nothing that really fixes anything fundamental will be allowed

Ian Welsh:

The bottom line in America today is that while everyone who isn’t paid not to know, knows how to fix what’s wrong with America (for example, instead of the mess called Health Care Reform, pass single payer), nothing that really fixes anything fundamental will be allowed to occur.

[Emphasis added.]

Kind of summarizes the state of American politics.

Morality

BBC News - Morality is modified in the lab

Scientists have shown they can change people's moral judgements by disrupting a specific area of the brain with magnetic pulses.

They identified a region of the brain just above and behind the right ear which appears to control morality.

And by using magnetic pulses to block cell activity they impaired volunteers' notion of right and wrong.

The small Massachusetts Institute of Technology study appears in Proceedings of the National Academy of Sciences.

Lead researcher Dr Liane Young said: "You think of morality as being a really high-level behaviour.

"To be able to apply a magnetic field to a specific brain region and change people's moral judgments is really astonishing."

The key area of the brain is a knot of nerve cells known as the right temporo-parietal junction (RTPJ).

The researchers subjected 20 volunteers to a number of tests designed to assess their notions of right and wrong.

In one scenario participants were asked how acceptable it was for a man to let his girlfriend walk across a bridge he knew to be unsafe.

After receiving a 500 millisecond magnetic pulse to the scalp, the volunteers delivered verdicts based on outcome rather than moral principle.

If the girlfriend made it across the bridge safely, her boyfriend was not seen as having done anything wrong.

In effect, they were unable to make moral judgments that require an understanding of other people's intentions.

"a region of the brain just above and behind the right ear which appears to control morality"?!?

So, what is my cellphone doing to it?

General McChrystal: FAIL

Peter Beinart analyzes the significance of the McCrystal Rolling Stone piece:

Of course, McChrystal deserves to be reprimanded for letting a reporter make him and his staff look like arrogant jerks. But by focusing on McChrystal’s supposed challenge to Obama’s manhood—is the president afraid of his generals? Will Obama show that he can’t be pushed around?—the press is turning a story about policy into a story about penises. What matters isn’t what McChrystal said about Obama; it’s what he believes about Afghanistan. That’s why he should lose his job.

For close to a year now, it’s been painfully clear that McChrystal, with the backing of David Petraeus and the rest of the top military brass, wants America to make an unlimited commitment to the Afghan war. Counterinsurgency, they believe, works; all it requires is an unlimited amount of money and time. As Jonathan Alter details in his book, The Promise, McChrystal and company spent last summer waging a media and bureaucratic campaign aimed at forcing Obama to make that unlimited commitment. Obama resisted, insisting on a timeline for beginning America’s withdrawal. But the fight goes on. In his book, Alter quotes Biden as pledging that “In July of 2011, you’re going to see a whole lot of people moving out. Bet on it.” Confronted with that quote last weekend, Robert Gates shot Biden down, declaring that “that absolutely has not been decided.”

Obama’s problem isn’t that McChrystal is talking smack about him. His problem is that McChrystal isn’t pursuing his foreign policy. McChrystal wants to “win” the war in Afghanistan (whatever that means) no matter what it takes. Obama believes that doing whatever it takes will cost the U.S. so much money, and so distract the administration from other concerns, that it will cripple his efforts to stabilize America’s finances and rebuild American economic power. That’s the struggle that Hastings exposes: between a single-minded general who will stop at nothing to fulfill his mission and a president who believes that even if that mission saves Afghanistan, it could bankrupt the United States. It’s a struggle about whether America is going to adjust to the new limits on its power or pretend that they don’t exist.

That’s the real relevance of the Harry Truman-Douglas MacArthur analogy. Truman didn’t just fire MacArthur because the general treated him with disrespect. He fired him because MacArthur wanted to do whatever it took to liberate the Korean peninsula, including bombing mainland China, whereas Truman came to realize that Korea must be a limited war, fought merely to preserve South Korean independence. In insisting that America’s Cold War strategy be the containment of communism, not the rollback of communism, Truman kept the pursuit of military victory from destroying American power.

Now Obama must do the same. Last summer, he tried to split the difference—surging in Afghanistan while simultaneously pledging to retreat on the theory that within eighteen months the U.S. could so weaken the Taliban that they would sue for peace. Six months in, that strategy looks increasingly absurd. As its most honest proponents concede, counterinsurgency is a long, messy business, especially when the president whose country you’re trying to save is indifferent, if not hostile, to the effort. In all likelihood, when the deadline for troop withdrawal arrives a year from now, Obama will be forced to choose between something that looks like an unlimited commitment and something that looks like defeat. He’ll be forced to make the choice that he avoided last year.

My only quibbles with this superb analysis is that I think I might be a little less generous in my assumptions about what Obama thinks, and about what his foreign policy is. Obama chose Afganistan, chose, in some ways, to affirm and extend the Bush policy. Obama certainly changed the attitude of the U.S. toward Pakistan, and dramatically, but, in the main, Obama chose to continue and escalate the War in Afganistan, without, to my mind, clearly articulating achievable goals and objectives, or identifying the means to do so.

My general view is that Obama is a Master Politician, who focuses his calculation on the political consequences, meaning by "political", the consequences on attitudes and conventional wisdom among the elite, particularly the Media elite, and among the bullies of the Right. How it will look, in other words, in the public relations contest.

Sadly, I don't think he has much of an appreciation, at the end of the day, for the consequences of policy. He's a strategic thinker in political terms, but not a strategic thinker in policy terms. At least not most of the time.

He did what he thought was politically wise, with regard to Afganistan. But, the lack of policy substance in his choice was betrayed by the failure to outline genuine and achievable goals and objectives for the continued war in Afganistan. He left a policy vacuum.

And, McChrystal and Petraeus and Gates drove their trucks into that policy vacuum. Obama did not discipline McChrystal when the general deviated from Obama's foreign policy strategy, because Obama did not really have a foreign policy strategy in Afganistan. Obama had only the appearance of a strategy, thrown up long enough to do what he thought needed to be done, politically. After that he trusted his subordinates to fill in the blanks, with a real policy and strategy, the one Beinart disparages.

I acknowledge that Obama has a formal process in place, which, I suppose, is something. Very large organizations need formal processes, not because leaders need them to make deliberate decisions, which is how Obama's process is portrayed in the Media, but because a formal process is needed in order that the operational meaning of the policy in action, at the lowest levels, is in accord with intention at the top. This isn't just a top-down process, there's a role for feedback, and educating the guys at the top.

This process is not working. The Rolling Stone article was quite clear that McChrystal is failing, and knows he's failing, to get his ideas on counterinsurgency strategy and tactics, to percolate down through the ranks, without serious and debilitating distortions. McChrystal was not succeeding, and didn't know who to blame, and did not know how to digest what soldiers on the front lines were telling him about how it is, out there.

That's a serious, serious problem. McChrystal, after being fired, did not participate in the top-level reviews, today, at the White House. That's understandable on one level, but curious on another, because one would hope that top-level policy-makers, looking abject failure in the face, would be a bit more curious about what is going on, in the field.

Interesting

Interesting chart

U.S. Corporate profits, as a percentage of output, are at historically very high levels.

I guess not everyone is in recession.

Further confirmation: World's rich got richer amid '09 recession: report - Yahoo! News

Note on the source of the chart: "Interesting chart" above links to the Bloomberg article, where I got the chart. Bloomberg references the U.S. Department of Commerce, as the source of the data. I'm sorry embedded links are not more visible, with this color scheme.

Great Depression 2.0

Marshall Auerback and Robert Parenteau take note of the G20's decision to embrace the Banks and reject the populace:

The more the bankers’ interest is served, the worse and more debt-burdened the economy will become. Their gains have been bought at the price of domestic austerity. The G20 Communique irresponsibly and immorally ratifies this disgraceful state of affairs and we will all pay a severe price going forward.

The G20 policy makers, and their allies in finanzkapital, are like vultures picking over a dying carcass. And the rest of us are helpless because the institutions designed to serve broader public purpose have become subverted. We are making bond holders and big bankers whole at the expense of impoverishing the entire society.

It is hard to avoid drawing very dark conclusions. Our policy making elites have discovered that the underclass doesn’t matter politically anymore, so why respond to it? That indifference is extending to the middle class. Ordinary, struggling folks are all becoming so demoralized that they present:

1. No voting threat, because none of the major political parties in Europe or the US genuinely represent their interests (and haven’t for years). There have been, as a result, no political price to pay for such shameless predatory capitalism.
2. They present no power threat, because they have been systematically destroyed over the last 30 years and what is happening now in Europe represents the final assault on the residue of the 20th century welfare state (the US social safety net eviscerated well before this).

The message from the G20 seems to be this: We’re through with domestic spending to employ the underclass.

There are decent jobs for about 20% of the working-age population in the west. And for the rest? Poverty a la South America. It is extraordinary that voters around the globe continue to tolerate this corrupt state of affairs, but it’s getting increasingly hard to see a way out.

Disaster Capitalism washes away the Welfare State

digby at Hullabaloo

My correspondent wondered why there was an international move to neo-Hooverism considering the differences in cultures between the various European countries and the US. . . . and he pressed for a reason why the rest of the world is on the same bandwagon, especially considering their more generous history with the welfare state. (He also mentioned that Tim Geithner was surprisingly Keynesian at the G20.)

After thinking about it for a bit, I’m not sure the same phenomenon we see here isn’t happening internationally. It’s an article of faith among financial elites across the planet that the welfare state is an abomination and this is a global opportunity to end it. Each culture will deal with it slightly differently --- riots in Greece, marches in France, blog posts in America. But in the end, the result, short of revolution, will be similar everywhere --- the post-war welfare state will be weakened or destroyed. The left is barely relevant anywhere anymore and [the elites] simply do not fear any kind of serious populist uprising. . . .

I think it's easy to over think this. The world economy is unstable for myriad reasons. But the reasons for insisting on austerity are fairly obvious. The question is whether or not people will see through this or not. Disaster capitalism depends upon the people being confused and stressed for its success. (In that sense, rioting in the streets may actually help them.) And all over the world right now, with the rapid change from globalization and resistance to modernity in general, there is a tremendous amount of social stress and cultural upheaval on top of this economic downturn. It's the perfect time to strike.

Apparently, the Coming Perfect Storm is here to wash away the Welfare State, not the Corporate and Financial Oligarchy. Most sorry for not foreseeing that. My bad.

Policy Paralysis or Class Indifference

Brad DeLong is wondering why Washington is so uninterested in responding to high rates of unemployment.

. . . whenever I wander the halls of Washington these days, I can’t help but think that something else is going on—that a deep and wide gulf has grown between the economic hardships of Americans and the seeming incomprehension, or indifference, of courtiers in the imperial city.

Have decades of widening wealth inequality created a chattering class of reporters, pundits and lobbyists who’ve lost their connection to mainstream America? Has the collapse of the union movement removed not only labor’s political muscle but its beating heart from the consciousness of the powerful? Has this recession, which has reduced hiring more than it has increased layoffs, left the kind of people who converse with the powerful in Washington secure in their jobs and thus communicating calm while the unemployed are engulfed in panic? Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?

Yves Smith

"most of America appears to have deeply internalized the belief that labor lacks, and perhaps more important, ought not to have any bargaining power. This is a wonderful state of affairs for the managerial elite and investors. Having labor share in productivity gains was no impediment to growth; indeed, the record from the end of World War II through the mid-1970s versus the last two decades would suggest the reverse.

"And the argument that US labor cannot compete with China et al is overblown. In most cases of outsourcing and offshoring, the results are disappointing (a dirty secret you will find if you burrow into the literature; for instance, IT, a popular candidate, has a particularly poor record). But it also serves to reduce lower-level labor costs and INCREASE managerial costs (greater coordination required). . . . The gap between the raw labor costs [savings] and the net savings is an increase in compensation to managers (which could be either via larger bonuses or an increase in headcount). . .

"A second reason for complacency about unemployment is just as deeply rooted. There is little confidence in conventional policy remedies. . . . the real problem may be that all these approaches are past their sell-by dates, helpful around the margin but insufficient to provide lasting relief to our current malaise. We may be at the end of a paradigm. The US and its trade partners have engaged in a 30 year experiment of deregulation, financial liberalization, more open trade, and deep integration of markets. But most other countries had clear objectives: they wanted to protect their labor markets, which usually entailed running a trade surplus (or at least not a deficit). Many of them also had clear industrial policies. By contrast, the US pretended it was adhering to a “free markets” dogma so that whatever resulted from this experiment was virtuous. But in fact, we have had stagnant real worker wages, with a rising standard of living coming from rising household borrowings and to a much lesser degree, falling technology prices. We have also had industrial policy by default. Certain favored groups, such as Big Pharma and the sugar lobby, get special breaks.

"And who has been the biggest beneficiary of our stealth industrial policy? The financial services industry. How many Treasury Secretaries have lobbied for more open financial markets with major trade partners? Has any other industry seen as extensive a reduction in regulations? And we’ve had first the Greenspan, now the Bernanke put, with the financial services well aware that the Fed will run to the rescue of the markets (ie the banksters) should any serious trouble arise, but the resulting low rates work to the detriment of savers, and push all investors to take undue risks to compensate for artificially low yields.

"So the inaction over unemployment is yet another symptom of deep seated rot in the body politic."

Hattip to Mark Thoma, for this one.

Peter Dorman

This is a critical moment for economic policy in the industrialized countries. After a year and a half of emergency rescue, with large fiscal deficits and rock-bottom interest rates, governments are beginning to pull back. Especially in countries with large current account deficits, stimulus spending is being withdrawn, and central banks are under pressure to begin raising rates and tightening money. The threat of deflation and cascading insolvencies in the financial system are so yesterday; today’s threat is said to be inflation and sovereign default.

If you survey the center-to-left economics blogs, including this one—economists who see the world at least in part through Keynesian eyes—you will find howls of protest. It is simply irrational, we say, to allow this slump to run its course. There is no threat of inflation at all, which is actually a problem, since a bit of inflation would be medicine against effectively high nominal interest rates at the zero lower bound. And every indication is that the recovery under way owes its feeble pulse to the lingering effects of last year’s stimulus.

But is this just a problem of economic analysis? Is it only that New, Post and other Keynesians haven’t been persuasive enough? Does economic argument and evidence drive policy?

In a sense yes: those who make the decisions summon economic arguments to justify their actions. But who gets to make the decisions and what arguments they find appealing is not the outcome of academic seminars. What got us into this mess in the first place, and what now threatens to throw us back into the maelstrom, is the political hegemony of the “finance perspective”, the interests and outlook of those whose main concern is maximizing (and now simply protecting) the value of their financial assets. . . .

. . . economic orthodoxy is regaining control over policy because it reflects the outlook of those who occupy the upper reaches of government and business.

Up to this point, the Great Economic Event we are passing through has not caused even a hint of political realignment, and that is why policy is returning to the old normal.

Dorman identifies the "finance perspective" with the traditional concept of the rentier class. I think this wrong in an important way: the actual rentiers are being taken for a ride by a "finance class" of financial intermediary managers and the new class of corporate CEOs. But, still, Dorman's point, which is worth highlighting on this blog, is the absence of a political realignment, and its role in pressing the country and the world back toward the status quo ante.

This blog has been searching the horizon for the beginning of a political realignment from its beginning, and hasn't spotted it, yet, though some pretty fierce political storms have come and gone.

I fault the Keynesians for habitually denying what Dorman tepidly acknowledges here.

Still, he doesn't go far enough, doesn't acknowledge whole dimensions of the conflict, let alone measure the depth in context.

One dimension that he doesn't acknowledge is Time; ordinarily, progress through time creates a conflict between those, who lend money to make money, and those, who borrow money to make money, not to mention the conflict between those who labor to make money, and those, who dominate those who labor, to make money.

We are at the end of an Era, an economic Epoch -- an aspect of economics the Keynesians buried with Schumpeter, and the New Keynesians ostracized in Minsky. In the words of "my hero" Sterling Newberry,

"Our present is defined not by what we hope for, but by how we justify a position of wealth and privilege which we are no longer earning, but are determined to keep."

You fault the conservatives among the financial class for failing to see that we are all in the same leaky boat. Whether from hopeful idealism or from the naivete of Pangloss, that attitude leads to the same eyes-wide-shut blindness.

We are not in the same boat. The finance class (which includes the social class of actual and aspiring CEOs, who run our major corporations) have been throwing more and more of us overboard for some time.

The dominant core of American Finance has been evolving [metaphor switch] from farmer/shepherd to predator to parasite, and may well transition into scavenger, without hesitation. (The rentier class does not drive the politics; they go along, because they think they are in on the con. Just like Madoff investors, who thought Madoff was a crook, their crook, they will try to protect the ability of the Financial Class to steal on their behalf.)

And, we are not part of a generic, past-less, future-less economy. The Economy does not tend toward some general, generic, structure-less equilibrium, guided by Walrasian tatonnement. The Economy finds its stability in disequilibrium, like a bicycle in motion. It can go on for a long-time, growing pleasantly, in a particular pattern or paradigm of disequilibrium, but not forever. Eventually, the bases for stable disequilibrium are exhausted, and structural change is required.

We are at a point in time, when structural change, deep and broad and massive, is clearly and urgently required. Climate change, peak oil, pointless and unbelievably costly wars without end, the descent of the American economy into negative savings/disinvestment -- the signals are clear, frequent and at ear-splitting volume.

Again, the Keynesians, new and old, stand by, mutely, dumbly. This is an aspect of the situation, they mostly refuse to acknowledge. Krugman will call for fiscal stimulus, but not complete the argument, by saying clearly how public spending should be focused on re-structuring the economy. The argument becomes diffuse, as conservatives opposed to re-structuring or wanting to accelerate the strip-mining of the middle-class, propose massive tax-cutting. And, why not, if stimulus is just generic spending, if the Federal deficit is something to be considered only later, . . .

In one sense, Dorman is right: the ideas of the econ-Left have no traction, because interests drive policy. Here's the thing: to have traction, you have to have friction, you have to come in contact with an opposed surface.

But, the econ-Left, in its argument and ideation, habitually abstracts away from Interests. The Keynesian insistence that it is a "technical problem" -- which in 1936 was actually very helpful in dispelling the paralysis of analysis of "its complicated" coming from the institutionalists as well as the nonsense of the classical know-nothings -- has become the doctrine of an establishment Technocracy, a priesthood, who find esoteric obscurity more useful than clarity.

Economic ideas can have traction. They can have traction, when they connect with Interests. Economic ideas that abstract away from the particular reality of the immediate crisis and historic moment, that fail to acknowledge opposed interests, because it requires acknowledging that some Members in Good Standing of the Club are working for the devil-incarnate -- well, no one should be surprised that an unwillingness to describe current policy and its intended and likely consequences accurately leads to irrelevance.

Doctor Why says this more succinctly than I:

The orthodoxy believes that economic adjustment should happen in the labor market (lower wages), rather than in the credit markets (lower real interest rates) or through fiscal policy (high budget deficit and more progressive taxation) - which is of course a very convenient view for the powers that be.

So if Keynesians really want to influence policy - rather than just blog about it - they have to show that the economic and political cost of the labor-market adjustment is going to be unacceptable. Unfortunately, right now such an argument cannot be convincingly made from a purely cyclical perspective (it requires a more sophisticated structural view), and therefore some sort of anti-Keynesian backlash seems to be inevitable.

Taking a more global perspective, the status quo ante entails some chronic imbalances of trade, investment and funds flow, which are simply unsustainable. They were always unsustainable "in the long run", but highly beneficial in "the short run", especially to the financial sector and to those in charge of multinational corporations; now, the long run has run out. The American powers-that-be are choosing stagnation, as the least bad policy, because the financialization of the American economy rests on those chronic imbalances of trade and funds flow, and, maybe, that chronic imbalance can be managed, and the wealth it created, preserved, for a bit longer, provided the losses are crammed-down on labor and the middle classes.