Tuesday, December 26, 2006

Signs of the Economic Apocalypse, 12-26-06

From Signs of the Times, 12-26-06:

Gold closed at 622.30 dollars an ounce on Friday, up 0.5% from $619.00 at the close of the previous Friday. The dollar closed at 0.7617 euros Friday, down 0.4% from 0.7645 at the close of the week before. The euro closed at 1.3128 dollars compared to $1.3080 for the week. Gold in euros would be 474.02 euros an ounce, up 0.2% from 473.24 euros at the end of the week before. Oil closed at 62.41 dollars a barrel Friday, down 1.6% from $63.43 at the close of the previous week. Oil in euros would be 47.54 euros a barrel, down 2.0% from 48.49 for the week. The gold/oil ratio closed at 9.97, up 2.2% from 9.76 at the end of the week before. In U.S. stocks, the Dow closed at 12,343.22 Friday, down 0.8% from 12,445.52 for the week. The NASDAQ closed at 2,401.18, down 2.3% from 2,457.20 at the close of the previous Friday. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.62%, up three basis points from 4.59 for the week.

Since it’s Christmas, what better time to think about the deeper significance of gift exchange? In the weeks leading up to Christmas, a steady stream of reports about retail performance is released and scrutinized for clues on the health of the economy. Any retailer knows how important the gift-giving season is for the whole year’s performance. What is the meaning of all this gift exchange in a neoliberal economy? Are holidays like Christmas mere survivals of archaic practices serving contemporary economic functions in late capitalism, or is there more to the story?

The exchange of gift has always been somewhat difficult, as we will see, for classical economics to understand. See, for example, this piece by James Surowiecki:
The Gift Right Out

Christmas shopping in the U.S. has been a reliable source of anxiety and stress for well over a century. “As soon as the Thanksgiving turkey is eaten, the great question of buying Christmas presents begins to take the terrifying shape it has come to assume in recent years,” the New York Tribune wrote in 1894. But recently millions of Americans, instead of trudging through malls in a desperate quest for the perfect sweater, have switched to buying gift cards. The National Retail Federation expects that Americans will buy close to twenty-five billion dollars’ worth of gift cards this season, up thirty-four per cent from last year, with two-thirds of shoppers intending to buy at least one card; gift cards now rival apparel as the most popular category of present. This is, in part, because of clever corporate marketing: stores like gift cards because they amount to an interest-free loan from customers, and because recipients usually spend more than the amount on the card—a phenomenon that retailers tenderly refer to as “uplifting” spending. But the boom in gift cards is also a rational response to the most important economic fact about Christmas gift giving: most of us just aren’t that good at it.

We all know that bad gifts inflict a cost—just think of the rigid smiles that greet an unwanted floral tie or Josh Rouse CD—but it’s surprising how big that cost can be. Since the early nineteen-nineties, Joel Waldfogel, an economist at the University of Pennsylvania, has been doing a series of studies in which college students are asked to put a value on the presents they receive. Waldfogel’s main finding is that, in general, people spend a lot more on presents than they’re worth to those who receive them, a phenomenon that he calls “the deadweight loss of Christmas.” A deadweight loss is created when you spend eighty dollars to give me a sweater that I would spend only sixty-five dollars to buy myself. Waldfogel estimates that somewhere between ten and eighteen per cent of seasonal spending becomes deadweight loss, which means that billions of dollars a year is now going to waste.

Why aren’t we better at gift giving? A lot of the time, we don’t know the people we’re shopping for all that well. Much of the deadweight loss that Waldfogel found was caused by older people, who may not be attuned to what their young relatives really want, and are therefore more likely to give gifts that recipients value less. More surprisingly, though, we’re also bad at buying for the people we’re closest to. A recent study by the marketing professors Davy Lerouge and Luk Warlop finds that familiarity can actually lead us astray. They ran a series of experiments with long-standing couples in which the partners tried to predict each other’s taste in furniture—a sort of academic version of “The Newlywed Game”—and found that, in general, people did a poor job of it. In making predictions, people tend to rely on what Lerouge and Warlop call “pre-stored beliefs and expectations,” rather than paying close attention to what their partner really liked. People did a good job of predicting their partner’s preferences, in fact, only when they shared those preferences. My idea of what you want, it turns out, has a lot to do with what I want.

Does our incompetence at gift giving matter? Many would say no. Waldfogel, after all, measured the value of presents in purely monetary terms—he explicitly told his subjects to ignore sentimental attachments. But sentiment obviously has a tremendous amount to do with how we respond to gifts. A study by the economists Sara Solnick and David Hemenway shows that we value unrequested gifts more than presents we ask for, because we assume that the former show more thought. And we also go to great lengths to demonstrate that a gift is more than a dollar sign: we snip off price tags, clip the prices off book jackets, and ask for gift receipts that hide the cost of the present.

The problem is that, while we say that gift giving is about sentiment, not about money, we act as if the best expressions of sentiment came in expensive packages. Around a hundred and fifty billion dollars is spent on gifts during the holiday season every year; this year, the average American expects to spend close to a thousand dollars on presents. And, much as sentiment counts, we don’t let it stand in the way of getting what we want: according to a survey by the National Retail Federation, forty per cent of America expects to return at least one holiday gift this year, and an American Express survey found that roughly a third of respondents had “re-gifted” presents. If we’re spending all this time and money on gifts, the fact that so much of it is wasted matters.

An economist might suggest that the solution is to abandon the pretense and simply start exchanging small piles of money. The boom in gift cards is a kind of socially tolerable version of this: the cards are somehow more personal than cash, and they’re also not going to be wasted on an unwanted gift. But Waldfogel’s studies also suggest a very different solution: if most of the presents we buy are going to be less valuable in monetary terms than in sentimental ones, then there’s no reason to believe that the more expensive gift is a better gift. In fact, the more we spend at Christmas, the more we waste. We might actually be happier—and we’d certainly be wealthier—if we exchanged small, well-considered gifts rather than haunting the malls. Calculating the deadweight loss of Christmas gifts is a coldhearted project, but it leads to a paradoxically warmhearted conclusion: the fact of giving may be more important than what you give. Start with “Bah, humbug” and you somehow end up with “God bless us, every one.”

You can see that economists have trouble thinking in terms of gift and counter-gift. Indeed, as evidenced by the growth of gift cards, cash gifts, and gift registries, so do members of neoliberal societies. Anthropologists, starting with Marcel Mauss in the 1920s with his Essai sur le don, or in English translation, The Gift: Form and Functions of Exchange in Archaic Societies (New York: Norton, 1967) identified gift exchange as something much more fundamental to society. It was not only a way for goods to circulate in a fashion antithetical, perhaps, to the way indentified in classical economics but also a primary way that social ties are formed and maintained.

Mauss, while looking primarily at primitive and archaic societies, was explicit in his belief that the values of a gift society could be encouraged in the twentieth century. Later we will look at some contemporary work in the Maussian tradition which sees the gift economy as fundamental to even modern, neo-liberal society. They see gift exchange as one of three modes of circulation (market, state and gift). Or, as Alain Caille put it, “goods and services do not circulate only according to market laws or to the redistributive rules of the state… There is a third form of circulation that is as important, in fact more important, than the other two—circulation according to the gift and counter-gift.” (Jacques Godbout with Alain Caille, The World of the Gift, Montreal: McGill – Queen’s University Press, 1998, p. vii)
Two non-conformist economists, Francois Perroux (1963) and Serge Christophe Kolm (1984), have identified three complementary economic systems: the market, ruled by self-interest; government planning, ruled by constraint; and that of the gift. (Godbout, p. 15)

Gifts are inherently paradoxical. At the same time freely given and given under obligation, for both selfless and selfish reasons, how can they be characterized? What is clear is that gift exchange can’t be reduced to classical economic maximization strategies. Ties and bonds between groups and individuals are at stake, not just profit and loss. Here is Mauss:
We have repeatedly pointed out how this economy of gift-exchange fails to conform to the principles of so-called natural economy or utilitarianism. The phenomena in the economic life of the people we have studied… and the survivals of these traditions in societies closer to ours and even in our own custom, are disregarded in the schemes adopted by the few economists who have tried to compare the various forms of economic life.

The notion of value exists in these societies. Very great surpluses, even by European standards, are amassed; they are expended often at pure loss with tremendous extravagance and without a trace of mercenariness; among things exchanged are tokens of wealth, a kind of money. All this very rich economy is nevertheless imbued with religious elements; money still has its magical power and is linked to clan and individual. Diverse economic activities—for example, the market—are impregnated with ritual and myth; they retain a ceremonial character, obligatory and efficacious; they have their own ritual and etiquette…

On the contrary, it is something other than utility which makes goods circulate in these multifarious and fairly enlightened societies. Clans, age groups and sexes, in view of the many relationships ensuing from contacts between them, are in a state of perpetual economic effervescence which has little about it that is materialistic; it is much less prosaic than our sale and purchase, hire of services and speculations.
(Mauss, The Gift, pp. 69-70)

…Let us test now the notion to which we have opposed the ideas of the gift and disinterestedness; that of interest and the individual pursuit of utility. This agrees no better with previous theories. If similar motives animate Trobriand and American chiefs and Andaman clasn and once animated generous Hindu or Germanic noblemen in their giving and spending, they are not to be found in the cold reasoning of the business man, banker or capitalist. In those earlier civilizations one had interests but they differed from those of our time. There, if one hoards, it is only to spend later on, to put people under obligations and to win followers. Exchanges are made as well, but only of luxury objects like clothing and ornaments, or feasts and other things that have to be consumed at once. Return is made with interest, but that is done in order to humiliate the original donor or exchange partner and not merely to recompense him for the loss that the lapse of time causes him.

The victory of rationalism and mercantilism was required before the notions of profit and the individual were given currency and raised to the level of principles. One can date roughly—after Mandeville and his Fable des Abeilles—the triumph of the notion of individual interest…

It is only our Western societies that quite recently turned man into an economic animal. But we are not yet all animals of the same species.
In both lower and upper classes pure irrational expenditure is in current practice: it is still characteristic of some French noble houses…. (Mauss, pp. 73-4)

Jacques Godbout has taken Mauss’s work and applied it to late twentieth century society. According to Godbout, the gift culture is alive and well in late capitalist society but it offers a challenge to neoliberal thinking:
The modern realist refuses to believe in the existence of the gift because the gift is seen as diametrically opposed to material, egoistic self-interest. A “true” gift can only be disinterested, freely given. And, as such a thing is impossible (“there is no free lunch”), the gift, the genuine gift, is equally impossible, with the result that their seemingly altruistic actions are really to their advantage. On the one hand, as we have said, such denial allows them to conform to the egoistic morality of the time. But, on a deeper level, by denying that their motivations are disinterested, they attest to the reality of the gift. For, as Mary Douglas has shown, the free gift does not exist—except insofar as it is a sign of antisocial behavior—for the gift serves above all to establish relations, and a relationship with no hope of return (from the individual receiving the gift or his substitute), a one-way relationship, disinterested and motiveless, would be no relationship at all. Beyond the abstract ideas of egoism and altruism and the rigid antithesis between a supposedly real moment of radical disinterest, we must think of the gift not as a series of unilateral and discontinuous acts but as an element in a relationship. (Godbout, p. 7)

Neoliberals and economists, however, will counter that,
It is true that there still are occasions set aside for the exchanging of gifts, and opporunities remain to show charity, offer rounds in bars, feel indebted, be “outdone,” or, on the other hand, to free oneself of onerous, symbolic debts through recourse to money and merchandise. But these occasions are few and far between, isolated islands in a sea of utilitarian calculation. This hypothesis of the bare survival, occasional and discontinuous, of the gift, is, however contradicted by our most recent observations. These suggest that we must see the gift as the basis for a system, a system that is nothing less than the social system as a whole. The gift is the embodiment of that system of relationships that is strictly social, in that these relations cannot be reduced to factors of power of economic interest.

We are prevented from seeing this—although it is virtually self-evident—by the way contemporary thought processes associated utilitarianism, on which we all depend, lead us to formulate questions. According to that way of thinking the gift does not exist, either because only a truly disinterested gift would be a genuine gift and it is impossible to be disinterested, or because the authentic gift requires real altruism, which is unattainable since the altruist mustw have some egoistic reason for being an altruist. It is important to recognize that these tautological dichotomies, which force us to think only in terms of the opposition of two terms, create a smoke screen which prevents us from seeing the truth.
(Godbout, pp. 13-4)

According to Godbout,
Archaic and traditional societies thought of themselves in the language of the gift, a language that defined their being-in-the-world and their distinctiveness, particularly in terms of primary social bonds (bonds desired for themselves) and refusal to lapse into historicity. It was therefore within the imaginative and sometimes frankly ideological space of the gift that they experienced and understood not only the community of humans and individual equality but also authority, law, hierarchy, exploitation, domination, and power. As modernity defines itself first and foremost by its absolute refusal of tradition, it is not surprising that it thinks it can assert its freedom by ridding itself of a language that seems coextensive with tradition, the language of the gift—and that it reserves its harshest words and most caustic sarcasm to discredit and keep in place anything that advocates generous or noble acts, such as Christian love.

We could discuss at length the historical causes for the development of the market economy and modern bureaucratic nation-states. But there is little doubt that they have much, if not everything, to do with the growing modern horror of closed communities bound together by obligatory gifts that confirm traditional hierarchies. In that sense, the market and the modern bureaucratic state, machines that destroy traditions and particularity, are above all anti-gift devices. (Godbout, p. 17)

The gift is only paradoxical from the point of view of atomized individuality. If we look at it in terms of a network of those seeking to serve self by serving others it makes sense:
How can we provide a theory of a phenomenon that has so many features—free, undecidable, contextual, spontaneous, refusing the subject-object distinction at the heart of modern thought, lacking explicit rules of conduct—that seems incompatible with any formalization? We can make some progress through the idea of the network, an idea that has already been explored in fields of research, such as artificial intelligence (AI), that have also run aground on determinist models. (Godbout, p. 197)

From the point of view of network theory, what, then, is the State and the Market?
The state is a hierarchy, but inclusive, not tangled, without a loop other that the simple minimal loop of feedback. Its channels run one way only, which eliminates certain problems (chance meetings and accidents, gift relationships based on domination, etc.) but at the same time reduces the flexibility of the system. Everything that circulates passes through a centre before moving off in the other direction, each time leaving behind a part of its contents, which mans that what circulates arrives considerably diminished compared to when it started out. The only possibility of return is feedback: in other words, the system only keeps what it wants from the outside. With the strange loop, on the other hand, the outside imposes things on the system. There is a dynamic interaction. The state apparatus makes no strange loop, for nothing may be imposed on it that has not been foreseen—things take a fixed parallel double route: concentration – redistribution. For the state apparatus, where a single individual is concerned the file is memory. For groups of individuals it is rights and the law.

For its part, the market is a tangled network but it is not hierarchical. That is why it also is a simple loop. The market is a boulevard, sometimes a freeway, where circulation is governed by a mechanism that ensures that everywhere, when an object passes by in one direction, an “equivalent” object passes by in the other direction. But on another level it is one-way, as its only goal is to transmit things from producer to consumer, at which point they disappear from the system.

The market is a network of freeways that goes off in all directions. It is tangled (Jorion, 1989, 44, 68). Unlike the state, it is decentralized. It “chooses” its path, like a telephone network. It is infinitely extensible in space, but on one plane only. It has no depth, for it is flattened by the quest for equal exchange, for perfect equivalence. It is a surface that can cover the entire planet, thanks to the fact that it also constitutes a network from which one has removed “the hazards of human relationships (Simmel 1987). It is a kind of simple tangling (Hofstadter 1980), a simple connection. What is more, the market has one starting point and one destination, one direction, from the producer to the consumer. Time for the market, its memory, is money. Of its own volition, it only draws on a tiny part of past relationships between people. It sets aside the bond and its personal history. But it is not surprising that Bateson claims that “of all imaginary organisms [dragons, gods …], economic man is the dullest … because his mental processes are all quantitative, and his preferences transitive” (1987, 175). It is this, however, that enables so-called economic man to be universal and to cross cultures.

Compared to the state, the market opens onto an infinite, free space. And we can easily understand that if a member of society is faced with a state apparatus that lacks a democratic loop, the mercantile network can appear to be a liberation, with its countless, seemingly endless paths. But we also understand that humans are soon dissatisfied with the absence of social ties that the market brings in its wake, that they come to feel they have been shrunken by this shallow network, diminished, a bit like a three-dimensional being flattened into two dimensions… (Godbout, pp. 200-1)

Here we see a diabolical facet of neoliberal ideology: that there are only two alternatives, free markets or state tyranny (that was the false choice of the Cold War). Once we accept that, they’ve got us. It is imperative that we always look for the “third man.”

The third choice, the gift, differs from the other two by its multidimensionality:
The gift combines the loop of the market and the hierarchy of the state, which makes it a tangled hierarchy. That is why anything seized from the gift by the state or the market model represents either a vertical section of the gift-giving system, retaining only its hierarchical aspect with its obligations and constraints, or a horizontal section, retaining only the simple, flat network of the market, which is governed by the single law of equivalence, which neutralizes ties and their contextual variability. (Godbout, p. 202)

And finally,

· For Hofstadter, as for most philosophers, the intelligence of the human species involves one loop in addition to those that animals have, the loop that is responsible for the fact that we know that we know, for the self-awareness that has defined humans since the Greeks.

· For some theorists in modern democracy, the difference between those in primitive societies and ourselves also resides in our having one additional loop, that which endows us with autonomy, something not available in primitive societies.

· For utilitarian liberals, the superiority of the market over the gift also implies an extra loop, the self-knowledge that teaches us that every gift is an unconscious exchange and that the donor is self-interested. On this theory, this is the loop of lucidity that enables us to move away from primitive spontaneity and naivete and accede to rationality—or rather to the consciousness of rationality, since every human is utilitarian, even if they don’t know it or refuse to acknowledge it.

· The gift represents still another level: the awareness that to make the exchange explicit is one level too much, which freezes the exchange and transforms it, making it lose its flexibility by lessening the uncertainty and underdetermination, thus relegating it to a lower level. The mercantile loop, for the gift, rather than being an additional loop, is a perverse loop. To refuse this loop is to create a level superior to it. This is the level of language, of creation, of the vagueness needed to reflect the indetermination and radical incompleteness of these systems and their irreduciblity to determinist systems such as those embodied in the models for bureaucratic apparatus and the market. The gift is a conscious abandonment to the absence of calculation, a spontaneous meta-level that can be described as “behaviour that results from an effect of self-organization” (Jorion 1990, 117). If we follow the rules, we do not know how to give, any more than we know how to speak a language if we have to follow its rules while we are talking. (Godbout, p. 204)

We also discussed in previous installments the divide between primitive and civilized, to use two somewhat discredited terms. We asked if there were only two choices there as well. We wondered if there could be a non-exploitative, anarchist high-tech gift culture. We noted that large-scale exploitation of humans by other humans began with the invention of agriculture, or large scale exploitation of nature by humans. Everything seems to have changed ten thousand years ago. What happened? Why? Are there clues in that break?

To dig a little deeper into the issues of the Neolithic Revolution and our desire for open, creative networks, let’s look at the ideas of Daniel Quinn, a novelist in the anthropological tradition of Marshall Sahlins, who has written with a lot of insight on just what did change ten thousand years ago. Quinn is firmly in the primitivist camp, a position which we will also call into question, but his primitivism is oriented toward the open, emergent evolution of complex systems.

In anthropological work, the anthropologist, an outsider to a culture, learns about another culture by participating in it and interviewing informants. In Quinn’s most well-known novel, Ishmael (Daniel Quinn, Ishmael, New York:Bantam, 1995), this role is played by a gorilla, Ishmael, who can speak telepathically. It sounds a bit silly, but the character of the gorilla is well-drawn. The narrator, a disillusioned middle-age person, meets regularly with Ishmael after answering an ad about saving the world.

Ishmael soon convinces the narrator that our society still operates by an overarching myth. The most fundamental parts of our myth arises from the neolithic invention of agriculture. Quinn calls the predominant myth the story of the Takers. The other myth, enacted by most humankind during the last million years or so, was the story of the Leavers.
“…all you have to know is that two fundamentally different stories have been enacted here during the lifetime of man. One began to be enacted here some two or three million years ago by the people we’ve agreed to call Leavers and is still being enacted by them today, as successfully as ever. The other began to be enacted here some ten or twelve thousand years ago by the people we’ve agreed to call Takers, and is apparently about to end in catastrophe.” (Daniel Quinn, Ishmael, New York:Bantam, 1995, p. 41)

Ishmael then asks the narrator to tell his culture’s creation myth and he does, beginning with the Big Bang, continuing with the development and evolution of life on planet Earth and ending with the appearance of Man.

The narrator still doesn’t see that this story is a myth, it’s scientific and factual, after all. so Ishmael tells him another story, similar to the narrator’s except for the fact that it is told by a jellyfish eons ago to an alien anthropologist. The story ends with the “appearance” of jellyfish:
“But finally,” the creature said, turning quite pink with pride as he came to the climax of the story, “but finally jellyfish appeared!”

Ishmael continued,
“What did the jellyfish mean when it said, ‘But finally jellyfish appeared’?”

“It meant… that is what it was all leading up to. This is what the whole ten of fifteen billion years of creation were leading up to: jellyfish.”

“I agree. And why doesn’t your account of creation end with the appearance of jellyfish?”

… “Because there was more to come beyond jellyfish?”

“That’s right. Creation didn’t end with jellyfish. Still to come were the vertebrates and the amphibians and the reptiles and the mammals, and, of course, man.” (Ibid., p. 56)

The implication is clear. The narrator’s story ended with “and finally man appeared.”
“Meaning that there was no more to come. Meaning that creation had come to an end.”

“This is what it was all leading up to.”

… “That seems to be the unspoken assumption.”

“It’s certainly not always unspoken. The religions of your culture aren’t reticient about it. Man is the end product of creation. Man is the creature for whom all the rest was made: this world, this solar system, this galaxy, the universe itself.”

… “Everyone in your culture knows that the world wasn’t created for jellyfish or salmon or iguanas or gorillas. It was created for man.”

… “But what about the rest? Did the entire cosmic process of creation come to an end three million years ago, right here on this little planet, with the appearance of man?”


Did even the planetary process of creation come to an end three million years ago with the appearance of man? Did evolution come to a screeching halt just because man had arrived?”

…“As you tell it, the birth of man was a central event—indeed the central event—in the history of the cosmos itself. From the birth of man on, the rest of the universe ceases to be of interest, ceases to participate in the unfolding drama. For this, earth alone is sufficient; it is the birthplace and home of man, and that’s its meaning. The Takers regard the world as a sort of human life-support system, as a machine designed to produce and sustain human life.”

…“All right. That’s the premise of your story: The world was made for man.”
(Ibid., pp. 57-61)

Therefore, according to the Taker myth, humans rule the earth.
“Man’s destiny was to was to conquer and rule the world, and this is what he’s done—almost. He hasn’t quite made it, and it looks as though this may be his undoing. The problem is that man’s conquest of the world has itself devastated the world. And in spite of all the mastery we’ve attained, we don’t have enough mastery to stop devastating the world—or to repair the devastation we’ve already wrought.”

… “Only one thing can save us. We have to increase our mastery of the world. All this damage has come about through our conquest of the world, but we have to go on conquering it until our rule is absolute. Then, when we’re in complete control, everything will be fine. We’ll have fusion power. No pollution. We’ll turn the rain on and off. We’ll grow a bushel of wheat in a square centimeter. We’ll turn the oceans into farms…”

“And that’s where it stands right now. We have to carry the conquest forward. And carrying it forward is either going to destroy the world or turn it into a paradise—into the paradise it was meant to be under human rule.”

“And if we manage to do this—if we finally manage to make ourselves the absolute rulers of the world—then nothing can stop us. Then we move into the Star Trek era. Man moves out into space to conquer and rule the entire universe. And that may be the ultimate destiny of man: to conquer and rule the entire universe. That’s how wonderful man is.”
(pp. 80-1)

The main difference between Takers and Leavers is this: in contrast to Takers, Leavers ,
"…never exterminate their competitors, which is something that never happens in the wild. In the wild, animals will defend their territories and their kills and they will invade their competitors’ territories and preempt their kills. Some species even include competitors among their prey, but they will never hunt competitors down just to make them dead, the way ranchers and farmers do with coyotes and foxes and crows. What they hunt, they eat.” (p. 126)

Takers, on the other hand,
“…systematically destroy their competitors’ food to make room for their own. Nothing like this occurs in the natural community. The rule there is: Take what you need, and leave the rest alone.”

… “Next, the Takers deny their competitors access to food. In the wild, the rule is: You may deny your competitors access to what you’re eating, but you may not deny them access to food in general. In other words, you can say, ‘This gazelle is mine,’ but you can’t say, ‘All gazelles are mine.’”

Our policy is: Every square foot of this planet belongs to us, so if we put it all under cultivation, then all our competitors are just plain out of luck and will have to become extinct. Our policy is to deny our competitors access to all the food in the world, and that’s something no other species does.”
(p. 127-8)

What results is the end of evolution. For Quinn, evolution can only happen when a species put itself in the hands of the gods, so to speak, in other words when it relinquishes the attempt to stop evolution in its own favor. The attempt to control all life for the benefit of one species results in a catastrophic reduction of life, and the variety that life provides and which fuels creativity and evolution. The scheme maps well onto Laura Knight-Kadczyk’s opposition between creativity and entropy. The creativity and entropy distinction came about, interestingly, as a refinement of the Service to Others and Service to Self opposition (STS vs. STO). Which brings us back to the question we started this with: What would an open, STO economy look like?
“‘No species shall make the life of the world its own.’”

… “That’s one expression of the law. Here’s another: ‘The world was not made for any one species.’”

…“The people of your culture cling with fanatical tenacity to the specialness of man. They want desperately to perceive a vast gulf between man and the rest of creation. This mythology of human superiority justifies their doing whatever they please with the world… But in the end this mythology is not deeply satisfying. The Takers are a profoundly lonely people. The world for them is enemy territory, and they live in it like an army of occupation, alienated and isolated by their extraordinary specialness.” (pp. 145-6)

The Fall, then, occurred when humans tried to take the place of “the gods” or those who rule the world and make the decisions about who shall live and who shall die.
“The disaster occurred when, ten thousand years ago, the people of your culture said, “We’re as wise as the gods and can rule the world as well as they.’ When they took into their own hands the power of life and death over the world, their doom was assured.”

“Yes. Because they are not in fact as wise as the gods.”

“The gods ruled the world for billions of years, and it was doing just fine. After just a few thousand years of human rule, the world is at the point of death.”

… “A minute ago, you told me that the Takers will never give up their tyranny over the world, no matter how bad things get. How did they get to be this way?

… “They got to be this way because they’ve always believed that what they were doing was right—and therefore to be done at any cost whatever.

… “They’ve demonstrated it by forcing everyone in the world to do what they do, to live the way they live. Everyone had to be forced to live like the Takers, because the Takers had the one right way.”

... “Many peoples among the Leavers practiced agriculture, but they were never obsessed by the delusion that what they were doing was right, that everyone in the entire world had to practice agriculture, that every last square yard of the planet had to be devoted to it.” (pp. 166-7)

The statement, “They got to be this way because they’ve always believed that what they were doing was right—and therefore to be done at any cost whatever.… They’ve demonstrated it by forcing everyone in the world to do what they do, to live the way they live,” fits the Cheney administration in this decade in the United States. They are the apotheosis of the Entropic, Service to Self, Taker orientation.

According to Quinn, if the human race adopts the Leaver story as its myth, we can discover that we can play a special role in the evolution of consciousness. The Leaver story is based on the premise that “man belongs to the world” rather than the world belonging to man.
“There is a sort of tendency in evolution, wouldn’t you say? If you start with those ultrasimple critters in the ancient seas and move up step by step to everything we see here now—and beyond—then you have to observe a tendency toward… complexity. And towards self-awareness and intelligence.”

… “That is, all sorts of creatures on this planet appear to be on the verge of attaining that self-awareness and intelligence. So it’s definitely no just humans that the gods are after. We were never meant to be the only players on this stage. Apparently the gods intend this this planet to be filled with creatures that are self-aware and intelligent.”

… “man is the first of all these. He’s the trailblazer, the pathfinder. His destiny is to be the first to learn that creatures like man have a choice: They can try to thwart the gods and perish in the attempt—or they can stand aside and make room for all the rest. But it’s more than that. His destiny is to be the father of them all—I don’t mean by direct descent. By giving all the rest their chance—the whales and the dolphins and the chimps and the racoons—he becomes in some sense their progenitor… Oddly enough, it’s even grander than the destiny the Takers dreamed up for us.”
(pp. 241-2)

But back to our original question, what is the answer? How can we avoid the catastrophe? Can we have a high-tech gift culture that lives by the creative principle, or serving self by serving others? Earlier we saw that there was something about hunter-gatherer society that allowed them to live “affluent” lives without exploitation of their fellow human-beings. What can we learn from them. Quinn’s work, along with Mauss’s helps point the way to an answer. Open networks that have the ability to evolve without developing pathological concentrations of power need to be created. Of course they can’t be imposed they would have to grow naturally. Perhaps some of the ideas we saw in David Graeber’s Fragments of an Anarchist Anthropology, specifically the idea of “engaged withdrawal” from dominant, hierarchical institutions. The pulling away from the mainstream media in the internet age is a good example of the power of this, as is the whole “wiki” movement and open source software development.

We also need to examine an issue brought up by Quinn: are humans completely of organic life or not? According to Quinn, the answer would be ‘yes’ but is that really the case? On one side of the question are lined up primitivists, pagans and radical ecologists. Is the only position on the other side of that question the Taker position? Or can there be a third one?

Tied up with this question is another: Is there only one human race? The best scientific estimates today see around 6% of the human population as irredeemably psychopathic. Esotericists like Boris Mouravieff and Laura Knight-Jadczyk have suggested that the human race is divided equally in two between the Adamics and Pre-Adamics. The Adamics have the possibility of further individual soul development beyond this lifetime, even. According to this scheme, psychopaths are a particularly extreme variant of the pre-Adamics. If we don’t take these issues account in devising utopian scenarios, we will be adding to the problem. Schemes that would work for Adamics would not for pre-Adamics. And, great care needs to be taken to be aware of and contain the damage that can be caused by psychopaths, those among us with no conscience. As Andrew Lobaczewski argued in Political Ponerology, the more our model of human nature is incorrect, the easier it is for psychopaths to undermine society and take it over. So rather than mere philosophical or theological speculation, these questions have to be confronted before we suggest practical solutions.

Networks of individuals, with knowledge of psychopaths, who are willing to submit to shocks to the ego, to having the network help them root out mechanical programs, might be able to enact a gift-economy circulation of goods and services, a high-tech gift economy. Such a thing might make real both Jesus’s Kingdom of Heaven and Marx’s True Communism. But psychopaths must be contained and one’s own inner psychopath or predator must also be rooted out for such a utopia to be enacted.

Monday, December 18, 2006

Signs of the Economic Apocalypse, 12-18-06

From Signs of the Times, 12-18-06:

Gold closed at 619.00 dollars an ounce on Friday, down 1.9% from $631.00 at the close of the previous Friday. The dollar closed at 0.7645 euros Friday, up 0.9% from 0.7574 euros at the close of the week before. The euro closed at 1.3080 dollars, compared to $1.3202 at the close of the previous Friday. Gold in euros would be 473.24 euros an ounce, down 1.0% from 477.96 for the week. Oil closed at 63.43 dollars a barrel Friday, up 2.3% from $62.03 at the close of the week before. Oil in euros would be 48.49 euros a barrel, up 3.2% from 46.99 for the week. The gold/oil ratio closed at 9.76 Friday, down 4.2% from 10.17 at the close of the week before. In U.S. stocks, the Dow closed at 12,445.52 Friday, up 1.1% from 12,307.49 at the close of the previous Friday. The NASDAQ closed at 2,457.20 Friday, up 0.8% from 2,437.36 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.59%, up four basis points from 4.55 for the week.

Augusto Pinochet died last week. Add to that the death of his groupie, Jeanne Kirkpatrick, and his economic mentor, Milton Friedman, and it really does seem like the end of an era. Good riddance to them all.

The mainstream press in the United States attempted a “balanced” portrayal of Pinochet. That in itself speaks volumes:

Mourning for Pinochet — US establishment shows its affinity for fascism

Bill Van Auken

13 December 2006

If the political events of the past six years have demonstrated anything, it is that there exists within America’s ruling establishment no genuine commitment to democratic rights or democratic forms of rule. In the relatively short period since 2000, the US ruling elite has overseen the theft of a national election, the launching of an illegal war, the abrogation of the most basic constitutional rights and the legalization of torture.

This week’s death of the aged former US-backed Chilean dictator Augusto Pinochet has provided one more verification of this general political trend.

While in Chile itself, the death of an individual who exercised a reign of terror for 17 years sparked spontaneous celebrations—tinged by deep regret that he was allowed to die in a military hospital rather than in the prison cell he so richly deserved—within the most influential layers of America’s corporate and financial elite, his demise was the occasion for both mourning and tributes.

The editorial board of the Wall Street Journal, for example, carried an editorial Tuesday entitled “The Pinochet Paradox.” The paper’s editorial board, which generally reflects the right-wing views within the Bush White House itself, cautioned its readers that Pinochet’s “real story is more complicated” than that of a military dictator who abolished liberties.

The editorial is laced with gross distortions and outright lies. It claims, for example, “The popular notion that the US sanctioned the coup or condoned Pinochet’s torture hasn’t held up under historical scrutiny.” On the contrary, documents released by the Clinton administration (though the most incriminating evidence from the CIA and Pentagon still remains classified) make quite clear that the US government was fully informed of plans for the September 11, 1973 coup—as well as the killings and torture that followed—and fully supported it. Moreover, they confirmed the role of the Nixon and Ford administrations in seeking to quell international criticism of the barbaric regime established by Pinochet.

The Journal goes on to advance a back-handed argument that the coup was justified in any case. “Contrary to mythology [Chile’s Socialist Party President Salvador] Allende was never a popular figure in Chile.”

By 1972, the Journal claims, the Allende government had itself become repressive, threatening “to jail journalists,” a false charge that was first floated by the CIA as part of its destabilization campaign. In fact, the right-wing press, which the CIA helped fund and write, remained free to carry out provocations up until the coup itself.

The editorial also condemns Allende for “shortages and spiraling inflation” under his government, conditions that were due in large measure to the Nixon administration’s stated intention to “make the economy scream” in order to facilitate Allende’s ouster. Credit and exports were cut off, while money was poured in to provide covert aid to business-organized strikes that crippled sectors of the economy.

“The official death toll of the Pinochet dictatorship is some 3,197,” the Journal states. “An estimated 2,796 of those died in the first two weeks of fighting between the army and Allende-armed militias.”

Really? How many army personnel died in this “fighting”? According to most credible estimates, a total of 33 people died on the day of the coup itself, less than half of them military or police personnel, some of whom were shot for refusing to support the army’s action. The thousands upon thousands who died afterwards—and most credible estimates put the number killed at anywhere between three and ten times the official count—were abducted, tortured and murdered in concentration camps and secret prisons without ever being charged, much less tried.

There was no “fighting” beyond the most scattered and unequal acts of resistance precisely because Allende had rejected demands by the most militant sections of Chilean workers for arms.

By willfully distorting these facts, the Journal’s editors justify and sanction mass murder and torture. Of course, the editorial acknowledges that “Civil liberties were lost and opponents tortured.” However, the Journal continues, “over time, with the return of private property, the rule of law and a freer economy, democratic institutions also returned.”

There may have been “dark times,” but today, “What remains is a Chile that has the healthiest economy in Latin America...” In other words, the bloodbath and barbarism unleashed upon the Chilean people was well worth the effort.

Similarly, the Washington Post carried a Tuesday editorial headlined “A Dictator’s Double Standard,” with the subtitle, “Augusto Pinochet tortured and murdered. His legacy is Latin America’s most successful country.”

This piece likewise seeks a “balanced” approach, while deriding the ex-dictator’s critics. “For some he was the epitome of an evil dictator,” the editorial states. “That was partly because he helped to overthrow, with US support, an elected president considered saintly by the international left: socialist Salvador Allende, whose responsibility for creating the conditions for the 1973 coup is usually overlooked.”

While acknowledging that thousands were killed, tens of thousands tortured and hundreds of thousands exiled, the Post quickly adds, “It’s hard not to notice, however, that the evil dictator leaves behind the most successful country in Latin America.” It credits Pinochet for “free market policies” that produced “the Chilean economic miracle.”

What is the nature of this “miracle” that they all celebrate? For the likes of the well-heeled and self-satisfied publishers and editors at the Wall Street Journal and the Washington Post, Chile is a miracle because they can stay at five-star hotels, eat at gourmet restaurants and visit upscale shopping malls in Santiago, while earning handsome returns on investments in Chilean stocks.

Conditions of life for the masses of workers and poor who inhabit the slums outside the circle of skyscrapers and luxury housing reserved for Chile’s rich and their foreign counterparts, as far as they are concerned, are beside the point.

This myth of the “Chilean miracle” and the supposed credit due Pinochet for laying foundations—built with the blood and bones of his tens of thousands of victims—for a free-market renaissance are repeated ad nauseam by virtually every section of the mass media.

According to government statistics, over 20 percent of Chile’s population lives in poverty. But this official count does not include retired workers and the disabled subsisting on woefully inadequate pensions; many think the real poverty rate is closer to 40 percent.

The country ranks as one of the most socially unequal in the world. This is the real legacy of the Pinochet regime and the reign of terror it unleashed against the Chilean working class. Between 1980 and 1989, the wealthiest 10 percent of the population saw its share of the national income climb from 36.5 percent to 46.8 percent. During the same period, the 50 percent of the population at the bottom of the income ladder saw their share plummet from 20.4 to 16.8 percent.

In the aftermath of the coup, Chile saw the steepest fall in real wages and sharpest increase in unemployment ever recorded in Latin America. The dictatorship ushered in social conditions for working people that can only be compared with those that prevailed during the Great Depression of the 1930s.

Between 1974 and 1975, the unemployment rate more than doubled from 9.1 to 18.7 percent. By 1983, the country was plunged into economic freefall, with nearly 35 percent of the workforce jobless and manufacturing down by 28 percent. These desperate conditions sparked a new wave of working class struggles that were ruthlessly repressed, with tens of thousands rounded up again.

The vast transfer of social wealth from the working class to a financial and corporate oligarchy affected by the dictatorship took the most brutal forms. By the time Pinochet surrendered the presidency, the average diet for the poorest 40 percent of the population had fallen from 2,019 calories a day to just 1,629. Meanwhile the percentage of Chileans left without adequate housing had risen from 27 to 40 percent.

The “miracle” was granted to the wealthiest layers of society along with the military and its political cronies. They enriched themselves through the plundering of the working class and state property. Wholesale privatizations were carried out without any rules or scrutiny, in what amounted to a vast robbery of social resources. Pinochet’s personal participation in this corrupt process has come to light in the form of some $27 million squirreled away in secret overseas bank accounts.

Under the constitution dictated by Pinochet, the government has been barred from even investigating this orgy of corporate criminality—what the Wall Street Journal sanctimoniously refers to as “the return of private property, the rule of law and a freer economy.”

High unemployment, low wages, high interest rates and a workforce compelled to labor at the point of a gun meant super profits for both domestic and foreign capital, at the price of hunger and poverty for millions. This is the “miracle’s” material substance.

Those who pen editorials using such end results to justify rounding up tens of thousands of workers, intellectuals, students—men, women and children—subjecting them to unspeakable torture and summarily executing them in soccer stadiums are themselves fascists in all but name only.

The defense of Pinochet and the “balanced” approach to torture chambers and military firing squads taken by the US establishment media constitutes an unmistakable political warning.

The emergence of a mass movement of the American working class capable of challenging the monopoly over wealth and political power exercised by the financial oligarchy will be met with similar methods. If the corporate and financial interests that rule America were to see themselves losing power to a socialist party committed to ending the subordination of society to private profit and the accumulation of vast personal wealth, they too would search for a fascist general prepared to carry out slaughter on a far greater scale than in Chile.

The blogger, “By Neddie Jingo” lived in Pinochet’s Chile as an American teenager with diplomatic immunity. When a person lives through the experience of tanks in the streets, that person is forever changed; he or she will never say, “It can’t happen here.”

Pinochet Passes By
June, 1975: Santiago de Chile

Tuesday, December 12, 2006

Your Ned, the son af an American diplomat, is a sophomore at an international school at the farthest edge of town, in the Andean foothills. His anti-authoritarian teenaged years in their fullest pimply bloom, he insists, despite his parents' entreaties (or, who knows, perhaps because of them) on affecting the uniform of the Pissed-Off 1975 Teen: the long, ratty hair, jeans worn through at the knee, the general surliness.

In a fascist dictatorship -- gun emplacements on the public thoroughfare, DINA agents prowling the streets in unmarked cars ready to pounce and "disappear" you to torture chambers on Dawson Island, itchy-trigger-fingered Carabineros on street corners stopping any random passerby who looked vaguely "socialist" -- the Pissed-Off 1975 Teen look is the sort of thing that the Authorities lick their chops at. It's utterly impossible to understand, in a cosmopolitan democracy, the raw, adrenaline-pumping fear that can gnaw at your vitals when you can be hauled off the street at any instant for the way you dress. I'm sorry, punk rockers and Disaffected Victims of the Man: you can't know. There is no comparison. I came to dread with a sickly nausea those knee-trembling moments when a machine-gun-wielding cop would pick me out of a crowded sidewalk, step in front of me, and accost me for my ID: "A ver, joven..."

And I was safe! I was untouchable! I had Diplomatic Immunity! I had a diplomatic carnet de identidad that rendered me literally untouchable! Most of my friends were theoretically untouchable, too -- but try explaining that to my pal Joe, son of the Bolivian chargé d' affaires, who got his knee broken in just such an encounter. He'd forgotten his wallet. Boom. Rifle butt to the patella. Don't forget, punk.

The trip to school that year was a bouncy, uncomfortable ride with several other kids in the back of a covered pickup truck. A few families had banded together, hired a driver for the duty. Our outbound trip wound its way through Santiago's fashionable districts, picking up kids, then out to Calle Las Condes for the drive to the beautiful foothills.

One morning, we were going down a one-way street on our usual route. Minding our own business. Obeying the speed limit. Being good citizens. Out of nowhere, coming directly at us, came two motorcyle cops, gesticulating wildly -- get out of the way! Get out of the way!

On a one-way street. Going the wrong way.

Directly into oncoming traffic.

The motorcycles were followed by several police cars, Carabineros leaning out the windows, also waving their arms. One of the cars slowed momentarily, and a particularly vehement cop shouted directly into our drivers' face; apparently the rather deft dive the driver had made onto a spare patch of sidewalk hadn't been fast enough to please him.

Then a Mercedes limousine passed imperiously by, oblivious to the strewn traffic on either side of the quiet city street. A profile in an ornate military peaked cap, distinctive brush moustache clearly visible, adorned the opened back window. Generál Augusto José Ramón Pinochet Ugarte, Presidente de la República de Chile.

It's a good thing those Carabineros were so preoccupied ahead, clearing the way for the Great Man. I'm not sure they would have taken kindly to the Pissed-Off 1975 Teen Neddie's upraised middle finger that extended from the back of the truck.

I hope dying hurt a whole lot, you rat-faced son of a bitch. I hope you suffered the tortures of the damned. I hope no one wiped your brow or comforted you while you suffered and died. I hope you died alone.

When a commenter on the post wrote, “I hate these a*******,” “Neddie” responded:

I think the lesson I took away from Pinochet's Chile, Pinko, is that the feeling's mutual.

I don't mean that facetiously; I mean that at the deepest and ugliest recesses of their Ids, they hate you, and want to kill you. And by you, I mean anything that bears even the tiniest, most passing whiff of danger to their power.

Another commenter wrote:

[W]hen people insist that It Couldn't Happen Here, [they are] ignoring recent reports of cops and security guards insisting on arbitrary "security" measures--forbidding photographers to take pictures of buildings that have already been photographed thousands of times, or making nursing mothers drink their own bottled breast milk in airports to prove that it's not some sort of liquid explosive--and getting furious and even more punitive when they're challenged…

It seems like the new U.S. fascism is coming gradually, unlike in Chile when it came all at once on September 11, 1973.

Next week: More on hunter-gatherers, agriculturalists and the way forward.

Monday, December 11, 2006

Signs of the Economic Apocalypse, 12-11-06

From Signs of the Times, 12-11-06:

Gold closed at 631.00 dollars an ounce on Friday, down 3.2% from $651.20 at the close of the previous Friday. The dollar closed at 0.7574 euros Friday, up 1.0% from 0.7498 euros at the end of the week before. That put the euro at 1.3202 dollars compared to $1.3338 the Friday before. Gold in euros would be 477.96 euros an ounce, down 2.1% from 488.23 for the week. Oil closed at 62.03 dollars a barrel Friday, down 2.6% from $63.67 at the close of the previous Friday. Oil in euros would be 46.99 euros a barrel, down 1.6% from 47.74 euros for the week. The gold/oil ratio closed at 10.17 Friday, down 0.6% from 10.23 at the end of the week before. In the U.S. stock market, the Dow closed at 12,307.49 Friday, up 1.0% from 12,194.13 at the end of the previous Friday. The NASDAQ closed at 2,437.36, up 1.0% from 2,413.21 for the week. In U.S. interest rates the yield on the ten-year U.S. Treasury note closed at 4.55%, up 12 basis points from 4.43 for the week.

Let’s take a little break from the housing bubble, debt levels and the impending currency collapse of the dollar to think some more big picture thoughts about the end of the neoliberal era. Where are we? Where should we want to go?

Believe it or not, classical economics, the foundation of neoliberal ideology, was inspired by satanism. I’m not referring to Adam Smith, but to the poet who inspired him, Bernard de Mandeville. Mandeville was said to be a member of the notorious Hellfire Club in London. Mandeville’s poem, The Grumbling Hive (also appearing in The Fable of the Bees), published in 1705, puts the argument for individual selfishness at most basic.

The Grumbling Hive: or, Knaves Turn'd Honest… tells of a wealthy and powerful beehive whose inhabitants act only in pursuit of gain and esteem. Nevertheless, they espouse an ethic that condemns this behaviour and frequently lament that their society is full of sin. Irritated by their constant complaining, their god decides to make them all virtuous. In a flash, their society comes to a stop: commerce and industry are abandoned, and the bees leave their once flourishing hive and withdraw to live simply in the hollow of a tree. The moral is that virtue can only lead to a poor, ascetic society, whereas the vices are the necessary engines of a wealthy and powerful nation.

In 1714, the poem reappeared as part of The Fable of the Bees, or: Private Vices, Publick Benefits, in which Mandeville explains and defends the claim that private vices lead to public benefits. Mandeville does so by examining human nature in the same meticulous way "a surgeon studies a carcass". This uncompromising examination leads him to conclude that man is "a compound of various Passions, that all of them, as they are provoked, come uppermost, and govern him whether he will or no." The gratification of these passions, Mandeville writes, is wholly selfish. Mandeville defines vice as "every thing, which […] Man should commit to gratify any of his Appetites," and virtue as "every Performance, by which Man, contrary to the impulse of Nature, should endeavour the Benefit of others, or the Conquest of his own Passions out of a Rational Ambition of Being good." But, since on Mandeville's view of human nature, man is a selfish creature, wholly governed by his passions, people's behaviour will always be vicious, and true virtue can have no role in managing people's destructive desires. Should people become virtuous through divine grace, no one would pursue temporal success and society would go the way of the bees. Thus, virtue has no connection with maintaining society or worldly success. (http://www.philosophers.co.uk/cafe/phil_oct2003.htm)

Serving others by serving self. (the alternative: serving self by serving others). In the eighteenth century such thoughts may have seemed novel and promising. Indeed the vice of greed and self-interest did release huge amounts of energy. But now, at the end of that run, some of us may ask ourselves: Is that the best we can come up with? Can there be an economic and social system based on serving self by serving others that still unleashes creative energy?

As we wrote last week, the main problem with all the modern economic systems, capitalist or socialist, comes from the presence of perhaps 6% of the population with no conscience: psychopaths:

[N]eoclassical ideology has been a boon to those in our midst who are incapable of moral reasoning: psychopaths, those with no conscience. In fact, it could be argued that Neoclassical economics could only be the basis of organizing society if either no one were psychopathic or if everyone were. In our mixed world, where perhaps 6% of the people have no conscience, neoclassical economics is a way station to tyranny since it simultaneously provides a way for the unscrupulous to gain wealth and power while inhibiting the natural conscience-based morality of normal humanity.

What economic system can work if 6% of the population has no conscience whatsoever and no ability to develop one?

All economic systems in recorded history have been exploitative. These can be divided into two types: those based on tribute and those based on capitalism. In the latter can be included all types of socialism that have actually existed from European-style social democracy to Stalinism or Maoism, since they have existed only during the period in which capitalism has been the dominant mode of production.

A word here about “exploitation.” Economic exploitation occurs when one group of people expropriates the surplus produced by another group. If we think back to a primarily agricultural economy, that surplus would be food grown or slaughtered. The person who produces the food, the peasant farmer or herder, needs to produce more than his family eats in order for the society to support people like priests or warriors or bureaucrats who don’t produce food. Marxist theorists have developed the concept of ‘mode of production’ to describe the predominant way that surplus is extracted. The ‘means of production’ are the ways that things are produced.

The difference between capitalism and earlier, tribute-based modes of production is that capitalism extracts the surplus through the normal rules of economic behavior. It is axiomatic. By going to work, borrowing money, buying things we need, surplus is extracted from us workers under capitalism. By ‘workers’ I mean most of us. That doesn’t mean ‘blue collar’ only, but all those who need a paycheck and who can’t survive on their investments alone. If you can survive on your investments, you are part of the bourgeoisie. Other systems, such as feudalism, extract the surplus through extra-economic means, such as at the point of a sword. When surpluses are extracted at the point of the sword, you have a tribute-based mode of production (see John Haldon, The State and the Tributary Mode of Production, London:Verso Press, 1993).

But, if all economic systems in recorded history have been exploitative, what about those before recorded history? The great American anthropologist, Marshall Sahlins, published a book in 1972 called Stone Age Economics. In it, he argues that hunter-gatherers, long thought to live lives “nastry, brutish and short,” in fact lived in “the original affluent society,” as he titled a chapter of the book.

Hunter-gatherers consume less energy per capita per year than any other group of human beings. Yet when you come to examine it the original affluent society was none other than the hunter's - in which all the people's material wants were easily satisfied. To accept that hunters are affluent is therefore to recognise that the present human condition of man slaving to bridge the gap between his unlimited wants and his insufficient means is a tragedy of modern times.

…"Mere subsistence economy", "limited leisure save in exceptional circumstances", incessant quest for food", "meagre and relatively unreliable" natural resources, "absence of an economic surplus", "maximum energy from a maximum number of people" so runs the fair average anthropological opinion of hunting and gathering

The traditional dismal view of the hunters' fix goes back to the time Adam Smith was writing, and probably to a time before anyone was writing. Probably it was one of the first distinctly neolithic prejudices, an ideological appreciation of the hunter's capacity to exploit the earth's resources most congenial to the historic task of depriving him of the same. We must have inherited it with the seed of Jacob, which "spread abroad to the west, and to the east, and to the north", to the disadvantage of Esau who was the elder son and cunning hunter, but in a famous scene deprived of his birthright.

Current low opinions of the hunting-gathering economy need not be laid to neolithic ethnocentrism. Bourgeois ethnocentrism will do as well. The existing business economy will promote the same dim conclusions about the hunting life. Is it so paradoxical to contend that hunters have affluent economies, their absolute poverty notwithstanding? Modern capitalist societies, however richly endowed, dedicate themselves to the proposition of scarcity. Inadequacy of economic means is the first principle of the world's wealthiest peoples.

The market-industrial system institutes scarcity, in a manner completely without parallel.
Where production and distribution are arranged through the behaviour of prices, and all livelihoods depend on getting and spending, insufficiency of material means becomes the explicit, calculable starting point of all economic activity.

The entrepreneur is confronted with alternative investments of a finite capital, the worker (hopefully) with alternative choices of remunerative employ, and the consumer... Consumption is a double tragedy: what begins in inadequacy will end in deprivation. Bringing together an international division of labour, the market makes available a dazzling array of products: all these Good Things within a man's reach- but never all within his grasp. Worse, in this game of consumer free choice, every acquisition is simultaneously a deprivation for every purchase of something is a foregoing of something else, in general only marginally less desirable, and in some particulars more desirable, that could have been had instead. That sentence of "life at hard labour" was passed uniquely upon us. Scarcity is the judgment decreed by our economy. And it is precisely from this anxious vantage that we look back upon hunters. But if modern man, with all his technological advantages, still lacks the wherewithal, what chance has the naked savage with his puny bow and arrow? Having equipped the hunter with bourgeois impulses and palaeolithic tools, we judge his situation hopeless in advance.

According to Sahlins, one reason for misconceptions about hunter-gathers comes from observation of surviving hunter-gatherer tribes. Sahlins argues that agriculture-fueled civilizations have pushed hunter-gatherers off the best land and on to marginal lands. But even contemporary hunter-gatherers in Australia or the !Kung in the Kalahari desert have been shown to enjoy a plentiful and varied diet. Not only that but the average amount of time it takes a person to meet their needs is no more than about four hours a day. The rest of the time is spent in dancing, ritual and mythologizing.

Despite a low annual rainfall (6 to 10 inches), Lee found in the Dobe area a "surprising abundance of vegetation". Food resources were "both varied and abundant", particularly the energy rich mangetti nut- "so abundant that millions of the nuts rotted on the ground each year for want of picking". The Bushman figures imply that one man's labour in hunting and gathering will support four or five people. Taken at face value, Bushman food collecting is more efficient than French farming in the period up to World War II, when more than 20 per cent of the population were engaged in feeding the rest. Confessedly, the comparison is misleading, but not as misleading as it is astonishing. In the total population of free-ranging Bushmen contacted by Lee, 61.3 per cent (152 of 248) were effective food producers; the remainder were too young or too old to contribute importantly In the particular camp under scrutiny, 65 per cent were "effectives". Thus the ratio of food producers to the general population is actually 3 :5 or 2:3. But, these 65 per cent of the people "worked 36 per cent of the time, and 35 per cent of the people did not work at all"!

For each adult worker, this comes to about two and one - half days labour per week. (In other words, each productive individual supported herself or himself and dependents and still had 3 to 5 days available for other activities.) A "day's work" was about six hours; hence the Dobe work week is approximately 15 hours, or an average of 2 hours 9 minutes per day. All things considered, Bushmen subsistence labours are probably very close to those of native Australians.

… Also like the Australians, the time Bushmen do not work in subsistence they pass in leisure or leisurely activity. One detects again that characteristic palaeolithic rhythm of a day or two on, a day or two off- the latter passed desultorily in camp. Although food collecting is the primary productive activity, Lee writes, "the majority of the people's time (four to five days per week) is spent in other pursuits, such as resting in camp or visiting other camps":

"A woman gathers on one day enough food to feed her family for three days, and spends the rest of her time resting in camp, doing embroidery, visiting other camps, or entertaining visitors from other camps. For each day at home, kitchen routines, such as cooking, nut cracking, collecting firewood, and fetching water, occupy one to three hours of her time. This rhythm of steady work and steady leisure maintained throughout the year. The hunters tend to work more frequently than the women, but their schedule uneven. It 'not unusual' for a man to hunt avidly for a week and then do no hunting at all for two or three weeks. Since hunting is an unpredictable business and subject to magical control, hunters sometimes experience a run of bad luck and stop hunting for a month or longer. During these periods, visiting, entertaining, and especially dancing are the primary activities of men."

The daily per-capita subsistence yield for the Dobe Bushmen was 2,140 calories. However, taking into account body weight, normal activities, and the age-sex composition of the Dobe population, Lee estimates the people require only 1,975 calories per capita. Some of the surplus food probably went to the dogs, who ate what the people left over. "The conclusion can be drawn that the Bushmen do not lead a substandard existence on the edge of starvation as has been commonly supposed."

Posessions are more of a hinderance then a help:

In the non subsistence sphere, the people's wants are generally easily satisfied. Such "material plenty" depends partly upon the simplicity of technology and democracy of property. Products are homespun: of stone, bone, wood, skin-materials such as "lay in abundance around them". As a rule, neither extraction of the raw material nor its working up take strenuous effort. Access to natural resources is typically direct- "free for anyone to take"- even as possession of the necessary tools is general and knowledge of the required skills common. The division of labour is likewise simple, predominantly a division of labour by sex. Add in the liberal customs of sharing, for which hunters are properly famous, and all the people can usually participate in the going prosperity, such as it is.

For most hunters, such affluence without abundance in the non-subsistence sphere need not be long debated. A more interesting question is why they are content with so few possessions for it is with them a policy, a "matter of principle" as Gusinde says, and not a misfortune.

But are hunters so undemanding of material goods because they are themselves enslaved by a food quest "demanding maximum energy from a maximum number of people", so that no time or effort remains for the provision of other comforts? Some ethnographers testify to the contrary that the food quest is so successful that half the time the people seem not to know what to do with themselves. On the other hand, movement is a condition of this success, more movement in some cases than others, but always enough to rapidly depreciate the satisfactions of property. Of the hunter it is truly said that his wealth is a burden. In his condition of life, goods can become "grievously oppressive", as Gusinde observes, and the more so the longer they are carried around. Certain food collectors do have canoes and a few have dog sleds, but most must carry themselves all the comforts they possess, and so only possess what they can comfortably carry themselves. Or perhaps only what the women can carry: the men are often left free to reach to the sudden opportunity of the chase or the sudden necessity of defence. As Owen Lattimore wrote in a not too different context, "the pure nomad is the poor nomad". Mobility and property are in contradiction. That wealth quickly becomes more of an encumbrance than a good thing is apparent even to the outsider. Laurens van der Post was caught in the contradiction as he prepared to make farewells to his wild Bushmen friends:

"This matter of presents gave us many an anxious moment. We were humiliated by the realisation of how little there was we could give to the Bushmen. Almost everything seemed likely to make life more difficult for them by adding to the litter and weight of their daily round. They themselves had practically no possessions: a loin strap, a skin blanket and a leather satchel. There was nothing that they could not assemble in one minute, wrap up in their blankets and carry on their shoulders for a journey of a thousand miles. They had no sense of possession."

Here then is another economic "peculiarity"- some hunters at least, display a notable tendency to be sloppy about their possessions. They have the kind of nonchalance that would be appropriate to a people who have mastered the problems of production.

"They do not know how to take care of their belongings. No one dreams of putting them in order, folding them, drying or cleaning them, hanging them up, or putting them in a neat pile. If they are looking for some particular thing, they rummage carelessly through the hodgepodge of trifles in the little baskets. Larger objects that are piled up in a heap in the hut are dragged hither and thither with no regard for the damage that might be done them.

The European observer has the impression that these (Yahgan) Indians place no value whatever on their utensils and that they have completely forgotten the effort it took to make them. Actually, no one clings to his few goods and chattels which, as it is, are often and easily lost, but just as easily replaced... The Indian does not even exercise care when he could conveniently do so. A European is likely to shake his head at the boundless indifference of these people who drag brand-new objects, precious clothing, fresh provisions and valuable items through thick mud, or abandon them to their swift destruction by children and dogs.... Expensive things that are given them are treasured for a few hours, out of curiosity; after that they thoughtlessly let everything deteriorate in the mud and wet. The less they own, the more comfortable they can travel, and what is ruined they occasionally replace. Hence, they are completely indifferent to any material possessions."

The hunter, one is tempted to say, is "uneconomic man". At least as concerns non subsistence goods, he is the reverse of that standard caricature immortalised in any General Principles of Economics, page one. His wants are scarce and his means (in relation) plentiful. Consequently he is "comparatively free of material pressures", has "no sense of possession", shows "an undeveloped sense of property", is "completely indifferent to any material pressures", manifests a "lack of interest" in developing his technological equipment.

Economic Man is a bourgeois construction- as Marcel Mauss said, "not behind us, but before, like the moral man". It is not that hunters and gatherers have curbed their materialistic "impulses"; they simply never made an institution of them. "Moreover, if it is a great blessing to be free from a great evil, our (Montagnais) Savages are happy; for the two tyrants who provide hell and torture for many of our Europeans, do not reign in their great forests, I mean ambition and avarice... as they are contented with a mere living, not one of them gives himself to the Devil to acquire wealth."
In agricultural societies, however, the work is hard because the peasant not only has to provide food for himself and his household, but also has to turn over a good portion of the surplus to a landlord of some type. These landlords, then, spend the surplus on weapons, followers and social display. While we admire the fruits of the exploitation in museums, the peasant himself would be better off before agriculture. Those extra four to ten hours of work go to provide someone who doesn’t work a sword and a horse to kill and burn the houses and fields of other peasants like himself.

The battles over who gets to share how much of the surplus production of the peasantry make up the history of human society until capitalism arrived in the 1600s. We should distinguish capitalism from commercialism or mercantilism, here. Capitalism did not arise until the 17th century, in spite of the prior millenia of buying and selling things. Capitalism resulted from the coming together of large fortunes with free wage labor to such an extent that it became the predominant mode of production.

We could say that hunter-gatherers didn’t know how good they had it, but there is actually evidence that they did. Much of their social structure was designed to prevent the kind of concentration of power that would split off a class of exploitative landlords. Most people think that technological development led to agriculture, which created a surplus that “led” to the ancient urban societies with class divisions, etc. In fact, it may have been the other way around, concentration of power led to exploitation which increased the need for intensified production which led to technological development and agriculture.

If we are looking for a dynamic economic system that prevents accumulation of power by individuals and which allows for the most possible freedom and creativity, then really we are looking at anarchism. The only effective anarchism would have to be one that takes into account the presence of psychopaths. David Graeber offers some suggestions of just what such a system would look like in his Fragments of an Anarchist Anthropology (Chicago: Prickly Paradigm Press, 2004). If we take Peter Kropotkin’s definition of anarchism, the impossibility of such a system without the awareness of the psychopaths among us become inescapable:

The name given to a principle or theory of life and conduct under which society is conceived without government—harmony in such a society being obtained, not by submission to law, or by obedience to any authority, but by free agreements concluded between the various groups, territorial and professional, freely constituted for the sake of production and consumption, as also for the satisfaction of the infinite variety of needs and aspirations of a civilized being. (Graeber, p. 2)

According to Graeber, anarchism,

is also a project, which sets out to begin creating the institutions of a new society “within the shell of the old,” to expose, subvert, and undermine structures of domination but always, while doing so, proceeding in a democratic fashion, a manner which itself demonstrates those structures are unnecessary. (Graeber, p.7)

Graeber looks to the methods used by those societies that have found ways to prevent the concentration of power for clues. He points to the work of Marcel Mauss and Pierre Clastres in particular. Mauss, one of the founders of French sociology, opposed the view that “primitive” peoples acted economically much the way we do under capitalism (a view popular among classical economists). Mauss argued that goods were exchanged in archaic and primitive societies by complicated bonds of gift exchange. Graeber argues that these systems can help us find a way of mental prison of neoliberal ideology:

In the end, though, Marcel Mauss has probably had more influence on anarchists than all the other ones combined. This is because he was interested in alternative moralities, which opened the way to thinking that societies without states and markets were the way they were because they actively wished to live that way. Which in our terms means, because they were anarchists. Insofar as fragments of an anarchist anthropology do, already, exist, they largely derive from him.

Before Mauss, the universal assumption had been that economies without money or markets had operated by means of “barter”; they were trying to engage in market behavior (acquire useful goods and services at the least cost to themselves, get rich if possible...), they just hadn’t yet developed very sophisticated ways of going about it. Mauss demonstrated that in fact, such economies were really “gift economies.” They were not based on calculation, but on a refusal to calculate; they were rooted in an ethical system which consciously rejected most of what we would consider the basic principles of economics. It was not that they had not yet learned to seek profit through the most efficient means. They would have found the very premise that the point of an economic transaction—at least, one with someone who was not your enemy—was to seek the greatest profit deeply offensive.
(Graeber, p. 21)

Clastres took this idea and applied it to political systems:

He insisted political anthropologists had still not completely gotten over the old evolutionist perspectives that saw the state primarily as a more sophisticated
form of organization than what had come before; stateless peoples, such as the Amazonian societies Clastres studied, were tacitly assumed not to have attained the level of say, the Aztecs or the Inca. But what if, he proposed, Amazonians were not entirely unaware of what the elementary forms of state power might be like—what it would mean to allow some men to give everyone else orders which could not be questioned, since they were backed up by the threat of force—and were for that very reason determined to ensure such things never came about? What if they considered the fundamental premises of our political science morally objectionable?

The parallels between the two arguments are actually quit striking In gift economies there are, often, venues for enterprising individuals: But everything is arranged in such a way they could never be used as a platform for creating permanent inequalities of wealth, since self-aggrandizing types all end up competing to see who can give the most away. In Amazonian (or North American) societies, the institution of the chief played the same role on a political level: the position was so demanding, and so little rewarding, so hedged about by safeguards, that there was no way for power-hungry individuals to do much with it.
Amazonians might not have literally whacked off the ruler’s head every few years, but it’s not an entirely inappropriate metaphor. By these lights these were all, in a very real sense, anarchist societies. They were founded on an explicit rejection of the logic of the state and of the market. (Graeber, pp. 22-3)

The crucial point for Graeber is that the way to counteract power is to prevent the very things that allow some to take power:

But Mauss and Clastres’ argument suggests something even more radical. It suggests that counterpower, at least in the most elementary sense, actually exists where the states and markets are not even present; that in such cases, rather than being embodied in popular institutions which pose themselves against the power of lords, or kings, or plutocrats, they are embodied in institutions which ensure such types of person never come about. What it is “counter” to, then, is a potential, a latent aspect, or dialectical possibility if you prefer, within the society itself. (Graeber, p. 25)

Can a counter-power society be high-tech? Are such structures only possible with a low level of technological development? Who knows? It is clear that the exact type of technology we have now presupposes large concentration of power. A better question might be: How would we get there from here? What type of technology could fit with a decentralized society? Here is where the imagination comes in. Ran Prieur has been discussing this on his blog recently. In order to make such a thing happen we would need to think and act in new ways. Graeber discusses the role of imagination (and mentions the imagination that is required for empathy) in a “counter-power,” or stateless society?

To sum up the argument so far, then:

1) Counterpower is first and foremost rooted in the imagination; it emerges from the fact that all social systems are a tangle of contradictions, always to some degree at war with themselves. Or, more precisely, it is rooted in the relation between the practical imagination required to maintain a society based on consensus (as any society not based on violence must, ultimately, be)—the constant work of imaginative identification with others that makes understanding possible—and the spectral violence which appears to be its constant, perhaps inevitable corollary.

2) In egalitarian societies, counterpower might be said to be the predominant form of social power. It stands guard over what are seen as certain frightening possibilities within the society itself: notably against the emergence of systematic forms of political or economic dominance.

2a) Institutionally, counterpower takes the form of what we would call institutions of direct democracy, consensus and mediation; that is, ways of publicly negotiating and controlling that inevitable internal tumult and transforming it into those social states (or if you like, forms of value) that society sees as the most desirable: conviviality, unanimity, fertility, prosperity, beauty, however it may be framed.

3) In highly unequal societies, imaginative counterpower often defines itself against certain aspects of dominance that are seen as particularly obnoxious and can become an attempt to eliminate them from social relations completely. When it does, it becomes revolutionary.

3a) Institutionally, as an imaginative well, it is responsible for the creation of new social forms, and the revalorization or transformation of old ones, and also,

4) in moments of radical transformation—revolutions in the old-fashioned sense—this is precisely what allows for the notorious popular ability to innovate entirely new politics, economic, and social forms. Hence, it is the root of what Antonio Negri has called “constituent power,” the power to create constitutions. (Graeber, pp. 35-6)

How to get there from here? Graeber suggests that uprisings and revolts are counterproductive. Strategic withdrawals of energy from power institutions are more promising as tactics, especially when combines with strategic investments of energy in voluntary, free-will networks:

There is a way out, which is to accept that anarchist forms of organization would not look anything like a state. That they would involve an endless variety of communities, associations, networks, projects, on every conceivable scale, overlapping and intersecting in any way we could imagine, and possibly many that we can’t. Some would be quite local, others global. Perhaps all they would have in common is that none would involve anyone showing up with weapons and telling everyone else to shut up and do what they were told. And that, since anarchists are not actually trying to seize power within any national territory, the process of one system replacing the other will not take the form of some sudden revolutionary cataclysm—the storming of a Bastille, the seizing of a Winter Palace—but will necessarily be gradual, the creation of alternative forms of organization on a world scale, new forms of communication, new, less alienated ways of organizing life, which will, eventually, make currently existing forms of power seem stupid and beside the point. (Graeber, p. 40)

Autonomist thinkers in Italy have, over the last couple decades, developed a theory of what they call revolutionary “exodus.” It is inspired in part by particularly Italian conditions—the broad refusal of factory work among young people, the flourishing of squats and occupied “social centers” in so many Italian cities... But in all this Italy seems to have acted as a kind of laboratory for future social movements, anticipating trends that are now beginning to happen on a global scale.

The theory of exodus proposes that the most effective way of opposing capitalism and the liberal state is not through direct confrontation but by means of what Paolo Virno has called “engaged withdrawal,” mass defection by those wishing to create new forms of community. One need only glance at the historical record to confirm that most successful forms of popular resistance have taken precisely this form. They have not involved challenging power head on (this usually leads to being slaughtered, or if not, turning into some—often even uglier—variant of the very thing one first challenged) but from one or another strategy of slipping away from its grasp, from flight, desertion, the founding of new communities. One Autonomist historian, Yann Moulier Boutang, has even argued that the history of capitalism has been a series of attempts to solve the problem of worker mobility—hence the endless elaboration of institutions like indenture, slavery, coolie systems, contract workers, guest workers, innumerable forms of border control—since, if the system ever really came close to its own fantasy version of itself, in which workers were free to hire on and quit their work wherever and whenever they wanted, the entire system would collapse. It’s for precisely this reason that the one most consistent demand put forward by the radical elements in the globalization movement—from the Italian Autonomists to North American anarchists—has always been global freedom of movement, “real globalization,” the destruction of borders, a general tearing down of walls. (Graeber, pp. 60-1)

Graeber concludes with some practical suggestions on how to eliminate disparities of income between the developed and the less-developed countries:
Globalization and the Elimination of North-South Inequalities

As I’ve mentioned, the “anti-globalization movement” is increasingly anarchist in inspiration. In the long run the anarchist position on globalization is obvious: the effacement of nation-states will mean the elimination of national borders. This is genuine globalization. Anything else is just a sham. But for the interim, there are all sorts of concrete suggestions on how the situation can be improved right now, without falling back on statist, protectionist, approaches. One example:

Once during the protests before the World Economic Forum, a kind of junket of tycoons, corporate flacks and politicians, networking and sharing cocktails at the Waldorf Astoria, pretended to be discussing ways to alleviate global poverty. I was invited to engage in a radio debate with one of their representatives. As it happened the task went to another activist but I did get far enough to prepare a three-point program that I think would have taken care of the problem nicely:

• an immediate amnesty on international debt (An amnesty on personal debt might not be a bad idea either but it’s a different issue.)

• an immediate cancellation of all patents and other intellectual property rights related to technology more than one year old

• the elimination of all restrictions on global freedom of travel or residence

The rest would pretty much take care of itself. The moment the average resident of Tanzania, or Laos, was no longer forbidden to relocate to Minneapolis or Rotterdam, the government of every rich and powerful country in the world would certainly decide nothing was more important than finding a way to make sure people in Tanzania and Laos preferred to stay there. Do you really think they couldn’t come up with something?

The point is that despite the endless rhetoric about “complex, subtle, intractable issues” (justifying decades of expensive research by the rich and their well-paid flunkies), the anarchist program would probably have resolved most of them in five or six years. But, you will say, these demands are entirely unrealistic! True enough. But why are they unrealistic? Mainly, because those rich guys meeting in the Waldorf would never stand for any of it. This is why we say they are themselves the problem.
(Graeber, pp. 77-9)

To be continued...

Monday, December 04, 2006

Signs of the Economic Apocalypse, 12-4-06

From Signs of the Time, 12-4-06:

Gold closed at 651.20 dollars an ounce Friday, up 2.5% from $635.40 at the close of the previous Friday. The dollar closed at 0.7498 euros Friday, down 1.9% from 0.7637 euros at the end of the week before. That put the euro at 1.3338 dollars compared to 1.3094 the Friday before. Gold in euros would be 488.23 euros an ounce, up 0.6% from 485.26 for the week. Oil closed at 63.67 dollars a barrel Friday, up 7.5% from $59.24 at the close of the previous Friday. Oil in euros would be 47.74 euros a barrel, up 5.5% from 45.25 euros for the week. The gold/oil ratio closed at 10.23 Friday, down from 4.9% from 10.73 at the close of the Friday before. In the U.S. stock market, the Dow Jones Industrial Average closed at 12,194.13 Friday, down 0.7% from 12,280.17 at the end of the week before. The NASDAQ closed at 2,413.21, down 1.9% from 2,460.26 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.43%, down 11 basis points from 4.53 at the end of the Friday before.

Oil shot up 7.5% last week and the dollar fell again. Gold rose too, but only slightly against the euro. According to the New York Times, Treasury Secretary Paulson is encouraging the drop in the dollar. The problem, given the massive triple deficit in the United States is that, as in Iraq, there are no good options. Letting the dollar drop risks Asian central banks pulling out of the dollar and a currency collapse followed by sky-high interest rates and complete economic collapse. On the other hand, keeping the dollar high exacerbates the massive trade deficit:
Volatile Dollar May Not Be Scary to Washington

By Steven R. Weisman

WASHINGTON, Dec. 1 — As the dollar tumbled against the euro this week, reflecting fresh concern about a possible weakening of the American economy, Treasury Secretary Henry M. Paulson Jr. issued the usual phrase from the catechism: “A strong dollar is clearly in our nation’s best interest.”

Treasury secretaries since Robert E. Rubin in the 1990s have, with rare exceptions, offered precisely that formula whenever the subject comes up.

But many economists say that Mr. Paulson’s statement does not reflect what the United States actually seeks right now. For one thing, the Bush administration is in active pursuit of a weaker dollar against China’s currency, which would probably encourage similar changes with other Asian competitors. The goal would be making American exports there less expensive, and imports more expensive, helping to spur an industrial revival at home.

And though there are high risks if the dollar were to continue to fall rapidly against the euro and the British pound, the United States is generally seen as hoping for the economic gains delivered by a lower dollar as American exports become more competitive against planes, machinery and other goods produced in Europe.

“Paulson has got to like a euro that’s appreciating in value,” said C. Fred Bergsten, director of the Peterson Institute of International Economics and a longtime advocate of a weak dollar. “He came into office facing an overall American trade deficit that is close to $1 trillion a year. He’s got to welcome something that shows the trade deficit likely to go down.”

Still, the fluctuations of the dollar have unsettled many in the world of finance this last week, when it sagged about 2 percent against the euro, bringing its decline this year to more than 12 percent. On Friday, the dollar fell to 1.33 euros; it dropped against the British pound as well, with it now taking $1.98 to buy a pound.

By contrast, against the Japanese currency, the dollar has slipped much less, closing Friday at 115.35 yen.

In Europe, the French finance minister, Thierry Breton, has expressed concern about a weakening dollar, noting that exports have helped Europe’s recent economic recovery. But other European finance ministers said this week that at least for now, gains in the euro do not appear to threaten prospects for growth in Europe.

The gyrations of the dollar highlight the sensitivity of Mr. Paulson’s role at this particular moment, as he prepares for his biggest overseas trip so far as Treasury chief: a veritable expedition to China, accompanied by five cabinet members and by Ben S. Bernanke, the Federal Reserve chairman.

The goal of the trip, which starts Dec. 14, is to engage China on a range of economic issues but most particularly to press Beijing to let its currency, the yuan, rise in value against the dollar. That would help, American officials hope, to narrow a Chinese trade surplus with the United States that soared past $200 billion last year.

As a former investment banker who lived and breathed the logic of international markets for decades at Goldman Sachs, Mr. Paulson is trying to engineer a kind of correction in which China would cease what American officials say have been currency manipulations aimed at pumping out exports.

Against the background of the rise of the euro, the China trip illustrates the three-cornered complexities of the world economy and of Mr. Paulson’s dollar diplomacy.

Suddenly with a declining dollar, Europeans are stepping up their purchases of American goods, and it has become more expensive for Americans to visit Europe as tourists or business officials. American investors overseas, meanwhile, are enjoying the extra kick that a falling dollar delivers on their foreign profits.

The decline of the dollar against the euro, while the dollar-to-yuan ration remains stable, also has the effect of increasing tensions between Europe and China. European businesses, like their American counterparts, are already upset about cheap Chinese exports to Europe. Now these goods are even cheaper because the yuan is declining against the euro, pulled down by the dollar.

The Chinese, meanwhile, are likely to get more nervous than ever that a decline in the dollar against the yuan will damp their exports and reduce the value of their dollar-denominated assets, putting pressure on Chinese banks that are holding those assets.

China has resisted American appeals to let the yuan rise in value, arguing that China is already undertaking painful economic reforms — writing off bad loans and closing money-losing state enterprises — and cannot afford further social disturbance brought on by new difficulties in exports.

“We are committed to a market-based exchange-rate mechanism,” said a senior Chinese official, speaking anonymously under Chinese ground rules. “But we will do it in a responsible way — responsible to the health of our country, the United States, Asia and beyond.”

Part of the reason for the dollar sell-off, many analysts say, has been a recent sense of disappointment about the American economy even as Europe has picked up some momentum, prompting traders to look for more promising investments in markets overseas. The prospect of higher interest rates in Europe while rates remain stuck or drift lower in the United States has also drawn funds out of the dollar.

…If American policy makers are pleased about the prospect of the dollar’s providing a kick for exports, they fear a dollar falling so far and fast that it fuels inflation in the United States. Higher inflation might force the Federal Reserve, which is still concerned that price increases are outside its comfort zone, to raise interest rates, slowing the American economy further.

“The fall of the dollar has both benefits and risks,” said Nouriel Roubini, chairman of Roubini Global Economics. “The danger is that the willingness of foreign investors to buy dollars is shrinking. If the fall of the dollar accelerates, investors could start dumping U.S. assets, and you’ll get a hard landing for the economy.”

The fear of a loss in the value of its assets is a factor in China’s rebuffing American imprecations to let its currency float more flexibly against the dollar, many analysts say. China has amassed $1 trillion in foreign exchange reserves after years of trade surpluses with Europe and the United States.

About $700 billion of those reserves are said by many economists to be in dollars. One reason China does not want a cheaper dollar against the yuan, these economists say, is that the value of its holdings would decrease, limiting the lending ability of its banks.

Nevertheless, Mr. Paulson’s trip is organized around the principle that China needs a bit of a weaker dollar now because its current path of binging on exports will overheat the Chinese economy — it is growing at 10 percent a year — and cause a collapse sooner or later if it is not cooled off slowly.

The dollar has declined about 5 percent against the yuan in the last year and a half, but American policy makers say that the yuan is still artificially low. That is also the view of leading members of Congress, especially Representative Nancy Pelosi, the California Democrat who becomes the speaker of the House in January.

Not all economists agree that am upward revaluation of the yuan will benefit the American economy. They note that cheap exports from China are desired by American consumers, and that Chinese imports have not led to rising unemployment, as critics charge.

“Let’s say China revalues by 10 percent overnight,” Mr. Sinche said. “Then prices at Wal-Mart go up by 10 percent. So we then see worse inflation numbers, the Fed tightens monetary policies, and we end up with higher inflation, higher prices and higher interest rates. Remind me again why that’s what we want.”

Further complicating the situation is the financial vulnerability of banks due to the explosive growth in derivative-based hedge funds:

Derivatives debacle

December 1st, 2006

The wipeout of a major U.S. bank could easily be one consequence of the explosion in derivatives — now totaling $370 trillion, nearly seven times the world's economic output — according to Strategic Investment 's Dan Amoss:

Most of the incomprehensibly large notional value of derivatives are traded "over the counter," meaning one guy calls another and writes a contract saying "let's swap fixed liabilities for floating liabilities." Then, the one that wants to shoulder interest rate risk (basically speculation on the future direction of rates) agrees to make the payments on the floating-rate instrument in return for getting the other guy to make the payments on the fixed-rate instrument.

Normally, one party is hedging and the other is speculating. The problem is, there's no good disclosure in the public domain on who the speculators are and how exposed they are to risk.

My conclusion after studying them pretty intently: this market will experience growing pains. But this was my conclusion in 2002-2003. Now, considering the exponential growth of the derivative market (and its subtle connections with housing market speculation), I think we may see LTCM on a nationwide scale, with the U.S. dollar playing the role of LTCM's capital base. In other words: waking up one morning to the announcement that a bank heavily exposed to derivatives is insolvent and working with the Fed and Treasury on an orderly liquidation and bankruptcy.

The most likely catalyst for this announcement? Interest rate spikes due to massive movements out of the dollar (Chinese/Japanese/Saudis/Hedge funds). Those who contracted to pay skyrocketing floating rates are immediately insolvent and unable to pay the myriad other obligations they have. This sets off more bank failures, and all of a sudden Ben Bernanke has too few fingers to plug into an increasingly leaky dike.

Another major vulnerability of the world economy is the insurance industry, particularly catastrophic insurance. With climate change and who knows what else in store, a choice needed to be made: who will assume the risk, the financial system, governments or individual victims? Guess in which direction the financial powers that be are leaning:

Is Catastrophe Insurance Headed for Disaster?

Mark Thoma

November 28, 2006

Peter G. Gosselin of the LA Times describes recent changes in catastrophe insurance markets, some of which have shifted risk from insurance companies to the government and individuals. For example, in many states the government has capped the total amount insurance companies must pay to policyholders after natural disasters. In these cases, the government agrees to cover any costs over and above the cap limiting the insurance companies' exposure to risk.

But the big change is the ability of insurance companies to assess risk at the individual level to a greater degree than ever before. This allows them to design policies and rates to match an individual's characteristics. Whether this is good or bad overall is an open question. While it improves the efficiency of insurance markets in a variety of ways, if winners and losers can be predicted accurately in advance insurance markets break down because there is no way to pool risk across individuals. For example, if one out of ten people will face high losses after an earthquake, and you can tell which person it will be in advance, there is no way share the risk across these ten individuals. Instead, one will face very high costs and nine very low costs - same average, but a different distribution (all else equal, e.g. the individual who faces the high rate may take preventative measures to reduce risk lowering overall and average costs).

In addition, with individual pricing there is a worry that the poor will face very high rates and be unable to afford insurance coverage. With the ability to assess risks at the individual level and predetermine winners and losers, each individual will, in essence, enter into a savings program that covers lifetime disaster costs with an individualized monthly premium. But if those who are poor also happen to be high risk, then many will not be able to afford insurance. If so, this shifts risk to the government and to private sector agencies such as non-profits that deliver aid since they will have to step in and help to some degree after a disaster.

I think that insurance companies should be allowed to vary rates according to factors within an individual's control, but factors beyond an individual's control ought to be pooled even if they can be identified a priori. For example, the risks of being born with a costly genetic problem ought to be shared across the population even if a prenatal blood test will reveal it, while the risks from smoking ought to fall on the individual. This may be difficult to define in practice, e.g. if we expect the an unemployed person to take any job that is open or face a cut in their unemployment benefits, is the decision to move and take a job in an area with a high earthquake risk fully within the individual's control? But mostly the lines are clear and I think it's a good guiding principle:

Insurers learn to pinpoint risks -- and avoid them, by Peter G. Gosselin, LA Times: Hemant Shah is in the business of creating catastrophes. The computers at Shah's Silicon Valley company, Risk Management Solutions Inc., contain mathematical models of every U.S. disaster from the 1812 earthquake ... in St. Louis to the 9/11 assault ... in New York, as well as 100,000 synthesized "extreme events."

RMS runs its disasters through your community — and sometimes right through your home — to see how you'd fare in a hurricane, hailstorm, earthquake, epidemic or terrorist attack. The firm sells its knowledge to insurance companies to help them decide whom to cover and how much to charge.

Since Hurricane Katrina last year, those decisions have been running pretty much in one direction. Based in part on RMS' predictions, companies ... have gotten out of some lines of coverage altogether ... and ... have spent the year dropping or paring back policies... And this may only be the beginning.

"Between hurricanes along the East and Gulf coasts and earthquakes along the West Coast, it is an open question whether the private insurance industry will continue to insure the coastline at all," said University of Pennsylvania economist Howard Kunreuther, one of the country's foremost authorities on disaster.

RMS is at the vanguard of a technological revolution that's reshaping the nation's ... property casualty insurance industry. The industry ... is embracing a new generation of powerful computer techniques to learn everything it possibly can about you — or at least people very much like you — your health, habits, houses and cars. It is using this new trove of data to replace traditional uniform coverage at uniform rates with an increasingly wide array of policies at widely varying prices.

Industry executives say the aim is to create a finely tuned system in which companies can better manage the risks they bear while consumers can more carefully pick the protection they need and pay just the right amount for it.

As insurers become more adept at the techniques, "American consumers can be more assured that their companies will be there when they need them to pay their claims," said Robert P. Hartwig, chief economist of the industry-funded Insurance Information Institute in New York. ...

But some regulators, economists and consumer advocates contend that the industry's growing use of sophisticated computer-aided methods is producing side effects that could undermine the very nature of insurance.

Traditionally, insurance companies group people facing similar dangers into pools. Company actuaries determine how often events such as illnesses or accidents have befallen pool members in the past and how costly those occurrences have been. Insurers set their rates based on the frequency and loss histories...

A key characteristic of this approach is that there's an incentive for insurers to assemble pools as big as possible. The bigger the pools, ... the more accurate their frequency and loss numbers.

But the question has always hung in the air: What if insurers could ... predict who's more likely to be hit with setbacks in the future? What if they could charge such customers steeply higher rates, or avoid them altogether? Wouldn't that boost profits, making shareholders and executives happy, and ensure that insurers had plenty of cash on hand to pay the smaller claims of the safer customers?

That is the promise of catastrophe models like RMS'. And it's the promise of new "data-mining" methods that let companies use a person's income, education or ZIP code to predict future claims. That in turn encourages insurers to raise rates or refuse coverage for the very people who need it most — low- and moderate-income families, for example, or those who've suffered such setbacks as unemployment.

As the industry expands its ability to "slice and dice" customers and applicants, Texas Insurance Commissioner Mike Geeslin, among others, worries that "the risk-transfer mechanism at the heart of insurance could break down." If that happens, Geeslin warned, "insurance will stop functioning as insurance."

Rushing into harm's way?

By providing companies with so much information about individual properties and policyholders, new techniques ... are riveting insurers' attention on how choices made by individuals are raising the cost of disasters, while dampening industry interest in the kind of broad risk-reduction measures that were once a hallmark of American insurance.

The industry now contends that one of the chief reasons Katrina and other recent disasters caused so much damage — and produced such huge insurance claims — is that Americans are rushing into harm's way by moving to hurricane-prone coasts and earthquake zones like California. And one of the chief reasons, according to this argument, is that they're being subsidized by homeowners insurance premiums that have been held artificially low by state regulators.

The argument has attracted a wide following in the last year both inside the industry and out. ... The solution, according to industry leaders and many policymakers, is to let insurers charge higher rates in danger zones to discourage people from moving there, and to make those who live there pay for the additional risks they run.

The problem is that some key statistics don't seem to support the argument. Though government statistics do show various sorts of growth in the nation's danger zones, they don't show it occurring at an appreciably faster pace than for the country as a whole. ... What this suggests is that rising disaster damage and costs are more a function of demographics than insurance rates.

"You simply cannot make the case from the numbers that America's coastal counties have grown at a disproportionately faster rate than the country as a whole over the last 25 years," said Judith T. Kildow, who runs the largely government-funded National Ocean Economics Program at Cal State Monterey. If anything, Kildow said, "the numbers show that growth is now greater inland." ...

Of course, the latest round of rate hikes and coverage cutbacks is not RMS' handiwork alone... Indeed, many of the recent changes are extensions of ones begun after the nation's last major run-in with natural disasters, including the 1989 Loma Prieta earthquake in the Bay Area, the 1991 Oakland firestorm, 1992's Hurricane Andrew in Florida and the Northridge earthquake in 1994.

Those disasters destroyed tens of thousands of homes and uprooted hundreds of thousands of people. They also scrambled the finances of many insurance companies... The industry responded by seeking state help and changing the terms of homeowners policies.

After lengthy political battles with state regulators, insurers were effectively relieved of responsibility for covering the wind and quake dangers that had just cost them so dearly. Those jobs were shifted to a set of state-created companies and agencies.

In California, the insurers were no longer required to sell earthquake insurance as part of their homeowners policies. Henceforth, most homeowners would get that coverage from the California Earthquake Authority. ... CEA's creation effectively capped the amount that the industry could lose to quakes at a comparatively modest few billion dollars.

In Florida, the state set up a fund to provide insurers with low-cost insurance of their own to help cover wind damage claims. In addition, Florida officials established what eventually became Citizens Property Insurance Corp. as a home insurer of last resort...

The industry's other response was to begin changing the language in homeowners policies. Industry executives maintain that the changes have been solely intended to clarify what companies cover. ... But regulators say many of the changes have shrunk the protection that policyholders get.

"Insurers are taking on a helluva lot less risk than they used to," complained California Insurance Commissioner John Garamendi.
The story of a single change illustrates the gulf that has opened between what insurers say they are selling and what most homeowners think they are buying.

When the late-1980s-to-early-'90s disasters hit, the gold standard for homeowners was the "guaranteed replacement cost" policy. ...[R]egulators interpreted "guaranteed replacement cost" to mean that insurers had to replace a destroyed home essentially no matter what the ... expense... And most policyholders — both before and since the '80s and '90s disasters — have assumed that this is the kind of coverage they purchased. ...

After the 1991 disaster, companies began dropping guaranteed replacement cost policies in favor of similar-sounding but substantially more limited "extended replacement cost" ones. Under the latter policy, an insurer is obligated to pay only up to the dollar amount ... plus, typically, an additional 20%. By now, industry executives say, the former type of policy has all but disappeared.

The problem is that few policyholders understood what was at stake in the word change. Encouraged in part by industry advertising, they continued to believe that their insurance would replace their houses if they were destroyed. ...

[P]olicyholders had better prepare themselves; more changes are on the way.

…Perhaps most broadly, the new techniques appear to be dismantling much of what insurance traditionally has been about. Until now, insurance of almost every type has performed two key functions.

The first is pooling. Anyone buying an insurance policy is, in effect, kicking into a pot that covers the cost of future bad events befalling a few of their number. The second is providing cross-subsidies. Some buyers are more likely to get nailed by bad events because, for example, their genetic makeup leaves them prone to disease or their houses are not built to the latest code, and others are less likely.

But for the most part, insurers have not known which policyholders fall into which category, so they have charged generally uniform rates, which means that those in the "more likely" category get a subsidy by being able to pay the same as those in the "less likely"...

However, as disaster models such as RMS' and data-mining provide companies with increasingly detailed knowledge about individual policyholders, there are fewer and fewer pockets of such ignorance and therefore less and less room for cross-subsidies.

"Insurers are squeezing subsidies out of the system across the board, and they're going to carry it absolutely as far as they can," said Columbia University economist Bruce Greenwald.

On its face, the trend might seem a positive one. Among other things, it means that policyholders with good genes and safe houses can enjoy lower rates. But at least in some cases, Greenwald and others argue, the end of cross-subsidies spells trouble.

In the case of healthcare insurance, it would mean that a substantial fraction of the nation could no longer afford coverage. In the case of homeowners insurance, it ultimately might mean that large swaths of the nation's coasts become unaffordable for all but the wealthiest Americans who can bear unsubsidized rates.

And this may not be where the dismantling ends. Some analysts say that the same kind of modeling and data-mining that's helping companies squeeze out cross-subsidies could end up squeezing out much of the pooling in insurance as well.

As insurers use the new techniques to get ever-more-refined estimates of what individual policyholders are likely to cost in the future, they may be tempted to charge people closer and closer to full freight for treating an illness or rebuilding a fire-damaged home. Then even those who benefited from the end of cross-subsidies could see their rates go up as they effectively are asked to pay their own way, rather than share the cost by pooling with others.

Industry executives argue that competition among insurers will prevent such an eventuality. "I don't think you're ever going to get to the extreme of no pooling," said Greg Heidrich, senior vice president of policy with the Property Casualty Insurers Assn. of America, one of the industry's largest trade groups. But regulators are not as confident.

"When you begin to tailor or refine policies," said Alessandro A. Iuppa, president of the National Assn. of Insurance Commissioners, which represents the nation's 50 state insurance departments, "you could end up with people basically covering their own losses."

But that, of course, would not be insurance. ...

Last week we discussed the death of Milton Friedman as marking the end, perhaps, of the era of neoliberalism, the political ideology based on neo-classical economics. Duncan Foley, a critic of what he calls “market theology, published a book this year, Adam’s Fallacy: A Guide to Economic Theology. According to Foley, the foundation of the science of economics in the era of Adam Smith occurred when it was decided that there was a sphere of human relations, economic ones, that could be exempted from any moral considerations. The development of modern economics followed by a century or so the establishment of capitalism in western Europe. Before the capitalist era, economics was a branch of moral philosophy. Classical economics, according to Foley, was
a way of looking at modern society as made up of two spheres: an economic sphere of individual initiative and interaction, governed by impersonal laws that assure a beneficent outcome of the pursuit of self-interest; and the rest of social life, including political, religious, and moral interactions which require the conscious balancing of self-interest with social considerations. This division is the foundation of the liberal economic world-view that in one form or another has shaped political economy and economics as intellectual disciplines. (Duncan K. Foley, Adam’s Fallacy: A Guide to Economic Theology, pp. 1-2)

Adam Smith, Foley writes,
was a moral philosopher, and the secret of his powerful hold on our imagination lies in his accomplishing two intertwined purposes in his writing. He manages to put forward a clear vision of how capitalist society might develop, a vision that withstands the criticism of hindsight better than that of most of his contemporaries
and successors. But he also addresses more directly than anyone else the central anxiety that besets capitalism—the question of how to be a good person and live a good and moral life within the antagonistic, impersonal, and self-regarding social relations that capitalism imposes. Smith asserts the apparently self-contradictory notion that capitalism transforms selfishness into its opposite: regard and service for others. Thus by being selfish within the rules of capitalist property relations, Smith promises, we are actually being good to our fellow human beings. With this amazing argument, Smith proposes to absolve us of the moral ambiguity and pain that haunt capitalist reality.

This is Adam’s Fallacy. For many people it works as a rationalization for tolerance or active support of the fundamental institutions of capitalism, private property, and the market. But it is an argument that is logically fallacious (like a lot of Smith’s purported arguments), and in the end it is unsatisfactory both morally and psychologically.

The moral fallacy of Smith’s position is that it urges us to accept direct and concrete evil in order that indirect and abstract good may come of it. The logical fallacy is that neither Smith nor any of his successors has been able to demonstrate rigorously and robustly how private selfishness turns into public altruism. The psychological failing of Smith’s rationalization is that it requires a strategy of wholesale denial of the real consequences of capitalist development, particularly the systematic imposition of costs on those least able to bear them, and the implacable reproduction of inequalities that divide people from one another in society. (Ibid., pp. 2-3)

Foley was on NPR’s, On Point last week along with the neoclassical economist, Allan Meltzer. Meltzer, a disciple of Milton Friedman, said that free markets work best because they both take humans as they are and encourage trustworthiness. The market society doesn’t require that people be the way we want them to be. Foley, however, argued that classical economics makes assumptions about human nature (humans seek to rationally maximize self-benefit, for example) that are essentially theological. What is worse, these assumptions limit our perceptions of what people and society could be.

Neoclassical ideology, or theology, as Foley would put it, takes classical economics a step further. Not only does it carve out a sphere of human activity where normal moral considerations do not hold, but it proposes that the amoral values of that sphere of the economy should be the values of the other spheres of life. An example of this is the trend in U.S. jurisprudence since the 1980s to make market efficiency the yardstick to determine a just outcome or a just law (see Richard Posner or Douglas Ginsburg, for example).

Thus neoclassical ideology has been a boon to those in our midst who are incapable of moral reasoning: psychopaths, those with no conscience. In fact, it could be argued that Neoclassical economics could only be the basis of organizing society if either no one were psychopathic or if everyone were. In our mixed world, where perhaps 6% of the people have no conscience, neoclassical economics is a way station to tyranny since it simultaneously provides a way for the unscrupulous to gain wealth and power while inhibiting the natural conscience-based morality of normal humanity.