense over the longrun”.

The second thing to do is to stop allowing people to sell risk. For years Greenspan argued that risk markets (the ability to take on, say, default risk in credit or for that matter to sell loans in CDOs) made the system stronger and actually reduced systemic risk by spreading risk around. What it did instead is take the risk away from the people who were able to manage it because they were close enough to the ground to know whether a loan was risky and give it to people who really had no clue and had to rely on bond rating agencies to tell them if the risk was acceptable. Without a loan officer in the actual district, without actual inspections of houses and businesses and without the loan officers knowing that 10 years from now if the loan goes bad some manager is going to call them into the room and ask them to justify the decisions they made, the people taking on the loans had no ability to know if they could, or would, be repaid. And the banks, since they throught they were selling the risk, mostly didn’t bother with old style vetting and indeed banks like Citigroup have gutted the departments which used to do that sort of work.

And the bond agencies got paid by the people they issued ratings to. I’m sure you understand what that means for their objectivity. Nor could they, even if they had made an honest effort, duplicate the sort of vetting and checking which banks used to do routinely. They simply don’t check every mortgage and can’t.

So the rule going forward has to be that if you make the loan you keep the risk on your books. You cannot load it off on other people. There are mathematical reasons why in theory it ought to reduce systemic risk to do so, but in the real world they generally don’t actually occur because of the problem of incentives–the people with the necessary information to manage the risk have no incentive to do so; the people who wind up with the debt do not have the ability to manage the risk; and the third parties like bond agencies have neither the incentives nor the ability to manage the risk either.

Such a world will be a world with a much smaller less flamboyant financial sector with much lower returns. But the idea that the financial sector could somehow make far greater returns than GDP growth and do it for decades was always insane and simply could not work. The only way to do it, the only way it has in fact been done, was to cheat and to ignore system risk, use massive leverage, print money and shove it into asset bubbles and so on.

The end result has been two financial bubbles and thirty years in which the average American hasn’t had a raise and has taken on debt. A lot of people have gotten rich, mind you, and for them these last thirty years have been great, which is why there’s a bipartisan consensus amongst the people who matter in both parties to keep what has been, for them, the best of all possible times, going.

Given a choice, they will keep it going. And there’ll be a lot more rich in America, but odds that you’ll be one of them are near zero. And when it all comes crashing down, somehow ordinary Americans, despite having never been invited to the party, will be stuck with cleanup duty and the bill.

(This is a reprint from 2008)

A few weeks ago I received the news that my old coach and math teacher, Craig Newell, had died. I haven’t written about it till now because I’ve been thinking of him since then. He was an odd man, spare and lean, with the whippet body of a greyhound, and he had a way of cocking his head when he looked at you which was inevitably parodied every year in the seniors annual play.

I spent five years around him, in high school, a boarder in an all boys school. It was an excellent school, well run, with fair rules and no brutality, but I hated the place and was miserable most of the time, though still happier there than I would have been at home. Mr. Newell was my grade 9 math teacher, but I didn’t really make a connection with him till a few months into the year.

The standard punishment at school for infractions was what I like to call brutal exercise. What it was exactly varied by the master or prefect who was in charge of the punishment detail, but one that particularly sticks out in my mind is being told to hold heavy wooden chairs over your head and then made to run around the quadrangle till you collapsed. Pushups and situps featured as well, and through most of my teen years I could easily do over a hundred of each. We often used to joke that the strap would have been easier and less painful.

I don’t remember what I did to get on that particular punishment detail, but since I didn’t feel like doing brutal exercise I talked the master whom I’d offended into letting me run a cross country race happening the next day, which was being supervised by Mr. Newell. Like most folks, the master hated long-distance running and figured it was worse than calisthenics. I found long-distance running easy. So I reported to Mr. Newell and ran the race. I had never run a race before, didn’t run more than twice a year in the school’s mandatory runs, and having been told that if I didn’t put in a credible effort, it wouldn’t count, came in about half way in the pack of runners. Mr. Newell pulled me aside, asked if I’d ever raced before or practiced, and on hearing I hadn’t, suggested I try out for the team.

Now if this was a Hollywood movie, I’d have gone on to be a star. That wasn’t the case, but I did join the team, run track and cross-country most years and do well enough to stay on the team.

More to the point, I found I liked running and I started running a lot more than the 2 days a week the team officially met. And if it was a weekday, when school ended I’d swing past Mr. Newell’s office and see if he wanted to go for a run too. As often as not, he would, and we’d run for 30 or 40 minutes. Usually they weren’t hard runs, we’d pace ourselves just below the point where speech becomes unpleasant, and while we ran we’d talk.

Unlike a lot of coaches, Mr. Newell wasn’t also the math teacher as a way to give him something to do—he’d studied math and philosophy in university and he had an excellent and searching mind. He’d often give me nuggets like the Barber’s paradox to chew over, or we’d discuss other philosophical questions like how we know what we know, or what moral behaviour is.

Mr. Newell didn’t have a lot of answers. He handled me pretty much with the Socratic method. But he did have one question he always asked, that came to define him in my mind. When I’d express disapproval of something someone had done, or someone’s beliefs, he’d ask:

“Why do you feel it necessary to not approve?”

And he’d step it back:

“Have they harmed you?” “Have they harmed anyone else?” “Why do you think they did that?” “Why do they believe what they believe?” “Given what they believe, is what they did reasonable?”

And most important of all he’d ask “Does your disapproval do anything to them? Does it do anything to you? Can you affect this situation?”

Mr. Newell was very interested in understanding what people did and why. He wasn’t very interested in judging them. And even when he did judge someone, usually because it was his job, he shied violently away from being judgemental.

Mr. Newell didn’t let his emotions, didn’t let a need to be judgemental and to feel superior to other people, get in the way of his understanding of other people.

Most people, I have come to believe, have a strong need to judge others. To quickly assign  “good” or “bad” labels. And once they’ve done so the thinking, the understanding and the empathy dies. Once someone is evil, or bad, or immoral they aren’t like us. (Because most of us don’t have the honesty to admit our own evil.) At that point, empathy dies. And without empathy there is no understanding—if you cannot walk a mile in someone else’s shoes you cannot understand them. (And, I suppose I should point out that understanding one’s enemies is the best way to defeat them. Which is why the US loses so much, because it refuses to understand those it fights.)

Now none of this is to say that Mr. Newell thought you should never, ever, judge. He was, after all, a teacher. He was in a job where you have to judge. But he felt you should judge carefully, only as far as the evidence goes, and not let it spill over into your other judgements of the people involved. I have come to simplify this as learning how to “judge without being judgemental”. More than that it implies that moral disapproval, moral judgements, in particular, should be used sparingly and that once used shouldn’t spill over. An example would be that many people (correctly) see Osama Bin Laden as a mass murderer and therefore evil. But that spills over, and they become unwilling to grant that he is an extremely brave man who led troops from the front, that he is a very intelligent man whose plans have been more effective than those of most leaders he’s been fighting, or that he, say, loves his family and is genuinely pious, generous and god-fearing. Yet the evidence is that he’s all of those things.

When you judge too quickly, you get things wrong. When you judge too broadly, you blind yourself to what a person actually is.

And really, why do we love to judge so much? Because it makes us feel better about ourselves. In our contempt for those we judge we can pretend that we’re nothing like them, that we aren’t complicit in the same evils, that we have never harbored the same thoughts, or perhaps even acted on them. Being judgemental makes us feel good about ourselves but the price is that it blinds us, both to those we judge, and to ourselves. In writing off understanding others, we write off understanding ourselves.

And ultimately, that is the lesson I learned from Mr. Newell in those hundreds of hours of running.

• Always understand before judging
• Judge sparingly. Is it really necessary to judge this person? Do their beliefs or actions harm anyone but themselves? Is it your place to judge?
• When you must judge, judge without being judgemental.
• Listen to what your judgement says about you, more than what it says about others.
• Satisfaction in condemning another is a danger sign that you may be using the condemnation to blind yourself, to yourself.
• Don’t judge large, judge small and specific.

I don’t know what comes after this life, but if there is an afterlife, if there is a judging of men and women, I hope that Mr. Newell is judged himself as he judged others. And may it be laid on his scale, that he was kind to a scared and lonely teenager when almost no one else was, and saw the good in that boy that few others did.

I’ve been predicting hiring improvement in the spring for some time, but I’ve been holding off on the double dip prediction.  I still don’t think one is going to happen, because I think, in effect, the downturn (which I agree with Stirling, is technically a depression, not a recession) is not going to end.  Sure, you can make some technical arguments for it ending, but really, the economy isn’t going to roar again, or even trundle along nicely again.   So when it turns down again, it’ll be a downleg of the same depression, not a “double-dip”.

We’re seeing a global wave of Hooverism.  Virtually everyone outside of Asia is refusing to continue stimulus at necessary levels, after having done their original stimuli at inadquate levels or in ways which were outright incompetent.  The leading edge of this isn’t the US, it’s Europe, which has decided not to either borrow from China or print money.

Meanwhile, in the US, we had a “jobs” bill which was only 15 billion dollars (probably two magnitudes too small) and which was profoundly stupid in any case—there won’t even be 15 billion dollars worth of value from it.  Meanwhile state and municipal tax revenues continue to decline.  There is no place in the US economy which is going to generate sufficient demand, and the only sure useful demand is military, but military spending isn’t all that cost effective.  Of course, it’s better than tax cuts, and it’s the only type of stimulus both parties believe in.

At this point Obama’s economic policy amounts to “war, war and more war” and “Oh yes, trillions for the financial industry.”  Substantially, that’s it, that’s all.

The economy has not recovered.  The banks have not recovered, if forced to actually recognize their losses both Citigroup and Bank of America would be bankrupt.  Quite possibly so would some of the other large ones.

China seems to have decided that it doesn’t want a full US recovery.  The calculus is this: a recovery in the US drives up commodity prices even as it allows the US to buy more goods.  Since the US buys those goods with China’s money anyway, better to have cheap commodities and make less sales which aren’t actually sales.

And the oil and commodity trap remains.  With the world economy still sucking wind, oil is hovering around 75 to 80 dollars a barrel.  If there was a real recovery, oil would quickly go back to 150 and bring the entire thing crashing down anyway.

Bernanke and Geithner, with all their spending, appear to have not saved the world.  Indeed, they may have put off the reckoning for less than 2 years.  For a bill of at least 4 trillion, and arguably more, that’s pretty amazing incompetence.  Which, of course, is why Bernanke was reappointed.  Nothing succeeds amongst the US’s elties like failure.

My parents were rich, then poor, then middle class during my life. My father both made and lost a fortune in his thirties and forties. I went, paid for partially by the UN, to an elite private school. Then spent my twenties poor, often ill and on occasion only saved from the street by the kindness of friends.

When I think of class issues I think of them in terms of corridors. In every gleaming office tower they are there, in every upscale marble, glass and steel mall—they are there. They are dark concrete, engrimed, lit by harsh fluorescence behind steel cages, streaked with the residue of years of waste. They are the corridors that the service staff use—the maintenance staff, the cleaners, the truck drivers, the blue collar guys who cart the heavy boxes and fixtures around. They are ugly and often they stink.

The most disgusting set of corridors I ever encountered was in the Chateau Laurier. The Chateau Laurier, for those who don’t know, is an old hotel connected by tunnels to Parliament Hill in Ottawa itself. It is one of the hearts of power in Canada. And the sub-basement has a smell that is something between rotten meat and acrid cheese with something acid and chemical cutting through it. I quite literally gagged the day I delivered food meant for the gullets of the rich to the old majestic Chateau, that magnificent palace whose opulent restaurants are but feet from a stench laid down for decades.

It’s that squalor that underlies the worlds of both opulence and sterility – the opulence of the upper class, the sterility of the middle classes’ office buildings. It’s those corridors that those who earn little more, and sometimes less, than minimum wage work out of. For Lord save the clean little people in their white shirts and ties, their buffed oxfords and their clean fingernails—Lord save them from seeing the people who do the work to keep their white walled world clean and running—the people who keep the air conditioning and heat on, the carpets clean and the light fixtures working.

The trolls come out at night as the offices empty. Scurrying out from their tunnels they are allowed to move through the offices once the daytime denizens are gone, not to be offended by the sight of those who sweat for a living or those who deal with dirt and garbage. And when the daytime denizens do see you, if you are one of those night time trolls—they don’t see you. Their eyes don’t track, they move right over you as if you were a piece of moving furniture—an appliance. Only if they need something will they reluctantly approach you—then, after they’ve gotten what they wanted, whacked the machinery, as it were, next time you run into them you usually find you’ve gone back to being an invisible appliance with whom eye contact is to be avoided at all costs. And you are paid in scraps, for your labor you receive a pittance compared to those whose fingernails are clean, whose work involves the strain of typing on a keyboard, attending meetings and picking up the phone.

That’s my second world. It’s a world I inhabit no longer, but it’s a world that haunts me, that I know exists alongside the antiseptic office world. Those corridor dwellers are the ones whose labor makes that new world possible—they are the trolls of the modern world, who come out at night, or who scurry through tunnels in the day, never to be seen by those whom their work helps. If seen, they must be ignored.

And they are.

And so I listen to John Edwards and I marvel that he dares speak of the unspeakable, of the great fear—not just of the middle class, but of all Americans. For we choose not to look at that which we fear. It’s not that we fear the working poor, or their humbler cousins, the broken, those who don’t even have a bad job. It’s that we fear that in them, we might see people like ourselves.

For, to feel secure, in our beautiful world, we must believe that there is something fundamental that makes us different from the poor and the broken. We must think, “ah, but I’m smarter”, or “I work much harder”, or, less gratifying but still good “I have a better eduation than them.”

We must think, then, “I am more valuable than them, I am different, what happened to them could never happen to me! I’m different! I am!”

We cannot see them as humans like us. That many of them work hard, or worked hard when they were allowed to. That most are not stupid, and that many are no worse educated than we (and isn’t that the easiest thing to fix anyway, as if everyone had a high school diploma, or a B.A. or a Ph.D there would be jobs for them all).

But I worked among them, lived among them, was one of them. And what I know is that they work as hard, indeed harder, than most of the soft office workers whose lives they make easy. And I remember the screams from the soft pampered bewildered sots when something went wrong in their pristine worlds and their inability to pick up a heavy box, or use a plunger on a toilet, or confront someone violent. Oh, yes, they disdained the goblins, but they’d coming running fast rather than soil those soft hands.

And yes, this sounds bitter. And yes, it is. And yet, I’ve long moved on from that world. My hands are the soft ones now, I’ve not picked up a shovel in over a decade.

But I don’t think that what I do is somehow innately more deserving than someone who cleans toilets for a living, or who sits at a security desk and patrols to make people safe, or who digs ditches, or who… but why go on, make your own list of the underpaid and under-appreciated.

And so I listen to John Edwards and I know why he lost twice. People don’t like you when you make them look at the other side, at the dark fate that may await them one day if they’re a little unlucky; if their company downsizes, if they’re 45 and the company wants a youngster, or if some guy in China is willing to do their job for one-tenth the wage.

Like the way the middle class says about death “she passed away”, we don’t want to look firmly in the face of poverty and see that the face is our face, that its fate echoes ours. If seen, it must be ignored.

Mustn’t it?

(A Reprint)

I don’t remember arriving at my Grandmother’s for the first time. By counting down the years I know I was about five years old at the time, a tiny blond child with cornflower blue eyes. My Grandmother lived in a house on the shore. From the living room on the second floor one could look down past the sea wall, a concrete walkway about the height of a man, to the beach. It was white sand with a scattering of driftwood, framed to the east and west by black rocks glistening with seaweed, scrapey with barnacles and clusters of mussels, gleaming wet and hot rock dry. Those rocks were to become one of my favourite places. For a five year old child they were the perfect playground. The barnacles and the height made them seem dangerous and their secret valleys contained odd creatures left by the retreating tide: crabs, molluscs, strange eel like creatures, and tiny fish darting through pools of water cradled by stone.

And the beach always changed. It changed with the season, from summer swarms of strangely fleshy adults lying passively like crusty bread on their multicoloured towels, to the fall driftwood pickers in their black and yellow rubber, to winter’s crashing storms which would smash against the sea wall and send spray into the sky. Just at the edge of my vision, near the horizon, was a series of small islands. To me those islands were fantastic and faraway places, the Tir-na-Nog of my childhood, places where strange creatures lived, where wondrous magic was to be found, places which could only be seen: never reached. In the winter I would often stare at them for hours, nose pressed against the living room window, spinning stories of the Sea Queens and Kings who lived upon them; of the robots who were their knights; of a thousand things. And I would see the ships, huge freighters mainly, like massive castles, which would steam by and I would wonder where they had been, what they had seen. I never thought of them as machines, but rather as huge beasts with a life of their own, creatures to be tamed that they might bear you away to dreams.

Perhaps my favourite change of all was simply the tides. Low tide was the best: as the sea withdrew it would reveal a wonderland of sand bars, troughs of water and a trove of sea shells and small darting creatures caught in the pools it left. I would intrepidly investigate. During the winter months on went the gum boots, in summer I splashed about in trunks. The tide was my test, too, for it was jealous of its treasures, always coming to cover them again, and I took great pleasure in outsmarting it and the currents as the tide came back in. With a practiced eye I watched the gulf between my sandbars and the shore and like an eel I took to the water to make my passage back when the sea’s return could be ignored no longer.

The beach was my preserve, others came on it, but it always seemed somehow mine . . . mine and the seagulls. There are those who dislike seagulls, but I have always had a deep fondness for them. My grandmother loved them and I learned that love as well. Sometimes I would feed them, stale crusts of bread tossed on the wind, a whirlwind of seagulls, their strident cries ringing out, descending upon me. Other times I would just watch them, the spiral of their flight lovely in itself. Their squabbling and sudden flight, their long swooping glide with that final tilt as they landed, their sharp eyes as they watched me. The beach was their fief, and mine, for they allowed me on—perhaps in pity for this big flightless graceless thing who could never feel the wind lift him, who could never look down on the sparkle of the sea, who could never fly a wingspan above, watching it flash beneath.

I have never returned to that beach, nor will I.

(This is a reprint.)

Whoever would have expected? (h/t Agonist)

U.S. banks posted last year their sharpest decline in lending since 1942

Of course, this is exactly what we warned would happen.

Can you say Japanification?  Sure you can.  Banks are impaired.  Badly.  So they don’t want to lend.  To get lending going again it was necessary to take over bankrupt banks, to siphon off bad loans, to force both bondholders and stockholders to take their losses.

Larger banks are doing better than smaller banks, which should be no surprise as they’re the ones the Feds concentrated on bailing out because if you bailed out small banks they couldn’t be bought up for cents on the dollar by Geithner and Bernanke’s friends in the financial industry.

Refusing to do the right thing has consequences.  This is one of them.

1) employment is not going to recover to pre-great recession levels for at least a generation, maybe more, in terms of % of people employed.  The late Clinton economy is the best you or I will see in our working lives.

2) Politics will continue to be dominated by monied interests and that dominance will increase, rather than decrease.  They will use their power to fight over the shrinking pie, rather than to increase it, and will make any real systemic restructuring of the economy essentially impossible.

3) a right wing “populist” will get in after Obama.  Since the only sort of stimulus they can do is war stimulus, they will pick a war with someone.  Who, I’m not sure.   In economic terms they will have all the wrong solutions to various real problems.

4) Under both Democrats and Republicans the deterioration of civil liberties will continue.

5) Median standards of living will take at least a 20% drop within 10 years or so.  Maybe more.  Not sure exactly when, but if anything, the % may be an underestimate.

6) Resource nationalism will continue to rise as will 1/1 deals between countries.  China has already restricted rare earth sales, for example.  Countries will start insisting on doing the value add in their own countries rather than shipping raw materials overseas, if they have the ability to do this.

7) As state and local governments loose their ability to govern (a process which will proceed in cycles), there will be cyclical of cuts in basic services, including police, road repair, schooling and so on.  Get thee to a very affluent neighbourhood, if you can.

Entitlements will be cut, perhaps openly, perhaps through statistical tricks, but it will be done.  There is a bipartisan consensus on this, and when Republicans get in charge they will be able to find enough Dems to sign off this time.  (If Obama can, he’ll do it before then, but Republicans want to use this against him.)

9)  There will be another major economic crisis, probably within 8 years.  In principle it could happen within a year, the timing depends on political actions I’m not sure how to predict.  I consider this nearly inevitable.

10) I expect an end to the war on some drugs, because States are going to want to tax the drug trade and need to.  Likewise the prison-industrial complex is likely to suffer.  Its constituency is not as powerful as some other important constituencies.

11) New Oh yes, I should mention that I expect an actual population decrease when things get really bad, a la Russia’s collapse.

In the longer term I expect severe water shortages, for both people and crops, in large areas of the world including big chunks of the US, China and India.  Climate instability will continue to increase, and in about 10 years (according to a friend whose judgement has been good on this) various sinks will be overloaded and we’ll start seeing some really serious global warming increases on top of the instability.  Expect food to be short and much more expensive, expect inland areas to devolve back towards local manufacturing and for megashops to start collapsing.  Expect coastal vs. inland to a big division, until global warming starts wiping out coast areas.

Americans will put off cutting the military, I think, till they’ve gutted virtually everything else.  I expect the military will probably win the fight against financial interests when the moment comes, though we’ll see.

There will be various break-points along the way, where decisions can be made which will make a difference but I think it’s close to impossible to avoid a failed Obama presidency and a right wing backlash against that Presidency.  Once the right wing fails, there will be another chance, a slight one, to turn things around.

Let’s talk about the American way in the context of the assassination strategy used against the Taliban, for the last 8 years.

First, a simple fact: this strategy hasn’t worked worth a damn against the Taliban. They’re winning, the US is losing.

The argument for it would be that killing leaders messes up the Taliban. This is marginally true at best.  Loss of a leader may cause a slight delay and occasional fights within the Taliban, but it doesn’t stop them from getting stronger and continuing to win.

Americans think that good leaders are hard to come by because modern America produces bad leaders regularly, and rarely produces even marginally competent leaders.

Or, to be more accurate, average leaders are not sufficient to make anything in America work because America is set up to force people to do the wrong thing and people who care about doing the right thing are systematically kept out and forced out if they make it in.

The Taliban doesn’t need brilliant leaders, all it needs is leaders able to execute its strategy, and its’ strategy is simple enough that your average leader can implement it, whereas the US strategy couldn’t be executed by a Napoleon.

Killing leaders at the cost of bombing weddings and funerals and killing civilians does not work in the context of counter-insurgency unless your strategy is scorched earth, which the US’s is not. There is also an opportunity cost to anys treategy.

This is the same strategy the Israelis have used for decades against the Palestinians and Hezbollah

You’ll notice that the problem has not gone away.

Americans think leaders matter far more than they actually do. In the context of an actual ideological movement with substantial popular support, there’s always another one. And, in fact, he’s somewhat more likely to be competent than whoever he replaced.

Take a look at the evolution of Hezbollah’s leadership to see how this works. The leadership keeps getting more competent, not less competent, as does the organization. The Israelis act as a nice Darwinian force, making sure the most able wind up on top and that strategies which don’t work end, because the people executing them die. Likewise the Taliban is more deadly now than it was 2 years ago, 2 years ago it was more deadly than 2 years before that, and so forth.

The war should have ended years ago, and the assassination strategy is not producing results.

But by all means, keep trying a strategy which hasn’t worked for 8 years. It’s the American way, if at first, second, third, fourth, tenth a strategy doesn’t work—do it harder. Doesn’t matter whether it’s taxes, warmaking, healthcare or anything else: the easy stupid way is always the right way, even after it hasn’t worked, over and over again.

Wonderful.

As you may have heard, the Federal Reserve had decided to increase the discount rate: the rate at which short term loans are made to banks.

The primary effect of this is to strengthen the dollar.  That will help reduce effective resource prices and make it easier to export to the US.    Both of these things are what the US’s most important creditors (aka: China and Japan), want.

A quarter point increase won’t make much difference, the question is if this is a signal that the Fed intends to continue tightening.  Doing so is likely to strangle the incipient, but extremely weak, recovery.  One can only conclude that losing more Democratic seats is ok by Bernanke, and quite likely by Obama as well.  It is possible that now that Bernanke has been reappointed he’s biting the hand that fed him, but given Obama’s actions since before he was elected, it’s at least as likely that Obama is onside for this.  Keeping creditors happy is important if the administration wants to make another run at the financial play.

The bottom line is this, as I’ve been saying for some time: the plan is Japanification.  Except that since the US is not a net exporter, Japanification will not work nearly as well in America as it did in Japan—and it sucked in Japan.

Once more, the percentage of Americans employed will not recover to pre-Great Recession levels in at least a generation and probably more.  This is a deliberate policy choice and everything Obama and Bernanke has done—from refusing to take over banks, to refusing to force lending at reasonable rates, to engaging in an inadequate stimulus, to refusing to make Banks recognize their losses, to doing everything they can to encourage slashing Social Security and Medicare, has had the effect of making Japanification more and more likely.

Unfortunately Japanification is not a stable solution set for the US.

Oh well.