It took me three weeks instead of one, but I’ve assembled my ideas about the problems of the affluent white person’s gesture of protest. It’s going to sound very cynical, but I actually consider my perspective on this quite optimistic, in a strange sort of way. All will, I hope, become clear by the end of the analysis.
So my loyal readers (or anyone who scrolls down to October 5) will know that I first began this stream of blogging with a saddening critique of an internet-based breast cancer awareness meme. People could put a joke in their statuses, mildly amusing at best, that would raise awareness of breast cancer among those who have already had this very opaque gesture explained to them. Here is the first, and in my view, the most superficial problem with the protest gestures of affluent white people. Quite a few of the things we get angry about – global poverty, disasters, disease, religious extremism, wars – are easily understood. And when people hang out in a public square holding signs that describe how much they hate war and cluster bombs, that’s easily understood. I look at a person with a sign that reads, “Stop the War in Iraq!” and I assume correctly that they very much want to stop that war in Iraq I’ve heard so much about. This is an effective protest because people, while they may not agree with you, will know what you’re talking about.
But some gestures of protest are very symbolic, and difficult to understand at first glance. In my breast cancer example from earlier this month, I found it very hard to understand. Cancer is a terrible disease, and we should raise money to research to cure cancers cheaply and effectively, and encourage people to self-examine and be mindful of their bodies, in case they develop tumours. A great way to spread awareness of this among your facebook friends is to post a status update like, “It’s Breast Cancer Awareness Month!” and embed a link to a reputable research charity or a web guide to self-exams. You could sponsor someone in a fundraising marathon, or some other kind of pledge drive. This would be an easily understood way of voicing your opinion and productively aiding the cause through the infrastructures that exist.
A terrible way to achieve a goal like this is to make your status an ambiguous joke about sex, writing “Athena Peterson likes it on the kitchen counter!” Really, you’re talking about ‘where you lay your purse when you come home,’ and in a long, elaborately detailed private message from the friend who’s been spreading this 21st century chain letter, explaining the symbolism that connects women’s sexual exploration, the attention that a kinky-sounding status garners, and the eroticization of the female breast to genuine concern about breast cancer. None of this deep and complicated meaning was at all present in the initial joke, which is the only part of this gesture that 95% of your friends will see! To them, your cause is lost in confusion and opaque symbolism.
I think this kind of protest is dreamt up by well-meaning people who simply have too much time on their hands, so they can ponder oblique connections between gestures, jokes, and political issues, then assemble a convincing pitch for their protest idea. Patton Oswalt has some wonderful jokes about this, his old routines about why hippies annoy him so much. But this kind of protest that defeats itself through its own opacity is the symptom of a much deeper problem with being a socially progressive affluent white person. Most of us in protest movements are affluent enough that we don’t have to work for a living. We do this because we’re bored.
Now, I don’t want to disparage the good intentions of many people, and I certainly don’t want to describe all progressive activists in my country as ivory tower academic types and trust fund kids who haven’t even seen poor people before. Most of the people I’ve known in activist communities have been on student loans, have staggering debt, and worked one or two wretched part-time jobs (fast food, gas stations, tour guides), to put themselves through school. But they could go to school, and university. They’re functionally literate. They have opportunities. They lived in decent neighbourhoods where you couldn’t just walk to the corner one block down to buy coke, meth, oxy, and heroin. They weren’t physically abused or molested. Their families usually had enough money to feed everyone and make the mortgage payments.
The people who actually understand from experience what it means to be poor, are poor, and they stay poor. Not by choice, but because poor people have to stay poor if capitalism is going to work. And communism only works for four or five decades before collapsing from the absurd weight of a bureaucracy big enough to plan (with minimal effectiveness, if that) an economy for an entire nation. We middle class liberals have the time to protest because we don’t have to worry much where our next meal is coming from. But because we aren’t poor, we can easily lose touch with the people we’re trying to help.
This is why moronically opaque, over-intellectual protest events happen: we have enough leisure time to come up with them, but actual poor people are too busy trying to survive to care. An affluent white person lives at a disconnect that the power of conscience alone can’t always bridge. That disconnect makes such a person a cartoon, and it makes the objects of their charity regard them with contempt and resentment. A poor person can legitimately say to the affluent white person who wants to help them, “You are an ignorant fool who understands nothing of my life. My life is hard and I work hard. I don’t need your fucking pity.”
Now for the most profound part of my analysis of the affluent white conscience: expand this scenario to the entire globe. Now colonialism is part of the picture, a massive system of economic exploitation that spread over the entire Earth and lasted centuries. We affluent white people exist because of the enormous effort our ancestors put into creating the massively unequal share of wealth among humanity today. If you think the resentment of a Canadian poor person toward a rich person who doesn’t understand their life can be powerful, imagine how someone who lives on the equivalent of a few Canadian coins each day would feel.
Even if affluent Western governments actually donated all the money in their foreign aid budgets to actual foreign aid, it is still an utter pittance. We live as we do today because for hundreds of years, our ancestors destroyed the economies of entire continents for their own gain. Today, we feel guilty about it. So we pity the poor of the world, and send some pocket change to them so they can buy an extra chicken and we can feel better. But it’s nothing more than our pity, which demeans and dehumanizes the people who are pitied. If an affluent Western person thinks they can restore the world to peace, harmony, and brotherhood with a few gestures of contrition about our society having reduced their societies to mud, she’s in for a rough surprise.
The global economy is an enormous crime against humanity. And I’m not even talking about the ecological destruction. That’s another post, and my PhD thesis.
There’s a beautiful and terrifying film that expresses the emptiness of the affluent’s contrition very succinctly. It’s called Cobra Verde, and it’s about the last gasp of the trans-Atlantic slave trade in the 1880s. There’s a scene, included in the trailer, where Klaus Kinski, playing Cobra Verde, the head of the slave trading port, takes a visitor to choose a slave woman to screw that evening. The women live in cramped quarters, in an underground hole. The chosen woman climbs out of a ladder. The visitor asks who these woman are, and Cobra Verde responds, with clear understanding of everything he’s done, “Our future murderers.”
Kinski plays a slave trader who understands exactly the horrifying criminal nature of the slave trade. He does it anyway because he is a criminal. He doesn’t pity his slaves either. He knows that one day the slave trade will end, and those who are oppressed now will take a place of dominance. He doesn’t call the slave woman an avenger, someone who will bring justice. He calls her a murderer. In this way, he understands that the only way to escape a system built on terror and injustice is not charity or contrition, but destruction.
But that’s not how the movie ends. The movie ends with a song by an African choir of young girls, singing in Akan, dancing in their own style, wearing their own clothes, and smiling. It’s an act of creation and celebration of life. The resentment engendered by pity, the confusion of a desperate conscience, the never-ending guilt of restitution, the ridiculous charity of affluent boredom; these are all forgotten. The scales of justice are thrown away, and we are left with dancing and laughter.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Monday, October 25, 2010
Thursday, March 18, 2010
Was This What Romans Felt Like, But With More Funny Cat Videos?
I read two articles today that gave me a very good sense of the national depression in the United States today. I don’t mean just the economic crisis, which is still just in recession territory. I mean the psychological and moral depression in the United States.
One explained a particularly strange investment: an insurance that will pay off if a country defaults on its national debt. Particularly, the article explained how counter-productive such an investment is when it’s held against the national debt of the United States. Because that country is so intimately integrated with the economies of so many other countries (particularly in terms of those countries which themselves have purchased large amounts of US debt), this actually would cause the entire global financial system to collapse.
Of course, under these conditions, no one could collect on this insurance, because there wouldn’t be any money left. And these insurance packages constitute a very small percentage of the total investment market. But the fact that they exist at all speaks to the amazing pessimism of contemporary Americans. What kind of people would even consider the possibilities of betting against their own country? Perhaps people who have become resigned to collapse.
The other article talked about a curious phenomenon in popular culture: the prominence of the Omega Male. We all know what an alpha male is: the muscular, dominating, soldier, jock, thunder lizard. And we can get an idea of what a beta male is: a nice guy who gets by, maybe a little on the bland side, the baxter, Jim Halpert. The omega male is the self-sabotager who whines about having been sabotaged, the loser, the stoner, the jerk. Referring specifically to Ben Stiller’s new movie Greenberg, he seems a holy fool, a pathetic figure played for laughs, but for whom a strange sympathy develops.
The omega male comes in many forms. The “Liberal Arts Layabout” is a failed artist or professional, becoming either bitter at the consciousness of their failure of retreating into a fantasy world. The “Mimbo” (thank you for this word, Elaine Benes) is a prettyboy without the intelligence even to direct his confidence towards some goal, or even to formulate some goal. The “Beer Guy” is a moron who has let himself relax into a pool of filth and Bud Lite. The “Game Boy” is the nerd who lacks the brains to make good use of his antisocial habits, the perpetual adolescent.
They are the figures of a society who has dropped out, archetypes of dominance who no longer have the capacity to control. Americans still have some measure of hope for the future, but this is a culture who has long equated success with domination, and that just isn’t possible anymore. Obama is probably a public figure who breaks most of these stereotypes of Greek-lettered men: intelligence, power, and charisma coupled with humility and respect.
But I still find something romantically strange about some of these failure figures. Perhaps it’s because I’ve been readind Don Quixote. Jason Schwartzman’s character in Bored to Death is described as a Liberal Arts Layabout Omega Male: a failed writer who enters a fantasy world to become a bumbling private detective after reading too many mystery novels. The parallel with Quixote is clear: our Don was a landed gentry of no note whatsoever until he read too many chivalric romance novels and took up a career as a knight errant, resurrecting through his own examples a golden age of justice that never before existed. I’m not saying Bored to Death is in the same league as one of the seminal works of Western literature. But there could be worse things to imitate, and far worse sources of material to steal.
The funny thing is that Don Quixote meets with a kind of success: he’s condescended towards throughout the first part of the two-part novel (I’m just under halfway through). But he demonstrates a kind of ethical striving that inspires a lot of the characters he encounters to improve their lives. He passes among quite a few people whose lives he plays a part in making better. He has an equal number of screw-ups, but the perfection he seeks is impossible. Perhaps this is the path of some of these noble loser figures, and dreams of better days gone by can resurrect that which never was.
One explained a particularly strange investment: an insurance that will pay off if a country defaults on its national debt. Particularly, the article explained how counter-productive such an investment is when it’s held against the national debt of the United States. Because that country is so intimately integrated with the economies of so many other countries (particularly in terms of those countries which themselves have purchased large amounts of US debt), this actually would cause the entire global financial system to collapse.
Of course, under these conditions, no one could collect on this insurance, because there wouldn’t be any money left. And these insurance packages constitute a very small percentage of the total investment market. But the fact that they exist at all speaks to the amazing pessimism of contemporary Americans. What kind of people would even consider the possibilities of betting against their own country? Perhaps people who have become resigned to collapse.
The other article talked about a curious phenomenon in popular culture: the prominence of the Omega Male. We all know what an alpha male is: the muscular, dominating, soldier, jock, thunder lizard. And we can get an idea of what a beta male is: a nice guy who gets by, maybe a little on the bland side, the baxter, Jim Halpert. The omega male is the self-sabotager who whines about having been sabotaged, the loser, the stoner, the jerk. Referring specifically to Ben Stiller’s new movie Greenberg, he seems a holy fool, a pathetic figure played for laughs, but for whom a strange sympathy develops.
The omega male comes in many forms. The “Liberal Arts Layabout” is a failed artist or professional, becoming either bitter at the consciousness of their failure of retreating into a fantasy world. The “Mimbo” (thank you for this word, Elaine Benes) is a prettyboy without the intelligence even to direct his confidence towards some goal, or even to formulate some goal. The “Beer Guy” is a moron who has let himself relax into a pool of filth and Bud Lite. The “Game Boy” is the nerd who lacks the brains to make good use of his antisocial habits, the perpetual adolescent.
They are the figures of a society who has dropped out, archetypes of dominance who no longer have the capacity to control. Americans still have some measure of hope for the future, but this is a culture who has long equated success with domination, and that just isn’t possible anymore. Obama is probably a public figure who breaks most of these stereotypes of Greek-lettered men: intelligence, power, and charisma coupled with humility and respect.
But I still find something romantically strange about some of these failure figures. Perhaps it’s because I’ve been readind Don Quixote. Jason Schwartzman’s character in Bored to Death is described as a Liberal Arts Layabout Omega Male: a failed writer who enters a fantasy world to become a bumbling private detective after reading too many mystery novels. The parallel with Quixote is clear: our Don was a landed gentry of no note whatsoever until he read too many chivalric romance novels and took up a career as a knight errant, resurrecting through his own examples a golden age of justice that never before existed. I’m not saying Bored to Death is in the same league as one of the seminal works of Western literature. But there could be worse things to imitate, and far worse sources of material to steal.
The funny thing is that Don Quixote meets with a kind of success: he’s condescended towards throughout the first part of the two-part novel (I’m just under halfway through). But he demonstrates a kind of ethical striving that inspires a lot of the characters he encounters to improve their lives. He passes among quite a few people whose lives he plays a part in making better. He has an equal number of screw-ups, but the perfection he seeks is impossible. Perhaps this is the path of some of these noble loser figures, and dreams of better days gone by can resurrect that which never was.
Labels:
Barack Obama,
Culture,
Don Quixote,
Economics,
Literature
Sunday, December 7, 2008
Protesting in the Freezing Cold
This weekend, I was in Toronto, and found myself at Stephane Dion's and Jack Layton's protest rally downtown without even planning to go. I wandered in, and ended up holding a sign, listening to the speeches of the two party leaders, having arrived just in time to see them both, catch a couple of acoustic songs by a few members of Broken Social Scene (which rally MC Mary Walsh at one point called Broken Scene), and be on my way. The sign is still up in my apartment window, stating that I'm part of the 62% majority.
I had spent the previous Friday, among other events, sitting in a rooftop tent above a pro-actively weed friendly coffee shop in Toronto, laughing myself sick at my friend Chris' impromptu performance of a rant about how, if one interprets the constitution correctly, it would be perfectly acceptable for the Governor General, during a parliamentary crisis, to overthrow the parliament in a military coup. Since the Governor General is the Commander in Chief of the Canadian armed forces and the head of state anyway, this would not even really be a coup, but the Governor General exercising her powers in a time of necessity. I think it was the large number of mellifluously flowing syllables in Chris' explanation. The more I think about this, the more I realize that I would not mind if this happened.
Regular readers (if I have any left) are probably wondering why it's taken me so long to rant about our current political situation. Well, it's because I have so far only been briefly excited about the idea of a coalition, and I'm now fairly concerned about it. I'm not worried about the coalition itself. I endorse the idea of Canadian politics being more open to multi-partisan processes. And every policy the coalition has put forward is a perfect blend of the most sensible Liberal positions with the most sensible NDP positions for what this country needs to do if we're going to ride out the global credit crisis. Canadians should not fool themselves into thinking that we are immune to serious economic problems, like the over-inflation of housing prices.
Conservative party economic policies will only work for magical fantasy worlds where markets are run not by an aggregate of several billion humans buying and selling things, but by the miracle-like dictates of the ghosts of William F Buckley, Milton Friedman, and Barry Goldwater. They are practically photocopies of the Reagan/W economic approach, which values only sustained growth of Gross Domestic Product statistics, ignoring the growing numbers of poor people domestically and throughout the world. Nothing would make me happier than to see this government thrown back to Alberta, where they belong.
And there is my major worry about this country right now. There is something rotten in Canada, possibly the most serious political division in our history since the Quebec referendum. I would say it is moreso, because a nationality can be bargained with, and federalist Canadians have bargained quite well with separatist Québécois. Ideological enemies cannot be bargained with, because they want to destroy what the bargainers are not willing to give up. Contemporary Québécois have largely been satisfied with the greater level of inclusion in the Canadian political process, and increased recognition, at least in the public, of Québec's distinct nationality. They did not want to destroy the economic institutions of federalism. A separate Québec would have had all the same welfare state institutions as Canada.
Albertans do not want this. Contemporary Albertans are beacons of intolerant conservative ignorance. They are a frontier state, settled by a culture of independent farmers and ranchers; individualists distrustful of anyone other than themselves assuring them that they the outsiders know best. Before oil wealth made Alberta a major engine of Canadian economic growth, the people had political leanings that could be called socialist: individuals who have worked hard for their property banding together to protect that property, whether from an invasive federal government or capitalist robber barons.
When Albertans were able to become the robber barons, their tune changed considerably, if not the basic distrust of outside interference, which is often seen as a kind of theft. That was the Albertan response to Pierre Trudeau's National Energy Program. It goes to show that even though Trudeau was an effective strategist against Québécois nationalism (why Trudeau had little to do with the 1995 sovereignty referendum is a post for another day), he knew nothing about Alberta. The intolerance toward outside interference has mutated into an intolerance for any dialogue with outsiders. Most immigrants to Alberta quickly change their political beliefs to match their new home. I've seen examples of left-leaning Ontarians and Newfoundlanders going to Alberta to work, and returning as virulent fiscal conservatives.
Now that extreme wealth was the order of the day, principles of sharing that wealth disappeared from the Albertan idea of self-reliance. When a self-centred culture becomes rich, the concerns of their people change to reflect their wealth. If wealth was going to be given to other people who were not Albertans, then Albertans were opposed to this. The bill for a welfare state is paid by those citizens who have enough money that they do not need welfare state services themselves. If those people can understand that the poor are unfortunate and need help, then there is no problem. If those people see the poor as lazy, then the welfare state is institutional theft from hard workers to feed bums.
The values of hard work and just rewards are strong in Alberta, and I admire that. I am disgusted by the self-centredness seemingly ubiquitous in that province which blinds them to the idea that hard work does not necessarily lead to wealth. Albertans believe that their wealth is a necessary result of their hard work, and that people who are not wealthy do not deserve to be so. Albertan conservatism is the greatest threat to Canada's wider prosperity in history, because the Albertan political goal is to destroy every means of protecting people from the injustices of greed in growth, or poverty in depression.
No compromise is possible because they seek to destroy the institutions that I wish to protect. I don't think there is any way to solve this political crisis other than marginalizing the conservative movement in Canada to the point where it withers and dies. They must be kept out of government by a united front of all Canadians who believe in economic justice. The centre-left campaign of the next election must show the suffering poor of Canada abandoned by the Conservative government, and showing Ignatieff (because he'll win this), Layton, and yes even Duceppe standing with people putting factories back to work and marketplaces buzzing with Canadian farm goods.
Some matters of politics are non-negotiable, because we refuse to give them up. Do not buckle down to Conservative demands.
I had spent the previous Friday, among other events, sitting in a rooftop tent above a pro-actively weed friendly coffee shop in Toronto, laughing myself sick at my friend Chris' impromptu performance of a rant about how, if one interprets the constitution correctly, it would be perfectly acceptable for the Governor General, during a parliamentary crisis, to overthrow the parliament in a military coup. Since the Governor General is the Commander in Chief of the Canadian armed forces and the head of state anyway, this would not even really be a coup, but the Governor General exercising her powers in a time of necessity. I think it was the large number of mellifluously flowing syllables in Chris' explanation. The more I think about this, the more I realize that I would not mind if this happened.
Regular readers (if I have any left) are probably wondering why it's taken me so long to rant about our current political situation. Well, it's because I have so far only been briefly excited about the idea of a coalition, and I'm now fairly concerned about it. I'm not worried about the coalition itself. I endorse the idea of Canadian politics being more open to multi-partisan processes. And every policy the coalition has put forward is a perfect blend of the most sensible Liberal positions with the most sensible NDP positions for what this country needs to do if we're going to ride out the global credit crisis. Canadians should not fool themselves into thinking that we are immune to serious economic problems, like the over-inflation of housing prices.
Conservative party economic policies will only work for magical fantasy worlds where markets are run not by an aggregate of several billion humans buying and selling things, but by the miracle-like dictates of the ghosts of William F Buckley, Milton Friedman, and Barry Goldwater. They are practically photocopies of the Reagan/W economic approach, which values only sustained growth of Gross Domestic Product statistics, ignoring the growing numbers of poor people domestically and throughout the world. Nothing would make me happier than to see this government thrown back to Alberta, where they belong.
And there is my major worry about this country right now. There is something rotten in Canada, possibly the most serious political division in our history since the Quebec referendum. I would say it is moreso, because a nationality can be bargained with, and federalist Canadians have bargained quite well with separatist Québécois. Ideological enemies cannot be bargained with, because they want to destroy what the bargainers are not willing to give up. Contemporary Québécois have largely been satisfied with the greater level of inclusion in the Canadian political process, and increased recognition, at least in the public, of Québec's distinct nationality. They did not want to destroy the economic institutions of federalism. A separate Québec would have had all the same welfare state institutions as Canada.
Albertans do not want this. Contemporary Albertans are beacons of intolerant conservative ignorance. They are a frontier state, settled by a culture of independent farmers and ranchers; individualists distrustful of anyone other than themselves assuring them that they the outsiders know best. Before oil wealth made Alberta a major engine of Canadian economic growth, the people had political leanings that could be called socialist: individuals who have worked hard for their property banding together to protect that property, whether from an invasive federal government or capitalist robber barons.
When Albertans were able to become the robber barons, their tune changed considerably, if not the basic distrust of outside interference, which is often seen as a kind of theft. That was the Albertan response to Pierre Trudeau's National Energy Program. It goes to show that even though Trudeau was an effective strategist against Québécois nationalism (why Trudeau had little to do with the 1995 sovereignty referendum is a post for another day), he knew nothing about Alberta. The intolerance toward outside interference has mutated into an intolerance for any dialogue with outsiders. Most immigrants to Alberta quickly change their political beliefs to match their new home. I've seen examples of left-leaning Ontarians and Newfoundlanders going to Alberta to work, and returning as virulent fiscal conservatives.
Now that extreme wealth was the order of the day, principles of sharing that wealth disappeared from the Albertan idea of self-reliance. When a self-centred culture becomes rich, the concerns of their people change to reflect their wealth. If wealth was going to be given to other people who were not Albertans, then Albertans were opposed to this. The bill for a welfare state is paid by those citizens who have enough money that they do not need welfare state services themselves. If those people can understand that the poor are unfortunate and need help, then there is no problem. If those people see the poor as lazy, then the welfare state is institutional theft from hard workers to feed bums.
The values of hard work and just rewards are strong in Alberta, and I admire that. I am disgusted by the self-centredness seemingly ubiquitous in that province which blinds them to the idea that hard work does not necessarily lead to wealth. Albertans believe that their wealth is a necessary result of their hard work, and that people who are not wealthy do not deserve to be so. Albertan conservatism is the greatest threat to Canada's wider prosperity in history, because the Albertan political goal is to destroy every means of protecting people from the injustices of greed in growth, or poverty in depression.
No compromise is possible because they seek to destroy the institutions that I wish to protect. I don't think there is any way to solve this political crisis other than marginalizing the conservative movement in Canada to the point where it withers and dies. They must be kept out of government by a united front of all Canadians who believe in economic justice. The centre-left campaign of the next election must show the suffering poor of Canada abandoned by the Conservative government, and showing Ignatieff (because he'll win this), Layton, and yes even Duceppe standing with people putting factories back to work and marketplaces buzzing with Canadian farm goods.
Some matters of politics are non-negotiable, because we refuse to give them up. Do not buckle down to Conservative demands.
Tuesday, November 18, 2008
Financial Crisis in a Picture
The inimitable Jeffrey Rowland of Overcompensating and Wigu posted on his blog recently an excellent account of the global financial crisis and the housing bubble that precipitated it. Well, he linked to the graphic that lives on Mint.com, the financial blog.
The graphic is here.
And this is why I think it's particularly cool, in addition to explaining so simply an incredibly complex situation. The graphic culminates in the bailout and situates the reasons for it, and it pretty much explains itself. But I think the most interesting element of this graphic is that it shows that purely mechanical processes were not entirely responsible for the housing bubble bursting. In fact, many of these mechanical processes were started by a very contingent human activity: belief.
This was the belief that "Housing prices never fall." So housing is automatically a sound investment, no matter how insane the mortgage package might be. This belief was at the centre of the mania for home ownership, because real estate was seen as a guaranteed investment. There was no real worldly evidence for this perception, only the belief that operated as its premise: "Housing prices never fall."
If you believe that housing prices never fall, then any investment in housing will eventually be profitable. In order to have more real estate to invest in, more and more houses are built. Eventually, the number of houses outweighs the number of people able to buy them, even under subprime paradigms of mortgage. When the supply outstrips the demand, then prices fall. But no one thought about this because there was a belief among so very many people that "Housing prices never fall."
But the supply of houses was outstripping the demand, so housing prices were falling. And when you have to pay more on your mortgage debt than the actual value of your house, you can't afford that debt anymore. You'll have to borrow against your house to pay off the debt on your house. But that just creates more debt on your house. The result of this conundrum is default. And when homeowners default, the banks lose their money. And banks had integrated these mortgage debts into almost every investment package they sold, every investment agency ended up losing a ton of money. Investment agencies including Bear Stearns, Lehman Bros, AIG, Merrill Lynch, for example. With no lenders having any money, there was no source for loans or investments of any kind. Since big purchases are driven by loans and credit, no one could make big purchases, and the economy constituted from those purchasers (us) ground to a halt.
All following from a single concept: "Housing prices never fall." Remember the power of thought.
The graphic is here.
And this is why I think it's particularly cool, in addition to explaining so simply an incredibly complex situation. The graphic culminates in the bailout and situates the reasons for it, and it pretty much explains itself. But I think the most interesting element of this graphic is that it shows that purely mechanical processes were not entirely responsible for the housing bubble bursting. In fact, many of these mechanical processes were started by a very contingent human activity: belief.
This was the belief that "Housing prices never fall." So housing is automatically a sound investment, no matter how insane the mortgage package might be. This belief was at the centre of the mania for home ownership, because real estate was seen as a guaranteed investment. There was no real worldly evidence for this perception, only the belief that operated as its premise: "Housing prices never fall."
If you believe that housing prices never fall, then any investment in housing will eventually be profitable. In order to have more real estate to invest in, more and more houses are built. Eventually, the number of houses outweighs the number of people able to buy them, even under subprime paradigms of mortgage. When the supply outstrips the demand, then prices fall. But no one thought about this because there was a belief among so very many people that "Housing prices never fall."
But the supply of houses was outstripping the demand, so housing prices were falling. And when you have to pay more on your mortgage debt than the actual value of your house, you can't afford that debt anymore. You'll have to borrow against your house to pay off the debt on your house. But that just creates more debt on your house. The result of this conundrum is default. And when homeowners default, the banks lose their money. And banks had integrated these mortgage debts into almost every investment package they sold, every investment agency ended up losing a ton of money. Investment agencies including Bear Stearns, Lehman Bros, AIG, Merrill Lynch, for example. With no lenders having any money, there was no source for loans or investments of any kind. Since big purchases are driven by loans and credit, no one could make big purchases, and the economy constituted from those purchasers (us) ground to a halt.
All following from a single concept: "Housing prices never fall." Remember the power of thought.
Tuesday, August 19, 2008
Career Advice for Young Economists
I discovered this article in the New York Times about Nouriel Roubini, the economist who predicted the current recession in the United States. He did it by identifying the problems of reckless debt growth in emerging economies over the 1990s that led to their economic collapse (Thailand, South Korea, Russia, Brazil, Argentina), and seeing where those traits were in other countries. The one with the clearest indicators of impending collapse was the United States. Read the article I linked at his name for a much better articulation of this economic process than I could give you.
A curious point. In Roubini's interview, he points out what he sees to be a flaw in the way economists work, which I think has its roots in the way economists are educated. The models that economists create to predict future events are based on a very common presumption: that the future will be basically similar to the past, that trends which have begun will continue. But this isn't necessarily the case. We know that there have been severe financial crises, so such crises are possible. And a severe financial crisis is not a continuation of past trends and patterns, but a catastrophic rupture of those patterns, the breakdown of all previously ongoing movements.
For any philosophers reading, this sounds pretty familiar. It's David Hume's skeptical critique of knowledge from book one of the Treatise on Human Nature. We think we understand what will happen in the future, and that our statements of scientific law are universal across all time, because we presume that the future will generally be the same as the past. But the future hasn't happened yet, so it's completely indeterminate, a venue where anything is possible.
Returning to economics specifically, Roubini pointed out here that economists often focus on evolution of existing movements, and the continuity of those movements. So the financial panic, the severe break with the past, the economic catastrophe, is not usually studied. Any realm of a discipline that is not usually studied is a niche that an enterprising young thinker could fill. An economist who specializes in financial panics and crises will find themselves publishing original, groundbreaking research, simply because they are in an area where so little work has been done anyway.
Such studies are important not just for the growing public profile of a young economist, but are critical for humanity as a whole. Not only will a young economist specializing in crisis studies gain a reputation as an original thinker, but he will also be doing a great service for humanity by using his science to help guide us through financial disasters, and prevent the conditions for those disasters from arising in the first place.
A curious point. In Roubini's interview, he points out what he sees to be a flaw in the way economists work, which I think has its roots in the way economists are educated. The models that economists create to predict future events are based on a very common presumption: that the future will be basically similar to the past, that trends which have begun will continue. But this isn't necessarily the case. We know that there have been severe financial crises, so such crises are possible. And a severe financial crisis is not a continuation of past trends and patterns, but a catastrophic rupture of those patterns, the breakdown of all previously ongoing movements.
For any philosophers reading, this sounds pretty familiar. It's David Hume's skeptical critique of knowledge from book one of the Treatise on Human Nature. We think we understand what will happen in the future, and that our statements of scientific law are universal across all time, because we presume that the future will generally be the same as the past. But the future hasn't happened yet, so it's completely indeterminate, a venue where anything is possible.
Returning to economics specifically, Roubini pointed out here that economists often focus on evolution of existing movements, and the continuity of those movements. So the financial panic, the severe break with the past, the economic catastrophe, is not usually studied. Any realm of a discipline that is not usually studied is a niche that an enterprising young thinker could fill. An economist who specializes in financial panics and crises will find themselves publishing original, groundbreaking research, simply because they are in an area where so little work has been done anyway.
Such studies are important not just for the growing public profile of a young economist, but are critical for humanity as a whole. Not only will a young economist specializing in crisis studies gain a reputation as an original thinker, but he will also be doing a great service for humanity by using his science to help guide us through financial disasters, and prevent the conditions for those disasters from arising in the first place.
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