Maxine Udall, “girl economist”, has been one of my favorite bloggers, a person who combines the power of economic thinking with a deep appreciation for moral and social concerns, all expressed in a very human, very charming, voice.
Today we learn that her name in real life was Alison Snow Jones, and that she is with us no more. Wow. This is an awful loss.
I don’t really know what to say. But Maxine Udall had plenty to say, so I’ll just excerpt.
From ‘Tis the season, by Maxine Udall:
I grew up in a family business and have become increasingly appalled over the last 10 years or so by what seems to me to be a very limited view of the duties, obligations, and responsibilities of business… You see, in our business we were not profit maximizers. We were business men and women, embedded in a community, our fate intertwined with that of the community. We had to make enough money to stay in business for the long-haul. That meant that our customers had to keep coming back, we had to provide value, and we had to work, to sell. No one who walked into our business was greeted with “Let me know if I can help you.” The customer was like a sacred guest. Our job was to find out what she needed, to tell him as much as we could about the merits of our merchandise, to help them identify and purchase the best match for their preferences and their pocketbook, or to send them to a competitor, with directions on how to get there, if we didn’t have and couldn’t get what they were looking for.
Our long-term survival depended on some amount of profits, but equally important were reputation and civic responsibility. These three are what we optimized over, not profits alone. We viewed all of these as interdependent. That meant that sometimes reputation and civic obligation were a constraint on profits.
I can understand that someone who has managed to capture a privileged economic and political position, one where they are backed by US taxpayers as they gamble for personal gain in financial casinos, will do whatever they must to maintain it. And I expect that over time, if unchecked and unchastized, they will take on increasing amounts of risk, underwritten by the rest of us. What I didn’t expect was the magnitude of the moral failure: that financiers would help to create securities designed to fail, sell them to clients, and then bet against them.
What I can’t understand is the willingness of the citizenry to protect and reward someone who has harmed or is continung to harm them. I do not understand voting for politicians who support tax cuts for and neutered regulation of these same destructive speculators. Nor do I understand voters’ apparent willingness to eviscerate all of the social programs and safety nets that are all that stand between them and what can only be regarded as neo-feudalism. I conjecture that the reason for this counterintuitive behavior is that the moral narrative that accompanies a technocratic tax cut for the wealthy is more compelling that the moral narrative that accompanies a technocratic stimulus of aggregate demand or support for families harmed by the financial sector’s market and moral failures.
If you had told me 10 years ago that I would become a critic of investment bankers and an advocate for labor, I would have said that you were crazy. I was weaned on horror stories about the New Deal, the WPA and CCC, wage and price controls, and the horror of unions. (And, if we ever return to a point where unions become so powerful that they impede business, I will blog against them.)
I got into this conversation because I felt I might be able to contribute clarity for those not trained in economics and a different perspective. It has been an exciting and stimulating conversation. I’ve thought and read more about macroeconomics than I ever did in grad school. I have developed a real fondness and respect for my readers and their very thoughtful comments and for my fellow economics, anthropology, sociology, and biology bloggers, especially Mark Thoma, without whom only five people would ever have read this blog.
From Sensible Deficit and Debt Reduction Will Require Investment, by Maxine Udall:
[Y]ou have to spend money now in order to reduce expenditures or increase revenues in the future. Remember that government debt in and of itself is not necessarily a bad thing, nor is personal or corporate debt. The judgement of “good” or “bad” will depend on many things, including the expected returns from any investment made with the borrowed funds, the terms under which funds must be repaid, and the financial health of the borrower, which will influence the likelihood of repayment and (I suspect) the quality of the investment.
After all, leadership of a thriving, growing business that did not borrow to fuel continued growth would be judged incompetent. By the same token, leadership of a hard-hit business in the middle of a economic downturn that focused only on debt reduction without some thought and investment (at record low costs) devoted to building a solid platform for recovery and future growth would also be judged incompetent.
The leadership of a hard-hit country in the middle of an economic downturn has additional economic and moral obligations. One economic obligation is to compensate for contractions in consumer demand by stabilizing and (in the case of a severe downturn) stimulating aggregate demand. A government stabilizes demand by providing and extending unemployment benefits and by enacting programs like Medicaid, Medicare, social security as well as other safety net programs like food stamps and Temporary Assistance to Needy Families. Cuts to any of these takes money out of the pockets of poor, working class, and middle class Americans and is likely to contract demand further.
A government can stimulate aggregate demand by accelerating investments in infrastructure, research, and defense. By borrowing at record low rates, it can bring those necessary investments that it would have made in the future forward to the present, thereby maintaining and also creating jobs that otherwise would be lost because of the current downturn. Such investment has the effect of stimulating demand now and keeps the economy from sinking deeper into recession or depression. It has the added advantage, if done wisely, of creating better health, education, and economic infrastructure that benefits our grandchildren and their grandchildren. The historically low cost of borrowing means that the cost to our grandchildren of repaying the loans for these investments are likely to be lower than the benefits they will realize from the investments, if they are made wisely.
From What’s Wrong with This Picture?, by Maxine Udall:
It’s a tribute to the GOP’s ability to engineer a morality play that plays out in politics, but is mostly about economics. If debt were all that was morally wrong, we could be purely technocratic and raise taxes. Since taxes are morally wrong, we can only cut spending. And as we decide how to cut spending, the morality play will provide us with a narrative where the least and last will benefit most from a good, swift kick to get them jump started and if they don’t “jump,” well then it’s their own fault if their kid dies of (untreated or too-late-treated) leukemia while they were unemployed and without health insurance.
It remains to be seen whether we can persuade the middle class to cut their own future safety net or that of their parents, but I’m pretty sure that a grossly distorted moral narrative can make that happen, too. Unless, of course, we come up with a compelling moral counter-narrative in support of the technocratic solutions to these moral dilemmas.
If we do, it had better be quickly and in ways that are easily expressed in 25 words or less.
From Another Conversation about Health Care Costs, by Maxine Udall:
Always a quick study, dad got it.
“So what you’re saying, Maxine, is that to reduce health care costs, I would have to run my business in a way that ultimately puts me out of business. If I do a good job of preventing illness and making my customers healthier, they won’t come see me as often or buy as much from me. Eventually, I’ll have to close my doors or figure out some other way to make money.”
“Yes, dad. That’s exactly what you would have to do, if you were serious about reducing health care costs. Or you would have to change your business so that you make money from healthy people. Now what market forces would produce that result? (And don’t say: convince healthy people that they’re in reality sick. The pharmaceutical industry already does that and you see where it’s gotten us.)”
I’m still waiting for his answer.
From On Why Sound Macro Policies Are Political Losers, by Maxine Udall:
Joan Robinson (girl economist) said something in her Richard T. Ely Lecture to the American Economic Association in 1972 during another economic crisis that I believe accounts for some of the “political loser” characteristics of good macro policies:
“A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy if failing to satisfy. … The cranks are to be preferred to the orthodox because they see that there is a problem.”
I believe that the failure of “good macro policies” to be political winners is that they “fail to satisfy” on the dimension that matters most and is most visible and understandable to the public: fairness or justice.
From Company Store Redux, by Maxine Udall:
Our current situation in which 5% of the population captures and owns a disproportionate share of national output, which it then lends to the teeming masses whose share of output has been stagnant or dwindling, is really just a new variant of the company store.
Miners worked in company mines with company tools and equipment, which they were required to lease. The rent for company housing and cost of items from the company store were deducted from their pay. The stores themselves charged over-inflated prices, since there was no alternative for purchasing goods. To ensure that miners spent their wages at the store, coal companies developed their own monetary system. Miners were paid by scrip, in the form of tokens, currency, or credit, which could be used only at the company store. Therefore, even when wages were increased, coal companies simply increased prices at the company store to balance what they lost in pay.
And just in case you’re thinking that this doesn’t seem too unfair, consider that:
Miners were also denied their proper pay through a system known as cribbing. Workers were paid based on tons of coal mined. Each car brought from the mines supposedly held a specific amount of coal, such as 2,000 pounds. However, cars were altered to hold more coal than the specified amount, so miners would be paid for 2,000 pounds when they actually had brought in 2,500. In addition, workers were docked pay for slate and rock mixed in with the coal. Since docking was a judgment on the part of the checkweighman, miners were frequently cheated.
I first wrote about company stores last summer:
In Kumhof and Ranciere’s model, increasing concentration of wealth in a small “investor” class leads to higher demand for investment assets, such as securitized pools of loans made to wage earners who must borrow to maintain consumption as their real income declines. This sets up the same type of dynamic as a company store. Over time and as wage-earner bargaining power weakens, the investor class is able to capture greater proportions of workers’ declining or stagnant real wages. The effect is that an increasing portion of middle-class wages circulate back to the financial sector as interest and fees instead of into the larger economy (except, of course, as it occasionally “trickles down” from the investor class to what over time is likely to become the equivalent of a servant class).
For the last 30 years, the government has been part of the problem in this trend to increasing income inequality. It’s time for government to become part of the solution in reining in financial sector excesses and restoring workers to something that approximates a fair share of national output. Otherwise, most of us will eventually find out what its like to “owe our soul to the company store.”
From Bang per (Borrowed) Stimulus Buck, by Maxine Udall:
So here’s the question my mundane, raised-in-Appalachia, offspring-of-simple-business-men-and-women, forget-the-PhD-in-economics brain keeps asking: What does the financial sector produce, besides economic chaos? Where’s the benefit for most of us or for most of the US? And if the financial sector isn’t going to provide the service of deploying capital to support investments that benefit the rest of us, who will?
In an ideal world, the US government would. In an ideal world, where most of the populace who would benefit from such investment do not respond to the dog-whistle term “socialist” by forming political groups funded by plutonomists to protect plutonomists, US taxpayer dollars would support investment in infrastructure and human capital that would prepare us all, not just the top 1%, to be productive participants in a 21st century global economy. Instead, our tax dollars have been deployed to no-pain, no-downside bailouts of guys who turned around and awarded themselves bonuses for running us into the ditch. Now, finance and US politics seem committed to sustaining and feeding a casino and fostering an increasingly unstable and unfair plutonomy, instead of rebuilding a nation dominated by a productive, hard-working, ambitious middle class.
This is the most unsatisfying morality play I have ever watched.
From Freedom Is Not Just Another Word for Nothing Left to Lose, by Maxine Udall:
You see, in a capitalist economy, wealth and well-being are supposed to redistribute to everyone. As capital is allocated and risk managed more efficiently, more opportunities are created for all. Wealth and well-being are supposed to become less concentrated in the hands of a few and more dispersed to the hands of the (often more and increasingly) productive many. Much of Wealth of Nations is devoted to describing the instances and the conditions under which this seemed to be occurring as the economy of Great Britain transitioned from feudalism to one of commercial exchange, industrial production, and small business owners.
Some of you will point out that elected US lawmakers of both parties appear to be wholly owned by corporations and finance. Even if you believe this, it hardly argues for shrinking government, thereby giving corporate and other interests even more unfettered power. It argues for a political philosophy that believes government serves an essential purpose in an advanced, complex capitalist society: that of countervailing force against those interests when they are harmful to the rest of us and helpful to those interests when they are beneficial to us. That philosophy requires government to be as large as it needs to be to countervail. And it requires that government be viewed as capable of being efficient and that the culture and norms of government be those of public service, not public pillage.
From The Death of Capitalism?, by Maxine Udall:
[C]redit is the quintessential American capitalist thing most frequently experienced directly by consumers (IMO). I remember in grad school when one year my adjusted gross income was around $6000. Bloomingdales offered me a credit card and I took it. Never used it, but I took it. I remember feeling secretly pleased and amazed that someone so poor could carry around a credit card from an upscale, overpriced retail outlet at which one could not possibly afford to shop. I think I acquired a Neiman-Marcus card the same year. I did eventually use N-M once to buy a wedding gift for someone (after I graduated).
By my last couple years of grad school I was earning enough working part-time to qualify for an FHA mortgage on a small townhouse in the city where I was working and attending school. I cobbled together some small amount for the down payment and the closing costs and I was a homeowner.
I hit one rough patch about 8 years into my 10 year residence in the house. I was non-tenure track faculty, required to fund 100% of my salary from grants. I was about to be down 50% in salary support if a grant or two didn’t come through in time. There was a real possibility that I would lose my job (or more likely drop to part-time while I looked for a new job).
Under the misguided notion that the corporation holding my mortgage was my partner (the loan had been sold several times), I thought I should probably phone them to find out what my (our) options might be. I was thinking I could make interest payments for 3-6 months and then structure some sort of “make up” payment once I was employed full-time again. It took me 3 weeks to track down a phone number for the company that owned the loan. No 800 number. Every time I was put on hold or phoned the wrong department, I paid for it. I finally got to someone who seemed responsible, laid out my situation, explained that there was a good chance I would not lose my job, that even if I did, I was a PhD economist and most likely would have a job rather quickly, that all I wanted to know was what my options might be if I did lose my job. The person on the other end of the line very kindly informed me that there were no options, that he was putting a flag on the account that if I missed one payment they should start foreclosure proceedings immediately. He thanked me for letting him know and saving them some time.
Well, there you are. Doesn’t that make you feel better? I know it evoked some interesting feelings in me.
As luck would have it, a fairly large grant on which I was principal investigator came through, my job was saved and my house with it. Being no slouch at spotting losing propositions, I did two things…well, three things actually. I got married. I went on the job market and took a tenure-track position. And I (we) bought another house.
But this time, I knew what to avoid mortgage-wise. We found a local bank that holds all of the mortgages that it originates. We paid an extra half percentage point for this. Well worth it in my opinion. When I had cancer (and thanks to an extremely supportive employer) there was no worry that I would lose my job (at least not right away), but it helped immensely to know that if I had and we had to sell the house, the bank would have worked with us. And they did work with us in non-predatory ways on refinancing, home equity loans, and anything else we needed for the 10 years we owned the home.
Look. This is the heart of capitalism. I want to borrow money to own property. The bank wants to lend money for which it receives a return that reflects risk and the opportunity cost of what it lends. This is a marvelous arrangement for a lot of reasons. Not least, my ownership of said property is a near guarantee that it will be maintained and mowed, improved, and the loan paid off. The fact that all my neighbors face the same incentives to maintain and mow, improve, and pay off creates a web of interlinked well-being. As the neighborhood goes, so go we all.
No good can come from neighborhoods populated by home-owners who have devolved into squatters. Nor can any good come from neighborhoods wholly or mostly owned by banks, particularly large banks with no vested interest in the community. Moreover, capitalism, as experienced and lived by a population whose ancestors started out as squatters with “tomahawk rights,” that evolved over time to homesteaders and, eventually, homeowners, is getting a very deserved bad name.
If capitalism has held a special place in the hearts of US citizens, it is almost certainly because most of the working and middle class have been able over time to acquire a little bit of heaven on earth: their own home, bought and paid for by them. Their homes are tangible evidence of their hard work, their prudence, their temperance, and their perseverance. Those homes and the loans that made them possible were also tangible evidence of the partnership between labor and capital; between homeowner and banker; between mini-capitalist and serious-capitalist.
I will say it again. They are tangible evidence of a partnership, a mutually beneficial contract between banker and home buyer. Not adversaries. Partners.
What makes this worse IMHO is that the current mortgage morass appears to be the result of capital’s failure to observe and adhere to the rudiments of property rights: the proper and legal transfer and holding of a title and a promissory note; the proper and legal processing of said documents to initiate foreclosure; and a level of outright cruel and confiscatory behavior that until lately I had only associated with totalitarian governments. (If you doubt me, see here).
So this is a message to bankers and anyone else who at least putatively cares about capitalism and commercial exchange. I am probably among the most sympathetic to both and to the institutions that support them. I am losing sympathy. Nay, I have lost it. This is the stuff from which revolutions are born and you will have brought it on yourselves. The problem is that capitalism when done right yields real value, real benefits to us all. So when it dies, when you have killed it, as with all of your other financial chicanery, we will all pay the price.
p.s. Excerpts, of course, do not do justice. There is tons of wonderful writing, in long form and carefully argued, on the Maxine Udall blog. I scan and read so many blog posts every day, even great writing often fades into the background. Going through the last few months of her work makes me terribly sad that this is a person I will never meet.