The politicos vs. An old man


P120909PS-0140, originally uploaded by The White House.

Watching Pete Peterson in an interview with McKinsey shows that our road ahead will be bumpy--not to mention the odds of getting off the road completely. One gathers that tax increases and spending cuts are bound to come, yet the recovery is not in sight. Moreover, the economically conservative theoretic machine has set in motion, with resources from Mr. Peterson as well. The elections in 2010 will most definitely see a dramatic change in Congress unless the employment situation doesn't improve.

In case the player is acting up, here's the transcript.

Pete Peterson—businessman, statesman, philanthropist—has developed an economic
perspective informed by three distinct and first-hand relationships with American policy. In this video interview, the cofounder of Blackstone and former secretary of commerce reflects on his storied career and his recent memoir, The Education of an American Dreamer. He also looks forward—sharing his ideas on deficit reduction, changes in private equity, the fate of the dollar, and how to rebuild the US economy for future generations. Rik Kirkland, McKinsey’s director of publishing, spoke with Mr. Peterson in New York in November 2009.

The Quarterly: We’re here today with Pete Peterson, who is cofounder of the Blackstone Group, former secretary of commerce, and chairman emeritus of the Council on Foreign Relations. Pete, thanks for being with us today.

Peter Peterson: My pleasure.

The Quarterly: Now, in your long and distinguished career as a business executive and a statesman, you’ve also been an author. Your latest book is The Education of an American Dreamer. So why did you write it, and what are some of the things you learned?

Peter Peterson: Well, you know, when you’re a businessman and you’re pompous enough and presumptuous enough to write books, you have to be prepared to be roasted. And my favorite roaster is Ted Sorenson, who, about my last book said, “Once you put it
down, you will not be able to pick it up.” That was not enough to discourage me, but I think this is the last one. This is a memoir.
Why did I write it? Well, I have nine grandchildren and five children. I’m particularly concerned that the American dream that has made me into an American dreamer will no longer be there for them. So I thought it would be worthwhile for those nine grandchildren, and who else wants to read it, to realize that there are opportunities in this country if you work hard enough and make the right decisions.

One of the lessons I’ve learned is to apply the Adam Smith principle in your business career: comparative advantage. Focus on the things that you do better than the other things that you do, and resist the seductions of a little more pay or a little nicer office or a little better title if it does not play to your strengths. Secondly, pick a field where your passions are, because the combination of playing to your strengths and being passionate about it can make a very big difference in a career.

The Quarterly: The book ends with you taking the fortune you earned when Blackstone went public and putting it into a private foundation, the Peterson Foundation. I was wondering if you could talk about that.

Peter Peterson: There are certain long-term challenges that I call “undeniable, unsustainable, and yet politically untouchable.” I thought of myself on my deathbed looking back and saying, “I’ve been very concerned about these challenges,” of which I include entitlements, Social Security, Medicare, our huge balance of payments, deficits, our foreign debts, our lack of savings in this country, and why I think they’re going to impair
our future.

The Quarterly: So what are some of the things the foundation is doing?

Peter Peterson: Well, we’re doing a number of things. We’re focusing pretty heavily on the young, because it’s their future that’s being impaired. And you know the old joke about the philosophy class where the professor says to the class, “Which is worse, ignorance or apathy?” And some sleepy kid from the back says, “I don’t know and I don’t care.”

Well they had better start caring, because on the track we’re on, their taxes are going to increase dramatically. The unfunded liabilities total nearly $60 trillion, falling squarely on them.

I have a dream, which is that we would be smart enough and lucky enough to set up an organization called the American Association of Young People. We have the American Association of Retired Persons, 39 million strong, who are an enormously effective lobbying group. But I think our kids need a lobby too—they and their parents. So we’re putting a lot of focus on the young.

The Quarterly: This is an issue that you’ve talked about for 20 years very articulately, and it obviously concerns a lot of people in this country. And I mean no disrespect to you, but the fact is, for the whole period you’ve talked about it, the problem hasn’t gone away.

In fact, it’s probably gotten worse. What gives you hope that we will finally begin to deal with it? And how do we deal with it right now at a time when the stimulus bill and the need to get out of this economic slump have made the deficit temporarily bigger?

Peter Peterson: What we’ve got to do is somehow make it safer for the politicians to
do the right thing. And we have to make it unsafe for them to do nothing. So I think a lot of this is the politics of short-termism and the politics of entitlements—one of my least favorite words. We think the time has come for a very special bipartisan commission, composed of equal numbers of Democrats and Republicans.

The Quarterly: It’s along the lines of the Greenspan commission?

Peter Peterson: Yes, with some special wrinkles, in which everything is on the table. And the procedures are a little bit like how we handle military base closings, where we’ve discovered that if you only handle these military bases one at a time, you kind of get cherry picked. What we’re envisioning is a group in which everything is on the table.

You can’t eliminate the need for tax increases. We will need some tax increases. You
cannot avoid the fact that the major part of the burden is going to have to be in spending reductions. We have a political system now in which too many Republicans have never met a tax cut they didn’t like, and too many Democrats have not met an entitlement spending program they don’t adore.

So what has happened? We’ve ended up with both of them. So there’s going to be enormous financing needs. I’m just talking to an expert that I’m working with on this. He’s trying to predict how much the treasury financing is going to have to be. And he said, “I can just tell you, they are skyrocketing and unbelievable.” Well, we’d better start asking the question, “Where’s the money going to come from?” And it’s terribly important, in my opinion, to send a signal to the foreign sources that we’re going to get our fiscal house in order.

The Quarterly: Let me close by asking you about one other area of your expertise, which is the private-equity markets, where Blackstone is a huge player and a very successful player. I’m just wondering if you could sort of both look over the evolution of the industry and look, say, five years out from now. Will it have bounced back to what it was a year or so ago? Will it be different in any fundamental ways?

Peter Peterson: Well, it’s changed enormously since Steve Schwarzman and I started
the firm in 1985. If you stop and think about it, the ’90s were a golden period for any leverage business. If you can get a lot of leverage—and we could get leverage (four to eight times)—and you have low interest rates and you have price earnings ratios doubling as they did during the ’90s, you’d have to be intellectually challenged not to make some money in that kind of an environment. And we got in the habit of believing it was our own financial genius that enabled us to make 30 and 40 percent returns. And it was very importantly a matter of dumb luck—plus whatever abilities we did have.
Now, the recent years have been the opposite. There has not been a lot of money left for leverage. You know, you have to go out and earn it by more productivity and more operational improvements. So the center of gravity of the private-equity business shifted from financial engineering to operational improvements. I have every reason to believe that’s going to continue, because once it starts, those who improve earnings and have confidence in our ability to improve earnings will be able to pay more than the firms that are relying totally on financial engineering.

The Quarterly: There’s been a lot of talk in the last few months about the role of the dollar and the dollar’s role to reserve currency. Do you believe the dollar’s role will be fundamentally different? Will it be about the same? Does it depend?

Peter Peterson: I think the most likely outcome, if we don’t get our act together, will be some kind of crisis in the dollar. And we all know the dollar falls suddenly and steeply. Interest rates rise very dramatically. So we have inflation and recession at the same time.

The Quarterly: So we can do this the hard way or the harder way?

Peter Peterson: The hard way. There are no easy alternatives. We’re long past that point. We’re talking about $60 trillion, in today’s dollars, of unfunded liabilities and promises. Totally unsustainable. And you’re never going to be able to solve this just by increasing taxes. You could get rid of the Bush tax cuts. You could get rid of all earmarks. You could get out of both wars. And it only covers 15 percent of our unfunded liabilities and promises.

The Quarterly: It really is Medicaid, Medicare, and Social Security.

Peter Peterson: Medicare and Medicaid. Medicare is $38 trillion; Social Security is $7 trillion, basically.

The Quarterly: And that’s where all the voters are. So go back to your association of young people, right? That’s what it’s going to take. Pete, thank you for being with us today. You’re still dreaming, and it’s a great story. We appreciate it.

Peter Peterson: Thank you.

Now, Pete Peterson may look and sound like the old-wise guy, but doesn't he see any problem with our system/ He should know better, being an insider to many a power circle. A look at his recent book reveals that while he had been CEO of Bell&Howell, an American manufacturing operation, in the '60s, productivity grew under his command, but the sustainability of the business proved to be lacking not long after he left--the Japanese manufacturers saw the future in electronics, the American executive, concentrating on productivity improvements (read, cost cutting, which in today's version spells offshoring) could not see. I'm sure the reader of this blog is smarter than Mr. Peterson lets us in...

Learning hope even though summer will stay coming for a while

Xmas in the 21st century: Bad Salzuflen, Germany. Army of angels and futuristic christmas tree

...east-Asian angels: Can we dum... err, change our dollars here?

vox populi
or what I wish I wrote

Steve Jobs
Fremont, CA
It is every economist's stupidity to think we need to keep expanding the economy to keep us at full employment. We have a few billion people in the world who are slowly reaching to the productivity levels of the developed countries, hence we will need to expand the economy 10 fold to keep them all employed. Alternately, as productivity goes up, we cut down our hours. I would dare to suggest that if Americans merely worked 20 hrs a week on average, we can complete all the work we have plus more. It appears like we work hard for nothing at all.

Europeans seem to be getting it right - you can't really employ everyone at high productivity levels. You can employ everyone and have huge inefficiencies (still pretending to be efficient) or employ a few and give out everyone else welfare checks or cut down hours for all.


I've been thinking about this for a while: Can we indeed go on with our type of economy, or we need to take a page from, say, the Europeans? This is not to say Europe doesn't have its own problems--just ask any young person between 20 and 35 years of age. It only means that we seem to only push harder in directions of diminishing returns, more expensive with less returns, that is. And this goes on for just about everything we do, from wars and foreign policy to K-12 education and local government budgets. The only question I have not been able to answer is whether we can improve the system gradually as it goes, or need a full stop. If history is of any use here, stop ahead--mind the gap! Yes, I do tend to side with history in uncertain times.

what else is there

what else is there, originally uploaded by c-h-l.

President Obama with his national security team to discuss Afghanistan in the Situation Room of the White House, Nov. 23, 2009

P112309PS-0830, originally uploaded by The White House.

Let's get out, folks! Money has been running out, and the more we spend the stronger our creditors get.

Der Spiegel:
[...] following an extended Asia trip that produced no palpable results. The "first Pacific president," as Obama called himself, came as a friend and returned as a stranger. The Asians smiled but made no concessions.

Upon taking office, Obama said that he wanted to listen to the world, promising respect instead of arrogance. But Obama's currency isn't as strong as he had believed. Everyone wants respect, but hardly anyone is willing to pay for it. Interests, not emotions, dominate the world of realpolitik. The Asia trip revealed the limits of Washington's new foreign policy: Although Obama did not lose face in China and Japan, he did appear to have lost some of his initial stature.

Obama visited a new China, an economic power that is now making its own demands. America should clean up its government finances, and the weak dollar is unacceptable, the head of the Chinese banking authority said, just as Obama's plane was about to land.

Obama's new foreign policy has also been relatively unsuccessful elsewhere, with even friends like Israel leaving him high and dry. For the government of Israel Prime Minister Benjamin Netanyahu, peace is only conceivable under its terms. Netanyahu has rejected Obama's call for a complete moratorium on the construction of settlements. As a result, Obama has nothing to offer the Palestinians and the Syrians. "We thought we had some leverage," says Martin Indyk, a former ambassador to Israel under the Clinton administration and now an advisor to Obama. "But that proved to be an illusion."

Even the president seems to have lost his faith in a genial foreign policy. The approach that was being used in Afghanistan this spring, with its strong emphasis on civilian reconstruction, is already being changed. "We're searching for an exit strategy," said a staff member with the National Security Council on the sidelines of the Asia trip.,1518,662822,00.html

Can a reserve currency be protected from the whims of people in a democracy?

There are all kinds of views about what has brought the world crisis in 2008. Several conversations seem to point the source either to the FED, or to the so called "savings glut" from oil exporting or manufacturing countries. A good place to start would be with the view that the FED lowered its rates below some natural interest rate. (Nota Bene: This account beats revisionist Greenspan's dead horse).

I think the above views are only partial, and not even when held together could explain 2008. For one, the low US rates must have been met indeed by excess money supply or the so called "savings glut." It always takes two to tango. On the other hand, this is all Popperian science at best. It goes in small small steps and sees not the bigger picture. For example, Beckworth (link) doesn't take into account the fact that the increased productivity he contrasts to the decreasing FED rates was due in great part to outsourcing&offshoring.

Another view is that the FED is responsible for the well doing of the international monetary system. This is an interesting assumption to which I will return. One of the economists operating with this assumption is John B. Taylor (link to paper), who also shows that the FED, by lowering the interest rates, should be held accountable for what happened in 2008. In this case, on the grounds of incomplete models and such, the question becomes: How could the FED be held responsible for the Chinese manipulating their currency?

It's time now I posit that China's entering WTO has been the catalyst of our capitalism's demise.

To counter the point that FED alone could not have caused the events in 2008, one could argue that we had similar situations in the past (war: Vietnam + creditors: Germany/Japan). My answer would be yes, but check also the pains our capitalism had at the time in addition to saying that China's effect comes at a different order of magnitude. Not to mention that both Germany and Japan were US clients for their national security. So, while what China is doing is not entirely different in principle from other partners we've had, it is the size that matters and the stage of decay of our own capitalism (institutions, players, etc.).

As an observation, what's compelling China to keep buying the US paper? I say that in part it's the same reason that had made them do so until 2008. At this time, the other reason may be the fact that if they stop buying they may risk the value of whatever they have bought so far and then some more--it would be so Chinese-unlike.

Let's turn now to Brad DeLong to see the emerging consensus view among economists about the causes for the 2008 crisis:
  • the Federal Reserve and the Treasury decided to nationalize AIG rather than to support AIG's counterparties last fall, allowing financiers to pretend that their strategies were fundamentally sound rather than things that would have shut down their firms had the Feds not paid AIG's bills. (Nota Bene: This is probably a mistake, not a cause)
  • the Federal Reserve and the Treasury decided to let Lehman Brothers go into an uncontrolled bankruptcy last fall in order to try to teach financiers that having an ill-capitalized counterparty was not riskless and that people should not expect the government to come to their rescue always. (Nota Bene: I agree with this and blogged about it)
  • the long-ago decision was made to eschew principles-based regulation and allow the shadow banking sector to grow unregulated with respect to its leverage and its compensation schemes in the belief that government regulation of finance should be minimal and that the government's guarantee of the commercial banking system was enough to keep us out of messes like the one we are currently in. (Nota Bene: This seems to be how economists account for the complexity of the causes, while operating with sketch models that only make good Popperian science).
These are pertinent views, yet incomplete--read, easy to model by economists practicing Popperian science.

At this time, I would add to the above reasons the following:
  • We should pay more attention to the stage of capitalism in the US/west. I've done so, here as well.
  • The US failed to adjust its post WWII trade policies to account for China's entry in WTO. This has led to an implicit contract of sorts. The US party in the contract had an increase in productivity, otherwise hard to come by at our stage in capitalism, and maintained purchasing power of displaced workforce at home. The Chinese bought our dollars, manipulated their currency, gave a better tomorrow to hundreds of millions of their own and, most importantly, they've got a massive know-how transfer that money otherwise could not buy. In effect, this fueled indeed the Chinese share of the "savings glut" symptom.
  • The other point I'd like to make, and DeLong's 3rd cause would come close, is about looking for another cause/mechanism of the "savings glut." It must indeed have been everywhere people's looking for YIELD--in itself a behavior due to low interest rates and late stage capitalism. Yield that had been conveniently MANUFACTURED by the collusion between our politicos and bankers.
Now it's time I returned to John B. Taylor's assumption that the US FED be responsible for the stability of the international monetary system. This view does not seem all unreasonable since the US dollar enjoys the status of reserve currency. In other words, we owe the world that much. That might have been so in the past, notwithstanding the lousy job we did of it. In this day and age, I would argue, if we want globalization to continue its course, especially among democracies, one has to return to Keynes and his recommendation at Bretton Woods for a global currency (Bancor); China seems to favor such thing, and this may be our opportunity to keep the game straight after the demise of the dollar from its position as reserve currency. Indeed, if a democracy controls the reserve currency, what guarantee can it be that the respective currency will be protected from the whims of the people in that democracy?

On a very personal level, I think we are still far from recovery, for I don't think recovery can come in sight before we've heard the truth being spoken in public. Yes, truth is socially constructed, but unless we come together (read, pressed by reality/fused into nationhood) to first see the problem with the same eyes, how can we figure out a solution? If you like, outside observers of all times have always wagered this bet against America--on our inability to come out of a paper bag of our own making. Will we prove them wrong once again? Coming out of the two wars NOW would be a start...

On US, NATO and EU

Here are excellent accounts on the history, present and future of the relation among the US, NATO and EU. Things can go in different directions from here, and one would have to ask what's keeping them from so doing?

Where the distinguished speaker's treatment of the subjects falls short is Afghanistan and the suspiciously unanimous reliance on a poll indicating that the regular Afghans want us there. In fact, Mr. Brzezinski questioned himself the quality of such poll, but then backtracked quickly. So, if this poll is just a WMD-type of excuse, life cannot be good. An indication of what's what will come from the decision of our NATO partners in Europe to withdraw or not.

We Like Lists Because We Don't Want to Die

By Susanne Beyer and Lothar Gorris

Italian novelist and semiotician Umberto Eco, who is curating a new exhibition at the Louvre in Paris, talks to SPIEGEL about the place lists hold in the history of culture, the ways we try to avoid thinking about death and why Google is dangerous for young people.

SPIEGEL: Mr. Eco, you are considered one of the world's great scholars, and now you are opening an exhibition at the Louvre, one of the world's most important museums. The subjects of your exhibition sound a little commonplace, though: the essential nature of lists, poets who list things in their works and painters who accumulate things in their paintings. Why did you choose these subjects?

Umberto Eco: The list is the origin of culture. It's part of the history of art and literature. What does culture want? To make infinity comprehensible. It also wants to create order -- not always, but often. And how, as a human being, does one face infinity? How does one attempt to grasp the incomprehensible? Through lists, through catalogs, through collections in museums and through encyclopedias and dictionaries. There is an allure to enumerating how many women Don Giovanni slept with: It was 2,063, at least according to Mozart's librettist, Lorenzo da Ponte. We also have completely practical lists -- the shopping list, the will, the menu -- that are also cultural achievements in their own right.

SPIEGEL: Should the cultured person be understood as a custodian looking to impose order on places where chaos prevails?

Eco: The list doesn't destroy culture; it creates it. Wherever you look in cultural history, you will find lists. In fact, there is a dizzying array: lists of saints, armies and medicinal plants, or of treasures and book titles. Think of the nature collections of the 16th century. My novels, by the way, are full of lists.

SPIEGEL: Accountants make lists, but you also find them in the works of Homer, James Joyce and Thomas Mann.

Eco: Yes. But they, of course, aren't accountants. In "Ulysses," James Joyce describes how his protagonist, Leopold Bloom, opens his drawers and all the things he finds in them. I see this as a literary list, and it says a lot about Bloom. Or take Homer, for example. In the "Iliad," he tries to convey an impression of the size of the Greek army. At first he uses similes: "As when some great forest fire is raging upon a mountain top and its light is seen afar, even so, as they marched, the gleam of their armour flashed up into the firmament of heaven." But he isn't satisfied. He cannot find the right metaphor, and so he begs the muses to help him. Then he hits upon the idea of naming many, many generals and their ships.

SPIEGEL: But, in doing so, doesn't he stray from poetry?

Eco: At first, we think that a list is primitive and typical of very early cultures, which had no exact concept of the universe and were therefore limited to listing the characteristics they could name. But, in cultural history, the list has prevailed over and over again. It is by no means merely an expression of primitive cultures. A very clear image of the universe existed in the Middle Ages, and there were lists. A new worldview based on astronomy predominated in the Renaissance and the Baroque era. And there were lists. And the list is certainly prevalent in the postmodern age. It has an irresistible magic.

SPIEGEL: But why does Homer list all of those warriors and their ships if he knows that he can never name them all?

Eco: Homer's work hits again and again on the topos of the inexpressible. People will always do that. We have always been fascinated by infinite space, by the endless stars and by galaxies upon galaxies. How does a person feel when looking at the sky? He thinks that he doesn't have enough tongues to describe what he sees. Nevertheless, people have never stopping describing the sky, simply listing what they see. Lovers are in the same position. They experience a deficiency of language, a lack of words to express their feelings. But do lovers ever stop trying to do so? They create lists: Your eyes are so beautiful, and so is your mouth, and your collarbone … One could go into great detail.

SPIEGEL: Why do we waste so much time trying to complete things that can't be realistically completed?

Eco: We have a limit, a very discouraging, humiliating limit: death. That's why we like all the things that we assume have no limits and, therefore, no end. It's a way of escaping thoughts about death. We like lists because we don't want to die.

'People Have Their Preferences'

SPIEGEL: In your exhibition at the Louvre, you will also be showing works drawn from the visual arts, such as still lifes. But these paintings have frames, or limits, and they can't depict more than they happen to depict.

Eco: On the contrary, the reason we love them so much is that we believe that we are able to see more in them. A person contemplating a painting feels a need to open the frame and see what things look like to the left and to the right of the painting. This sort of painting is truly like a list, a cutout of infinity.

SPIEGEL: Why are these lists and accumulations so particularly important to you?

Eco: The people from the Louvre approached me and asked whether I'd like to curate an exhibition there, and they asked me to come up with a program of events. Just the idea of working in a museum was appealing to me. I was there alone recently, and I felt like a character in a Dan Brown novel. (???) It was both eerie and wonderful at the same time. I realized immediately that the exhibition would focus on lists. Why am I so interested in the subject? I can't really say. I like lists for the same reason other people like football or pedophilia. People have their preferences.

SPIEGEL: Still, you are famous for being able to explain your passions …

Eco: … but not by talking about myself. Look, ever since the days of Aristotle, we have been trying to define things based on their essence. The definition of man? An animal that acts in a deliberate way. Now, it took naturalists 80 years to come up with a definition of a platypus. They found it endlessly difficult to describe the essence of this animal. It lives underwater and on land; it lays eggs, and yet it's a mammal. So what did that definition look like? It was a list, a list of characteristics.

SPIEGEL: A definition would certainly be possible with a more conventional animal.

Eco: Perhaps, but would that make the animal interesting? Think of a tiger, which science describes as a predator. How would a mother describe a tiger to her child? Probably by using a list of characteristics: The tiger is big, a cat, yellow, striped and strong. Only a chemist would refer to water as H2O. But I say that it's liquid and transparent, that we drink it and that we can wash ourselves with it. Now you can finally see what I'm talking about. The list is the mark of a highly advanced, cultivated society because a list allows us to question the essential definitions. The essential definition is primitive compared with the list.

SPIEGEL: It would seem that you are saying that we should stop defining things and that progress would, instead, mean only counting and listing things.

Eco: It can be liberating. The Baroque era was an age of lists. Suddenly, all the scholastic definitions that had been made in the previous era were no longer valid. People tried to see the world from a different perspective. Galileo described new details about the moon. And, in art, established definitions were literally destroyed, and the range of subjects was tremendously expanded. For instance, I see the paintings of the Dutch Baroque as lists: the still lifes with all those fruits and the images of opulent cabinets of curiosities. Lists can be anarchistic.

SPIEGEL: But you also said that lists can establish order. So, do both order and anarchy apply? That would make the Internet, and the lists that the search engine Google creates, prefect for you.

Eco: Yes, in the case of Google, both things do converge. Google makes a list, but the minute I look at my Google-generated list, it has already changed. These lists can be dangerous -- not for old people like me, who have acquired their knowledge in another way, but for young people, for whom Google is a tragedy. Schools ought to teach the high art of how to be discriminating.

SPIEGEL: Are you saying that teachers should instruct students on the difference between good and bad? If so, how should they do that?

Eco: Education should return to the way it was in the workshops of the Renaissance. There, the masters may not necessarily have been able to explain to their students why a painting was good in theoretical terms, but they did so in more practical ways. Look, this is what your finger can look like, and this is what it has to look like. Look, this is a good mixing of colors. The same approach should be used in school when dealing with the Internet. The teacher should say: "Choose any old subject, whether it be German history or the life of ants. Search 25 different Web pages and, by comparing them, try to figure out which one has good information." If 10 pages describe the same thing, it can be a sign that the information printed there is correct. But it can also be a sign that some sites merely copied the others' mistakes.

SPIEGEL: You yourself are more likely to work with books, and you have a library of 30,000 volumes. It probably doesn't work without a list or catalogue.

Eco: I'm afraid that, by now, it might actually be 50,000 books. When my secretary wanted to catalogue them, I asked her not to. My interests change constantly, and so does my library. By the way, if you constantly change your interests, your library will constantly be saying something different about you. Besides, even without a catalogue, I'm forced to remember my books. I have a hallway for literature that's 70 meters long. I walk through it several times a day, and I feel good when I do. Culture isn't knowing when Napoleon died. Culture means knowing how I can find out in two minutes. Of course, nowadays I can find this kind of information on the Internet in no time. But, as I said, you never know with the Internet.

SPIEGEL: You include a nice list by the French philosopher Roland Barthes in your new book, "The Vertigo of Lists." He lists the things he loves and the things he doesn't love. He loves salad, cinnamon, cheese and spices. He doesn't love bikers, women in long pants, geraniums, strawberries and the harpsichord. What about you?

Eco: I would be a fool to answer that; it would mean pinning myself down. I was fascinated with Stendhal at 13 and with Thomas Mann at 15 and, at 16, I loved Chopin. Then I spent my life getting to know the rest. Right now, Chopin is at the very top once again. If you interact with things in your life, everything is constantly changing. And if nothing changes, you're an idiot.

Interview conducted by Susanne Beyer and Lothar Gorris

After 20 years

Gorbachev on 1989
By Katrina vanden Heuvel & Stephen F. Cohen

This article appeared in the November 16, 2009 edition of The Nation.
October 28, 2009

On September 23, Nation editor Katrina vanden Heuvel and her husband, Stephen F. Cohen, a contributing editor, interviewed former Soviet President Mikhail Gorbachev at his foundation in Moscow. With the twentieth anniversary of the fall of the Berlin Wall approaching, we believed that the leader most responsible for that historic event should be heard, on his own terms, in the United States. As readers will see, the discussion became much more wide-ranging. --The Editors

KVH/SFC: Historic events quickly generate historical myths. In the United States it is said that the fall of the Berlin Wall and the end of a divided Europe was caused by a democratic revolution in Eastern Europe or by American power, or both. What is your response?

MG: Those developments were the result of perestroika in the Soviet Union, where democratic changes had reached the point by March 1989 that for the first time in Russia's history democratic, competitive elections took place. You remember how enthusiastically people participated in those elections for a new Soviet Congress. And as a result thirty-five regional Communist Party secretaries were defeated. By the way, of the deputies elected, 84 percent were Communists, because there were a lot of ordinary people in the party--workers and intellectuals.

On the day after the elections, I met with the Politburo, and said, "I congratulate you!" They were very upset. Several replied, "For what?" I explained, "This is a victory for perestroika. We are touching the lives of people. Things are difficult for them now, but nonetheless they voted for Communists." Suddenly one Politburo member replied, "And what kind of Communists are they!" Those elections were very important. They meant that movement was under way toward democracy, glasnost and pluralism.

Analogous processes were also under way in Eastern and Central Europe. On the day I became Soviet leader, in March 1985, I had a special meeting with the leaders of the Warsaw Pact countries, and told them: "You are independent, and we are independent. You are responsible for your policies, we are responsible for ours. We will not intervene in your affairs, I promise you." And we did not intervene, not once, not even when they later asked us to. Under the influence of perestroika, their societies began to take action. Perestroika was a democratic transformation, which the Soviet Union needed. And my policy of nonintervention in Central and Eastern Europe was crucial. Just imagine, in East Germany alone there were more than 300,000 Soviet troops armed to the teeth--elite troops, specially selected! And yet, a process of change began there, and in the other countries, too. People began to make choices, which was their natural right.

But the problem of a divided Germany remained. The German people perceived the situation as abnormal, and I shared their attitude. Both in West and East Germany new governments were formed and new relations between them established. I think if the East German leader Erich Honecker had not been so stubborn--we all suffer from this illness, including the person you are interviewing--he would have introduced democratic changes. But the East German leaders did not initiate their own perestroika. Thus a struggle broke out in their country.

The Germans are a very capable nation. Even after what they had experienced under Hitler and later, they demonstrated that they could build a new democratic country. If Honecker had taken advantage of his people's capabilities, democratic and economic reforms could have been introduced that might have led to a different outcome.

I saw this myself. On October 7, 1989, I was reviewing a parade in East Germany with Honecker and other representatives of the Warsaw Pact countries. Groups from twenty-eight different regions of East Germany were marching by with torches, slogans on banners, shouts and songs. The former prime minister of Poland, Mieczyslaw Rakowski, asked me if I understood German. "Enough to read what's written on the banners. They're talking about perestroika. They're talking about democracy and change. They're saying, 'Gorbachev, stay in our country!'" Then Rakowski remarked, "If it's true that these are representatives of people from twenty-eight regions of the country, it means the end." I said, "I think you're right."

KVH/SFC: That is, after the Soviet elections in March 1989, the fall of the Berlin Wall was inevitable?

MG: Absolutely!

KVH/SFC: Did you already foresee the outcome?

MG: Everyone claims to have foreseen things. In June 1989 I met with West German Chancellor Helmut Kohl and we then held a press conference. Reporters asked if we had discussed the German question. My answer was, "History gave rise to this problem, and history will resolve it. That is my opinion. If you ask Chancellor Kohl, he will tell you it is a problem for the twenty-first century."

I also met with the East German Communist leaders, and told them again, "This is your affair and you have the responsibility to decide." But I also warned them, "What does experience teach us? He who is late loses." If they had taken the road of reform, of gradual change--if there had been some sort of agreement or treaty between the two parts of Germany, some sort of financial agreement, some confederation, a more gradual reunification would have been possible. But in 1989-90, all Germans, both in the East and the West, were saying, "Do it immediately." They were afraid the opportunity would be missed.

KVH/SFC: A closely related question: when did the cold war actually end? In the United States, there are several answers: in 1989, when the Berlin Wall came down; in 1990-91, after the reunification of Germany; and the most popular, even orthodox, answer, is that the cold war ended only when the Soviet Union ended, in December 1991.

MG: No. If President Ronald Reagan and I had not succeeded in signing disarmament agreements and normalizing our relations in 1985-88, the later developments would have been unimaginable. But what happened between Reagan and me would also have been unimaginable if earlier we had not begun perestroika in the Soviet Union. Without perestroika, the cold war simply would not have ended. But the world could not continue developing as it had, with the stark menace of nuclear war ever present.

Sometimes people ask me why I began perestroika. Were the causes basically domestic or foreign? The domestic reasons were undoubtedly the main ones, but the danger of nuclear war was so serious that it was a no less significant factor. Something had to be done before we destroyed each other. Therefore the big changes that occurred with me and Reagan had tremendous importance. But also that George H.W. Bush, who succeeded Reagan, decided to continue the process. And in December 1989, at our meeting in Malta, Bush and I declared that we were no longer enemies or adversaries.

KVH/SFC: So the cold war ended in December 1989?

MG: I think so.

KVH/SFC: Many people disagree, including some American historians.

MG: Let historians think what they want. But without what I have described, nothing would have resulted. Let me tell you something. George Shultz, Reagan's secretary of state, came to see me two or three years ago. We reminisced for a long time--like old soldiers recalling past battles. I have great respect for Shultz, and I asked him: "Tell me, George, if Reagan had not been president, who could have played his role?" Shultz thought for a while, then said: "At that time there was no one else. Reagan's strength was that he had devoted his whole first term to building up America, to getting rid of all the vacillation that had been sown like seeds. America's spirits had revived. But in order to take these steps toward normalizing relations with the Soviet Union and toward reducing nuclear armaments--there was no one else who could have done that then."

By the way, in 1987, after my first visit to the United States, Vice President Bush accompanied me to the airport, and told me: "Reagan is a conservative. An extreme conservative. All the blockheads and dummies are for him, and when he says that something is necessary, they trust him. But if some Democrat had proposed what Reagan did, with you, they might not have trusted him."

By telling you this, I simply want to give Reagan the credit he deserves. I found dealing with him very difficult. The first time we met, in 1985, after we had talked, my people asked me what I thought of him. "A real dinosaur," I replied. And about me Reagan said, "Gorbachev is a diehard Bolshevik!"

KVH/SFC: A dinosaur and a Bolshevik?

MG: And yet these two people came to historic agreements, because some things must be above ideological convictions. No matter how hard it was for us and no matter how much Reagan and I argued in Geneva in 1985, nevertheless in our appeal to the peoples of the world we wrote: "Nuclear war is inadmissible, and in it there can be no victors." And in 1986, in Reykjavik, we even agreed that nuclear weapons should be abolished. This conception speaks to the maturity of the leaders on both sides, not only Reagan but people in the West generally, who reached the correct conclusion that we had to put an end to the cold war.

KVH/SFC: So Americans who say the cold war ended only with the end of the Soviet Union are wrong?

MG: That's because journalists, politicians and historians in your country concluded that the United States won the cold war, but that is a mistake. If the new Soviet leadership and its new foreign policy had not existed, nothing would have happened.

KVH/SFC: In short, Gorbachev, Reagan and the first President Bush ended the cold war?

MG: Yes, in 1989-90. It was not a single action but a process. Bush and I made the declaration at Malta, but Reagan would have had no less grounds for saying that he played a crucial role, because he, together with us, had a fundamental change of attitude. Therefore we were all victors: we all won the cold war because we put a stop to spending $10 trillion on the cold war, on each side.

KVH/SFC: What was most important--the circumstances at that time or the leaders?

MG: The times work through people in history. I'll tell you something else that is very important about what subsequently happened in your country. When people came to the conclusion that they had won the cold war, they concluded that they didn't need to change. Let others change. That point of view is mistaken, and it undermined what we had envisaged for Europe--mutual collective security for everyone and a new world order. All of that was lost because of this muddled thinking in your country, and which has now made it so difficult to work together. World leadership is now understood to mean that America gives the orders.

KVH/SFC: Is that why today, twenty years after you say the cold war ended, the relationship between our two countries is so bad that President Obama says it has to be "reset"? What went wrong?

MG: Even before the end of the cold war, Reagan, Bush and I argued, but we began to eliminate two entire categories of nuclear weapons. We had gone very far, almost to the point when a return to the past was no longer possible. But everything went wrong because perestroika was undermined and there was a change of Russian leadership and a change from our concept of gradual reform to the idea of a sudden leap. For Russian President Boris Yeltsin, ready-made Western recipes were falling into his hands, schemes that supposedly would lead to instant success. He was an adventurist. The fall of the Soviet Union was the key moment that explains everything that happened afterward, including what we have today. As I said, people in your country became dizzy with imagined success: they saw everything as their victory.

In Yeltsin, Washington ended up with a vassal who thought that because of his anticommunism he would be carried in their arms. Delegations came to Russia one after the other, including President Bill Clinton, but then they stopped coming. It turned out no one needed Yeltsin. But by then half of Russia's industries were in ruins, even 60 percent. It was a country with a noncompetitive economy wide open to the world market, and it became slavishly dependent on imports.

How many things were affected! All our plans for a new Europe and a new architecture of mutual security. It all disappeared. Instead, it was proposed that NATO's jurisdiction be extended to the whole world. But then Russia began to revive. The rain of dollars from higher world oil prices opened up new possibilities. Industrial and social problems began to be solved. And Russia began to speak with a firm voice, but Western leaders got angry about that. They had grown accustomed to having Russia just lie there. They thought they could pull the legs right out from under her whenever they wanted.

The moral of the story--and in the West morals are everything--is this: under my leadership, a country began reforms that opened up the possibility of sustained democracy, of escaping from the threat of nuclear war, and more. That country needed aid and support, but it didn't get any. Instead, when things went bad for us, the United States applauded. Once again, this was a calculated attempt to hold Russia back. I am speaking heatedly, but I am telling you what happened.

KVH/SFC: But now Washington is turning to Moscow for help, most urgently perhaps in Afghanistan. Exactly twenty years ago, you ended the Soviet war in Afghanistan. What lessons did you learn that President Obama should heed in making his decisions about Afghanistan?

MG: One was that problems there could not be solved with the use of force. Such attempts inside someone else's country end badly. But even more, it is not acceptable to impose one's own idea of order on another country without taking into account the opinion of the population of that country. My predecessors tried to build socialism in Afghanistan, where everything was in the hands of tribal and clan leaders, or of religious leaders, and where the central government was very weak. What kind of socialism could that have been? It only spoiled our relationship with a country where we had excellent relations during the previous twenty years.

Even today, I am criticized that it took three years for us to withdraw, but we tried to solve the problem through dialogue--with America, with India, with Iran and with both sides in Afghanistan, and we attended an international conference. We didn't simply hitch up our trousers and run for it, but tried to solve the problem politically, with the idea of making Afghanistan a neutral, peaceful country. By the way, when we were getting ready to pull out our troops and were preparing a treaty of withdrawal, what did the Americans do? They supported the idea of giving religious training to young Afghans--that is, the Taliban. As a result, now they are fighting against them. Today, again, not just America and Russia can be involved in solving this problem. All of Afghanistan's neighbors must be involved. Iran cannot be ignored, and it's ill-advised for America not to be on good terms with Iran.

KVH/SFC: Finally, a question about your intellectual-political biography. One author called you "the man who changed the world." Who or what most changed your own thinking?

MG: Gorbachev never had a guru. I've been involved in politics since 1955, after I finished university, when there was still hunger in my country as a result of World War II. I was formed by those times and by my participation in politics. In addition, I am an intellectually curious person by nature and I understood that many changes were necessary, and that it was necessary to think about them, even if it caused me discomfort. I began to carry out my own inner, spiritual perestroika--a perestroika in my personal views. Along the way, Russian literature and, in fact, all literature, European and American too, had a big influence on me. I was drawn especially to philosophy. And my wife, Raisa, who had read more philosophy than I had, was always there alongside me. I didn't just learn historical facts but tried to put them in a philosophical or conceptual framework.

I began to understand that society needed a new vision--that we must view the world with our eyes open, not just through our personal or private interests. That's how our new thinking of the 1980s began, when we understood that our old viewpoints were not working out. During the nuclear arms race, I was given a gift by an American, a little figure of a goose in flight. I still have it at my dacha. It is a goose that lives in the north of Russia in the summer and in the winter migrates to America. It does that every year regardless of what's happening, on the ground, between you and us. That was the point of this gift and that's why I'm telling you about it.

KVH/SFC: Listening to you, it seems that you became a political heretic in your country.

MG: I think that is true. I want to add that I know America well now, having given speeches to large audiences there regularly. Three years ago I was speaking in the Midwest, and an American asked me this question: "The situation in the United States is developing in a way that alarms us greatly. What would you advise us to do?" I said, "Giving advice, especially to Americans, is not for me." But I did say one general thing: that it seems to me that America needs its own American perestroika. Not ours. We needed ours, but you need yours. The entire audience stood and clapped for five minutes.

KVH/SFC: And do you think President Obama will be the leader of such an American perestroika?

MG: As far as I know, Americans did not make a mistake in electing him. Barack Obama is capable of leading your society on a very high level and of understanding it better than any political figure I know. He is an educated person with a highly developed capacity for dialogue, and that too is very important. So I congratulate you.

reality seems to stubbornly follow its own ways

From today's NYTimes:
In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president's budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

"They wanted to know, in painstaking detail, how the health care plan would affect the deficit," one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.
In the face of so much conversation about modeling our way out of the current problems, reality seems to stubbornly follow its own ways. Even a happy accident may be possible, but not before we see higher taxes, I said it then, I say it now. One of the effects of this situation is probably a more common understanding in the US of what national interest is.

When action speaks louder than words, yet the message remains... oracular

Here's an interesting comment on a recent decision of Warren Buffett to sell Moody stock:

Rob G
Niskayuna, NY

Buy low, sell high depends on the QUALITY of information one receives from reputable sources.

Over the past decade or so, there's been a disturbing decrease in the quality and clarity of reporting from organizations normally tasked to report fundamentals. Where are all the big accounting houses that used to audit and certify financial statements? What happened to responsible, effective government oversight? Why is everyone keen on moving to the "mark to model" securities valuation methods when those models are NOT PUBLISHED and therefore not critically scrutinized?

That Buffett is divesting Moody's should sound alarms everywhere. Moody's makes money publishing quality research. "Moody's Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis," its website reads. If Buffett sees no future (especially in light of the recent past) in that critical and iconic institution, what is he thinking?

Without quality and clarity of information, effective financial transactions become the domain of large investors who have access to inside, non-public information - that being the only way left to accurately judge risk. Smaller investors, who have no such access, shut themselves out for their own good.

Buffett may have trusted public sources before, and that may have contributed to his losses. But his methodology of using fundamentals to gauge risk remains valid. The real question is, can we trust the fundamentals?
In other words, is the world of rating agencies as we know them over? If so, what does it mean? For Buffett it means at least the chance for lower income. That lower income may be the result of a loss of market--outside US capital markets may come up with their own rating mechanisms, and/or the revenue model will be impaired by regulatory constraints placed on rating agencies. For the rest of us it changes the way we get our information about capital and its working. Rob G. seems to think we'll enter an even darker age...

The Remote Control Presidency

I think the current healthcare debate reveals we may have a problem ourselves. Could it be that too much reward relative to the effort for too many of us has eroded the culture of the people? Indeed, how else could the current disenchantment with, say, Obama be justified if not by the fact that many think they must have voted for the remote control presidency? Such arrangement, ideally, requires little engagement, lest commitment for action, other than the equivalent of operating a remote control button.

Assuming that a good man can make all the needed difference by himself, even if he inhabits the residence at 1600 Pennsylvania Ave., is oversimplifying, if not outright delusional. For one, insurance companies are one of the capitalism pillars, by supplying investment capital (together with banking, retirement funds and the state itself). Then, proving commitment in terms of some sort of action is the best way to be taken seriously.

Yukio Hatoyama
The New Prime Minister of Japan

We are currently standing at a turning point in global history, and therefore our resolve and vision are being tested, not only in terms of our ability to formulate policies to stimulate the domestic economy, but also in terms of how we try to build a new global political and economic order. I would like to conclude by quoting the words of Count Coudenhove-Kalergi, the father of the EU, written 85 years ago, when he published Pan-Europa.

"All great historical ideas started as a utopian dream and ended with reality".

"Whether a particular idea remains as a utopian dream or it can become reality depends on the number of people who believe in the ideal and their ability to act upon it."

Excerpted from “My Political Philosophy”, by Yukio Hatoyama, Prime Minister of Japan

The above excerpt, as well as the entire text, would not mean much unless Mr. Hatoyama were not the head to the government whose country is the 2nd largest buyer of US treasuries.

still enjoying the internet while it's here

By now, most of us take the internet for granted, not unlike any utility resource. Its popularity is seldom considered together with its vulnerability--technical, behavioral, political, etc. In fact, I would ponder as whether or not the vulnerability of the internet grows with its popularity, especially beyond reaching some adoption threshold.

Here are two directions in which the internet as we know it today may go into:
  1. Stuff of any value won't be free of charge;
  2. Countries, or groups thereof, will enforce permanent or temporary "safe areas;" communications in and out of such areas will have to be cleared at router level.
In evaluating the above suggestions, just consider the "unipolar world" as a brief between bi- and multi-polarity, and the fact that advertising alone cannot pay for it all. In fact, if one really understood the eventual costs of the "free stuff," one might volunatrily want to pay for it, no strings attached. Just like paying to have your phone number unlisted...

Chinese VP Wang Qishan, center, holds the autographed basketball given to him by Obama

The US-Chinese train has left the station long ago; We are only checking the roadmap and recalculating the schedule now.

back from the summit


yohaku-no-bi: beauty of extra white

The implicit magnificence makes you cry--for joy, or otherwise.

on the nature of work

Timothy Garton Ash, in a recent Der Spiegel interview implicitly talks about the nature of work in our society.
Garton Ash: [..]We must make the social market economy credible again as the central solution for the middle class.


Garton Ash: There are two major domestic policy challenges for the European Union. First: Creating meaningful work for the majority of society. And second: the integration of fellow citizens of non-European descent.
In fact, it was Albert Camus who spoke earlier (cca. 1951) about work's lacking meaning. Making a living has become comparatively much easier than ever before. But we lost something in the process, which, despite Mr. Garton Ash prescription, won't be easy to come by.

It still can go anywhere

As Secretaries Clinton and Geithner went to China, I wondered if and how long before we had a roadmap for the reunification of Taiwan. Such roadmap would be a prerequisite of Chimerica.

However, some important voices consider the notion of a duopoly between China and America (Chimerica) a mirage and suggest that a way out would be for the US and other countries to speak to China with one voice. Moreover, from Der Spiegel, we learn that:
Last month, Beijing completed the last of a series of so-called currency swaps -- providing yuan to other central banks for use in trade with China -- with Argentina, Hong Kong, Indonesia, Malaysia, South Korea, and others. These arrangements theoretically removed any need for these trading partners to use the dollar as an intermediary currency in dealing with China. Last week, Beijing denominated a bilateral trade deal with Brazil in the two countries' currencies, rather than in dollars; the value of the agreement was not specified. The value of the other agreements comes to $95 billion (€68 billion). By way of comparison, US-Chinese trade amounted to $333 billion (€238 billion) in 2008.
So China is using bilateralism, not unlike the US has since the end of the Cold War, to grow its status. Moreover, China is coopting US friends as well into her bilateralism.

One can only ask, where is multilateralism when you need it? Bush, the president about whom the Economist wrote that there had been no multilateral agreement to his liking, and his neocon apparatus have a lot to answer for this. The most that camp could come up with was the group of democracies, through the writings of Robert Kagan, during John McCain's electoral campaign.

The challenge now is for Obama to convince the US allies, and the world at large, that there is in the self interest of everyone to continue to support Pax Americana, and the US dollar. In other words, it's worth paying protection tax, as it were. However, the challenge then becomes how to frame LARGE the loses of leaving the US shrinking umbrella when countries and peoples suffer what they may soon imagine as a deluge.

And, for whatever reason, I now feel compelled to make the following observation: There is no tax cut, or at least not as it's been defined by the conservative camp. It's only a taxation position along a continuum defined between front-loading and back-loading.

Beethoven was just like you and I, only that much more.

Ten principles for a Black Swan-proof world

Published: Financial Times, April 7 2009

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

Nassim Nicholas Taleb

The deregulation before deregulation

We are where we are, don't like it so some soul searching is in order. Thomas Geoghegan, a Chicago (labor) lawyer, takes a historical detour to search for the root causes of today's situation beyond the deregulation of the last decade or so. In a recent Harper's article “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy,” Geoghehan is looking at:
  1. Interest rates deregulation--worth mentioning is that both Adams Smith and JM Keynes were in favor of capping interest rates, for otherwise, in addition to hurting the masses, capital flees from production to banking due to higher rates of return;
  2. Weakening of labor unions, which in turn led to lower negotiating power for skilled labor--as the author puts it, the side effect was that union cards were replaced by credit cards;
  3. The ability of corporations to eliminate contractual employee-liabilities (read pensions and health-care obligations) through Chapter 11 reorganization.

Following is a Democracy Now! interview where the main points in the article and suggestions for the future are provided:

Obama - Gorbachev

Due either to the vagaries of the body-politik in Washington DC, or to his own temperament and biases, Obama is taking the Japanese way out of the current problems--read, long.

On the other hand, at times, it's hard to resist a growing sense of déjà vu: Obama as the Financial Capitalism's Gorbachev.

Click here to read what the LinkedIn professionals think of this subject.

(Photo Source: President Barack Obama drops by VP Joe Biden's meeting with former Soviet Union President Mikhail Gorbachev in the Vice President's Office, West Wing 3/20/09. Official White House Photo by Pete Souza)

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