Here's the trouble with TARP

Turns out that the Gainesville Sun did publish an edited version of my submission as a guest column.

I saw the Bailout fail

(I sent this to the Gainesville Sun, but I'm not sure they'll publish it. If so, I'll link.)

TARP worked but concerns remain

The Troubled Assets Relief Program of 2008 (TARP) was supposed to rescue and then stabilize the US economy after the financial services "meltdown" following the housing market crash that started in 2007. In the year since the bill became law, many have forgotten how the former president and the former Secretary of Treasury horrified us with predictions of the systemic financial collapse that would result if hundreds of billions of dollars weren't taken from the taxpayers to fix the mess that the huge banks and Wallstreet had created.

So far, it appears that a "financial Armageddon" has been avoided. I feel relieved. Since the credit markets aren't frozen up and are moving again, we should all be able to sleep better at night.

Even though we avoided the immediate catastrophe, some troubling issues remain unresolved. Of course, there's the issue over whether leaders in Washington have actually put in place reforms to make sure that megabanks can't create the same conditions that almost caused a total economic collapse. And there's the issue of whether a moral hazard was created during the course of the bailout. Will megabanks learn the wrong lesson from their almost complete destruction of our economy? Will they come to believe that they can become "too big to fail" and engage in risky, yet extremely profitable lending without regard for the consequences because they'll be bailed out again next time?

Where did the bailout money go?

As important as these two are, an even more pressing question remains. Someone should ask, "Where did all the bailout money go?" And political leaders and financial elites should be required to answer.

So where did all the bailout money go? Before last week, I, like many others, assumed that the money went into the hand of experts to shore up some important part of the financial system in dire need of repair. I had a the vague idea that the money was supposed to go to banks so that they could keep credit flowing, or so I'd heard back in the panicked days of October 2008.

Requesting for a "bailout" for my neighborhood

Last week, I began to reconsider TARP and how it was supposed to help out. Like many Gainesvillians, I live in condominium complex. It's not a new complex. In fact, it's relatively modest, but it is a place that owners and board have recently been trying to make better. The board wanted to replace old wood siding with composite that would better resist the Florida heat and moisture, paint the buildings and replace old roofs and do some landscaping ahead of the 2010 hurricane season. A majority of owners in the complex agreed that these upgrades seemed like a good idea.

So almost a year ago, our board of directors began the process of applying for a loan so that this work could be done relatively quickly instead of being done piecemeal and paid for by increased association dues or by special assessments. There are twenty buildings in the complex with over 100 owners; the loan sought was for $370,000 over a period of ten years. Every bank the board approached – five altogether – turned us down. No one wants to lend the one hundred condominium owners this relatively small sum (less than the price of Haile Plantation "dream home", correct?) to make our neighborhood better and more attractive.

The board and the property manager did their due diligence. The amount of the loan and the terms were reasonable. I believe it could have been paid back without incident. I had thought that a loan like this was exactly the sort of the thing at which the TARP money was to be aimed.

So much for bailout money trickling down to us.

Concerns over banks hoarding money

One thing that some economic commentators worry over is whether the $700 billion of TARP will actually make it into the hands of those individuals and communities who can use it. These commentators are concerned that, instead of lending and "getting credit moving again", banks may simply hoard the money given to them as a security against future defaults and tough financial times. I'm sure that banks have financially rational reasons for things they do, and unfortunately, hoarding may be the smartest thing for them to do given our current situation.

Perhaps this sort of hoarding is one reason that my complex couldn't get the relatively modest sum we wanted for our improvements.

Of course, there's a general lesson to be learned from the bailout of '08 and its consequences.

By passing TARP, we have avoided complete financial catastrophe, but in doing so, we have essentially rewarded banks for risky behavior that brought dire consequences. No meaningful regulations have been put in place to prevent the conditions that made the near-meltdown possible. And some of the richest among us, those who earn exorbitant bonuses at bank holding companies and financial services companies like Goldman Sachs and Bank of America continue, despite the fact that their shortsightedness and greed helped cause this crisis, to receive outlandish compensation even as their organizations have accepted bailout money.

Financial elites benefit when the system must be rescued

We face a serious problem that few people can or will talk about. Financial elites, with the help of government leaders, have created an unstable economic system in which, as we've seen, catastrophe is possible. Moreover, the system is such that if a "rescue" is required as it was last year, those at the top benefit handsomely from the measures taken to save the economy.

While US taxpayers are sending money to Washington to make sure that the house of cards built by the elites doesn't come crashing down, those very elites pocket a disproportionate share of the money used in the rescue. All to often, as I believe I just witnessed when my condominium complex didn't qualify for a loan, little of the money that was necessary for the rescue is invested in local communities.

We must demand accountability and a departure from business as usual from our political leaders. They have made it the case that financial elites are rewarded for their greedy gaming of the system and that people who desperately need money to improve their lives have less access to credit.

The economy and health care

My opinion piece on the economy and health care appeared in the Gainesville Sun on July 8th, 2009. 

Two interesting articles back to back from the July 2009 issue of Harper's: "Barrack Hoover Obama" and "Labors Last Stand"

It's strange but true: Barrack Obama and Herbert Hoover bear important similarities especially with regard to their abilities vis-a-vis the economic situations of their respective times. Even though Hoover was regarded as the most competent man for the job of president at the beginning of what came to be known as the Great Depression, he failed to stop it from deepening. Will Obama, widely regarded as one of the most capable leaders in the face of the depression we face now, also fail and do so for reasons much like those responsible for Hoover's failure? Two articles in the July 2009 issue of Harper's outline how and why he could fail and offer ways in which he might avoid mistakes like Hoover's. 

Chilling fiction and non-fiction to combat the summer heat

There are several books that I've enjoyed reading over the past few years, particularly in the summer. I've written an "overview" review of all of them here. I hope to write a separate review of each of them over the coming weeks. Please watch this space.

Reusing bags and the "durable" future

Starting today, shoppers at Target stores in Australia will no longer have the option to take their merchandise away in plastic bags. Will something similar happen in North American Targets? I hope so. This issue is indirectly related to advocacy for human-sized environments and directly related to the phrase in the title I stole from Bill McKibben.

I might shop in Target once a month, so I don't have too many Target bags crammed in some drawer in the kitchen, but I do shop quite a bit at Publix. I've just recently started riding my bike to shop instead of driving. I had been taking my stuff home in paper bags, but now have started using the reusable shopping bags they offer. The reusable bags are great because they fit neatly into the basket I have attached to the front of my bike. I had taken paper bags because we use them for garbage bags in the kitchen -- just like it seemed that everyone did in the old days. So perhaps I'll request the odd paper bag every few days just to have one at the ready.

It's obvious why a proliferation of plastic bags are of importance to the durable future. Such bags might not make as much of an environmental impact if they were all gathered and recycled, but judging by how many stray bags I see stuck in tree branches around town, I don't think recycling is the end most of these bags meet. Too many probably end up in the Great Pacific Garbage Patch, if the wikipedia is to be believed on this issue. Whether any of North American Targets' bags make to an eternal life of not-quite-floating and not-quite-sinking in the North Pacific, it seems certain that quite a few make it into landfills, gullies by the side of the road and, yes, high in tree branches. It seems bad to introduce so many bags into the waste stream, but there are other options. I've heard that plastic bags are easier to recycle than paper bags and the process requires less energy, but I think Target has made a wise move (in Australia anyway) by eliminating plastic bags altogether.

As far as matter is concerned, planet Earth is a closed system. The amount of oil used to make plastic bags come from somewhere. If it's used to make a plastic bag then it can't be used for something else in the future. If we could get by without using plastic bags at all, wouldn't that be a better course to take for the long term? We see this nature of finite resources if we focus on human-sized environments. There are obviously only a finite number of trees in your neighborhood; possibly only enough to be counted quickly. If one is accustomed to living in a human-sized environment, and an human-sized environment is one's default frame of reference for thinking about resources and how to use them, moving away from the use of disposable packaging made from non-renewable raw materials is immediately obvious.

Not only do we want to be able to put things we've bought in a bag of some sort or other, we want to be able to do it for the foreseeable future. (If we want consumption to be sustainable, I'm uncertain we'll be shopping the way we do typically at Target. We'll probably have to buy less and not in the way many of us do now.) If sustainability is to be a priority, I suggest that we consumers treat our environments (no matter how vast they are) as if they were human-sized, and try to leave them cleaner than they were when we arrived.

Why Did the Organic Dairies Boom Turn into a Bust?

Recently, we had an opportunity to learn from the article, 'Organic Dairies Watch the Good Times Turn Bad', published in The New York Times (May 28, 2009 ) that the organic dairy bubble burst.
Here is my attempted explanation of the phenomenon published in the Gainesville Sun on 11 June 2009.

(audio) book review: Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Hajoon Chang

We hear various slogans singing the praises not only of local capitalism but global capitalism ad nauseum. An endless supply of talking faces on the screen exhort us to "let the market sort things out," encourage us to think that things are fundamentally headed in the right direction by admitting "there are a few bad apples," but returning to the familiar refrain that "the system is sound," and trying, not so much to convince, but trying to soothe the anxieties of all by reiterating, over and over and over again messages that are underwritten by the notion that there simply is no alternative to global capitalism. I want to get to Hajoon Chang's gratifyingly dispassionate, thoughtful and well-argued book soon, but first just a bit more place-setting, and a few observations about the constant mantras of the faces of well-dressed people on the screen.

We don't feel the need to repeat over and over to ourselves that gravity attracts masses to the Earth's surface. We don't feel the need to fret over (and over) whether the Sun will rise in the east tomorrow. These things are obvious to anyone who has the concepts that normal adults have. But we do feel the need to repeat to ourselves over and over and over those things we want to believe but sometime aren't sure of or those things we believe but have trouble living by. We tell ourselves that despite how bad the possible outcomes are it's very unlikely that the absolute worst will come to pass. We intone silently that the early bird gets the worm, that practice makes perfect, and that hard work triumphs over luck. Point being that we feel the need to repeat those things which aren't entirely obvious from experience; our mantras are such that they allay our fears of what is possible but not probable. Those things that are repeated are not certainties like that of gravity or of the Earth's spinning round the Sun. We need no affirmations to assures ourselves of certainties like the latter two.

This simple observation leads me to believe that the slogans we hear over and over on CNN and network news bear more similarity to the phrases we repeat over and over to assure ourselves that the situation is OK and that we're doing the what we should be. The pundits' guarantees that the system of international currency mediating unfettered free-market global capitalism is absolutely the proper system for the world in which we live in and is in fact inevitable, and has always been so, are not certainties like gravity, but rather more like those mantras we repeat over and over again with the hopes that we can come to believe them so that we may calm ourselves. In fact, to go a step further, the relentless repetition of "obvious" and "inevitable" economic facts, itself serves an important purpose: getting people to believe the current economic arrangement we have is the only viable option and that those who don't go along with the system are hopelessly misguided or intentionally counterproductive to our progress.

Of course, if it were so obvious and inevitable that there is no alternative to the current economic arrangement we have and that there could be no alternative, then why all the constant repetition? Why all the quasi-religious fervor in proclaiming these views and denouncing all others? I would humbly submit the reason is that those theses which are proclaimed by the faces on the screens are far from certainties. In fact, especially given the economic turmoil of the last six months, the view put forth about the superiority and inevitability of unfettered global capitalism and the necessity of complex financial arrangements, seems especially implausible. I mean the whole thing has brought us almost to ruin, hasn't it? How that something like that be such that there is no thinkable alternative to it?

What makes Hajoon Chang's book so refreshing is that he's approaching a problem in the study of economics as one would approach a scientific or philosophical problem. One has the sense that he started with some hypotheses, did research to test them, and assessed whether those hypotheses stood up to such scrutiny, as of course any good scientist would. Eventually, by testing various of his hypotheses, he comes to form a theory which explains and gives insight into the particular economic issue he's interested in. The reader (or listener in my case) is relieved because Chang is investigating this problem without constantly chanting a mantra to which he believes his findings must conform. Rather, he's seeking a theory based on which hypotheses withstand and make sense of the data, rather than starting with a thesis which he knows must be right and trying to bend the data to fit it.

As you might have guessed by my ealier disdain for the talking faces on our ubiquitous screens and my expressed regard for Bad Samaritans, Chang comes to a conclusion at odds with incessant narrative about the obvious superiority of free-market global capitalism.

Briefly, his thesis is the following. Global free-trade is not beneficial for developing economies (those of "Third World" nations), and the notion that global free-trade is what made the most successful nations' economies what they are today is mistaken. But global free-trade is good for developed economies (countries such as the US, Canada, those in Western Europe, Japan and Australia). Moreover, the message sent by nations with developed economies send to nations with developing economies to the effect that opening markets to global free-trade is the only way to proceed down the path towards development is disingenuous; the nations with developed economies have those advanced economies today precisely because they did not participate in international free-trade. Indeed, "First World" countries carefully managed what left and entered their borders in order to shelter their own national economies and industry from brutal international competition. In the sheltered economic environment provided by tariffs, the business of manufacturing finished and value-added goods can mature.  And once a solid manufacturing base of finished and value-added good exists, only then does it make sense for the tariffs which sheltered the immature economy to be lifted.

Chang's Bad Samaritans is replete with examples and data to support his thesis about how effective development of a national economy takes place. Essentially, he offers a prescription for successful development. Of course, this prescription is a bitter pill for those who repeat the mantra that global-free trade is the only way to make things better for all parties involved. Whether it's a bitter pill or not to be stuffed into the mouths of the babbling faces of omni-present screens, Chang's thesis is satisfying in that it is on all fours with common sense. What he suggests for successful development is intuitive given that our basic micro-economic backgrounds. Let's consider an example to see how.

Consider a fictional country -- call it "Safaria" -- with a developing economy. Safaria wants to become a wealthy country with a developed economy. How does it do so? Chang suggests an initially protectionist course: Safaria should discourage the owners of its natural wealth from selling raw materials on the international market and should discourage imports, effectively creating the right conditions for its local economy to grow. If Safarian leaders wanted to develop a specific industry, manufacturing fine furniture or a certain sort of electronics for instance, the import of those products should be met with especially strong disincentives. And the export of raw materials necessary to make such products should also be met with such strong disincentives. It's easy to see why: with these disincentives in place, markets aren't flooded with cheap versions of the kinds of products that Safaria wants to develop an economy of scale to manufacture. Keep in mind that Safaria is trying to join the club of developed countries relatively late in the game. Developed countries have economies of scale in the production of those finished goods that Safaria wants to begin producing. Safaria's production of such goods will at first be expensive and the relative prices at which those goods will be sold to make a profit will be higher than the prices of goods manufactured in an economy of scale. If such an industry is to be developed such an industry must make money, and so its products must be bought. If there's a tariff making imported versions of those goods more expense (to the Safarian consumer) than the local version, products of the local industry will be sold, money will be generated for the industry and eventually Safaria will come to have an economy of scale in the production of that sort of good. When, and only when, this happens Safaria can begin to export these goods to other countries -- it can begin to engage in global free-trade with respect to that product.

Chang doesn't talk in as much depth about the benefits of protectionism with regard to raw materials as opposed to finished products, but the same (or at least a similar) sort of reasoning seems to show that it could be beneficial in just the same way. For this example, consider Nigeria, a country whose troubles have been in the news much lately. There is petroleum to be had in the Niger Delta region of Nigeria and Royal Dutch Shell has a contract to extract it. According to the late Ken Saro-Wiwa, Shell is at least indirectly responsible for the Nigerian government's violence against the people of the Niger Delta region. But if Chang's reasoning goes through, it didn't have to be this way.

If instead of allowing Shell, a multinational petroleum company, to develop the region's oil resources, Nigeria had instead opted to start its own national company to do so, then the Nigerian government would have at least had a bit more control of how the resource was developed. I'm not saying that the Nigerian government would have taken actions more morally upstanding than it has if there had been a Nigerian national company do extract oil from the Niger Delta region, but the country itself would have been in a better position to manage its natural resources. For example, there might not have been such widespread use of gas-flaring if a national company had developed these resources. Moreover, if Ken Saro-Wiwa is to be believed, Shell is propping up the Nigerian government in an unholy alliance in which the government facilitates Shell's extraction of oil if necessary by the use of violence against the poplulations of the Delta region. Such a destructive arrangement would seem to be far less likely if a national company were involved in the development instead. Even if the government, in such a scenario, used violence against its own people, such actions would be likely the result of some other privation, turpitude or political power-grab.

Consider, for example, Saudi Aramco, the Saudi state petroleum company. The Saudis certainly haven't managed their oil money very well, but at least they had the chance to do so. They did have the chance to develop social and cultural institutions and other industries, it's just that they failed to do so. Nigeria isn't even getting the chance either to waste or spend wisely the money generated by a state-owned petroleum operation.

Chang's reasoning applied to the examples of the imaginary Safaria and the real Nigeria leads inexorable conclusion: industry and resources should be developed under an isolationist regime first. Then, when these industries and methods for resource development are mature should the rest of the world be engaged.

The reasoning of economists often seems to me hopelessly obscure. I'd always thought the unexpected conclusions they reach were unintuitive because of my lack of understanding of all the subtleties and technicality involved. Hajoon Chang's book has shown me that I need not submit, however reluctantly, to what I'd thought I couldn't understand. I believe now that like anything else, economic conclusions, however arcane, must be supported by solid, transparent reasoning. In Bad Samaritans, Chang has done exactly that, and that's why I'm so attracted to the thesis he proposes. Unlike many of the advocates of global free-trade, he hasn't simply bleated the same mantra over and over again in the hopes that it will simply come to be believed. He's given us something we can understand, assess and then decide whether we should be convinced by the power and persuasiveness of his arguments.

An argument for local currency.

The local currency movement is gaining momentum. There are already several regions of the US that trade with local currency. Here is an op-ed piece I wrote published in the Gainesville Sun on 10 May 2009.

Why 'Out Your Front Door'?

Introduction: what is Out Your Front Door? How can scaling down be good?

Out Your Front Door is guided by the notion that there is a benefit to be had from public environments which ar human-sized. Since so many of the environments we find ourselves in seem larger than this, to get the benefit (if there is one to be had -- and we hope we can convince you that there is) from human-sized environments we must begin to measure our environments by what we we can see out our front doors.

So what is human-sized, you ask. Some examples help to illustrate. A human-sized journey is one that can be made on foot or on a bike. A human-sized market is one in which all the goods can be touched. A human-sized neighborhood is one that can be easily walked.

 Here at Out Your Front Door we think that human-sized public environments are good both for those who live, work, shop and enjoy recreation in them but also for the environment of which these human-size public environments are a part. This isn't to say that human-sized environments are the only ones for which there is a benefit, but it is to say that spending time in human-sized environments is good for psychological health and good for the health of the natural world.

Background, part 1: philosophy

So why are human-sized spaces psychologically beneficial for those who inhabit them? We here at Out Your Front Door wish we had arguments for this, but all we can offer are reports about how we feel in such spaces and invite you to think about whether you share these feelings.

Going to the farmer's market week after week and buying eggs, milk, vegetables, fruit (and the occasional turkey) from the same people who grow it all just up the road gives us a feeling of being connected to them and the place in which we live. It's corny and catch-wordy, but it gives us the feeling that we're connected to what we consume.

Being able to walk or bike to the market makes it even better. If I can ride my bike there, I know exactly what it takes for dinner to brought to the table. Every link in the chain is perfectly observable and comprehensible. We feel some measure of control over what we're eating.

 Of course, here at Out Your Front Door we do more than just eat and make preparations for eating. We think, talk, run around the woods and work (when we have to). Of course, one thinks about all sort of things not to do with the immediate environment whether it's human-sized or not, but we believe that such thinking is easier to do in an environment that is human-sized. As for talking and running in the woods, I believe human-sized environments turn our thoughts toward the immediate here and now and make us more attentive and receptive to our interlocuters, and running through the woods is much different than being on a treadmill staring at 15 flashing screens. We would assert that taking the fresh air is better. As for work, we can only guess what it would mean to work in a human-sized environment, but if it's anything like what else can be done there it seems that it might be immensely more rewarding if it could be.

Background, part 2: at 3% growth/year, there's a doubling of the economy every 23 years

At the very end of George Monbiot's What is Progress?, he claims that "The crisis we face demands a profound philosophical discussion, a reappraisal of who we are and what progress means." The implication being that we can't think of progress as we have for the last 50 (100?) years, as that idea of progress has brought us to where we are now -- an economic and environmental precipice over which we seem sure to topple if we pursue our present course. This bit of Monbiot's thesis rings true to me, even though I have only rudimentary formal training in economics and environmental science. This bit of the thesis is also shocking because the thought of changing our collective (unsustainable) manner of behavior leads immediately to the seemingly unanswerable questions that demand answers: "What will we do?", "How will we live?"

Of course, he's suggested the prerequisite we must satisfy to be able to begin to answer these questions. We must have a profound philosophical discussion about and reappraisal of who we are. Now I do have some training in philosophy (perhaps not in the profound variety), and as a philosopher I've learned that there are really no answers to be had from philosophizing, only the raising of more, and hopefully better, questions.

Before I take my first stab at raising more, and hopefully better, questions, I'll briefly rehearse the high points of Monbiot's argument to try to convince those who are skeptical about the unsustainability of the economy based on growth. Actually, I may cheat a bit and bolster my own version of the situation with a visual aid. In Money as Debt, Paul Grignon asserts that an economy based on fiat money must be ever expanding in order to function. And whether or not he's right about that, it's beyond dispute that economic institutions such as the Federal Reserve have a keen interest to keep the economy growing rather than in recession. There must be something important at stake regarding the economy's expansion.

Economic activity (especially in a global economy) is energy intensive. For example, goods are shipped to be traded, and shipping requires energy. If our methods of shipping were to remain exactly as they are now, but economic activity doubled (say for the sake of argument that shipping activity doubled also), then the energy to transport those goods would increase. Naively, it seems to me that the energy needed in an economy twice its present size would be roughly twice what is currently used.

Since nonrenewable fossil fuels supply most of the energy for the transport of goods, it should be obvious that something about the present system of perpetual economic growth must change or the system must end. Either we find an energy source for the transport of goods that can increase geometrically (we can't rely on fossil fuels because our supply of these will not increase geometrically -- it will eventually decrease) or the economy will have to become such that it's not underwritten by constant growth. The inexorable choice that faces us doesn't loom at a comfortably remote distance -- it's nearing with an exponentially increasing speed.

Regardless of environmental worries over side effects of burning fossil fuels, there's an economic crisis that must soon be dealt with.

Al Gore's Nobel acceptance speech from 2007 offers an eloquent summary of the issues we face and what might be done to head in the direction of sustainability and at the same time in the direction of community.

Is everything here to do with Human-Sized Environments?

No, it's our hope that there will be all manner of content here. But we feel that our positive views of human-sized environments will be something that is consistent with all that content.