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December 26, 2008

The Strangelovian New Class on the Job, Blocking All The Exits

Friedrich von Blowhard writes:

Dear Blowhards,

Yves Smith of Naked Capitalism writes a damning critique of a current NY Times article on the intimate connection between U.S. trade imbalances of the past decade and our current economic woes. While her entire piece is well worth reading, this is the kernel:

The article buys, hook, line and sinker, then- Fed-governor Ben Bernanke's depiction of so-called global imbalances (the US borrowing from abroad to fund overconsumption; Japan, China, Taiwan, and the Gulf States running significant, persistent trade surpluses and oversaving). Bernanke chose to position the problem as a "savings glut" which had the convenient effect of placing responsibility for the problem overseas, particularly on the Chinese, who kept the renminbi cheap via a hard peg to the dollar.

…As far as I am concerned, this was rationalization of a clearly unstable and unsustainable pattern. But rather than try to find a way out, or at least keep it from becoming more pronounced, Bernanke recommended doing nothing. And it was NOT a market phenomenon, but the result (on the surface, at least) of China pegging the RMB at an artificially low level. Did we explore the possibility of WTO sanctions for the currency manipulation as an illegal trade subsidy? Apparently the US was acutely aware of this as a possibility, and took great care not to give private parties any grounds for using the RMB as the basis for a WTO action. ….

So we knew we had the nuclear option in our hands, and there was no will to use it. One has to wonder if there were any threats made in private. My gut says no, given the history here….

And the New York Times buys…into the "gee, we really had no choice" party line…

She also goes on at length to quote the dissenting economist Thomas Palley who pointed out (in real time, prior to the collapse) that the “Great Moderation” on which Bernanke & company spent so much time congratulating themselves (1) was unsustainable, (2) had been taken our of the hide of the US manufacturing sector and (3) had resulted in stagnant wages for the bulk of American workers.

I, obviously, totally agree with Ms. Smith on the vast bulk of the substance of her piece. However, I would quibble with only one small point: she basically writes about this situation as a series of individual goofs or oversights made by the individuals involved: American economist-managers like Bernanke, our trade negotiators and the New York Times reporter of the piece, Mark Lander.

I think there is a painfully clear connection here.

Golly, what links Ben Bernanke, our trade negotiators and New York Times reporters?

Well, let’s see. The author of the story, Mark Landler, according to the NY Times website:

…began his career at The Times in 1987 as a copy boy and member of the Writing Program. He is a 1987 graduate of Georgetown University, and was a Reuter Fellow at Oxford in 1997.

Mr. Bernanke’s background? According to his White House website bio:

He received a B.A. in economics in 1975 from Harvard University (summa cum laude) and a Ph.D. in economics in 1979 from the Massachusetts Institute of Technology.

The current United States Trade Representative is Ambassador Susan Schwab, who according to her White House bio:

…holds a B.A. in Political Economy from Williams College, a Masters in Development Policy from Stanford University, and a Ph.D. in Public Administration and International Business from The George Washington University.

In short, all of these people – the journalist, the economist, and the government bureaucrat-lifer -- belong to the meritocratic elite, the best and the brightest, the people with SATs high enough to go to Georgetown, Harvard, MIT, Stanford, GWU. They are fully credentialed members of the New Class expertocracy. None of them has apparently ever held a non-New Class job or run their own business and depended on it for a living, and I doubt if any of members of their social circle have, either.

Is it really so surprising that they just don’t get the clear class bias inherent in our current trade, manufacturing and economic situation? Clearly, the 2-3 million jobs lost to our brilliant globalization policy (still clutched dearly to the chest of all right-thinking economists, and, of course The Economist) didn’t really matter…to the people who matter.

And, of course, criticism of this class is going to be pretty limited in a social order in which all of the authority and all of the media and, increasingly, all of the money are controlled by New Class members, popping up to block every exit like the multiple characters played by Peter Sellers in "Dr. Strangelove."

Hey, this is your world. I’m just an old fart who lives in it.

Cheers and Seasons Greetings,


P.S. Despite the fact that people laugh at me when I say it, it really is all connected.

posted by Friedrich at December 26, 2008


"P.S. Despite the fact that people laugh at me when I say it, it really is all connected."


You re only making like the master and imitating this following series....somewhat less proficiently and more ideologically.

Posted by: ramesh on December 26, 2008 10:36 AM

Did any even grow up in a family that was exposed to the market economy - e.g. being the children of small businessmen, for instance? I reckon that there are some people who are four or five generations from family exposure to the market.

Posted by: dearieme on December 26, 2008 11:05 AM

No wonder why Wall St. gets almost $1 Trillion by simply picking up the phone and Detroit gets well, almost nothing...Working class whites don't count for shit.

Posted by: Nobody on December 26, 2008 11:48 AM

FvB – It would seem that many who comment here, including some official Blowhards, would, based on your posting statements, be defined as members of the New Class. This, combined with the attitudes they express, leads me to question exactly how useful this designation is in understanding those most culpable for our current problems. Looking primarily at educational institutions attended and whether or not one becomes employed versus becoming an entrepreneur seems insufficient. This is NOT to say I argue with the idea that an elite class has taken root and has been influential in seeing that their interests are served, often at the expense of the majority of the populace.

dearieme – Depends on how narrowly you define "market economy." My father was a public school teacher. As a kid teachers did not get paid all year, only for the months they were actually in the classroom. Contracts were also annual so he didn't know until mid-summer whether he had a job in the fall. Summers were mostly spent living with my maternal grandparents and Dad took work in construction, a factory or on fishing boats. Mom periodically worked part time, mostly as a clerical worker. Once all of the kids were old enough, she worked full time.

Posted by: Chris White on December 26, 2008 2:20 PM


All societies are run by an elite. Invariably, that elite is generally self-serving. You have accurately determined that our society is no different ( despite what our civics classes told us).

But how can the situation can be improved? What elite should replace the "new class"? What would guarantee that this new elite would be an improvement?

Posted by: Devin Finbarr on December 26, 2008 2:36 PM

THANK YOU. Global imbalances, and the conscious decision to hand over our manufacturing sector to developing nations under the guise of "free trade", are absolutely at the heart of the financial crisis. Stuff like blacks or hispanics getting housing loans are froth on the surface of the deeper current. That current is the system which for at least fifteen years now has been pulling high-paying jobs out of the U.S., reselling the foreign-made goods back to our consumers who pay using debt or inflated assets, and then recycling their dollars back into our financial markets to make still more loans. The financial speculators who were middlemen or beneficiaries of this process -- ranging from Wall Street masters of the universe down to local real estate flippers -- made out fine, while the real economy was hollowed out.

And you're absolutely right that the ethic of not giving a damn about making real stuff comes from the Ivies on down. It's not just manufacturing workers like the automakers. When the financial sector did fund a real new industry -- software and computers in Silicon Valley in the 90s -- we sold out middle class computer programmers to outsourcing and H1-Bs too.

Posted by: MQ on December 26, 2008 3:06 PM

Maybe you're right. I always saw 'businessmen' as this large amorphous evil oppressing class, but there's a world of difference between these guys who pass through the Harvard system and people from less affluent backgrounds who run a convenience store or something.

And I am NOT a fan of the free market. You yourself are arguing for government regulation (ie, tariffs) to counter China's machinations.

Ironically, the president who did the most for the working man, FDR, was as patrician as they come. What we really need is a stronger labor movement.

All IMHO, of course.

Posted by: SFG on December 26, 2008 3:53 PM

You fail to mention that a huge part of the trade deficit is made up of oil imports to the US from foreign countries.

The US currently imports about 5 billion barrels of oil per year from other countries. At $60-100 a barrel, that's 300-500 billion dollars a year.

This with offshore drilling bans on 85% of our coastal waters, and restrictions on over 90% of land-based drilling sites.

It would seem apparent to the most casual observer that opening up domestic drilling could vastly reduce our need for foreign oil and solve that (huge portion) of our trade deficit. Why no building program of nuclear power? What is the excuse?

It all makes no sense if you think that these elites are trying to make decisions for the betterment of the people of the country. However, the policies make sense if you believe that the goal of the elites is to bankrupt the country. For what reason? Well, that's another issue.

Yet the common themes spewn forth by the elite institutions is indeed the demonization of the US, policies which ensure its destruction, and ringing endorsements of "global" (read: international dominance by a few elites) systems of control.

You would think that eggheads who heatedly argue about the most trifling differences would be of many minds on these vast issues. Not so! To a man they stand on the side of more government involvement and control, and now internationalism. Something is definitely afoot.

Posted by: Nan on December 26, 2008 4:11 PM

Before I debate this thing, I'd like a slightly better definition of the New Class. After all, a factory worker could be middle class and not risk their own capital either, but are obviously not members of the New Class.

Are we talking people/households who are making >$50K a year? >250K/year? University educated?

On the general "Some people are getting richer deal": There's no doubt that the returns to education have increased massively in the last 40 years, as have returns to intellect.

For example, as a programmer, I can look at the guy beside me and note that 25 years ago he'd have been 10% more productive than I am (and we'd be earning the same amount). Now, with technological assistance, he's probably 4 times as productive as I am and is paid only 50% more than me.

The multiplier effect for certain tasks is enormous, and given everything, the returns from the extra productivity are much more evenly spread than the productivity gains themselves. (The existence of my co-worker probably boosts my salary 10%.)

Occupations where productivity that doesn't scale with skill, technology and capital investment are one's that are naturally going to fall behind.

I don't see conspiracy behind most of these changes. I see inevitable progress. The same thing that robbed tens of thousands of hard working, inventive, skillful fur traders of their jobs 250 years ago.

(It would also be easier to sympathize with the US economy where it not so successful for even it's lowest echelons. It's second quintile of household earnings is higher than most countries fourth quintile!)

Now personally, I'm not a big fan of the trade-offs that a society has to make to achieve that sort of wealth, but then I'm a Canadian, and Canada trades a lot less wealth for some other benefits that I value.

Posted by: Tom West on December 26, 2008 5:27 PM

FvB: Clearly, the 2-3 million jobs lost to our brilliant globalization policy (still clutched dearly to the chest of all right-thinking economists, and, of course The Economist) didn’t really matter…to the people who matter.

Come now, FvB. Nobody's lost any jobs to trade policy - only to the inevitable progress brought about by changes in technology. Yeah, that's it.

I'm not hopeful about policy-makers wising up anytime soon (Obama's cabinet choices make one weep), but I've seen faint signs that perhaps some People Who Matter might be confusedly working their way toward an "ut-oh" moment on the subject of trade (if only because they dimly perceive that the imbalances have become destabilizing, and therefore conceivably injurious to their own comfort and security). Not The Economist, mind you, whose leader writers seem to get stupider by the week. Krugman, earlier this week, did mention the t-r-a-d-e d-e-f-i-c-i-t in his NYT blog. Of course, while admitting that it contributed to the mess our country's in, he's still talking about it as if it were a force of nature, and its reduction dependent only on those capricious market gods immune to the petitioning of men. Fortunately, the commenters on the post were less reticent about positing certain corporeal agents of causality. (E.g., here - an "editors selection" comment, which gratifyingly received the approbation of hundreds of registered readers.)

I also laughed 'til I cried (or cried 'til I laughed?) at this bit:

Anyway, the rest of the world may not be ready to handle a drastically smaller U.S. trade deficit. As my colleague Tom Friedman recently pointed out, much of China’s economy in particular is built around exporting to America, and will have a hard time switching to other occupations.

Gee, Tom, really? What a national treasure that man is. Where would we be without Flat Man's keen insights into the world economy? But wait, wasn't this distorted and obviously unsustainable trade circus the same circus he's been profitably flogging for years as inevitable, unstoppable, and super-duper wonderful? Christ, what a tool.

Posted by: Moira Breen on December 27, 2008 12:31 PM

I actually do think some of these people may have convinced themselves they're helping the Republic. Or at least their portion of it.

I don't think it has to do with risking your own capital, either; a lot of these overclass jerks have lost quite a bit in this stock market crash.

Really, I think it's a well-connected group of people who all went to Harvard et al. But I don't think having more entrepreneurs et al. would help. Strengthening the ability of the commoners to push back would. Stronger unions and welfare state to keep the wolf away from the door. More Europe, IMHO. They've got shorter hours and more time to appreciate all the food and culture Mike's so fond of. ;)

Posted by: SFG on December 27, 2008 2:33 PM

Excellent comments at the end. I couldn't agree more.

Posted by: Luke Lea on December 27, 2008 11:36 PM

....Bernanke recommended doing nothing.

Would that he had followed his own advice. The only solution to unsustainable economic imbalances is to squeeze them out. And the only way to do that is to suffer the sharp but relatively short pain of a recession. Had Bernanke and genius Paulson just done nothing we'd be 3/4's of the way through the pain by now, instead of going into what well may turn into a truly terrible depression.

Posted by: ricpic on December 28, 2008 8:55 AM

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