Brecht/Eco: Unhappy the land where heroes are needed

Umberto Eco

What is your idea of perfect happiness?
A state of satisfaction that lasts a little more than five minutes.

What is your greatest fear?
To lose my sense of humor at the moment of my death.

Which historical figure do you most identify with?
Baruch Spinoza.

Which living person do you most admire?
Let me wait until they die, so to be sure of my feelings.

What is your greatest extravagance?
I quit smoking.

What is your favorite journey?
The years during which I am writing a new novel. I am wandering through a private and secret territory, nobody knows what I am doing, and I feel happy.

What do you consider the most overrated virtue?
No real virtue, if such, can be overrated.

What do you dislike most about your appearance?
Everything—I do not like my image in the mirror. However, I do not feel disturbed, because several times I discovered that a lot of nice people had a different opinion.

Which living person do you most despise?
Once again, let me wait until their death. (They must have time to change.)

What or who is the greatest love of your life?
Since four years and a half, my grandchild.

When and where were you happiest?
When I had time enough for my hobby: work.

If you could change one thing about your family, what would it be?
To have another grandchild.

What is your most treasured possession?
My collection of old rare books.

What do you regard as the lowest depth of misery?
Intolerance (but because I have enough money to live well; otherwise it would be starvation).

What is your favorite occupation?
I said it above: work. But do not forget that I am one of those happy persons who identify their work with their hobby and vice versa.

What do you most value in your friends?
The capacity to keep a secret.

Who are your favorite writers?
Dante, Nerval, Joyce, Borges.

Who is your favorite hero of fiction?
Julien Sorel. No, perhaps Mickey Mouse.

Who are your heroes in real life?
As Brecht said, “Unhappy the land where heroes are needed.”

What are your favorite names?
Aureolus Theophrastus Bombastus, and Jim.

What is your motto?
As James Joyce once said to his brother, “The music hall, not poetry, [is] a criticism of life.”

The politicos vs. An old man

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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

Xmas in the 21st century: Bad Salzuflen. Army of angels and futuristic christmas tree, originally uploaded by nikkormatftnuser.

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

vox populior 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.

http://www.spiegel.de/international/world/0,1518,662822,00.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...