NEWS2U Articles & Comments
Critical Reporting

Monday, January 30, 2012

A Crisis in Two Narratives

By Raghuram Rajan
Jan. 29, 2012

With the world’s industrial democracies in crisis, two competing narratives of its sources – and appropriate remedies – are emerging. The first, better-known diagnosis is that demand has collapsed because of high debt accumulated prior to the crisis. Households (and countries) that were most prone to spend cannot borrow any more. To revive growth, others must be encouraged to spend – governments that can still borrow should run larger deficits, and rock-bottom interest rates should discourage thrifty households from saving.

Under these circumstances, budgetary recklessness is a virtue, at least in the short term. In the medium term, once growth revives, debt can be paid down and the financial sector curbed so that it does not inflict another crisis on the world.

This narrative – the standard Keynesian line, modified for a debt crisis – is the one to which most government officials, central bankers, and Wall Street economists have subscribed, and needs little elaboration. Its virtue is that it gives policymakers something clear to do, with promised returns that match the political cycle. Unfortunately, despite past stimulus, growth is still tepid, and it is increasingly difficult to find sensible new spending that can pay off in the short run.

Attention is therefore shifting to the second narrative, which suggests that the advanced economies’ fundamental capacity to grow by making useful things has been declining for decades, a trend that was masked by debt-fueled spending. More such spending will not return these countries to a sustainable growth path. Instead, they must improve the environment for growth.

The second narrative starts with the 1950’s and 1960’s, an era of rapid growth in the West and Japan. Several factors, including post-war reconstruction, the resurgence of trade after the protectionist 1930’s, the introduction of new technologies in power, transport, and communications across countries, and expansion of educational attainment, underpinned the long boom. But, as Tyler Cowen has argued in his book The Great Stagnation, once these “low-hanging fruit” were plucked, it became much harder to propel growth from the 1970’s onward.

Meanwhile, as Wolfgang Streeck writes persuasively in New Left Review, democratic governments, facing what seemed, in the 1960’s, like an endless vista of innovation and growth, were quick to expand the welfare state. But, when growth faltered, this meant that government spending expanded, even as its resources shrank. For a while, central banks accommodated that spending. The resulting high inflation created widespread discontent, especially because little growth resulted. Faith in Keynesian stimulus diminished, though high inflation did reduce public-debt levels.

Central banks then began to focus on low and stable inflation as their primary objective, and became more independent from their political masters. But deficit spending by governments continued apace, and public debt as a share of GDP in industrial countries climbed steadily from the late 1970’s, this time without inflation to reduce its real value.

Recognizing the need to find new sources of growth, towards the end of Jimmy Carter’s presidency, and then under Ronald Reagan, the United States deregulated industry and the financial sector, as did Margaret Thatcher in the United Kingdom. Productivity growth increased substantially in these countries over time, which persuaded Continental Europe to adopt reforms of its own, often pushed by the European Commission.

Yet even this growth was not enough, given previous governments’ generous promises of health care and pensions – promises made even less tenable by rising life expectancy and falling birth rates. Public debt continued to grow. And the incomes of the moderately educated middle class failed to benefit from deregulation-led growth (though it improved their lot as consumers).

The most recent phase of the advanced economies’ frenzied search for growth took different forms. In some countries, most notably the US, a private-sector credit boom created jobs in low-skilled industries like construction, and precipitated a consumption boom as people borrowed against overvalued houses. In other countries, like Greece, as well as under regional administrations in Italy and Spain, a government-led hiring spree created secure jobs for the moderately educated.

In this “fundamental” narrative, the advanced countries’ pre-crisis GDP was unsustainable, bolstered by borrowing and unproductive make-work jobs. More borrowed growth – the Keynesian formula – may create the illusion of normalcy, and may be useful in the immediate aftermath of a deep crisis to calm a panic, but it is no solution to a fundamental growth problem.

If this diagnosis is correct, advanced countries need to focus on reviving innovation and productivity growth over the medium term, and on realigning welfare promises with revenue capacity, while alleviating the pain of the truly destitute in the short run. For example, Southern Europe’s growth potential may consist in deregulating service sectors and reducing employment protection to spur creation of more private-sector jobs for retrenched government workers and unemployed youth.

In the US, the imperative is to improve the match between potential jobs and worker skills. People understand better than the government what they need and are acting accordingly. Many women, for example, are leaving low-paying jobs to acquire skills that will open doors to higher-paying positions. Too little government attention has been focused on such issues, partly because payoffs occur beyond electoral horizons, and partly because the effectiveness of government programs has been mixed. Tax reform, however, can provide spur retraining and maintain incentives to work, even while fixing gaping fiscal holes.

Three powerful forces, one hopes, will help to create more productive jobs in the future: better use of information and communications technology (and new ways to make it pay), lower-cost energy as alternative sources are harnessed, and sharply rising demand in emerging markets for higher-value-added goods.

The advanced countries have a choice. They can act as if all is well, except that their consumers are in a funk, and that “animal spirits” must be revived through stimulus. Or they can treat the crisis as a wake-up call to fix what debt has papered over in the last few decades. For better or worse, the narrative that persuades these countries’ governments and publics will determine their future – and that of the global economy.


Friday, January 27, 2012

Obama’s Faux Populism Sounds Like Bill Clinton

By Robert Scheer
Nation of Change
January 27, 2012

I’ll admit it: Listening to Barack Obama, I am ready to enlist in his campaign against the feed-the-rich Republicans ... until I recall that I once responded in the same way to Bill Clinton’s faux populism. And then I get angry because betrayal by the “good guys” for whom I have ended up voting has become the norm.

Yes, betrayal, because if Obama meant what he said in Tuesday’s State of the Union address about holding the financial industry responsible for its scams, why did he appoint the old Clinton crowd that had legalized those scams to the top economic posts in his administration?

Why did he hire Timothy Geithner, who has turned the Treasury Department into a concierge service for Wall Street tycoons?

Why hasn’t he pushed for a restoration of the Glass-Steagall Act, which Clinton’s deregulation reversed?

Does the president really believe that the Dodd-Frank slap-on-the-wrist sellout represents “new rules to hold Wall Street accountable, so a crisis like this never happens again”?

Can he name one single too-big-to-fail banking monstrosity that has been reduced in size on his watch instead of encouraged to grow ever larger by Treasury and Fed bailouts and interest-free money?

When Obama declared Tuesday evening “no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas,” wasn’t he aware that Jeffrey Immelt, the man he appointed to head his jobs council, is the most egregious offender?

Immelt, the CEO of GE, heads a company with most of its workers employed in foreign countries, a corporation that makes 82 percent of its profit abroad and has paid no U.S. taxes in the past three years.

It was also a bit bizarre for Obama to celebrate Steve Jobs as a model entrepreneur when the manufacturing jobs that the late Apple CEO created are in the same China that elsewhere in his speech the president sought to scapegoat for America’s problems.

 Apple, in its latest report on the subject, takes pride in attempting to limit the company’s overseas suppliers to a maximum workweek of 60 hours for their horribly exploited employees. Isn’t it weird to be chauvinistically China baiting when that country carries much of our debt?

I’m also getting tired of the exhortations to improve the nation’s schools, certainly a worthy endeavor, but this economic crisis is the result not of high school dropouts as Obama suggested, but rather the corruption of the best and brightest graduates of our elite academies.

As Obama well knows from his own trajectory in the meritocracy, which took him from one of the most privileged schools in otherwise educationally depressed Hawaii to Harvard Law, the folks who concocted the mathematical formulas and wrote the laws justifying fraudulent collateralized debt obligations and credit default swaps were his overachieving professors and classmates.

If he doesn’t know that, he should check out the record of Lawrence Summers, the man he picked to guide his economic program and who had been rewarded with the presidency of Harvard after having engineered Clinton’s deregulatory deal with Wall Street.

That is the real legacy of the Clinton years, and it is no surprise that GOP presidential contender Newt Gingrich has been campaigning on his rightful share of it. The international trade agreements that exported good U.S. jobs, the radical financial deregulation that unleashed Wall Street greed, and the free market zealotry of then-Fed Chairman Alan Greenspan, who was reappointed by Clinton, were all part of a deal Clinton made with Gingrich, House speaker at that time.

As Gingrich put it in the first Republican debate in South Carolina: “As speaker ... working with President Bill Clinton, we passed a very Reagan-like program, less regulation, lower taxes.”

Even the 15 percent tax break that Mitt Romney exploited for his carryover private equity income was a result of the unholy Clinton-Gingrich alliance. Both principals of that alliance were pimps for the financial industry, and that includes Freddie Mac, the for-profit stock-traded housing agency that Clinton coddled while it stoked the Ponzi scheme in housing and that rewarded the former speaker with $1.6 million to $1.8 million in consulting fees.

There were, finally, some bold words in Obama’s speech about helping beleaguered homeowners, but they ring hollow given this administration’s efforts to broker a sweetheart deal between the leading banks and the state attorneys general that would see the banks fined only a pittance for their responsibility in the mortgage meltdown.

Obama could have had success demanding mortgage relief if he had made that a condition for bailing out the banks. Now the banksters know he’s firing blanks, and they are placing their bets on their more reliable Republican allies to prevent any significant demand for helping homeowners with their underwater mortgages.

Of course, Romney, Obama’s most likely opponent in the general election, will never challenge the Wall Street hold on Washington, since he is the personification of the vulture capitalism that is the true cause of America’s decline.

Obama should shine in comparison with his Republican challenger, but there is little in his State of the Union speech to suggest he will chart a much-needed new course in his second term.


Tuesday, January 24, 2012

I 911

By Clyde Lewis
Ground Zero
Jan. 21, 2012

For some people 1/19/2012 was just a date with no real earthshaking events to distract them from their daily routine. For others who use the internet it was a date where cyberspace experienced a possible false flag 9/11 type of event.

Megaupload, a massive file sharing site with a reported 50 million daily users, was taken down by federal agents. Four people linked to Megaupload were arrested in New Zealand and an international crackdown led agents to serving at least 20 search warrants across the globe.

Later it was reported that the Collective hacker group Anonymous was responsible for taking down sites for the FBI, Department of Justice, Universal Music Group, RIAA and Motion Picture Association of America.

Richard Clarke the former counter terrorism Czar told Stanford law professor Lawrence Lessig that there would be in the foreseeable future what he called an “I-911” or internet 911 where a major attack would take place online. This event would force Government officials to incorporate an internet “patriot act” limiting freedom of speech and freedom of movement online.

Coincidentally the date of 1/19 inverted is of course 911 which seems a bit convenient considering the large scale attacks that took place. Was this all planned? It seems too bizarre not to be the product of a false flag attack on the internet in order to create a reason to impose draconian laws on the internet.

If we haven’t had our I-911 already we most certainly are seeing various attacks that put the internet at risk and counter intuitive measures that give precedent to a government out of control to enforce more control over the people’s electronic press.

It is human nature to strike when angered, it is also human nature to acts that are peculiar to try and make a point. The effectiveness of such actions are always criticized or praised no matter where your opinions sit on the matter.

However when it comes to the latest series of web black outs and attacks on websites by Anonymous it seems that logic is lacking with ways to go after big government wanting to control the internet. While support efforts to bring down the Stop Online Piracy act and the Protect IP act I can’t help but think that the efforts of censoring for the sake of preventing censorship or attacking government and other sites by an egregore such as Anonymous is sealing the Internet’s fate.

This whole affair was predictable. In fact it was so predictable that one could speculate that the attacks on the Justice Department sites, the RIAA, the MPAA et al were all carried out by the government claiming to be Anonymous. Barret Brown of project PM told the press that it was only 70 minutes after the website was taken down by the feds that the other sites were hacked and shut down.

It was pointed out the timing of the move to take down Megaupload was arguably bad considering it was done the day after many websites had censored themselves by “blacking out” in protest.

What it indicates and what is missing in the conversation is that Megaupload was taken down without the passing of SOPA or PIPA and the attacks from Anonymous should have been limited because of security firewalls that sites like the Department of Justice should have.

So let us surmise that the Government has tremendous power and the expertise necessary to follow the example of Wikipedia and others to voluntarily shut down and say that it was carried out by a group that literally has no leader and quite frankly has no organization.

As I have said Anonymous is an egregore. It really is not tangible. It’s similar to the idea that anyone can be Santa Claus but there is really only one Santa Claus. Everyone can participate and yet no one knows that they are participating.

Anyone can be anonymous, and yet no one is anonymous. They are only expected to do what they do and when they do it – there is no one that it can be traced to.

We are shown that the shutting down of Megaupload can be done without SOPA or PIPA laws. Can you imagine what they can do with more power and provisions to shut down and eliminate sites that they feel are extremist or otherwise in violation of their new laws?

This goes far beyond piracy and piracy is not the only issue. It is manipulation to test the waters for compliance and plausible deniability when it comes to Internet sabotage.

The issue as I see it is that it seems blatantly obvious to me that these counterintuitive measures, first by Wikipedia, Google and others with their self imposed shut downs or going dark created an opportunity for some organized group to make their move.

Out of the darkness we see a coincidental attack where various other “hacked” sites and shut downs take place and government agents make a symbolic move.

Does this sound contrived? Isn’t this an obvious indication of a false flag attack in order to create an I-911? The whole premise of the protest prior to the attack didn’t make sense—and I was told by my listeners that it was a great idea.

How is it that those who fight against internet censorship and shut downs are the first to use it to prove their point? Were those who stood is solidarity with Wikipedia and other sites duped into being part of an internet psy-op a day before the shot heard round the world in cyberspace would become the I-911?

Think about it – there were several sites that were in solidarity that went dark the night before. They all had links to various sites that were supposed to educate people on SOPA and PIPA. People thinking they were participating in a protest could have clicked a link that would send enough digital attacks to targeted sites causing a chain reaction that could have anonymously brought down FBI, Department of Justice, Universal Music Group, RIAA and Motion Picture Association of America.

Then in order to create more buzz a story is released saying that the Whitehouse is next. Then Anonymous is blamed. Everyone is responsible and yet no one is responsible. The reality is that if anyone went to a dark site and clicked a link they may have contributed to the attack. Just clicking on a dark site and any of its links created the chain reaction necessary to kill certain sites on the net. I have to admit that on January 18th my personal computer crashed and I had to use a start up disc to reformat the hard drive. This was after I visited Craig’s list.

I was then told that I picked up a virus because something turned off my firewall. I was able to recover my computer. I ran a virus cleaning of my C drive and then went to work. I used my work computer the night of the “Blackout” and picked up another virus when I visited Wikipedia.

I wonder if my computer IP’s were compromised and sent a message to all of the sites that crashed.

Did my computer pick up malware that was used to create a chain reaction DDOS attack?

Do you wonder if yours was also used to cause sites to crash? If it was that easy to bring down sites with a simple protest ploy—we could easily end up destroying the internet for a cause that we might think is right.

What is at stake is the beginning of what can be the “digital civil war.”  And in any war the biggest casualty is the truth.


Monday, January 23, 2012

An open letter to the citizens of the World

By AnonFile
Jan 21st, 2012

We stand at a unique time in our history, the rise of the internet and computer technology have contributed to an unparallelled rate of prosperity for the First World.

We have created for ourselves and empire unlike any other, a global network of constant trade and communication, a new age of technological advancement.

We have come a long way from our humble roots in the Industrial Revolution and the days of Manifest Destiny. We are now pioneers on new digital frontiers expanding our domain from the quantum world to the far reaches of space.

And yet, the empire faces a crisis, a global recession, growing poverty, rampant violence, corruption in politics, and threats to personal freedom. As it was before in other times of crisis, the old stories have begun to repeat themselves.

The half truths, this time repeated nightly on cable news and echoed through a series of tubes onto the internet: the empire is strong, change is unwise, business as usual is the answer. In times of uncertainty there are those who seek to add to the confusion, to prey on our insecurities and fears.

Those who would seek to keep us divided for their own gain. The pervasive strategy takes many very convincing forms: Liberals and Conservatives, Christians and Muslims, Black and White, Saved and sinner.

But something unexpected is happening. We have begun telling each other our own stories. Sharing our lives, our hopes, our dreams, our demons. Every second, day in day out, into all hours of the night the gritty details of life on this earth are streaming around the world.

As we see the lives of others played out in our living rooms we are beginning to understand the consequences of our actions and the error of the old ways. We are questioning the old assumptions that we are made to consume not to create, that the world was made for our taking, that wars are inevitable, that poverty is unavoidable.

As we learn more about our global community a fundamental truth has been rediscovered: We are not so different as we may seem. Every human has strengths, weaknesses, and deep emotions. We crave love, love laughter, fear being alone and dream for a better life.

You must create a better life.

You cannot sit on the couch watching television or playing video games, waiting for a revolution. You are the revolution.

Every time you decide not to exercise your rights, every time you refuse to hear another view point, every time you ignore the world around you, every time you spend a dollar at a business that doesn't pay a fair wage you are contributing to the oppression of the human body and the repression of the human mind.

You have a choice, a choice to take the easy path, the familiar path, to walk willingly into your own submission. Or a choice get up, to go outside and talk to your neighbor, to come together in new forums to create lasting, meaningful change for the human race.

This is our challenge:

A peaceful revolution, a revolution of ideas, a revolution of creation. The twenty-first century enlightenment. A global movement to create a new age of tolerance and understanding, empathy and respect. An age of unfettered technological development. An age of sharing ideas and cooperation. An age of artistic and personal expression. We can choose to use new technology for radical positive change or let it be used against us.

We can choose to keep the internet free, keep channels of communication open and dig new tunnels into those places where information is still guarded. Or we can let it all close in around us. As we move in to new digital worlds, we must acknowledge the need for honest information and free expression.

We must fight to keep the internet open as a marketplace of ideas where all are seated as equals. We must defend our freedoms from those who would seek to control us. We must fight for those who do not yet have a voice. Keep telling your story. All must be heard.



Saturday, January 21, 2012

You Did It!

It was amazing to see what happened when People stood up and demanded this egregious affront to civil liberties and free speech was challenged. You made the difference!

Internet wins: SOPA and PIPA both shelved

At GOP debate, all four candidates oppose SOPA

Reid shelves PROTECT IP Act in response to "recent events"

Online World Blacked Out
Created by: Online University

Wednesday, January 18, 2012

Millions of Americans oppose SOPA and PIPA because these bills would censor the Internet and slow economic growth in the U.S.

Two bills before Congress, known as the Protect IP Act (PIPA) in the Senate and the Stop Online Piracy Act (SOPA) in the House, would censor the Web and impose harmful regulations on American business. Millions of Internet users and entrepreneurs already oppose SOPA and PIPA.

The Senate will begin voting on January 24th. Please let them know how you feel. Sign this petition urging Congress to vote NO on PIPA and SOPA before it is too late.


A rapidly growing community

Opposition to the Protect IP Act (PIPA) and the Stop Online Piracy Act (SOPA) grows with each day. This brief list is just a sampling of businesses. Visit the Center for Democracy and Technology’s list for a more complete look at the individuals, organizations, experts and legislators that know how bad this legislation could be.

  1. American Express Company
  2. AOL
  3. Boing Boing
  4. BuzzFeed
  5. CloudFlare
  6. Copyblogger
  7. ConsumerBell
  8. Creative Commons
  9. Curse
  10. Daily Kos
  11. deviantART
  12. Discover
  13. Disqus
  14. DreamHost
  15. Dyn
  16. eBay
  17. Embedly
  18. Engine Advocacy
  19. ESET
  20. Etsy
  21. Facebook
  22. Fantagraphics
  23. foursquare
  24. Gandi
  25. Google
  26. GreenHostIt
  27. HostGator
  28. Hover
  29. I Can Has Cheezburger?
  30. IndieGoGo
  31. Internet Archive
  32. Irregular Times
  33. Jive Software
  34. Kaspersky Lab

  1. Kickstarter
  2. LinkedIn
  3. MetaFilter
  4. Mozilla
  6. Namecheap
  7. OpenDNS
  8. O’Reilly Radar
  10. PayPal
  11. Quora
  12. Rackspace
  13. Reddit
  14. ReferralCanday
  15. Riot Games
  16. ServInt
  17. Scribd
  18. Teachers Pay Teachers
  19. Techdirt
  20. Torrentfreak
  21. Tucows
  22. Tumblr
  23. Twitter
  24. Ubu Web
  25. Uservoice
  26. Vimeo
  27. Webs, Inc.
  28. Wikipedia
  29. WordPress
  30. Yahoo!
  31. Y Combinator
  32. Zopim
  33. Zynga Game Network

Saturday, January 07, 2012

Bain, Barack and Jobs

The New York Times
January 5, 2012
[emphasis added]

America’s recovery from recession has been so slow that it mostly doesn’t seem like a recovery at all, especially on the jobs front. So, in a better world, President Obama would face a challenger offering a serious critique of his job-creation policies, and proposing a serious alternative.

Instead, he’ll almost surely face Mitt Romney.

Mr. Romney claims that Mr. Obama has been a job destroyer, while he was a job-creating businessman. For example, he told Fox News: “This is a president who lost more jobs during his tenure than any president since Hoover. This is two million jobs that he lost as president.” He went on to declare, of his time at the private equity firm Bain Capital, “I’m very happy in my former life; we helped create over 100,000 new jobs.”

But his claims about the Obama record border on dishonesty, and his claims about his own record are well across that border.

Start with the Obama record. It’s true that 1.9 million fewer Americans have jobs now than when Mr. Obama took office. But the president inherited an economy in free fall, and can’t be held responsible for job losses during his first few months, before any of his own policies had time to take effect.

So how much of that Obama job loss took place in, say, the first half of 2009?

The answer is: more than all of it. The economy lost 3.1 million jobs between January 2009 and June 2009 and has since gained 1.2 million jobs. That’s not enough, but it’s nothing like Mr. Romney’s portrait of job destruction.

Incidentally, the previous administration’s claims of job growth always started not from Inauguration Day but from August 2003, when Bush-era employment hit its low point. By that standard, Mr. Obama could say that he has created 2.5 million jobs since February 2010.

So Mr. Romney’s claims about the Obama job record aren’t literally false, but they are deeply misleading. Still, the real fun comes when we look at what Mr. Romney says about himself.

Where does that claim of creating 100,000 jobs come from?

Well, Glenn Kessler of The Washington Post got an answer from the Romney campaign.

It’s the sum of job gains at three companies that Mr. Romney “helped to start or grow”: Staples, The Sports Authority and Domino’s.

Mr. Kessler immediately pointed out two problems with this tally. It’s “based on current employment figures, not the period when Romney worked at Bain,” and it “does not include job losses from other companies with which Bain Capital was involved.” Either problem, by itself, makes nonsense of the whole claim.

On the point about using current employment, consider Staples, which has more than twice as many stores now as it did back in 1999, when Mr. Romney left Bain.

Can he claim credit for everything good that has happened to the company in the past 12 years? In particular, can he claim credit for the company’s successful shift from focusing on price to focusing on customer service (“That was easy”), which took place long after he had left the business world?

Then there’s the bit about looking only at Bain-connected companies that added jobs, ignoring those that reduced their work forces or went out of business. Hey, if pluses count but minuses don’t, everyone who spends a day playing the slot machines comes out way ahead!

In any case, it makes no sense to look at changes in one company’s work force and say that this measures job creation for America as a whole.

Suppose, for example, that your chain of office-supply stores gains market share at the expense of rivals. You employ more people; your rivals employ fewer. What’s the overall effect on U.S. employment? One thing’s for sure: it’s a lot less than the number of workers your company added.

Better yet, suppose that you expand in part not by beating your competitors, but by buying them. Now their employees are your employees. Have you created jobs?

The point is that Mr. Romney’s claims about being a job creator would be nonsense even if he were being honest about the numbers, which he isn’t.

At this point, some readers may ask whether it isn’t equally wrong to say that Mr. Romney destroyed jobs. Yes, it is.  

The real complaint about Mr. Romney and his colleagues isn’t that they destroyed jobs, but that they destroyed good jobs.

When the dust settled after the companies that Bain restructured were downsized — or, as happened all too often, went bankrupt — total U.S. employment was probably about the same as it would have been in any case. 

But the jobs that were lost paid more and had better benefits than the jobs that replaced them.

Mr. Romney and those like him didn’t destroy jobs, but they did enrich themselves while helping to destroy the American middle class.

And that reality is, of course, what all the blather and misdirection about job-creating businessmen and job-destroying Democrats is meant to obscure.


Tuesday, January 03, 2012

Richard Stallman Was Right All Along
by Thom Holwerda
OS News
Jan 2, 2012
Late last year, president Obama signed a law that makes it possible to indefinitely detain terrorist suspects without any form of trial or due process. Peaceful protesters in Occupy movements all over the world have been labelled as terrorists by the authorities. Initiatives like SOPA promote diligent monitoring of communication channels. 
Thirty years ago, when Richard Stallman launched the GNU project, and during the three decades that followed, his sometimes extreme views and peculiar antics were ridiculed and disregarded as paranoia - but here we are, 2012, and his once paranoid what-ifs have become reality. 
Up until relatively recently, it's been easy to dismiss Richard Stallman as a paranoid fanatic, someone who lost touch with reality long ago. A sort of perpetual computer hippie, the perfect personification of the archetype of the unworldly basement-dwelling computer nerd. His beard, his hair, his outfits - in our visual world, it's simply too easy to dismiss him.

His views have always been extreme. His only computer is a Lemote Yeelong netbook, because it's the only computer which uses only Free software - no firmware blobs, no proprietary BIOS; it's all Free. He also refuses to own a mobile phone, because they're too easy to track; until there's a mobile phone equivalent of the Yeelong, Stallman doesn't want one. Generally, all software should be Free. Or, as the Free Software Foundation puts it:

As our society grows more dependent on computers, the software we run is of critical importance to securing the future of a free society. Free software is about having control over the technology we use in our homes, schools and businesses, where computers work for our individual and communal benefit, not for proprietary software companies or governments who might seek to restrict and monitor us.
I, too, disregarded Stallman as way too extreme. Free software to combat controlling and spying governments? Evil corporations out to take over the world? Software as a tool to monitor private communication channels?

Right. Surely, Free and open source software is important, and I choose it whenever functional equivalence with proprietary solutions is reached, but that Stallman/FSF nonsense is way out there.

But here we are, at the start of 2012. Obama signed the NDAA for 2012, making it possible for American citizens to be detained indefinitely without any form of trial or due process, only because they are terrorist suspects. At the same time, we have SOPA, which, if passed, would enact a system in which websites can be taken off the web, again without any form of trial or due process, while also enabling the monitoring of internet traffic.

Combine this with how the authorities labelled the Occupy movements - namely, as terrorists - and you can see where this is going.

In case all this reminds you of China and similarly totalitarian regimes, you're not alone. Even the Motion Picture Association of America, the MPAA, proudly proclaims that what works for China, Syria, Iran, and others, should work for the US. China's Great Firewall and similar filtering systems are glorified as workable solutions in what is supposed to be the free world.

The crux of the matter here is that unlike the days of yore, where repressive regimes needed elaborate networks of secret police and informants to monitor communication, all they need now is control over the software and hardware we use. Our desktops, laptops, tablets, smartphones, and all manner of devices play a role in virtually all of our communication.

Think you're in the clear when communicating face-to-face? Think again. How did you arrange the meet-up? Over the phone? The web? And what do you have in your pocket or bag, always connected to the network?

This is what Stallman has been warning us about all these years - and most of us, including myself, never really took him seriously.

However, as the world changes, the importance of the ability to check what the code in your devices is doing - by someone else in case you lack the skills - becomes increasingly apparent. If we lose the ability to check what our own computers are doing, we're boned.

That's the very core of the Free Software Foundation's and Stallman's beliefs: that proprietary software takes control away from the user, which can lead to disastrous consequences, especially now that we rely on computers for virtually everything we do.

The fact that Stallman foresaw this almost three decades ago is remarkable, and vindicates his activism. It justifies 30 years of Free Software Foundation.

And, in 2012, we're probably going to need Free and open source software more than ever before. At the Chaos Computer Congress in Berlin late last year, Cory Doctorow held a presentation titled "The Coming War on General Purpose Computation". In it, Doctorow warns that the general purpose computer, and more specifically, user control over general purpose computers, is perceived as a threat to the establishment. The copyright wars? Nothing but a prelude to the real war.

"As a member of the Walkman generation, I have made peace with the fact that I will require a hearing aid long before I die, and of course, it won't be a hearing aid, it will be a computer I put in my body," Doctorow explains, "So when I get into a car - a computer I put my body into - with my hearing aid - a computer I put inside my body - I want to know that these technologies are not designed to keep secrets from me, and to prevent me from terminating processes on them that work against my interests."

And this is really the gist of it all. With computers taking care of things like hearing, driving, and more, we really can't afford to be locked out of them. We need to be able to peek inside of them and see what they're doing, to ensure we're not being monitored, filtered, or whatever. Only a short while ago I would've declared this as pure paranoia - but with all that's been going on recently, it's no longer paranoia. It's reality.

"Freedom in the future will require us to have the capacity to monitor our devices and set meaningful policy on them, to examine and terminate the processes that run on them, to maintain them as honest servants to our will, and not as traitors and spies working for criminals, thugs, and control freaks," Doctorow warns, "And we haven't lost yet, but we have to win the copyright wars to keep the Internet and the PC free and open. Because these are the materiel in the wars that are to come, we won't be able to fight on without them."

This is why you should support Android (not Google, but Android), even if you prefer the iPhone. This is why you should support Linux, even if you use Windows. This is why you should support Apache, even if you run IIS. There's going to be a point where being Free/open is no longer a fun perk, but a necessity. 

And that point is approaching fast.


Monday, January 02, 2012

The Book of Jobs

Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.

By Joseph E. Stiglitz
Vanity Fair
January 2012

It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.

We knew the crisis was serious back in 2008. And we thought we knew who the “bad guys” were—the nation’s big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limit—and without conditions—could the economy recover. We did this not because we loved the banks but because (we were told) we couldn’t do without the lending that they made possible.

Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.

The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their ways—that they would start to lend, if only they were treated nicely enough. We were told, in effect: “Don’t put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Don’t force them to use the money to lend. Such conditions will upset our delicate markets.” In the end, bank managers looked out for themselves and did what they are accustomed to doing.

Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story.

Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.)

What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.

The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems.

Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.

Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s.

The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness.

The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years.

Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.

The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

The value of assets (such as homes) often declines when incomes do. Farmers got trapped in their declining sector and in their depressed locales. Diminished income and wealth made migration to the cities more difficult; high urban unemployment made migration less attractive. Throughout the 1930s, in spite of the massive drop in farm income, there was little overall out-migration. Meanwhile, the farmers continued to produce, sometimes working even harder to make up for lower prices. Individually, that made sense; collectively, it didn’t, as any increased output kept forcing prices down.

Given the magnitude of the decline in farm income, it’s no wonder that the New Deal itself could not bring the country out of crisis. The programs were too small, and many were soon abandoned. By 1937, F.D.R., giving way to the deficit hawks, had cut back on stimulus efforts—a disastrous error.

Meanwhile, hard-pressed states and localities were being forced to let employees go, just as they are now. The banking crisis undoubtedly compounded all these problems, and extended and deepened the downturn. But any analysis of financial disruption has to begin with what started off the chain reaction.

The Agriculture Adjustment Act, F.D.R.’s farm program, which was designed to raise prices by cutting back on production, may have eased the situation somewhat, at the margins. But it was not until government spending soared in preparation for global war that America started to emerge from the Depression. It is important to grasp this simple truth: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery.

The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.

Government spending unintentionally solved the economy’s underlying problem: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but that’s what war spending was—a policy that permanently changed the nature of the economy.

Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming. The supply of food and the demand for it came into balance again: farm prices started to rise. The new migrants to the cities got training in urban life and factory skills, and after the war the G.I. Bill ensured that returning veterans would be equipped to thrive in a modern industrial society. Meanwhile, the vast pool of labor trapped on farms had all but disappeared. The process had been long and very painful, but the source of economic distress was gone.

The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade.

There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.)

Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers.

The consequences for consumer spending, and for the fundamental health of the economy—not to mention the appalling human cost—are obvious, though we were able to ignore them for a while. For a time, the bubbles in the housing and lending markets concealed the problem by creating artificial demand, which in turn created jobs in the financial sector and in construction and elsewhere.

The bubble even made workers forget that their incomes were declining. They savored the possibility of wealth beyond their dreams, as the value of their houses soared and the value of their pensions, invested in the stock market, seemed to be doing likewise. But the jobs were temporary, fueled on vapor.

Mainstream macro-economists argue that the true bogeyman in a downturn is not falling wages but rigid wages—if only wages were more flexible (that is, lower), downturns would correct themselves! But this wasn’t true during the Depression, and it isn’t true now. On the contrary, lower wages and incomes would simply reduce demand, weakening the economy further.

Of four major service sectors—finance, real estate, health, and education—the first two were bloated before the current crisis set in. The other two, health and education, have traditionally received heavy government support. But government austerity at every level—that is, the slashing of budgets in the face of recession—has hit education especially hard, just as it has decimated the government sector as a whole.

Nearly 700,000 state- and local-government jobs have disappeared during the past four years, mirroring what happened in the Depression. As in 1937, deficit hawks today call for balanced budgets and more and more cutbacks. Instead of pushing forward a structural transition that is inevitable—instead of investing in the right kinds of human capital, technology, and infrastructure, which will eventually pull us where we need to be—the government is holding back. Current strategies can have only one outcome: they will ensure that the Long Slump will be longer and deeper than it ever needed to be.

Two conclusions can be drawn from this brief history. The first is that the economy will not bounce back on its own, at least not in a time frame that matters to ordinary people. Yes, all those foreclosed homes will eventually find someone to live in them, or be torn down. Prices will at some point stabilize and even start to rise. Americans will also adjust to a lower standard of living—not just living within their means but living beneath their means as they struggle to pay off a mountain of debt.

But the damage will be enormous. America’s conception of itself as a land of opportunity is already badly eroded. Unemployed young people are alienated. It will be harder and harder to get some large proportion of them onto a productive track. They will be scarred for life by what is happening today. Drive through the industrial river valleys of the Midwest or the small towns of the Plains or the factory hubs of the South, and you will see a picture of irreversible decay.

Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. The good news (in a sense) is that the United States has under-invested in infrastructure, technology, and education for decades, so the return on additional investment is high, while the cost of capital is at an unprecedented low.

If we borrow today to finance high-return investments, our debt-to-G.D.P. ratio—the usual measure of debt sustainability—will be markedly improved. If we simultaneously increased taxes—for instance, on the top 1 percent of all households, measured by income—our debt sustainability would be improved even more.

The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make.

Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation?

Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.

The second conclusion is this: If we expect to maintain any semblance of “normality,” we must fix the financial system. As noted, the implosion of the financial sector may not have been the underlying cause of our current crisis—but it has made it worse, and it’s an obstacle to long-term recovery.

Small and medium-size companies, especially new ones, are disproportionately the source of job creation in any economy, and they have been especially hard-hit. What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending.

But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.

That we should tolerate such a confusion of ends and means says something deeply disturbing about where our economy and our society have been heading. Americans in general are coming to understand what has happened. Protesters around the country, galvanized by the Occupy Wall Street movement, already know.