Eugene Linden
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A Nobel Prize in Economics a Climate Change Denier Might Love

It has been a scary month in climate science. Hurricane Michael and a frightening report from the U.N. Intergovernmental Panel on Climate Change underlined the potential costs of human-caused global warming. Then to add insult to injury, William Nordhaus won the economics Nobel Prize. Nordhaus wa...

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The Ragged Edge of the World
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Winds of Change
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Afterword to the softbound edition.


The Octopus and the Orangutan
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The Future In Plain Sight
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The Parrot's Lament
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Silent Partners
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Affluence and Discontent
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The Alms Race
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Apes, Men, & Language
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Trump, the Toxic Legacy of the Financial Crisis


Sunday November 05, 2017

Today, the Lost Angeles TIMES published my oped as part of a a package on the first anniversary to Trump's election. Space was limited, so I thought I'd put up the more fleshed out version here:


Ten years have passed since the beginning of the great financial meltdown, and perhaps the most toxic legacy of that crisis was the election of Donald Trump as President. I’ll get to that linkage in a moment, but even before Trump’s election there were signs that the crisis was part of a worrisome trajectory. The near meltdown fits within a recurring cycle in American capitalism in which generational forgetting and greed conspire to foster credit bubbles, which inevitably burst, ruining millions, but leaving intact the system and perverse incentives that in turn set the stage for the next turn of the cycle. In recent decades this cycle seems to have a period of eight to ten years – something to keep in mind on this tenth anniversary – but the wildly improbable Trump presidency suggests that wobbles in this cycle are becoming more extreme and spreading beyond the economic to the political. If we do not pay heed to the lessons of the financial crisis, the next phase of this cycle could be the last for America as a functioning democracy.
 
What are those lessons? The biggest, hiding in plain sight, is that the crisis is not over. The U.S. remains in what future economic historians will call a depression. We’ve had ten years of subtrend growth, and even today, the economy remains so fragile that the Federal Reserve is hesitant to raise interest rates from their unprecedented emergency levels. Taking per capita GDP (the most meaningful measure since it adjusts for population growth) from its previous peak in the fourth quarter of 2007, the annual growth rate over the past ten years has been a limp 0.50% per year. It seems that every year since the meltdown economic forecasters have predicted that the economy will break out of its doldrums, only to be disappointed and make the same bright prediction for the following year.
 
A principal reason for the subpar performance has been slack demand – people simply don’t have much money to spend. Trends in automation, globalization, and financial engineering have left the median American household little better off than it was 50 years ago despite the fact that participation by women in the work for has increased by more than 50%.
 
The average non-supervisory worker has actually lost a little ground since 1967, earning $743 a week as of August, versus an inflation-adjusted $792 a week fifty years ago. While the median family’s income has virtually flatlined, in that same interval U.S. real GDP nearly quadrupled.  
 
Consider events of the past few decades. Inflation decimated worker savings in the 1970s, and then the end of the Cold War unleashed forces that suppressed their wages. Outsourcing exposed American workers to competition from a global work force; unions lost their bargaining power; automation steadily worked its way up from blue collar to white collar functions, and the more recent explosion of ecommerce threatens the tattered remains of the bricks and mortar economy, eliminating not just retail jobs but the construction, real estate, and service functions that supported stores and malls.
 
Then 2008 hit, which threw nine million people out of work, put more than 3 million households in default on their mortgages, and ruined the credit of many millions more. Since then, many have gone back to work, but at lower paying jobs with fewer benefits, and no job security. Millions more simply gave up, and, as Alan Krueger of Princeton recently argued, many of those turned to opiods.
 
Against this harsh reality, the average family turns on the news and hears that the economy is at full employment, and that banks are again paying out fat bonuses. They also hear that some of these bonuses were the reward for pursuing predatory practices (such as the fake accounts and unnecessary auto insurance Wells Fargo forced on an estimated 3.5 million of its poorer customers). No wonder people are angry. 

The Trump phenomenon revealed that significant numbers ordinary people sense they are being screwed by the establishment. Millions have concluded that both political parties serve a shadowy nexus of financial and corporate interests. This nexus seems all the more sinister because it has no official status or organization -- which makes it fertile soil for noxious conspiracy theories. The “system” needs no organization because it is a commonly shared set of ideas about free markets, deregulation, the frictionless movement of money, and the role of central banks. To paraphrase the late Charles Reich, the elite don’t run the machine, they tend it.
 
The power of this nexus is undeniable. One act that set the stage for the financial crisis was the repeal of the Glass-Steagall act, which had previously prevented banks from risking depositor money in less conservative investments. Banks had been pushing for this for years, and in 1999 Bill Clinton, a Democrat signed its demise.
 
Unfettered, the big banks and other financial institutions plunged into the mortgage business, getting fees for placing loans with unqualified borrowers (remember NINJA loans?), and then stuffing these into securitizations to get them off their books as quickly as possible. For those who worried about the consequences, the revolting mantra of the day was “You won’t be here; I won’t be here.” In those days, volume was the key to riches, and so the lending ran amok, at least until the unqualified borrowers started to default and the entire pyramid collapsed.
 
The durability of this shared set of ideas has been astonishing. Despite the ‘08 near death experience, the paradigm of “getting government out of commerce” survived, just as it has survived the Savings and Loans crisis in the 1980s, when deregulation encouraged owners of these conservative institutions to take on excessive leverage. Now, ten years after deregulation and excessive leverage ruined millions, the Trump administration is again deregulating madly, and risk is creeping back into the financial system as investors embrace risk in the search for returns.
 
If you didn’t tell Trump voters that Thomas Piketty’s thesis was in spirit a Marxist analysis, most would probably agree with his  argument  that in the struggle between capital and labor, capital has emerged the clear winner. Ordinary people see it everyday in their own diminished prospects while the elite grab ever more of the pie. They, correctly, didn’t think Hillary would do anything to change the system, so they bet on a snake oil salesman who lied that he could. Instead, as we’ve seen, he’s busily handing the keys to Wall Street corporations, the wealthy and himself.
 
Trump’s first priority after inauguration, for instance, was to repeal Obamacare. The motivation behind this effort became clear as the GOP-controlled House’s original plan called for the repeal of surtaxes on the wealthy. Since by design, the plan had to be revenue neutral, such cuts could only be achieved by raising taxes on the less wealthy (and by cutting Medicare benefits, which make healthcare affordable for the Trump base). Now, Trump’s big push is to lower corporate tax rates. Over ten years, each percentage point of corporate tax rate reduction costs the Treasury an estimated $100 billion in receipts. If  Trump gets his way, this shortfall would run into the trillions, and the only ways to pay for that would be to raise taxes on individuals, or to cut government spending, over 60% of which currently goes to the poor and middle class in the form of benefits.
 
So, how will these passed-by workers react when they realize Trump is a false prophet? And how will they react when the next crisis hits, and their hard times get even harder? Some will go down the rabbit hole of far right conspiracy theories, while others will decide to take to the barricades to bring down capitalism from the left. In the past in the U.S. the center has held, but can we be sure that will be the case the next time around, particularly if desperation drives more people to the extremes and the center shrinks even further? Years ago, the late diamond magnate Harry Oppenheimer explained his progressive labor policies by saying, “If they don’t eat, we can’t sleep.” The elites of today would do well to heed this warning.
 

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Short Take

In Memorium: Koko the Gorilla

Koko the gorilla died on June 19. She and a female chimpanzee named Washoe (who died in 2007) played an outsized role in changing how we view animal intelligence. Their accomplishments inaugurated deep soul-searching among us humans about the moral basis of our relationship with nature. Koko and Washoe have made it much more difficult for us to treat animals as commodities, in any way we wish.

I knew the two great apes when I was young and they were young, and I”ve closely followed the scientific, philosophical and moral upheavals they precipitated over the last five decades. In the 1960s and ’70s, they learned to use American sign language, and they came to understand that words could be combined to convey new meanings. It threw the scientific world into a tizzy, implying that sentience and languagewere not ours alone, that there was a continuum in higher mental abilities that linked animals and humans.

The problem for science remains unresolved: 3,000 years into the investigation of signal human attributes and we still don’t have rigorous ways to define language and intelligence that are agreed on and can be empirically tested. There remain a number of scientists who don’t think Koko and Washoe accomplished anything at all. Even if a scientist accepts one of the definitions of language that do exist, it’s nearly impossible to test it in animals because what is being examined is inherently subjective, and science demands objective, verifiable results.

Consider how hard it is to prove a lie beyond a reasonable doubt in court. Then consider trying to prove lying in an animal in accord with the much stricter standards of science.

As difficult as proving it may be, examples of apes lying abound. When Koko was 5, I was playing a chase game with her. When I caught her, she gave me a small bite. Penny Patterson, Koko’s lifelong foster parent and teacher, was there, and, in sign language, demanded, “What did you do?”

Koko signed, “Not teeth.”

Penny wasn’t buying it: “Koko, you lied.”

“Bad again Koko bad again,” Koko admitted.

“Koko, you lied.” But what was Koko’s intent — a central issue when it comes to proving a lie. What was actually going on in her head when she made the gestures for “not teeth?” As if that weren’t inscrutable enough, one of the guiding principles of scientific investigations of animal intelligence is what’s known as Morgan’s Canon: Scientists must not impute a higher mental ability if a behavior can be explained by something more primitive, for example, simple error.

Analogously, about 50 years ago, on a pond in Oklahoma, Washoe saw a swan and made the signs for “water” and “bird.” Was she simply noting a bird and water, or was she combining two of the signs she knew to describe an animal for which she had no specific word? The debate continued for decades and was unresolved when she died.

Since Washoe made those signs, there have been many more instances of apes combining words to describe something, but these examples still don’t prove they can combine words to arrive at a novel term, even if it seems obvious that they can. Faced with these ambiguities, many scientists have moved to studying whether animals can accomplish specific cognitive tasks, and a welter of credible findings show sophisticated abilities in animals ranging from crows to elephants.

Although science struggles with questions of general intelligence, language and intent, the public is in the “it’s obvious” camp, readily accepting evidence of animal sentience. The latest objects of fascination are the octopus — a relative of the clam! — and fish. Stories of cephalopod escape and problem-solving regularly go viral, and to the consternation of sushi lovers , John Balcomb’s book, “What a Fish Knows,” provides copious evidence that fish know a lot.

We tend to see animals as either personalities or commodities, or sometimes, both. When I wrote about octopus intelligence, I was amused by one octopus-oriented website that divided its space between stories of smart octopuses and recipes for cooking them. Perhaps the most extraordinary example of our schizophrenic view of animals occurred some years back when a chimp colony that included sign-language-using apes was disbanded and many of these onetime celebrities were shipped to a medical research lab to be used in Hepatitis B and AIDS drug testing.

I knew these chimps too, and visited them in their new environment. They were desperate to communicate with their human captors, but the staff didn’t know sign language. So insistent were Booee and Bruno with their signing that one handler put up a poster outside the cages showing some basic signs to help the humans respond. When I was there, three days after Booee had arrived, he was signing agitatedly for food and drink. But what I think he really wanted was reassurance: If the humans would respond to “gimme drink,” things were going to be OK.

Teaching Koko, Washoe and other animals some level of human and invented languages promised experimenters insight into the animal mind. But the animals seemed to seize on these languages as a way to make their wishes — and thoughts — known to their strange, bipedal wardens, who had no ability or interest in learning the animals’ communication system. For Koko, I believe, sign language was a way to make the best of a truly unnatural situation, and so she signed.

Science doesn’t know if great apes can invent terms or if they tell lies. And the tension between whether we view and treat animals as personalities or as commodities lives on. The truth is, Koko, Washoe and many other animals who have had two-way conversations with the people around them shatter the moral justification for the latter.



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