Friday, September 19, 2008

all change

Ben Bernanke, the chairman of the Federal Reserve and Hank Paulson, the Goldman Sachs tycoon who became US Treasury secretary, have done more for socialism in the past seven days than anybody since Marx and Engels.

The Guardian's Larry Elliot on the world of that clinking clanking sound, the rest here.


Cecilieaux said...

Thank you. Someone had to say it.

Mithridates said...

Re the crisis, something anecdotal from the brass bowels of Goldman Sachs.

I call my sister: So how is it over there at GS? Seppuku in the boardrooms? Looks like I'm going to be the richest person in this family by week's end.

She says: No. Absolutely not. No seppuku. I mean, I just bought a little infant-swing for Tristan [her son] and am thinking of taking it back and buying canned goods instead, but let me tell you, they are pumped over here.

Pumped? I say.

PUMPED, she says. Do or die. Literally. It's like a boxer's gym in south Philly. We're stalking the hallways like predatory animals. No one's wasting a single bodily movement. No bullshitting. We don't panic. We live for this. Last time something remotely like this happened was 94, and that made all the careers of people you're seeing on TV now. That's what all the meetings are about. They've got the whips out. Put your head down, shut the hell up, power through, you'll make your career.

So what are doing on the phone with me? Shouldn't you be powering through right about now?

I'm in the bathroom trying not to throw up.

Cameron Brogan said...

Re the crisis. Goldman will lose a little money, then make it back again. The Treasury will lose a lot of money, then make some of it back again. Taxes or fed debt or both will rise as a result, a little. GNP growth may sink, a little, or may surprise everyone by not sinking. You do all realize, I hope, that the world is not going to change in any large way that matters to you.

Cam the Economist

Helen DeWitt said...

Cam. I'm guessing my job prospects are not as good as they were three months ago; it may turn out not to matter, but it is a consideration.

Mithridates said...

Cam, this is interesting, and I certainly am no economist, but I can't see how it doesn't affect me in a number of ways, both large and small, short and long term. One example: I'm a PhD candidate, and according to Inside Higher Ed it seems that many professors (call-volume at TIAA-CREF is up 30 percent from last year) are thinking about delaying retirement because they're worried about their retirement funds diminishing with the drops in the market. With the drops in the market in 2000, there were noticeable delays, so I can't imagine what this sort of crisis will do. This means fewer job openings when I go on the market in the next year or two, no? As Helen says, this may turn out not to matter - I may get a good job, or I may be free to go off and get another job in some other sector and write novels when I come home at night - but it's something for me to consider. Do I spend eight months of my time preparing for job interviews and not writing a novel only to not get anything or to get something so bad that the prospect of spending even a year there (Eerie, PA; Tucson, AZ; anywhere in MI...) would make me miserable, and being locked into a job there even more miserable? Also, this may seem small, but it is hugely important to my mental health that I be able to fly to New York as much as possible. When Lehman collapsed, AIG was next - and we're still not sure the levees are going to hold for them - and since AIG owns ILFC (the largest purchaser of aircraft), Boeing and Airbus, fearing reductions in orders from the airlines, will raise prices, and the cost (aside from pretty massive job loss - not be too selfish here - after cutting back to their suppliers) would be passed on to me. And I'll be stuck in Great Midwestern Toilet.

Cameron Brogan said...

Mithridates and Helen,

Any dip in GNP growth will likely have a short-term impact on job prospects in many sectors of the economy. This was true of the quasi-recession that preceded the latest financial "crisis" and will be true of any future dip. Note, though, the importance of "sector." In the worst recession of the last thirty years (1981-82), the US energy sector grew. 1981 was a good time to look for work in Houston and Dallas, and in Alaska, too.

For all I or anyone else knows this dip will extend to the education sector, though it must be said that this sector is often cushioned in short recessions, since private firms are for the most part not laying off education workers en masse, as they might do in the auto and airline industries. The immediate threat to the education sub-economy in the States is usually state budget cuts in response to tax shortfalls. Even this is affected by politics and policy: good (eg, Obama's) economists would argue for doubling down on education and infrastructure investments in a recession. Less immediately, a reduction in alumni giving to private universities may impact their budgets and so their hiring. I had not considered the delayed retirement age of college professors worried about retirement shrinkage, but sure, maybe that, too, in a small way. On the other hand, most retirement plans fluctuate with the stock market, and we should not forget that the stock market is still way, way up over the last thirty years. (30 years = since these profs got tenure, started contributing to 401k.) It may be that, once the hysteria dies down, these profs will realize they are still quite wealthy by any reasonable standard and head for...but where DO humanities professors retire to? Vermont? Ireland? Not Scottsdale, surely.

So: dips, delays, a weakening of immediate prospects, less boldness, more acting scared: yes, maybe, depending on where you work.

My post, though, was responding to the semi-joking, semi-not-joking hysteria in "Paulson and Bernanke...have done more for socialism..." If only they had! The biggest thing they've done to socialism is make universal health insurance in the USA less likely, or more expensive, or both.

When I wrote "any large way that matters to you," I meant: matters to you as humanist intellectuals with progressive hopes. I should have written precisely that. Not sure why I didn't.

Cam The E

- My friends at Goldman confirm the career-party atmosphere.

---Not sure that reduced demand for Boeing planes will lead them to RAISE prices for planes, even less sure that these prices will be passed on to domestic flyers in a recession. I'd worry more about fuel costs and reduced economies of scale. Of course, labor costs tend to dive...And a federal bailout of Boeing is always on the table in Wash DC. Assisting Boeing through defense contracts and other favored partner practices is already a permanent feature of fed government.

Mithridates said...

Thanks for this, Cam. Maybe you can clarify this a little for me. From my reading I've gather that if Boeing fears a reduction in orders it would cut back to its suppliers and make fewer planes, which would cause the airlines to pay more, which would then get passed on to the customers. (I wrote that B. 'will raise prices'...maybe that's not the same thing as airlines paying more?) The other stuff you're talking about here (bailout of B always on the table, etc.) is interesting to me; given my belletristic skimming of things economickal, I couldn't possibly have thought of this. Thanks.

Universal health care does now seem less likely. But doesn't this affect us in precisely the large way you're describing, as humanists with progressive hopes?

Cameron Brogan said...


I appreciate the refinement of your belletrism, which forces me to write more carefully than I usually would when posting on a blog. That can only be good!

Yes, I do fear that this financial crisis (which, I emphasize, is not yet a full-blown economic crisis, and may not turn into one) may prove harmful to the progressive agenda. By costing the fed gov so much money, and raising the price of borrowing, a fat bailout will make any new, expensive program harder to justify economically, and harder to sell politically. This would be a large impact indeed, but not in the direction of socialism. Such was the point I meant to make. I had heard and seen elsewhere the hope aired that, by discrediting free-market extremism, this crisis will make ambitious government planning (single-payer healthcare, say) more palatable to Americans, and more acceptable to Congress. I doubt this for a number of reasons, cost above all. I sensed that Helen's original post partook of this optimism and, eager-downer that I am, intervened with Paulsonian speed and (alas) bluster.

As for Boeing's predicament, if you have been reading about it, however belletristically, you surely know more about it than I do. I was just speculating off the top of my head. And I shall now continue to do so. Take it for what it's worth.

Airlines and other capital-intensive, narrow-margin businesses borrow hugely to pay for new capital (planes, in this case), and pay off their debts in good times, when they have the money to do so. In bad times they tend to verge on bankruptcy. They don't do this because they're foolish; they do this because a very competitive market forces them to keep prices as low as possible. I have to guess that keeping customers and filling the planes they have, even if the planes are old (or new but highly leveraged) would take precedence in a recession over paying off long-term debt. It wouldn't seem to be a good bet to raise prices in a recession unless they absolutely had to (because strapped for cash to pay for fuel or pilot salaries, for example).

If airlines cut down on service, I have to assume it will be because demand has dipped and they can't fill their planes–– those flights are money losers––not because they can't afford to pay Boeing more for new planes (to be delivered, in any case, in a number of years.) They may NOT be able to afford future Boeing planes but this would not likely affect their recession pricing.

It therefore seems unlikely to me that you will see the cost of flying rise in the near term as a result of Boeing's troubles. Fuel costs have a much more immediate and dramatic impact, and there's not much airlines can do about them. (With the exception of the genius execs at Southwest, who hedged massively against a fuel price rise a few years ago, and so have been sitting pretty this year.) If inflation rises steeply (unlikely, but you never know if our currency continues to decline), you also might see demand for higher wages from pilots, etc. But of course recessions tend to make unions even meeker than they normally are.

But who knows: maybe I'm missing something. What does your reading tell you?


--topic I meant to address, but am now too lazy: why you shouldn't believe comparisons between this year and 1933.