reasons to be cheerful

Don’t Let Nobody Walk All Over You

Here’s a heartening story from the old neighborhood:

An 82-year-old great-grandmother cried tears of joy Friday as nearly 200 neighbors rallied in her support on the day she was to be evicted. Mary Lee Ward was granted a reprieve when the owner of the Brooklyn house where she lives agreed to continue meeting with her lawyers next week. “You have to stick with it when you know your right,” Ward told the cheering crowd. “Don’t let nobody walk all over you.”

Ward, who fell victim in 1995 to a predatory subprime mortgage lender that went under in 2007, has been battling to stay in the Tompkins Avenue home for more than a decade. A city marshal was supposed to boot Ward from the one-family frame house Friday, but didn’t show as her lawyers sat down with an assemblywoman and the home’s owner. … “I hope they realize that they can never really win,” Ward said. “I will not compromise.”

Why don’t we see more of this kind of thing? There are millions of families with homes in foreclosure, and millions more heading that way. Being forcibly evicted from your home has got to be one of the most wrenching experiences there is. And yet as long as you’re in the house, you have some real power. And the moral and emotional claims of someone like Ward to her home are clear, regardless of who holds the title. Someone just has to organize it. Here, I think, is where we are really suffering from the loss of ACORN — these situations are tailor-made for them.

Still, there is some good work going on. I was at a meeting recently of No One Leaves, a bank tenant organization in Springfield, MA. Modeled on Boston’s City Life/Vida Urbana, this is a project to mobilize people whose homes have been foreclosed but are still living in them. Homeowners who still have title have a lot to lose and are understandably anxious to meet whatever conditions the lender or servicer sets. But once the foreclosure has happened, the homeowner, paradoxically, is in a stronger negotiating position; if they’re going to have to leave anyway, they have nothing to lose by dragging the process out, while for the bank, delay and bad publicity can be costly. So the idea is to help people in this situation organize to put pressure — both in court and through protest or civil disobedience — on the banks to agree to let them stay on as tenants more or less permanently, at a market rent. In the longer run, this will discourage foreclosures too.

It’s a great campaign, exactly what we need more of.

But there’s another important thing about No One Leaves: They’re angry. The focus isn’t just on the legal rights of people facing foreclosure, or their real chance to stay in their homes if they organize and stick together, it’s on fighting the banks. There’s a very clear sense that this is not just a problem to be solved, but that the banks are the enemy. I was especially struck by one middle-aged guy who’d lost the home he’d lived in for some 20 years to foreclosure. “At this point, I don’t even care if I get to stay,” he said. “Look, I know I’m probably going to have to leave eventually. I just want to make this as slow, and expensive, and painful, for Bank of America as I can.” Everyone in the room cheered.

Liberals hate this sort of thing. But it seems to be central to successful organizing. Back when I was at the Working Families Party, one of the things the professional organizers always talked about was the importance of polarizing — getting people to articulate who was responsible for their problems, who’s the other side. It was a central step in any house visit, any meeting. And from what I could tell, it worked. I mean, it’s foolish of someone like Mary Lee Ward to say, “I will not compromise,” isn’t it? Objectively, compromise is how most problems get solved. But if she didn’t have a clear sense of being on the side of right against wrong, how would she have the energy to keep up what, objectively, was very likely to be a losing fight, or convince her neighbors to join her? Somebody or other said there are always three questions in politics. You have to know what is to be done — the favorite topic of intellectuals. But that’s not enough. You also have to know which side you are on, but that’s not enough either. Before you devote your time and energy to a political cause, you have to know who is to blame.

A while back I had a conversation with a friend who’s worked for the labor movement for many years, one campaign after another. If you know anyone like that, or have been part of an organizing drive yourself, you know that in the period before a union representation vote, an American workplace is a little totalitarian state. (Well, even more than usual.) Spies reporting on private conversations, mandatory mass meetings, veiled and open threats, punishment on the mere suspicion of holding the wrong views, no due process. And yet people do still vote for unions and support unionization campaigns, even when being fired would be a a personal catastrophe. Why, I asked my friend. I mean, union jobs do have better pay, benefits, job security — but are they that much better, that people think they’re worth the risk? “Oh, it’s not about that,” he said. “It’s about the one chance to say Fuck You to your boss.”

Hardt and Negri have a line somewhere in Empire about how, until we can overcome our fear of death, it will be “carried like a weapon against the hope of liberation.” When I first read the book, I thought that was pretty strange. But now I think there’s something important there. Self interest, even enlightened, only takes you so far, because when you’re weak, your self-interest is very often going to be in accomodation to power. I’m not sure I’d go as far as Hardt and Negri, that we have to lose our fear of death to be free moral agents. But it is true that we can’t organize collectively to assert our rights in our homes and our jobs as long as we’re dominated individually by our fear of losing them. Some other motivation — dignity, pride, anger or even hatred — is needed to say, instead, that nobody is going to walk all over you.

Bottom Rail, Moving Up

David Harvey observed recently that this crisis was the first in modern times in which the periphery has not borne a disproportionate share of the costs. Dani Rodrik’s recent posts make a similar point.

And it’s true — over the past 40 years, we’ve seen repeated episodes when growth has slowed in the rich world, and collapsed catastrophically in the South. Neoliberalism has meant the tools the North uses to ameliorate slumps have been forbidden to poor countries. As my friend Doug Henwood says, in each of the crises of the past two decades, “the First World banks got a Minsky bailout while the Third World suffered a Fisher deflation.” But this time really seems to be different.

It’s interesting to compare the last of those episodes, the Asian crisis of 1997, with the most recent crisis.

Whatever you think the underlying causes of the 1997 crisis were (people sure liked saying “crony capitalism”) the basic facts are straightforward. East and Southeast Asia experienced a “sudden stop” of previously large financial inflows, leaving them unable to meet their foreign-currency obligations. As a result they were forced to abandon their currency pegs, abruptly raise interest rates to unheard-of levels, and eliminate their trade deficits with extreme prejudice. The result was severe economic disruption and brutal recessions. Indonesia, for example, didn’t regain its pre-crisis level of output for a full five years.

Fast forward ten years, and the same region is a bright spot in the global growth picture. What people don’t realize, though, is that many Asian countries experienced a sudden stop of financial inflows in 2007-08 even larger than the one that caused so much destruction in 1997. Add to that a collapse in export earnings as demand in the rich countries fell, and Asian countries faced a substantially larger shock to foreign exchange earnings in 2007-2008 than ten years before.

Change in Gross Flows as Percent of Peak GDP
	1997Q2-1997Q4		Peak-2008Q4
	Portfolio Inflows	All Forex Inflows	Portfolio Inflows	All Forex Inflows
Indonesia	-10.6	-18.5	-6.1	-9.7
Korea	-5.9	-18.0	-10.1	-29.5
Phillipines	-5.4	-15.9	-9.3	-30.1
Thailand	-2.5	-12.4	-6.2	-22.4

Source: IMF International Financial Statistics.

Notes: [1]

As the table shows, several of the newly industrializing countries of East Asia experienced a shock to their balance of payments in 2007-08 about double that of 1997. So why did the earlier shock have so much larger effects?

“Floating exchange rates” is the wrong answer. (“Fiscal responsibility” is worse, it’s not even wrong.) As captured in the well-known J-curve, even when exchange rates move in the right direction, they initially have the wrong effects on trade flows. Even in the most optimistic case it takes at least a year before a depreciation begins to improve the trade balance. Anyway, in the crisis this time, Asian exchange rates didn’t fall.

In the short run at least, trade flows respond to movements in incomes, not relative prices. Replacing the trade-price relationship with a trade-income relationship is probably the key contribution of Post Keynesian analysis to the study of international finance and trade. [2] Combined with the notion of liquidity constraints — despite what the textbook says, the supply of credit is not infinitely elastic at “the” interest rate — this means there are situations where a country needs to rapidly improve its balance of payments and the only tool available (once direct import restrictions are ruled out) is to reduce income, often by some large multiple of the gap to be closed. [3] In a nutshell, that’s what happened in 1997. So why not this time?

The answer is that the Asian countries entered this crisis, unlike the last one, with large current account surpluses and foreign-exchange reserves. Countries that can respond to a negative shock to foreign exchange inflows by reducing their own accumulation of foreign assets or spending down their reserves, don’t have to reduce imports by pushing down income and output. Instead, they could and did raise domestic incomes via stimulus programs and interest-rate cuts, to offset the fall in export demand. And this is not only good news for them, it also dampens the process by which trade-induced contractions would otherwise propagate across borders.

Indeed, it’s probably precisely to be ready for this contingency that Asian countries committed themselves to running surpluses in the first place. There’s an old Martin Wolf column making this argument, which I’ll add to this post when/if I find it. It’s made more systematically in a couple recent articles by Jorg Bibow. (Bibow’s work is about the best I’ve seen on the whole question of “global imbalances”.) He argues that current account surpluses and reserve accumulation should be seen as a form of “self-insurance” by countries that have become disillusioned with the IMF as a provider of insurance against balance-of-payments shocks (its supposed raison d’etre). Bibow is fairly critical of this approach, which is natural from the point of view of someone steeped in Keynes’ ideas of a rational international order. We don’t, after all, think it would be such a great thing if people dispensed with health insurance and saved up money for future health expenses instead. But if your insurer insisted that you donate at least a kidney before they’d approve a blood transfusion, self-insurance might look like a better option.

There’s a couple important points here. First, the economic point:

The direct effects of trade flows on aggregate demand are usually dwarfed by the indirect effects, as government spending and investment adjust to accommodate the balance of payments constraint. This is why trade is not, in a Keynesian framework, a zero-sum game, and why the mewling of American economists about Asian “mercantilism” so misses the point. When capital flowed out of Asia in 1997, the whole development process had to be thrown into reverse in order to make up the shortfall in foreign exchange. That’s what happens when you’re pushed up against your balance of payments constraint. It didn’t haVppen this time because of their past ten years of self-insurance. In the US, on the other hand, the external balance doesn’t constrain expansionary fiscal policy at all, only the stupidity of our politics does.

Maybe even more important, the political point. How is it that these countries managed to reject the siren song of the Washington Consensus? After all, it promised (1) development would be so much faster with access to the savings of the rich world via unfettered financial flows; (2) if something did go wrong, the IMF loans were always available to bridge short-term foreign-exchange shortfalls; and, implicitly, (3) if things fell apart completely, unrestricted financial flows would ensure that elites could extract their wealth from a wrecked economy.

Around 1990, when I was first becoming aware of politics, we took it for granted that the IMF was one of the great forces for evil in the world. And you know what? I think we were right.

Which makes it all the more remarkable that some substantial fraction of the world has managed to tear itself free of those usurers. In principle, there’s the potential for progressive struggle whenever the sociological basis of a form of political consciousness requires it to cohere somewhere beneath the top of a value chain. But in practice, it’s hard to do. Much easier for the representatives of a subordinate class or geography to constitute themselves as an agent of the elites above rather than the masses below. So while self-insurance via reserve accumulation might seem like a small step towards socialism, I think it’s kind of a big deal. Economically, you have to recognize that Asian economies are not in depression now thanks to prudential state action, not the pseudo-logic of “conditional convergence”. And politically it’s even more remarkable, in the scale of things, that Asian elites have been able even to this extent to identify themselves with their national economies rather than the global owning class.

[1] “All Forex Inflows” is the sum of gross portfolio inflows, inward FDI, other inward investment and exports. (The gross numbers are conceptually the correct ones, for reasons I can’t explain here but hopefully are obvious.) The peak quarter is 1997Q2 for the 1997 crisis. For the recent crisis it is 2008Q2 for Indonesia, 2007Q4 for Korea, 2007Q2 for the Philippines and 2008Q1 for Thailand. The IMF does not have data for Malaysia prior to 1999.

[2] As on so many topics, Joan Robinson’s contribution is essential and mostly unacknowledged.

[3] The ratio of the necessary fall in output to the balance of payments gap to be closed is equal to one over the marginal propensity to import. Countries in this situation almost always sharply raise the domestic rate of interest, which theoretically helps attract short-term financial flows to bridge the gap, but in practice is mostly just a mechanism to reduce domestic incomes.

Wind, Rising

Here’s an interesting datapoint: According to the US Energy Information Agency, fully 50 percent of the net new electricity generation capacity added in 2008, was from wind power. (8,300 megawatts of a total of 19,000 megawatts of new capacity; but 2,600 megwatss worth of fossil-fuel capacity was retired.) This is very exciting; it’s clear that, despite some truly foolish opposition (what’s wrong with those people? wind turbines are beautiful), wind power has reached takeoff as a commercially viable industry.

If we are going to preserve a habitable planet, a big challenge is threading the line between complacency and despair. So it’s important to balance the bad news about the scope of the problem, with good news about its solvability.

(If you want to bend the stick back the other way, you could pick up James Hansen’s Storms of My Grandchildren and read the chapter on the Venus syndrome. Terrifying.)