The Way Out, pt V

Nobody has a real good handle on how all this is going to shake out, but I strongly suspect that one of the things that will be a part of a hypothetical recovery is the combination of low unemployment and lower (than present) wages.

We need people working to maintain stability in our economy and standard of living, and the more the better. But we also have to cope with the process of revaluation. Certain things that we had previously thought were valuable in better economic circumstances will turn out to be less valuable. Therefore the people who make these things need to be paid less. But, there are other things, some of which we know about and others we don't, that will turn out to be more valuable than we anticipated. As we go down the road of figuring out which is which, typical workers seeking a raise naturally migrate from low-value labor to higher-value labor. That is, they will if the capital flows are more or less transparent.

All this sounds good and antiseptic. Unfortunately, there is likely to be substantial pressure to keep inefficiently deployed capital where it is to mitigate the disruptive impact of moving it somewhere else. Obviously this has been most prominent recently with respect to the car company bailouts, but that's admittedly an extreme case.

More generally, labor does better relative to capital in an expansion, because most people are employed so labor is scarce and the demand for it is high because there's opportunity available in the economy to produce high returns. Capital does better relative to labor in a recession because those things don't hold and also because capital tends to be more maneuverable whereas labor tends to be stuck where it lives. But, people tend to resent capital in the best of times and even more now since "capital" or "capitalism" gets the blame for the Wall Street failures and the subsequent bailouts. The temptation for demogoguery will be high.

The Pirate King

"It is, it is a glorious thing to be a pirate king" - Gilbert and Sullivan

Hat tip to Naked Capitalism for this one from London Banker.

The Banker is clearly right that the biggest risk we face now is the lack of access to credit for the US gov't. That is a real possibility now for the first time in my life, and one that might impose fiscal discipline on the government where generations of Republicans failed. On the other hand, it might not, and then we will in truly interesting times indeed.

I like how the Banker describes the deleveraging of the US financial sector as financial piracy against East Asia and the Gulf States. Unfortunately, he's just wrong on that score. The reason that the US (and to some extent the UK) got its role as the world's banker is because it has the a strong tradition of property rights and the Rule of Law. It is only in that environment that a private banking sector as we know it can develop. These other countries don't have these things, that's one of the reasons why they have to send the money over here. That's something to bear in mind, "...Despite the US being the epicentre of all the failed debts, failed securitisations, failed credit derivatives, failed rating agencies, failed banking businesses, failed corporate governance, failed accounting standards, failed capital adequacy models, and failed regulatory forbearance..." If, as a result of this bubble bursting, they were to develop these things it would be best for all concerned.

There's also the fact, as Spengler would surely note, that US has the risk-taking young people willing to borrow. The greying populations of East Asia don't so it's not exactly clear who's going to be able to generate the "reasonably predictable positive return" the Banker requires.

Finally, the Banker doesn't dwell on it too much in that post, but he also likes to hate on the knowledge economy. For all the talk about sustainability, it ought to be clear that the knowledge economy is much more sustainable than the alternatives, usually taken to be agriculture or manufacturing. The trend in that direction has been going for decades, arguably centuries. Not only are manufactured goods cheap to produce, there also not worth very much. What's worth more to you, a correctly filled prescription by a reputable pharmacist, a new iPod, or a twenty pairs of socks. I'm guessing there's not too many people who would choose the last.

Trahison des Clercs

One of the most depressing facts of this Presidential cycle is the wholesale loss of the intellectual class to Obama and the Democrats. Both Slate and Reason published quasi-endorsements from all of their contributors, and put together they form a particularly gloomy spectacle. Everybody wants to be able hold the red-state bourgeois accountable for the supposed failings of America, but nobody wants to do anything to help.

The Achilles Heel of Islam

http://www.atimes.com/atimes/Front_Page/JK18Aa01.html
http://www.atimes.com/atimes/Front_Page/EH05Aa01.html

Spengler is a pseudonym of a columnist for Asia Times. In the links above he hits on a pet theory of mine that I have not seen very much public discussion of. Islam in many ways is much weaker than she appears, something that has obvious consequences for the future of jihad in the next decades.

Spengler emphasizes the weak textual foundation of the Koran as sacred scripture. I think the larger point goes way beyond that. That is, that Muslim apologetics, the ability to pronouce the reasons for belief in religious teachings and persuade others of them, are embarrassingly weak to the point of being something of a joke. In fact, that's almost the point of the matter. The teachings of Islams aren't things to be believed as much as submitted to, because Allah is greater than us.

In my view, this is the religious expression of the tribal nature of society in the Middle East and other places where Islam reigns, and captures the crucial anthropoligical insight there: survival is a collective accomplishment. There is no individual so strong or smart so that he can guarantee his own security. So, he must depend on various group loyalties (to family, to clan, to tribe) to protect him. And because he is dependent on them at the level of his very existence, he submits to the group's will. Fortunately for us, we have developed strong traditions of the Rule of Law, property rights, and impartial police. Otherwise we'd be in the same boat.

But there is more to religion than that. It also functions on a historical and teleological levels. And it is very likely that viewed in these ways, Islam is simply not true, and not perceived to be true by people who consider the question closely. This is a huge vulnerability whose impact we haven't seen yet, but likely will.

The Political Wire

A couple of weeks ago, Ross Douthat hit on a topic that I've been wanting to bring up for a while: the politics of The Wire (the HBO miniseries). Ross makes the key point when he writes:

In this sense, The Wire is the rarest and most precious of beasts: A work of art that's intensely political but rarely devolves into agitprop.

On the surface, it might be taken as a liberal show, as its creators are certainly liberals and there are no recognizable conservatives the show. More importantly, if there were, they would appear as hopeless squares in that environment, which validates how liberals tend to think of conservatives in general. But it's more complicated than that.

First of all, the show explodes any notion of being culturally simpatico to the modern black underclass, the staple of liberal inclinations on urban issues for decades. Clearly for those of us in the bourgeois world, those people are not us. The greatness of the show is that they are compelling in their own right.

I think there's an implicit contrast with The Sopranos. In general, the narrative of black people in America is much more prominent than Italians. But this doesn't necessarily extend to the criminal class, where The Godfather is a major touchstone of American culture. The consituents of Baltimore's drug wars are forgotten people. We want law enforcement to enforce some measure of quarantine on them away from bourgeois America, and as soon as that happens we won't spare them a second thought. Nonetheless, protagonists of The Wire are completely compelling anyway, while at the same time not making any excuses or rationalizations of their criminality. Through this prism we see that what happens to them is important, even if in real life it's not important to us.