Thursday, 30 October 2008

The economics of hypocrisy



After implementing the largest government bail-out in history, the US continues to tell other nations, "do as I say, not as I do"

Back in July, the Republican Senator Jim Bunning of Kentucky famously denounced the $200bn nationalisation of Fannie Mae and Freddie Mac, the mortgage lenders, as something that can only happen in a "socialist" country like France.
France was bad enough, but now Senator Bunning's beloved country has turned into the Evil Empire itself. The US government is using $700bn of taxpayers' money to buy up the "toxic assets" choking up the financial system and – horror of the horrors – partially nationalising the US banking system.
President George Bush, however, did not see things quite that way. Announcing the bail-out package, he argued that, rather than being "socialist", the plan was simply a continuation of the American system of free enterprise, which "rests on the conviction that the federal government should interfere in the market place only when necessary". Obviously, in his view, nationalising a huge chunk of the financial sector was one of those "necessary" things.
Bush's statement is not only an ultimate example of political doublespeak – one of the biggest state interventions in history is dressed up as another workday market process – but it also reveals America's long-standing pragmatism towards the free market. Throughout history, Americans have supported the free market when it suits them but not when it doesn't.
Today, the US is the self-proclaimed defender of free trade and free finance, but in the days when it was struggling to catch up with Europe, it resorted to the most blatant kinds of protectionism both in trade and finance. Between the 1830s and the 1940s, the country had the highest average industrial tariff in the world. In the 19th century, non-resident shareholders in US banks could not even vote in shareholders' meetings, while foreign investment in coastal shipping was banned.
After it became the top dog, the US started to champion free trade and unregulated finance because that suited its interests. However, the US government still dishes out huge subsidies where it feels necessary. Its agricultural subsidies are notorious, but the proportion of publicly-funded research and development is also the highest in the world.
Now that the financial markets are crumbling and the real economy is sliding into a recession, the US government is using all the policies that its cherished free-market doctrine denounces – nationalisation, budget deficits, lax monetary policy and what not.
The unfortunate thing, however, is that American pragmatism does not extend beyond its borders. In a version of "don't try this at home", Americans tell other people that they should all adopt the free-market, free-trade model. However big their financial crises are, other countries are told that they should let the markets correct themselves.
Of course, other rich countries do not have to listen to US advice, although Japan did so in the 1990s and made its infamous financial crisis even worse by trying to get out of it without public bail-outs. However, the story is different for developing countries. They cannot ignore US advice, or else they will not get the endorsement from the US-dominated International Monetary Fund, which is important in getting access to the international capital market.
So in its 1997 financial crisis, Indonesia was forced by the IMF to close 16 banks at the same time, prompting a bank run. It was made to raise interest rates to 80%, and the president of Indonesia was humiliated by being photographed signing terms of agreement with the IMF, while the Fund's managing director stood over him with arms folded. Similarly, Korea had to shut down close to a quarter of its financial institutions and raise interest rates to 30%. The country was forced to run a budget surplus, despite the fact it had the then second lowest public debt (as a proportion of GDP) in the OECD. Only when its economy took a nosedive for six months, it was allowed to run a small budget deficit equivalent to 0.8% of GDP, when the $700bn bail-out package alone will increase US budget deficit by 5% of its GDP.
The recent crisis in the US has exposed the limits of the free-market doctrine that has ruled most of the world in the last quarter of a century. True to its history of pragmatism, the US is dealing with it by ditching free-market policies when "necessary", which at this moment happens to be almost all the time.
However, the US needs to go a step further. It should openly admit that, if markets need the state, it is better to have the state intervene regularly and prevent a free-market mess from developing because the clean-up comes at much higher costs to the taxpayers. It would help the world even more if the US accepted that all countries, and not just itself, have the right to use a pragmatic mix of the market and state intervention according to their own "necessities", as Mr Bush put it so succinctly.

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Our false oracles have failed. We need a new vision to live by


Our false oracles have failed. We need a new vision to live by

Huge financial success has hidden the moral bankruptcy in our civilisation, We must rediscover our lost values or perish

The crisis affecting the economy is a crisis of our civilisation. The values that we hold dear are the very same that got us to this point. The meltdown in the economy is a harsh metaphor of the meltdown of some of our value systems. A house is on fire; we see flames coming through the windows on the second floor and we think that that is where the fire is raging. In fact it is raging elsewhere.
For decades poets and artists have been crying in the wilderness about the wasteland, the debacle, the apocalypse. But apparent economic triumph has deafened us to these warnings. Now it is necessary to look at this crisis as a symptom of things gone wrong in our culture.
Individualism has been raised almost to a religion, appearance made more important than substance. Success justifies greed, and greed justifies indifference to fellow human beings. We thought that our actions affected only our own sphere but the way that appalling decisions made in America have set off a domino effect makes it necessary to bring new ideas to the forefront of our civilisation. The most important is that we are more connected than we suspected. A visible and invisible mesh links economies and cultures around the globe to the great military and economic centres.
The only hope lies in a fundamental re-examination of the values that we have lived by in the past 30 years. It wouldn't do just to improve the banking system - we need to redesign the whole edifice.
There ought to be great cries in the land, great anger. But there is a strange silence. Why? Because we are all implicated. We have drifted to this dark unacceptable place together. We took the success of our economy as proof of the rightness of its underlying philosophy. We are now at a crossroad. Our future depends not on whether we get through this, but on how deeply and truthfully we examine its causes.
I strayed into the oldest church in Cheltenham not long ago and, with no intention in mind, opened the Bible. The passage that met my eyes was from Genesis, about Joseph and the seven lean years of famine. Something struck me in that passage. It was the tranquillity of its writing, the absence of hysteria.
They got through because someone had a vision before the event. What we need now more than ever is a vision beyond the event, a vision of renewal.
As one looks over the landscape of contemporary events, one thing becomes very striking. The people to whom we have delegated decision-making in economic matters cannot be unaware of the consequences. Those whose decisions have led to the economic collapse reveal to us how profoundly lacking in vision they were. This is not surprising. These were never people of vision. They are capable of making decisions in the economic sphere, but how these decisions relate to the wider world was never part of their mental make-up. This is a great flaw of our world.
To whom do we turn for guidance in our modern world? Teachers have had their scope limited by the prevailing fashions of education. Artists have become more appreciated for scandal than for important revelations about our lives. Writers are entertainers, provocateurs or- if truly serious - more or less ignored. The Church speaks with a broken voice. Politicians are more guided by polls than by vision. We have disembowelled our oracles. Anybody who claims to have something to say is immediately suspect.
So now that we have taken a blowtorch to the idea of sages, guides, bards, holy fools, seers, what is left in our cultural landscape? Scientific rationality has proved inadequate to the unpredictabilities of the times. It is enlightening that the Pharoah would not have saved Egypt from its seven lean years with the best economic advisers to hand.
This is where we step out into a new space. What is most missing in the landscape of our times is the sustaining power of myths that we can live by.
If we need a new vision for our times, what might it be? A vision that arises from necessity or one that orientates us towards a new future? I favour the latter. It is too late to react only from necessity. One of our much neglected qualities is our creative ability to reshape our world. Our planet is under threat. We need a new one-planet thinking.
We must bring back into society a deeper sense of the purpose of living. The unhappiness in so many lives ought to tell us that success alone is not enough. Material success has brought us to a strange spiritual and moral bankruptcy.
If we look at alcoholism rates, suicide rates and our sensation addiction, we must conclude that this banishment of higher things from the garden has not been a success. The more the society has succeeded, the more its heart has failed.
Everywhere parents are puzzled as to what to do with their children. Everywhere the children are puzzled as to what to do with themselves. The question everywhere is, you get your success and then what?
We need a new social consciousness. The poor and the hungry need to be the focus of our economic and social responsibility.
Every society has a legend about a treasure that is lost. The message of the Fisher King is as true now as ever. Find the grail that was lost. Find the values that were so crucial to the birth of our civilisation, but were lost in the intoxication of its triumphs.
We can enter a new future only by reconnecting what is best in us, and adapting it to our times. Education ought to be more global; we need to restore the pre-eminence of character over show, and wisdom over cleverness. We need to be more a people of the world.
All great cultures renew themselves by accepting the challenges of their times, and, like the biblical David, forge their vision and courage in the secret laboratory of the wild, wrestling with their demons, and perfecting their character. We must transform ourselves or perish.

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Sunday, 26 October 2008

The Obaminations Of Barack


By Niranjan Ramakrishnan

26 October, 2008

No presidential contender I have seen, other than Bill Clinton, has run a better campaign than Barack Obama. If nothing else, one must hand it to him for the magnificent improbability of the effort – a guy whose last name sounds like 'Osama' and whose middle name is the same as Saddam's – running for president in America, where the average Joe (including the plumber, likely) doesn't know Madrasi from Madrassa – now poised, and in the view of many, on the verge of victory!


A Winner

Obama has many things to be said in his favor: high intelligence, a rounded education, international exposure, and not least the facet remarked upon endlessly these last few weeks – a steady temperament. On the practical side he has displayed a power of organization that is not to be ignored, one reason to hope the traditional Republican electoral mischief of the last eight years is less likely to succeed (though no less likely to be attempted). After all, no matter what your ideas, winning elections has a practical element to it, and Obama has shown most definitely that, "Yes he can".


Race without Race

Now to Obama's political ideas, and what he offers the country. First we must get past the asinine gushing over how great it would be to have a black president, woman president, etc. As someone pointed out, tongue in cheek, Africa has had black presidents for half a century (Haiti for four times as long), with results generally not much to write home about. And Benazir Bhutto's coming to power in Pakistan brought about no great improvements in that country, even for its womenfolk. Nothing changes just because of one individual from a certain race or gender coming to power.


Thus we should treat Obama just as another candidate, and ask the real questions: what does he want to do? Has he shown signs that he can?


A Consequential Candidate

During the primary campaign Obama, in a tight race against Hillary Clinton, took a shot at Bill Clinton during an interview with a newspaper's editorial board. He said something to the effect that Bill Clinton was a less consequential president than Ronald Reagan – for he had not altered the country in the manner Reagan did. This struck me as a good sign of Obama's understanding – Bill Clinton's signature achievement (reversing the budget deficit) was set at naught within a year of his leaving office – so much for his building a national consensus. Ronald Reagan's views still inform (or infest, some might say) the body politic. So, clearly, Obama is setting some standards for his presidency.


The Prince of Peace? Really?

Obama would have been just another presidential wannabe if he had not given that single speech against the Iraq War in 2002. That speech has been milked as a permanent political ATM; it was this address that gave Obama his initial spurt when he launched his campaign, coinciding with a time when there were about a 100 Americans getting killed each month in Iraq. However it would seem that to Obama, this was just a bullet point (no pun intended) on his resume, not a cause. Bill Clinton pointed out an inconvenient fact, namely, that Obama's record on Iraq once he got to the US Senate was exactly the same as Hillary Clinton's, whose flawed judgment on Iraq was one of Obama's main planks. Bill Clinton termed this notion of Obama being a serious opponent of the war in Iraq a 'fairy tale' (only to be reviled as a racist – he was not calling the candidacy a fairy tale, only Obama's ongoing stands on Iraq, but by then he had lost the media which had commenced its ballroom dance with Barack).


War, Uninterrupted

It is clear to anyone looking at the record (see for instance Restoration Boulevard) that the war itself, or even the Iraq War he opposed – causes him little ongoing moral anguish. As he himself said at that pivotal 2002 speech, he was not against all wars, only 'dumb' ones. Sure enough, he was soon expressing his willingness to consider attacks against Iran, Pakistan, and backing for Israel should she attack her enemies, etc., etc. Notable too was his lack of outrage at Israel's bludgeoning of Lebanese cities during the summer of 2006. His speech to AIPAC, an Israeli lobby group powerful enough to make American presidential candidates grovel, was certainly not lacking in belligerence. His ongoing theme of sending more troops to Afghanistan indicates that in matters of unilateral foreign military intervention, Obama is entirely at home with George W. Bush, Richard B. Cheney and yes – John Sidney McCain III.

At least going by public pronouncements, therefore, little by way of change is to be expected on this aspect of foreign policy.


The Constitutional Scholar

Obama edited the Harvard Law Review, an honor given to few. He was also professor of Constitutional Law in Chicago. Whatever one's political beliefs, unless one is of the opinion that 9/11 and the 'War on Terror' have somehow abrogated the Constitution, the Bush administration's depredations of the nation's laws should cause every legal scholar to writhe in agony. Law professors like Jonathan Turley have spoken out often about the brazen violations of the law by the administration and expressed consternation at Congress remaining supine in the face of these abuses. Obama however has remained a silent spectator. In fact, he reversed his initial opposition to the FISA bill and ended up voting for it (giving a convoluted explanation for his change of heart). Anyone would have thought a legal scholar at least would stand up for the Constitution. No such luck. In his soaring speeches abuses against the Constitution find little mention.


A Steady Head in a Crisis

When John F. Kennedy was asked about his heroism, he replied, "It was involuntary. They sank my boat. " Of course everyone knew he was being modest about his role, which included swimming out into the ocean to save a colleague, leading his team to safety and keeping them alive before they were rescued several days later by an Australian captain.

One hopes Obama, when asked by historians, will have enough modesty to reply that his ascension was involuntary – "they sank the financial sector". Before the cratering of Lehman Brothers and AIG and the ensuing turmoil, Obama and McCain were running neck and neck, with the latter even running ahead in some polls. It was at this juncture that Obama displayed superb instincts, bringing to mind what Secretary of State Dean Rusk once told a junior during a crisis, "Don't just do something. Stand there!"

Obama's steadiness of manner was accentuated even more by the twitching figure at the other end of the presidential boxing ring, whose responses brought to mind the Wodehouse exchange along these lines: "'Drive like the blazes', he yelled at the chauffeur. 'Where to?' asked the other, not unreasonably". In the end, Obama and Biden joined John McCain in doing exactly the same thing: voting for a bailout package neither had authored, including an extra 150 billion dollars of grease to get it through the House of Representatives. What was Obama's contribution? Not clear if there was any. But this much his mother has taught him well: Don't try to catch a falling knife.


Throw (Grand)momma from the Train

As Duryodhana memorably points out to Vidura in the Mahabharata, virtues in a ruler are not the same as those in an individual. It was presumably at an individual level that EM Forster wrote, "If I had to choose between betraying my country and betraying my friend, I hope I should have the guts to betray my country." If the opposite is the index of statesmanship, Barack Obama has displayed it in spades – jettisoning friends at the earliest sign of trouble. In his celebrated (though short-lived in its efficacy, for the Rev. Wright was to scale new heights soon thereafter – see Barack Bertie and Jeremiah Jeeves) speech in Philadelphia, Barack Obama not only sought to distance himself from the pastor, but also threw in his own grandmother's private utterances to her family as a counterbalance to the Rev. Wright's public fulminations. It struck me as chillingly cynical when I heard it, a man (rightly) unwilling to put his children before the press, but throwing out his grandmother (the same ailing lady he is off to visit in Hawaii this week) without compunction to sustain a political toehold. This was coldblooded and ruthless calculation on full display.


Excuse me

Of all the lame excuses – "I've decided to spend more time with my family" (after an affair), "I was quoted out of context", "I deny that I denied it", etc., Obama's excuses take the cake. When asked about Wright's sermons Obama, a regular at Wright's church for 20 years, said this – I was not in church that day. As to William Ayers, "I was 8 when he committed his vile acts". Obama is too intelligent a man not to know the absurdity of this line of argument. He is banking on a press that is so smitten with him to ask, "And were you 8 when you sat down with Ayers?" The straightforward answer would have been to say that he doesn't have to agree with everything his friends say. A similar weasel reply greeted questions about his being a Muslim: I've never been a Muslim, I am a Christian.


Here's how Ralph Nader replied when he was asked about his religious affiliation at a public meeting recently: "First, none of your business. Second, Church and State. Third, I think there's too much religion in our public life". If only Obama had answered this way! But caution is his middle name (oops!).


Beholden to Biden?

Obama's feelings about the Iraq War and his evaluation of the war as the single greatest strategic error ever committed by the United States stand in sharp contrast to his choice of Joseph Biden as his running mate. This worthy windbag not only lobbied and clamored for the Iraq War Resolution, but stood by his vote for years thereafter, even mocking Cindy Sheehan for questioning the War. This is the same former chair of the Judiciary Committee who fawned before Alberto Gonzales – yes that same Alberto Gonzales – saying to him during his confirmation hearings, "I like you. You're the real deal". This after Abu Ghraib! (In mitigation, it should be added Biden did not vote for Gonzales' confirmation).

Senator Biden is the man whose judgment Obama values and has picked for his running mate.


A Campaign sans Answers – and Questions

That such a campaign appears set to defeat the McCain-Palin ticket so handily is commentary enough on the vacuousness (and viciousness) of the Republican effort, although it is equally a sign that enough people are seeing through the various schemes and scams of disassembling ongoing for the past 28 years.

Overall it is astonishing that a campaign season that has lasted nearly two years has managed to avoid any discussion of basic questions such as "What is the role of the government?", or "Is terrorism really our #1 priority?" or "How bound should America be to Israel's foreign policy?" or "What's wrong with universal health care?" or "Is it OK to attack other countries?" or "Can a government violate the Constitution amidst a war?" or "Should the government spy on its own citizens without a warrant?", or "What is a just tax policy?".

It is only accidentally that one such question has been brought up, "Should we spread the wealth around?" I appreciate that Barack Obama brought up this issue, but I wish he would stand up and defend his 'gaffe'. Here's my answer to this question (Adrift, Yes. A Draft? Never) some years back.

It was Joe Biden who nailed Rudy Giuliani as a shameless self-promoter whose every sentence was made up of a noun, a verb, and 9-11. By the same token, Obama's can be said to contain a noun, a verb and either Hope, Change, or First African American (the last more often during the primaries).


False Choices

We are often told that we have no choice but to vote for Obama because McCain would be a third term of Bush. Let us conceded that McCain is demonstrably unfit. But McCain and Obama are not the only two candidates on offer. Ralph Nader is a man who has already done more for average Americans by his activism then either McCain or Obama can hope to achieve. Bob Barr has been consistent in standing up against violations of our rights and liberties.

Besides, before romancing the Democrats, it is wise to remember that it was a Democratic Senate that passed the Iraq War Resoloution; it was a Democratic Congress that passed the FISA bill (with Obama voting for it), and it was the same Democratic Congress which passed the Bailout package (with all its pork). To paraphrase Shakespeare, "The fault, dear Brutus, is not in our Presidents, But in ourselves...". So long as we remain consumers, not citizens (see Silence of the Lambs), our politics are sure to play false.


Back before Fo(u)rth

My fundamental problem with Obama is not with his solutions but with his diagnoses. The problem is not partisanship or bickering. If anything the problem is the lack of partisanship – partisanship with the Common People. Partisanship with the Constitution against the Corporations. Congressional Partisanship against a usurping Executive. Partisanship of the press against those in power. Unlike Obama, I think that before we can go forward, we must first go back. In a forthcoming article (Cleaning up after Bush), I write the following:

Barack Obama explicitly stated in his acceptance speech that there is no going back. That would be true if we were on the right track to begin with. In our situation, exactly the opposite is true. We are off the road, lost in the woods, and need to go back to the main road first before going anywhere. Without that essential step we can only get more lost.


If Obama is serious about moving the country forward, he must first restore it to where it was before. He might sense this, but does he have the will? Obama has run a sterile campaign touching no political issue of significance; it is not clear whether he thinks of himself as a technocrat, or whether he feels his first job is to win. Judging from what he has said so far, he appears unlikely to rock the boat even to right it.


Dr. Johnson said that a second marriage is a triumph of hope over experience. The post-election scenario is akin to a second wedding, where one has to fall in love with the candidate in his new incarnation as incumbent, all over again. Perhaps even those of us who were unmoved by his charms during the campaign will be surprised by Barack Obama the President. After all, to use his own cliches, one can always Hope that he might Change! Let us hold our breath (or will it be our noses?).

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The more Starbucks a country has, the worse its economic crisis


Sunk in the sloppy mess of the Frappuccino recession

The more Starbucks a country has, the worse its economic crisis. Where lies the link between coffee and greed?

Remember the once-fashionable McDonald's theory of international relations? The thinking was that if two countries had evolved into mass-consumer societies, with the middle classes able to afford Big Macs, they'd generally be able to find a peaceful way of adjudicating disputes. In other words, they'd sit down over a Happy Meal to resolve their issues rather than use mortars.
The recent unpleasantries between Israel and Lebanon, which both have McDonald's franchises, put paid to that reasoning. Still, the Golden Arches theory of realpolitik was good while it lasted.
In the same spirit, I want to propose the Starbucks theory of international economics: the higher the concentration of expensive, faux-Italian Frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses.
Think about it. The economic crisis has its roots in sub-prime mortgages and a credit crisis. If you could pick one brand name that personifies these twin bubbles, it has to be Starbucks. The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pitstops for estate agents and their clients. It also carpet-bombed the business districts of large cities, especially the financial centres, with nearly 200 in Manhattan alone.
And frothy Starbucks treats provided the fuel for the boom – the caffeine that enabled the Wall Street and City boys to stay up all hours putting together deals, and helped mortgage brokers work overtime as they processed dubious loans for people who couldn't really afford them. It's no accident that Starbucks based many of its outlets on the ground floors of big investment banks. (The one around the corner from the former Bear Stearns HQ has already closed.)
Like American financial capitalism, Starbucks took a great idea too far (quality coffee for Starbucks, securitisation for Wall Street) and diluted the experience unnecessarily (sub-prime food such as egg-and-sau-sage sandwiches for Starbucks, sub-prime loans for Wall Street). Like so many sadder-but-wiser building developers, Starbucks operated on a philosophy of "build it and they will come". Like many of the humiliated Wall Street and City firms, the coffee company let number-crunching get the better of sound judgment: if the waiting time at one Starbucks was more than a certain number of minutes, the company reasoned that an opposite corner could sustain a new outlet. Like the housing market, Starbucks peaked in the spring of 2006 and has since fallen precipitously.
America's financial crisis has gone global in the past month, spreading across Europe and Asia. Why? Because many of the banks feasted on American sub-prime debt and took shoddy risk-management cues from their US cousins. Indeed, the countries whose financial sectors were most connected to the US-dominated global financial system have suffered the most.
What does this have to do with the price of coffee? Well, when you start poking around Starbucks's international store locator, some interesting patterns emerge. At first blush, there's a pretty close correlation between a country having a significant Starbucks presence, especially in its financial capital, and huge financial cockups. Take the UK, which has had to nationalise the odd bank (698 Starbucks). Or take just London, which in recent years has been the wellspring of many toxic innovations and a hedge-fund haven (256 Starbucks).
In Spain – now grappling with the bursting of a speculative coastal real-estate bubble – the financial capital, Madrid, has 48 outlets. In Dubai, 48 Starbucks outlets serve a population of 1.4m. And so on: South Korea, which is bailing out its banks big time, has 253; Paris, the locus of several embarrassing debacles, has 35.
But there are many spots on the globe where it's tough to find a Starbucks. And these are precisely the places where banks are surviving, in large part because they haven't financially integrated with banks in the Starbucks economies.
In the entire continent of Africa, I count just three Starbucks (in Egypt). We haven't heard much about bailouts in Central America, where Starbucks has no presence. Argentina, a pocket of relative strength, has just one store. Brazil, with a population of nearly 200m, has a mere 14. Italy hasn't suffered any significant bank failures, in part because its banking sector isn't very active on the international scene. The number of Starbucks there? Zero. And the small countries of northern Europe, whose banking systems have been largely spared, are largely Starbucks-free (two in Denmark, three in the Netherlands, none in Sweden, Finland or Norway).
So, having a significant Starbucks presence is a pretty important indicator of the degree of connectedness to the form of highly caffeinated, free-spending capitalism that got us into this mess. It's also a sign of a culture's willingness to abandon traditional norms and ways of doing business in favour of fast-moving American ones. The fact that Starbucks or its local licensee felt there was room for dozens of outlets where consumers would pay for expensive drinks is also a pretty good indicator that excessive financial optimism had entered the bloodstream.
This theory isn't foolproof. Some places with relatively high concentrations of Starbucks – such as Santiago, Chile (27) – have been safe havens. Russia, which has just six, has blown up. But it's close enough.
So if you're looking for potential trouble spots, forget about the Financial Times or the Bloomberg terminal. Just look at the user-friendly Starbucks store locator.
The next potential trouble spot? I've just returned from a week in Istanbul, Turkey, a booming financial capital increasingly tied to the fortunes of western Europe. There are so many Starbucks that I gave up counting (in fact, 67 of them). I have no plans to move my money there.
Daniel Gross is the Moneybox columnist for and business columnist for Newsweek

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Saturday, 25 October 2008

Pretenders all of us

By Chan Akya

I am highly inspired by the testimony provided by Alan Greenspan, former chairman of the Fed and formerly the most powerful man in financial markets, to the US House Committee of Government Oversight and Reform on Thursday. Headlines immediately captured the essence of the prepared testimony, namely that "the" Alan, as we can call him in the style of the times, had admitted some shock but hadn't really fessed up to any major mistake on his own part.

Now of course, there is the whole ego, superego and id thing; but the little matter of continuing employment wherein the former chairman derives some tidy income from consulting for the world's major financial companies in sectors such as mutual funds (PIMCO) and banking (Deutsche Bank). Then there is always the matter of book sales [1], which may be adversely affected by any notions of fallibility.

In any event, many commentators have in the past attempted to create a dictionary of what Greenspan means when he uses any particular phrase. His commentaries and numerous testimonies during his tenure were famous (or infamous, depending on how much you actually understood) for the use of code, with specific phrases designed to excite the markets but leave lay people utterly befuddled.

In the same spirit, the following few phrases that appeared in his testimony on Thursday have been translated for the benefit of Asia Times Online readers. I have also added a comment on what a certain fictitious chairman of the Fed (let us call him Paul V) might have said in the same place.

The Alan: "We are in the midst of a once-in-a century credit tsunami. Central banks and governments are being required to take unprecedented measures. You, importantly, represent those on whose behalf economic policy is made, those who are feeling the brunt of the crisis in their workplaces and homes."

What he meant: "I am really glad it's you not me doing the heavy lifting. Furthermore, my opening with the tsunami reference is designed to make this whole mess seem like an unpredictable seismological event rather than the simple effect of various policy mistakes."

What Paul might have said?: "I messed up."

The Alan: "What went wrong with global economic policies that had worked so effectively for nearly four decades? The breakdown has been most apparent in the securitization of home mortgages. The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage-backed securities being 'subprime' were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with US home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a 'steal'."

What he meant: "Hey don't look at me; all my data said this sort of stuff could never happen. It's the fault of all those poor people who couldn't see that they were supposed to turn away the free money being offered to them, and the fault of all my rich buddies for trusting these poor folks in the first place."

What Paul might have said?: "Firstly, it is not true that economic policies had worked well in the past four decades, as the series of crises in the US and around the world from 1968 to the present would tell us. I should have tightened credit policy and banking supervision when the growth in higher risk mortgages appeared to increase disproportionately to actual income growth in the United States. Furthermore, the billions of dollars flowing into the US should have alerted me to potential bubbles and forced me to hike rates drastically. Or in short, I messed up."

The Alan: "It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment."

What he meant: "Nobody really knew how to price or trade these things. They even managed to confuse the idiots on the Nobel committee. So don't blame me for believing the balderdash. Also no one told me Nicholas Nassem Taleb was writing a book [2] that would point out all these model fallacies and so sell more copies than my book did."

What Paul might have said: "We had enough experience of other crises, such as the Latin America debt crisis that blew up our banks in the late '80s, to know the effect of false assumptions and poor data on the integrity of our financial system. This should have alerted us to the potential for mispricing and false profit generation; that should have forced us to intervene on the regulatory and accounting side of these transactions to make them less attractive for our banks to do. That was my job as Fed chairman, and I failed. Or in short, I messed up."

Fessing up
Having translated some of the comments for Asia Times Online readers, I will now fess up to my own mistakes in assuming that the end of the Group of Seven leading industrialized countries [3] could be hastened by the emergence of new giants such as Russia and some Asian countries.

In particular, three countries have recently performed a whole lot worse than my expectations, in effect denting any claims they can have in coming years for being considered serious (and independent) investment destinations. These three countries are Russia, South Korea and India: I have left out for now other countries that seem in greater danger of tipping over, such as Indonesia, as they were never considered anything more than exotic destinations. The three above though were talked of in some earnest as breaking their historic moulds but instead may well have been exposed as fraudsters being pulled up by the global economic prosperity.

I show below the performance of the countries' equity indices and their currencies against the US average, and for good measure those of China. While the relative equity performance is nothing to boast about for China (indeed, as equity returns are currency adjusted it means that nominal performance in China was the worst across that column), the trio of Russia, South Korea and India show some eye-popping bad numbers. The most difficult to believe is the significant decline of the Korean won against the US dollar this year; shocking for a country that showed an improving current account balance until the middle of this year.

  YTD Equity
Return %
YTD Currency
Return %
Russia -72 -9.10
Korea -63 -49.62
India -62 -26.34
US -38 NA
China -62 +6.33

This is however not all of the bad news - as the current crisis is very much one rooted in the credit markets, it makes sense to evaluate the relative riskiness of the various governments underpinning the economies. This we can do by looking at sovereign credit default swaps (CDS), that is, the insurance payment being demanded by a market counterparty to cover your risk of that government failing to repay its obligations. These are traditionally shown in basis points or one-hundredth of a percentage point (thus 500 basis points means 5%).

From the CDS value, the implied probability of default being assigned to that sovereign can be worked out provided we can assume a certain "loss given default", (or LGD, which is fixed here at 60%); this is shown in the column after the CDS. Note that the figure below for India pertains to its largest state-owned bank (State Bank of India) because the government itself doesn't have any externally traded obligations.

  Oct 23rd 5yr
CDS spread
Implied Prob
of Default %
Russia 1100 61
Korea 600 41
India 750 48
US 25 2
China 235 15

From the above, it is clear that none of the pretenders and especially not the first three countries can claim to be in a position to overtake the existing global benchmark for risk-free assets, namely the United States. It is shocking and rather amazing that despite holding about US$1 trillion of reserves between them, the three countries average a default probability of 50% within five years. That one-in-two chance of default within the period shows that these countries have never truly learnt the lessons of the past few decades.

The simple matter of evaporating market confidence has belied Russia's claims to great-power status, resurgence under president and now Prime Minister Vladimir Putin and so on. For a country with more than $500 billion in reserves (itself down around $100 billion from just August this year), market signals are not so much about the government as they are about the overall level of confidence in the economy and its business representatives.

The first point of the market's loss of confidence is the mounting debt maturities of various Russian companies and the country's largest banks, all of which tapped the short-term (one- to two-year) markets to finance their expansion plans. With many of these facilities now coming due for payment, and no prospect that any investor would agree to postpone payments for another couple of years (refinancing), the Russian government has been expected to step up.

The only other alternative for investors in such nominally private companies, namely to convert the debt into equity stakes, doesn't apply in the case of Russia, due to the high-handed behavior of the government. Thus, despite very little in the way of direct obligations, the shadow of the 1998 debt default by Russia along with a string of Kremlin-inspired malfeasance has scared investors and caused a flight from Russia. Many oligarchs are rumored to be urgently stashing away their wealth in destinations far away from Russia, adding to the pressure on the currency - this is even being cited as one reason for private companies to deny payments to foreign creditors as their owners make off with the bank balances.

It is still possible for Russia to take remedial steps that could prevent an escalation of the current crisis into a full-blown economic collapse. After underpinning the viability of Russian banks, it must undertake quick steps to improve investor confidence; for example by avoiding arbitrary closure of its stock markets whenever prices fall [4], avoiding the temptation to indulge in currency intervention and implementing steps to improve bankruptcy procedures, corporate governance and the like which can help create equilibrium much faster.

South Korea
Perhaps the country that shocked me the most by its presence on this list, South Korea has failed to learn the basic lessons of asset-liability and liquidity management from its previous crisis in 1997-98. Most recently, the Korean government has had to unveil a $100 billion guarantee program for the offshore debt of its banks, taking away a rather substantial chunk of the $240 billion or so of foreign exchange reserves that it boasts.

Given the escalating current account deficit and poor prospects for investment inflows, it is possible (albeit very unlikely) for Korea to run out of foreign exchange by the beginning of 2010. This must be problematic for any country, and more so for one with international pretentions, as shown by the abortive global takeovers attempted by South Korean companies such as KDB [5] and Samsung in recent months.

There are numerous culprits here. Most notable is the Bank of Korea, which followed an ill-advised policy of maintaining an onshore US dollar shortage in order to deflect the potential for Korean won appreciation. In so doing, it created the conditions for greater offshore borrowings to fund the economic reliance on the export market rather than domestic consumption. In turn, this left banks and companies with the same mix of short-term liabilities against longer-term assets that marked South Korea's first descent into a balance of payments crisis in the Asian financial crisis of 1997.

Ironically, many equity index managers were finally upgrading Korea from its perch in "emerging markets" to a new "developed markets" level; instead it appears that Korea will have to negotiate to stay afloat in the emerging markets category; its most recent equity, currency and credit performance certainly put it in the same category.

To a number of people who bought into the BRIC - Brazil, Russia, India and China - hoopla, India's fall from grace parallels that of Russia. Here again, it is not the external borrowing practices of the sovereign itself that are to blame; funnily enough, neither are the borrowings of local companies in global markets considered to be excessive. In any event, less than $25 billion of Indian corporate and bank debt falls due by the end of next year compared with $275 billion of foreign exchange reserves that the country boasts. Even accounting for zero capital inflows and continued current account deficits, the overall cushion will remain close to $200 billion.

Achilles though still has a heel. The loss of confidence can be traced to the haphazard decision-making of the central bank, which came late to the inflation-fighting party this year in a futile attempt to prevent foreign exchange appreciation, thereby causing policy about-turns that stun even the most adept of investors.

Secondly, political noise in the country has been increasing ahead of next year's elections. This has turned investors naturally cautious, and in turn made crisis management a bit trickier for the government (in which respect there is much in common with the recent US experience).

Thirdly, there is legitimate concern both domestically and offshore about the impact of low infrastructure investments by India over the past two decades. The problems seen in the poorest parts of the country offer a closer view, albeit one that the media have been slower to latch onto compared with the markets.

Recent violence in the state of Orissa between Hindu fundamentalists and Christian missionaries showed not so much the tinderbox of religious intolerance as it did the fairly low "price" that poor Indians assigned to their centuries-old culture and religion. For the destitute and the desperate whose battle for basic sustenance is all-consuming, manna from any source is welcome. Inconveniently enough for the people who believe in an India that can outshine its recent past, the images aptly conveyed the two sub-nations (the upwardly mobile and the downwardly stale) created by communist-inspired governments in the country. [6] As in the case of Russia, the response from investors has been to sell first and ask questions later.

And in closing ...
Perhaps the one quote from Greenspan's testimony that I find myself agreeing with, and especially the last sentence: "There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitization. It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today's markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime."

The fact that a market become overcautious at the drop of a hat (or a few billion dollars) is borne out by the experience of the US subprime mortgage market, as it is for countries such as Russia, South Korea and India. In all these cases, the loss of confidence that has been sparked by a combination of quantitative and qualitative factors will induce substantial behavioral shifts that will take years if not decades of patient reworking for these markets and/or countries to correct. Pretenders, whether they are government officials or market fallacies, will always be exposed.

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Friday, 24 October 2008

Definitions: The Proletariat



By Gaither Stewart

17 September, 2008


"Suppose that some great disaster were to sweep ten million families out to sea and leave 'em on a desert island to starve and rot. That would be what you might call an act of God, maybe. But suppose a manner of government that humans have set up and directed, drives ten million families into the pit of poverty and starvation? That's no act of God. That's our fool selves actin' like lunatics. What humans have set up they can take down….Whoever says we've got to have a capitalist government when we want a workers' government, is givin' the lie to the great founders of these United States…."


A Stone Came Rolling
Olive Tilford Dargan

(Rome-Asheville, N.C.) I was back in Asheville where I started out. I found her gravesite in the obscure Green Hills Cemetery in the frontier territory of the West Bank part of this mountain city, across the French Broad River that the Cherokee called Tahkeostee.

JAN. 10,1869
JAN.22, 1968


The poet is now forgotten. Her tomb lies far from the monumental cemetery-resting place of other Asheville writers such as Thomas Wolfe and O. Henry. In her long life she was neglected because she was a proletarian writer, no easy undertaking in her times in Western North Carolina. Concerning the workers' struggles in America last century, Dargan admitted that literature was secondary to her social commitment. 'The struggles lie closer to real experience than the flutter of an eyelid which has occupied bourgeois writers ….' A widely traveled Radcliff graduate, Olive Tilford Dargan lived most of her life in Asheville, NC. Acclaimed poet and novelist and in Who's Who, she was blacklisted during the McCarthy Communist Scare in 1950s. Other writers labeled her writings propaganda because she "hobnobbed" with Communists.


Dargan described her first novel, Call Home the Heart, published in 1932 by Longmans, Green and Company, under the pseudonym of Fielding Burke—as 'a proletarian novel depicting the role of mountain folks in the Gastonia, North Carolina cotton mill strikes,' also largely forgotten as are the wave of violent textile worker strikes that swept through North Carolina in 1929. The strike in Gastonia reflected the tensions rising from the industry's rapid development in the South after World War I when northern capitalists took over the southern mills to exploit cheap labor. Since Gastonia was the epicenter of the phenomenon, mountaineers from the Smokies swept into town to work in the mills. The Loray Mill (pronounced Low-Ray) was the first in the South to undergo new "techniques" such as speed-ups forced on the worker rather than new technology. That exploitation of labor ignited the anger of textile workers in the region until walkouts began. The strike in the Loray Mills was the most famous and the most violent.


I still remember the red brick buildings, the chain-link fences and the little houses in Loray Village in West Gastonia that we passed each time we arrived in Gastonia where my grandparents lived. At that point my father always said, "Well, we're at Loray, so we're nearly there."


Mill owners and state law enforcement crushed those strikes so viciously that subsequent attempts to organize labor in the North Carolina textile plants were unsuccessful. Yet the history of the strike remains, recorded in novels like those of Dargan and in the writings of one of the organizers of the Gastonia strike, Vera Buch Weisbord, a Communist and member of the National Textile Workers Union, NTWU. No less than Marxist writings, such histories of the battles for social justice throw light on the eternal struggle between labor and capital.


The history of the clash in Gastonia offers the perfect setting for an epic film or a social play of an insurrection. All the classic characters are present: evil capitalist mill owners, exploited workers in hot dusty factories, tiny ragged children and their emaciated mothers and wives in the square wooden houses, strikers, scabs and strike-breakers and dedicated and corrupt union leaders.


Dargan claimed the sequel to her first novel—A Stone Came Rolling, same publisher, same pseudonym—was even more proletarian. She claimed that she strove not to write propaganda while she fought with conflicting feelings about writing poetry and her social responsibility. Can one combine the two? she wondered. Or are fiction and social reality destined to take separate paths?


Dargan was an idealistic dreamer. To the end she continued to see good in a southern folk that has always been not only violent and brutal but also lacking in any kind of class-consciousness. They were no shield against the capitalism she detested. Neither her Asheville nor strike-ridden Gastonia 100 miles away were safe places for radicals.




This article should be dedicated to wage earners—especially in the USA and Europe—as well as to those peoples of the world who have no wages at all, the potentially class-conscious proletarians who have the capability of changing the reigning social-economic order.


The prologue to this historical play begins in ancient Rome where the proletariat was the lowest class, the plebs, the masses. Then, a jump forward through the English Revolution to the French Revolution where the curious wage earner-spectator finds the same lower classes now represented by the sans culottes, the ragged have-nots of society, ruled over by the bourgeois and the royalty. Then, a half century later, Marx attaches the old label of proletariat to the workingmen and the downtrodden masses capable of war against the bourgeoisie. By the time of the Russian Revolution the working class there has become class-conscious and in the vest of the industrial proletariat—no longer simply ignorant masses—executes its revolution.

Ten years later, when those textile workers strikes spread over the American South, bombs flew, agitation was real and the potential for proletarian revolution was in the air. The missing factor in America was effective leadership as in Russia. There were only strikers for more pay, strikebreakers, scabs and suffering people.


Online I found this eloquent testimony in the book by John A. Salmond, The General Textile Strike of 1934, From Maine To Alabama, University of Missouri Press, Columbia and London.

have done it. The South hadn't even begun to organize
well by then, " remembered Kasper Smith, former textile
worker and striker. "What happened in 1934 has a whole lot to do with
people not being so union now." The veteran organizer, Solomon Barkin,
made much the same point at a 1984 symposium commemorating the
strike's outbreak. The strike's leaders had had little "experience with lead-
ing large strikes, " he asserted; there was no money to sustain the effort;
"organizational preparation was practically nil"; there was little support
from other unions, the federal bureaucracy or the president, "preoccu-
pied" as he then was "with recovery rather than labor relations." More-
over, the AFL generally had failed its local union base, especially those
"which had been spontaneously formed" in the wake of the NIRA's pas-
sage. They were essentially left to their own resources during the strike.
There was no national direction, no widespread public or union support.
This was not a national strike at all, but rather the sum of thousands
of essentially local efforts, often with differing impulses and aims, and
this was especially true of the cotton textile South, the strike's supposed
epicenter, where the workers' sacrifices were the greatest, the repression
the most severe, and the consequences of failure the most long-lasting.


No, the idea of the proletariat is not passé. The word proletariat still conveys the sense of resistance to oppression, of action, of force and strength, of an ideal. The words labor and capital, as Marx used them, are real-life categories. The capitalist and the wage earner are the personification of capital and wage labor. To disparage such words or use them in derision is to deny the dignity of human existence. For today as yesterday the proletariat is no less than the great masses of the world. It is the people. It is one of those words that are exciting and stimulating … but in the abstract. In fact the concrete proletariat is hard to touch.


Though those masses personified by proletariat constitute a class, they themselves are seldom aware of it. To become a class of action the proletariat requires leadership, something those furious, hungry, striking textile workers did not have.


The proletariat is complex. It comprises much more than the industrial proletariat of the Russian Revolution. It comprises any wage earner, the property-less class, which sells its labor to the class of property, money and power who however do not work.


Thus those two classes—those who work and those who don't—stand face to face on the stage of life, interdependent, but forever at war with each other. The capitalist class understands instinctively this eternal dichotomy dividing men since the Persians, Mesopotamians and the Greeks. But the super-indoctrinated American working class dulled by the "American dream" does not get it. On the other hand the middle class in America and Europe has not grasped that they too are now part of the proletariat.


Having a mortgaged home, a car and a TV does not change the proletarian's status because his very lifestyle depends on wages determined by the capitalist class which controls property, power and money. The wage earner depends on money lent him by the capitalist bank to buy his home, his car and his TV. The current subprime crisis demonstrates eloquently that those loans make the wage earner a prisoner of his employer, be it industry or banks or the state bureaucracy.

Though the man who works for wages, blue collar or middle class, is a member of the working class, his wage earner status does not make him automatically a class-conscious revolutionary. He can be anything, from a priest to the blackest reactionary, which unfortunately is often the case in the USA.


Modern history shows that the American wage earner—the potential proletarian—is in reality the staunchest flag-waving defender of the capitalist system that exploits him, does nothing for him except pay him unfair wages, sends him to war to defend capitalist interests, and throws him aside at will. American wage earners are so amorphous, so blunted in their ballyhooed ignorance, so unstructured and ill-organized that they do not even constitute a class. Their ignorance and their acceptance of their situation represents one of the great victories of capitalism.
The arrangement doesn't make any sense at all.


Many Europeans workers are still class-conscious. But not the reactionary American workingman. The absence of class-consciousness of the American workingman exemplifies Marx's statement that "the working class is either revolutionary or it is nothing."


Even more: not even the mildly class-conscious workingman is aware that he is willy-nilly engaged in a war with the capitalist class. He continues to accept his role as an indistinct part of an illusion of a society, as an abstraction of a cradle-to-grave category, destined to make no mark on society, to leave no traces of his passage though life.

However, those 1930s textile strikes in North Carolina show that his illusions may one day fall away. The day he and his new middle class companions wake up from their incubus and genuine, fully developed class awareness arrives, the newborn proletariat can then become revolutionary.


That day will be the death of American capitalism, as we know it.


Meanwhile, caution. Let's don't confuse revolution with either liberal reform or armed insurrection. Reform is adjustment made by the rulers in order to maintain power, as happened for decades in Tsarist Russia. As a rule, reforms are too little and too late. Insurrection on the other hand is a local, spontaneous and one-issue matter, as was the 1929 Gastonia cotton mill strike. Insurrection is not revolution.


Since drastic and radical social-political change should be the goal of thinking world citizens today, everything that inhibits social solidarity, the blossoming of resistance, the redistribution of wealth, and the creation of a rebellious mindset against a negative myth are obstacles to be overcome.


But wait a minute! A myth? What myth? In this case—the myth is America itself. The Greeks too wondered how can you battle a myth? In the aftermath of the fall of Troy, Menelaus stood before Helen with his sword raised: he stared at the traitoress and let his sword fall. He couldn't kill her. Helen was a myth. Menelaus wondered how you can kill a myth. He was not a revolutionary. In the final countdown, myths too, that is illusions and false consciousness, must be destroyed to make room for legitimacy.


Speaking of myths, let's keep in mind that though born out of solidarity and resistance and reason, the United States of America has always harbored violence in its soul. We now see that peaceful, anti-war, mankind-loving America is a myth. A parallel violent world lives within American society. In America, violence and war are so much a part of life that non-violent opposition to its inbred violence seems to be hopeless folly and unreason. In comparison to America's homebred terrorism and violence, just a heartbeat away from mainline life, al-Qaeda is stuff for babies and schoolgirls. In comparison to today's institutional terrorism, past student non-violent protest or even pistol-armed Black Panthers and Weather Underground insurrections appear as innocent as breaking plate-glass windows.


Another illusion to be overcome is that the abstract workingman-proletarian can develop class-consciousness alone. Class-consciousness must be instilled from outside the class. That role inevitably falls to the intelligentsia and activists. Marx wrote in German Ideology that "one of the most difficult tasks confronting philosophers (let's say, educated people), is to descend from the world of thought to the actual world." That is, to the world where the workingman lives.


Yet, proletarians reject interference by intellectuals. The American workingman appears allergic to knowledge and history. Therefore he is the most truant in class awareness. The American working people have forgotten that they constitute a class, that classes even exist. They act as if the class idea belongs to another planet. To the world of Communism! That it too is an illusion.


Moreover, the poor economic classes of America accept the American Dream rhetoric that the rich deserve to be rich because they are smarter. Wealth is proof of their virtue. It is good to be rich. The poor are guilty for their poverty. As John Steppling points out on these pages, the American poor produce and reproduce the values of the ruling class, the values and ideals of the rich. The poor live in the illusion of real choices in life while in reality they live their little lives in servitude.


While the "people" are as if paralyzed, blind and dumb, in its name travesty after travesty are committed by those same capitalist leaders who betray the people routinely and abominably, making themselves traitors in the process and making the people complicit in their crimes against humanity. In Nazi Germany it was "we didn't know." In America today it is "we don't want to know". No false airs, please. That's un-American. Who cares about social theories? Who cares where Laos is located? Or Georgia? If Saddam Hussein wasn't responsible for 9/11, he could have been, which is the same thing. Only evildoers and anti-Americans believe he didn't have weapons of mass destruction. The wide admiration for ignorance, I think, is in imitation of the ignorance of the nation's leaders. And, as we know, ignorance is the handmaiden of the crime of Fascism.


By a strange coincidence I just opened at random the book The Origins Of Bolshevism by one of the forgers of the Russian Revolution, the Menshevik Theodore Dan, and found his remark about the "open war of the Orthodox folk (in pre-revolutionary Russia) with educated people." Also then, in those different but analogous circumstances of pre-revolutionary Russia, educated people were isolated from the masses. From that perspective the working class in the US has become politically worse than nothing. As a collective it has been molded into a reactionary force that keeps the power elite in power. Conditioned, brainwashed and hoodwinked, the bribed workers seem to believe ignorance is for their own good.


So what happened to the collective? Or, worse, was it always that way? Except for sporadic insurrections in face of starvation in the depression years and isolated periods of resistance, the American collective has never emerged in the glory it must harbor somewhere.


Therefore Marx said that if the proletariat is not revolutionary, what good is it? And that is the pertinent question today. Is the American workingman, the wage earner, the proletariat, reformable? I pose that question for that American wage earner who does not pose the question himself.


At this point we can't go much further in the American part of the proletarian tragedy without some class distinctions. Today, up there on the political stage we see the prancing billionaire puppets of the capitalist class who control property, money, and, consequently political power. Whom they decide to place at the top of the pyramid today to represent their interests and misrepresent the masses should be a matter of indifference to the blue collar-middle class wage earner masses. In my mind not voting for any of them is an acceptable choice if accompanied by compensatory revolutionary activity. The most one can say is that a growing number of Americans, now approaching a majority, either through choice or indifference have opted for the non-vote route, while a tiny minority finds satisfaction in minimal grassroots agitation.


And here, another character mentioned above steps on stage. Today, as in recent centuries in the Occident, there is an in-between class. It is part of the middle class, elsewhere and at other times called the petty bourgeois, from which emerge America's liberals and progressives. Many petty bourgeois beyond America's borders, chiefly in Europe, prefer to label themselves Social Democrats. Far from wanting to transform society in the interests of revolutionary proletarians, they aspire to making the existing society tolerable … for themselves. In their own interests they want to counteract the rule of capital by the transference of as much power and employment as possible to the state of which they are an integral part.


HOWEVER, in their conception of state and society, the workers, the wage earners, the proletariat, are to remain forever workingmen, wage earners, proletariat. Therefore the petty bourgeois (again, the liberals and progressives) social programs for better wages and security for the workers, with which they bribe the workers to stay in line.

That was the warning Marx and Engels brought to the Central Committee of the Communist League in 1850. But how modern it rings.


That's where the proletariat must step forward and shout, NO!


It's true that every event that happens leaves traces. It is something like mirrors and their reflections. Except that in the mirror's reflections, the left is right, and the right is left. Illusions all! Illusions are like words unspoken that are no longer words at all. Sometimes we have to banish all possibilities of illusion. Sometimes we have to stop, close our eyes, and allow ourselves to see real reality, not illusion where right is left, and left right. Reality free of brainwash. Free of all those words and euphemisms we hear on TV and read in the establishment press. We can trust none of it.


One problem facing the wage earner-proletariat is the lack of a suitable program. I can't see an acceptable program for changing the world. The "Another World Is Possible" movement is at best a loose agreement around the planet that change would be a good thing. One answer to those who wonder what the new resistance wants is simple: they want a just society.

Sometimes it is comforting—but not much more than that—to recall that though protest movements of the past have been broken and scattered by Power, many of those people and like-minded others are still out there in society. They could rejoin the growing number of mature people with eyes to see and ears to hear.
But what are they to do? one wonders.


That has always been the question.


Studies show that the class of Power in the USA is surprisingly small, numbering in the tens of thousands. The potential opposition on the other hand is enormous, including all those Che Guevara had in mind when he quipped, "If you tremble in indignation at injustice then you are my comrade." El Che had in mind the proletariat of the world.


Though much of the ruling class is stashed away in corner offices on top floors behind batteries of secretaries, apparently in hiding, out of its vanity it still wants to be seen. For what is Power if no one knows YOU hold it? Members of the Power class are visible on stage each day, in TV, in Congress, in the military hierarchy, in diplomacy, multinationals, religions and the universities. The higher they ascend the ladder of Power, the more entrenched in the Power system they become. However, those at the very summit are in hiding, the rulers who really rule. The most dangerous are those who meet in secret societies like the Bilderbergers. We can suspect who they are.


Since it seems that the people sitting in the top tiers of our political-social theater have abdicated from the struggle, we tend to underestimate their power. For they too have a stake in the land. One forgets the potential force of those textile strikes of the 1930s. One forgets that organized workers can bring a small city like Asheville in North Carolina or a metropolis like New York or a company like General Motors to a standstill in a matter of hours. The reason that seldom happens is because the people have forgotten their own strength.


People don't think about their strength because of Power's astute use of myth and illusion: the myth of freedom and the illusion of happiness made of comfort and ease. And today, above all, more and more out of fear!


Though most people seem to prefer ignorance, some people are learning to distinguish between myth and reality. For many issues are glaringly real and evident: the Iraq War, globalization, US imperialism, legalized torture and genocide, the new American police state, and the degradation of social life in the West in general.


Solidarity too is growing. Resistance spreads. The superiority of "the American way of life" has revealed itself to be a great lie. The result of extended and prolonged resistance is inevitably state violence against dissent. State violence in turn has a multiplier effect: when Power steps in to taser dissenters, it intensifies resistance. An explosion becomes inevitable. First collective action, then civil disobedience, then state violence, then the explosion. For police-state laws change our thinking about legitimacy. This time around the explosion can become something much different than Power imagines. An organized people can shut down the nation without firing a shot.


The people! Today the American people are broken, fragmented and bewildered, devoid of unity of purpose, as existed briefly, let's say, during the Vietnam War. According to recent studies the vast majority of American people are still unaffected by America's ongoing permanent war. The discussion about whether 70,000 or over one million Iraqis have been massacred has a certain theoretical-academic air about it. Not even the mothers of the American dead in Iraq can get organized.

At the same time more and more people have lost faith in the electoral system. Some of them have taken on the job of breaking down the natural passivity of the dissatisfied and fragmented people who, though in potential agreement with revolutionary analyses, are unused to resistance because of the illusionist spin conducted by Power. Therefore the suggested antidote of not voting for any of them.


Then there are the wars to be ended. If the people can't share the government's war effort, it can share in anti-war objectives. There is vast and growing poverty and social injustice to be resolved. There is a dramatic need for universal health care. There is a corrupt and mean political class to be removed. All of it. Both parties. There is every need to give power back to the people.


Grassroots organizer Abigail Singer, co-founder of Rising Tide North America and of a recent Southeast Climate Convergence conference in Asheville, North Carolina, said in an interview that voting is not enough because the electoral process has been sold to the highest bidder and that people who get into positions of power have to sacrifice whatever principles they started out with to the point that systemic change is impossible. Real change can come only from the grassroots.

At the same time a growing number of people are losing faith in nonviolence. Singer points out that capitalism itself is extremely violent. "If you're not nice and polite, some people consider that violence. But most violence is in business as usual and capitalism grinding on, killing workers, forests and oceans. We're surrounded by normalized violence and don't recognize it for what it is. Confronting this normalized violence in a direct way is not violent; it's necessary."


While liberals and progressives argue that you have to work within the system, the modern activist is mutating because the political climate has changed. The violence of government repression creates violent reaction in the same way war against Iraq creates new shahids. Violent resistance is nothing new: Black Power backed up the Civil Rights movement. Historically the US government didn't grant more workers rights because it became good but because people rose up and demanded their rights. People organizing to defend themselves reaches back through the history of man. Today in America some few people are coming together and developing new ideas of resistance. Their number is destined to grow to the degree that government repression grows.


After my youth in America I have lived my adult abroad. Traveling to the USA today is to go abroad. Therefore I have acquired a double sensibility about my homeland. When I arrive there, abroad, but also at home, I feel double tensions in the air: the tension connected with the widespread fear of losing "the American way of life" and the tension of a minority of dissatisfied people also fearful because it knows it is living an illusion, and that mutiny—still so nebulous as to appear a chimera—will be necessary to change things. In America I sense both a fear of action and a fear of non-action. Perhaps also a fear of change, fear that things can only get worse. The fear, as one friend wrote me today, that something very bad is about to happen to America. A fear like that of a people inhabiting the wrong house, or the haunting fear that the real house it once inhabited is today occupied by usurpers and has lost its soul.


One senses also a disturbing atmosphere of sick pragmatism and a depoliticalization coupled with widespread contentment with just analyzing the current situation rather than challenging it.

It is a good sign that across the land some grassroots activists are working to break down indifference. Radical change presupposes an end to blind acceptance of Power's fictionalized version of reality. Activists no longer need feel alone. Each person arrested in anti-war demonstrations acquires new faith in resistance and each of them creates new converts.

Acceptance of the legitimacy of Power, indifference to Power's deviations and passivity in the face of Power's threats against external enemies seem to have peaked. More and more people believe that Power gone mad has to be put aside. The eventual end of acceptance and passivity could result in a kind of explosion the world has never seen.


Today however that clash is still more hope than reality. Hope that a new strategy of liberation from the oppression of illegal American Fascism will mushroom. In other times, in an older language, that strategy would be called revolutionary theory. The old Leninist concept is apt here: there can be no revolutionary movement without a revolutionary theory. The theory here, the strategy, must explain that it is not just George W. Bush, the system's current representative, or his replacement, who must go, but the system itself run by that tiny minority at the top.

But people don't rebel easily. People prefer reforms. People do everything possible to avoid social convulsion and upheaval, even compromising with a Fascist police state, precisely as happened in Nazi Germany and Fascist Italy.


On the other hand, today's US government is aware that the spirit of mutiny/revolution is brewing. That is why it has armed itself with a set of illegal and anti-constitutional laws to crush it. At this juncture the alternative to ousting today's corrupt American system is a permanent police state, which if it becomes any more fixed than it is now just might last a thousand years.
The American people will have to decide what to do and how to act. Meanwhile many non-Americans agree that the most extreme problem of this century for mankind is the confused, powerful and violent United States of America.


Finally, as an epilogue, see what Henry David Thoreau (1817-78), great American author and philosopher, wrote in his "On the Duty of Civil Obedience":


"All men recognize the right of revolution; that is, the right to refuse allegiance to, and to resist, the government, when its tyranny or its inefficiency are great and unendurable. Those who, while they disapprove of the character and measures of a government, yield to it their allegiance and support, are undoubtedly its most conscientious supporters, and so frequently the most serious obstacles to reform.


"If the injustice is part of the necessary friction of the machine of government, let it go, let it go…. if it is of such a nature that it requires you to be the agent of injustice to another, then I say, break the law. Let your life be a counter-friction to stop the machine. What I have to do is to see, at any rate, that I do not lend myself to the wrong, which I condemn.

"But what shall I do? You ask. My answer is, If you really wish to do anything, resign your office. When the subject has refused allegiance, and the officer has resigned from office, then the revolution is accomplished."


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