The commodities bubble

Economics columnist Steven Pearlstein describes how high finance is distorting the commodities market and warns that speculation and “financialization” is blowing up a big bubble:

Silly you.

You actually thought companies existed to make products and profits.

You thought houses were meant to provide a place for people to live and office buildings a place for people to work.

You thought food was meant to be eaten, oil and gas to be turned into energy, and metals to be turned into cars, bridges and downspouts.

You weren’t sophisticated enough to realize that these really are just different “asset classes” meant to give investors around the world something to speculate in and to diversify their portfolios.

Even worse, you actually believed all that stuff about prices being set based on market fundamentals. Little did you know that it’s no longer the supply and demand for companies, houses, office buildings, natural gas or wheat that sets prices. More likely it’s the supply and demand for the futures, swaps and other derivative instruments linked to those things.

Maybe they thought we wouldn’t notice that the financialization of the economy brought with it higher prices and a more volatile economy, along with higher profits for the financial services industry.

The latest example is the market for commodities: corn, wheat, cotton, silver, copper, oil, natural gas. In the past decade, hundreds of billions of dollars have flooded into the market, largely through swaps contracts and commodities index funds, ETFs and mutual funds.

These markets have long since outgrown their original function of providing producers and consumers of these commodities with a way to hedge their risks by guaranteeing supply and locking in prices. All futures markets require a certain number of “speculators” to take the other side of the contracts from commercial users and producers. Typically, these speculators would represent 30 percent of the participants in a healthy futures market.

But today, because of a sudden desire to earn higher returns and diversify investment portfolios, there are more people wanting to invest in corn and copper and oil than there is corn and copper and natural gas produced and consumed. But no problem. The financial wizards on Wall Street have magically conjured up synthetic corn and copper and West Texas oil so that speculators can provide hedging opportunities for other speculators. Instead of 30 percent of the market, these “passive investors” typically account for 70 percent or more. . . .

What’s clear from this tale is how little the financial services industry has really changed since the crisis of 2008. The financialization of the economy continues undeterred, creating a bubble in commodities just as it did with houses and office buildings.

via Steven Pearlstein: You bet it’s another bubble – The Washington Post.

Does this kind of speculation serve an economic purpose?  Is it just an example of free market economics?  Or does it actually distort and thwart the free market?

Theologians of the Cross

Another non-Lutheran discovers a Lutheran insight.  Carl Trueman, professor at Westminster Seminary in Philadelphia, posts about theologians of the cross as opposed to theologians of glory.  He explains it pretty well, I think:

One of the things that is so striking about the current revival of interest in Reformation theology, broadly conceived, is the absence of perhaps the most glorious contribution of Martin Luther to theological discourse: the notion of the theologian of the cross. . . .

At the heart of this new theology was the notion that God reveals himself under his opposite; or, to express this another way, God achieves his intended purposes by doing the exact opposite of that which humans might expect. The supreme example of this is the cross itself: God triumphs over sin and evil by allowing sin and evil to triumph (apparently) over him. His real strength is demonstrated through apparent weakness. This was the way a theologian of the cross thought about God.

The opposite to this was the theologian of glory. In simple terms, the theologian of glory assumed that there was basic continuity between the way the world is and the way God is: if strength is demonstrated through raw power on earth, then God’s strength must be the same, only extended to infinity. To such a theologian, the cross is simply foolishness, a piece of nonsense.

Now, some will respond: But the theology of the cross has not been forgotten; it is often talked about and discussed and even preached. But here’s the rub: in the Heidelberg Disputation Luther actually refers not to a theology of the cross but to theologians of the cross, underscoring the idea that he is not talking about some abstract theological technique or process but rather a personal, existential, real way that real flesh-and-blood theologians thought about, and related to, God. A person’s theology, whether true or false, good or bad, is inseparable from the individual’s personal faith.

At this Reformation season, we should not reduce the insights of Luther simply to justification by grace through faith. In fact, this insight is itself inseparable from the notion of that of the theologians of the cross. Sad to say, it is often hard to discern where these theologians of the cross are to be found. Yes, many talk about the cross, but the cultural norms of many churches seem no different to the cultural norms of — well, the culture. They often indicate an attitude to power and influence that sees these things as directly related to size, market share, consumerist packaging, aesthetics, youth culture, media appearances, swagger and the all-round noise and pyrotechnics we associate with modern cinema rather than New Testament Christianity. These are surely more akin to what Luther would have regarded as symptomatic of the presence and influence of theologians of glory rather than the cross. An abstract theology of the cross can quite easily be packaged and marketed by a theologian of glory. And this is not to point the finger at `them’: in fact, if we are honest, most if not all of us feel the attraction of being theologians of glory. Not surprising, given that being a theologian of glory is the default position for fallen human nature.

The way to move from being a theologian of glory to a theologian of the cross is not an easy one, not simply a question of mastering techniques, reading books or learning a new vocabulary. It is repentance.

via The Forgotten Insight – Reformation21 Blog.

What are some other applications?  If there is no “basic continuity between the way the world is and the way God is,” what happens to natural law?  natural theology?  How would this factor into various theological controversies today?

HT:  Joe Carter

The Occupy ideology

I went into Washington yesterday and stumbled upon the Occupy D.C. folks.  They were in a little green space on Pennsylvania Avenue, which they have filled up with tents.  I was surprised to see how few of them there were.  Estimates have been a couple of hundred–which in itself is an unusually tiny demonstration by D.C. standards–but even that number seems high, based on the little tent village that I saw.  Also, they don’t really look like 99% of America!  I didn’t notice any working class folks–no truck drivers, factory workers, or farmers–despite the unions coming out in their favor.  (That’s always what’s frustrating to the American left:  the proletariat just never comes out for their causes!)  It was pretty much the usual cast of counter-culture radicals whom I remember so well from my college days back in the early 1970s.

The media has been fawning all over these folks, and Democrats–including the president–have declared their support.  That might come back to bite them, according to Michael Gerson, who describes the ideology at work in the seemingly unfocused protests:

But there is some ideological coherence within OWS. Its collectivist people’s councils seem to have two main inspirations: socialism (often Marxist socialism) and anarchism. The two are sometimes in tension. They share, however, a belief that the capitalist system is a form of “institutionalized violence,” and that normal, democratic political methods, dominated by monied interests, are inadequate. Direct action is necessary to provoke the crisis that ignites the struggle that achieves the revolution.

And we are beginning to see what direct action means. Occupy DC protesters recently assaulted a conservative gathering, then took over a public intersection to prevent the passage of luxury cars. Blocking the path of one driver and his 2-year-old son, an activist shouted, “Sorry, but you have no power right now.” That is the opposite of participatory democracy — the use of power to intimidate a fellow citizen on a public street. It is the method of British soccer thugs.

In Oakland, protesters have been playing at the Paris Commune — constructing barricades, setting fires, throwing concrete blocks and explosives, declaring a general strike to stop the “flow of capital” at the port. Here, OWS seems to be taking its cues from both “Rules for Radicals” and “A Clockwork Orange.”

Defenders of OWS dismiss this as the work of a few bad apples. But the transgressors would call themselves the vanguard. And they express, not betray, a significant ideological strain within the movement. Since the 1960s, some on the political left have sought liberal reform through the democratic process and nonviolent protest. Others have sought to hasten the crisis and collapse of fundamentally illegitimate social and economic systems. Both groups can be found within OWS, but the latter is ascendant.

OWS has, in fact, provoked a crisis of credibility for many American institutions. News coverage of the movement has been both disproportionate and fawning. The two encampments of Occupy DC, for example, have a couple of hundred inhabitants. If they moved to a nearby convention hotel, the group would probably be smaller than a meeting of the American Apparel and Footwear Association. During the Tea Party’s rise to national attention, the press scoured the country for any hint of rhetorical incitement to violence. OWS protesters smash windows, assault police officers and wear Guy Fawkes masks — a historical figure known for attempting to bomb the British Parliament.

City governments have also begun to look hapless for their accommodation of squalor, robberies, sexual attacks, drug use, vagrancy and vigilantism.

And what must Democratic leaders — who rushed to identify with a protean political force — now be thinking? OWS is not a seminar on income inequality — not the Center for American Progress on a camping trip. It is a leftist movement with a militant wing.

Will Americans, looking for jobs, turn in hope to the vandalization of small businesses and the promise of a general strike? Will citizens, disappointed by a dysfunctional government, be impressed by the endless arguments of anarchist collectives? Will people, disgusted by partisanship and rhetorical rock-throwing, be attracted to actual rock throwing?

This seems to be the desperate political calculation of the Democratic Party. Good luck with that.

via As radicalism creeps in, credibility retreats from OWS – The Washington Post.

OK, they have TWO encampments in D.C., so that explains how they might have 200 protesters, despite the mere handful that I saw.   Gerson’s point is a good one:  Radicals, whether Marxists or Anarchists, WANT the collapse of our economic system, which is understood as the prerequisite for the revolution.

Gay adoption laws vs. Christian agencies

Some states already require adoption and foster care agencies to give children to gay couples.  That includes Christian ministries, which, in many cases are shutting down their operations rather than compromise their convictions.  Now a proposed law before the Senate would make nondiscrimination against gay adoptions, including by religious agencies, a national policy:

Adoption and traditional marriage proponents said legislation introduced Monday by Sen. Kirsten E. Gillibrand (D-N.Y.) to prohibit adoption agencies from barring homosexual couples from adopting a child would hinder religious agencies right to religious freedom and lessen the pool of foster families.

Gillibrand’s bill, Every Child Deserves a Family Act, enables states to require adoption agencies to allow lesbian, gay, bisexual and transgender (LGBT) couples to foster or adopt children in order to receive federal assistance.

“By removing all barriers for LGBT families to serve as foster parents, New York State has increased its foster parent pool by 128,000 prospective parents. This legislation would open thousands of new foster and adoptive homes to children ensuring they are raised in loving families,” she said in statement announcing the bill.

Gillibrand and fellow bill supporters praise the act for seeking to place the estimated 400,000 children currently in the U.S. foster care system in homes.

But Peter Breen, executive director of the Thomas More Society Pro-life Law Center, told The Christian Post the law would lessen the pool of foster families because it would penalize faith-based agencies that recruit Christian families.

Breen is currently representing Catholic Charities of Illinois. The adoption agency has been caring for and placing children in homes since 1921 – long before the state began offering adoption services in 1969.

Breen said that Illinois Gov. Pat Quinn is using the recently passed Religious Freedom Protection and Civil Unions Act to “exclude religious entities that object to civil unions.”

Catholic Charities does not allow cohabitating couples – both heterosexual and homosexual-to adopt through its service due its religious beliefs. The state’s decision to cancel contracts with Catholic Charities may cause the agency to close its door to foster care in the state.

Breen said most faith-based foster care groups are reliant on state and federal funds.

If Gillibrand’s law were to pass, Breen said, it would “effectively bar any religious group that [has] sincerely-held religious beliefs about the sanctity of marriage … it would bar them from foster care.”

via Traditional Marriage Proponents: Federal LGBT Adoption Bill Attacks Religious Freedom, Christian News.

Local Election Day blues

Where I live, we are just voting today for local elections.  We just have a state senator to pick and a number of county offices.  But for the last several months we have been subject to getting multiple automated phone calls a day conducting polls, demonizing opponents, and scaring us into voting for particular candidates.  Opposition research, negative campaigning, and hyperbolic rhetoric have trickled down into local elections.   (The last robocall I answered insinuated that one candidate’s support of the 2nd Amendment made him liable for the shootings at Virginia Tech.)  Apparently, local candidates are hiring out of state firms to provide these political services.   (I answered an automated call from Olympia, Washington, telling us who to vote for in a race for county sheriff!)

The theory is that local government is closer and more responsive to individual citizens, who elect their neighbors to represent them in public office.  National government, by contrast, is more remote.   Reformers are calling for a smaller central government with more power devolving to state and local governments.

But what if state and local governments are likewise dysfunctional, bound just as much to special interests and oblivious to the civic virtues?

It is true that local issues often finesse the liberal/conservative polarization that has paralyzed the national government.  The divisions in many local governments are on the order of “pro-development” (uniting free-market pro-business conservatives and pro-jobs liberals) vs. “anti-development” (uniting conservatives who want to preserve the pristine character of the community and anti-capitalist environmentalists).  Although I don’t see a civic consensus being possible with that kind of polarization either.

Perhaps this kind of political strife is intrinsic to democracy.  Still, having lived in a number of communities not all that different from where I live today, I don’t remember local elections being like this.

Both sides are wrong

Robert Samuelson is an economics columnist who has tended to be sensible over the years.  (The Washington Post classifies its columnists online as either “tending left” or “tending right.”  Samuelson shows up on neither list.)  He makes the case that both liberals and conservatives are wrong on the economy:

Let’s banish the budget fictions of left and right.

The supercommittee — the 12 members of Congress charged with devising a plan to close mammoth deficits — cannot succeed without public support for its proposals. And public opinion won’t come along if it embraces fairy tales.

The conservatives’ fiction is: We can reduce deficits and cut taxes by eliminating “wasteful spending.”

The liberals’ fiction is: We can subdue deficits and raise social spending by taxing “the rich” and shrinking the bloated Pentagon.

You will notice one similarity. Both suggest that reducing deficits involves little real pain. No one, after all, favors “wasteful spending.” Similarly, taxing “the rich” doesn’t threaten most people who aren’t rich. Liberals and conservatives alike can reconcile all good things: fiscal rectitude (for both), tax cuts (for conservatives) and high social spending (for liberals). I wish it were so.

It isn’t.

Before explaining why, here’s a caveat. Liberal and conservative budget experts generally don’t endorse these myths. No one who studies the budget could. Still, politicians and partisan propagandists popularize them.

Start with conservatives. Where exactly is all the waste?

True, many government programs deserve the ax. I’ve railed against some for years: farm subsidies (food would be produced without them); Amtrak (it is non-essential transportation); public broadcasting and culture subsidies (these are unaffordable frills); community development block grants (they generally don’t enrich poor communities).

Entitlements — mainly Social Security and Medicare — should be trimmed. I’ve also made that a crusade. We need higher eligibility ages to reflect longer life expectancies. Wealthier retirees should receive less Social Security and pay more for Medicare.

But plausible savings don’t match conservative rhetoric. All the suspect “discretionary” programs come to tens of billions, not hundreds of billions. Culture subsidies total about $1 billion annually; community block grants in 2010 were $4 billion. Meanwhile, total federal spending was $3.5 trillion. Do conservatives really want to eliminate the national parks? The FBI? Highways? Food inspections?

Social Security and Medicare savings could be greater. In 2010, these programs cost $1.2 trillion. But there’s a catch. Savings from lower individual benefits will be offset by more beneficiaries: retiring baby boomers. By 2025, Medicare and Social Security enrollment will rise 50 percent from 2010.

Next, the liberal fiction. Contrary to liberal dogma, the rich already pay plenty of taxes. Indeed, they pay for government. In 2007, the richest 1 percent of Americans paid 28 percent of all federal taxes; the richest 10 percent (including the 1 percent) paid 55 percent.

For most millionaires, federal tax rates — the share of income taxed — exceed 30 percent. Some rich have lower rates. Raising these rates is justified but wouldn’t balance the budget. The plan by Senate Majority Leader Harry Reid for a 5.6 percentage point surtax on incomes exceeding $1 million would raise an estimated $453 billion over 10 years. Deficits over the decade are realistically projected at $8.5 trillion.

As for the Pentagon, the military was cut sharply after the Cold War. Combat forces are half to two-thirds of 1990 levels. Defense spending as a share of national income is headed toward its lowest level since 1940.

What liberals don’t say is this: Unless Social Security and Medicare benefits — the bulk of the budget — are reduced, we face three dismal choices. Huge, unsustainable deficits. Massive tax increases on the middle class, as high as 50 percent over 10 to 15 years. Or draconian cuts in the discretionary programs that liberals accuse conservatives of wanting to gut.

Since 1971, federal spending has averaged 21 percent of national income (gross domestic product). Even with aggressive cuts, spending may never again fall this low. The reason: the surge in retirees. Meanwhile, taxes averaged 18 percent of GDP over those years, leaving average annual deficits of 3 percent. The take-away for both liberals and conservatives is repugnant: They need to identify the most justifiable spending cuts — lots of them — and the least damaging tax increases, which will still be sizable.

They need to come clean with reality. For years, they’ve exuded self-serving platitudes. Conservatives should acknowledge that Big Government is a permanent part of the social fabric and that much of what it does is popular. It needs to be financed. Liberals should concede that Big Government can become so big that its crushing taxes weaken the middle class and economic growth. Government then promotes conflict and degrades social justice.

via Busting the budget myths – The Washington Post.

What if he is right?  Would a program of cutting government AND raising taxes be politically possible?   If not and assuming he is right, what does that mean for our capacity to solve our problems through self-government?


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