Archive for April, 2008|Monthly archive page

Online Interview Regarding The Confiscation of American Prosperity

Jon Bailes and Cihan Aksan of the online publication, state of nature, conducted an online interview with me regarding my book, The Confiscation of American Prosperity, which just appeared.

Thoughts on Naomi Klein’s Shock Doctrine

I have only read a hundred pages of Naomi Klein’s shocked doctrine, but I thought that it was a very valuable work so far. It should not be judged either as an work of economic history as an all-encompassing theory of capitalism.

Even so, pointing out the commonality between New Orleans, Chile, and Iraq was very valuable. Making such a point does not exclude a certain degree of voluntarism associated with capitalism. Rather, it exposes an unseemly side of capitalism that is not frequently discussed.

The connection between the dreadful psychological experiments in Montréal and Hayek in Chile is not necessarily fanciful.  The author was grateful that I pointed out to her that Hayek spent the last years of his life developing The Sensory Order, a book that expanded on the ideas of Donald Hebb, who began the work that culminated in the atrocious psychological programming of Ewen Cameron.

I am halfway through another fascinating book, written by two very conventional economists on the history of world trade.

Findlay, Ronald and Kevin H. O’Rourke. 2007. Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton, NJ: Princeton University Press).

I have not yet reached the period of the Industrial Revolution, so thoroughgoing capitalism was not yet part of the story. The following quote suggests the flavor of the book:

xviii-xix: “The greatest expansions of world trade have tended to come not from the bloodless tatonnement of some fictional Walrasian auctioneer but from the barrel of a Maxim gun, the edge of a scimitar, or the ferocity of nomadic horsemen …. For much of our period the pattern of trade can only be understood as being the outcome of some military or political equilibrium between contending powers.”

Random Notes On The Crisis

I was talking to a Costco manager who told me that sales of most items are flat, but liquor sales are brisk.

The New York Times reports on a phenomenon that I have heard of locally — that bees are finding homes in abandoned houses. Perhaps we have found a solution to the beat collapse. I should mention that one sentence suggests that many of the bees may be Africanized. If so, those bees may not be as welcome, because they would be illegal aliens from an undesirable continent. To make matters worse, people seem to be mixing these African bees with an American Queen and then releasing them on unsuspecting plants.

Genetic Engineering and Invasive Species

What follows is not an economic question. I have no expertise in genetic engineering, though I am a skeptic, worried about possible consequences — and even more worried about corporations is having property rights in such matters. Here is the background to my question:

The biological literature is filled with stories of well-meaning people — sometimes based on scientific studies — introducing a new species in order to possibly modify the habitat. The Australian Cane toads are a case in point.

They are very successful breeders. Each pair of cane toads can lay 33,000 eggs per spawning (some published references estimate they produce as much as 60,000 eggs!). They are also an ecological disaster.

Genetic engineering seems to be somewhat similar to the introduction of new species, but on a far smaller scale. The technology began when the idea was common that each gene was responsible for a single characteristic. Now, people realized that the genome is far more complex than anyone had imagined.

My question is, do we have anything to learn from the experience with the introduction of invasive species?

The Joy of Crises: My Short Cathartic Outburst

How is it that the bastards that run the country are able to turn their mistakes into opportunities? Energy shortages demand the elimination of environmental restrictions. Food shortages demand more GE crops. The housing crisis requires tax cuts for corporations.

Nothing for the people who are being plowed under by the crisis. All we have to show for our troubles is Obama and Hillary.

3 Takes on Investment in the United States: 1

Norris, Floyd. 2008. “Profits Plunge, Buybacks Don’t.” (7 April). New York Times Blog

“The corporate love of buying back stock — which Wall Street encourages as much as it can — reached new heights late last year. Standard & Poor’s, which has been tracking buyback data for the S.&P. 500 since 1998, reports that in the fourth quarter of last year, companies in the index had net reported profits of $68 billion — and spent $141 billion buying back stock. That was the first quarter in which the companies managed to spend double their net income in buybacks. The third quarter of 2007 had been the first time that buybacks exceeded profits for the companies.”

“With that surge, 2007 goes down as the first year in which buybacks exceeded profits for an entire year. The major companies of America, as a group, are acting as if they are in liquidation and have few good investment opportunities.”

“In the fourth quarter, profits were down 62 percent from a year earlier, and share buybacks were up 35 percent. Howard Silverblatt, S.&P.’s keeper of the numbers reports that over the last 13 quarters, since the buyback boom started in the fourth quarter of 2004, the companies in the index reported net earnings of $2.1 trillion. They paid out $721 billion in dividends and spent $1.4 trillion in buybacks. Their total capital spending came to $1.6 trillion.”

“Companies — the non-financial ones, that is — still have plenty of cash, so Mr. Silverblatt thinks buybacks will continue at a high level, although not as high as in 2007. One reason for buybacks is to avoid dilution of earnings from the exercising of stock options. Another is to boost reported earnings per share.”

3 Takes on Investment in the United States: 2

Today’s Wall Street Journal also has a piece that mentions the aging of the U.S. airlines’ planes. I wrote a book almost 20 years ago that discussed how Keynes neglected replacement investment.  Keynes, Investment Theory and the Economic Slowdown: The Role of Replacement Investment and q‑Ratios (NY and London: St. Martin’s and Macmillan, 1989).  Financialization has greatly compounded the problem. Here is an extract from the article:

Lunsford, J. Lynn. 2008. “Fleet Could Be Just Plane Trouble.” Wall Street Journal (16 April): p. B 1.

“Delta has roughly 119 gas-guzzling McDonnell Douglas MD-88s with an average age of 18 years, and Northwest has a fleet of more than 90 Douglas DC-9s with an average age nearing 40 years old. During the past three years, the bulk of the U.S. airline industry has sat largely on the sidelines while carriers from the rest of the world placed roughly 7,000 orders for the newest, most fuel-efficient jets. As a result, both Boeing and Airbus are largely sold out of planes until at least 2012.”

3 Takes on Investment in the United States: 3

Regarding the question savings glut versus investment scarcity, a week ago, I wrote to the Washington Post journalist, Steve Mufson, asking how long he thought that Exxon’s stock buybacks exceeded real investment. He told me he thought it was as long as he was covering the subject — a couple of years. Today, the Wall Street Journal has a nice piece showing the data with a remarkable upward trend in stock buybacks.

All this is further evidence of this corrosive dominance of financialization

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How George Bush Solved the Immigration Problem

President George Bush has one major policy victory for which he has not received sufficient credit. Illegal immigration has been one of the most contentious issues in American policy in recent years. Brilliant minds have tried to put together some compromise that would stem the flow of illegal immigrants.

But President Bush has developed a policy that has proved effective — a policy that no one had even considered. The Wall Street Journal today reports that illegal immigration has suddenly dropped. By reducing the number of domestic jobs, President Bush has cut of illegal immigration at its source — the economic equivalent of the Gordian knot.

Other less enlightened people tried to develop policies to increase the number of jobs, but only Bush realized that employment has pernicious effects, earning him an exalted place in the Pantheon of economic policy.

Armed Robbery with a Loaded Fountain Pen

An article today in the front page of the Sacramento Bee’s business section quotes a director of a community development fund it works in low income neighborhoods on the subprime crisis: “I want to know how many people are going to jail.”

At the same time, Jeffrey Skilling, late of Enron, judging from what I read in the papers, seems to have a shot at getting out of jail.

I do not know much about the risk that JPMorgan Chase is taking on over and above the first billion dollars. But if the Bear Stearns bailout is not a gift to JPMorgan Chase, then it is certainly very charitable towards the people who let money to Bear Stearns. Were they widows and orphans?

Who is going to jail?