Thursday, February 10, 2011

Big bubbles

Dodging the Next Bubble


Reagan redux or Keynes ahead?

Sleek new trains engineered and built right here in the USA. Whirring windmills and other carbon-neutral energy innovations powering our endeavors. Ever-quicker information-sharing networks. More freshly minted post-doctoral fellows at work in our institutes and clinics busily making medicine and healthcare both smarter and cheaper. And of course, all those 20-somethings with laptops full o’ code, working it early and working it late, eschewing beer for coffee in the hunt for the “blear-eyed wisdom out of midnight oil” that William Butler Yeats smiled at a century ago.

These are the longed-for tools of contentment which, if our leaders would only invest our tax dollars prudently, could get us a new American Century.

So says a new crop of progressive economists who would like us to leave behind the bubble-producing FIRE economy and move ahead into the new TECI economy. Over-reliance on finance, insurance, and real estate got America and the world into huge trouble in 2008. A new focus on next-generation transportation, energy, and communications infrastructure (thus TECI) could transform us from financial speculators into industrial producers once again.

That, sadly, isn’t happening. Instead, we are witnessing Barack Obama’s version of the Ronald Reagan-George W. Bush policy array unfold. As progressives ruefully note, Bush’s tax-rate regime is intact because of Obama’s unilateral November armistice day. Retailers worry that the incremental recovery that has reduced unemployment to nine percent (remember that in the 1950s, 1960s, and 1970s, the top unemployment rate was around five percent) is probably going to get stymied, with unemployment going back up to last year’s 10+ percent, because state and local governments are already laying off more teachers, social workers, plow-truck drivers, environmental-compliance officers, and other public workers in the name of “austerity.” Progressives aplenty still hope for a re-regulation of Wall Street, and a reversal of Bill Clinton’s completion of the Reagan rebellion against financial regulation, but hope wanes with the new Republican majority in the House of Representatives. Environmentalists wince when Obama speaks to the US Chamber of Commerce because their progressive president mouths the very phrases, the very Chamber-engineered language, to wit: environmental regulations impede commerce. Morgan Stanley’s Bill Daley is running the White House staff now. Carol Browner, who held the climate-change portfolio, is no longer in the Obama administration. In the run-up to the 2008 election, much intellectual verve was loosed, most of it research-driven, fact-based, and policy-wonked, and its smartest advocates felt they had a champion in the person of the new president on pretty much every issue dear to the progressive conscience.

At the moment, those folks are feeling something worse than stymied. That’s because the 2010 elections gave us a Congress that has already tried to roll back Obama’s incremental healthcare reform, that will suffocate Obama’s climate-change legislation, and that will try to cut even more investment initiatives than Obama’s own new White House staff has already decided to shrink or eliminate. Even signature Obama initiatives, including the Great Lakes Restoration project (which will still exist), will lose 25 percent or more of their funding. High-speed rail is being strangled in Ohio and Wisconsin by new Republican governors, while China and Europe muscle ahead with hundreds and hundreds of new miles of high-tech, energy-efficient rail lines. Worst of all, though, is that the serious financial regulatory reform that many analysts called for never even made it to Congress.

So the chances for the policy mix prescribed by progressives is quite a bit slimmer than it was two years ago. Yet there’s no more urgent moment than now, argues Eric Janszen, whose brief, smart new book is The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble.

Two anniversaries

“By adopting an impractical, fundamentalist, laissez-faire ideology in the 1980s, the United States ceded economic and energy policy to investment banks,” writes Janszen. He wrote those words many months before Americans were treated to all the observances of Ronald Reagan’s 100th birthday last week. The politician most responsible for having created the FIRE economy has been celebrated as a savior, even as the collapse of that economy leaves our country swimming in debt, polarized between rich and poor as never before, and stuck with “one of the world’s most inefficient transportation systems” because Reagan set us on a 30-year-long “joyride on an ocean of cheap oil.” Janszen predicts that “[n]o crisis will be more dire, and exert economic pain less evenly, than the onset of permanently high and rising oil prices that act like a regressive tax that consumes an ever-greater portion of the incomes of the lowest-earning households.” The Reagan anniversary, celebrated loudest by those who want government to keep subsidizing the FIRE economy but not to build any high-speed trains, overshadowed the 75th anniversary of John Maynard Keynes’s influential theory about what role government absolutely has to have in stepping in when markets screw up. Keynes’s most astute student was an American president named Franklin D. Roosevelt, who took the occasion of the Depression to do some long-term economic stimulus that created wealth-producing infrastructure of the kind Janszen calls for. Roosevelt’s successors did the same thing: Harry Truman’s GI Bill spending created human capital as never before by sending vets to college. Dwight D. Eisenhower’s Keynesian stimulus was the interstate highway system. John F. Kennedy’s was NASA, Lyndon Johnson’s the Great Society. Even Richard Nixon, who glowered when he said, “We’re all Keynesians now,” spent heavily on infrastructure, science, health, and technology; It was Nixon who launched the “war on cancer” with unprecedented grants for research. But Reagan, though he spent like a Keynesian, changed the language, spawning Ron Paul, the new deficit-mania, and the bellicose, anti-public rhetoric of Palinism.

If Reagan is the icon of orthodox, let-the-market-fix-it politics, Keynes’s 75-year-old advice on how to fix broken economies is the playbook still cited by all those who notice that government always has a role in economic events. Always has, always will.

But the policy choice matters, and so do the local versions of national policies. If the federal government spends while states cut, the federal thrust is blunted. Then there are the hangovers that we’re stuck with even many mornings after. Here in New York State, we see that the Obama administration still leaves crazy, economically destructive legacies of the Bush administration cranking along. For example, critics of the Seneca-owned casino in downtown Buffalo have to face the fact that the Obama administration has done precisely nothing to reverse the Inauguration Day decision by George W. Bush’s Interior Department appointees to leave the Michigan Street, off-reservation casino operating despite a pretty unequivocal ruling by a federal judge that doing so breaks federal law. A new study forthcoming from a Niagara University researcher quantifies the economic harm caused by the Niagara Falls casino, which lures and holds gamblers by giving free meals and free hotel nights, thus killing any restaurant and hotel competition for miles around. Try selling steaks, chops, and nights when the people down the way are giving it away. If your restaurant is short of business or your hotel can only fill up if you slash overnight rates to zero, then thank President Obama and our Congressional delegation for a government intervention that clearly hurts the regional economy.

Could better policies be in the offing? Could subsidies for the FIRE economy be ending, and smart investment in transportation, technology and energy be on the way? So far, there hasn’t been any change in state economic development policy. Governor Andrew Cuomo has just appointed new leadership at the Empire State Development Corporation, which has a legacy project underway here in Buffalo. Before Cuomo took office, the authorities he now rules approved plans to invest $153 million into replica canals and retail and commercial space in Erie Canal Harbor as if the go-go, pre-2008-crash days of ever-expanding commercial real estate and retail are here again. (Hint: Janszen and others point out that all that consumption, and all that real-estate speculation, was done on borrowed money—which consumers are, um, rather short on now.) As it stands, carried-over state economic development policy could result in a newly built, 700,000-square-foot office complex, built with taxpayer dollars, that would empty out the HSBC tower, creating a sudden glut on an already glutted downtown market.

Federal policy gives us a job-killing casino. State policy could give us a death star for downtown real estate.

Clearly, if we’re going to move from the FIRE economy to the TECI economy, we’ll need more dissident voices to leave their websites and enter the precincts of the policy-makers.

The encouraging news is that more of those dissident voices seem to be cracking through the sound-barrier erected by the major media, which still give mainstream economists—including Barack Obama’s FIRE-focused advisors—daily access to all of us.

What’s disturbing about Janszen having been so right for so long is that his optimism seems rather forced. Getting from where we are to a TECI economy will take a political transition that looks faraway. Obama’s tactical retreat on taxes, like his courting of the leading voices of the business establishment, leaves the features of the FIRE economy untouched. Maybe the investment bankers who fund political campaigns will be like the progressive organizers who organized the grassroots for Obama: Maybe neither of these groups will have anyplace else to go in 2012 than with the president who once promised high-speed rail, clean-energy technology, re-regulation of Wall Street, and new investment in American industry simply because the alternative is untenable. One can only hope that Obama co-opts the folks who fund the anti-Keynesians, for after reading Janszen, it’s pretty obvious that a return to Reaganism and the full force of the FIRE economy will only make the world ill again.

Meanwhile, oil prices today wend their way ever-upward just as Janszen explained they would. Market forces (i.e., the increasing cost of fuel) may help re-introduce the inherent sensibleness of energy-efficient transportation alternatives to a country that lurches to and fro on trains. This is no time for progressives, policy wonks, and people who can count higher than 21 to stop working on what has to come next. But there’s political prep-work to be done too: Blue Dog Democrats are as useless to this future as are Reagan revivalists.

Monday, February 7, 2011

Cornucopia politics

http://artvoice.com/issues/v10n5/cornucopia_politics


Why Sensible Policies Don't Get Implemented

by Bruce Fisher


Cornucopia Politics

The news should be heartening to green-minded people throughout Western New York: The federal Homeland Security authorities have confirmed that $300 million will not be available for constructing a massive blacktop desert in what is now the Peace Bridge neighborhood, because Homeland Security sees no need for a big truck plaza there. This should be the signal for the area’s construction firms, engineers, and tradesmen to turn their sights on the urgent project for which there is actual federal funding already in place, specifically from the dedicated Great Lakes Restoration fund. This project—over $110 million of whose local public matching funds are also in hand, currently held by the Erie Canal Harbor Development Corporation—could transform the Buffalo River watershed from a wasteland of brownfields and poisoned fish into a clean and green waterfront.

Not having money for a carbon-belching Peace Bridge plaza is a blessing, especially as—once again—Mideast turmoil raises the spectre of $150-a-barrel oil, which translates into $5-a-gallon gas, which ought to result in Washington getting serious about energy-efficient trains and alternative fuels…again. Some theorists, like Richard Janszen of iTulip.com, think that the inherent fragility of our international economy means that a crisis as in Egypt might create another global crisis. The more immediate concerns of Buffalo and other Great Lakes communities is that they will, over the next two years, lose Congressional representation. Here on the North Coast, the federal cornucopia may be ending its endless Christmas.

Oil issues connect the short-term concern about oil-price disruption and long-term infrastructure issues. We may be nearing the end of cheap, abundant petroleum, and there is no technological alternative to replace it. Those wily Canadians will certainly step up oil-sands production, and sell us all the greenhouse-gas-producing oil they can—at a steep price. More carbon, more despoliation in Alberta, and more trade deficits will result, but in a depopulating region like ours, the dumbest thing to do while oil from anywhere rises in price is to commit ourselves to relying upon more and more of it. It would seem pretty logical, then, that if there are a few thousand construction workers who want work here, they should work their representatives to take advantage of the only construction money that’s really readily available—namely, the Great Lakes Restoration fund. A cleaned-up waterfront for Buffalo could actually be a reality, and could make the water-rich Buffalo area a better place to live in an oil-challenged future.

Civilians tend to be able to connect these dots. Not so, apparently, our local elected officials. They’re either pledging to go back to the Republican-dominated House of Representatives to fetch the hundreds of millions for the Peace Bridge (US Representative Higgins and Senator Schumer), or they’re silent about the big opportunity of federally funded environmental remediation (US Representatives Slaughter and Lee). Western New York will lose another Congressional seat before the next Congressional election; should President Obama win re-election, one must ask how likely it will be that a Sunbelt-dominated House of Representatives is going to do an about-face and ladle $300 million into a Rust Belt district even if the House once again goes Democratic, given that Homeland Security has already said no. Should Obama lose, the likelihood of that money coming here will go from slim to none. And in any case, the long-term question remains: Why invest in oil-based transport that’s inefficient (trucks) rather than in trains and clean water?

One hopes that all the people who want to do green infrastructure—laborers, skilled tradesmen, engineers, environmentalists, and some currently epicene officials—will hurry up and figure out that the cash that’s actually available for a clean-water project should be grabbed before Congressional Republicans make good on their pledge to wipe out $100 billion of federal spending. (The claim that Tea Party Republicans are anti-earmark rings true, thus: Sunbelt Republicans are definitely against earmarks for Democratic districts, like Buffalo’s.)

The alternative? Buffalo could go ahead with the Erie Canal Harbor Development Corporation plan, which will sink a total of $53 million more into replica canals, parking garages, and consultant fees, leveraging nothing except wished-for but unlikely matching private dollars. Once that pot of public money is empty, and thus unavailable to leverage the federal clean-water dollars now sitting in a Washington account, Buffalo will surely have its replica canals and the rest—plus a potentially huge new unfunded mandate. Conditions in the Buffalo River watershed currently served by the Buffalo Sewer Authority puts it in violation of the Clean Water Act—which means that the Buffalo Sewer Authority could well be instructed, by a court or by a federal agency, to clean up our nasty water anyway. Where would Buffalo get the money to do that? Simple: The sewer authority would simply double or triple the rates that its customers pay to come up with the local matching share—money that we have today, except that today’s money is going to be used to buy replica canals, parking garages, and consulting services instead of shielding us from a big local tax increase.

Could the federal government force Buffalo to clean up its messy, smelly, fish-disfiguring, floatie-filled water? You betcha it could. And if it does, we should expect to see a local Tea Party—a Green Tea movement—composed of every progressive advocate of homeowners, renters, churches, small businesses, and everybody else under our Buffalo sun, because ratepayers in our moderate-income burg would then be saddled with a completely unnecessary and avoidable burden in each of our mailboxes, postmarked Buffalo Sewer Authority, to pay for a job that other money could have paid for.

Why would our elected leaders chase a fantasy of a truck-traffic bonanza when there’s a clean and green—and largely paid-for—alternative right in front of our noses? Why would elected officials and their brilliant, high-achieving staffers ignore the problem stinking up those waterfront-oriented noses when a solution is at hand?

I blame Francis Fukuyama.

Fantasies of endless abundance

Back in 1989 and 1990, when the Berlin Wall was breached and Communism disintegrated, everybody believed in the peace dividend. A generation has since grown up not knowing about mutually assured destruction, Stalin, Communism, or air-raid drills. The hundreds of billions of American taxpayer dollars that were annually “stolen” from us (to quote our late President Dwight D. Eisenhower, who thus characterized defense spending) were going to be available for peaceful purposes—like cleaning up our waterways and building the American version of the super-fast trains that Europe has had for 30 years. The American way had triumphed, and we were going to thrive on peace.

That was Francis Fukuyama’s point in his 1992 book The End of History and the Last Man. This former State Department planner’s book was profoundly influential, first among conservative intellectuals, then for a much wider audience. He announced that the triumph of the West over Communism was proof that history does indeed have a direction, and that that direction is toward the everlasting and ever-growing abundance made possible by what is working out to be humanity’s highest organizational triumph—liberal democracy and representative government, exemplified by none other than Uncle Sam. When Fukuyama celebrated, lots of people applauded. That applause echoes in our policies today.

Though intellectuals all over academia may resent Fukuyama his fame, and pick nits in his reading of Hegel and Nietzsche, there is simply no denying his influence. It’s not that he was a pioneer or an outlier: His role was to give gravitas and context to self-congratulating American and European elites in a world consisting of countries governed by tribal thugs, criminal gangs, or control-mad ideologues. The myth of being rich while also being good gained full voice. What this particular intellectual wrote in 1992 became part of the political discourse of candidates and editorial pages and public expectation, too. So all through the prosperous 1990s, it was believable when he posited that humanity will demand that everyplace become more and more like America. “Moreover,” he wrote, “the logic of modern natural science would seem to dictate a universal evolution in the direction of capitalism.”

Missing from his narrative is anything about how all our wealth, all our consumption, all our globalization, all our suburbanization, are all stones in an archway whose keystone is oil in cheap abundance. Also missing is the notion that it wasn’t capitalism per se, but the well ordered, well regulated capitalism of the New Deal and the Great Society, with its huge and photogenic and healthy middle class, and not capitalism as a hedge fund manager’s ideal of deregulation, that became the world’s icon of the personal fulfillment that American-style freedom could deliver. Missing as well is the notion that being so rich could ever make the world so dirty that not even advanced technology could clean it all up. Missing, in short, is any sense of limits, or of consequences.

Hating taxes, loving handouts

Also missing from Fukuyama’s narrative is what we see in Buffalo, New York, and throughout the Rust Belt, where participatory democracy and free-market capitalism have given us the elite’s deindustrialization and widespread abandonment of a mature, medium-sized but withal very civilized communities. Strangely, for all the blame one hears of government, these are places whose elected and non-elected leaders alike act as if certain kinds of compensating abundance, namely, imported public funds, are not only permanent but our special prerogative as well. Here in Buffalo, hundreds of millions of federal and state dollars for new college and court buildings, new roads, new bridges and private enterprises, are expected from the never-ending public cornucopia. Very little ever gets to cleanup projects, which would benefit many but not enrich the few. And the messaging of these tax-hating, public-fund-grabbing elites is ever hostile to the living wage, to unions or employment security, or to public goods as once defined.

One of Fukuyama’s chapters is entitled “Accumulation without end,” which he concludes by saying that history has yet to yield a better politico-economic system, as measured by how much abundance it creates for so many. But think of our hometowns: devoured resources, spent lands, residues of production, stewardship abandoned, uncomprehending elites who practice “accumulation without end.” Abundance, it seems, has a public price.

And a more fundamental cognitive dissonance in our leadership is a mainstay: While the consensus of climate scientists is that humanity had better get cracking on some workable concept of limits, neither locally nor nationally do we see empowered folks doing much to contrive strategies to adapt to any new constraints that nature might impose.

A baby born on the day that the Berlin Wall fell in November 1989 would be 21 today—old enough to drink beer in Buffalo, old enough to vote in an election, old enough to enter into a contract, and certainly old enough to connect to even a 21-year-old’s experience the philosophical musings of a professor whose book celebrated the true peace dividend at the time it was created. Living in a community whose county executive hoards $74.5 million in federal “stimulus” money while ending daycare subsidies for working mothers, slashing libraries, and telling his health and environment commissioners to stop applying for federal grants, who subsidizes suburban roads and suburban police patrols and slashes urban culturals and jettisoned urban parks, that 21-year-old could rationally conclude this: The suburbs won the Cold War, but the cities, the environment, and any sense of shared community lost that war.

Fukuyama predicted a future of complete triumph for liberal democracy and capitalism. An earlier writer who also imagined the end of history, Vladimir Illych Lenin, predicted that financier-driven globalism (he called it “imperialism”) would be the last stage of capitalism, after which the proletariat would rise up, led by a vanguard, and smash it into a new utopia.

Smart boys indulge in magical thinking, too. What neither of these two can be expected to have imagined was that not even technology could change our collective outcome: oil-depleted, heated-up, potentially unlivable due to desertification in many places, potentially unlivable due to the lack of affordable fertilizers and pesticides in others, and coastlines under seawater—whether because humanity burned too many barrels of oil, or because humanity ran out of new barrels of oil.

Even in Buffalo, global trends just might matter—perhaps we will become relevant again as a well-watered place, perhaps even a refuge of livability, if our water isn’t poisonous. As we watch the output from the ever-producing Washington and Albany cornucopias dwindle, even as we hope for those demonstrators in Egypt that they get the individual freedom that they want, it would seem that our best shot at having a future would be to concentrate our efforts on what will serve us best, oil crisis or no oil crisis. Clean water works. Regional interconnectedness works. Rail works. Libraries, parks, and riverside paths work.

A big black asphalt pond next to the Peace Bridge? That won’t work. And we’re not going to get it anyway, so let’s focus on the job at hand: cleanup from the age of accumulation without end.