Sunday, March 15, 2015

Labor Strategy for the Coming Period

This post begins with an article in Socialist Action by Carl Sack, entitled 'Right to Work' Battle in Wisconsin. The scare quotes imply that "right to work" is anything but. Indeed, Mr. Sack claims that "Median wages for workers in states with Right-To-Work laws are almost $6000 a year lower than in states without them."

Of course that's the wrong metric. The true measure of government policy is the relative size of the total payroll--not the pay per worker. Even if the median salary is lower, but many more people are employed growing the total payroll, then both workers and society are better off.

The article (well-written and informative) reports on Wisconsin becoming the 25th state to pass a right-to-work (rtw) law. That means that workers in that state may join a union if they wish, but are not forced to do so if they don't wish. It is a right to disassociate. The so-called "battle" was a bit of a dud. There were a few demonstrations around the state, but the law passed with surprisingly little controversy.

The big brouhaha occurred in 2011 when the newly elected Republican governor and legislature defanged the public employee unions, essentially imposing rtw-light on them. Accordingly, as Mr. Sack reports, this "...has decimated the membership of the state’s public worker unions and the wages and benefits of public workers here."

So that begs the question. If unions are so valuable to workers, why don't they flock to join even without the legal obligation? The reason is pretty obvious--unions are no longer able to deliver benefits to their members commensurate with the union dues. Thus most workers simply choose to stop paying dues. I'm forced to pay dues to the professors' union, even though I don't think I derive any benefit from it.

Mr. Sack suggests that the public employees back in 2011, and private sector unions today, should have called for a general strike rather than fight the changes through the political process. Of course that wouldn't work. Public employees are not popular people these days. (Scott Walker has won three elections in four years, all by substantial margins.) Going on strike would simply have meant they'd all be fired.

The college professors wouldn't even be missed if they went on strike.

An article in North Star (whose new page design is vastly improved) by Ben Smiff is entitled In Search of Workers' Power. This engaging piece is about "deindustrialization," and attempts an analysis about how the labor movement should respond to the phenomenon.

Deindustrialization has two parts: 1) an increasing percentage of labor is working in so-called service industries, and 2) manufacturing has moved to rural places in the Southeast, far from any union influence.

Mr. Smiff recounts the efforts of workers in Minneapolis sandwich chain called Jimmy John's to organize a union. They eventually failed--by narrowly losing an NLRB vote. Why--if a union were such a slam-dunk good thing--would the election even be close? Because there is no money in fast food. The union would never be able to keep its promises. The only "benefit" accruing to the employees is the right to pay union dues.

Mr. Smiff notes that manufacturing remains a major part of the American economy, still employing 9% of the labor force. {Emphasis mine}
What’s more, as Kim Moody and Charlie Post point out in a recent article in Socialist Register 2015, despite overall losses in manufacturing jobs over the past several decades, as it stands today, “the United States produces more goods… than ever”:  ... 
The reason for this, Moody and Post note, relates to “enormous productivity increases since the early 1980s[…].” This stems from unceasing speed-ups imposed upon workers through the introduction of new machinery and, most significantly, through the social reorganization of production along more-efficient lines – so-called “lean production” techniques. {Emphasis mine}
Speed-ups is surely the wrong word. Automation, globalization, and above all, logistics, are more accurate descriptors. Manufacturers are able to deliver more products of higher quality to more people at ever cheaper prices. Only a Marxist can complain about that.

Mr. Smiff does us a good turn by citing an important article by Jasper Bernes entitled Logistics, Counterlogistics, and the Communist Prospect. Mr. Bernes is among the few Marxists who actually takes deindustrialization seriously.
Today’s supply chains are distinguished not just by their planetary extension and incredible speed but by their direct integration of manufacture and retail, their harmonisation of the rhythms of production and consumption. Since the 1980s, business writers have touted the value of “lean” and “flexible” production models, in which suppliers maintain the capacity to expand and contract production, as well as change the types of commodities produced, by relying on a network of subcontractors, temporary workers, and mutable organisational structures, adaptations that require precise control over the flow of goods and information between units.
Mr. Bernes describes accurately the dense connectivity of the modern economy, which he labels logistics. In such an environment it is almost impossible to go on strike. There exists another plant somewhere on the planet that can replace your output almost instantaneously.

Yet, as Mr. Bernes mentions, there are still a few choke points where labor holds the edge. One of these is the huge container ports, through which almost all freight must flow. He (writing in Sept., 2013) cites the Occupy blockade of the Port of Oakland. An even better example is the recently concluded work slowdown at the Port of Los Angeles. There a small group of longshoremen held a knife to the throat of the entire economy, extorting for themselves yet another large salary increase. They can get away with that as long as they don't overplay their hand. (It seems to me they've been very skillful.) For if they raise costs too high, then public pressure will eventually force their ouster, or somehow the Port of Los Angeles will be bypassed.

Mr. Bernes makes two claims--one which I think is factually wrong, and the second which makes me angry.

The first is that the new logistics is centralizing. He implies that it only works for big companies, such as Walmart. While it is true that Sam Walton was a leader in establishing the new logistics, it is not true that only Walmart-sized firms benefit from the technology. Indeed, even Ma & Pa shops use container shipping. Every product is assigned an SKU (store keeping unit), represented by the little barcode on the box. There are on the order of trillions of SKU numbers. Amazon (as best I can determine from the web) stocks 125 million SKUs. Walmart only carries around 300,000 SKUs. So of all the millions and (maybe) billions of different products out there, Walmart only sells a tiny fraction.

Most of the rest are sold by small firms. Amazon is less and less a store, and more a platform for third party vendors. My immigrant wife's employers sell products from the old country via Amazon, imported by container ship. And theirs is a small business indeed. So Mr. Bernes is wrong about how logistics favors big firms.

His second claim is even worse. He writes,
Much of the machinery of contemporary logistics aims to streamline the circulation of commodities and not use-values, to produce not the things that are necessary or beneficial but those that are profitable: individually packaged boxes of cereal, for instance, whose complex insignia distinguish them from the dozens of varieties of nearly identical cereals (sold and consumed in sizes and types that reflect certain social arrangements, such as the nuclear family).
So there it is--Marxism's dedication to poverty is laid bare. You want Cheerios for breakfast? Why you petty bourgeois scumbag! How dare you decide you want to eat something that has no use-value! After all, Jasper Bernes knows much better than you do what you should eat for breakfast. After all, he teaches poetry at UC Berkeley. He is much, much smarter than you are.

North Korea, Cuba and Venezuela are not poor because of some evil, imperialist plot. No--they are poor by design. Communism can't deal with too many SKUs. Everything has to be filtered through poetry professors. You little shits just need to get with the program.

Or face the firing squad.

Further Reading:

Tuesday, March 10, 2015

Walmart's Wages

Perhaps it's not surprising that The Militant is the only Trotskyist paper I follow that bothered to cover the news about Walmart raising it's wages. An article by Glova Scott states the facts clearly in her lede.
The Feb. 19 announcement that Walmart will increase starting wages to $9 an hour in April and for current “associates” to $10 next February puts wind in the sails of all of us fighting for better pay, a 40-hour workweek, union representation and dignity.
The Militant has long done a superb job of covering labor market issues, for which I commend them. I'm not sure that makes them more "revolutionary" (whatever that means), but it does make the paper more interesting for me to read.

Ms. Scott's explanation for Walmart's new found generosity is predictable. She credits the "...years of protests, including recent actions by OUR Walmart, backed by the United Food and Commercial Workers union." Wages are set from the bottom up, she maintains, and through struggle Walmart workers have done us all a favor by forcing more pennies from their employer.

I find this story unlikely. Very few OUR Walmart participants work at Walmart, and likely they're not even Walmart customers. Why Walmart should raise wages by a billion dollars on their account defeats reason. OUR Walmart is an irrelevant nuisance.

Some argue (not Ms. Scott) that Walmart is anticipating raises in the minimum wage, preempting the event. This might be more of a factor, but Walmart's core business is in low-wage states away from the coasts. So this does not look to be an important criterion--though surely more significant than OUR Walmart. (h/t Megan McArdle)

The CNBC crowd has yet another explanation, namely the imminent return of inflation. Their theory is that labor markets are becoming increasingly competitive, and therefore wages are being bid up. When this happens the Fed will inevitably raise interest rates to prevent a price spiral. And we should all quiver in our boots. Ms. Scott mentions this theory in passing, mostly as a reason why OUR Walmart's campaign was now successful.

I find the CNBC theory implausible. Labor market participation is still very low, and a relatively large number of workers are employed only part time. There remains a lot of slack in the labor market writ large, though for skilled workers it is much tighter than it used to be. Still, I don't think inflation is anywhere on the horizon. Everything from a glut of oil, to the rise of the dollar, to slowing economies elsewhere in the world argues against it. I see no evidence of wages generally being bid up anytime soon.

I actually think Megan McArdle has hit on the truth. She summarizes her case nicely in her closing paragraph.
I’ve written before that a company’s labor model is its business model, and Wal-Mart is no exception. If Wal-Mart is making a radical shift in one, it’s likely that you can expect at least a modest change in the other.
That is, Walmart doesn't need more employees, but rather different employees. It wants skilled workers who are willing to commit to the company for the long term. Walmart is by far the largest grocery store chain in the country. As Ms. McArdle points out, you can't run a produce or meat department with casual labor. When we used to live in Indiana we bought most of our groceries at Walmart. But since moving to New York we've found Walmart completely unsatisfactory. Shoddy merchandise, empty shelves, and terrible service made shopping in the store unpleasant. I haven't been in the store for several years now.

Walmart caught a lot of flak for its poor performance, and it's earnings have stagnated accordingly. You can't fix this without the right kind of workforce. The wage hike is the start of a new business model.

There are other clues. Fortune reports that Walmart is building a career path for its employees.
The company is also piloting a training program to help employees move out of entry-level positions and potentially make $15 an hour and more with increased responsibilities.
I'll take issue with one statement from Ms. McArdle. She says
Wal-Mart’s business model is, as my old entrepreneurship professor used to say, “Big Stores in Small Towns.” Its core value proposition is, as the slogan goes, “everyday low prices.” Its core demographic is the lower middle class. For a long time, this was a recipe for rapid growth. But the heartland is pretty much full of Wal-Marts, the lower middle class is struggling harder and spending less, and there’s more competition on the “low price” front than there used to be.
I'm not sure the lower middle class is struggling as much she says. Contrary to popular opinion, everybody in this country is getting richer. While incomes for lower middle class households might be decreasing, it's only because there are fewer people per household. Fewer people means money goes around further, and even those shoppers have more discretionary income. Walmart has competition from Target and TJMaxx. Accordingly, it has to move upscale.

Upgrading its workforce means that some current Walmart employees just won't cut it. Indeed, it is likely that they'll be hiring fewer employees overall. The folks most likely to be let go are those with the lowest skills. They may be forced out of the labor market.

John Tamny grapples with this problem in a recent piece.
About those choices, it once again needs stressing that the employment possibilities today aren't the same as they were in the mid ‘80s, late ‘90s, or as recently as 2003. Work opportunities have surely shrunk since then, and were particularly dire back in 2008-2009. There's no flippancy here despite a more unconventional attempt to explain unemployment. The main reason the latter remains high is due to government barriers to growth that have reduced the number of quality of jobs on offer.
I don't think he appreciates the difficulty. The redundant Walmart workers will join my neighbor's son, a man in his early 30s who has never had a job. He clearly has a below average IQ (though not retarded). I don't think he's ever been in serious trouble with the law. Obviously he made bad decisions back when he was 18 or 19 (drugs). You can blame him for that if you want, not that it helps any now.

How is he ever going to be employed? He'd need $2/hour just to cover the expense of working (gas, clothes, laundry, lunch). There's no way his labor is worth that much. So all he does is live off his mother's social security check.

There are lots and lots of former Walmart workers who are going to join him. So I think Mr. Tamny underestimates the barriers to full employment. Short of massive government subsidies these people will never find jobs.

The welfare state, far from shrinking, is likely going to grow. I see no way around that.

Further Reading:

Wednesday, February 25, 2015

Money and Gold

An article by John Tamny gives me an opportunity to opine on some topics I've been thinking a lot about. Mr. Tamny expresses an opinion common on the libertarian Right, also held by people like Steve Forbes and Rand Paul. These are people I respect because they get the biggest of the big issues right, namely that economic freedom is the most effective way of reducing poverty and improving living standards. So I'm distressed to have to disagree with them.

The problem is that they are looking for utopian simplicity. Thus they take a grain of truth and exaggerate it into absolute certitude. In extreme forms this leads to completely stupid policy suggestions such as going on the gold standard or abolishing the Fed.

For example, Mr. Tamny makes a claim that is simply not true. He argues that money is money is money, and that the euro is just as good (or bad) a currency as the mark or the franc or the drachma. Greece's problems were not caused by the euro, nor would they be solved by leaving the euro. Indeed, Greece leaving the euro is just as unreasonable as Mississippi leaving the dollar, even though it's vastly poorer than New York or California.

He writes:
In truth, money is solely a measure. I have bread, I want your wine, but you don’t want my bread. Money makes a transaction possible between a baker and vintner with differing wants simply because it’s historically been viewed as a stable “ticket” that allows producers of actual wealth to measure what they produce on the way to trade. Money facilitates exchange, and that’s why a common dollar has long made so much sense. That’s why the euro still makes sense.
He uses an analogy from physics. Whether one measures the distance from Chicago to Milwaukee as 90 miles or 150 kilometers, it's still the same distance. The same is true of money: drachmas, dollars, or euros--there is no real difference.

Of course Mr. Tamny is right on some level. Printing up bits of colored paper does not produce wealth. Devaluing a currency changes no comparative advantage between countries. But he's also wrong. While good money creates no wealth, bad money can certainly destroy it. A country that lacks liquidity or secure banks will be neither productive nor wealthy. And that's the difference between Greece and Mississippi. The latter has good money, while the former doesn't.

Let's count the advantages of Mississippi. Many payments are made independently of Mississippi's wealth. Social security recipients receive the same benefits in Ole Miss as they do in the Big Apple. Military pay is the same, as are payments for civil service and postal employees. Thus a significant fraction of Mississippi's income does not depend on current economic circumstances. By using the dollar they are essentially insured against temporary misfortune.

Greece has none of those benefits.

People in Mississippi can move to New York and vice versa. We both speak the same language, share much of the same culture, drive the same cars, and eat the same food. I could move to Mississippi and within a couple months establish residency, obtain a driver's license, register to vote, join a church, and find a job. In a word, in the dollar zone the labor market is very liquid.

Nominally, Greeks have many of the same rights in Germany, but in practice they don't. Very few Greeks speak German, and even fewer Germans speak Greek. Political institutions are completely different in the two countries. Apart from the exceptional few, Greeks working in Germany can't aspire to anything more than the most menial, low-paid job. And Germans have almost no reason ever to move to Greece. By comparison with the dollar zone, labor markets in the EU are massively inefficient.

Even worse, land title, property rights, investment opportunities, taxes, and almost everything about money do not mean the same thing in Greece as they do in Germany. It's likely not possible to accurately translate the word collateral from one language to the other. That means banking customs have to be different between the countries. A German bank working under German rules will not be successful in Greece, and vice versa. They can't do business the same way.

In order to have a functioning banking system there has to be a lender of last resort. Walter Bagehot describes that necessity precisely in his famous 1873 book entitled Lombard Street. Then the (privately owned) banking department of the Bank of England served that role. In New York and Mississippi it is the Federal Reserve Bank system that does the dirty. Without that guarantee of liquidity all banks in any country will inevitably collapse, credit will disappear, and the economy will shrink.

Mississippi has access to liquidity from the Fed. Deposit insurance applies there as much as it does in New York. Greece, on the other hand, has no guarantee of liquidity unless it follows banking rules set by Germany. Accordingly, Greek banks will eventually fail and everybody knows that. You can't have a growing economy without stable credit markets.

Greece will eventually have to repatriate its banking system. That is, it will have to establish an institution similar to the Fed or the ECB that operates under rules consistent with Greek labor and financial customs. In a word, it needs a drachma. The drachma will not cause economic growth--on this Mr. Tamny is correct--but it is an essential prerequisite before economic growth can occur.

(Mr. Tamny discusses smaller countries that peg their currencies to the dollar or the euro. That works as long as those governments possess sufficient foreign reserves to be a credible lender of last resort. Failing that, the peg will eventually fail. See, e.g., the Argentine peso - dollar peg in effect from 1991 to 2002.)

So it is not true to say that money makes no difference. It makes a huge difference.

Another common simple fix to all our economic woes is to re-institute the gold standard. Mr. Tamny only hints at this in this article, but I'd like to take the topic full on.

Unlike what Mr. Tamny claims, money is not a fixed measure of value in the way a mile is a fixed measure of distance. Money is instead a social convention. You can spend dollars because I'm willing to accept them. That's all there is to it. The value of money is determined by social convention, otherwise known as expectations. I expect a dollar to buy me a donut tomorrow morning. If tomorrow the price of a donut went up to $5, and then the following morning down to thirteen cents, then my faith in the dollar would waver. I'd look for another way to settle my debts.

Inflation is caused when people expect their dollars to buy less tomorrow than they buy today. So they will spend their dollars today. Inflation is not caused by the Fed, or by Congress, or by the price of gold.

Deflation is caused when people expect their dollars to buy more tomorrow than they buy today. So they will stash their dollars and spend them tomorrow. Deflation is not caused by the Fed, or by Congress, or by the price of gold.

Inflation and deflation are caused by changes in expectations. Now in extreme cases--e.g., helicopter drops of massive amounts of currency--the Fed can change expectations. And the Fed certainly tries to change expectations. Mr. Tamny undoubtedly recalls the famous words that Janet Yellen uttered on July 15th of last year. Did she say something about "patience" and "data-driven analysis?" Or was it the other way around? Every speech ever made by Ms. Yellen (or Mr. Bernanke before her) sounds exactly the same. Some days the market moves up. Other days the market moves down.

The Fed is irrelevant. Nothing they do matters at the margin. (Nothing, that is, except their role as the lender of last resort.) All these people who hyperventilate about how the Fed is doing it wrong (or right), or who care about what magic words the Chairman will utter next week or next month, are wasting their time and breath. The Fed has nearly zero control  over inflation, velocity, exchange rates, money supply, interest rates, or anything else.

So now the gold bugs want to have the Fed regulate the price of gold. The largest consumers of gold are jewelry buyers in India. How regulating the jewelry business in India is going to help the US economy is a big mystery to me. But it gets worse. Any regulatory agency is eventually captured by the industry it is trying to regulate. So the Fed (which has no other important function except to serve as the lender of last resort) will eventually kowtow to the needs of Canadian miners and Indian jewelers.

In Mr. Bagehot's day gold was used to reconcile debts between countries. So if an Englishman owed money to a Frenchman, the debt would be settled in the common currency--gold. That led to all sorts of opportunities for arbitrage and fraud, as the book describes.

Today it's much more efficient. We have a foreign exchange market that trades more than $5 trillion dollars every day. It's the biggest, most liquid, most efficient market on earth. But the gold bugs don't like it--they want to force all trades to go through gold first. Why?

Compare that amount with what the people who fret over the feckless Fed are worried about. At the height of quantitative easing, the Fed was pushing less than $3 billion per day into the economy. Our Fed fretters predicted imminent inflation and forecast a rise in the gold price to over $2000/oz. But it's less than 0.1% of the daily currency trade. It's a gnat on the back of an elephant. QE had absolutely zero impact on inflation in the US. It was a complete non-event.

Further Reading:

Saturday, February 14, 2015

Working on the Railroad

This post is inspired by Guy Miller's reminiscence reprinted (from Counterpunch) in Socialist Viewpoint, entitled Blood on the Tracks. The title is misleading. Despite Mr. Miller's efforts to be angry at capitalists like Warren Buffett, I sense more an overwhelming pride in his profession. This fellow loves the railroads and all they stand for.

I knew Mr. Miller--more an acquaintance than a friend--back in the days when the Chicago branch was at 180 N. Wacker. I vaguely recall a conversation I had with him after he first got a job with the Chicago & Northwestern. I was one of those College Boys who didn't know too much about real work, so he and I didn't have much in common. But I was genuinely curious what railroad guys did all day.

I confess that I underestimated him. I thought his getting a union job was just a political ruse and that eventually he'd get tired of it and go back to college like the rest of us. So I'm pleased to read that he retired 37 years later from the Union Pacific. That actually squares with my impression of him back then. Mr. Miller was a man you could trust.

You don't work for the railroad for 37 years unless you're trustworthy, reliable, and sober. The best thing the Socialist Workers Party (SWP) ever did for me was the drug discipline--its absolute prohibition on using any illegal drugs. No doubt that was true for Mr. Miller as well. Even today, a primary criterion for employment at the Union Pacific is that you be drug-free. How many children of the 60s could meet that standard?

Railroading is not like working in a factory. It's a skilled job that requires close attention. There is little room for error (as the accident at Lac-Megantic, Quebec, illustrates, where 42 people died). Mr. Miller describes it nicely.
You’re given a stack of track bulletins, each one with specific, complicated instructions. Each one of these bulletins can be a question of life and death. In the course of your run you are constantly interacting with dispatchers, train masters, yardmasters, track foremen, control operators, other trains and emergency personnel. Many of these radio conversations require exact wording, and a long ritualized formula: “Engineer on UP7215 East calling foreman Brown in charge of track bulletin 624 issued on September 24, between mile post 281.6 to mile post 285.7, over.” And so on back and forth the exchanges go over and over, with every word repeated exactly.
It's like being an airline pilot.

Or at least it was like being an airline pilot. For as in that profession much of the work is being computerized and automated. Voice radio communication is what we, today, would call low bandwidth. Much more efficient is the high speed, digital communication from computer to computer. Both the track bulletins and the operator's response can be computerized, and you can take humans out of the equation. Just as the military flies drones all over the world piloted from a bunker outside Las Vegas, so the Union Pacific could drive trains from a control room in Omaha.

Mr. Miller recounts how train crews have gradually been shrinking over the years. Firemen got off in the 1960s. Apprentice engineers disappeared with the shift from steam to diesel. Brakemen and helpers left the tracks with the caboose. Today trains are run by two-man crews: an engineer and a conductor.

Recently the union signed a tentative agreement with BNSF to move to one-man crews--just an engineer. The conductor would work from an office off the train. The company added all kinds of bennies to sweeten the pot, buying off the union negotiators. But, as Mr. Miller reports, it wasn't good enough. The union rank & file voted down the deal, so BNSF is stuck with the two-man crews for the moment.

But only for the moment. Automating trains is a compelling project. Most accidents are caused by human error, so taking humans out of the loop will surely improve safety. No longer will one need to worry about misunderstanding static-filled radio lingo, fatigue, or lack of complete information. A computer can track sensors on every wheel every second--no human could do that. Engineers will stay on board for a few more years as a sentimental relic, but soon they, too, will be gone.

Factory jobs are increasingly done by robots. Over-the-road truck drivers will be displaced within a decade. Airline pilots have ever less and less to do (though they're furthest from redundancy). That railroads should be exempt is impossible.

And now the rot spreads into the white collar workforce as well. Us College Boys can't sleep well anymore, either. Computers have eliminated my dad's old profession--travel agent. Human lawyers are increasingly unemployed because of computers. IBM is working hard to displace the doctor. And we professors are finding our jobs increasingly automated.

So Mr. Miller, retired, speaks fondly about the job he did in the past. And his pride is well-placed. He is an honorable man who did an honorable job. And judging from his article he must have done it very well. But the times they are a changing, and the job that Mr. Miller did doesn't need to be done anymore. That's sad, but that's the way it is.

Further Reading:

Tuesday, February 3, 2015

The SWP Defends Civilization

The following official statement of the Socialist Workers Party (SWP) campaign for DC city council appeared in the February 9th issue of The Militant.
The Socialist Workers Party opposes Jew-hatred and joins in fighting it whenever it raises its head. We support the right of return for all Jews to move to Israel if they choose. And we demand Washington open its doors to all who seek refuge here.

The conspiracy theorists among us will proclaim an evil plot by Jack Barnes to betray the principles of not just Trotskyism, but Marxism as well. They will say that the Party is moving to the Right.

I have no clue about how the Party reaches decisions these days, and maybe this is an edict from Mr. Barnes himself. But why? Why would the Socialist Workers Party--long a champion of the Palestinian cause--all of a sudden come out in support of the Jewish right of return?

Did they just lose their marbles? Is Mr. Barnes a secret Republican? Does Mr. Barnes have such hypnotic sway that he can make 180 degree turns with no objections from the rank and file? Is Glova Scott (the African-American woman charged with issuing the campaign statement) a mentally-ill, unthinking person trained to spout off whatever words Mr. Barnes puts into her mouth?

No, no, no, and no.

The statement is a break from the past, but as we shall see, perhaps not a very big one. It is entirely consistent with the history of the SWP.

The Party has never been antisemitic. It wasn't when I was a member. It has not been antisemitic since I started writing about them on this blog (or its predecessors). It isn't now. The Party has always tried to be pro-Palestinian and anti-Zionist, without being antisemitic.

It's a pretty narrow needle to thread. When I was a member we called for a democratic secular state in Palestine in which the rights of both Palestinians and Jews would be respected. That was a completely impractical demand, but I can attest to our sincerity. I believed it myself, and I have no reason to think my comrades thought differently. It was not a fig leaf for antisemitism.

So it is possible (at least with some mental gymnastics) to be anti-Zionist without hating Jews. What is impossible is to support Hamas. Hamas is intrinsically an antisemitic organization. Any group which supports Hamas is, to the extent they understand what they're talking about, antisemitic.

The SWP has not supported Hamas for many years, as this blog has documented, most recently here. Few other groups on the Left have such a record. Apart from the SWP, all of the grouplets and blogs I follow support Hamas--and I will accuse them of antisemitism.

The grouplets defend themselves in silly ways. Louis Proyect, for example, simply claims that antisemitism doesn't exist. Even funnier is Socialist Action's (SA) efforts to condemn tiny, non-examples of antisemitism while ignoring the elephant in the room.

In a recent article about Greece, SA expresses displeasure with Syriza's new coalition partner, a conservative group known as ANEL. "It has close ties with the Greek Orthodox Church, is pro-NATO, and homophobic; and its leader Kammenos has made anti-Semitic comments—accusing Greek Jews of paying less in taxes than Orthodox Greeks." Criticizing Jews, or public policy directed toward Jews, is not evidence of antisemitism. If Jews are receiving government bennies then it is fair politics to put that on the table, just as it is possible to criticize affirmative action in this country without being racist. It is hypocritical of SA to point out the mote in ANEL's eye without apologizing for their enthusiastic support for Hamas. ANEL criticizes a social benefit; Hamas advocates mass murder. SA can't tell the difference.

The SWP does understand that difference. So now let's get to the Party's novel, seemingly pro-Zionist position. While that is a change, it's not a very big one and is entirely consistent with their Trotskyist heritage.

Like all other Western political thought, Marxism grew out of the Enlightenment. It is based on a shared meaning of justice and freedom. In order for Marxism to have some slight chance of success, Enlightenment values have to prevail. Socialism--hard enough as it is--simply can't work in a pre-modern, tribal society, obsessed with a nihilistic, murderous world view. That's why Marx always held that the first socialist countries would be advanced, European ones, such as England or Germany. The Party's line has always been that the success of Stalinism was due to Russia's backwards economy and political culture.

If the odds in Russia were long, then surely they're piss-poor in any kind of Hamas-dominated country. You can't have wannabe mass murderers running the place and expect socialism to survive. In order for socialism to have a chance, civilization must be present at some level.

The only civilized country in the Middle East is Israel--by civilized, I mean a country that holds some variant of Enlightenment values. Therefore, if socialism is to have a chance, it has to go through Israel first. Accordingly, the path to socialism is not the abolition of Israel, but rather the building of a socialist revolution within Israel. So The Militant is now covering workers' movements in Israel, such as this strike by kosher chicken butchers (scroll down).

Of course as a matter of practical, revolutionary politics, this is no more realistic than empty demands for a democratic, secular Palestine. Socialism won't happen in Israel nor anyplace else. But at least it has some big principles right. The Party's new position can distinguish between mass murderers and revolutionaries. That's a big improvement over most of the American (or world) Left, who have fallen hook, line and sinker for Hamas' antisemitism.

The Socialist Workers Party--whatever the status of its internal discourse or the mental health of its members--is part of the civilized world. We can have a conversation with them. They don't support mass murder in the Middle East.

Further Reading:

Saturday, January 24, 2015

Election Eve: Greece

We'll let Tariq Ali (a long time British Leftist who at least orbits Trotskism) be our guide to tomorrow's Greek elections. An interview with him appears in Counterpunch.

Let's stipulate that Syriza, the radical Leftist party headed by Alex Tsipras, will probably win the election. That's not in too much doubt. The interesting question is what happens after that. Mr. Ali's lede indicates.
If SYRIZA wins it will mark the beginnings of a fightback against austerity and neo-liberalism in Europe. Two concurrent processes will be in motion from the beginning of the victory. There will be a strong attempt by the EU elite led by Germany to try and tame SYRIZA via a combination of threats and concessions. The aim of this operation is simple. To try and split SYRIZA at a very early stage.
Let's leave aside the term neo-liberalism for the moment--that ill-defined boogeyman. Mr. Ali predicts that the EU (specifically Germany) cares enough about Greece to engage in ornate political machinations, eventually reaching some compromise accord with the new Syriza government.

I don't think that's likely. I think Germany wants to expel Greece from the Eurozone. They have no interest in any compromise.

In 2010 Greece signed an agreement with the EU, the IMF, and the ECB (the Troika) in exchange for a bailout. This prevented a default on Greek debts. In return, Greece agreed to austerity measures, including structural reforms and privatization of government assets. Austerity has been especially difficult.

Greece hugely over-regulates large swathes of its economy, as this article about drug stores indicates. One needs a government license to sell products such as Tylenol or Advil. Thus Greece is plagued with an overpaid, inefficient workforce, along with under-served, needlessly poor consumers. Regulations prevent people from buying products they want and need, much as the taxi medallion system prevents consumers from procuring taxi services conveniently and cheaply.

Syriza represents the protected workers, who despite their inefficiency nevertheless feel entitled. This is the conservative movement in Greece, doing everything possible to maintain the status quo. They want to stay in the Eurozone, because their standard of living depends on cheap credit from Germany. But they don't like structural change, because that will open up the market to the benefit of consumers.

Accordingly, Syriza wants to ditch "austerity," and replace it with a free lunch, i.e., more cheap loans from abroad. It won't work. The Germans won't lend the money. Further, I think Germany believes they can expel Greece relatively painlessly now, i.e., it won't result in a Euro-wide financial crisis.

So contrary to Mr. Ali's prediction of a tense negotiation, I predict an early Grexit. The Troika will yield only on the most superficial, cosmetic points. Syriza can't give that much away--they campaigned on their ability to renegotiate. But they won't be able to deliver. So unless Syriza completely caves, Greece will default on its debt.

Default means that the ECB will cut off the Greek banks. Euros within Greece will flee the country as fast as they can. The Greeks will be forced to print up Drachmas in order to pay their employees. Greeks, who don't yet know the meaning of poverty, will soon find out.

Neo-liberalism is a dysphemism for efficiency and globalization. Contrary to what Mr. Ali maintains, efficiency benefits consumers first and foremost. Walmart, for example, assures always low prices because of the efficiency of their supply chain. Globalization gives consumers more choices in what to buy. They can purchase the best possible product and the cheapest possible price from anywhere in the world.

So neo-liberalism, properly understood, is good for human beings. It has pulled 400,000,000 Chinese out of poverty. But I take Mr. Ali's point--it's bad for the workers in highly protected, over-regulated, uncompetitive industries. Those, unfortunately, are Syriza's constituents.

Countries that have rejected neo-liberalism are either poor, very poor, or total basket cases. Argentina is perhaps the best off of the bunch. Because of an earlier default, they haven't been able to access foreign capital markets for a couple of decades now. But they're still able to buy products on the global market.

Venezuela, while not yet in default, has destroyed its own economy. Its trade with the rest of the world is in terminal decline. The oil industry lies in ruins because of stunningly bad management and lack of foreign investment. Shoppers Beggars now wait in line for things like milk and toilet paper.

Cuba has long since renounced trade. Recent TV clips filmed on Havana's seaside boulevard show as much--the dilapidated buildings, the ancient cars, the small-town traffic, etc. Like Venezuela, even common consumer goods are tightly rationed. Nobody is allowed to buy anything. This is the socialism of poverty.

We need not speak of North Korea, the current socialist utopia.

There is much in Mr. Ali's article that I agree with. He says,
[The European Union is] in a very bad state. It subordinated politics to economics and was undemocratic from the very beginning. Blaming ‘lazy Southerners’ for the crisis is grotesque. Its not just the Left which argues this (in fact the Left has been with some exception very weak on the EU), but hedge-fund kings like George Soros who recently said: “My worst fears are confirmed…This is what I was afraid of, that the Euro would be preserved. …pervert the venture, and destroy the European Union. Instead of the solidarity (the EU) was supposed to have embodied, it became every country for itself.” And Pope Francis in the Vatican, to the left of every EU govt today proclaimed that: “The great ideas that inspired Europe seem to have lost their attraction, only to be replaced by the bureaucratic technicalities of its institutions.” The single-formula approach on the currency union is dead in the waters of the Mediterrenean. An alternative needs to be developed. It would be better if this were done by common agreement, but that is unlikely so new radical governments might have to take unilateral decisions.
This is mostly correct. And the first step to dismantling the euro is a Grexit. A more graceful way will be found to facilitate a further breakup. The euro was always a very bad idea.

Just to be clear, this post predicts that:

  • Syriza will win tomorrow's election.
  • Greece will be out of the Eurozone before the end of 2015.
Tell me if I'm wrong.

Further Reading:

Monday, January 19, 2015

Are Swiss Bankers Stupid?

Are Swiss bankers stupid?

Yes, answer most commentators. Paul Krugman thinks their depegging the franc from the euro is simply inexplicable. Scott Sumner is similarly perplexed. He calls the act "panicky." Megan McArdle writes "[f]rom an economist’s perspective, this seems like the wrong decision, not just because of the chaos, but because, as Krugman notes, this is going to be hell on the exporters." But she's more generous--they're not stupid. Instead they just made a politically-motivated mistake.

Only the New York Sun editorializes in favor of the gnomes. "Congratulations to the doughty Swiss, we say." But then they ruin their argument with gold-buggery, claiming the world should go onto the gold standard.

So I will rise--somewhat lamely--in defense of the Swiss. But the main purpose of this post is to explain precisely what happened, especially to those who don't follow the financial news as closely as I do.

The Swiss National Bank (SNB) is a private bank that serves as the country's equivalent to the Fed. It has a special deal with the government that enables it to act as a central bank. That is, it is the lender of last resort, guaranteed never to be illiquid, and accordingly it can print money. It's charged with a mission: "It is obliged by Constitution and statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments."

So last Thursday at 9:30 am the SNB did some very strange things. First, they reneged on a pledge they had made to peg the Swiss franc (CHF) to the euro (EUR). The promise had been reiterated even just days before, and that the bank would renounce it so precipitously took everybody by surprise.

The pledge consisted of this. The SNB guaranteed that the euro would never cost less than 1.20 francs. If the euro cost more than that the SNB would print francs (they can print as many as they want) and buy euros until the market priced them at CHF 1.20 or above. Because the euro has been weak, the SNB was printing goo-gobs of francs to maintain the peg. Accordingly, the SNB owned lots and lots of euros.

The Swiss actually had a good problem--they were trying to keep their currency from rising (identical to keeping the euro from falling). Any central bank can do that by simply printing more money. The opposite problem--the one now faced by Russia or Venezuela among others--is to keep their currencies from falling. Those countries have to sell foreign reserves to make that happen--which works until they run out of foreign exchange. Russia, for example, can't print euros or Swiss francs.

So there was, in fact, no intrinsic reason why the Swiss couldn't just keep printing francs indefinitely and maintain the peg forever. That's what they said they'd do. And they did that until they broke their promise.

What happened is that within minutes of the announcement the euro dropped from 1.20 francs to 1.05 francs, or about a 13% drop. (As of this writing, 1.01 francs buys a euro.) This in a market where fluctuations are typically in the 0.1% range or less, and it put a number of foreign exchange brokers out of business. Also hurt were Polish and Hungarian homeowners. Since the zloty and the forint are not regarded as stable currencies, home mortgages in those two countries were issued in Swiss francs, thought to be the gold standard. Those poor slobs now owe 20% more on their mortgages than they did last week.

So that's the first mystery--why did they break their promise? The second mystery is why they did it on Thursday morning at 9:30 am, in the middle of a trading day? Normally--according to the wise and the good--such announcements are made over a weekend, just after the close on Friday. This gives people a chance to adjust and plan, and so minimize losses. The Swiss didn't do that--instead they picked the most disruptive time possible--the morning of a busy trading day.

So it's been described as a "panicky mistake," the kind of thing you'd do if you're in a corner with only bad options. But that hardly describes Switzerland. The problem with the "panic theory" is there was no good reason for the SNB to panic. There are any number of things that could have solved their problem (if they had a problem) that wouldn't have been as disastrous. They could, for example, have moved the peg from 1.20 to 1.18--a small but meaningful change. That would have shocked the markets, but hardly been the "disaster" that happened.

Conventional wisdom has it that the cause of the SNB's decision was the imminent quantitative easing by the European Central Bank (ECB), the keepers of the euro. The ECB has promised that they were going to print euros in an attempt to induce inflation in the Eurozone. Inflation is needed because governments and people are hopelessly in debt. Inflation effectively lowers the interest rates on existing debt.

Of course printing euros will lower the value of the euro, which means the Swiss would have to print overtime to maintain the peg. The Swiss apparently decided they didn't want to do that. So now people are predicting that the euro will fall to parity with the dollar (as I predicted here, quite by accident).

But the ECB's quantitative easing, while imminent, does not spell crisis for the SNB. It has been announced for some months now--no surprise there--and likely had already been priced into the market. So I simply don't buy the panic theory. I think the Swiss acted with due diligence.

One reason people claim this was a mistake will be massive deflation in Switzerland. Any exports to the Eurozone are now 19% more expensive than before. This will kill exporters, such as the vaunted watch industry. And no doubt this is a problem. But as this Der Spiegel article (in German) indicates, the Swiss are already adjusting. There is a concerted move to lower wages across the board. Swiss in border areas (e.g., Basel or Geneva) can easily buy groceries in Germany or France at a considerable discount. So deflation will hurt them in the short term, but probably not the medium or long term. In a year they'll have adjusted.

Another reason for thinking it's an error is that the SNB will lose credibility. They said they'd keep the peg indefinitely, and then they broke their word--in the most dramatic way imaginable. But the incredible Swiss are crying all the way to the bank--their currency is now worth 19% more than before. Every Swiss citizen is now substantially richer than they were before.

So I think the SNB dropped the peg for good reasons. And here they are:

1) While deflation is bad for debtors, the Swiss are not in debt. Indeed, quite the opposite. They're global creditors. Deflation is good for creditors. So if any country can withstand a bout of deflation, Switzerland can.

2) The Swiss franc is not going to be a reserve currency. It's a tiny country with only eight million people. There is no way they can bail out the euro, which is what everybody was expecting. Far from being a mistake, breaking the peg was the right thing to do. It corrected the previous error of making the peg in the first place.

3) As a small country dedicated to free markets and free trade, the Swiss do not have much macroeconomic control over their economy. They can't regulate either inflation or unemployment. All they can do is set the value of their currency. By tying it to the euro they forfeited even that control. The SNB has credibly reclaimed what little power it once had.

4) Anybody who has savings in Swiss francs is now 19% richer than they were last week. Most Swiss bank savers are Swiss. So what's wrong with that?

5) By doing it suddenly and dramatically, the prevent anybody gaming the system to Swiss disadvantage. Also, all the bad news is out there. There are no more shoes to drop. Folks can get back to their business.

So I don't think the Swiss are stupid. But even smart people make mistakes. We'll know that by this time next year--if unemployment rises substantially then yeah. But I don't think that will happen. Switzerland has never been a low-cost country. Their products are not price sensitive. They'll be able to adjust.

Further Reading: