Is Anybody Listening?

On the News Hour last night there was a remarkable story about a high school class that made a video “Is Anybody Listening?” about how the recession is affecting their lives.

It was a class project born out of a discussion of the American Dream. Five months later, it made it into a speech given by President Obama. “it” is an eight minute video titled, “Is Anybody Listening.” It’s the first person accounts of students struggling with foreclosures, hunger and the threat of becoming homeless.

The video feels like a twenty-first century version of a Dorothea Lange portrait. One student told us his American dream is modest – to have a refrigerator full of food. The goal of making the video was to get the attention of the nation’s leaders, specifically the President. It took a few months, but just last week, the video made it to the White House and President Obama told the students in a speech he is listening and promised to fight for their right to the American Dream. Although there is no assurance the President’s promise will change the lives of these Pomona kids, they are hopeful and for now are declaring “mission accomplished.”

It’s a heartbreaking story. Watching the sadness and anxiety of these young lives gives a new dimension to the anger over greed that led to the meltdown and the AIG bonuses. Watch the News Hour (above), then watch the original video:

“Half a Great Depression”

Krugman looks at the manufacturing output data and compares the Great Depression to the “Great Recession,” and concludes it’s about half as bad, so far…

Sobering: declining manufacturing output

New York Times:

John Stewart smack down…

See the whole John Stewart/Jim Cramer interview (intro plus three interview segments).

GDP defined

“We have an economy where we steal the future, sell it in the present, and call it GDP” – Paul Hawken

John Stewart riffs on CNBC

…which they richly deserve.

Good question: What year will coastal property values crash?

And as usual, Joe Romm has a good answer.

I heard Ed Mazria give a talk at the RESNET conference a few weeks ago, and he had some great and startling slides showing many cities before and after see level rise. It’s so dramatic, but it seems to be so far outside our imagination that there isn’t much response, other than amazement. I wonder when the response will turn to OH SHIT. That’s when property values will crash.

Newt Gingrich Leading Insane Conservative Effort to Close Deficit By Reducing Revenues

From Matthew Yglesias:

If this Washington Post article is to be believed, I think some prominent Washington figures may need a course in remedial math:

And Republicans have made it clear that they intend to try to shift the economic debate toward concern about the federal deficit.

They are also preparing to use the ballooning deficit to renew their push for additional tax cuts. Groups including the Club for Growth and GOP leaders such as former House speaker Gingrich say such cuts would do more to improve the economy than the spending plan would.

The reporters on the piece, Michael D. Shear and Paul Kane, might have observed that a deficit is, by definition, a shortfall between revenue and spending. Thus, it’s extremely difficult to envision circumstances under which “additional tax cuts” would prevent the deficit from ballooning. As this handy chart indicates, ballooning deficits are strongly correlated with either fighting World War II or else governance dominated by a desire for “additional tax cuts”:

Unfortunately, Bush-era macroeconomic management has managed to produce much worse outcomes than we saw during the Reagan years so in the extremely short-term it’s not possible to turn this trend around. In the medium-term, however, the administration is proposing to tackle ballooning deficits by making the deficit smaller—higher revenues and lower expenditures. One possible conservative approach to this would be to argue for more aggressive deficit targets, achieved by more stringent spending restraint. Another would be to argue for higher deficits, achieved by more tax cuts. The idea encapsulated in the Postarticle, that Gingrich and the Club for Growth have a plan for smaller deficits achieved by more tax cuts is ridiculous. Fortunately, neither Gingrich nor the Club have any formal legislative authority and there’s nothing stopping those Republicans who, unlike Gingrich, weren’t hounded out of office a decade ago, from governing with common sense.

The meltdown explained

Outsourced to Alex Pang:

Just read this

Michael Lewis and David Einhorn have a wickedly well-written two-part essayon the collapse of the financial system.

On structural problems:

The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis.

On credit rating agencies:

These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.

On the S.E.C.:

Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors…. The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.

On the government’s response:

Say what you will about our government’s approach to the financial crisis, you cannot accuse it of wasting its energy being consistent or trying to win over the masses. In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers. …

[H]ere’s the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change… [the] bad incentives that led us here in the first place….

Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing: 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”

And perhaps my favorite one-liner:

When you shout at people “be confident,” you shouldn’t expect them to be anything but terrified.

Social collapse: best practices

The suddenly famous pessimist Dmitry Orlov spoke at the Long Now Foundation seminar last week. Here is Stewart Brand’s summary. Audio and video of the talk will be available on-line soon. See also Orlov’s site, which includes the text of the Long Now Talk, as well as a link to text and slides for Orlov’s famous 2006 “Collapse Gap” talk.

“Managing social collapse

With vintage Russian black humor, Orlov described the social collapse he witnessed in Russia in the 1990s and spelled out its practical lessons for the American social collapse he sees as inevitable. The American economy in the 1990s described itself as “Goldilocks”—just the right size—when in fact is was “Tinkerbelle,” and one day the clapping stops. As in Russia, the US made itself vulnerable to the decline of crude oil, a trade deficit, military over-reach, and financial over-reach.

Russians were able to muddle through the collapse by finding ways to manage 1) food, 2) shelter, 3) transportation, and 4) security.

Russian agriculture had long been ruined by collectivization, so people had developed personal kitchen gardens, accessible by public transit. The state felt a time-honored obligation to provide bread, and no one starved. (Orlov noted that women in Russia handled collapse pragmatically, putting on their garden gloves, whereas middle-aged men dissolved into lonely drunks.) Americans are good at gardening and could shift easily to raising their own food, perhaps adopting the Cuban practice of gardens in parking lots and on roofs and balconies.

As for shelter, Russians live in apartments from which they cannot be evicted. The buildings are heat-efficient, and the communities are close enough to protect themselves from the increase in crime. Americans, Orlov said, have yet to realize there is no lower limit to real estate value, nor that suburban homes are expensive to maintain and get to. He predicts flight, not to remote log cabins, but to dense urban living. Office buildings, he suggests, can easily be converted to apartments, and college campuses could make instant communities, with all that grass turned into pasture or gardens. There are already plenty of empty buildings in America; the cheapest way to get one is to offer to caretake it.

The rule with transportation, he said, is not to strand people in nonsurvivable places. Fuel will be expensive and hoarded. He noted that the most efficient of all vehicles is an old pickup fully loaded with people, driving slowly. He suggested that freight trains be required to provide a few empty boxcars for hoboes. Donkeys, he advised, provide reliable transport, and they dine as comfortably on the Wall Street Journal as they did on Pravda.

Security has to take into account that prisons will be emptied (by stages, preferably), overseas troops will be repatriated and released, and cops will go corrupt. You will have a surplus of mentally unstable people skilled with weapons. There will be crime waves and mafias, but you can rent a policeman, hire a soldier. Security becomes a matter of local collaboration. When the formal legal structure breaks down, adaptive improvisation can be pretty efficient.

By way of readiness, Orlov urges all to prepare for life without a job, with near-zero burn rate. It takes practice to learn how to be poor well. Those who are already poor have an advantage.”

Is the recession an opportunity?

I’ve been wondering if the growing downturn could be an opportunity for new technologies and viewpoints to emerge. One direct effect is that energy consumption (“oil use down 6% in 2008“) and carbon emissions will drop, along with other pollution. Alex Pang has a great post on “design and the downturn” about the other creative possibilities:

Michael Cannell’s piece “Design Loves a Depression” has some interesting suggestions about the future of design: that the flourishing of expensive, celebrity designers will come to an end, allowing the field to get serious about solving real problems and being more constructive by having to work within constraints.

[D]uring the Great Depression… an early wave of modernism flourished in the United States, partly because it efficiently addressed the middle-class need for a pared-down life without servants and other Victorian trappings.

“American designers took the Depression as a call to arms,” said Kristina Wilson, author of “Livable Modernism: Interior Decorating and Design During the Great Depression” and an assistant professor of art history at Clark University. “It was a chance to make good on the Modernist promise to make affordable, intelligent design for a broad audience.”…

Design tends to thrive in hard times. In the scarcity of the 1940s, Charles and Ray Eames produced furniture and other products of enduring appeal from cheap materials like plastic, resin and plywood, and Italian design flowered in the aftermath of World War II….

There is a reason she and others are optimistic: however dark the economic picture, it will most likely cause designers to shift their attention from consumer products to the more pressing needs of infrastructure, housing, city planning, transit and energy. Designers are good at coming up with new ways of looking at complex problems, and if President-elect Barack Obama delivers anything like a W.P.A, we could be “standing on the brink of one of the most productive periods of design ever,” said Reed Kroloff, director of Cranbrook Academy of Art….

One way or another, design will focus less on styling consumer objects with laser-cut patterns and colored resin and more on the intelligent reworking of current conditions. Expect to hear a lot more about open-source design, and cradle-to-cradle, a concept developed by William McDonough and Michael Braungart that calls for cars, packaging and other everyday objects to be designed specifically for recycling so that their parts and materials are used and reused without waste.

This reminds me somewhat of the argument made by Brian Arthur and others (most notably Arthur, I think) that tech bubbles don’t create what’s really valuable: they create a lot of potentially valuable wreckage and infrastructure that the next round of innovators use to do really serious stuff.

Economists eat their own

Krugman’s blog links to a WSJ article and blog post that describe the reception an IMF economist got when he presented a paper daring to suggest that the widespread securitization of risk was risky:

January 3, 2009

Economists behaving badly

Ouch. The WSJ’s Real Time Economics blog has a post linking to Raguram Rajan’s prophetic 2005 paper on the risks posed by securitization — basically, Rajan said that what did happen, could happen — and to the discussion at the Jackson Hole conference by Fed vice-chairman Kohn and others. The economics profession does not come off very well.

Two things are really striking here. First is the obsequiousness toward Alan Greenspan. To be fair, the 2005 Jackson Hole event was a sort of Greenspan celebration; still, it does come across as excessive — dangerously close to saying that if the Great Greenspan says something, it must be so. Second is the extreme condescension toward Rajan — a pretty serious guy — for having the temerity to suggest that maybe markets don’t always work to our advantage. Larry Summers, I’m sorry to say, comes off particularly badly. Only my colleague Alan Blinder, defending Rajan “against the unremitting attack he is getting here for not being a sufficiently good Chicago economist”, emerges with honor.

2009: A retrospective

Historian Niall Ferguson, noted historian (Harvard) and author (Virtual History), published an intriguing “Imaginary Retrospective on 2009” in the Financial Times (registration required). We’re all focused on how bad things could get this new year, and Ferguson speculates for us. Not sure I accept all of his conjectures, but it’s a reminder how quickly things can change in a complex and tightly wound world.

Charlie Rose interviews Bill Ackman

Interesting insights–worth watching (30 minutes).

Ackman is hedge fund manager of Pershing Square Capital Management LP.

What economists missed

I’m fascinated by the failure of economists to foresee the meltdown. Brad DeLong lists the things his failed to see coming, which is an important lesson for scenario thinkers about the kinds of little and unexpected things that turn out to have huge consequences.

Why I Was Wrong…

Calculated Risk issues an invitation:

Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg “Bush economist” Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times…. This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:

Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, “Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%.” For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now…

Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman’s column: Lest We Forget

… Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

One answer to these questions is that nobody likes a party pooper…. There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice…

[I]n addition to looking forward, I think certain economists need to do some serious soul searching. Instead of leaving it to us to guess why their analysis was so flawed, I believe the time has come for Mankiw, Kling and many other economists to write a post titled “Why I was wrong”.

Let me say what things I was “expecting,” in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:

(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.

or:

(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.

I was not expecting (2) plus:

(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.

(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.

(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.

(6) the panic flight from all risky assets–not just mortgages–upon the discovery of the problems in the mortgage market.

(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.

(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.

(9) the Bush administration’s sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.

We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.