Politics and Media Headlines 4/27/09
After an Off Year, Wall Street Pay Is Bouncing Back? (New York Times)
The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise. Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits. Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements. If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.
We give them billions of dollars after they failed miserably, they “lose” the month of December so that they can pretend to be making profits, and the Masters of the Universe still get their gigantic bonuses? Ain’t it always the story?—Caro
Money for Nothing (by Paul Krugman)
From the 1930s until around 1980 banking was a staid, rather boring business that paid no better, on average, than other industries, yet kept the economy’s wheels turning. So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes…
One can argue that it’s necessary to rescue Wall Street to protect the economy as a whole — and in fact I agree. But given all that taxpayer money on the line, financial firms should be acting like public utilities, not returning to the practices and paychecks of 2007. Furthermore, paying vast sums to wheeler-dealers isn’t just outrageous; it’s dangerous. Why, after all, did bankers take such huge risks? Because success — or even the temporary appearance of success — offered such gigantic rewards: even executives who blew up their companies could and did walk away with hundreds of millions. Now we’re seeing similar rewards offered to people who can play their risky games with federal backing…
We can only hope that our leaders … carry through with real reform. In 2008, overpaid bankers taking big risks with other people’s money brought the world economy to its knees. The last thing we need is to give them a chance to do it all over again.
Good Government and Animal Spirits (by George A, Akerlof and Robert J. Shiller, thanks to Economist’s View)
An understanding of animal spirits -- the human psychology and culture at the heart of economic activity -- confirms the need for restoring the role of regulators... [W]ith animal spirits, waves of optimism and pessimism cause large-scale changes in aggregate demand... When demand goes down, unemployment rises. It is the role of the government to mute those changes… Its role is not to harness animal spirits but really to set them free, to allow them to be maximally creative… The challenge for the Obama administration, along with the U.S. Congress and our SROs, is to invent a new and better American version of the capitalist game.
Presuming that “creative” is what our masters want us to be…—Caro
Creativity, convention, and tradition (by Daniel Little at Understanding Society, thanks to Economist’s View)
[H]ere is an apparent conundrum of creativity and convention. Any performance or artistic work that is wholly determined by the relevant conventions is, for that reason, wholly uncreative… But … novelty without regard to the frame of tradition is incomprehensible and meaningless…
It is relevant here that we are led to refer to the audience. Because cultural products require the conveying of meaning; and communication of meaning requires some reference to conventions shared with the audience -- whether in music, painting, literature, or hiphop. Meaning of any cultural performance is inherently public, and this means there have to be publicly shared standards of interpretation. The audience can only interpret the performance by relating it to some set of conventions or other. These may be conventions of representation, structure, or mythology; but the audience needs some clues in order to be able to "read" the work.
I’m thinking that the same is true in political commentary and persuasion. You can’t get too far ahead of the audience, or they will reject what you have to say. I wish I had the skill to help people get from what they want to believe to believing what is actually true, but I’m too blunt. It seems to be embedded in my DNA.—Caro
Oh, hey, it’s not just me:
The Sensible People Do Love Their Conventional Wisdom (by Susie at Suburban Guerilla)
I sometimes think the reason I’ve never really gotten that much recognition in the blogosphere is because I’ve never trusted sensible opinion and made no bones about it. And since I wasn’t seeking a career in Democratic punditry, I had no incentive to even simulate that trust. The fact that I’m not deferential to my betters has always been a problem in terms of career advancement. Oh well! It sucks to be Cassandra.
Meltdown notes: Beware Obama -- and the guy AFTER Obama (by Joseph Cannon at Cannonfire)
If you want to know what will soon hit America, look at Dubai… Dubai teaches us just how callous rich people truly are. Unchained capitalism inevitably forges the chains of slavery. If and when Obama fails, a well-organized propaganda campaign will tell us that socialism has failed, even though socialism was never tried. We will be told -- repeatedly -- that the only solution is libertarianism, a.k.a. Milton Friedmanism. Propagandists always portray free market fundamentalism as the great untried panacea. In fact, it has been tried again and again -- and it has failed again and again.
Free market fundamentalism is not the answer -- unless the question is : What got us into this mess? I fear Obama. But I fear the guy coming after Obama far more. I don't know his name, but I can give you his job description. He'll be a salesman. He'll be a charmer, as the best salesmen always are. I can already see his reassuring smile, I can already hear his patter, and I can already sense the scheme that lies behind the spiel. And I know his task: Turn America into Dubai.
But it doesn’t HAVE to be that way:
When textbook macro pays off (by Dani Rodrik, thanks to Economist’s View)
Macroeconomics doesn't get much plaudits around now, but here is a real-life story that should hearten those who think the field is really broken. It concerns Andres Velasco, a distinguished macroeconomist who is currently the minister of finance in Chile, and who also happens to be a good friend, colleague and co-author. Until the current crisis hit, Chile's economy was booming, fueled in part by high world prices for copper, its leading export… Being fully aware of Latin America's commodity boom-and-bust-cycles and recognizing that high copper prices were temporary, Velasco stood his ground and decided to do what any good macroeconomist would do: smooth intertemporal consumption by saving most of the copper surplus. He ran up the largest fiscal surpluses Chile has seen in modern times…
The surpluses accumulated during the good years has given the Chilean government unusual latitude in responding to the [current financial] crisis. As a result, the economy is doing much better than its peers. As Bloomberg reports, "the country’s economy is expected to grow 0.1 percent in 2009, as the region contracts 1.5 percent, according to the International Monetary Fund." And does good economics pay off politically? Eventually, yes. Five months after being burned in effigy, Velasco is currently President Bachelet's most popular minister.
I had a dream last night about seven fat cows and seven lean cows—oh wait, that story’s already been told. Why can’t we save during the fat years to support us in the lean years, instead of the other way around? Talk about your Ponzi schemes!—Caro
Before Tea, Thank Your Lucky Stars, by Robert Frank, Commentary, NY Times, thanks to Economist’s View)
THE link between success and luck is stronger than many people think… Contrary to what many parents tell their children, talent and hard work are neither necessary nor sufficient for economic success. It helps to be talented and hard-working, of course, yet some people enjoy spectacular success despite having neither attribute. (Lip-synching members of boy bands? Money managers who bet clients’ retirement savings on subprime-mortgage-backed securities?)
Far more numerous are talented people who work very hard, only to achieve modest earnings. There are hundreds of them for every skilled, perseverant person who strikes it rich — disparities that often stem from random events… Financially successful tax protesters seem blissfully unaware of how incredibly fortunate they are. To borrow from the late Ann Richards and her description of the first President Bush, they were born on third base and thought they’d hit a triple.
Long time readers: have I not been saying this for years? Why are liberals not conducting education campaigns to make people understand this important point? And to realize that the more you own, the more you benefit from the existence of government and its services? Which justifies higher rates of tax for people who own a lot.—Caro
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