Hot/cold on the heels of Iceland’s quasi-default, the Roger Lowenstein in the NY Times urges underwater/negative equity homeowners to “Walk Away From Your Mortgage!”. . Lowenstein’s key point is that businesses (including those owned or controlled by the banks themselves) treat default as a straightforward business decision, to be adopted whenever it is profitable to do so. Lowenstein gives a number of examples where leading banks like (inevitably) Goldman Sachs have engaged in strategic default and urges his readers to do likewise. The piece is in a section headed “The Way We Live Now” and it’s striking that it’s taken more than 100 years for the business ethics of Augustus Melmotte to percolate through to the American middle class

To be fair, it’s only in the last thirty years or so that such ethics have become dominant in the corporate sector, to the point where a board that rejected profitable opportunities to stiff their creditors would now be regarded as having violated its fiduciary obligations to shareholders (particularly if the creditors are workers). And despite all the talk about shareholder value, a CEO who passed up opportunities for personal enrichment at the expense of shareholders would be regarded by his or her fellows as a mug.

Millions have defaulted already – (one in eight mortgages is currently in arrears). Bankruptcy is once again as common as divorce. When defaulting on debt is this common, it is hard to sustain any sort of social stigma or internalised notion that this is anything other than a financial option, like refinancing an existing loan. And, as with divorce, we must soon be reaching the point where most people who take out loans will do so in the knowledge that default is an option.

The question is – can the consumer credit system survive this? Probably it can, but the system will need some radical changes. It’s worked for several decades on the basis of creditworthiness criteria that work on the assumption that (nearly) everyone will repay their debts if they can. Until recently, the checks could also rely on the assumption that people would be more-or-less honest in the information they provided in their applications. The financial system, by promoting ‘liar loans’ colluded in the destruction of the second assumption, and by leading the way in strategic default, helped to destroy the first.

The problem for lenders now is that they will increasingly have to act on the assumption that their borrowers (including those who appear creditworthy on the old standards) are planning, at a minimum, to use default as an insurance option. The only good way to protect against this is to demand lots of secure collateral. That means less liberal credit (and, given higher default rates, higher interest rates) for everyone and no credit at all for lots of us.

A book publicist’s email in my inbox today:

I am the publicist representing White House aide, businessman and author Grady Means, who has drawn on his previous, best-selling books on economics and management (MetaCapitalism and Wisdom of the CEO) to write his latest book, The New Enlightenment (http://thenewenlightenmentbook.com/). It is a study of the toxic relationship between contemporary global politics and religion, something I though would interest you after reading some of your insightful, timely and convicted posts on Crooked Timber. Here’s a little more on the book:
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Iceland has a population of about 300,000 , about 140,000 taxpayers and pre-crisis GDP of about $12bn. The Royal Bank of Scotland has about 140,000 employees and pre-crisis net profit of about £8.5bn – they’re about the same size as entities. Iceland, like RBS, did very well out of the debt bubble and picked up assets all over the world in an impressive but ultimately unsustainable spending spree. And in a final point of similarity, Iceland, like RBS, owes the British government a hell of a lot of money as a result of the bursting of the bubble.
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As “Clive Davis”:http://www.clivedavisconfab.com/2010/01/how-some-people-see-europe/ notes, “Charles Murray”:http://blog.american.com/?p=8616 “is disconcerted by the number of black and brown faces he sees around him” during three days that he recently spent stranded in Paris.

I collected data as I walked along, counting people who looked like native French (which probably added in a few Brits and other Europeans) versus everyone else. I can’t vouch for the representativeness of the sample, but at about eight o’clock last night in the St. Denis area of Paris, it worked out to about 50-50, with the non-native French half consisting, in order of proportion, of African blacks, Middle-Eastern types, and East Asians. And on December 22, I don’t think a lot of them were tourists. Mark Steyn and Christopher Caldwell have already explained this to the rest of the world—Europe as we have known it is about to disappear—but it was still a shock to see how rapid the change has been in just the last half-dozen years.

The term “looked like native French” is an interesting euphemism, given that a quite substantial percentage (and, I suspect, a large majority) of the people whom Murray worried about during his peregrinations were citizens of France. I rather think that the word that Murray was looking for here is “white.” Meanwhile, Clive also links to this “very good Foreign Policy article”:http://www.foreignpolicy.com/articles/2010/01/04/eurabian_follies?print=yes&hidecomments=yes&page=full on the whole disgraceful Eurabia genre. Strongly recommended.

Via Brian Leiter, a list of the 200 Best Occupations ranks Actuary at #1, Historian at #5, and then, a little further down, this:

I guess if the Life of the Mind is good, it follows that the the Life of the Head must be even better.

I just sent a draft manuscript of my Zombie Economics book off to the publisher at Princeton UP. It’s pretty much in beta stage now.The aim is to have it come out in the Fall List.

Thanks heaps for all the praise and criticism. The praise has kept me motivated, and the criticism has been at least as valuable.

I’ve got some more sections of the privatisation chapter and the afterword to post here for comments, and I’m now going to circulate the draft in the older version of the same process. I’m also updating the draft at wikidot (lagging a little on this).

The financial crisis has, justifiably, enhanced the reputation of Karl Marx as an economic thinker. Marx was the first economist to treat crises and panics as an inherent feature of capitalism rather than as an inexplicable, but fortunately temporary, departures from a natural equilibrium.

Unfortunately, most of his analytical effort, and even more, that of the school of thought that followed him, was devoted to pointless exercises in value theory[1]. Marx’s discussion of crisis rested mainly on the idea of the falling rate of profit which seemed at the time to be both a theoretical inevitability and an observable trend. But with technological progress, there’s no necessity for the rate of profit to fall consistently, and it hasn’t. There are other ideas in Marx that might be developed to yield a better theory of crisis, but nothing resembling a systematic theory.

And, in the current crisis, Marxian economics seems to be pretty much Missing in Action. I haven’t seen much and what I have seen hasn’t added much, in analytical terms, to the standard left-Keynesian analysis. Perhaps the problem is that just about everyone expects capitalism, in one form or another, to survive this crisis, contrary to the orthodox Marxist view where crises become ever more severe and eventually precipitate the revolutionary overthrow of the entire system. But it’s equally possible that I haven’t been looking in the right places.

Readers of my blog have pointed me here, which has some good stuff, but, as I said, isn’t much different from the standard left-Keynesian analysis[2]. Can anyone recommend a distinctively Marxian analysis of the current crisis?

fn1. If I get time, I’ll write a longer post on this point. In short, the idea underlying debates about value theory was that since the sale proceeds of production are divided between the owners of inputs to production (labour, capital, and land in the C19 division) there must exist some natural way of determining the share of the value of output for which each group is responsible. This is essentially an idea about average values, since averages added across a group are equal to the total for that group. But, as the neoclassical revolution of the 1870s showed, prices are determined by marginal costs and marginal rates of substitution and these don’t equal averages. Subsequent attempts to rescue a substantive role for value theory as opposed to price theory by Marxians, Austrians and Sraffians, not to mention the neoclassical marginal productivity ethics of JB Clark and others, have gone nowhere.

fn2. Except for this piece, which reads more like Cochrane or Fama with some added Marxist verbiage

Winter has been brutal in more than the obvious ways. I just heard via a friend’s Facebook update that Vic Chestnutt gave up the ghost on Christmas Day. Justin Keating, a lion of the Irish left has also died (Garrett Fitzgerald remembers their work together in cabinet here) Cardinal Cathal Daly has gone to God, just as the Catholic hierarchy finally, mulishly owns up to its failure to protect children from sexual abuse. By Irish standards, his funeral seemed small and subdued, testament to the painful truth that however much we get right in this life, getting one awful thing very, very wrong is hard for others to forgive.

A funeral full of colourful characters, sadness and celebration was that of Michael Dwyer, Ireland’s best film critic. He was described by Daniel Day Lewis as “gentle, modest and kind”, a critic who “was never cruel, ever, nor was he self-serving.” That is high praise from an actor. (More here) Dwyer wasn’t afraid to tell you when a film was rubbish. He just had no need for spite or ego in how he did it.

Hugh Linehan relates many of Michael Dwyer’s achievements, and reminds me of lots I hadn’t known of or had forgotten: Dwyer was a Kerryman, and gave the Tralee Film Society and later the Federation of Irish Film Societies a kick in the arse at a time when there was so little choice in Ireland for films, books and music. He founded and later saved the Dublin Film Festival. Dwyer had friends throughout the world of cinema; the French government recognized him and declared him a Chevalier des Arts et des Lettres.

I grew up in a little town in 1980s Ireland. I wouldn’t wish to have lived anywhere else, but even to a rather prim teenager it felt limited. Most of the notoriously banned books like Ulysses or Lady Chatterley’s Lover were freely available by then, but our cultural window was still narrow. Books were Mills and Boone in the supermarket or something you went to Dublin for. Films were whatever was showing at the local flea-pit, assuming it was open and not, at that moment, turned into a restaurant or just left to rot. Television had two channels and video, when Xtravision came to our town, was mostly Rocky’s and Jean Claude van Damme flicks.
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“Clive Crook”:http://clivecrook.theatlantic.com/archives/2010/01/geoff_dyers_american_friends.php tells us that Americans are ever so much more polite than Brits, and then goes on to complain about blogs.

Jarringly different standards apply in politics, and especially in the political blogosphere. There, “coarsening” is too mild a word. All that swaggering, sneering incivility: maybe I find it disgusting because it’s so unAmerican.

Fair enough if you don’t like it, but I am still at a loss to understand the difference between all this twuly vewy howwid incivility and “suggestions that civil liberties types would be perfectly fine with the deaths of millions of their fellow citizens if only they could get their way”:https://crookedtimber.org/2009/10/09/centrism-as-tribalism/. Perhaps it isn’t incivil by definition when it’s an FT pundit doing it rather than a nasty little leftist blogger? Or perhaps Crook believes that he’s just telling it like it is? (the rather obvious rejoinder being, however, that the bloggers he detests so much fancy that the same thing is true of them). I’ve previously invited Mr. Crook to explain the difference between the kinds of things that he says about lefty civil liberties types and the forms of debasing discourse that he so deplores; so far, he has unaccountably failed to do so. In the absence of such a clarification, I can only presume that his distinction rests on the Yes Minister theory of irregular verbs – I engage in vigorous yet fair truthtelling, you perhaps say things a little too stridently for your own good, he is a disgusting, swaggering and incivil boor.

In a really quite lovely essay, James Galbraith names some of the people who got it right (or at least, less drastically wrong), while pointing out that in many ways, the much-vaunted “freshwater/saltwater” divide is a dialogue between Tweedledum and Tweedledee. I don’t think that’s entirely fair, as with regard to stimulus policy there are clear differences between the New Classicals and the New Keynesians, and it’s clear that Tweedledee is right and Tweddledum is making obviously mathematically inconsistent statements. But the central point is exactly right that an important practical consequence of shutting out heterodoxy was that rather than having a few people to point to who predicted the crisis, the economic profession was left claiming that its true triumph was to be able to explain exactly why economists had been unable to predict it.

And of course, the old Peter Cook line has never been so relevant as it is to the economics profession now (“Sir Arthur, do you feel you have learned from your mistakes?” “Yes, and I’m confident that I could repeat them exactly”). All the people cited in James’ essay are exactly as far away from the mainstream of economics as they were three years ago, and field reports from the American Economic Association meetings suggest that it’s back to business as usual. I asked a while ago in comments to this post whether ” after this experience, can the Berkeley/Princeton/Obama economists ever really go back to a state of polite terms with the people who have done this to them?”, but apparently they can.

As I said in that linked post, the production of more or less mendacious intellectual smokescreens for policies which favour the interests of rich and powerful men isn’t a sort of industrial pollution from the modern economics profession – it’s the product. James finds a quotation from Keynes saying more or less the same thing much more eloquently and explains why it is that “zombie” economic ideas, in the sense of John’s book title, are so difficult to kill:

It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.

Anyway, read the whole thing. Happy New Year.

I’m on the final chapter of my long-promised Zombie Economics, dealing with ideas refuted by the Global Financial Crisis. My target this time is privatisation – more precisely, the idea that privatisation will always yield an improvement over public ownership, and, therefore that market liberalism is an advance on the mixed economy that developed in the during the post-1945 long boom.

As always, comments, criticism and suggestions much appreciated.

Updated In response to comments, I’ve added a bit more material on the 1970s and the background to privatisation.

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For me the big change that came with the last decade was blogging. I started in 2002, and it’s been a big part of my life (sometimes too big) ever since. So, when it came to review the decade, the obvious place to look was the Wayback Machine, which captured my old blogspot blog on 27 July 2002. Looking at the blog as it was then, two things jump out at me

* Looking at the blogroll, I feel like the last of the Mohicans. The bloggers of those days have nearly all retired, and hardly any has a solo blog anymore. CT is something of an exception – quite a few of us still keep our personal blogs going. Mine is here.

* I’m singing the same song now as I was all those years ago. The top post on the page is about how the financial crisis has discredited the efficient markets hypothesis, trickle down economics, privatisation and so on. Of course that was the dotcom financial crisis of 2000-01. I think a few more people are paying attention this time around, but we will have to wait and see.

John’s Shakespeare thread, featuring George Scialabba’s somewhat idiosyncratic opinions on the playwright, has reached the point where comments are closed. Not that I specially want to open them. But I was reminded of George’s deployment of Shaw earlier today when reading Hume’s “Of the Standard of Taste”. Here’s Shaw, as quoted by George, seeking in his poets a kind of will to moral improvement:

bq. All that you miss in Shakespeare you find in Bunyan, to whom the true heroic came quite obviously and naturally. The world was to him a more terrible place than it was to Shakespeare; but he saw through it a path at the end of which a man might look not only forward to the Celestial City, but back on his life and say: ‘Tho’ with great difficulty I am got hither, yet now I do not repent me of all the trouble I have been at to arrive where I am. My sword I give to him that shall succeed me in my pilgrimage, and my courage and skill to him that can get them.’ The heart vibrates like a bell to such utterances as this; to turn from it to ‘Out, out, brief candle,’ and ‘The rest is silence,’ and ‘We are such stuff as dreams are made on, and our little life is rounded by a sleep’ is turn from life, strength, resolution, morning air and eternal youth, to the terrors of a drunken nightmare.

And here’s Hume:

bq. Whoever would assert an equality of genius and elegance between OGILBY and MILTON, or BUNYAN and ADDISON, would be thought to defend no less an extravagance, than if he maintained a mole-hill to be as high as TENERIFFE, or a pond as extensive as the ocean. Though there may be found persons, who give preference to the former authors; no one pays attention to such a taste; and we pronounce without scruple the sentiment of these pretended critics to be absurd and ridiculous

The “Financial Times”:http://www.ft.com/cms/s/0/7bdcce10-f3e0-11de-ac55-00144feab49a.html

Among the wave of reality board games to have hit the Argentine market in recent years, Eternal Debt has remained a niche favourite among those who still blame the IMF for leading the country into a nearly $100bn default eight years ago. The game, by local manufacturer Ruibal, involves taking Latin American raw materials, turning them into industrial products and selling the finished goods in world markets, using IMF capital.

Also available is Bureaucracy, which exploits locals’ disenchantment with the country’s notoriously cumbersome civil service. … The game is designed to elicit groans of recognition to anyone who has ever spent hours grappling with regulatory issues in public offices in Argentina. The game, made by toymaker Habano, cheerfully invites players “to waste time and lose their patience” as they move across the board with a lengthening list of documents to procure and departments to visit in their quest to complete a simple piece of paperwork. It is a game “where everyone loses”, crows the box.

Other suggestions for topical boardgames, in Argentina, the US or elsewhere, welcome in comments.