Friday, September 30, 2011

Bob Frank's The Darwin Economy

Adam Smith advocated for a progressive tax on carriages so that "the indolence and vanity of the rich is made to contribute in an easy manner to the relief of the poor."  His disciples too often forget Smith's regard for justice and advocacy of free(er) markets in the progressive battle against tyranny and oppression.

Robert Frank is true to Smith's original intent, and in his iconoclastic new book The Darwin Economy, he argues that competition can at times undermine the collective good.  (Read the first chapter here.)  Calling on Darwin's observations of runaway selection, Frank shows that this is an apt analogy for competitive consumption in our affluent society.  He calls on behavioral research, showing that affluence and poverty as felt, as lived experiences are relational: our norm adapts quickly to rises in income and material conditions, and we adjust our aspirations upwards in ways that reflect not so much material need or utility but symbolic, social, positional conditions.  He shows how subjective wellbeing has become detached from objective income levels in ways that lead to greater and greater consumption that does not improve quality of life.

Frank is a compelling and persuasive writer, and here he is in top form.  He calls on classic political economists such as Smith, the evolutionary observations of Darwin, and cutting-edge behavioral research to illuminate the way our economy has moved in recent years.  Yet he is not content with this theoretically powerful argument, he also takes the next step and spells out policy implications.

Namely, he advocates a progressive consumption tax to both provide revenue to reduce the deficit but also to curb wasteful (and, as he shows, even harmful) competitive consumption (what he terms the 'expenditure cascade" of recent years).  He is even able to resolve the paradox of advocating such a tax while identifying himself as a libertarian.  Smith would be proud.

Recommended Blogs

1. Jon Shayne's Blog: my friend Jon has started a blog that contains a sampling of his insightful views on business, the economy, and investing.  I often tell Jon that he should have been a professor--he is more of an intellectual than many of my esteemed colleagues in the academy. Jon recently shared this great cartoon with me, from Donald Marron's blog:

2. M. Howard Thomas's Anthropology, Design, and Mobility presents a fascinating look at the intersection of culture, how we think, and design.  In a recent post he reports on the work of the late Hans Monderman, who showed how too many traffic signs, for example, could be counterproductive.  Indeed, he demonstrated that no signage was often much, much safer, as folks were more attentive.  Thomas then asks how urban design make take into account the vast tacit knowledge of residents. I don't know the answer, but the question is important.

Wednesday, September 28, 2011

What Have the Germans Got to be Unhappy About?

Germans should be happy, so it seems.  Sure, the Greek debt crisis looms large, but the German stance toward Greece comes largely from a place of feeling more-or-less secure (if not downright superior) in their own position.  The economy is booming (by OECD standards, but still not China or Brazil), unemployment is at record lows, and the German Model, so easily dismissed a few short years ago, is touted as a model for all, even in the U.S. press.

The credit for Germany's recent success, as I have argued here before, owes a lot to the structural model of Rhenish capitalism.  But this was transformed from sclerotic welfare state to Third Way-ish stakeholding welfare largely through the Harz Commission reforms pushed through by Gerhard Schroeder.  Planet Money's Caitlin Kenney recently did a great piece that captures the somewhat paradoxical public sentiment toward the Harz reforms: glad to have a booming economy and jobs, but miss the cushy safety net and think that business should give back more of what they make.    

My brother David sent me this link to the new Gallup-Healthways Wellbeing Index that shows Germans are significantly unhappier than the Brits and Americans:
Less than half, 41.1%, of Germans rate their current lives and expectations for their lives in five years high enough to be classified as "thriving," compared with 52% of Britons and 52.9% of Americans who say the same. Relatively few Germans are "suffering," but a majority are "struggling."

There would seem to be at least three possible explanations for this paradox of malaise amid relative abundance.
1. that there is a German disposition to be not so happy.  As an anthropologist, I shy away from gross stereotypes, but having lived in Germany a good bit, I also know that there could be something to this.  Germans, on average, are definitely not as cheerfully happy as your average American, but this question asks about overall life satisfaction.  Still, the Germans tend to characterize the state of things (their lives included) in much more reserved terms that the typical American.
2. that the big-state social democracy model is bad for happiness, so despite rosy objective measures, the encroachments on freedom and laissez faire markets is bad for society's overall wellbeing.
3. that German dissatisfaction with the status quo is what produces the relatively high objective measures of economic quality of life, an angst that leads to public agitation that leads to policies that tame the market toward certain common good ends.

Now these are not mutually exclusive, or even exhaustive.  And, in fact, I would say that there is something to be said for each of these factors in producing the German malaise the Gallup poll finds, even if my understanding of bildung and an eudaimonic fulfilled life lead me to give greater weight to the first and last.

Friday, September 23, 2011

Oysters and Race Relations in Dothan, Alabama

I’ve eaten a good number of oysters in my lifetime.  Some of my earliest memories are sitting on a stool next to my dad at an oyster bar here in Dothan.  That one, like all of the good oyster bars around here, was a little rough around the edges, with an emphasis on the bar as much as the oyster.  Being too clean or too well lit would definitely have been viewed as suspect.  Maybe a good oyster bar, like a good oyster, is meant to be hiding something.

So it was a surprise when I first had oysters in Hamburg—in Germany oysters have almost the opposite social associations.  Think black tie and champagne rather than work jeans and Miller ponies.  And in Paris, the prices of the Gran Cru oysters made even those of New York's storied Grand Central Station Oyster Bar look cheap.

But the very best oysters I have ever had are the Apalachicola oysters I get here in Dothan.  Consistently.  Following in my dad’s footsteps, I always go to Hunt’s.  The ambiance is about as far away from Hanseatic northern Germany as you can get; some would say it is dirty and smelly, but I think it is homey.  And I am always “baby” to the waitresses there.

A dozen raw will set you back $4.99 at Hunt’s, up $1 from last year.  Their oysters are fresh—it is a two hour drive to the bay where they come out, and they make it daily.  And these little gems than come from the Apalachicola Bay are succulent: just the right size, not grossly big or anemic, briny with a subtle mineral edge, served cold with a sleeve of saltines.

There is a paper plant just up the river from the bay, and I assume that is what gives these beauties their special flavor—or maybe that is just my suspicious nature, thinking that something this good must have a dark underside.  

It is sort of traditional at Hunt’s to eat some oysters and finish it off with a chili dog.  I normally forgo the dog, but I am back in town visiting my dad and feeling a bit nostalgic, and so yesterday I stopped by for a dozen raw and a chili dog.

I’m sitting there, disinterestedly watching the game on t.v. and waiting for my order when four twenty-something African-American guys came in.  I tensed up a bit, wondering if anybody at this good ol’ boy hangout would make any comments.  But it was a non-event, mutterings or awkward silences—the waitress was super friendly, the other customers at the bar accommodating.  This wouldn't have always been the case.  I’m glad some things have changed here since I grew up.  And, slurping these oysters, I’m also glad some things remain the same.
When I was growing up, Savannah White was our maid and my de facto nanny; my "other mother" we called her.  I have fuzzy, Kodachrome memories of trailing her skirt tails around the house as she made lunch or ironed shirts.  About 15 years ago, at home with my new wife Mareike for Christmas, we took a few sacks on pecans to Savannah as a gift.  When she saw them, her first remark was, "does your mother want me to shell them?"  Things were complicated, nuanced in ways that are hard to explain without softening the underlying harshness.  It feels like they are simpler now, for which I am glad.

Sunday, September 18, 2011

CEO Pay, Poverty, and the Rise of the BRICs

Disturbing headlines on the domestic front:
CEO pay more than federal taxes at Boeing, eBay, GE, Verizon, and others

Poverty Reaches a 52-Year Peak: 1 in 6 Americans below the poverty line ($22, 314 for a family of 4)

And signs of shifting global power in the world:

Brazil Calls Meeting of BRICs to Help Bolster Eurozone Finances (and Geithner's pleas are largely dismissed by Euro finance ministers--perhaps we are no longer the go-to country in financial crises)

Brazil and China have both become net donors in foreign aid: indeed in absolute dollars China is second only to the U.S. in terms of foreign aid--this is not only effective soft diplomacy, but often has plenty of explicit strings attached.  The balance of world power is shifting.  The U.S. is not going to stop being a superpower anytime soon, but our standing in the world is diminishing and it is ever more difficult for the U.S. to act unilaterally.

What's Wrong with Industrial Policy?

My friend Jon Shayne sent me a link to a Jon Stewart piece on the $500m loan to Solyndra, found on Greg Mankiw's blog under the heading "The Problem With Industrial Policy."  It does seem that the Solyndra loan was scandalous: analysts had warned the company's business model was fundamentally flawed and a key Solyndra advisor was a big Obama fundraiser and had several high level White House meetings before the loan went through.

But is this an indictment of industrial policy as a whole?  Conventional wisdom holds that "industrial policy" is politically toxic in the U.S.  Yet, in just the last couple of weeks a series of articles have come out in The Economist, Forbes, and the New York Times that suggest we should rethink our laissez faire stance on government intervention in the market.

Of course, we have long recognized that Japan and South Korea and China have effectively used industrial policy to enter and frequently come to dominate particular markets.  But the sense has been that what works in Asia won't work here.

The Economist's recent article "Workers and (Business) Unite!", for example, argues that there is a lot to be said for the Obama proposals for an infrastructure bank and job training programs.  To quote: "this may look like meddling, and close to tacit industrial policy, but it is practical."  And The Economist does not make such pronouncements lightly.
Jon Gertner in the NY Times Magazine points out that the new economy actually does not employ many folks: a couple of thousand at Facebook, 30,000 at Google.  But old-school manufacturers work on whole other magnitude: GM directly employs 200,000 and probably several times that with suppliers and related businesses

So why is "industrial policy" so politically toxic?  It need not imply a command-and-control market, but following and helping the market in areas that are in our national interests.  Indeed the strongest case is just that: national interest.  Is it in our national interests that so much of our computer technology and memory is made abroad?

Gertner writes about large-scale lithium-ion battery manufacturers starting up in the U.S.  This is technology developed at MIT and the Univ of Texas but used primarily by manufacturers in China and Korea.  It is great that we are the source of the intellectual property and scientific discoveries, but this doesn't help combat widespread employment.  Even with our advanced knowledge economy, only a small fraction of our 300m citizens will work in MIT labs.  Widespread jobs requires a different approach.

Stephen Denning, writing in Forbes, spells out "Why Amazon Can't Make the Kindle in America."  As it turns out we just down have the capacity to build the high-tech displays or underlying semiconductors or even the lithium ion batteries required.  Denning cites an influential Harvard Business Review article by Gary Pisano and Willy Shih who argue that actually manufacturing is fundamentally tied to innovation and that "an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate."

Thursday, September 1, 2011

WSJ: Germany's Socialist Tendencies Stimulate Economic Growth

In previous posts I have been arguing that there are structural reasons Germany has fared so well in the global recession, and that the U.S. has a lot to learn from this Old Europe political economy.  Still, I was surprised to read today's Wall Street Journal article "Germany's Resiliency Buoys Europe," whose authors praise the country's "cozy labor relations" and a "government program that compensated workers on short hours for their lost wages" for their role in fostering sustained growth over the long haul. 

Indeed, the "co-determination" system in which labor is well represented up to the board level in companies and the "kurzarbeit" program that subsides reduced hours and wages in slowdowns to prevent layoffs have, both of which looked a bit daft to many Americans ten years ago, proved a powerful inoculation in the downturn.

Another key factor has been Germany's staid, and quasi-public, internal banking system (see posts below about the Sparkasse and Landesbank structure).  This was the subject of an odd profile by Michael Lewis in last month's Vanity Fair.  He takes a strange scatological angle on the whole affair, based on reading Allan Dundes Life is Like a Chicken Coop Ladder, a book of folklore I have actually used in class before.  But if we can leave all the shit behind, Lewis offers a sharp analysis of the German banking involvement in the exotic instruments that led up to the 2008 crisis: there was no such lucrative market at home (just old fashioned collateralized lending), and so a few adventurous banks invested heavily to get the returns their American peers were reaping.  As Lewis paints it, the German bankers were seen as as gullible (at best) by the slick U.S. investment bankers who sold then CDOs and other high return instruments.  And they got hit hard, but on the domestic front credit tighten up a bit for a while, but things more or less continued as the conservative pace of before.  

Alberto Fuguet, Chilean filmmaker and literary figure, goes looking for the Nashville that Robert Altman didn't find

Alberto Fuguet, Chilean filmmaker and literary figure, goes looking for the Nashville that Robert Altman didn't find: My Own Private Nashville