Friday, June 28, 2013

Cyprus and the Quest for Safe Havens

John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.

As the European financial crisis waxes and wanes, one hears a familiar refrain in the business press and on such business-boosting media as CNBC. When the risk of default in Greece or Spain appears imminent, US Treasury bonds increase in value and thereby decline in yield. The popularity of and extraordinarily low yields on such bonds are explained as manifestations of a "flight to safety."

Unfortunately the media seldom ask whether there is any safe haven any more and whether individuals managing their pension accounts can or should be asked to find the havens on their own. The latest twist in the saga of the European union's single currency, the Euro, is anything but reassuring on this score.

Is there any safer haven than money in an insured saving account or certificate of deposit? The decision by the government of Cyprus---albeit later amended---to tax, i.e. partially confiscate, even small deposits exposes one more finger of instability in the world financial structure. Ellen Brown, president of the Public Banking Institute, reminds us that: "Although few depositors realize it, legally the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs or promises to pay."

If we do not have an absolute title to the money we deposit in a bank, what happens if the bank experiences a run? In this context it is important to recognize that even prudent, well run banks---and there are many---can experience runs started by false rumors regarding the bank's solvency. The bank may face more demands for deposit redemption than it has in reserves and thus becomes bankrupt, one more ugly manifestation of the self-fulfilling prophecies that can grip social life.

In the process of the bank's efforts to survive it may call in loans and thus endanger the "real" goods and services economy. Thus one of the most important lessons of the 1930's was the need for not only a central bank that could loan money to banks facing temporary liquidity problems but also a well- financed bank insurance program and regular bank inspections by federal regulators. These could guarantee depositors their funds and thus eliminate any need for depositors to worry constantly about the solvency of their banks.

Even if there is no further fall out from Cyprus's hint that it might repudiate its obligations to depositors, the very suggestion that governments and banks might rob ordinary depositors may eventually roil world markets. Greek economist Yanis Varoufakis points out that this episode is one more indicator of the depth of the financial crisis and of how desperate elites have become to retain their power.

It is even more disturbing when we recognize that this incident was hardly an aberration. Brown points out: "Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone "troika" officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making..."

True, central banks in nations that control their own currencies, such as the US or the UK, can print and inflate their way out of such dilemmas, but inflation can damage not only wealthy creditors but also some middle class retirees whose major "safe" investment was in government bonds.

These concerns are music to the ears of the gold bugs, those guys on television urging us to buy gold as a hedge against the collapse of our "fiat money." Presumably we can stash our gold under the mattress rather than in a bank. (Brown warns safe deposit boxes at banks are already subject to search in the event of a national emergency, and a financial panic would surely be deemed one.) We can then use it to purchase necessities when all the banks are closed and depositors are denied their hard earned dollars. But now we must watch our homes like a hawk in the realization that our whole life's earnings may evaporate through theft or fire. All that is solid does melt into thin air. For me, politics and the world seem to have come full circle. During the Great Depression my father went through medical school on $4,000 in gold his grandfather had stuffed under a bed.

There is a deeper lesson here. There probably is no safe haven for the individual retiree or investor. Our safe money in a bank depends on the political decision by bank regulators and ultimately the Federal Reserve and/or the US Congress to adequately fund deposit insurance programs and more generally to issue sufficient funds for the government to pay off its debts. Republicans in Congress have threatened the latter with their absurd and dangerous debt limit blackmail. If the political stink about taxpayer bailout of banks ever became sufficient, banks and their servants might pick on ordinary depositors. As one extraordinarily honest investment banker put it in an e mail exchange with me, "The issue with currency is when the 'full faith' fails. The institution of money is only as sturdy as the institutions that have grown up around it. There is risk in any and all investment be it government securities, corporate bonds, or equities."

The best safe haven remains universal, government financed programs like Social Security. Hence the desperation of the financial community to argue against all logic and evidence that it is becoming insolvent. The existence of this universal, nation-wide program is a major reason the US has weathered the financial crisis far better than the Eurozone, whose nation states have widely disparate social insurance programs. Here in the US Social Security as well as unemployment compensation act as automatic stabilizers, keeping private consumer demand from total collapse.

When I get into a survivalist mode---and all of us must from time to time---I think it best to invest my surplus earnings in tangible energy savings like solar collectors, photovoltaics, insulation etc. Here the returns to the pocket book and environment are tangible and tax- free. But many are not fortunate enough to have the capital for such initial investments and the success of such investment strategies still depends on subsidy levels and the skill sets of others.

My father used to say that stocks and bonds were just paper the value of which could disappear at a moments notice. The only true wealth was one's education. Today stocks and bonds are if anything even more ephemeral, mere keyboard strokes. I would add that our wealth is not only education but also the collaborative relations we can frame today to sustain universal safety nets and a more ecological infrastructure. Retiring to our basement safes, our ethnic enclaves, even our green bungalows won't get that done.

How do we come together to form a collective safety net in this world of rapid population flows, pluralizing modes of dress, family arrangements, styles of music and art? Some hope to restore a notion of idealized communities held together by a set of "core values" that emerge through and are refined by democratic discourse. Paul Krugman appeals to a Rawlsian vision of the social norms we would arguably all choose if we had no foreknowledge of the genetic endowment and family wealth into which we would be born. Both perspectives have their strengths and weaknesses. Debates in which both sides acknowledge the elements of uncertainty in their own positions will need to play a large role in any successful struggle for an effective safety net.

My wish is for an even more genuinely ecumenical and open ended conversation that moves not only beyond the vision of stable market equilibriums but also the certainties of the Rawslian and communitarian moral perspectives. My suspicion is that these sides share more than either acknowledges and both need some fresh challenges.Rather than seeing ethical awareness as flowing from a fixed teleology or some absolute imperative some contemporary theorists, often mislabeled "postmodern" and characterized as nihilists, present an alternative but clearly affirmative ethical perspective. Thus Jane Bennett, author of Vibrant Matter, suggests: "the starting point of ethics [may be] less the acceptance of [the impossibility of full knowledge and control] and more the recognition of human participation in a shared, vital materiality... The ethical task at hand here is to cultivate the ability to discern nonhuman vitality, to become perpetually open to it." And William Connolly, author of A World of Becoming, sees ethics as "anchored first and foremost in presumptive care for the diversity of life and the fecundity of the earth. ...Our goal is to intensify or amplify a care for this world that already courses through us to some degree...One advantage of an ethic of cultivation in a world of becoming is that it can bring this care to bear on new and unexpected situations."

We need to act in minor and major ways to build a militant assemblage of minorities of multiple types who are dedicated to ecology and equality. My aspiration is to cultivate appreciation for a world of proliferating life style minorities. Such a world would emerge and be sustained by already evolving debates among various theistic and nontheistic ethics. This may seem to be a utopian dream, but it strikes me as a more humane and even more attainable "safe haven" than any offered by the market or the conventional moralists.

Thursday, June 20, 2013

Republicans ♥ Hobbes

Steven Johnston
Neal A. Maxwell Chair in Political Theory, Public Policy, and Public Service, University of Utah

In 1651 Thomas Hobbes published Leviathan, a controversial work arguing for the creation of a mortal god on earth answerable to no this-worldly power. Only the constitution of such a government could preempt the war, Hobbes’s fearsome state of nature, into which humankind would descend in its absence. Hobbes was not so much making an historical claim about the transition from a prepolitical condition to civil society as he was warning people already living in such a society about their future prospects should they fail to heed his political recommendations. Another way to put the matter: radical demands for untrammeled freedom, if taken seriously, would lead to civil war, each against all. Liberty left unchecked annihilates itself. Hobbes thus tried to shock and awe his readers by depicting an all too possible nightmare centered around the want of absolute government: “In such condition, there is no place for industry; because the fruit thereof is uncertain: and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving and removing such things as require much force; no Knowledge of the Face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.”

Remarkably, the contemporary Republican Party, aided and abetted at key moments by Barack Obama and the Democratic Party, has effectively embraced Hobbes’s state of nature as an ideal to be pursued rather than a calamity to be avoided. Republicans are hostile to the very idea of government as a collective and social good. For them government, by definition, imposes illegitimate limits on human conduct. It’s not just that they privilege the workings of a so-called free market, code for letting corporations and other major economic players do as they will in a game neatly rigged to their advantage regardless of consequences; it’s not just that they obstruct, at almost every possible turn and through any means available, the ability of the state to act even in the most rudimentary fashion on behalf of the sovereign people it supposedly represents; it’s that they seek a world in which the people, save for the entitled one percent who receive special treatment, have to fend for themselves and live subject to a host of forces, circumstances, events, and happenings well beyond their control, as if doing so is to live in keeping with the natural order of things. For Republicans this amounts to the good life, though it is not necessarily any kind of recognizable society.

The consequences of Republican depredations and Democratic collaboration are manifest everywhere. Domestically, the country continues to suffer from a self-induced depression, the capricious continuation of which serves Republican values and interests. The GOP refuses to consider stimulus measures that would put people back to work and erase deficits. The success of such measures would defeat Republican ambitions to shrink and eliminate government and redistribute wealth upwards, two projects of great passion. Austerity means destruction and death for countless people, but innumerable personal catastrophes cannot compete with the evil that is government and the joy animating its dissolution. For the GOP it is preferable to ruin and compromise the lives of tens of millions than to have government intervene to assist them. As if prizing a nasty and brutish existence weren’t enough, the GOP doesn’t mind if it’s short either. Thus tens of thousands of people die annually from gun violence, which includes children killing children, as Republicans, at least nationally, refuse to consider the possibility of gun regulation. This also requires that government not be allowed to fund research into the public health consequences of gun violence, what with the danger of potential remedial action. For Republicans ignorance is indeed bliss. The will to ignorance also informs the Florida legislature’s so-called Timely Justice Act, which curtails defense appeals and accelerates the imposition of the death penalty, not despite but precisely because Florida leads the country in both sentencing people to death and subsequently exonerating them. Here Republicans actually prefer to enhance the power of the state when it comes to making war on selected categories of citizens, blacks in particular. It also leads to the Republican-controlled House of Representatives voting to repeal the Patient Protection and Affordable Care Act thirty-seven  times, since it is preferable that people be deprived of insurance coverage and live shorter, less healthy lives rather than have government (further) involved in medical care. Ignorance (not to mention dishonesty and denial) also enables Republicans to dismiss climate change science and the mounting environmental costs to the planet from the civilization of productivity and consumption. It is the American way of life to master the forces of nature and bend them to our every purpose; it is the American right of nature to consume the earth’s resources as called for to sustain a comfortable, pleasurable mode of existence. Republicans affirm, with a kind of bitter glee, legislation and policies that foster American privilege, even if it kills us. And when it does kill us, Republican indifference to the diminution of the central missions of Library of Congress, including digitalization and preservation of the nation’s intellectual record, and corresponding preference for the arbitrary cuts mandated by sequestration, may finally make sense. Globally, the United States reserves to itself the right of nature, to take any action in the name of security, including the assassination of those formally recognized as citizens. Universal war-making can be accomplished through a military that can invade any territory at will or through an armada of drones ready to strike individuals anywhere the president points his trigger finger, recently announced restrictions notwithstanding. The infinite projection of power thrills it proponents.

The Republican Party is a political entity driven by myriad resentments. Though it worships power, it generally despises government, especially insofar as it signals the failures of neoliberal capitalism and worse, a collective project dedicated to equality and fairness. The GOP dreams of a world of boundless private accumulation, whether of wealth, guns, status, or control, which the state must protect but with which it must not interfere. It can’t imagine the self-destruction Hobbes posited insofar as it manages to romanticize life in “the natural condition of mankind” as if it were an epic Hollywood western in which the heroic loner prevails against all odds, insofar, that is, as it believes itself immune—for now, anyway—to the horrors it happily unleashes on others. Why Democrats seem increasingly ready to embrace such an understanding of the good is another matter altogether. Their active, willing, even enthusiastic complicity, however, cannot be in doubt, starting with Barack Obama.