If you’ve visited my “Films I viewed in…” pages, you’ve noticed how sparse they are until you get to 2016 (2011 and several years before are on my hard drive, in storage), which is horrible for a cinema studies major, but a matter of practicality. My friend Howard lent me a laptop with a DVD player that allows me to watch at my leisure. Most of the time even when the movies shown at the shelter were things I wanted to see, they were already in progress, so I left when I finished eating. The other day at work I dashed off a list of films I wanted to remember to request at the library. I was stymied a bit by a cord failure last Monday, so some of the films on this list have already arrived from me along with some that I had out or have in the hold queue (a lot of times the copies I get from the library are too damaged to be watched in their entirety, if at all).
Director names in brackets if I want to check up on what they may have by that director that I still have not seen.
Hard to Be a God (Germany, 1984)
The High Crusade
Peter Pan (2003)
Thank You for Smoking
Star Trek (Abrams)
The City on the Edge of Forever
Star Trek: The Animated Series
Green for Danger
The Bushido Blade
The Rain People
Harry Potter and the Deathly Hallows Part 2
Mermaid in the Manhole
The Bad Sleep Well
Window to Paris
Godzilla vs. Megaguirus
Time Out of Mind
Sadko (Rimsky-Korsakov opera)
The Gods Must Be Crazy 3-5
The Angry Video Game Nerd Movie
The Bride with White Hair 2
Falstaff (Verdi opera) with Willard White
Les Misérables (film musical)
Terror at Red Wolf Inn
Journey to the Center of the Earth (1955)
Witch Hunter Robin
Mr. Smith Goes to Washington
Treasure of the Sierra Madre
Toy Story 3
North by Northwest
Fear and Desire
The Last Waltz
Oldboy (Spike Lee)
The Amazing Spider-Man
The Great Gatsby (Luhrmann)
The Journey of Natty Gann
The Ladykillers (Coen)
True Grit (Coen)
The Passion of Darkly Noon
The Talented Mr. Ripley
Julie & Julia
Bunker Palace Hotel
The Music Man (theatrical film)
Princess Yang Kwei Fei
Portrait of Hell
Woman in the Moon (Lang)
The Blue Light
The New World
The Hot Rock
Island at the Top of the World
In Search of the Castaways
At the Earth’s Core
Tammy and the Bachelor
Son of Dracula
Werewolf of London
She-Wolf of London
He Who Gets Slapped
The Lone Ranger
A Merry War (Keep the Aspidistra Flying)
Member of the Assembly – 74th Assembly District
Brian P. Kavanagh (D) 81.68% (35,648 votes)
Frank Scala (R) 15.04% (6,562 votes)
Scott Hutchins (G) 3.28% (1,432 votes)
A big thank you to all the 1,432 people who voted for me. These numbers are pretty respectable considering that my candidacy had a budget of $0.
Here is my friend from Picture the Homeless and Occupy, an activist we call Ms. K., confronting City Councilor Inez Dickens and Borough President Gale Brewer over their plans to move the Macomb’s Bridge Library, the smallest library in the NYPL system, to a larger space across the street. However larger the new space is, it is still less than half the size of a standard neighborhood branch library in the NYPL system.
Dickens and Brewer contend that Ms. K.’s complaints are unjustified and that the plan has the approval of the community. Ms. K. wants to know what “community” to whom they talked and got approval, because no one she knows is satisfied with the decision. Why does an inner city neighborhood like Harlem deserve a library less than half the size of a library in other New York neighborhoods?
As it is now, the library is so small that the adults have to leave when school lets out in order to accommodate the children, and the library has a grand total of two desktop computers for patron usage, in addition to laptops.
The message of Brewer and Dickens is that the residents of the neighborhood should be happy that they are getting a larger library. The real point, Ms. K. contends, is that Harlem is being allocated crumbs based on the skin color and income of the community that the branch primarily serves.
Probably fairly accurate…
In the days when I (naively) still entertained hope that a literary agent somewhere might be interested in my work I came to form my own impressions of them and how they worked.
Drawing on the benefit of that experience, I’d like to present to you my own (not entirely) tongue-in-cheek list of tips that WILL get you signed up. Possibly. And that’s a 100% money back promise. Maybe.
The most important to thing to remember, if you want to get signed, is that literary agents are almost stereo-typically white, middle-class, conservative and highly risk-averse ladies and gentlemen who lunch and they definitely went to a better school than you did. It’s these particular characteristics of agents that have informed the construction of my list….
Here we go, top tips to get you a literary agent:
1. Have a BA (Hons) in Eng Lit from Oxford or Cambridge. This means…
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Stuart Varney and many others insist that people who amass great fortunes are invariably talented, hardworking, and socially productive. That’s a bit of an overstatement—think of lip-synching boy bands, or derivatives traders who got spectacularly rich who got spectacularly rich before bringing the world economy to its knees. Yet it’s clear that most of the biggest winners in the marketplace are both extremely talented and hardworking. On this point, Varney is largely correct.
But what about the many talented and hardworking people who never achieve much material success? (7)
The point of Frank’s book is not that successful people are simply lucky, but that luck is often the deciding factor amongst a group of talented and hardworking people. To argue this hypothesis, Frank uses a mixture of psychological studies and anecdotal evidence from his own life, much of it dealing with athletics and music, clearly Frank’s two most hobbies, having wanted to be a professional baseball player and having professional gigs as a hotel pianist.
Frank says that their may be a “perversely adaptive” advantage to believing that talent and hard work are the only deciding factors, because more realistic beliefs might discourage effort, while unrealistic beliefs may make the necessary effort easier (7). When these false notions are applied on a grand scale, it gets worse. He likens it to the superwealthy driving Ferraris on potholes rather than driving less expensive Porsches on smooth asphalt, even though the latter is clearly the less expensive option.
This distortion occurs because what happens when any one person spends less on a car is very different from what happens when everyone spends less. In the former case, the buyer feels deprived. But when everyone spends less, the relevant frame of reference shifts, leaving drivers just as satisfied as before. (16)
This is why it is important to raise taxes on the rich, because they would all be curbing their luxuries relative to one another, and would not notice significant lifestyle differences of the sort that affect those at the low end of the pay scale. “If you alone experience an income decline, you are less able to buy what you want. But when everyone’s income declines simultaneously, relative purchasing power is unaffected. And it’s relative purchasing power that determines who gets the things that are in short supply” (92). Frank, an author of widely adopted economics textbooks and professor at Cornell University, totally rejects the libertarian view that taxation is theft. “A country without taxes couldn’t field an army, after all, and would soon be overrun by a country that had one. Its residents would then have to pay taxes to that country. A country without mandatory taxation is the political analog of a highly unstable isotope in chemistry” (97). I for one would love to see the 1% move to their own little island with no taxes and get overrun and have all their money taken away and redistributed. It would be a good lesson for them. Bruce Bartlett, senior economic advisor to Reagan and H.W. Bush says that the W. Bush tax cuts created an incredibly large budget shortfall, one that could eliminate the backlog of U.S. infrastructure, but people’s failure to appreciate that being born into the right environment is so lucky that they become reluctant to pay the taxes to support the investments necessary to maintain a good environment (90). His conclusion is that income tax should be replaced with a progressive consumption tax, an idea so modest that even a far-right think tank, Americans for Prosperity, has proposed it, as did Milton Friedman during World War II, who personally sent Frank a copy of his 1943 article on the subject calling for it as the best way to pay war expenses (126). This tax would encourage people to save their money, because it would be based on income minus savings minus a set number deemed adequate to a family’s expenses, say the first $30,000, would go untaxed. Frank cites Donald Boudreaux as claiming that such a tax would encourage envy, believing the reality to be that “many important rewards in life depend on relative position” (122). Frank cautions that the country would need to be at full employment to implement the tax (125), but never mentions that business interests lobby to prevent full employment as a strategy to keep themselves in power. He does believe, however, that announcing its gradual phase-in would accelerate consumption in the upper classes trying to avoid such a tax and stimulate the economy, but that accelerating infrastructure spending would work even better (162).
Hindsight bias is a major factor that makes successful people often think that they got far without luck, or created their own—the retelling of the narrative from a sense of the inevitable. Paul Lazarfield showed scientifically the insidiousness of hindsight bias. In a study, he told people that a study showed that rural soldiers adapted better to the privations of World War II than did their urban counterparts. The test subjects came up with all sorts of reasons why this was “obviously” true, then Lazarfield revealed that the study was a fabrication and that the actual study showed that soldiers of urban origins had adapted better. The point being that once you know what happened, it is easy to come up with explanations why (21).
Duncan Watts, who recommends the book on the back cover, notes the example of Da Vinci’s Mona Lisa achieving its fame over other paintings by Leonardo da Vinci of similar quality is lderived from it having been stolen by Vincenzo Peruggia, an Italian who tried to repatriate it to his own country by hiding it under his coat, which led to its global reproduction in newspapers after a long period of obscurity (22). I have never seen the painting in person, but I’ve been told that it’s very small. If it’s as small as Salvador Dalí’s The Persistence of Memory, it’s very easy to imagine why Peruggia stole it over other Da Vincis. After all, Da Vinci’s next most famous painting, The Last Supper, is a mural, and thus very implausible for theft. It’s not hard for me to imagine someone hiding The Persistence of Memory under their clothes and getting past security of 1911 quality with it. Further examples include the unlikeliness of success of Al Pacino and Bryan Cranston, both of which occurred because a creative director got his way in unlikely circumstances and with studio opposition (Frank erroneously says that The Godfather was Francis Ford Coppola’s first film to emphasize his point, but that ignores Finian’s Rainbow, The Rain People, and others.) Both are extremely talented, but Cranston was mid-career before he got a break, and had John Cusack or Matthew Broderick accepted the role of Walter White, Cranston would still be a relatively unknown working actor (24).
Citing findings by MusicLab (31), Frank says that while works of unambiguously high quality can sometimes succeed even in the face of early negative commentary, but that most successes come because the earliest reviewers happen to like them. “Many artistic endeavors owe their success, at least in part, to pure dumb luck” (31). I think Rocky is an excellent example of this. It got its share of negative reviews that I consider more astute, as I attempted to put on Wikipedia but got truncated, but many of the highest profile reviewers gave it at least mildly positive reviews, and it now has seven sequels. I have had cyberbullies insist that film industry professionals have read my scripts and found them wanting, but this is a completely false statement, since no one has gotten more than a query letter from me, to which they responded with form query letters. The fact that my work has never been given an opportunity means neither that it is of poor quality nor that I am lazy, but strangers continue to assume so based personal biases. He cites a similar issue in classical music, a market bigger than ever but with fewer performers than ever thanks to high definition recording technology. “Once the master recording of a tenor’s performance has been made, it’s essentially costless to make additional copies of it. That’s also why only a small handful of artists land seven-figure recording contracts, even as thousands of others—many of them nearly as talented—struggle to get by as elementary school music teachers” (47). Having performed in amateur and semiprofessional opera, I know how true this is. Nicholas Tamagna is easily the best countertenor I have ever heard, easily surpassing any I have heard on a commercial recording. Others who have heard him also say so, and he’s getting a steady stream of work in smaller opera companies across the country, but he appears to still be a long way from stardom, even if he appears to be closer to it than many of the rest of us. In both college and graduate school, studying film, I was assigned to read Walter Benjamin’s essay “The Work of Art in the Age of Mechanical Reproduction,” but Benjamin was writing about the intrinsic value of the unique art work, such as a painting, whereas few would want to watch a film negative in its entirely, nor would destroying a print result in the same level of punishment (or loss to the art world) as that of destroying a painting. The tone of the essay suggests Benjamin would find an argument about jobs banal, in spite of dealing with similar ideas.
Frank wants to believe the hypothesis of Chris Anderson’s The Long Tail, but the evidence appears to be going in the opposite direction. The proportion of titles selling fewer than 100 copies a year, was 91% in 2007 and 94% in 2011 during a period in which overall sales nearly doubled (48). Anderson believes that sales for such materials will increase when the hype for larger-selling titles dissipates, but the evidence does not show this. Frank wants to believe that the hypothesis is true, his sons having a band ironically called The Nepotist. Technology has made this even worse, as shown by Barry Schwartz in The Paradox of Choice, with most people disliking searching through a wide variety of options (hence the success of Blockbuster in the 1980s and 1990s, which I despised for its poor selection), and digging online takes a lot more patience than a browse through a store. Based on these studies, being a “Johnny-come-lately” in reviewing isn’t much help, even on a grander scale. I recall a published film guide that gave the maximum rating to Moron Movies and More Moron Movies, video collections that spoof how-to videos by having a guy use common household products in unusual ways, but it was not in consensus with other film guides, which gave them average reviews, and in terms of distribution, I rarely saw them on video store shelves let alone watched them for their contents. James Rolfe’s The Angry Video Game Nerd became a success reviewing old products, but except for a few specials, his reviews are all comedically negative. A fan of Rolfe created a fictional cousin called The Happy Video Game Nerd, who reviews underrated gems, but he doesn’t have anywhere near Rolfe’s hit count.
Conversely, the explosive growth in CEO pay was unheard of until recently, and has little to do with talent or ability—think of all the golden parachutes that have been given out to CEOs that have made their companies worse off than when they started. In decades past, a new CEO was groomed from within a company—someone who knew the specific business was desired, thus CEO pay was a negation between board and successor and not comparable to the pay of a CEO in a completely different field the way it has become, to the detriment of most (50).
I have a master’s degree and live in a homeless shelter. They tell us with those with college degrees make more than those without, but Frank shows this is a manipulation of misleading data:
Yes, the earnings differential between college graduates and others is now wider than it was thirty years ago. Yet if we look only at the distribution of earnings among college graduates, we see the same pattern for society. For most college graduates, wage increases have been either small or nonexistent in recent decades. The premium for college graduates exists because a relatively small number of the most successful graduates have enjoyed spectacular earnings growth during the same period. (53-54)
Chance events are more likely to be decisive in any competition as the number of contestants increases. That’s because winning a competition with a large number of contestants requires that almost everything go right. And that, in turn, means that even when luck counts for only a trivial part of overall performance, there’s rarely a winner who wasn’t also very lucky.
He illustrates this with the record holders of four track events (63-64), all of whom set their records with measurable tailwinds with the exception of Florence Griffith Joyner, while none set records with headwinds. Frank takes the analogy further with his friend, Tom Gilovich, with whom he was playing tennis when he would have died had it not been for an ambulance being closer than it normally would have been, tailwinds feel great, but they are easy to forget, while headwinds are arduous and require struggle. People are more inclined to remember their struggles than things that went easily for them, and hence, to discount the importance of luck (80-81).
If luck has only a very small effect on performance, why is it so hard to win a large contest unless you’re very lucky? Two factors are involved. One is that the inherent randomness of luck means that the most skilled contestant is no more likely to be lucky than anyone else. The second factor is that with a large number of contents, there are bound to be many with those close to the maximum skill level, and among those at least some will also happen to be very lucky. With very large contestant pools, then, there will almost always be someone who is almost as skillful as the most talented contestant, but is also significantly luckier. So even when luck counts for only a tiny fraction of total performance, the winner of a large contest will seldom be the most skillful contestant, but will usually be one of the luckiest.
[The expected performance level of the most skillful of 1,000 contestants in any contest is P=0.95 x 99.99 + 0.05 x 50 = 97.4, which is only 2.6 points below the maximum value. But with 999 other contestants, that score usually won’t be good enough to win. (155)]
The situations described in appendix 1 also help us understand both the strengths and weaknesses of the human capital approach discussed earlier. People who achieve material success on a grand scale will almost always be both highly talented and extremely hardworking, just as the human capital approach suggests. But the simulations also make clear, in a way the human capital approach does not, why so many extremely talented and hardworking people fail to achieve any significant measure of material success. Many of them are simply less lucky than the winners.
If the simulations challenge our intuitions about the importance of chance events, it’s at least in part because we sense, correctly, that performance depends far more strongly on ability and effort than on small random occurrences. Our intuitions often fail because even things that are highly improbable in any specific instance become likely if there are enough opportunities for them to occur. (66)
To me, this feels like a vindication. So many people who have never met me, plus my conservative family, believe that I am lazy or untalented. My mother had a tendency to yell, “Gifted and talented—ha!” because I was in the gifted and talented program in school, but my gifts and talents were not manifesting in the ways she would have liked—obedience, doing routine chores, and doing better in math (I was good in everything else except for physical education and industrial arts). I can show people job postings to which I have applied, with absolutely nothing posted on them that I do not have, but either never heard back or was turned down without an interview. This cannot correctly be described as lack of ability or effort on my part, but can be described as bad luck (although the will of others would be more accurate), particularly when CareerBuilder shows over 1,500 applicants for a single opening. It is likely that no human being actually saw my resume, which cannot reasonably be considered my fault. If the computer is rejecting people whose resumes do not mention an associate’s degree, it could be because I worked too hard and got into a baccalaureate program immediately on entering college and never earned an associate’s degree per se and thus don’t falsely put one on my resume. A human reading my resume would know that I exceed that requirement, while a computer would not unless it were programmed with all the right variables. As Bryan Cranston says, “without luck you will not have a successful career (68)”.
Our understanding of human cognition suggests additional reasons for the tendency to underestimate luck’s role in success. One of the rules of thumb people often use when making judgments is the so-called availability heuristic. Suppose you’re asked, “Which are more frequent: English words that start with the letter ‘R,’ or those that have ‘R’ as their third letter?” Using the availability heuristic, most people would react by trying to think of examples in each category. That approach usually works well, since examples of things that occur more frequently are generally easier to summon from memory. And since most people find it easier to think of examples of words starting with “R,” the availability heuristic leads them to the answer that such words occur more frequently. Yet English words with “R” in the third slot are actually far more numerous.
The availability heuristic fails here because frequency isn’t the only thing that governs ease of recall. We store words in our memories in multiple ways—by their meanings, by the sounds they make and the images they evoke, by their first letters, and by numerous other features. But virtually no one stores words in memory by the identity of their third letter.
The availability heuristic suggests that when we construct narratives about how the world works, we rely more heavily on information that happens to be more accessible from memory. But that almost guarantees that our accounts will be biased, since some types of information are far more readily accessible than others. Information about things we’ve experienced repeatedly for example, is far more salient than information about things we’ve only heard or read about infrequently. Information in the latter category has a much harder time breaking through. (79)
Thus, as with the tailwind example, intelligent, hardworking people who strike it rich have a tendency to dismiss luck. They also know that they probably would not have had that sort of success had they been born in Zimbabwe, but lack the day-to-day experience to remind them of that (80). “We tend to overestimate our own responsibility for whatever successes we’ve enjoyed in life” Frank says, but also says that that overestimation is a good motivating force (82). Bill Gates seems to have this awareness. He said that he would be stunned if there were 50 people in the world who had the same opportunities that he had (34). He was born to wealthy attorneys who worked for the government, and thus was well-connected through accident of birth, which also put him in a private school that was equipped to give programming students instant feedback on their errors. Frank himself describes having to drop punch cards of to a building on a hill and not get feedback in the next day. Compare this with my parents. My family was rather well to do in the 1970s. They didn’t want my brother and me in private schools, but they could afford to live in the neighborhood that had the best public schools in the state with my father’s job as a biochemist for Eli Lilly. My father lost that job in 1981, and I the younger child, thus had far fewer benefits than my brother. Frank discusses the importance of birth order at length, but it had a different effect in my family than in most. If my brother didn’t work out in something, such as Little League, they didn’t even try it for me. My mother having a large sense of shame played a huge role in this. She pulled my brother from Little League because he would miss the ball if a fire engine came by, because he was more interested in fire engines than baseball. Recognizing individual interest was neither my mother’s strong suit nor that of my cyberbullies. I was repeatedly denied participating in any kind of music outside of school programs (I recall multiple times requesting lessons for piano, cello, and to join the Indianapolis Children’s Choir). I have had others recognize my talents for music, but they did not involve teaching myself to use any instrument other than my voice with anything beyond the most rudimentary ability to find notes and chords, albeit not in rhythm. I seriously think I would have been better off in life in a multitude of ways if I had had them (studies show that music trains an immature brain to be better at math, for example), but my mother insisted that I wouldn’t practice on the grounds that I didn’t practice things that I did NOT enjoy, though the ulterior might have been to hide just how little money we actually had without my dad’s Lilly job. Frank stresses that being born into the right environment is one of the luckiest things that an individual can accomplish. Even so, Gates did not do most of the work that made him a success, Gary Kildall and Tim Patterson did, and it was abetted by the poor negotiating skills of Jack Sams compared to those of Gates’s business partner, Paul Allen (34-35). Over the next few pages, Frank discusses various unlikelihoods in his own road to success.
On page 114, Frank graphs the toil index, his own calculation of the monthly number of hours a median earner must work to rent a house in the median school district. He shows it as stable from 1950 to 1940 at a bit above 40 hours per month, or a little above one standard work week. That rose steadily between 1970 and 200, going up to about 70, then skyrocket to 100 by 2005. As with widely distributed graphs showing wages stagnating compared to increasing productivity (which Frank indirectly denies on page 162), this should show to reasonable people how hard work and talent very rarely leads to material success, and it’s due to the choice of people in power. They’re more content to spend tax money on wasteful arms races. Frank compares the arms race to elks growing longer antlers. It helps them attract mates and have more reproductive success, but the added weight leaves them more inclined to be eaten by wolves. It’s good for the species overall, but bad for the father elks, being more likely to meet a premature death, while male elks that live to a ripe old age are less likely to have reproductive success. The extent that antlers can grow is limited by how much elks can reasonably carry on their heads and be able to graze or actually compete for mates, just as the arms race is limited by making sure the country doesn’t starve. Self-limitations do not mean lack of wastefulness, and a full scaleback of weapons at equal rates makes sense, something we can do, while elks can’t (116-117). Similarly, most income gains have been going to top earners, but larger houses and larger weddings have not made the rich any happier, in fact show the opposite, but the larger houses at the top shape the demands of those below them, on down the income ladder, making things more difficult on the middle and lower classes (119-120). He notes that everything is on a curve, and the very wealthy in New York City have apartments half the size of mansions in places with more land area, even though they are still twenty times larger than an average person’s apartment (121).
“Dead weight of an intolerant tradition prevents anyone’s properly understanding the most enlightened intentions,” Frank cites from Italo Calvino’s Mr. Palomar (129). He spends the next chapter arguing that gratitude for one’s own luck adds trust to a teammate, which is just as important as being talented and hardworking.
Character assessment makes little sense in the models of human behavior favored by many economists. Those models assume that people are both rational and self-interested (in the narrow sense of the latter term). In this portrayal, Homo economicus would cheat only if he stood to benefit enough and if the odds of being caught were sufficiently low. So the mere fact he does not have a reputation for being a cheat tells us only that he’s been prudent. It doesn’t tell us that he would cheat when no one is looking. (129-130)
“Because chance events figure prominently along virtually every career trajectory, people who claim complete responsibility for their own success are almost surely claiming more credit than they actually deserve, and that is unlikely to make them more attractive to others” (132) When coming from Twitter trolls, it makes me personally downright hostile towards them. He notes that less educated people are less likely to acknowledge luck as an important factor in success (139), which seems to explain it. He also conducts a study in which a fictitious biography of a business man named Harold Johnson. People who got a different last paragraph in which he acknowledged his lucky breaks were more inclined to want to work, be neighbors, be friends with Harold Johnson than if the summation paragraph acknowledged only his abilities and hard work.
Again Frank brings in his own life’s dream of becoming a professional baseball player. He was on course, having been a bat boy for the Brooklyn Dodgers, then transferred to a different school district and was out of the pipeline to be on his school’s team. From studying economics, he learned the likelihood of being drafted by a professional team was slim, and even if he had, being a minor leaguer for ten years was the most likely outcome.
“Contrary to popular belief, private waste is not only far more pervasive than government waste, but also far easier to curtail.” If we raised taxes on the rich, “At least some useful public goods would be purchased with the additional revenue, after all, unless someone is prepared to argue that another tripling of the amounts spent on weddings would make people happier, virtually nothing of value would be sacrificed.” (144) Frank repeatedly mentions studies that more expensive weddings are more likely to result in divorce, and people with bigger mansions are not any happier. I would certainly be a lot happier if I could afford to live outside the shelter system, however.
Citing Robert Putnam’s Our Kids, children from low-income families with eighth grade math scores in the top quartile are less likely to earn a bachelor’s degree than children of high-income families with bottom-quartile math scores (145). (I do not know how my math scores were in this relativity; however, they were in the seventies, whereas my scores were in the upper nineties for all other subjects.) The skyrocketing cost of tuition keeps those from low income families from success, even when their scores show that they deserve it. Putnam argues that the American Dream of working hard and playing by the rules gets people ahead irrespective of family backgrounds has been shredded. Frank’s book shows us not only why but an easy way to correct the problem.
My rating: 5 of 5 stars
In Malaysia, another small nation that had suffered the effects of currency speculation, Prime Minister Mahathir Mohamad rejected the advice of IMF and resorted to direct capital controls. This was ridiculed by Western experts as a mark of economic illiteracy, yet the strategy worked beautifully. The central bank used controls mainly to kill the offshore speculative market in Malaysia’s currency, the ringgit. Outside Malaysia holders of the ringgit had to wait a year before converting the currency. Long term investment was still welcome.
The policy enabled little Malaysia to do what Roosevelt had accomplished for the United States in 1933–to break the link between foreign and domestic interest rates so that the government could use low interest rates to stimulate a recovery without crashing the currency. Despite a chorus of orthodox scorn, which involved a downgrading of Malaysia’s bonds by the ever-helpful credit rating agencies, the policy was vindicated. Growth, having declined during the speculative panic by 7.4 percent in 1998, rebounded to 6.1 percent in 1999 and 8.2 percent in 2000. It was the most rapid recovery of any of the affected Asian nations. (259)
The above is possibly the most succinct of the multiple narratives in this book that begins with Daniel Defoe‘s attempts to abolish the literal debtors’ prisons (he even drops a reference to Thomas Dekker‘s debtors’ prison stay, whose The Roaring Girl I read early this year and contains many references to debtors’ prison and footnotes describing in detail what they were like and how they differed based on social class) and compares them to the metaphoric debtors’ prison of today, austerity, which accomplishes nothing but put more wealth in the hands of those who already have the most based on the lie that economic slumps are caused by deficit rather than debt.
The Tea Party (see the extended quotation at https://scottandrewhutchins.wordpress… ) wants us to believe that poor people like me are at fault for the economic crash, not the billionaire gamblers (“speculators”) that actually caused the crash. They claim that going to graduate school was “profligate spending” on my part, that I refuse to get a job, when I take any reasonable job offer for my medical condition, and that I am a leech on society by living in a homeless shelter. The Gramm-Leach-Bliley Act, the failure to regulate derivatives, and the fact that the recession of December 2007 and the crash of 2008 were all caused by private rather than public debt. Yet they, and the International Monetary Fund, which is performing a function diametrically opposed to what it was set up to do following World War II that stimulated the economy, is keeping nations, continents really, in economic slumps in order to redistribute wealth upward to billionaires, or, in Kuttner’s words, the “rentier class.”
The central thesis of his book I found a little troubling in light of Michael Perelman’s discussions of Keynes in The Invisible Handcuffs of Capitalism, but through the course of the book, he makes a compelling case:
The late financial bubble was, in the useful phrase of the political economist Colin Crouch, privatized Keynesianism—unsustainable borrowing in the private sector. Debt pumped up the economy—but it was speculative rather than productive debt. That sort of private debt is pro-cyclical. It is excessive in booms and then evaporates just when it is most needed, in busts. By contrast, genuine Keynesianism—public spending financed by deficits—can be used as the economy requires. Today, in the aftermath of collapse, we need more public borrowing to jump-start a depressed private economy. Once we get a real recovery, higher growth will pay down the debt as it did during World War II. (8)
Before our figurative debtor’s prisons, and before literal debtor’s prisons, Kuttner tells us, there was indentured servitude, agreements that are now called “contracts of desperation” by legal scholars (10), not unlike contemporary student loan debt. “[A]fter a collapse, a debt overhang becomes a macroeconomic problem , not a personal or moral one. In a deflated economy, debt burdens undermine both debtors’ capacity to pay and their ability to pursue productive economic activity” (15). These concepts are beyond the ken of extreme right-wingers who tell the poor “Pay your debts!” as though it is a moral issue, while the wealthy discharge debts they run up all the time. They cry out for us to “live within our means,” regardless of whether doing so is actually feasible.
After a general collapse, one’s means are influenced by whether the economy is growing or shrinking. If I am out of work, with depleted income, almost any normal expenditure is beyond my means. If my lack of a job throws you out of work, soon you are living beyond your means, too, and the whole economy cascades downward. In an already depressed economy, demanding that we all live within our (depleted) means can further reduce everyone’s means. If you put an entire nation under a rigid austerity regime, its capacity for economic growth is crippled. Even creditors will eventually suffer from the distress and social chaos that follow (16)
Right-wingers’ demands (and those of the German Bundesbank) remind us of the pre-Depression lunacy of Andrew Mellon, who told President Hoover to “liquidate labor, liquidate farmers, liquidate real estate . . . it will purge the rottenness out of the system. People will work harder, live a more moral life” (quoted, 19).
The real economy—as opposed to the financial one—needs cheap capital in order to grow. The lesson of the era of managed capitalism is that the economic sweet spot is the combination of plentiful credit and tight regulation, so that low interest rates finance mainly productive enterprise. The mistake of Federal Reserve chairman Alan Greenspan and chief economic advisors Robert Rubin and Lawrence Summers and others was not to loosen money; it was to loosen regulatory constraints on its speculative use. And this was no innocent technical mistake. It was the result of relentless industry pressure for deregulation coupled with the financial sector’s success in installing allies in key government posts, regardless of whether the administration was nominally Republican or Democrat….
The core claim is that budget discipline is the royal road to recovery. However, in a deflated economy, recovery is the precondition for fiscal balance. In the usual framing of the debate, not only are the cause and the effect backward, but several distinct issues are deliberately blurred. (28)
“A mistaken premise is that high levels of public spending produce high deficits. But a government can have declining domestic spending and rising deficits, as Ronald Reagan showed… in a deflated economy, an increase in the short-term deficit to finance investment is better medicine than austerity” (29).
The deficit hawks’ vision of the future if we do not cut deficits now is “just about backward. The well-being of our children and grandchildren in 2023 or 2033 is not a function of how much deficit reduction we target or enforce in this decade but of whether we get economic growth back on track. If we cut the deficit, reduce social spending, and tighten our belts as the deficit hawks recommend, we will condemn the economy to stagnant growth and flat or declining wages. That will indeed leave the next generation a lot poorer. The existing debt will loom larger relative to the size of the real economy, and there will be too few public funds to invest in the education, employment, job –training, and research outlays that our children and grandchildren need” (30). “With earnings so deeply depressed, the economy has no good substitute for that consumer borrowing. Public borrowing invested in new economic activity could play that role, but the conventional wisdom says public deficits need to shrink” (38). “In comparable conditions in the 1930s, the failure of low interest rates to end the Depression was likened to ‘pushing on a string.’ It was the wrong policy instrument, or at best not a sufficient one” (39-40).
In a protracted deflation, there is a right instrument: fiscal policy. When nobody else is willing to spend and invest at sufficient levels, the government can step in. It can borrow the money that the private sector is reluctant to spend and invest, and it can use the proceeds to create public investments and jobs, which in turn can restore purchasing power and confidence more broadly. The government can also tax idle wealth and invest the proceeds socially, so that its spending is not entirely dependent on borrowing. Most of the outlay, in the form of wages and government contracts with businesses, cycles right back into the private sector. (40)
“’The Great Recession,’” Kuttner tells us, “is a misnomer. We should stop using it. Recessions are mild dips in the business cycle that are either self-correcting or soon cured by modest fiscal or monetary stimulus. Because of the continuing deflationary trap, it would be more accurate to call this decade’s stagnant economy The Lesser Depression or The Great Deflation” (40).
Citing economist Andrew Sum, 83% of the growth in the real national income went to real corporate profits, the largest share “’by far in any of the six past recoveries and the largest in any national recession recovery since the official statistics start in 129’” (43, quoting Sum). Similarly, Kuttner quotes Sheila Bair on the total hypocrisy of this situation, “John Dugan famously said during one of my open FDIC meetings that small banks were failing and none of his big banks had failed. They didn’t fail because they were bailed out!” (48). The large passage quoted in my blog entry linked above describes why, for example, ShoreBank failed despite having been a responsible lender.
Kuttner’s third chapter, “The Allure of Austerity,” starts by telling us about billionaire investment banker Peter G. Peterson, who warned that a crash would come due to budget deficits crowding out productive investment. The reality of the crash had everything to do with the lax financial regulations he promoted in four books and articles Kuttner describes as “jeremiads” that never mention the risks of financial speculation. While he says it would be wrong to single him out, he calls him “emblematic of a creditor class that has become increasingly dominant—hegemonic—in American fiscal politics” (51-52).
Clinton and Greenspan struck a deal in 1993 to trade smaller deficits for lower interest rates. “The two policies had no logic connection, except in Alan Greenspan’s ideology. “Projected deficits were having no impact on interest rates,” thus making cutting the deficit a political rather than an economic imperative (55).
Higher growth and reduced unemployment also increased payroll tax receipts and moved the Social Security accounts further into the black. Deficit hawks were fond of pointing to the estimates by the Social Security trustees projecting that at some point in the 2030s or early 2040s Social Security would not be able to meet all of its anticipated obligations. The 2012 Trustees’ report put the program’s long-term deficit at about 1 percent of GDP—something easily solved by modest tax increases on high-bracket wage earners, or better yet, by rising wages.
Social Security is financed by taxes on wage and salary income. It is at risk of incurring a modest shortfall two decades from now only because wages have not kept pace with productivity growth. If wages tracked productivity, Social Security would never be in deficit. In one three-year span during the booming 1990s, the date of social Security’s projected shortfall was pushed back by eight years—from 2029 to 2037—because a high-employment economy meant more payroll taxes coming into the Social Security trust funds. At that rate of improving solvency, Social Security would soon be in perpetual surplus. All it took was decent economic growth with fruits shared by wage earners. The budget hysteria lost its credibility, and the austerity crusaders went into temporary eclipse. (55)
That did not last. In the grip of the recession that George W. Bush started in December 2007, Barack Obama sold out to the austerity lobby in a February 23, 2009 speech quoted on pages 62-63. Kuttner notes several fallacies that Obama made: “Deficits did not cause the economic crisis. Confidence in economy has more to do with whether we are on a path to recovery than with whether we are on a path to reduce debt. The horizons of our children and grandchildren will be more a reflection of the health of the real economy than of the ratio of national debt to GDP (which, remember, was at record levels during the postwar boom, America’s greatest era of high growth and shared prosperity)” (63). “There is a better path to recovery and fiscal responsibility. The economy needs deficit-financed public outlay during the next few years, and then very gradual budgetary restraint as the recovery strengthens. Deficit-narrowing built on increased revenue collections that reflect an improved economy is far superior to budget balance that comes from belt-tightening” (68).
Similarly, the deficit hawks are wrong about Medicare:
Medicare’s cost inflation is mainly the consequence of the extreme inefficiency of the larger health system of which the program is a part. (Since 2000, Medicare’s inflation rate has been lower than that of the private parts of the system.) The fact is that nations with universal health insurance cover everyone for about 9 percent of GDP, while we spend nearly twice that—and leave tens of millions without insurance, even after the Obama reforms.
While all societies have had to deal with an aging population and costly advances in medical technology, ours has uniquely high health care costs and a higher-than-average rate of cost increases mainly because of the commercial domination and fragmentation of our system. That reality, in turn, leads to a seeking of profit centers (which are someone else’s cost centers) rather than the cost-effective use of medical outlays. More than thirty years of private sector solutions, such as the use of HMOs and incentive compensation for physicians, have not been able to alter this dynamic. With the Obama plan reliant mainly on for-profit insurers, it is not likely that the latest reform proposals will fundamentally bend the cost curve either, except at the expense of care. (72)
As part 2 of this book suggests, Europe has been wrestling with austerity and its alternatives for a century. The excessive reparations imposed on Germany after World War I helped create a chronic debt crisis all over Europe and ultimately fed into the forces that produced the Great Depression and Hitler. After World War II, the policy of the victors was diametrically opposite. Though even more drastic reparations might have been justified by the far greater damage done by the Nazis, the victorious allies recognized that an economically healthy Germany was the best protection against a lapse back into fascism. The postwar recovery program included not just Marshall Plan aid but massive debt relief. (74)
This book was published in 2013, thus predicting the fascism of the supporters of Donald Trump. John Maynard Keynes, Kuttner tells us, pointed out in November 1918, that the fallacious argument that the Allied claims matched Germany’s capacity to pay, and that reparations should not impair Germany’s productive capacity (79), but opponents did not want to “let the Hun off.” The plan failed and led to the prominence of the hard-right, anti-German Tory party. “With our knowledge of Hitler’s rise to power, it seems preposterous that French and British leaders of 1918 and 1919 could have held such self-defeating views,” (81), but he deficit hawks are failures at learning from history (as well as deriding those who study history academically).
“Speculators may do no harm as bubbles on a steady stream of enterprise,” wrote Keynes, “But the position is serious when enterprise becomes the bubble on a whirlpool of speculation,” (85) which is more like what we have today. “Currency instability rewards only speculators. These policies help the rentier class, at grave expense to the rest of society and to the productive potential of a real economy” (85). The goal was to punish the German people for a war prosecuted by a regime that no longer existed.
Given today’s austerity fever, what is all the more remarkable is that social provision was dramatically expanded in Europe at a time when the debt overhang of the war might have led to calls for belt-tightening. Yet the first Labour government after World War II built the National Health Service and expanded other social forms of income at a time when Britain’s debt ratio was over 200% of GDP. Continental nations still literally digging out from the ruins of war expanded socialized health, retirement, and worker protection systems. Far from hobbling postwar recovery, the social elements of the new European economy energized it. Those who blithely assume that the high European growth rates were simply a natural consequence of recovery from war and prewar depression should take a close look at the stunted period after World War I, when no such durable recovery occurred. The success reflected deliberate policies that blended security and growth and constrained private financial speculation. These, in term, reflected a political base of a strengthened democratic left and a weakened financial and nationalistic right. (108)
Now the financial right is with the Democrats, the nationalistic right is with the Republicans, and the democratic left taken up by the Green and Socialist parties that are marginalized in the United States. Common sense is pushed to the side and dismissed as radical. “Yet, the real economy grew. In many respects, it grew not despite the constraints on speculative finance, but because of them; not in spite of the social complements to the market but as a result of them. In the three decades after the war, the founding nations of the Common Market grew at a rate that has not been matched before or since. Most of Western Europe enjoyed not just full employment but overfull employment. Several nations had to import gust workers to keep up with the demand. Wages rose with productivity, and the income distribution of the Common Market countries became more equal (109)”. This is precisely what the deficit hawks do not want. “So while laissez-faire capitalism has disgraced itself in both theory and in practice, there is no politically robust opposition on the democratic left. The democratic state, as the instrument of a functioning social contract of security and opportunity, is thwarted by both the EU’s own rules and by the political power of finance to set the terms of engagement and to play one state against another,”(129) as we see as Goldman-Sachs destroys Greece and other European nations, while the austerity hawks blame it on “profligate spending” while lionizing the true cause, financial speculation by big banks. “Had Merkel backed Greek recovery and reform from the outset, or even left open the possibility of aid, there would have been far less downward pressure on the bonds. Instead, they refused to help, virtually inviting speculative attacks” (134).
The European Commission, on the other hand, believes the false dogma that “freer markets will lead to more economic growth. For example, labor markets are supposed to be liberalized for the sake of competitiveness, a polite way of creating pressure for wage reductions. Countries receiving emergency aid, such as Greece, Ireland, and Portugal, get even more explicit direction and in effect become wards of Brussels. In the pursuit of budget balance, Ireland was required to scrap its minimum wage but permitted to keep its low corporate taxes. So the demand for fiscal tightening is far from evenhanded. The entire process functions as a neoliberal hammer” (143).
The European Commission continues the double standards of the literal debtors’ prisons—it “does not press for adjustments on the part of surplus countries, primarily Germany. Keynes’s model for the Bretton Woods system, by contrast, was intended to put pressure on the surplus countries to expand so that the deficit countries would not have to contract. But the current EU procedure creates a systemic bias in favor of contraction (144). Greece is suffering because of forced privatization with no economic logic (149). International Swaps and Derivatives Association “epitomizes the power of private regulation. Even though the swamps are issued by regulated banks and have the potential to crash the economy and create massive losses absorbed by taxpayers (as they did when AIG collapsed in September 2008), they are largely unregulated, even to this day. In place of transparency and public regulation, the terms are set by ISDA representing their issuers—a gross conflict of interest” (153). Greece’s crisis was entrenched by billionaire Kenneth Dart, heir to the Dart Styrofoam container company, with his Dart Management, “which epitomizes everything unsavory about the unregulated shadow banking system. Dart had threatened to sue Greece’s caretaker government if he did not get his bonds back at 100 cents on the dollar (twice what he paid for them). Kuttner says he was told that an elected Greek government would never have paid (156). So we have the majority of a nation suffering for no fault of their own because of one man’s greed. But private capitalism is supposed to be the most ethical system there is? Give me a break.
By late 2012, it was painfully clear that the austerity cure was only worsening the condition of Greece and Europe. The more that Greece cut spending and raised taxes in order to meet fiscal targets, the more the economy shrank, revenues fell, and the deficit increased. In 2010, when the EC and the ECB first agreed to exchange aid for austerity, they projected Greek GDP at 235 billion euros in 2013. The actual number will be about 183 billion, according to the Greek government. The debt was supposed to peak at just under 140 percent of GDP in 2012. It will be around 180 percent, rising to 190 percent in 2013. As spending in basic services was cut and cut again, human hardship kept increasing. Greek public health officials reported the first outbreaks of malaria since the 1950s. Unemployment exceeds 25 percent. The number of Greeks with jobs declined to just past 3.7 million from 4.6 million in 2008. Austerity has put Greece on a treadmill that never leads to recovery” (162).
Yet the deficit hawks think if you make things austere enough, it will make people get jobs that do not exist. “There is no compassion for the fact that Europe suffered an economic drag before the collapse in part because of Germany’s lavish subsidies of its own eastern states. Nor is there any comprehension of the double standard reflected in the €2 trillion forgiven to the former East Germany but the massive resistance against aid to fellow EU members. Germany, having tightened its own belt to help fellow Germans, is feeling self-righteous and willing to run roughshod over its neighbors” (164). “It is now apparent that the metastasis of a fiscal imbalance in Greece into a general crisis of speculation against sovereign debt and serial runs on European banks and nations was a preventable tragedy. Perverse policy was rooted in fragmented institutions, flawed ideology, and asymmetries of power, but that doesn’t excuse it. At each step of the way, policies were pursued with the primary goal of reassuring financial markets and punishing fiscal offenders, not of addressing underlying economic ills. The need to appease money markets—which often make systematic pricing errors—became an unquestioned article of faith (167).” As [author: Michael Perelman] said, neoclassical economics is a religion. “The excluded alternative is to appreciate the folly is not in failing to stay ahead of the verdicts of markets, but in allowing markets to define what’s acceptable. Markets, by definition, are hardly reliable. After all, it was the failure of markets to accurately price securities that caused the collapse. Yet in the fifth year of the crisis, markets were still being permitted to define the correct price of sovereign bonds, and the self-fulfilling destruction of national credit systems by speculative markets was precluding a cure” (166-167). “Prevention of disabling debt is better achieved by adequate regulation of credit before the fact than by erecting prisons for the casualties of the last crisis” (173).
“Curiously, the language of morality is seldom directed against the improvident creditor. Yet as applied to debtors, the earlier, moralistic view of unpaid debt as a sin persisted alongside the more modern instrumental one. In a society heavily influenced by Calvinism, commercial success was given a free moral pass, while failure and debt suggested divine disgrace—a sign, as Cotton Mather put it, that the debtor was ‘most evidently called of God into a low and mean condition’” (174). Citing anthropologist David Graeber, Kuttner notes that in languages such as Aramaic, Hebrew, Sanskrit, and German, debt, guilt, and sin, are the same word. The very deficit hawks that perpetuate the unjust system discourage us from studying the liberal arts where we come to understand how such prejudices become built into our language, just as many romance languages enforce ideas about gender. Compassion for the speculative class includes the expansion of limited liability corporations. “Long before the creation of bankruptcy relief under Chapter 11, limited liability provided financial protection for the expanding commercial class. It could be, and was, justified as facilitating a risk-taking society. By contrast, a small farmer who had a crop failure could wind up losing everything, evicted from his land or pushed into a debt peonage relationship with a larger merchant or landowner. His liability for personal debts was unlimited, bankruptcy was unhelpful, and state forbearance laws provided only limited and intermittent protection. By the late nineteenth century, corporations (and their cousins, trusts) concentrated the distribution of wealth and political power in America. Both the common and statutory law ensured that despite reverses to particular individual investors, the corporate system would thrive” (187). “Receivership [used to restructure insolvent railroad companies] under the common law, and later Chapter 11, was more about advancing corporate interests than about providing fresh starts to common debtors, much less about macroeconomic relief after a crisis” (188). “In the 1920s, despite [Benjamin] Strong’s basic competence, the Fed made one misstep after another. These were not random blunders but rather reflected two basic structural biases that were second nature to the bankers who ran it: the natural preference of the creditor class for tight money and an indulgence of speculation. It was this seemingly anonymous pairing of opposites that made bankers rich (196)”. On pages 200-1, Kuttner describes how businesses took advantage of the way bankruptcy laws were written to legally loot pension funds that were guaranteed by the government. The government was left holding the bag for these debts because the corporations could spend enough to have laws written in their favor. Prior to the ERISA regulation of pensions, it was not possible for a company to stay in business if it dumped its pensions. Over the following pages Kuttner provides example after example of household name corporations such as American Airlines and Kodak legally stealing employee pensions and taking corporate welfare through twisted uses of Chapter 11 law that would be illegal for an individual. The very people who insist that student debtors pay their debts give these big corporations a pass, apparently failing to see the hypocritical evil. Bush even passed the Bankruptcy Abuse and Consumer Protection Act in 2005 that presumes that the person abused the law if they have above median income, even if circumstances show otherwise. “Thanks to the ‘reform,’ when overburdened consumers go broke, credit card companies now have far more latitude to squeeze them for repayment” (205-206). Century after century, the real abusers go unpunished, while the punishment for the innocent continues to be draconian.
Historically, courts have favored the rentiers. Appling v. Odom, for example treated sharecroppers as contract workers without the rights that free tenants had historically enjoyed.
The Jim Crow system kept black and white small farmers from uniting around common economic interests. Landowners sometimes evicted white tenants and replaced them with blacks, who were more desperate, had less bargaining power, and were easier to control. This risk of displacement helped poison relations between black and white tenants, a by-product that the landed elite noted with satisfaction. (225)
This reminds me of how shelters often eliminate the normal shelter residents who can’t find jobs and/or have physical disabilities for Mentally Ill/Chemical Abuser (MICA) clients, who get the shelter $6,500 per head per month rather than the usual $3,500, the vast majority of which goes to the building owner rather than to the services. Many of my transfers have come about as a direct result of a shelter’s inability to control me. Whistleblowing was directly tied to my transfers from Eddie Harris and NAICA. Whistleblowing Project Renewal didn’t do much, and whistleblowing The Bowery Mission has been much more specific and less systemic. Even though Project Renewal was a filthy dump, I was there about a year before being transferred, and I have been at The Bowery Mission over two years.
Escalating foreclosures in the 1930s brought about radical politics, much as my homelessness has squarely put me at the radical end of politics. One heroic figure Kuttner mentions is Milo Reno, who helped found the Farmers’ Holiday Association. These organized farmers blocked roads to auction sites to prevent competitive bids against their dollar bids that were used to restore farms to their owners (216). Having had a job at the time, I could not be present when Picture the Homeless managed to halt the auction of a public building to for-profit developers at the Bronx County Building in 2015. Although most of the public buildings up for auction that day had already been sold by the time members made it into the building, members spread around enough flyers calling into question the legitimacy of the sale that no one wanted to bid. One is also reminded of Jill Stein’s plans for buying student loan debt and forgiving it, as Rolling Jubilee and Strike Debt of Occupy Wall Street have done for blocks of medical and student debt that had been packaged and resold by for-profit investors and the sweat equity purchases of housing in the 1980s that New York City did in the 1980s. Although not every who is homeless, certainly not I, is qualified to fix up apartments and bring them up to code, for those who can, it is an excellent policy to bring back for which many organizations push for the return.
Kuttner shows the inefficiency of the free market in the development of NINJA (No Income, Job, or Assets) loans, in which investors on multiple levels made profits, in spite of being a macroeconomic disaster (222-3).
In examining the history of international debt crises, he reaches two conclusions: “First, debt crises in peripheral nations originate in the fads, fashions, and panics of creditor countries. They are less the consequence of good or bad policies in debtor nations than of boom and bust cycles in London or New York capital markets. This pattern only intensified in the twentieth century, as technology enabled even shorter-term investment flows.” And second, debt policies in the nineteenth century we so random as to show that the debt collection system of colonization was more flexible and less draconian than in the twentieth (243).
On the South Korean financial crisis of the late 1990s, Kuttner quotes Paul Blustein: “’In a sense, the international banks got away with murder. They had foolishly injected billions of dollars of short-term loans into a country with a shaky financial system, yet they were suffering no losses.” On the contrary, the banks were ending up with guaranteed above-market returns” (258). Again, the creators of the problem get the rewards, and the law sides with them and not with the victims. In a 2008 conference at the United Nations, Yaga Reddy, who had recently retired as governor of the central bank of India explained to Kuttner that India was maintaining a growth rate of eight percent because reserve requirements had prevented banks from speculating in the securitized derivatives that had crashed the Western economies. “We don’t understand these complex financial securities, Reddy said, “so we don’t permit our banks to use them. We leave them to the advanced countries like you” (261). If only the United States could be so wise! As with Malaysia quoted above, Néstor Kirshner, President of Argentina, after paying off its debt to the International Monetary Fund, intentionally kept the IMF out of all its negotiations with other countries, realizing that the austerity policies it demanded were “an irresponsible method of indebtedness that did nothing but isolate us” in favor of a self-borrowing deficit model to having Latin America’s highest growth rate of 8.9%, in spite of a projected decline (264). Tim Geither’s religious fervor to pressure the Chinese to allow the value of the renminbi to be set by market forces has repeatedly failed in spite of a U.S. trade law requiring countries that rig currency for trade advantage to be punished. Although the United States has refused to charge Beijing with currency manipulation and impose sanctions, “the contention that the value of China’s renminbi is set by market forces is laughable. If that were the case, China’s currency would be worth substantially more against the dollar, as befits a country with a chrnic trade surplus. But the Chinese government regularly intervenes in currency markets to keep the renminbi depressed, both to advantage Chinese exports and to discourage its use as a global reserve currency” (265).
Finally, Kuttner notes that neoliberal capitalistic growth is unsustainable, and that reforms must acknowledge the limited carrying capacity of the planet. “Air conditioning a room uses ten times the amount of electricity in Mumbai as it does in Chicago. If India and China were to attain Western levels of consumption at Western levels of pollution, our environment would be destroyed” (270).
In Kuttner’s conclusion, he reminds readers that the post-war era had “a regulatory regime in which private finance was compelled to serve the rest of the economy, public and private, rather than its own interests. That rare set of constraints, in turn, undergirded the postwar boom” (276).
Wartime annual deficits, as high as 29 percent of GDP, were more than double the level that led to a run on Greek sovereign debt and nearly triple the recent peak annual deficits in the United States. But these war deficits were accommodated by private savings, public borrowing, and the creation of money by the Fed. Had private financial markets during the war an postwar years been permitted to set interest rates, the war would have been prohibitively expensive, money would have been diverted from the war effort into the pockets of bankers, and capital costs would have risen sharply for industries involved in war production. It also turned out that preventing markets from speculating in government debt ensured that the postwar recovery would not be stunted by speculative pressures to raise interest rates (277).
Kuttner notes that standard accounts of central banking treat this period as a regrettable anomaly in the history of the Fed, but this only reinforces Perelman’s point that neoclassical economics is a religion. Instead, Kuttner argues, “it should be seen as the one period when the Fed was brought under democratic control to serve public purposes.” Conservatives decry the Dodd-Frank Act of 2010 (and some idiots have even blamed the 2008 crash on it) but the act prevented Fed actions from being conducted in secret, which was “justified as insulating monetary policy from political pressure. But in practice, it meant that the Fed’s primary constituency was private finance” (278). In other words, conservatives believe that conflict of interest is good for the economy because it is good for them, and, they try to argue as the wealth gap widens, good for everyone else.
To hear the orthodox account of the past three decades, in which each new financial ‘innovation’ was described as a great gain for economic efficiency and hence GDP gowth, you’d think the tight limits on finance in the postwar era had suppressed the genius of markets and the health of the economy. Yet the postwar boom was the most successful economic period of American history. With a well-regulated financial sector, the economy thrived, growing at a real rate of 3.8 percent a year for twenty-seven years. Business had no trouble finding capital—or customers. For this was also the rare era when wages rose in tandem with productivity. As the economy prospered, it actually became more equal. (279)
The neoliberal orthodoxy is completely at odds with history. Kuttner notes the right-wing contention that World War II’s inflationary pressures had simply been deferred, but that the historic record disproves that claim—a brief period of inflation after the lifting of price controls in 1946 that was contained by the late 1940s, and resurged slightly during the Korean War, again as a result of price controls, but completely gone by 1954—from then until 1966, the average inflation rate was only 1.2%. This period of prosperity coexisted with record levels of unionization, wage increases with productivity increases, and the finance sector constrained (281).
The neoliberal orthodoxy wants revenge on the rest of us. “That the investor class lost out during America’s greatest boom era defies a core premise of orthodox economics. Presumably, if we want increased savings, investment, and growth, we need to reward investors… Yet the postwar boom was one in which investors on average did poorly—and the economy delivered broadly distributed prosperity. There was plenty of capital to finance industry’s needs—much of industry was, in fact, self-financed by retained earnings—and plenty of consumer purchasing power to buy the products. Low capital costs, modest inflation, and tight financial regulation were just the ticket to refuel the real economy” (285). This is what the Tea Party doesn’t want you to know and will dismiss as a liberal lie, and neither of the mainstream parties will do any better. Clinton and Trump are both serving the rentier class and the rentier class alone. They have no intention of doing anything remotely resembling what Kuttner recommends, and instead will give the rest of us more punishment (slave labor in the case of the very poorest) to benefit the wealthy and irresponsible few, all the while externalizing that irresponsibility onto the responsible poor. Under either Clinton or Trump, the good like Shorebank will be destroyed by the evil like Goldman-Sachs. On an individual level, the good will continue to be priced out, homelessness will increase, while the evil, like Jamie Dimon, will continue to buy more vacation homes while fraudulently stealing homes from senior citizens. The conservatives, including Hillary Clinton, will continue to point their fingers at the poor and tell them that they did not work hard enough, while socializing the debts of the rich onto the taxpayer, rewarding the wealthy for every macroeconomic failure for the foreseeable future. Double standards attack most people’s sense of injustice to the core. Only by reversing such double standards can society, as a whole, succeed.