#131

sent to press February 25, 2011

INSIDE Anticommunism today

We all know how the American right wants to undo the Great Society and the New
Banishing Marx Deal. They’ve gotten a good start on the task, and they’ve even enlisted some help from
Democrats. But they also keep going on about undoing socialism. On first hearing, this
sounds demented. There is no socialism in the USA, right?
Debt and the slump Well maybe just a little, even if we don’t call it that. Take a look at the famous ten
demands from The Communist Manifesto. For those of you who don’t have them taped
to your refrigerator, here’s a refresher:
Explaining test scores 1 Abolition of property in land and application of all rents of land to public purposes.
2 A heavy progressive or graduated income tax.
What the net is doing to us 3 Abolition of all rights of inheritance.
4 Confiscation of the property of all emigrants and rebels.
5 Centralization of credit in the banks of the state, by means of a national bank with
MONEY Inflation! state capital and an exclusive monopoly.
6 Centralization of the means of communication and transport in the hands of the
state.
MISCELLANY educating 7 Extension of factories and instruments of production owned by the state; the
the masses; immigrants: not bringing into cultivation of waste lands, and the improvement of the soil generally
guilty; Scrooge goes shopping in accordance with a common plan.
8 Equal obligation of all to work. Establishment of industrial armies, especially for
agriculture.
the workers’ weapon 9 Combination of agriculture with manufacturing industries; gradual abolition of all
500 number of strikes involving the distinction between town and country by a more equable distribution of the
450 1,000 or more workers populace over the country.
400 10 Free education for all children in public schools. Abolition of children’s factory
350 labor in its present form. Combination of education with industrial production, etc.
300 The New Deal brought us efforts to improve the soil; their successors thoughtfully
250 turned all those grandiose schemes into subsidies for agribusiness. We didn’t have
200 communication and transport in the hands of the state, but both were once tightly
150
regulated; Jimmy Carter and Ronald Reagan undid that. Finance is pretty much the same
100
story—tightly regulated for a few decades, and then it was decreed to let it rip. (Even
in the midst of a financial crisis, though, we never nationalized the banks like those
50
pinko Swedes did.) We do have an inheritance tax. It was never confiscatory, but it did
0
1947 1957 1967 1977 1987 1997 2007 occasionally take a bite out of inherited wealth. Years of campaigning by the right against
the “death tax” have rendered it nearly impotent.
There was the slightest of upticks in But there are still a few nuts on the list to crack. We have a progressive income tax—
strike activity in 2010—11, up from the something the right would passionately like to get rid of and replace with either a flat tax
record low of 5 in 2009. They caused a or a tax on consumption. And universal free education—we still have that, but efforts to
loss of 0.0% of available work time. In privatize the thing are rampant (and public university tuition is up through the roof).
other words, they had no effect.
cont. on p. 7
2 Left Business Observer

Welcome to the desert of the unreal

Classic economic theory has long had
a problem with money and finance. Many
orthodox economists, bourgeois and
Marxist, take them to be epiphenomenal,
mere afterthoughts to the “real” sector,
where the action is. The last few years have
made that position harder to hold, but it’s a
venerable one in the field, going back to its
origins in the 18th century and continuing
through the rise of modern financial theory
in the 1950s and 1960s.
Separating the financial and the real
does have a point—the two spheres often
seem to inhabit spheres of their own,
especially the financial. A recent example:
on January 31, the markets were terrified of
the uprising in Egypt; by February 1, they’d
forgotten that fear. Nothing in the real
sector had changed—it was just a change
in mob psychology.
But the financial and the real are
nonetheless deeply connected. It’s
wrong, as many mainstream and pop
populist analysts do, to blame the Great
Recession on finance alone. There’s are
reasons—stagnant wages over the last
several decades, weak job creation since
2001—that households borrowed so
heavily, and not merely starting with the
housing bubble around 2002 (or 1997).
That stagnation in wages has been a boon
to profits and high-end incomes, meaning
that there’s plenty of spare money around
looking for a profitable outlet. The
financial services industry was ready with
inventive ways to supply the eligible with
fresh credit—and to expand the universe
of the eligible massively. All that new
credit enabled lots of buying, much to the
joy of the retailers and their suppliers, not
all of them in China. A pair of numbers to
make that point: between 1950 and 1982,
the growth rate in retail spending was 75%
of the growth in after-tax incomes; from
1983 through 2006, the fat years of the
neoliberal era, it was 93%.
Finance can add lots of juice to
the upside—but it can also make the
downside seem like a descent into hell.
Recessions following financial crises are
typically deeper and longer than those
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not preceded by major financial crises.
That’s mainly because financial crises
follow massive credit booms—debt is a
mighty tribute imposed by the past on
the present and future. But credit booms
typically don’t emerge from nowhere:
usually something in the real sector drives
a speculative binge—like the waves of
innovation in the 19th century and the
1920s, or the early development of the
Internet in the dot.com era. Despite the
damage they cause, credit booms often
contribute to material progress, or at least
to long-term economic growth. But not
the recent episode. Most of that was about
housing—buying it, building it, sucking
cash out of it. But after the bubble burst,
there’s little to show for it but lots of empty
dwellings with foreclosure notices nailed
to the door.
Closeup. But what a debt overhang
that boom left. We know that from the
aggregate numbers—a boom in debt
followed by a deep slide and very weak
recovery. But the relationship is even more
impressive on closer examination.
Recent work by the economists Atif
Mian of Berkeley and Amir Sufi of the
University of Chicago uses county-level
data to take a localized measure of the debt
blow. (They wrote up a popular version
of their research in the San Francisco Fed’s
Economic Letter for January 18.) Mian and
Sufi got data on debt from Equifax (the
credit-ratings agency) and on income from
the IRS for the 238 counties in the U.S. with
100,000 residents or more. They sorted
the list by the increase in debt-to-income
ratios from 2002 to 2006 and compare
the top 10% to the bottom 10%. The list
of gainers is dominated by counties in
California and Florida, with contributions
from Massachusetts and Virginia—in other
words, it’s mostly a housing bubble list.
The bottom ranks are dominated by New
York, Pennsylvania, and Texas, relatively
bubble-less jurisdictions.
The results can be easily summarized:
the bigger the increase in debt, the
deeper the collapse and the weaker the
subsequent recovery. For example, in
the high-debt counties, auto sales fell by
more than half from 2006 to 2009, and as
of late 2010, had barely recovered. In the
low-debt counties, sales fell somewhat less
hard and have since fully recovered. In
the high-debt group, growth in residential
investment fell by well over half and have
essentially stayed there. Employment fell
by 7% in high-debt counties, and by less
than half that much in the low-debt ones.
In an April 2010 paper, Mian and Sufi
investigated where all the borrowed
money went. They followed a random
sample of 74,000 U.S. homeowners—not
a small sample—and discovered several
important things:
• During the bubble years of 2002–
2006, the more that the value of houses
rose, the more likely people were to
borrow against that rise.
• Of every dollar rise in equity,
homeowners borrowed $0.25. That
contributed about half the increase in
household debt between 2002 and 2006.
• Those with poor credit and/or high
credit card balances were more likely
to borrow than their opposites, and the
young were likeliest of all age groups to
borrow.
• Curiously, the rise in house prices
didn’t encourage much trading up. Nor
were the borrowed proceeds used to pay
down high-priced credit card debt or buy
investment properties (either real estate
or financial assets). Instead, it’s likely
that most of the borrowed money was
consumed or used for home improvement.
• The bubble caused a sharp decline
in default rates for households with low
credit ratings—but the bust caused them
to soar. Home equity borrowing probably
caused about 40% of the rise in defaults
after 2006.
So here we are. A bubble of world-
historical proportions masked a serious
underlying weakness during the 2002–
2007 expansion, and it’s since been
followed by a deeply sucky recovery.
Yet how many people in public life
have managed to put this important 2+2
together? o
Number 131 3

Beastly numbers
On January 24, The Daily Beast collective bargaining agreement and test unions and firing people.
published a ranking of the states based outcomes, suggesting that contracts do New Jersey governor Chris Christie
on a composite of reading and math test more to improve performance than hurt it. is leading the charge against tenure and
scores for fourth and eighth graders. The There’s a tiny negative correlation (–.02) unions. He said recently: “The union is
tests were from the National Assessment of with dismissals for poor performance and awful. The union protects the worst of the
Educational Progress, which is probably test outcomes, one so tiny that you can teachers. They exist to wring money out
the best as these things go, though these say that firing has no relation to outcome. of the taxpayers.” It’s hard to figure what
things are doubtless horribly blinkered But if you throw both these factors into a he’s bellyaching about: New Jersey comes
ways of viewing the world. The way not to model along with the lunch indicator, they in third in the Daily Beast rankings (after
read them was the one taken by The Daily don’t improve its explanatory power at all. heavily unionized Massachusetts and less
Beast: they called the unionized Vermont),
story “States with the 60 and its teacher salaries
Smartest Kids.” But student poverty and test scores are not high relative
since tests, as flawed state rankings to the state’s average
as they are, do predict 50 income.
do
future economic Nevada wo
rse Robust lunch.
success or failure with tha Collective bargaining
ne
xpe
some accuracy, they 40 Hawaii cte aside, teacher salaries
d
are still worth looking RI are kind of funny. It
Wyoming
at. It’s not just that makes little sense to
tests are unjust; so is 30 compare salaries in
the world we live in. Utah Maryland (median
What happens household income:
when you compare New York $69,236) with
20
the Beast’s rankings Oregon 2
r = .59 Mississippi ($37,121,
with state rankings do
bet
Illinois only a little more
on things that people ter than half as much):
test rank

10 tha
ne doing that would
think matter in xpe
cte Maryland
education policy? d just be another way
student poverty Minnesota
Most strongly, you 0
of telling you that
find that poverty 0 10 20 30 40 50 60 income matters a
really matters: almost Graph shows where states stand in a ranking based on student poverty lot. But comparing
60% of the states’ (measured as the share of students eligible for subsidized lunches, horizontal salaries to state
positions in the Beast axis) vs. where they rank in The Daily Beast’s composite of public school test averages produces a
rankings can be scores for 4th and 8th graders. The line is the regression trend (r2=0.59, surprise: poorer states
explained statistically meaning that poverty standing “explains” 59% of test score rankings). The line generally pay their
by the share of the slopes downward because the more poverty, the lower the test score. The five teachers more relative
student population states that most outperform or underperform what is predicted by the statisti- to the average than
on free or subsidized cal model are labeled. For example, Maryland is the strongest outperformer: it richer ones. So it’s
“should” have come in 24th, but came in 8th instead, a gap of +16. Wyoming
lunches. (The Beast hard to say anything
is the worst underperformer: it came in 33rd instead of 10th, a gap of –23.
treats Washington, conclusive about
DC, as a state, and so the relation between
do we.) A state’s overall income level and Teacher tenure—another favorite teacher pay and test performance: poorer
poverty rate matter, but not as much as target of “reformers”—is banned in three states pay their teachers a higher relative
the lunch numbers—which makes sense, states, Mississippi, Texas, and Wisconsin. wage than richer ones (probably because
since they’re a very good proxy for child Their rankings average 33, only because there are fewer jobs requiring a bachelor’s
poverty. Wisconsin’s 15 brings up the other two degree or more), but poorer states do
There are a bunch of things that don’t (Texas’ subpar 33 and Mississippi’s dead- worse on tests. No QED here. And if you
matter, or matter much (with mattering last 51). throw the pay numbers—absolute levels
defined as a factor’s performance in a There are thirteen states that prohibit or relative to average incomes—into a
regression predicting the Beast ranking). collective bargaining (ten of them in model with the lunch numbers, it does
The right’s animus against unions and the old Confederacy, by the way). Their nothing to improve its accuracy.
the alleged cover they provide for average test ranking is 35; only two are in Relatedly, spending looks to contribute
incompetents isn’t supported by these the top half. But more states are going to less than you might guess. Spending
numbers. There’s a half-decent correlation join that club, because, you know, nothing per pupil matches up pretty well with
(r=.42) between the share of districts with improves performance like breaking
cont. on p. 7
4 Left Business Observer
Distracted from distraction by distraction
Nicholas Carr, The Shallows: What the Internet Is Doing to our
Brains , W.W. Norton, 276 pp. $26.95.
Jodi Dean, Blog Theory: Fedback and Culture in the Age of the
Drive, 140 pp., $19.95.
Hearts fluttered over the contribution of Facebook and Twitter
to the Middle Eastern uprisings. No doubt they contributed, but so
did things like pre-existing union agitation in
Egypt. And it wouldn’t have happened had
people not gotten out of their pajamas and
into the streets.
But, over the longer term, what is our
wired world doing to our minds and cultures?
These two books come at the same prob-
lem from different directions. Jodi Dean’s is
explicitly from the left and rather theoretical,
and Nicholas Carr’s isn’t explicitly political
and is mostly empirical. But they both make
you worry about the Internet’s effect on us.
Neither author is a Luddite, and both blog.
And they’re aware of the oddness of writing a
book about the topic. The new media world
is fast, faster even than TV, which rewards
“fast thinkers,” as Pierre Bourdieu put it (see
LBO #83). The speed of TV is driven by advertisers, who fear that
anything seriously disruptive, like pausing to think, might interfere
with sales effort. Though those preferences have become embed-
ded in the assumptions of producers—they love bombast, phony
conflict, quick cuts—one could still imagine serious conversation
on TV, or disruptive art—in fact, we’ve all seen that now and then.
But the speed and fragmentation of today’s web is driven by its very
structure, the restless displacement of links, the hypervalorization
of the very newest, the evanescent rush of the Tweetable. Advertis-
ing, meaning the lust for links and traffic, is making it worse, but
it’s also in the structure of the medium. But, as Dean says, writing
a book is an instance of that “time-honored tactic in workers’
struggle: the slow-down.”
Shallow. Carr, while no Marxist, clearly thinks that mate-
riality shapes consciousness. He contrasts our present feeling
of information overload with the sense of calm and reassuring
about the shelves of a library: “Take your time, the books whis-
pered to me in their dusty voices. We’re not going anywhere.”
Contrast that with these sensory experience of a web page,
which pulsates with links, videos, ads, all designed to tempt us
to visit somewhere else, lest we miss the newest thing.
That’s not just some moralizing claim, another iteration
of “Kids today!” Despite early claims that all those links and
embedded graphics would deepen understanding, research
proves otherwise. People who read straight text comprehend
more, remember more, and read more quickly than do those
who read the same text tarted up in typical web fashion. Read-
ers’ attention is distracted by links—even if they don’t follow
them. The same with flashy graphics. Their eyes leap all over the
screen instead of reading the text continuously. All the stimuli
simply overload the neural circuits, impoverishing the cognitive
experience rather than enriching it.
Related to this proliferation of stimuli—I wanted to quote T.S.
Eliot’s line “distracted from distraction by distraction” in this review,
but, sadly, Carr beat me to it—is the proliferation of multitasking
in our hyperconnected world. Research shows we’re not watch-
ing any less TV than before, despite spending more time on the
Internet; the reason seems to be we’re doing both at once. And this,
too, means a degradation of thinking. Carr quotes the neurologist
Jordan Grafman as saying that “optimizing for multitasking”
(optimizing our brains, not our hardware) makes us less
thoughtful, less inventive, and less productive—and more
inclined to accept conventional ways of thinking. Isn’t that
just what the doctor ordered?
Carr is bothered by Google’s project to digitize many
of the world’s books. As wonderful as that sounds—and
much of it is—the effect of turning vast libraries into discrete
pages is to dismember complex argument and narrative into
isolated bits. Again, connectivity promotes disconnection.
And it is in Google’s material interest to promote clicks, not
extended reading; a page lingered over means a hit to an
advertiser’s click-through rate.
But there are some cyber-partisans who welcome the frag-
mentation of reading—especially the egregious Clay Shirky,
who thinks that it’s good we’re giving up on big novels. Writ-
ers like Tolstoy and Proust may have been “Very Important
in some vague way,” says Shirky, but reading stuff like that was just
a “side-effect of living in an environment of impoverished access.”
Now we can dump all that.
Other cyber-cheerleaders say that with Google, we need not
burden our minds with remembering so many things, which will
leave more storage space for…it’s not clear exactly. This is a side-
effect of living in an environment that sees the mind as a computer.
But, as Carr argues, thought is in part constructed from memory;
if we don’t have things in our heads, we can’t draw connections.
We’re not like computers, really, though our connected life is
making us more so.
Much of Carr’s argument relies on neu-
rology—physical changes to the brain
caused by our exposure to the web. But, as
Cordelia Fine argues in her wonderful book
Delusions of Gender, there’s a tendency to
think that explaining things at the cellular
level is somehow regarded as more authori-
tative than social and psychological expla-
nations. Yes, our activities can change our
brains. But wouldn’t you expect any aspect
of social life that changed the way we think
and feel to show up in the brain? As Fine
asks, where else would it show up? Why
the fetish for neuroscience? It’s not like Carr
has nothing intelligent or compelling to say
about intellectual or social life.
Speedy. Jodi Dean doesn’t write about
neurology. She writes in the language of theory, which many ear-
nest lefties think is annoying, which is too bad for them. Drawing
on the work of Slavoj Zizek, Dean worries about what she calls the
collapse of symbolic efficiency—the capacity of words and other
Number 131 5

symbols to communicate meaning broadly and effectively. Blogs as the motors of economic activity. As LBO #96 noted in its review
and such contribute to a fragmentation in both style and content— of Hardt and Negri’s Empire, reading their claims about immaterial
in jokes shared among a small circle, an opacity of tone (satiric? labor might lead one to forget “that far more Americans are truck
serious? both?)—that make understanding, much less solidarity, far drivers than computer professionals. Nor would you have much of
more difficult. There’s always another link, another displacement, an inkling that 3 billion of us, half the earth’s population, live in the
another doubt: nothing can ever be pinned down. rural Third World, where the major occupation remains tilling the
This results in a flattened worldview: “As multiple-recombinant soil.” Such oversights are an occupational hazard of intellectuals.
ideas and images circulate, stimulate, they distract us from the Networked. These days it’s all about the network. Network
antagonisms constitutive of contemporary society, inviting us to models of economic life are popular with management theorists,
think that each opinion is equally valid, each option is equally those of social organization are popular with cybertopians, and
likely, and each click is a sig- those of political resistance have
nificant political intervention…. Arianna’s triumph been popular among radicals at
Drowning in plurality, we lose the Neither Carr nor Dean talks much about the economics least since Seattle. Nets are often
capacity to grasp anything like a of the new media universe—which isn’t to blame either for presented as alternatives to large,
system. React and forward, but not writing a different book. But it’s worth talking about. hierarchical, and centralized enti-
don’t by any means think.” Nothing symbolizes the model better than Arianna ties. But as Dean shows, you can
With the not-so-news that blogs Huffington’s sale of her Post to AOL for $315 million: it’s trace a lot of this thinking back to
are declining in favor of social net- capital valorized by thousands of unpaid bloggers and work that the RAND Corp. did for
working, the blog is now becom- commenters who promote their products through social the military decades ago. (And
ing the format for long-form jour- media. Huffington has a small paid staff, including some recall that the Internet itself was
nalism on the web. What does that talented journalists, but the capitalization of totally unpaid conceived of by the Pentagon, its
mean? Dean argues that it’s wrong labor in nine figures is what has everyone’s eyes ablaze. decentralized structure designed
to evaluate blogs just by studying What Dean identifies as a compulsive drive (one that can to maximize its survivability after
their content, whether journalistic never be satisfied, no matter how many clicks) has made a nuclear war.) Large corporations
or diaristic, or style, be it narcis- Arianna and her investors a lot of money—though this deal are major fans of networks—nodes
sistic or derivative (or sometimes won’t look so smart if the advertising isn’t forthcoming. of subcontractors, temporary
arresting and thoughtful). That’s And the buyer, AOL (clichéd question: “AOL has $315 employees, dispersed sites pro-
not enough: the materiality of the million?”) itself is breaking new ground in labor modeling; duction. In other words, there’s
medium has to be investigated as a leaked document showed insane ambitions for more nothing at all revolutionary about
well, meaning its routine of end- posts and more pageviews—which of course means the network, and much of the left’s
less updates and links, with the posts designed, down to the phrasing, to evoke links, high embrace of the notion (as an alter-
newest posts at the top with older rankings on Google, and thereby more ad dollars. This is native to building sustainable insti-
ones stacked below in reverse a skill Huffington is already revered for—search engine tutions) needs to be strenuously
chronological order. Feelings often optimization. It’s remarkable how all pretense of keeping interrogated.
take precedence over thought, and journalism and business apart, an obsession of the old Nor do networks necessarily
immediacy over distance. print media (the pretense more than the practice, mostly), undermine hierarchy. Empirical
There’s something compulsive has been stripped away. studies of networks repeatedly
about it. One posts, often into the The union—the best comment on which was Tom show that some nodes emerge as
void—and then Tweets the post, Scocca’s: “Arianna Huffington has, for the second time in dominant, surrounded by a very
comments elsewhere, and posts her career, found a big payout at the end of an implausible- large periphery. The top hits on a
again. “The value added…stems seeming relationship”— gives Arianna a new platform to Google search will always get the
purely from the being added,” preach her gospel, “It’s time for all of us in journalism to most attention, a fact that’s rein-
Dean writes. move beyond left and right,” she declares. Isn’t it funny forced everytime they’re clicked
It’s not only that there’s no clo- how you never hear anyone on the right saying that? o on and linked to.
sure—there’s hardly a moment’s What we now call the “legacy”
rest. It all attempts to make connections, but actual contact is elu- mass media allowed for common identifications; they called col-
sive; instead, there’s an endless repetition of the post–link–click lectivities into being. Networked media, by contrast, traffic mainly
routine. The means the death of “reflection,” which had been cen- in particularities. “There is no us. There is no me….” Instead, there’s
tral to Western philosophy for several centuries. an endlessly reconstituted series of virtual “me’s.”
But of course it’s now all about social media; commentary is In the old days, critics worried about the top-down nature of tra-
taking a back seat to sharing cat videos, political outrages, and the ditional media. “Don’t hate the media. Become the media,” urged
news that one is in urgent need of coffee. One survey—who knows Jello Biafra. But what, Dean asks, if the new media model results in
if it’s true, but it was on the Internet—revealed that a quarter of our “contribut[ing] to our own capture”? Guy Debord wrote about
Americans check Facebook while in the bathroom. how the society of the spectacle left no room for reply, for popular
One quibble with Dean’s otherwise excellent book: following opinion. Now, we’re overwhelmed by comments, a frenzy of con-
Michael Hardt and Antonio Negri, she makes a great deal of what troversializing that leads nowhere. Distrust of expertise becomes
she calls “communicative capitalism,” the idea that the circulation of ubiquitous; instead of critical evaluation, we now live in a regime of
information and images have to a large degree replaced production reflexive doubt. Progress? o
6 Left Business Observer

MONEY
federal funds [%] money supply growth
5 20%
4 15%
M1
3
10%
2
M2
5%
1
0 0%
Feb Apr Jun Aug Oct Dec Feb Feb Apr Jun Aug Oct Dec Feb
2010 2011 2010 2011

The Fed has given few signs of ending its indulgent interest rate policies—though it looks unlikely that quantitative easing (see below) will be extended beyond the
next few months. Wall Street continues to obsess about inflation, even though it’s hard to get a good inflation going with unemployment so high and wage growth
so weak. Meanwhile, the dollar wobbles, but refuses to collapse.

Wall Street—a turn of phrase that gets
odder all the time, since the street itself is
largely empty of bankers and the U.S. is no
longer the center of the world—has been
nervous about inflation lately. Anxieties
over quantitative easing (QE)—the Fed’s
strategy of buying gobs of bonds to support with governments falling and/
the markets and stimulate lending—have
been intensified by the run-up in the price
of commodities, most notably oil.
Prices of all kinds of commodities—oil,
copper, coffee, you name it—have been
driven higher by several things. One is
demand from China—which means, of
course, partly China’s internal needs and
partly what it needs to satisfy the rest of the
world’s lust for its exports. Another is the
cheering uprisings across the Middle East:
turmoil is always worrisome to oil traders,
especially if it leads to the replacement
of imperial stooges with more complex
political figures. And third is the huge flow
of speculative cash— 160
crude oil, dollars per barrel
from hedge funds and 140 monthly prices, Jan 1970–Feb 2011
the like—into com-
120
modity funds.
Let’s look at oil 100
more closely. Reasons 80
one and three above 60
sound like a trip back 40
to the great commodity 20
run-up of 2002–2008,
0
which took the price 1970 1980
of oil up seven-fold,
from under $20 a barrel to over $140. Back
then, though, the U.S. and other First World December 2010, when it was $90. Markets
economies were decently strong; now
they’re not—much of the real demand is
coming from Asia (excluding Japan) and
nowhere else. Then, OPEC’s spare capac-
ity was tight, not much more than a mil-
lion barrels a day (compared with world
demand of about 90 million); now it’s
almost five times that (or was, until Libya
exploded).
Surely, there’s reason for oil traders to
be nervous about supply interruptions
or teetering across the world’s 110
Oil Belt. But prices had already 100
90
risen before Tunisia led the
80
region into open revolt. The
political jitters added maybe ten 70 major
bucks to the price—what about 60 Jan 09
the previous fifty?
Monetary heat. After the bubble
burst in 2008, prices quickly sank below
$40—and then began rising, even though
the world was in recession. Prices rose
steadily through 2008 and stabilized
around $75–80 during most of 2010. But
late in the year, prices rose again, break-
ing $90 at year-end,
despite a weak eco-
nomic recovery in
much of the rich world. all that oil we’ve already burned. But again,
2/24: No doubt some
$99.54 people, including
readers of this news-
letter, will say that
peak oil is kicking
in. But the long-term
supply/demand bal-
1990 2000 2010 ance hardly changed
between February
2009, when oil was $40 a barrel, and
are awful at pricing the long-term anyway;
in almost any instrument you look at, from
interest rate futures to inflation expecta-
tions to stock prices, prices are almost
always driven by the present and recent
past and have little or no predictive value.
So it looks like hot money has been a
major force in driving prices higher. This
is a mixed blessing. Since we can’t pass
a carbon tax, higher market prices will
encourage conservation and doom SUV
sales. But since most
US dollar indexes Americans have little
broad choice but to drive every-
where, high gas prices
are going to hurt, and the
1973=100 last thing the working
Jan 10 Jan 11 class needs now is more
hurt. And oil prices north
of $100 are almost certain to weaken fur-
ther and already weak economy. More on
that in a moment.
Enough for now about oil. There’s one
commodity group where the spike in prices
has been deadly—food. There are some
real-world reasons for higher prices: rising
demand for more and fancier foods coming
from China (of course), and crop failures,
often the result of a climate driven mad by
the hot money has greatly amplified these
real-world concerns. For the billion or two
of the world’s people living on the margins,
higher food prices can mean starvation.
So why is all that hot money chas-
ing commodities? Because, it seems, the
money’s managers think the world is on
the verge of another great inflation, like the
1970s. And when that happens, the reflex is
to buy tangible goods, not financial assets.
Why, with half the world’s economy barely
off the mat, should we worry about infla-
tion? Because fiscal and monetary policy,
especially in the U.S., has been stimulative.
From the way some of the harder money
types talk about Fed chair Ben Bernanke,
Number 131
you’d think he was suffering from a serious
case of Weimar envy.
Misplaced worry. Actually, over the
last 20–25 years, commodity prices have
had little effect on general inflation. They
did in the 1970s, but, traders’ anxieties to
the contrary, this is no longer the 1970s.
In recent history, commodity price spikes
have remained largely confined to the com-
modities themselves. And the last few run-
ups in oil prices have led to recessions, not
great inflations.
And the poor StimPak—officially the
American Reinvestment and Recovery Act
(ARRA)—can’t get any respect. To listen to
its critics—not all of them on the right—it
was either ineffectual or worse. But it
actually wasn’t half bad. On February 23,
the Congressional Budget Office (CBO)
released its latest estimates of the Stim-
Pak’s effects on employment and incomes.
For the fourth quarter of 2010, the CBO
estimates that ARRA raised real GDP by
1.1–3.5%, lowered the unemployment rate
by 0.7–1.9 points, increased the number of
people employed by 1.3–3.5 million.
These are substantial numbers. Take
GDP. The midpoint of the CBO’s estimate
is 2.3%. Since real GDP is up 4.5% from its
2009 low, the StimPak accounts for about
half the growth. Or employment. It’s up
a little over a million from its low—but
Chart details, facing page: Fed funds and money
supply: Fed data. The fed funds rate is the interest rate
banks charge each other for overnight loans; it is the most
sensitive indicator of Fed policy. Dollar indexes are two
of the Fed’s indexes of the dollar’s value;”broad” is com-
posed of 26 currencies, and the “major,” of seven. Data
through 2/24/11.
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it would still be in deep the red without
ARRA. And if you add 1.3 points to the
December unemployment rate, it would
be 10.7%, above its worst level of 10.1% in
October 2009.
Of course, the stimulus is fading and the
austerity party is getting the upper hand.
Imagine budget-cutting—federal, state,
and local—on a scale that turns ARRA’s
positive signs into negatives. That could tip
us back into recession—with many house-
hold balance sheets in not much better
shape than they were in 2008. We’d be back
in the realm of mass insolvency.
That, and the contractionary effects of
$100 oil, could make us nostalgic for early
2011 by year-end. o
Communism (cont. from p. 1)
We never did confiscate the property
of emigrants—in fact, our tax code offers
lots of comfy shelters offshore. Nor have
we ever nationalized industry, though we
do offer capitalists some nice no-strings-
attached bailouts when they need them.
We did encourage the spreading of the
population about the country, through
the mortgage interest deduction and the
Interstate highway system, but that sort of
exurbanization probably wasn’t what Marx
and Engels had in mind.
Still, the few things that have civilized
American life a little over the last century
have some scandalously radical origins.
No wonder the right will never rest until
they’re extirpated. Public schools and
a progressive income tax are just mile
markers on the road to serfdom. o
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7
out to lunch (cont. from p. 3)
state income, so absolute spending
levels (dollars per pupil), especially on
instruction (rather than administration) do
correlate decently (r=.48) with the Beastly
rankings. But when compared to average
state incomes, they explain approximately
nothing. And again, they add nothing or
less to the basic subsidized lunch model.
That lunch model is mighty robust.
Curiously, a factor that might be thought
to lead straight to poor test performance,
doesn’t contribute all that much: the
share of students with limited English
proficiency. Comparing the rank of states
(from low to high) to the Beast rankings
yields only a modest correlation coefficient
(r=.17), and adding it to the lunch model
adds nothing to its explanatory power.
Admittedly, this is a pretty simple take
on some complex issues. But the results
are still suggestive of important things.
Firing teachers in large numbers doesn’t
contribute to higher test scores. Teachers’
unions don’t lead to excessively high
salaries. And if you could eliminate child
poverty, you could eliminate much of our
educational problem.
But given what it would take to
eliminate child poverty in the U.S.—like a
serious upgrading of the public discourse,
and some broadly held feeling of social
solidarity—we’d live in a very different
country. In such a fictional country, it’s
easy to imagine that much of the 40%
unexplained by child poverty would take
care of itself. o
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Educating the masses. A recent
report by the New York City Department of
Education’s (DOE) Charter School Office
showed that the DOE knows what good
education looks like. It just doesn’t think
poor kids need to have it.
The document evaluated schools whose
charters were up for renewal. Schools that
were found lacking in the basic elements
of good education were not only allowed
to stay open, but even expand their
operations—often without conditions. If
test scores lagged, they were warned to
shape up, but if children merely weren’t
learning anything, no problem.
Take thinking. At Democracy Prep, a
Harlem charter school where students have
been acing standardized tests, investigators
noted that “few lessons required higher-
order thinking skills or deep analysis of
concepts.” Yet Democracy Prep’s charter
was renewed unconditionally.
Poor kids apparently don’t need to learn
how to have an intellectual discussion. Or
any kind of discussion, for that matter. At
Democracy Prep, the Charter School Office
reports, “All class discussions took the form
of the teacher asking questions and the
students responding. Students were not
observed participating in a discussion or
responding directly to each other.”
At International Leadership Charter
School in the Bronx, investigators noted
that, “Students’ responses were generally
one or two words.”
Meanwhile, at Hyde Leadership Charter
School in the Bronx, the investigators
acknowledged, “While the school
MISCELLANY
demonstrated a strong focus on excellence
in character development, a focus on
academic excellence and achievement
was less evident.” This elementary school’s
charter was renewed, and Hyde has been
allowed to expand into high school grades.
Perhaps poor people lacking
intellectual skills but brimming with
reticence and “character” are just the sort
of workers the Bloomberg-era business
elite desires.
—By Liza Featherstone. A longer
version of this piece is in the Brooklyn Rail
<brooklynrail.org>.
Immigrants: not guilty. In a couple
of papers, one published in 2005 and the
other in 2007, the excellent economist
David Card compared U.S. cities with high
shares of immigrants in their population
with those with low shares. He found
little or no effect of immigration on wage
levels or employment rates on the groups
typically thought to be most harmed by
newcomers: workers without a high-
school diploma.
But those were relatively good years,
economically speaking. What has the
recent recession done?
Approximately nothing, Robert Pollin
and Jeannette Wicks-Lim show in a new
paper from the Political Economy Research
Institute at the University of Massachusetts
<peri.umass.edu>. They compare three
high-immigrant cities (Los Angeles, Miami,
and New York) with three low-immigrant
ones (Atlanta, Boston, and Philadelphia).
On average, there’s a 25.0% difference
Brooklyn NY 11238
242 Greene Ave #1C
Left Business Observer (ISSN 1042-0134)
in employment rates between workers
without high school diplomas and those
with in the high-immigrant cities, and a
24.9% for the low. The difference in wage
rates is 26.6% for high-immigrant cities and
26.5% for the low.
Obviously, this is a quick and
preliminary analysis—but these are six
important cities. And given Card’s earlier
research, it looks safe to assume that the
recession has done nothing to challenge
his conclusions from mid-decade.
Someone tell Lou Dobbs.
PS: In his research, Card found that the
children of immigrants who arrived in
the U.S. after 1965 have higher levels of
education and wages than do the children
of natives of the same age. Even children
of the least-educated immigrants have
come close to matching the children of
natives—quite an achievement, since the
best predictor of education attainment is
the educational attainment of parents.
In other words, most of the hysteria
around immigrants is completely baseless–
which, sad to say, doesn’t mean it will
abate any time soon. It’s not one of those
things amenable to rational argument.
Holiday spirit. Scrooge might like
this: “Black Friday is all about me. I’m not
here for anyone else. This is not about
Christmas presents. If somebody else
wants something, they can stay out here in
the cold all night.” — A California shopper
quoted in Stephanie Clifford, “Shoppers
Flock Back to the Mall to Hunt Deals,” New
York Times, November 26, 2010.
131