[This is the text of a talk I gave at LaGuardia College, Long Island City, Queens, in memory of Bob Fitch, who died on March 4, 2011, from complications of a fall he suffered when returning home from teaching at LaGuardia. My short remembrance, written for The Nation, is here. Thanks to Jane LaTour for the two photos of Bob reproduced here. Video by Prudence Katze and Will Lehman is here.]
I want to start by saying how honored I am to be giving this, the first Bob Fitch memorial lecture. I dearly hope there will be a second and many more after that, and it’s up to some of us in this room to make that happen. I admired Bob tremendously. I can’t think of anyone I’ve known personally who’s influenced me as much. He was remarkably erudite—read deeply in many areas and wonderfully cultured in an almost old-fashioned way. I called him once when he was listening to Schubert. We got to talking about the greatness of much bourgeois culture, and he criticized today’s bourgeoisie for taking such poor care of its class inheritance. That task had fallen to Marxists, I guess.
He was also a warm, generous, and very funny guy. It breaks my heart that I’d lost touch with him in recent years. I’d been resolving to change that, but then it got too late. I never got to talk to him about Bloomberg or Obama. I’m ashamed, actually.
I met Bob in the late 1980s—I can’t remember exactly when. He was just resurfacing after several years underground. A major publisher had given him a big advance to write a book about New York City, and he found it impossible to deliver. Bob delisted his phone number, gave up writing for union organizing, and tried to keep the forces of the bourgeois system at bay. When the coast cleared, he started writing for the Village Voice. His editor there, and mine, Don Guttenplan, introduced me to him.
On Don’s recommendation, I’d just read Bob’s fantastic 1976 essay “Planning New York,” which was adapted for The Assassination of New York 20 years later. It was about the 1929 plan for New York City drawn up by the Regional Plan Association. It laid out the outline for an auto-centered metropolitan region, including the highway system that would later be attributed to Robert Moses. It developed and formalized an old upper class desire to deindustrialize the urban center. The essay made it impressively clear just how precisely planned by elites over the very long term the physical and social evolution of New York City has been. One’s casual impression of the city may be that it’s unplanned and chaotic, but it’s long been anything but that. It’s been guided by the careful hand of the FIRE sector—finance, insurance, real estate—and the elite nonprofits and experts that think for it.
Bob and I became good friends after I read the essay. We saw each other from time to time but a lot of our friendship was on the phone, many hours a week. Bob talked to me a lot about the ideas that led to The Assassination of New York. I’d been living in the city for about ten years when I met Bob, and until then I never really understood how the place works. I had only the vaguest idea of how people like Felix Rohatyn and firms like his Lazard Frères shaped the city—including shaping the LaGuardia campus where we are right now.
I’m not really up to analyzing the present from the perspective of Bob Fitch, but I’d like to talk about some of the things he shaped my thinking on. At least three come to mind. One is the city, ruled by a true plutocrat—though it’s not like Bill Thompson or Christine Quinn would be much different. (Speaking of Christine Quinn, I was once sitting with Bob in a diner in downtown Manhattan when she walked by outside. She waved enthusiastically at him and he waved back. She’s changed a lot.)
Another is the state of the labor movement. When I was first asked for a title for this talk, I thought of something like, “The labor movement survived Bob Fitch, but barely.” The spectacle of Trumka endorsing Obama, months before he really had to, reminded you that institutions, like economic stats, can come in under expectations, even when expectations are already low. Back in 1995, when many on the labor left were excited over the ascension of John Sweeney to leadership of the AFL-CIO, Bob dismissed it as delusional. (I’d forgotten until just now that among the 11 union presidents who gathered to push Lane Kirkland aside was Arthur Coia, the leader of the Laborers Union who was driven out for corruption and criminal ties.) Later, when the labor left got all giddy over Andy Stern, Bob stabbed holes in those illusions too.
And then there are the Democrats, in whom organized labor is incorporated in a vassal-like relation. Though a lot of liberals moaned some about Obama last year, this year re-electing him is a task of world-historical proportions. Personally, I’d like to see Obama re-elected because it’s better for radicals when Dems are in power; it makes it clear how the suckiness is systemic, and not a matter of personnel or party. But that’s not the prevailing view. The urgency to support the Dems, as it often is, is driven by the awfulness of the right. If Romney wins, the Tea Party will move into the Executive Office Building. Can the brownshirts be far behind?
Obama and friendly FIRE
I recently came across the text of a talk that Bob gave to the Harlem Tenants Council, ten days after Obama was elected. After acknowledging his considerable talents and powers of enchantment, and the pride that African Americans felt over his election, Bob wondered just what was his political philosophy and just what interests did he represent? His political philosophy, said Bob, was Third Way-ish and communitarian, meaning that he dismissed any idea that there are real conflicts in society because we can all just reason together and do what’s best for all of us. But by saying that, they’re really just siding with the powers that be, because there are real conflicts in society and there can be no Best for Everyone happy ending.
Following that is a dazzling analysis of Obama’s roots in Chicago society—one of those Fitchian moments in which the world makes a lot more sense after you’ve gone through it. Many of us are familiar with the way that Obama was groomed for excellence by power from his early days. Beloved of elite schools and foundations, Obama—who’s poked fun at his mother’s “position-paper liberalism”—had a charmed rise on the status ladder of American society. When he arrived at the Senate, after not all that much experience in the Illinois legislature, he would have none of the gladhanding necessary to get along in that dismal body. So Harry Reid called him in after about a year and a half and told him that he had no aptitude for the Senate and he should run for president instead. Reid & Co were terrified that Hillary Clinton would get the nomination and lose disastrously, so Obama was their hope. Yet they were so afraid of Hillary’s vengefulness that they promoted his candidacy secretly at first. (The story is told in John Heilemann and Mark Halperin’s Game Change.) Obama proved himself up to the challenge. But that this guy was any kind of outsider, that he was anything but wired to the center of the Democratic branch of the power structure, well, it was remarkable what people believed in 2007 and 2008.
But Bob’s great contribution was to trace Obama’s roots in Chicago property relations. Over the last two decades, he reported, there’s been a concerted plan to gentrify the South Side of the city, home to the largest black population in the country, many of them rather poor. (Among the country’s ten-biggest cities, Chicago has the third-highest poverty rate, and the highest black poverty rate.) In the 1950s, the policy was urban renewal, meaning razing low-rise housing and moving black Chicagoans en masse into high-rise public housing. It did not work well. So in the 1990s, Democratic urban planners decided it was time to “spatially deconcentrate”—meaning knock down the high-rises and move people back into dispersed private housing. This was touted as an anti-poverty measure: since poverty is considered to be a communicable disease, scattering the poor about town will reduce their exposure to each other, thereby reducing the spread of the illness.
In Chicago, Daley’s administration cleverly brought black developers into the heart of the scheme. They would build and rehab the new units the displaced poor would move into. Since much of this happened in Obama’s state senate district, he knew the principal players very well. As Bob put it, there was a constellation of interests around Obama in Chicago—the typical FIRE sector, personified by big Chicago families like the Pritzkers and the Crowns, but also what Bob called “friendly FIRE,” the liberal foundations and nonprofit developers who try to synthesize an aura of community uplift around gentrification. A lot of what is called community organizing in this country quickly devolves into high-minded real estate development, typically with the assistance of the Ford Foundation—which by a not very stunning coincidence, employed Obama’s mother in Indonesia.
And though almost all of the people displaced by friendly FIRE are poor and black, they’re often displaced by a black financier/developer class that serves a rising black middle class. For the portion of the left that trades on a one-dimensional race analysis of social life, this is very confusing. But this is how Obama the “community organizer” could, just a few years later, praise Jamie Dimon of JP Morgan and Lloyd Blankfein of Goldman Sachs as savvy businessmen. And so it was hardly surprising that Obama brought in William Daley, brother of former Chicago mayor Richard Daley—by virtue of office, the chief executive of the South Side gentrification schemes—to be his chief of staff after Rahm Emanuel went off…to become mayor of Chicago. Oh, and it just happened that William Daley was the head of Midwest operations for JP Morgan Chase and chair of its foundation, which Bob called “the core of friendly FIRE.”
It doesn’t take anything away from Bob’s genius to say that these are not the kinds of facts that you need to spend years in obscure archives or filing a ream of freedom of information act requests to discover. (He did lots of that over the years, too, but not for this talk.) Most of the secrets of American political life are, like Poe’s purloined letter, hidden in plain sight. It’s just that many people don’t want to think about them. Certainly not all those people suffering from Obamamania in 2008, when Bob gave that talk, or even the mildly disillusioned liberals of 2010—and certainly not all those enthusiasts suffering from a relapse of their 2008 enchantment in 2012. Years divisible by 4 produce such predictable delusions.
planning New York
I’d like to spend some time with “Planning New York,” my introduction to Bob Fitch’s work. It was incorporated into The Assassination of New York but I still like the old version for sentimental reasons. It appeared in a collection, The Fiscal Crisis of American Cities, mostly though not entirely about New York, that was edited by Roger Alcaly and David Mermelstein. Alcaly, by the way, left radical economics to run a hedge fund, and then wrote cheerful articles about the New Economy of the late 1990s for The New York Review of Books.
Bob’s piece was about the Regional Plan Association’s 1929 plan for New York. The RPA is a classic elite outfit—a FIRE-dominated think tank, founded in 1922, which according to its own ad copy is all about improving the quality of life in the metropolitan area. Its idea of quality of life becomes quickly apparent on the front page of its website, which just the other day featured a study on how to make large real estate projects, which contribute so much to that quality of life, work. The RPA’s board consists of developers and financiers—including one guy who runs a hedge fund called Dialectic Capital Management. You have to wonder what his personal history is—but whatever, it got him a $5 million house in Brooklyn Heights.
New York has a habit of producing these long-term plans right around stock market peaks. There was another in 1968, just as the rot of the 1970s was to set in; another in 1987, just before the stock market crash; and another in 2007, just as the Great Recession was about to hit. That’s good for a chuckle—the bourgeoisie can be so silly—but still, the plans do basically come true. The local FIRE elite is capable of thinking beyond the business cycle—more than their national counterparts, it seems. When your fortune is tied to real estate, you can’t easily up and leave; you’re forced to care about the long term.
One reason for the appearance of grand plans at major market tops might be that during the boom that precedes them, FIRE accumulates vast wealth and power that they can then translate into long-term political gains. As Bob pointed out, the financial and real estate boom of the 1920s allowed FIRE to rise to local dominance, and though much of that wealth evaporated in the crash, the long-term plans remained intact. Similar things could be said about the later iterations.
In The Assassination of New York, much of it written during the early 90s slump after the ’87 crash, Bob was skeptical that the grandiose plans could be fulfilled. But there were two more booms to come—the stock mania of the late 1990s and the housing bubble of the mid-2000s, both of which fattened Wall Street and allowed for more office buildings and fresh frontiers of gentrification (though it didn’t hurt that 9/11 took 12 million square feet of office space off the market, depressing the vacancy rate as the economy was about to recover from the 2001 recession).
Again, it’s amazing how much of this scheming is hidden in the open. But it provokes no interest from mainstream journalists. I once talked with a New York Times reporter who’d been freshly posted to the metro desk. She was wondering what to write about. I suggested land use stuff—how apparently random real estate deals actually fit in with these long-term schemes. She wondered what the news value of this is. I said, the city is carefully planned and no one ever talks about that. (I had my doubts that the Times would ever publish such stories, but still I thought it was worth a try.) She found it completely uninteresting—there would only be a story if “some politician is getting rich off it.” Of course that’s been known to happen, but that’s not the most important thing. How a small elite shapes the economic, social, and physical environment we live in strikes me as a very important story, but it has no news value to a mainstream journalist.
As Bob put it, the influence of the 1929 plan can be seen in the division of the region into Slab City—the high-rises of Manhattan—and Spread City, the suburbs that surround the city center. This was enabled by the building of a set of highways that made it possible to travel to and from the city, or comfortably around it if you were traveling elsewhere. The network of highways typically attributed to Robert Moses were actually laid out in the RPA plan: as Bob put it, all Moses had to do was pour concrete on the dotted line.
The central idea was to concentrate high-end activities in the city center—finance and other service businesses that could afford high rents—and move the noxious stuff out to Jersey. Bankers with a taste for the country life would find it easier to get back and forth from Long Island or Westchester, and those that liked the urban life wouldn’t have to compete with the working class for housing and retail, or have to look at them on the sidewalk.
As Bob argued, Slab City requires high levels of public spending on physical infrastructure. This need is at the basis of a lot of Democratic politics—developers (and their bankers) contribute to politicians who then reward them with appropriate projects. It’s amazing how pervasive this relationship is over time, whether it was Harry Truman and his Kansas City patron, political boss Tom Pendergast, who just happened to own a cement plant, or Obama’s relationship with his Chicago patrons.
Truman, though, was old-style, the product of an urban machine. Much preferred by the FIRE elite are cap-P Progressive or cap-R Reform politicians, technocrats who are supposedly above the petty corruption of Tammany-style politics. As Bob put it, the major difference between those two tendencies can be seen most clearly in the municipal budget: Tammany types stoke the expense budget with patronage schemes, but the Reform types love the capital budget, with its infrastructure schemes. In fact, Bob argued that it was the borrowing to fund capital spending on transit and middle-income housing that got New York City into debt trouble in the 1970s, not the alleged generosity of the social services budget, as mainstream hacks like to claim.
Back to the ’29 plan. It was passionately devoted to getting manufacturing out of Manhattan. Though garment makers liked to be close to retailers, real estate interests didn’t like that. Rag shops took up space that could be far more profitably rented to bankers, lawyers, and admen. Too many garment workers—many of them unpleasantly Jewish—were clogging the sidewalks and scaring the wives of the better sorts away from high-end shops. Instead, the city should be reconfigured in line with this rough hierarchy: 1) financial business, 2) fancy retail, 3) fancy residential, 4) inferior retail, 5) wholesalers, and, at the bottom of the list, 6) industry and working-class housing. The ultimate goal was to turn the city into one of the commandingest peaks at the commanding heights of global economic activity: finance, senior management, and the consciousness industry.
Of course, the poor would not go away, even if their housing was demolished in the name of urban renewal and slum clearance. Instead, they’d be rendered structurally unemployed as industry was driven out to the suburbs or beyond. White flight, deindustrialization, and all the other familiar phenomena of post-World War II America didn’t just happened. The RPA et al. made it happen.
These themes are developed further, into the Dinkins years, in The Assassination of New York. But it’s amazing how much of the long-term urban strategy was established in the 1929 plan and continued even into the present. The planners did face a challenge in recovering from the trend that culminated in the crisis of the 1970s: there had been too much decentralization. It was essential to do some recentering—to get more high-end service activity in Manhattan and more rich people living there. It worked.
more recent history
And as Manhattan upscaled, so too did Brooklyn. But that, too, was no accident. Starting in the late 1960s, with the able assistance of Pratt Institute—named after its founder, Charles Pratt, a great property owner and Rockefeller partner—city planners pushed industry out of Brooklyn and began the gentrification of working-class neighborhoods. (I live in a former shoe factory at the eastern edge of Clinton Hill, just blocks from Pratt, that was turned into condos in 2005.) More recently, the Atlantic Yards project—heavily supported by city funds and with the massive power of eminent domain (New York has the most developer-friendly eminent domain laws in the U.S.)—are a perfect example of the use of public infrastructure projects as a gentrification strategy. The scheme extended the strategy of turning downtown Brooklyn into an office park and surrounding neighborhoods into elite residential space.
You can read the outlines of more recent planning in the 1987 volume, New York Ascendant: The Report of the Commission on the Year 2000, led by Robert “Bobby” Wagner, Jr., son of the three-term mayor. The report projected that city employment in 2000 would approach 3.8 million, matching the late-1960s peak, about 300,000 above where it was when it was published. But the stock market crash, and the bust that followed it, actually knocked nearly that much off city employment, leading Bob, writing in the early 1990s, to be very skeptical of the Wagner commission’s ambitions. This is a further reminder that radicals should always be careful of underestimating capital’s powers of self-renewal—something we should do even today, when it looks like the whole system has busted a gasket.
As it turned out, the Commission was right on target. City employment peaked at 3.8 million in December 2000, coming within a hair of the 1969 peak. (The city’s population was about 300,000 lower in 1969 than it was in 2000, meaning that a smaller share of the population was working. That’s structural unemployment for you.) And, by the way, we matched that level again in 2008, and are now above it after having lost fewer than 200,000 jobs in the Great Recession. FIRE’s recovery from the 2008 crisis has been very impressive, even if the recovery of the economy and the debtor class has been a lot less so.
And what was the development strategy outlined in New York Ascendant? Surprise, surprise: being a world capital of what economists call the tertiary sector. The primary sector is basic stuff like farming and mining; the secondary, manufacturing and construction; and the tertiary, elite services like finance, lawyering, and advertising, and less elite services like retail and restaurants. There’s more money to be had in the elite services, but bankers do like to eat well and wear snazzy clothes, and their kids do need nannies, so the tertiary city is notorious for a barbell-shaped income distribution: a legion of low-paid service workers tending to the high-paid service workers but with not so many people in the middle. This is, as the vulgar Marxists used to say, no accident. And, as Bob Fitch liked to say, vulgar Marxism explains 90% of what goes on in the world.
New York Ascendant did allow for a smallish manufacturing sector—a specialized one, tied to dominant industries, like “very high-end fashion,” serving the local design talent, and costume making for the theater. It also sought to retain low-end clerical work for the finance sector and to encourage the development of the information sector. To retain the back office stuff would require the extension of the central business district (CBD) across the East River into new beachheads in downtown Brooklyn and Long Island City. That has happened. That’s why we have MetroTech in downtown Brooklyn, populated among others by Chase (the old Rockefeller family bank) and NYU. And it’s not just the extension of the CBD: we see the Bloomberg administration pushing a high-tech campus on Roosevelt Island and pressing the residential development of Hunters Point just south of Long Island City, squeezing out the industrial uses that used to dominate the neighborhood.
And that scheme also explains how the campus we’re on now, LaGuardia College, evolved—though that was not the planners’ original intention. In accordance with elite scheming, Lazard Realty, an arm of the investment bank that employed the mighty Felix Rohatyn for many years, developed several buildings along Thomson Ave. in the late 1980s, with the hope of filling them with clerical workers. Rohatyn, while often portrayed as the “savior” of New York City, was the leader of the bankers’ coup during the fiscal crisis of the mid-1970s. He and his comrades displaced the elected government and imposed what could only be described as the dress rehearsal for the neoliberal agenda that would transform the world from the 1980s onward: austerity for the masses and largesse for the overprivileged. Of particular interest to CUNY people was Rohatyn’s insistence that the policy of free tuition, first established by municipal referendum in 1847, come to end—not so much for its fiscal importance, he said, but for its shock value. No more something for nothing in the era of lowered expectations.
Lazard Realty’s plans for the stretch of this road that it called Thompson Place proved ill-timed. The buildings were ready for occupancy just as the stock market crashed and the 1980s boom was turning to bust. But CUNY came to Lazard’s rescue, as LaGuardia College bought one of the buildings in 1988. No shock value, no lowered expectations for Lazard!
And another building was filled by the School Construction Authority, created by the New York State legislature in, yes, 1988. And, curiously, one of the prime advocates for the creation of the School Construction Authority—an independent authority to handle building and renovation tasks formerly handled by the Board of Education—was none other than Felix Rohatyn. Construction is a bondable activity, and investment bankers love floating bonds. But, as Bob frequently underscored, elites love the capital budget far more than the expense budget. Creating the SCA was just right for Felix’s personal and professional interests. And the timing was just right to take a problem property off Lazard’s hands.
I found all that out back in the early 1990s, when I was writing about the political economy of New York for the Village Voice—very much under Bob’s tutelage. I really miss doing that. I’ve lost track of what’s going on, and I can’t think of many prominent outlets for that sort of investigation. I’d really love to know what to make of Bloomberg’s plan for the year 2030, which includes more of the same, of course, with an emphasis on a green agenda. I love bike lanes, alternative energy, greenhouse gas reduction, and restrictions on auto use as much as any other red–green hybrid, but Bob taught me to be skeptical of this sort of thing, because it typically had a real-estate angle. Elites have loved parks because they take land off the market, thereby boosting the value of the remainder, and because they create hypervaluable parkside locations. But we love parks too. And we do want to save the earth, and short of a revolution that seems not to be imminent, we need enlightened bourgeois politicians to embrace a green agenda. I wish Bob were here to help us think straight about this era in which the richest man in town, a titan of the FIRE sector and not its mere servant, is in his third term as mayor.
the unions
Bob’s death severely reduces the ranks of people who study the political economy of New York City seriously. It also reduced the ranks of those who want to do something better with the substantial resources we have here. It was brought home to me how few of us there are about 20 years ago, during the Dinkins years, when we tried to put together a little think tank to come up with some alternative redevelopment schemes, centering around rebuilding the port and restoring the rail link to the mainland, both of which would encourage the development of manufacturing (and, incidentally, clean the air considerably, since almost everything that comes into town has to come by truck—something like 90% of it over the George Washington Bridge).
We managed to put together a handful of people, but there was no interest from the unions. To them, Bob was radioactive, as was the agenda. (Here’s a measure of how radioactive. Bob thanked a union staffer in a footnote to an article he’d written for an obscure journal. When the journal came out, the staffer called him, livid and terrified for being publicly associated with him. He feared reprisals from his bosses.) Nor was there any interest from some of the better politicians. Ruth Messinger, then the borough president of Manhattan and publicly identified as a member of Democratic Socialists of America, let it be known that not only did she want nothing to do with the group or its agenda, she didn’t want us talking about how low the wages were for a good bit of the city’s workforce. Without support, the people’s think tank, our RPA for the masses, quickly evaporated.
The chilly reaction of the unions, aside from CWA Local 1180, which gave us meeting space, was a reminder of one of Bob’s more profound observations: on major political questions, unions take their cue from their employers. Obvious after you hear it, but not before. We saw that most consequentially in the hostility of Andy Stern’s SEIU to a single-payer health care system, which he scornfully dismissed as a Canadian import. Of course, the employers of SEIU labor, the hospitals and nursing homes with whom he’d made so many noxious secret deals, didn’t want a single-payer system. And so, rather than traffic in Canadian imports, Stern chose instead to make common cause on the issue with Wal-Mart CEO Lee Scott.
Ah, the unions. Bob’s work on New York City alienated the liberal politicians, whose complicity with the FIRE sector threatened their claims to high-mindedness, and the elite foundations, who bankroll so many high-minded intellectuals. Many otherwise decent people need grants from Ford and Rockefeller and are scared to death to say anything about how philanthropists constrain political discourse. Many formerly decent people fall under the philanthropists’ sway and think they’re fighting for justice when they’re really engaging in upper-class charity work that ultimately sustains rather than challenges the social hierarchy.
Bob’s relentless criticisms of the labor movement, for being made up of corrupt and ossified feudal structures, made him very few friends. He went too far even for some on the left wing of the labor movement, who just didn’t want to hear what he had to say. It might be ok to criticize labor for having lost its fighting spirit to bureaucratization, but as Bob liked to say, it’s wrong to call the labor movement bureaucratized, because bureaucracies are effective. The rot was much deeper, and more structural.
Bob offered a nice summary of the thesis of his last book, Solidarity for Sale, in an interview with Michael Yates of Monthly Review:
Essentially, the American labor movement consists of 20,000 semi-autonomous local unions. Like feudal vassals, local leaders get their exclusive jurisdiction from a higher level organization and pass on a share of their dues. The ordinary members are like the serfs who pay compulsory dues and come with the territory. The union bosses control jobs—staff jobs or hiring hall jobs—the coin of the political realm. Those who get the jobs—the clients—give back their unconditional loyalty. The politics of loyalty produces, systematically, poles of corruption and apathy. The privileged minority who turn the union into their personal business. And the vast majority who ignore the union as none of their business.
Few things annoyed progressive union types as much as Bob’s critique of Andy Stern’s SEIU. As Bob pointed out, much of the growth in SEIU’s ranks came from very questionable sources. One was home care workers, who got union recognition in California and Illinois. This was accomplished by large contributions to gubernatorial campaigns (including that of the notorious Rod Blagojevich, now federal prisoner number 40892-424); the victorious governors said thank you by granting SEIU recognition to represent them. Many of these home care workers are people who are reimbursed for their efforts in taking care of sick relatives. This sort of union growth has nothing to do with organizing against the will of hostile employers. And SEIU did little or nothing to raise their dismal rates of pay. For pointing this out, Bob was accused of devaluing the home care workers, when instead he was showing how meaningless Stern’s claims of vigorous growth were.
And then there were the sweetheart deals with nursing home operators, in which SEIU was granted the right of representing workers at some homes in return for ceasing organizing efforts at others—and for agreeing to lobby on behalf of the operators’ political agenda, which included defeating a bill of rights for nursing home residents, and forbidding workers to agitate on behalf of the residents. That boosted the membership rolls, but gains to the working class are hard to measure.
Intellectuals loved Stern, because he was an Ivy League guy who talked like them and cultivated them. It didn’t hurt that he wrote checks to support their journals and websites, either. And so Bob’s critiques were dismissed with great scorn. I’d like to say that Bob was vindicated when Stern retired, his union aflame in civil war and something like $100 million in debt, but I’m afraid few opinion shapers see it that way.
coda
Bob wasn’t perfect, dare I say? But some of his vices were inseparable from his virtues. He sometimes leapt to conclusions—but he was usually right, but it always gave the nitpickers some nits to pick. He was interested in a million things—early on, he wrote a book about Ghana. He’d studied Chinese. That breadth of interest sometimes devolved into an undisciplined lack of focus. He started many things he never finished. Marty Gottlieb, the former editor of the Village Voice now at the New York Times (and who, despite that career trajectory is a very fine man) who helped him write Solidarity for Sale, told me that Bob was very difficult to work with—too often all over the place. But that’s part of what made him so great and lovable. His mind never stopped working, at an almost sublime level of ambition.
As I’m bringing this to a close, I thought it would be nice to quote two people who knew and worked with Bob. First, Mike Tomasky, now in exile in Washington:
I was writing about New York politics and power at the time, and thinking I was doing a pretty good job of it; then I read The Assassination of New York, which just made me feel embarrassed and even humiliated about all the things I hadn’t known. I learned so much from that book—and from and from my many memorable conversations with its brilliant, gentle, intense, and utterly incorruptible author.
And then Don Guttenplan, the man who introduced me to Bob, now in London, which is a much better place to be than DC:
[It’s a] scandal that they scrape the barrel to give these so-called genius grants to third-rate conventional fakers when Bob Fitch, a man who did his own thinking and his own research, and who came up with truly original insights about some pretty important topics—urban planning, organized labor, critical journalism—had to live like a luftmensch.
Alexander Cockburn once said the mission of the bourgeois pundit is “to fire volley after volley of cliché into the densely packed prejudices of his readers.” Left media often do the same, whether it’s lionizing Andy Stern or cataloging the terrors of the Tea Party (which of course make it essential that we get all fired up for the current Democrat). Bob would have none of that. Though he had an excellent circle of passionately devoted friends and fans, he alienated a lot of people who could have made his life materially easier. But as Mike Tomasky said, he was utterly incorruptible.
I have a six-year-old son who gets upset when people believe in fictions. He’s not against fiction as fiction—his problem arises when people actually believe stories of their own creation. He wouldn’t agree with Wallace Stevens that “The final belief is to believe in a fiction, which you know to be a fiction, there being nothing else.” So when kids talk about the Tooth Fairy, he indignantly tells them there’s no such thing. The same with Santa Claus. He seems pretty sound on the God question, too. I think he might have inherited this some from me. I want to tell him it won’t make you popular, but I stop myself, because we need all the people like that we can get.
LBO News from Doug Henwood 
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Posted on June 3, 2012 by Doug Henwood
Radio commentary: compulsory patriotism, saggy job report
[I haven’t been posting my radio commentaries for while, for no particular reason. Here’s one from yesterday’s show. Audio soon to follow….]
rituals of compulsory patriotism
I’ll get to the May employment report in a moment, but first I wanted to say something about the Chris Hayes controversy from Memorial Day weekend. On his MSNBC show on the Sunday of that weekend, Hayes filed some objections to the use of the word “heroes” to refer to our soldiers, saying among other things that the designation was a way to sell unpopular wars. For this he was fried by the usual idiots, which is to be expected. [For a review, see here.] But then in a disappointing move on Monday, Hayes walked it back, as they say in DC, basically apologizing for having told the truth.
Hayes told me that no one asked him to do this. But this is one of those things that you don’t have to be asked to do—it’s how hegemony works. If you want to keep your TV show, you can’t be seen as criticizing the military in any way. Several times over the years, I’ve had the wonderful feminist scholar Cynthia Enloe on this show (e.g.: July 1, 2010) to talk about the military, one of her major topics of interest. I tried to get her on this week, but couldn’t get hold of her. So I’ll do the next best thing and channel her: there is no other country that calls itself a democracy, Israel excepted, that has so militarized daily life. There’s also no other putative democracy that has so many and frequent compulsory rituals of patriotism. Why do we sing the national anthem at sporting events? Why are we expected to pledge allegiance to the flag? There is no other democracy that has a pledge of allegiance like ours. And back in the 1950s, Eisenhower turned May Day into Law Day and Loyalty Day, thereby turning what was originally an American holiday to celebrate the working class and its radical potential into formal professions of obedience.
I am very sad that Chris Hayes felt like he had to apolgize. But this isn’t about him. In fact, he’s a good guy, admirable in many ways. It’s about our curious notions of freedom, which require constant genuflection to flag, army, and church. With this kind of ingrained deference, who needs fascism?
saggy job market in May
And now onto the May U.S. employment report. It was another saggy report, and revisions to the previous two months data make recent history even saggier than we initially thought. For a while it looked like some weather mischief was distorting the figures—activity normally undertaken in spring could have been brought forward into January and February, which came in stronger than anticipated. But that interpretation longer looks supportable: there’s a real slowdown underway—and the question is now whether we’ve reached the dangerous stage of “stall speed,” on which more in a moment.
Employers added just 69,000 to their payrolls in May, less than a third the long-term monthly average. That’s the lowest gain in a year. The average gain for the last three months is just 96,000, compared with 252,000 for the previous three. Just three sectors—transportation & warehousing, health care, and wholesale trade—together accounted for more than the entire private sector gain, since many other sectors were flat or down. Manufacturing wsa up decently. But construction was down hard, and the once-strong leisure and hospitality sector was also off. Government employment continues its long decline—a real anomaly for a recovery period by historical standards. For all the moaning by the right, government spending and employment has been a drag on recovery, not the usual stimulus. If getting government out of the way was the way to economic health, we’d be bounding about now instead of scraping along the bottom.
The length of the average workweek fell, and average hourly earnings were barely changed. As a result, the total number of hours worked throughout the economy fell, as did the total earnings of the mass of workers. It is impossible to sustain an economy on trends like these over the longer term.
The figures I’ve been quoting come from a survey of 300,000 employers. The simultaneous survey of about 60,000 households looked somewhat better, but not all that much. The share of the adult population working rose by 0.2 point, but that only reversed the decline of the previous two months. And while the household measure of employment showed good gains, they were more than entirely accounted for by gains in part-time employment (much of it among people who’d prefer full-time work). The number of full-time employed fell by over quarter of a million.
The unemployment rate rose a tenth of a point, as an uncommonly large number of people entered a workforce that was unable to accommodate them. But the problem of long-term unemployment, which had gotten a little better for a few months, got worse again in May. The average unemployed person has been out for work for nearly 40 weeks, one of the longest spells on record. And that’s almost three years into an economic recovery.
While this report hardly qualifies as a disaster, it does confirm that there’s a real slowdown underway, and not just some weather-related quirks. The question now is is this just a return to the post-financial crisis norm of weak gains, or a stall-speed transition to something worse? There’s good historical evidence that the U.S. economy just can’t live with slow growth. (And yes, before anyone emails me, I know that growth is not ecologically sound. But until we underake some serious structural reforms, it’s the only game in town.) So if growth gets much slower than it is now, we’re quite likely to fall back into recession. Add the worsening Eurotroubles, and it’s looking to us like the Federal Reserve will begin dusting off the Extraordinary Measures playbook very soon. Because god knows that neither the president nor Congress will do anything of the sort.
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Posted on May 31, 2012 by Doug Henwood
Student debt up, all other kinds down
The New York Fed is out with its credit report for the first quarter of 2012. It shows student debt bucking the trend (“Student Loan Debt Continues to Grow”), rising while all other kinds of debt fell from the end of last year. Student debt, at $904 billion (not yet the much-advertised trillion), is now considerably larger than credit card and auto debt. A decade ago, student debt was a less than half credit cards and autos.
(By the way, it’s interesting that the New York Fed has begun publishing rigorous student debt estimates, which were previously unavailable. Mark Kantrowitz’ estimate of over $1 trillion on his Student Loan Debt Clock is widely cited, but he doesn’t disclose his methods, even when asked. The New York Fed contracted with Equifax, the credit-rating agency, to get good numbers. The central bankers recently had David Graeber, author of Debt: The First 5,000 Years, down to talk to them, where he told them about the need for debt relief. He reports that they were very receptive to his message, fearing another economic crisis if nothing is done, though they probably wouldn’t go as far as his call for a Jubilee-style writeoff. It is utterly fascinating that this Vatican of capital called a prominent anarchist intellectual in for a consultation.)
For the quarter, student debt rose by $30 billion, or 3.4%, while all other kinds of debt fell by $131 billion, or 1.2%. Of the other major categories, only auto debt was up (but just 0.3%); mortgages (-1.0%), credit cards (-3.6%), and home equity lines (-2.4%) all fell. Debt has broadly been falling for almost four years, but student debt continues to rise. Nonstudent debt is down 13% from its 2008 peak—but student debt makes a new peak every quarter.
The best way to measure personal debt burdens over time is by comparing them to after-tax incomes. As the graph shows, most forms of debt rose steadily from 2003 (when the New York Fed data begins) through a peak at the end of 2007, and have fallen dramatically since. But not student debt. In fact, the ratio of nonstudent debt to income is only a little higher than it was in 2003—but the student debt ratio has more than doubled (from 2.9% to 7.9%). And that’s relative to aggregate incomes. Student debtors skew young, and their cohort’s incomes are well below average (even more so these days), meaning that the relative burden has risen more sharply than it looks.
As the student debt burden rises, it’s harder for debtors to pay. Delinquency rates, though down from their 2010 peaks, are well above all other kinds of debt. And student debt was the only category to show an increase in delinquencies last quarter. (Funny word, “delinquency.”) Officially, 8.7% of student loans are delinquent, but since many debtors are still in grace periods, they’re not expected to pay. Of those that are, the New York Fed earlier estimated that 27% of debtors were behind on their payments, when the official number was lower than last quarter’s. (See my earlier write-up of this topic for more.) This is an extraordinary level of financial distress.
As I’ve said elsewhere (“How much does college cost, and why?”), it would be fairly easy to make higher ed completely free in the U.S. But that’s not the way we do things here. Debt is too useful as social discipline.
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Posted on May 26, 2012 by Doug Henwood
Bain actually loves Dems
All good Democrats are busily hating on Bain Capital right now. What they’re forgetting is how many Bain-affiliated political contributions have gone to Democrats.
Plug the words “Bain Capital” into an OpenSecrets.org search and you learn that while Bain people have lovingly contributed to their former CEO’s presidential campaign, almost 3/4 of their contributions to other candidates, 72% to be precise, have gone to Democrats. That’s a higher percentage to Dems than the AFL-CIO!
And among the top recipients are Dem headliners like Al Franken, Claire McCaskill, John Kerry, Mark Udall, Nancy Pelosi, and Sherrod Brown. They were also major contributors to the Democratic National Committee and the national Democratic party. There are very few Republican candidates on the OpenSecrets list, and no major gifts to the GOP itself.
So Cory Booker’s defense of private equity (PE) against attacks by the Obama campaign has a very materialist explanation: PE titans like Bain have been funding Dems for ages—including Booker himself (e.g., “Cory Booker’s Bain Capital money”). It was just a few years ago that hedge fund (HF) hotshot Paul Tudor Jones held a 500-guest fundraiser for Obama, back when “the whole of Greenwich” (an epicenter of the industry) was behind him (“Another top hedge fund chief backs Obama”). Then he hurt their feelings with one intemperate use of the term “fatcats.” But it’s not like Obama is about to expropriate the PE and HF types.
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Posted on May 22, 2012 by Doug Henwood
Explaining what goes on in the world: in memory of Bob Fitch
[This is the text of a talk I gave at LaGuardia College, Long Island City, Queens, in memory of Bob Fitch, who died on March 4, 2011, from complications of a fall he suffered when returning home from teaching at LaGuardia. My short remembrance, written for The Nation, is here. Thanks to Jane LaTour for the two photos of Bob reproduced here. Video by Prudence Katze and Will Lehman is here.]
I want to start by saying how honored I am to be giving this, the first Bob Fitch memorial lecture. I dearly hope there will be a second and many more after that, and it’s up to some of us in this room to make that happen. I admired Bob tremendously. I can’t think of anyone I’ve known personally who’s influenced me as much. He was remarkably erudite—read deeply in many areas and wonderfully cultured in an almost old-fashioned way. I called him once when he was listening to Schubert. We got to talking about the greatness of much bourgeois culture, and he criticized today’s bourgeoisie for taking such poor care of its class inheritance. That task had fallen to Marxists, I guess.
He was also a warm, generous, and very funny guy. It breaks my heart that I’d lost touch with him in recent years. I’d been resolving to change that, but then it got too late. I never got to talk to him about Bloomberg or Obama. I’m ashamed, actually.
I met Bob in the late 1980s—I can’t remember exactly when. He was just resurfacing after several years underground. A major publisher had given him a big advance to write a book about New York City, and he found it impossible to deliver. Bob delisted his phone number, gave up writing for union organizing, and tried to keep the forces of the bourgeois system at bay. When the coast cleared, he started writing for the Village Voice. His editor there, and mine, Don Guttenplan, introduced me to him.
On Don’s recommendation, I’d just read Bob’s fantastic 1976 essay “Planning New York,” which was adapted for The Assassination of New York 20 years later. It was about the 1929 plan for New York City drawn up by the Regional Plan Association. It laid out the outline for an auto-centered metropolitan region, including the highway system that would later be attributed to Robert Moses. It developed and formalized an old upper class desire to deindustrialize the urban center. The essay made it impressively clear just how precisely planned by elites over the very long term the physical and social evolution of New York City has been. One’s casual impression of the city may be that it’s unplanned and chaotic, but it’s long been anything but that. It’s been guided by the careful hand of the FIRE sector—finance, insurance, real estate—and the elite nonprofits and experts that think for it.
Bob and I became good friends after I read the essay. We saw each other from time to time but a lot of our friendship was on the phone, many hours a week. Bob talked to me a lot about the ideas that led to The Assassination of New York. I’d been living in the city for about ten years when I met Bob, and until then I never really understood how the place works. I had only the vaguest idea of how people like Felix Rohatyn and firms like his Lazard Frères shaped the city—including shaping the LaGuardia campus where we are right now.
I’m not really up to analyzing the present from the perspective of Bob Fitch, but I’d like to talk about some of the things he shaped my thinking on. At least three come to mind. One is the city, ruled by a true plutocrat—though it’s not like Bill Thompson or Christine Quinn would be much different. (Speaking of Christine Quinn, I was once sitting with Bob in a diner in downtown Manhattan when she walked by outside. She waved enthusiastically at him and he waved back. She’s changed a lot.)
Another is the state of the labor movement. When I was first asked for a title for this talk, I thought of something like, “The labor movement survived Bob Fitch, but barely.” The spectacle of Trumka endorsing Obama, months before he really had to, reminded you that institutions, like economic stats, can come in under expectations, even when expectations are already low. Back in 1995, when many on the labor left were excited over the ascension of John Sweeney to leadership of the AFL-CIO, Bob dismissed it as delusional. (I’d forgotten until just now that among the 11 union presidents who gathered to push Lane Kirkland aside was Arthur Coia, the leader of the Laborers Union who was driven out for corruption and criminal ties.) Later, when the labor left got all giddy over Andy Stern, Bob stabbed holes in those illusions too.
And then there are the Democrats, in whom organized labor is incorporated in a vassal-like relation. Though a lot of liberals moaned some about Obama last year, this year re-electing him is a task of world-historical proportions. Personally, I’d like to see Obama re-elected because it’s better for radicals when Dems are in power; it makes it clear how the suckiness is systemic, and not a matter of personnel or party. But that’s not the prevailing view. The urgency to support the Dems, as it often is, is driven by the awfulness of the right. If Romney wins, the Tea Party will move into the Executive Office Building. Can the brownshirts be far behind?
Obama and friendly FIRE
I recently came across the text of a talk that Bob gave to the Harlem Tenants Council, ten days after Obama was elected. After acknowledging his considerable talents and powers of enchantment, and the pride that African Americans felt over his election, Bob wondered just what was his political philosophy and just what interests did he represent? His political philosophy, said Bob, was Third Way-ish and communitarian, meaning that he dismissed any idea that there are real conflicts in society because we can all just reason together and do what’s best for all of us. But by saying that, they’re really just siding with the powers that be, because there are real conflicts in society and there can be no Best for Everyone happy ending.
Following that is a dazzling analysis of Obama’s roots in Chicago society—one of those Fitchian moments in which the world makes a lot more sense after you’ve gone through it. Many of us are familiar with the way that Obama was groomed for excellence by power from his early days. Beloved of elite schools and foundations, Obama—who’s poked fun at his mother’s “position-paper liberalism”—had a charmed rise on the status ladder of American society. When he arrived at the Senate, after not all that much experience in the Illinois legislature, he would have none of the gladhanding necessary to get along in that dismal body. So Harry Reid called him in after about a year and a half and told him that he had no aptitude for the Senate and he should run for president instead. Reid & Co were terrified that Hillary Clinton would get the nomination and lose disastrously, so Obama was their hope. Yet they were so afraid of Hillary’s vengefulness that they promoted his candidacy secretly at first. (The story is told in John Heilemann and Mark Halperin’s Game Change.) Obama proved himself up to the challenge. But that this guy was any kind of outsider, that he was anything but wired to the center of the Democratic branch of the power structure, well, it was remarkable what people believed in 2007 and 2008.
But Bob’s great contribution was to trace Obama’s roots in Chicago property relations. Over the last two decades, he reported, there’s been a concerted plan to gentrify the South Side of the city, home to the largest black population in the country, many of them rather poor. (Among the country’s ten-biggest cities, Chicago has the third-highest poverty rate, and the highest black poverty rate.) In the 1950s, the policy was urban renewal, meaning razing low-rise housing and moving black Chicagoans en masse into high-rise public housing. It did not work well. So in the 1990s, Democratic urban planners decided it was time to “spatially deconcentrate”—meaning knock down the high-rises and move people back into dispersed private housing. This was touted as an anti-poverty measure: since poverty is considered to be a communicable disease, scattering the poor about town will reduce their exposure to each other, thereby reducing the spread of the illness.
In Chicago, Daley’s administration cleverly brought black developers into the heart of the scheme. They would build and rehab the new units the displaced poor would move into. Since much of this happened in Obama’s state senate district, he knew the principal players very well. As Bob put it, there was a constellation of interests around Obama in Chicago—the typical FIRE sector, personified by big Chicago families like the Pritzkers and the Crowns, but also what Bob called “friendly FIRE,” the liberal foundations and nonprofit developers who try to synthesize an aura of community uplift around gentrification. A lot of what is called community organizing in this country quickly devolves into high-minded real estate development, typically with the assistance of the Ford Foundation—which by a not very stunning coincidence, employed Obama’s mother in Indonesia.
And though almost all of the people displaced by friendly FIRE are poor and black, they’re often displaced by a black financier/developer class that serves a rising black middle class. For the portion of the left that trades on a one-dimensional race analysis of social life, this is very confusing. But this is how Obama the “community organizer” could, just a few years later, praise Jamie Dimon of JP Morgan and Lloyd Blankfein of Goldman Sachs as savvy businessmen. And so it was hardly surprising that Obama brought in William Daley, brother of former Chicago mayor Richard Daley—by virtue of office, the chief executive of the South Side gentrification schemes—to be his chief of staff after Rahm Emanuel went off…to become mayor of Chicago. Oh, and it just happened that William Daley was the head of Midwest operations for JP Morgan Chase and chair of its foundation, which Bob called “the core of friendly FIRE.”
It doesn’t take anything away from Bob’s genius to say that these are not the kinds of facts that you need to spend years in obscure archives or filing a ream of freedom of information act requests to discover. (He did lots of that over the years, too, but not for this talk.) Most of the secrets of American political life are, like Poe’s purloined letter, hidden in plain sight. It’s just that many people don’t want to think about them. Certainly not all those people suffering from Obamamania in 2008, when Bob gave that talk, or even the mildly disillusioned liberals of 2010—and certainly not all those enthusiasts suffering from a relapse of their 2008 enchantment in 2012. Years divisible by 4 produce such predictable delusions.
planning New York
I’d like to spend some time with “Planning New York,” my introduction to Bob Fitch’s work. It was incorporated into The Assassination of New York but I still like the old version for sentimental reasons. It appeared in a collection, The Fiscal Crisis of American Cities, mostly though not entirely about New York, that was edited by Roger Alcaly and David Mermelstein. Alcaly, by the way, left radical economics to run a hedge fund, and then wrote cheerful articles about the New Economy of the late 1990s for The New York Review of Books.
Bob’s piece was about the Regional Plan Association’s 1929 plan for New York. The RPA is a classic elite outfit—a FIRE-dominated think tank, founded in 1922, which according to its own ad copy is all about improving the quality of life in the metropolitan area. Its idea of quality of life becomes quickly apparent on the front page of its website, which just the other day featured a study on how to make large real estate projects, which contribute so much to that quality of life, work. The RPA’s board consists of developers and financiers—including one guy who runs a hedge fund called Dialectic Capital Management. You have to wonder what his personal history is—but whatever, it got him a $5 million house in Brooklyn Heights.
New York has a habit of producing these long-term plans right around stock market peaks. There was another in 1968, just as the rot of the 1970s was to set in; another in 1987, just before the stock market crash; and another in 2007, just as the Great Recession was about to hit. That’s good for a chuckle—the bourgeoisie can be so silly—but still, the plans do basically come true. The local FIRE elite is capable of thinking beyond the business cycle—more than their national counterparts, it seems. When your fortune is tied to real estate, you can’t easily up and leave; you’re forced to care about the long term.
One reason for the appearance of grand plans at major market tops might be that during the boom that precedes them, FIRE accumulates vast wealth and power that they can then translate into long-term political gains. As Bob pointed out, the financial and real estate boom of the 1920s allowed FIRE to rise to local dominance, and though much of that wealth evaporated in the crash, the long-term plans remained intact. Similar things could be said about the later iterations.
Again, it’s amazing how much of this scheming is hidden in the open. But it provokes no interest from mainstream journalists. I once talked with a New York Times reporter who’d been freshly posted to the metro desk. She was wondering what to write about. I suggested land use stuff—how apparently random real estate deals actually fit in with these long-term schemes. She wondered what the news value of this is. I said, the city is carefully planned and no one ever talks about that. (I had my doubts that the Times would ever publish such stories, but still I thought it was worth a try.) She found it completely uninteresting—there would only be a story if “some politician is getting rich off it.” Of course that’s been known to happen, but that’s not the most important thing. How a small elite shapes the economic, social, and physical environment we live in strikes me as a very important story, but it has no news value to a mainstream journalist.
As Bob put it, the influence of the 1929 plan can be seen in the division of the region into Slab City—the high-rises of Manhattan—and Spread City, the suburbs that surround the city center. This was enabled by the building of a set of highways that made it possible to travel to and from the city, or comfortably around it if you were traveling elsewhere. The network of highways typically attributed to Robert Moses were actually laid out in the RPA plan: as Bob put it, all Moses had to do was pour concrete on the dotted line.
The central idea was to concentrate high-end activities in the city center—finance and other service businesses that could afford high rents—and move the noxious stuff out to Jersey. Bankers with a taste for the country life would find it easier to get back and forth from Long Island or Westchester, and those that liked the urban life wouldn’t have to compete with the working class for housing and retail, or have to look at them on the sidewalk.
As Bob argued, Slab City requires high levels of public spending on physical infrastructure. This need is at the basis of a lot of Democratic politics—developers (and their bankers) contribute to politicians who then reward them with appropriate projects. It’s amazing how pervasive this relationship is over time, whether it was Harry Truman and his Kansas City patron, political boss Tom Pendergast, who just happened to own a cement plant, or Obama’s relationship with his Chicago patrons.
Truman, though, was old-style, the product of an urban machine. Much preferred by the FIRE elite are cap-P Progressive or cap-R Reform politicians, technocrats who are supposedly above the petty corruption of Tammany-style politics. As Bob put it, the major difference between those two tendencies can be seen most clearly in the municipal budget: Tammany types stoke the expense budget with patronage schemes, but the Reform types love the capital budget, with its infrastructure schemes. In fact, Bob argued that it was the borrowing to fund capital spending on transit and middle-income housing that got New York City into debt trouble in the 1970s, not the alleged generosity of the social services budget, as mainstream hacks like to claim.
Back to the ’29 plan. It was passionately devoted to getting manufacturing out of Manhattan. Though garment makers liked to be close to retailers, real estate interests didn’t like that. Rag shops took up space that could be far more profitably rented to bankers, lawyers, and admen. Too many garment workers—many of them unpleasantly Jewish—were clogging the sidewalks and scaring the wives of the better sorts away from high-end shops. Instead, the city should be reconfigured in line with this rough hierarchy: 1) financial business, 2) fancy retail, 3) fancy residential, 4) inferior retail, 5) wholesalers, and, at the bottom of the list, 6) industry and working-class housing. The ultimate goal was to turn the city into one of the commandingest peaks at the commanding heights of global economic activity: finance, senior management, and the consciousness industry.
Of course, the poor would not go away, even if their housing was demolished in the name of urban renewal and slum clearance. Instead, they’d be rendered structurally unemployed as industry was driven out to the suburbs or beyond. White flight, deindustrialization, and all the other familiar phenomena of post-World War II America didn’t just happened. The RPA et al. made it happen.
These themes are developed further, into the Dinkins years, in The Assassination of New York. But it’s amazing how much of the long-term urban strategy was established in the 1929 plan and continued even into the present. The planners did face a challenge in recovering from the trend that culminated in the crisis of the 1970s: there had been too much decentralization. It was essential to do some recentering—to get more high-end service activity in Manhattan and more rich people living there. It worked.
more recent history
And as Manhattan upscaled, so too did Brooklyn. But that, too, was no accident. Starting in the late 1960s, with the able assistance of Pratt Institute—named after its founder, Charles Pratt, a great property owner and Rockefeller partner—city planners pushed industry out of Brooklyn and began the gentrification of working-class neighborhoods. (I live in a former shoe factory at the eastern edge of Clinton Hill, just blocks from Pratt, that was turned into condos in 2005.) More recently, the Atlantic Yards project—heavily supported by city funds and with the massive power of eminent domain (New York has the most developer-friendly eminent domain laws in the U.S.)—are a perfect example of the use of public infrastructure projects as a gentrification strategy. The scheme extended the strategy of turning downtown Brooklyn into an office park and surrounding neighborhoods into elite residential space.
You can read the outlines of more recent planning in the 1987 volume, New York Ascendant: The Report of the Commission on the Year 2000, led by Robert “Bobby” Wagner, Jr., son of the three-term mayor. The report projected that city employment in 2000 would approach 3.8 million, matching the late-1960s peak, about 300,000 above where it was when it was published. But the stock market crash, and the bust that followed it, actually knocked nearly that much off city employment, leading Bob, writing in the early 1990s, to be very skeptical of the Wagner commission’s ambitions. This is a further reminder that radicals should always be careful of underestimating capital’s powers of self-renewal—something we should do even today, when it looks like the whole system has busted a gasket.
As it turned out, the Commission was right on target. City employment peaked at 3.8 million in December 2000, coming within a hair of the 1969 peak. (The city’s population was about 300,000 lower in 1969 than it was in 2000, meaning that a smaller share of the population was working. That’s structural unemployment for you.) And, by the way, we matched that level again in 2008, and are now above it after having lost fewer than 200,000 jobs in the Great Recession. FIRE’s recovery from the 2008 crisis has been very impressive, even if the recovery of the economy and the debtor class has been a lot less so.
And what was the development strategy outlined in New York Ascendant? Surprise, surprise: being a world capital of what economists call the tertiary sector. The primary sector is basic stuff like farming and mining; the secondary, manufacturing and construction; and the tertiary, elite services like finance, lawyering, and advertising, and less elite services like retail and restaurants. There’s more money to be had in the elite services, but bankers do like to eat well and wear snazzy clothes, and their kids do need nannies, so the tertiary city is notorious for a barbell-shaped income distribution: a legion of low-paid service workers tending to the high-paid service workers but with not so many people in the middle. This is, as the vulgar Marxists used to say, no accident. And, as Bob Fitch liked to say, vulgar Marxism explains 90% of what goes on in the world.
New York Ascendant did allow for a smallish manufacturing sector—a specialized one, tied to dominant industries, like “very high-end fashion,” serving the local design talent, and costume making for the theater. It also sought to retain low-end clerical work for the finance sector and to encourage the development of the information sector. To retain the back office stuff would require the extension of the central business district (CBD) across the East River into new beachheads in downtown Brooklyn and Long Island City. That has happened. That’s why we have MetroTech in downtown Brooklyn, populated among others by Chase (the old Rockefeller family bank) and NYU. And it’s not just the extension of the CBD: we see the Bloomberg administration pushing a high-tech campus on Roosevelt Island and pressing the residential development of Hunters Point just south of Long Island City, squeezing out the industrial uses that used to dominate the neighborhood.
And that scheme also explains how the campus we’re on now, LaGuardia College, evolved—though that was not the planners’ original intention. In accordance with elite scheming, Lazard Realty, an arm of the investment bank that employed the mighty Felix Rohatyn for many years, developed several buildings along Thomson Ave. in the late 1980s, with the hope of filling them with clerical workers. Rohatyn, while often portrayed as the “savior” of New York City, was the leader of the bankers’ coup during the fiscal crisis of the mid-1970s. He and his comrades displaced the elected government and imposed what could only be described as the dress rehearsal for the neoliberal agenda that would transform the world from the 1980s onward: austerity for the masses and largesse for the overprivileged. Of particular interest to CUNY people was Rohatyn’s insistence that the policy of free tuition, first established by municipal referendum in 1847, come to end—not so much for its fiscal importance, he said, but for its shock value. No more something for nothing in the era of lowered expectations.
Lazard Realty’s plans for the stretch of this road that it called Thompson Place proved ill-timed. The buildings were ready for occupancy just as the stock market crashed and the 1980s boom was turning to bust. But CUNY came to Lazard’s rescue, as LaGuardia College bought one of the buildings in 1988. No shock value, no lowered expectations for Lazard!
And another building was filled by the School Construction Authority, created by the New York State legislature in, yes, 1988. And, curiously, one of the prime advocates for the creation of the School Construction Authority—an independent authority to handle building and renovation tasks formerly handled by the Board of Education—was none other than Felix Rohatyn. Construction is a bondable activity, and investment bankers love floating bonds. But, as Bob frequently underscored, elites love the capital budget far more than the expense budget. Creating the SCA was just right for Felix’s personal and professional interests. And the timing was just right to take a problem property off Lazard’s hands.
I found all that out back in the early 1990s, when I was writing about the political economy of New York for the Village Voice—very much under Bob’s tutelage. I really miss doing that. I’ve lost track of what’s going on, and I can’t think of many prominent outlets for that sort of investigation. I’d really love to know what to make of Bloomberg’s plan for the year 2030, which includes more of the same, of course, with an emphasis on a green agenda. I love bike lanes, alternative energy, greenhouse gas reduction, and restrictions on auto use as much as any other red–green hybrid, but Bob taught me to be skeptical of this sort of thing, because it typically had a real-estate angle. Elites have loved parks because they take land off the market, thereby boosting the value of the remainder, and because they create hypervaluable parkside locations. But we love parks too. And we do want to save the earth, and short of a revolution that seems not to be imminent, we need enlightened bourgeois politicians to embrace a green agenda. I wish Bob were here to help us think straight about this era in which the richest man in town, a titan of the FIRE sector and not its mere servant, is in his third term as mayor.
the unions
Bob’s death severely reduces the ranks of people who study the political economy of New York City seriously. It also reduced the ranks of those who want to do something better with the substantial resources we have here. It was brought home to me how few of us there are about 20 years ago, during the Dinkins years, when we tried to put together a little think tank to come up with some alternative redevelopment schemes, centering around rebuilding the port and restoring the rail link to the mainland, both of which would encourage the development of manufacturing (and, incidentally, clean the air considerably, since almost everything that comes into town has to come by truck—something like 90% of it over the George Washington Bridge).
The chilly reaction of the unions, aside from CWA Local 1180, which gave us meeting space, was a reminder of one of Bob’s more profound observations: on major political questions, unions take their cue from their employers. Obvious after you hear it, but not before. We saw that most consequentially in the hostility of Andy Stern’s SEIU to a single-payer health care system, which he scornfully dismissed as a Canadian import. Of course, the employers of SEIU labor, the hospitals and nursing homes with whom he’d made so many noxious secret deals, didn’t want a single-payer system. And so, rather than traffic in Canadian imports, Stern chose instead to make common cause on the issue with Wal-Mart CEO Lee Scott.
Ah, the unions. Bob’s work on New York City alienated the liberal politicians, whose complicity with the FIRE sector threatened their claims to high-mindedness, and the elite foundations, who bankroll so many high-minded intellectuals. Many otherwise decent people need grants from Ford and Rockefeller and are scared to death to say anything about how philanthropists constrain political discourse. Many formerly decent people fall under the philanthropists’ sway and think they’re fighting for justice when they’re really engaging in upper-class charity work that ultimately sustains rather than challenges the social hierarchy.
Bob offered a nice summary of the thesis of his last book, Solidarity for Sale, in an interview with Michael Yates of Monthly Review:
Few things annoyed progressive union types as much as Bob’s critique of Andy Stern’s SEIU. As Bob pointed out, much of the growth in SEIU’s ranks came from very questionable sources. One was home care workers, who got union recognition in California and Illinois. This was accomplished by large contributions to gubernatorial campaigns (including that of the notorious Rod Blagojevich, now federal prisoner number 40892-424); the victorious governors said thank you by granting SEIU recognition to represent them. Many of these home care workers are people who are reimbursed for their efforts in taking care of sick relatives. This sort of union growth has nothing to do with organizing against the will of hostile employers. And SEIU did little or nothing to raise their dismal rates of pay. For pointing this out, Bob was accused of devaluing the home care workers, when instead he was showing how meaningless Stern’s claims of vigorous growth were.
And then there were the sweetheart deals with nursing home operators, in which SEIU was granted the right of representing workers at some homes in return for ceasing organizing efforts at others—and for agreeing to lobby on behalf of the operators’ political agenda, which included defeating a bill of rights for nursing home residents, and forbidding workers to agitate on behalf of the residents. That boosted the membership rolls, but gains to the working class are hard to measure.
Intellectuals loved Stern, because he was an Ivy League guy who talked like them and cultivated them. It didn’t hurt that he wrote checks to support their journals and websites, either. And so Bob’s critiques were dismissed with great scorn. I’d like to say that Bob was vindicated when Stern retired, his union aflame in civil war and something like $100 million in debt, but I’m afraid few opinion shapers see it that way.
coda
Bob wasn’t perfect, dare I say? But some of his vices were inseparable from his virtues. He sometimes leapt to conclusions—but he was usually right, but it always gave the nitpickers some nits to pick. He was interested in a million things—early on, he wrote a book about Ghana. He’d studied Chinese. That breadth of interest sometimes devolved into an undisciplined lack of focus. He started many things he never finished. Marty Gottlieb, the former editor of the Village Voice now at the New York Times (and who, despite that career trajectory is a very fine man) who helped him write Solidarity for Sale, told me that Bob was very difficult to work with—too often all over the place. But that’s part of what made him so great and lovable. His mind never stopped working, at an almost sublime level of ambition.
As I’m bringing this to a close, I thought it would be nice to quote two people who knew and worked with Bob. First, Mike Tomasky, now in exile in Washington:
And then Don Guttenplan, the man who introduced me to Bob, now in London, which is a much better place to be than DC:
Alexander Cockburn once said the mission of the bourgeois pundit is “to fire volley after volley of cliché into the densely packed prejudices of his readers.” Left media often do the same, whether it’s lionizing Andy Stern or cataloging the terrors of the Tea Party (which of course make it essential that we get all fired up for the current Democrat). Bob would have none of that. Though he had an excellent circle of passionately devoted friends and fans, he alienated a lot of people who could have made his life materially easier. But as Mike Tomasky said, he was utterly incorruptible.
I have a six-year-old son who gets upset when people believe in fictions. He’s not against fiction as fiction—his problem arises when people actually believe stories of their own creation. He wouldn’t agree with Wallace Stevens that “The final belief is to believe in a fiction, which you know to be a fiction, there being nothing else.” So when kids talk about the Tooth Fairy, he indignantly tells them there’s no such thing. The same with Santa Claus. He seems pretty sound on the God question, too. I think he might have inherited this some from me. I want to tell him it won’t make you popular, but I stop myself, because we need all the people like that we can get.
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Posted on May 19, 2012 by Doug Henwood
Me talking about Fitch, Monday
I’m giving the Bob Fitch memorial lecture on Monday evening, 5-7 PM, LaGuardia College, 31-10 Thomson Avenue, Long Island City, Room E-500.
New York city, unions, Democrats, stuff like that.
Map:
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Posted on May 12, 2012 by Doug Henwood
Fresh audio product
Just added to my radio archives:
May 5, 2012 James Galbraith, author of Inequality and Instability, talks about inequality and instability
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Posted on April 30, 2012 by Doug Henwood
Fresh audio product
Just posted to my radio archive web page:
The audio files have been there since the Friday before their broadcast on KPFA. But sometimes I take time to update the web page. Subscribe to the podcast (instructions are on the web page, or do it via iTunes here), and you won’t have to wait for my often-tardy HTML updates.
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Posted on April 26, 2012 by Doug Henwood
Employment laggard: the public sector
Paul Krugman notes that public sector employment has declined under Obama—a sharp contrast with his two predecessors, under whom it grew (with Republican Bush ahead of Democrat Clinton). How does recent experience stack up on a longer view?
Very unusually. Graphed below is the behavior of employment—total, private, and public—around business cycle troughs and recoveries. The darker lines are the averages of all the cycles since the end of World War II; the lighter lines, the most recent period, around the June 2009 trough. (Click on the graph for the full-sized version.)
As of March, the most recent data we have, we were 33 months into the recovery/expansion. In a “normal,” or at least average, expansion, total employment would be up 6.6% (which is why the index number on the graph is 106.6). But now it’s only up 1.8%. But there’s an enormous divergence in public and private sector employment. In an average recovery, private employment would be up 6.7% and the public sector up 6.4%. This time, though, the private sector is up just 2.7% (4 points short of the average)—but the public sector is down 2.5% (almost 9 points below average).
Putting some numbers on that, total employment is 6.3 million below where it would be in an average recovery. (As the graph shows, the decline in employment was far deeper than average, and the recovery slower to kick in.) Of that shortfall, 4.3 million comes from the private sector, and 2.0 million from the public. So the public sector is responsible for about a third of the deficiency. But that’s twice its share of total employment.
No doubt yahoos will cheer the fall in public employment as a reduction in waste—though there’s no visible payoff in private sector job growth. (Of course, the yahoos don’t care about the continued deterioration in public services.) Public sector austerity is a major drag on the job market. If public employment had merely matched the anemic growth in the private sector, the unemployment rate would be more like 7.4% than 8.2%. And if it had matched its post-World War II average, the unemployment rate would be under 7%.
Propagandists love to go on about how the socialist in the White House is scaring the private sector, leading to a hiring strike. But public sector austerity—mainly at the state and local level—is a major drag on the job market. That doesn’t get anywhere the attention that it should.
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Posted on April 23, 2012 by Doug Henwood
Obama’s stock market: pretty good (if you care about that sort of thing)
Republicans and business interests have been relentless in their whining about how B. Hussein Obama has the “job creators” cowering under a reign of terror, what with his socialist policies and hostile rhetoric. But how have the monied been voting their approval or disapproval in one of their favorite venues, the stock market?
There, Obama’s approval rating looks even higher than Gallup’s version. Obama is now in the 40th month of his reign. Compared with the same spots in other presidential terms since 1945, Obama’s stock market is the third best, beaten only by Clinton’s second term and Eisenhower’s first. (See graph, below.) Adjusting for inflation has little effect on the rankings.
Since the beginning of Obama’s term in office in January 2009, the S&P 500 is up 60%—twice the average of all the 18 presidential terms since Roosevelt’s third. (Adjusting for inflation, Obama’s score is three times the average.) These results are not particularly surprising. The 40-month average for Democratic presidents is 36%; for Republicans, 24%. Still, Obama’s 60% is nearly twice his party’s average.
Of course, stock market returns have little to do with human welfare. In fact, you could argue that the boom in corporate profits—the fundamental reason for the strength in the stock market—has come at the expense of the working class, whose wage and salary income have gone approximately nowhere over the last three years. (Since the recession ended, profits have risen at almost eight times the rate of wages; in a “normal” recovery, they’d have risen less than three times as much.) But the notion that Obama has been “bad for business” is a hard case to make—not that it will stop it from being asserted.
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Posted on April 14, 2012 by Doug Henwood
New radio product
Some of these shows have been up as podcasts for a while, but I’ve just updated the web page. If you want timely delivery, subscribe to the podcast. Here’s the show’s iTunes page. If you prefer individual access, here’s some recent product:
April 7, 2012 Joel Schalit, co-editor of Souricant, on anti-minority violence in Europe 8 Saadia Toor, author of The State of Islam, on the history and politics of Pakistan
March 31, 2012 Dan Lazare on the awfulness of the Supreme Court (excerpt from a 2005 interview) • Jamie Webster ofPFC Energy, on the state of the oil market • Peter Frase, author of this, on the problem with sex work: work
March 24, 2012 Mark Weisbrot, co-director of the Center for Economic and Policy Researchon the Argentine model of default • Madhusree Mukerjee,author of Churchill’s Secret War,on Churchill, Britain, India, and famine during World War II
March 17, 2012 Alan Beattie, international economics editor of the Financial Times and author of the Kindle-only Who’s in Charge Here?, on botched policy responses to the crisis •Steingrímur Sigfússon, former finance minister and current Minister of Economic Affairs of Iceland, on that country’s unorthodox strategy towards the crisis
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Posted on April 13, 2012 by Doug Henwood
The Nation moves money, again
Forgive me if I’m looking obsessed, but someone has to do it. The Nation was out with an email blast this morning touting its branded affinity VISA card issued by UMB Bank in Kansas City. The magazine’s associate publisher, Peggy Randall, helpfully identifies UMB as “a small, regional bank recommended by the Move Your Money project, a project we support,” and therefore in accordance with the goals of the Occupy movement.
So who is UMB Bank, really? It’s yet another iteration of the classic Money Mover’s institution: flush with more money than it can invest locally, it loads up on securities. (Parenthetically, why should a magazine based in New York encourage doing business with a bank 1,200 miles away on localist grounds?) According to its latest annual report, 46% of UMB’s money is invested in securities, and another 6% is on deposit with other banks—which comes to over half. They don’t provide details on the securities, but they’re almost certainly a mix of Treasury bonds, mortgage bonds, and corporate bonds—utterly conventional financial market stuff. Just 37% is out in loans—and 0.8% in small-business loans, beloved of the small bank fanclub. They are big regional players in mutual funds, wealth management, and private banking, all moderately to seriously upscale stuff. And, like the big guys, they’re looking to make more money out of fees, rather than traditional deposit-taking and loan-making.
But that’s not all. UMB is big in the Health Savings Account (HSA) racket. HSAs, a snake-oil favorite of right-wingers, are tax-sheltered savings schemes that typically come with high-deductible health insurance policies attached. If you need a doctor, you can dip into the savings account, because you’re going to have to pay thousands of dollars out of your own pocket before the insurance kicks in. The philosophy behind HSAs was summarized in a recent press release (“UMB Announces 36 Percent Increase in Health Savings Account Balances”) by Dennis Triplett, CEO of UMB Healthcare Services:
Translation: if people have to pay through the nose to visit the doctor, they’re going to think twice before booking an appointment. That’s “empowerment” for you.
A number of studies (by the GAO, the Employee Benefit Research Institute, and the Commonwealth Fund) have found that while HSAs and associated high-deductible plans can save employers money, they also tend to attract the young, the healthy, the well-off, and people who think they’re unlikely to get sick. Taking the likes of those out of the broader insurance pool makes the remainder harder and more expensive to cover and does nothing for the currently uninsured. It’s an individualized, market-centered approach to the problem that is antithetical to everything The Nation stands for. But there’s nothing like the imprimatur of the Move Your Money folks to dissipate skepticism among those who wanna believe.
I don’t begrudge The Nation trying to raise money. God knows they need it (though, if truth be told, a Romney victory would probably put them deep in the black). And if an affinity credit card raises significant money for them, they should go for it. But it would be nice if they didn’t encourage political illusions about finance when shaking the cup.
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Posted on April 2, 2012 by Doug Henwood
On not staging a mock conversion to the right
Here’s a slightly edited version of my opening remarks at last night’s panel on the right, featuring Corey Robin and me, moderated by Christian Parenti, held at UnionDocs in Brooklyn. It was a fine event, and thanks to all who made it possible. Audio will be posted somewhere soon.
Given the day, I’d originally thought I would rue the absence of an actual right-winger on this panel, then recount my political history as a brief libertarian in my early college days, and announce my return to the fold after a long, frustrating career on the left—and ended with an April Fool’s!
I decided not to do this: 1) because it’s a cheap trick, and therefore beneath me, and 2) because my wife and counseling editrix, Liza Featherstone, pointed out that many of the critiques of the left I was going to use in my conversion narrative were critiques I’d want to use from inside the left, and by associating them with the right, I’d be discrediting the critiques. I was persuaded.
To steal a rhetorical trick from Gayatri Spivak, had I done that, I’d have said several things. One would have been to recall that during my right-wing days, Yale’s Party of the Right (for more, see here and here), to which I belonged in my undergrad days, began its meetings by reciting Charles I’s execution speech, which contains the startling revelation that affairs of government involve “nothing pertaining to” the people, because “a subject and a soveraign [sic] are clean different things.” And then his head was lopped off with an axe. This is absolutely odious stuff, and it’s amazing that an elite institution of the American right would baldly embrace something so deeply at odds with official American ideology, but the truth value I’d want to extract from it is that while we on the left often talk about democracy, the populace that’s been created by the alienating life under capitalism and the deeply antidemocratic structure of American government is full of incoherent and, to most of us in this room, often odious opinions. And that’s a problem for leftists who tout democracy.
Another point I would have made is that the left often bases itself on a sunny view of human nature, one utterly foreign to the right. Noam Chomsky, for example—and he’s certainly not alone in this—basically believes that humans are hardwired for decency and freedom, but they’re distorted by bad institutions. (For an analysis, see this essay by Joshua Cohen and Joel Rogers.) Aside from wondering how Chomsky knows this, I’d want to say that there probably is no human nature aside from the institutions that shape us, and we’re back to the problem of working with an unsatisfactory populace. It’s a lot easier to solve this problem when you’re an elitist. And on that point, had I announced my return to the right, I would have quoted for support these comments on Marxism from a liberal icon—someone admired even by some radicals, including me, John Maynard Keynes: “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?” What an odd secret affinity between Charles I, the Party of the Right, and Anglo-American liberalism.
And, finally, and not unrelatedly, peace. For years, we had up in our apartment a poster that someone gave us for a wedding present that celebrated a Museum of Peace in Chicago, done by a German artist who’d been a Communist. It always kind of annoyed me, and I insisted we take it down the other week. I’m certainly no fan of violence, but somehow the celebration of peace seems drained of politics. And back in the days when Communists did such things, they were actually taking sides in the Cold War. There was something dishonest about using peace as a cover for a political struggle. But in a world as divided as ours, peace as an ideal seems to invoke, to use the old phrase, a premature reconciliation of contradictions—not to mention somewhat banal. Oppose every instance of American imperialism, yes—even in humanitarian guise. But if we want a better world, it’s probably not going to come without violence. In his introduction to Marx’s essay on The Civil War in France, here’s how Engels characterized the response to the earlier uprising of the French working class in 1848: “It was the first time that the bourgeoisie showed to what insane cruelties of revenge it will be goaded the moment the proletariat dares to take its stand against them as a separate class, with its own interests and demands.” We can see this reflex in modest form in the incredibly brutal police response to something as mild, so far, as the Occupy movement.
I would have said, as a pseudo-rightist, that dreams of peace are naïve; I’ll say something similar as the leftist I still am, though of course from a different perspective. And that’s no April Fool’s.
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Posted on March 25, 2012 by Doug Henwood
Yakking in Geneva…
…New York, not Switzerland. Not at all a disappointment, since Geneva, Switzerland, is one of the dullest major places I’ve ever been, and Geneva, New York, features the excellent Jodi Dean, who invited Liza Featherstone and me to speak at Hobart and William Smith Colleges. Jodi’s announcement:
Liza Featherstone and Doug Henwood on March 26 at 7:00 in Albright Auditorium, Hobart and William Smith Colleges, Geneva, NY
Liza Featherstone, “Occupy Schools: Education for the 99%”
A contributing writer for The Nation, Liza Featherstone is the author of Selling Women Short: The Landmark Battle for Workers’ Rights at Wal-Mart (Basic Books, 2004). Selling Women Short received an Outstanding Book award from the Gustavus Myers Center for the Study of Bigotry and Human Rights at Simmons College. Featherstone has continued to write about Wal-Mart’s employment practices, as well as other problems with its business model. Featherstone is the co-author of Students Against Sweatshops (Verso, 2002), which was named one of the best books of that year by the Madison Capital-Times. In addition to writing for the Nation, Featherstone has written for Slate, Salon, The New York Times, The Washington Post, Columbia Journalism Review, Babble, Newsday, The San Francisco Chronicle, The American Prospect, CNN.com, n+1 and many other publications. She is a frequent media guest, appearing on outlets as varied as CNBC, Fox News, the BBC, Al Jazeera English, and “Democracy Now.”
Doug Henwood, “Reflections on the Current Disorder”
Doug Henwood is the editor and publisher of Left Business Observer. The newsletter reports on the world’s financial markets and central banks, in addition to covering income distribution, poverty, energy, and politics. Henwood is a contributing editor of The Nation and hosts a weekly radio program on KFPA (Berkeley). His book, Wall Street, was published by Verso in June 1997. It is available for free download here. His book, After the New Economy, was published by The New Press in 2003.
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Posted on March 21, 2012 by Doug Henwood
Weirdness from EPI
Has the Economic Policy Institute been hacked, or are they undergoing a curious transformation?s just appeared on their email list:
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visit http://secure.epi.org/page/signup.
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visit http://secure.epi.org/page/unsubscribe.
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Posted on March 14, 2012 by Doug Henwood
Face-ripping for fun & profit
[Reading Greg Smith’s open resignation letter to Goldman Sachs in today’s New York Times, which described a systematic fleecing of clients as the institutional norm, reminded me of Frank Partnoy’s 1997 book F.I.A.S.C.O. Here’s my review, from LBO #80. If you like it, subscribe today and make sure it keeps coming.]
F.I.A.S.C.O., by Frank Partnoy (New York: W W Norton, 252 pp., $25).
It might be best to start a consideration of this revealing book from one of its final pages, where Frank Partnoy explains why he decided to end his brief career as a derivatives salesman at our snazziest investment bank, Morgan Stanley:
Of course, Partnoy and his colleagues didn’t literally shoot at clients. But they did brag about “ripping their faces off.” This was the ideal trade—one that involved unknowingly separating a client from a huge amount of money, even if the client’s actual face was left intact. According to Partnoy, the motto of his counterparts at Bankers Trust, an institution almost as prestigious as Morgan Stanley, was “lure them into the calm and totally fuck them.” Again, that was said of customers, not competitors. Remember, we’re not talking about some boiler room based in Vancouver or Fort Lauderdale, but two of the glitziest names in investment banking.
basics
Derivatives hit the headlines in 1994 and early 1995, when a bout of interest rate rises engineered by the Federal Reserve put the financial markets through a ringer and Mexico into crisis. Big companies like Procter & Gamble lost millions, big-time speculators went under, and Orange County went bankrupt. And then, thanks to our system of cultivated amnesia, derivatives largely disappeared from view. According to the most recent estimates by the Bank for International Settlements, at the beginning of 1997 there were some $35 trillion in derivatives outstanding worldwide, about twice as many as there were when Partnoy retired from the business in 1995. Unofficial estimates range from $40-60 trillion. To put those numbers in perspective, gross global product—the sum of all the world’s GDPs—is under $30 trillion.
That’s all a bit theoretical, so maybe a few examples would flesh things out. Want to bet that Thai interest rates will rise and Malaysian ones will fall? An investment banker would be happy to customize a derivative for you. You may want to do this because you have some business in the two countries that put you at risk should the two national bond markets move against you—or you may just be a betting sort. Or maybe you’re a pension fund manager who isn’t allowed to borrow money to speculate in foreign currencies. Well, your investment banker can create something that looks like a government bond, and will pass regulatory scrutiny, but which is really a leveraged play on the British pound or anything else you’d like. Or maybe you’re the dimwitted treasurer of a county in Southern California, and you think interest rates will fall forever—and you’re so convinced of the fact, it’s not enough that you just buy bonds and hold them. You buy “structured notes” from Merrill Lynch and Morgan Stanley, that rise in value if interest rates fall, but in complex, incomprehensible ways. If interest rates rise, you can always file for bankruptcy. And if you’re a]apanese banker with big losses to hide, your friend at Morgan Stanley can create sham profits for you today—perfectly offset by sham losses some time in the future, but by then it’ll be somebody else’s problem; for the moment, all you want to do is deceive your shareholders and regulators. Indeed, it seems that lots of the troubles in Asia today are in part the deferred consequences of derivatives schemes concocted several years ago. Sometimes the client is the instigating party, sometimes the banker, but usually the banker has a better idea of what’s going on—not only of the risks, but of the giant fee buried in the complex details.
So, despite the textbook nostrums about derivatives existing to help society (meaning big investors) manage risk (meaning the wicked volatility in financial asset prices), derivatives are at least as much about embracing risk, evading regulatory scrutiny, and even avoiding taxes. While the financial environment is placid, derivatives will behave, delivering only routine losses, if at all but when things get nasty, as with the stock market in 1987, or Mexico in 1994, or Asia in 1997, they can blow up all over the place.
F.I.A.S.C.O. (the title comes from a drunken skeet-shooting competition called the Fixed Income Annual Sporting Clays Outing, in which the Morgan Stanley team was meant to sharpen its killer instincts) tells all these stories, and Partnoy even manages to accomplish the difficult task of explaining the derivatives themselves. He’s hardly a radical, nor does he have anything like a systematic view of how finance relates to the real world. Nor is his book as funny or as gracefully written as Michael Lewis’ classic Liar’s Poker. But as an insight into the crudity and rapaciousness of Wall Street culture, it’s the best thing in years. Even if derivatives don’t turn the next bear market into a rival of the 1929–32 disaster, or even if they don’t bring giant losses to the middle c1ass’s mutual fund investments, this book explains why the handful of people who work on Wall Street pull down so much money. It comes from ripping faces off, and sometimes the face-ripped don’t even know what’s happened to them.
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