Archive for May 22nd, 2008
Russia’s economic progress to fuel co-op with China
Russia’s economic progress to fuel co-op with China
MOSCOW, May 21 (Xinhua) — Russia’s policy of optimizing its economic structure will help to further economic and trade ties with China, a leading Russian expert said on Wednesday.
“Russia is determined to transfer its economic drive force from natural resources to innovation, which will increase its exports of high-tech products to China and tap cooperation potential in joint research and development,” Andrey Ostrofsky, deputy director of the Institute of Far East Studies of the Russian Academy of Science, told Xinhua in an interview.
In 2007, the Russia-China trade volume increased by 44 percent year on year to hit 48 billion U.S. dollars, Russian official figures show.
“That indicates that Russian-Chinese economic and trade ties are booming and closing,” he said.
On energy cooperation, Ostrofsky said the construction of the East Siberia-Pacific oil pipeline, the first of its kind extending to the East, will not only diversify Russia’s energy exports and promote the economic progress of Russia’s far east and Siberia, but also meet China’s energy needs.
“The energy dialogue between Moscow and Beijing will help them to ensure energy security in the region,” he said.
On Russia’s accession to the World Trade Organization, Ostrofsky said that it will bring a positive impact to Russian-Chinese economic ties by improving the transparency of Russia’s market and related rules, abolishing tariff barriers and raising the competitiveness of Russian products.
Russia could even take China as “a window or bridge” to explore the Pacific-Asian and Southeast Asian markets, as well as in Central Asia where most countries have joined the Shanghai Cooperation Organization, he said.
Famine killed 7 million people in USA
Famine killed 7 million people in USA
Another online scandal has been gathering pace recently. Wikipedia, the free encyclopedia, deleted an article by a Russian researcher, who wrote about the USA’s losses in the Great Depression of 1932-1933. Indignant bloggers began to actively distribute the article on the Russian part of a popular blog service known as Livejournal. The above-mentioned article triggered a heated debate.
The researcher touched upon quite a hot topic in the article – the estimation of the number of victims of the Great Depression in the USA. The material presented in the article apparently made Wikipedia’s moderators delete the piece from the database of the online encyclopedia.
The researcher, Boris Borisov, in his article titled “The American Famine” estimated the victims of the financial crisis in the US at over seven million people. The researcher also directly compared the US events of 1932-1933 with Holodomor, or Famine, in the USSR during 1932-1933.
In the article, Borisov used the official data of the US Census Bureau. Having revised the number of the US population, birth and date rates, immigration and emigration, the researcher came to conclusion that the United States lost over seven million people during the famine of 1932-1933.
“According to the US statistics, the US lost not less than 8 million 553 thousand people from 1931 to 1940. Afterwards, population growth indices change twice instantly exactly between 1930-1931: the indices drop and stay on the same level for ten years. There can no explanation to this phenomenon found in the extensive text of the report by the US Department of Commerce “Statistical Abstract of the United States,” the author wrote.
The researcher points out the movement of population at this point: “A lot more people left the country than arrived during the 1930s – the difference is estimated at 93,309 people, whereas 2.960,782 people arrived in the country a decade earlier. Well, let’s correct the number of total demographic losses in the USA during the 1930s by 3,054 people.”
Analyzing the period of the Great Depression in the USA, the author notes a remarkable similarity with events taking place in the USSR during the 1930s. He even introduced a new term for the USA – defarming – an analogue to dispossession of wealthy farmers in the Soviet Union. “Few people know about five million American farmers (about a million families) whom banks ousted from them lands because of debts. The US government did not provide them with land, work, social aid, pension – nothing,” the article says.
“Every sixth American farmer was affected by famine. People were forced to leave their homes and go to nowhere without any money and any property. They found themselves in the middle of nowhere enveloped in massive unemployment, famine and gangsterism.”
The then state of affairs in the US society can be seen in Peter Jackson’s movie King Kong. The movie starts with scenes of the Great Depression and tells the story of an actress who did not eat for three days and tried to steal an apple from a street vendor. There is food in the city, but many people had no money to buy it in unemployment-paralyzed New York. People starve in the streets against the background of stores selling a variety of foodstuffs.
At the same time, the US government tried to get rid of redundant foodstuffs, which vendors could not sell. Market rules were observed strictly: unsold goods should always be categorized as redundant and they could not be given away to the poor because it could cause damage to businesses. A variety of methods was used to destroy redundant food. They burnt crops, drowned them in the ocean or plowed 10 million hectares of harvesting fields. “About 6.5 million pigs were killed at that time,” the researcher wrote.
The consequences of those policies were predictable, the author of the article wrote. “Here is what a child recollected about those years: “We changed our usual food for something for available. We used to eat bush leaves instead of cabbage. We ate frogs too. My mother and my older sister died during a year.” (Jack Griffin).”
So-called public works introduced by President Roosevelt became a salvation for a huge number of jobless and landless Americans. However, the salvation was only a phantom, Boris Borisov wrote. The works conducted under the aegis of the Public Works Administration and the Civil Works Administration were about building channels, roads or bridges in remote, wild and dangerous territories. Up to 3.3 million people were involved in those works at a time, whereas the total number of people amounted to 8.5 million, not to count prisoners.
“Conditions and death rate at those works are to be studied separately. A member of public works would make $30, and pay $25 of taxes from this amount. So a person could make only $5 for a month of hard work in malarial swamps.”
The conditions, under which people were working for food, could be compared to Stalin’s GULAG camp.
“The Public Works Administration (PWA) bore a striking resemblance to GULAG. The PWA was chaired by “American Beria,” the Secretary of Interior Affairs, Harold Ickes, who threw about two million people into camps for the unemployed youth,” Borisov wrote. “Harold LeClair Ickes (1874–1952) later interned USA’s ethnic Japanese in concentration camps. The first stage of the operation took only 72 hours (1941-1942).
“In 1940, the US population was supposed to make up at least 141.856 million people upon the preservation of previous demographic trends. As a matter of fact, the USA had the 131.409-strong population in 1940, of which only 3.054 million can be explained with changes in migration dynamics. Thus, 7.394,000 people simply do not exist as of 1940. There are no official arguments to explain the phenomenon,” Boris Borisov wrote.
It is worthy of note that modern-day Russian patriotic historians reject methods of research based on the general estimation of demographic losses. They believe that demographic processes are not linear and depend on a number of factors. Such historians think that victims of communism estimations made on the base of demographic research works by Stephan Kurt and Richard Pipes, which George Bush and Helen Bonner announced at the opening of Victims of Communism Memorial Foundation in Washington, are false.
On the other hand, these methods are widely used in contemporary science of history. Ukrainian historian Stanislav Kulchitsky used the method to calculate the number of victims of the Ukrainian Holodomor (famine), which was subsequently officially recognized. Parliaments of eleven countries that recognized Holodomor use those numbers in their research works. To crown it all, the US Congress and the European Union also use Kulchitsky’s numbers considering the problem.
Dmitry Lyskov
Pravda.ru
Translated by Dmitry Sudakov
Of War and Gas Prices
Of War and Gas Prices
Fear at the Pump
By DAVE LINDORFF
Americans are in a panic over rising gas and heating oil prices, and with reason. For months, the price of a barrel of crude oil has been rising steadily, hitting a record $127 yesterday.
Analysts keep getting trotted out on TV and in print, attributing the dramatic price rise to everything from “peak oil”—the idea that producing countries have reached their peak of productive capacity, and that the only direction for oil supplies looking forward is down, while demand continues to rise—to increasing demand in China and India, to supply bottlenecks, to specific news events, like a pipeline break in Nigeria, or a closed refinery in California.
Politicians, like Republican presidential candidate John McCain and Democratic presidential candidate Hillary Clinton, have called for a two-month moratorium on federal gas taxes, but with taxes running at something on the order of 18 cents a gallon, this is not going to do much to bring prices down—in fact it might do nothing, since retailers would be free to just raise prices to match the tax break, and pocket the profits.
One analyst, economist Ismael Hussein-Zadeh, a professor of economics at Drake University in Des Moines, Iowa, has a different explanation for the price rise, and American motorists and homeowners should pay close attention.
“Oil prices have gone from the mid $20 range in the fall of 2002 to $127 yesterday—a rise of $100/barrel in just over five years,” he says. “And the bulk of that increase can be attributed to the US wars in Iraq and Afghanistan, and to the threats of war against Iran.”
Hussein-Zadeh’s analysis looks at a number of ways that the Bush/Cheney wars have contributed to rising oil prices. Chief among these are two factors: the threat to supplies, particularly from the Persian Gulf region from which 20 percent of the world’s oil supplies come, and a falling dollar, because oil is priced in dollars, and as it loses value, oil producing countries raise their prices to compensate.
In an article titled “Worried About the Price of Gas? End US Wars,” Hussein-Zadeh writes, “Soon after the invasions of Afghanistan and Iraq the price of oil began to escalate in tandem with the escalation of war and political turbulence in the Middle East.” Furthermore, he says, “Anytime there is a renewed US military threat against Iran, fuel prices move up several notches.” If the US were to actually make good on Bush’s and Cheney’s threats to attack Iran, in Hussein-Zadeh’s view “the sky would be the limit” to oil prices, with $200/barrel being a starting point.
The dollar’s fall, too, is significantly a result of the wars—particularly the Iraq War, he says. That war has been costing the US $200 billion a year, all in borrowed funds. That in itself is a huge hole that has to be funded by borrowing from China, Japan, Saudi Arabia and other nations. But as Nobel economist Joseph Stiglitz has pointed out, the true cost of the Iraq War, when interest on debt, health costs of injured veterans and other long-term costs are factored in, is more like $3 trillion and rising. And when currency speculators and traders—the ones who really set the value of the dollar—make their bets, they’re looking at that bigger number, not the little one.
Moreover, it’s not just oil that has been driven up in price because of the war. As energy costs have gone up, so has the cost of food, in no small part because most fertilizer is oil-based, and because transportation costs are also largely a reflection of oil prices. As well, to the extent that American’s food is imported, they are paying in shrinking dollars, whose value is being driven down because of the war.
Hussein-Zadeh says the Bush/Cheney administration and its neoconservative war promoters have worked hard to offer other more benign explanations for the crippling rise in energy prices, and food prices. As he puts it:
Neoconservative forces in and around the Bush administration and beneficiaries of war dividends—wishing to deflect attention away from war as the main culprit for the skyrocketing energy prices—tend to blame secondary or marginally relevant factors: OPEC, China and India for their increased demand for energy, or supply-demand imbalances in global markets. Whatever the contributory role of these factors, the fact remains that the current oil price hikes started with the beginning of the Bush administration’s wars against Iraq and Afghanistan. Furthermore, a closer examination of these factors reveals that their roles in the current price inflation of oil have been negligible.
Common sense bears him out here. China’s and India’s economies have indeed been growing rapidly, and with them, demand for oil, but over the past five years, oil prices have risen 400%, and the same cannot be said for demand. Even if Chinese and Indian growth figures of 7-9 percent per year were accurate (and there is reason to believe they are grossly inflated), that at best would amount to perhaps a 50% increase in economic activity over five years. In fact, during this time more efficient energy use in the developed countries has largely offset much of the increasing demand for oil in China and India, and even in China and India, much of the energy growth has involved replacing inefficient vehicles and power plants with more efficient ones, so oil consumption isn’t rising in lock step with economic growth.
The answer then, to rising oil prices, is obvious then. It is not some silly two-month moratorium on federal taxes—what Sen. McCain referred to, in a candid moment, as a “little gift” to American vacationers. Nor is it opening up the Artic refuge to drilling—a move that would take years to lead to any significant new supply, and which in any case would have minimal impact on overall supply, or on prices. Nor is it opening up the Strategic Oil Reserve—another drop in the barrel. Nor is it hammering OPEC to boost production—something they have already done. No, it is much simpler. As Hussein-Zadeh puts it:
The political implications of this discussion are clear: to bring down the prices of fuel and food requires bringing home the troops. By lowering the energy costs of production and transportation this will help save our own and many other economies from the plagues of inflation and stagnation. It will bring relief to hundreds of millions worldwide who are burdened by crippling energy bills and the crushing costs of feeding their families.
Got that people? If you want to see gasoline drop back below $3.89/gal, get Congress to end the war!
It’s that simple.
DAVE LINDORFF is a Philadelphia-based journalist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now available in paperback edition).
His work is available at www.thiscantbehappening.net
The U.S. to preview its relation with Syria, and new information revealed on Aljazeera
The U.S. to preview its relation with Syria, and new information revealed on Aljazeera
Hariri was a Saudi nationality and never had a Lebanese nationality because the Saudi law prevents the citizens from obtaining double nationality…. I met him in house in Paris and he told me that being the Lebanese prime Minister cost me 1 milliard dollar.
Although Saudi Arabia keeps the same aggressive attitude on the Lebanese crisis as told here on Al-Akhbar saying that Saudi Arabia advised its Lebanese allies who are negotiating Qatar to maneuver and gain time ‘till the Saudi sick mind thinks of an alternative plan, but I have a reason to think that the Saudis are acting alone recently without an American or Israeli backup.
Just look at this report on the Qatari newspaper Al-Watan which explains that The U.S. is reviewing its plan and policies against Syria saying:
The U.S. policy of blockade, punishments and isolation of Syria brought negative results and were counterproductive, American policy advisors think that it is the time to negotiate with Syria…
I just read on an Arabic forum that Hezbollah is right now interested to find a solution for the Lebanses crisis than ever, to block the Saudi prince Bandar head of the Saudi national security and Bush’s close friend attempts to wage a sectarian tension between Lebanese factions.
Egyptian No1 writer Fahmi Hawaidi wrote a good article today called “An attempt to understand what happened in Lebanon“, with an excellent start:
What happened in Lebanon is bad, but the worst is how the Arabs approached the crisis on the both fronts; politically and the media….with the pro-government teams suddenly brought the question of Hezbollah communication network that exists for 20 year..and suspicious Americans military movement at the Lebanese shores .. These reasons pushed Hezbollah to engage in a preemptive attack…
Also in his weekly program on Aljazeera part-1, part-2, Mohamed Hassanein Heikal revealed few secrets about the assassinated Lebanese PM Rafik Hariri in part-2 saying:
Hariri was a Saudi nationality and never had a Lebanese nationality because the Saudi law prevents the citizens from obtaining double nationality…. I met him in house in Paris and he told me that being the Lebanese prime Minister cost me 1 milliard dollar.
As for Azzaman report, quoting Syrian sources that Arab nationality arrested in Syria with connection to Mughniyah’s assassination, I said that before, he is a Saudi nationality.
Afghanistan – Who Is The Enemy?
Afghanistan – Who Is The Enemy?
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The US is not only repeating all the Soviets’ mistakes in Afghanistan, it is showing remarkable creativity in the horrors department, says Eric Walberg in the first of a two-part series
- Twenty years ago this week the Soviet Union began its withdrawal from Afghanistan, eight and a half years after it was invited by the desperate People’s Democratic Party of Afghanistan (PDPA), which had degenerated into intra-party squabbling and was beset by Islamic rebels massively financed by the United States. The straw that broke the Soviets’ back was when the US began providing Stinger missiles to Osama bin Laden and his friends.
- Now, after eight years of US/NATO occupation, the parallels – and differences – between the two occupation are many and stark, as confirmed by the current Russian ambassador to Afghanistan , Zamir Kabulov.
- “There is no mistake made by the Soviet Union that was not repeated by the international community here in Afghanistan ,” Kabulov said. “Underestimation of the Afghan nation, the belief that we have superiority over Afghans, that they are inferior and cannot be trusted to run affairs in this country. A lack of knowledge of the social and ethnic structure of this country; a lack of sufficient understanding of traditions and religion.”
- Not only that, but the country’s new patrons are making lots of new mistakes as well. “NATO soldiers and officers alienate themselves from Afghans – they are not in touch in an everyday manner. They communicate with them from the barrels of guns in their bullet-proof Humvees.” As a career diplomat who was posted to Afghanistan in 1977, he sees some divine justice in the US ’s current predicament. “But I am even more satisfied by not having Russian soldiers among ISAF [International Security Assistance Force] because I don’t want them to suffer the same results.”
- Kabulov explains that things are even harder now than they were in the 1980s. “The structures of government then were very much there and our task was very much to support and to win loyalty – if you will, hearts and minds – but we had a working administration.” These are long gone, though, ironically, in Helmand province and elsewhere, NATO forces are fighting from military posts originally built by the Soviets.
- At least the Soviets were invited in, if only by one faction – Parcham, by far the most benign one – of the ruling PDPA. The US merely issued an ultimatum to the ruling Taliban to hand over their own erstwhile ally, Osama bin Laden, knowing full well no devout Muslim would turn a guest over to the enemy. The offer of the Taliban to send him to a neutral third country until proof of his masterminding of 9/11 was made was dismissed out of hand, and US and eventually NATO forces proceeded to illegally invade and depose the legitimate government, launching a merciless air attack, using depleted uranium “bunker busting” bombs, that makes the horrors of Vietnam and the Soviet occupation of Afghanistan pale in comparison.
- Another difference is that the US managed to con the world into supporting its invasion, while when the Soviet troops arrived in 1979, the US was already arming Islamic rebels with the most advanced military hardware, as Under-Secretary of Defense Slocumbe said at the time, “sucking the Soviets into a Vietnamese quagmire.” President Carter’s national security adviser Zbigniew Brzezinski made a point of maintaining the flow of arms, even after Soviet president Mikhail Gorbachev made it clear the troops would be withdrawn, intending to use this golden opportunity to stick the knife as deep as possible into the now unravelling Soviet Union . On this basis alone, the current invasion should be miles ahead of where the Soviets were after eight years. But no.
- Yet another contrast is that while the Soviets were providing massive aid, effectively dragging Afghanistan into the 20th century with universal education, equal rights for women, safe drinking water – the standard communist fare – the US/NATO strategy has been mostly to fight the remnants of the Taliban, with aid well down the list. As for the quality of the aid, while Soviet teachers and engineers earned not much more than locals, and were generally selected for their idealism, Western-backed aid is channelled almost exclusively through foreign NGOs, with Western professionals earning the bulk of the money and living in conditions that locals can only dream of, causing well-earned resentment.
- It should be noted that from the Soviet withdrawal in 1989 till the US invasion in 2001, Afghanistan was mostly forgotten, with no Western programme of reconstruction. Russia , of course, had been bankrupt by then and there was nothing to be expected from it either. Ahmed Shah Ahmadzai, a mujahideen leader and prime minister in exile during the 1990s, admits the mujahideen failed in the years following the Soviet withdrawal. He is now an opponent of the government who stood against President Hamid Karzai in the last election. “To my opinion the ground situation is no different because the Soviets were imposing their Communist regime on us. The present forces – they are imposing their so-called democracy on us. They were wrong then and the present NATO forces are doing wrong now by killing innocent people – men, women and children.”
- Given the huge advantages over the Soviet experience, and given the possibility to learn from Soviet mistakes, there really is no excuse for the current tragedy unfolding with no end in sight. But then, in carrying out their invasion of Iraq , the Americans apparently learned nothing from the British invasion of the 1920s, repeating to the letter all the horrors the Brits inflicted on the Iraqis.
- Is it possible the chaos and murder is intentional? While the Taliban were no sweethearts, they did completely disarm the nation and wipe out the production of opium. Similarly, while Saddam Hussein would hardly be one’s favourite uncle, he presided over a stable welfare state where its many ethnic groups were at least not blowing each other up. In contrast, the US has destroyed the state structures in both countries, and made both into arms dumps. It has managed to turn the peoples of both countries against each other, with the likely prospect of civil war and disintegration into various malleable statelets.
- All in keeping with Israeli plans first published in 1982 as “A Strategy for Israel”, a plan to ensure its “security” (read: expansion) with the Middle East a patchwork of small ethnically-based states which it could keep in order.
- One brilliant innovation by the US, with Israel’s Haganah and Irgun as possible inspirations, is the use of private mercenaries to carry out murder and espionage that the NATO troops can’t do because of their “concern” for international law. This policy is already well known to Iraqis in the guise of Blackwater. Special investigator for the UN Human Rights Council Philip Alston referred to three such recent raids in south and east Afghanistan during a visit last week, clearly alluding to US intelligence agencies, though he didn’t dare state this publicly. Alston said the raids were part of a wider problem of unlawful killings of civilians and lack of accountability in Afghanistan . In one incident, two brothers were killed by troops operating out of an American Special Forces base in Kandahar . Another group, known as Shaheen, operates out of Nangahar, in eastern Afghanistan , where US forces are in charge. “Essentially, they are companies of Afghans but with a handful, at most, of international people directing them. I’m not aware that they fall under any command.”
- A Western official close to the investigation said the secret units are known as Campaign Forces, from the time when American Special Forces and CIA spies recruited Afghan troops to help overthrow the Taliban during the US-led invasion in 2001. “The brightest, smartest guys in these militias were kept on,” the official said. “They were trained and rearmed and they are still being used. The level of complacency in response to these killings is staggeringly high,” he said.
- Yet another innovation – the most frightening of all – is the role of the US in allowing, perhaps even facilitating, the huge increase in opium production, which, as already mentioned, was wiped out by the Taliban, which will be discussed in Part II.
- It is very hard to exaggerate the extent of the abyss that is Afghanistan under US/NATO occupation or to conceive of an honourable exit for the occupiers. Mercenaries, opium and who-knows-what, in a script written in Israel ’s Ministry of Foreign Affairs.
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Eric Walberg writes for Al-Ahram Weekly. You can reach him at
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www.geocities.com/walberg2002/
World According to … (the housing slump could turn out worse than that of the Depression)
World According to …
by Lloyd Grove
Robert Shiller
A rock star among economists, the Yale professor who called the dot-com-era bubble in stocks says that the housing slump could turn out worse than that of the Depression.
Eight years ago, when he predicted a looming bust in the stock-market bubble in Irrational Exuberance, his bestselling book, Barron’s magazine called Yale economist Robert Shiller “the new Dr. Doom.” The nickname still applies as Shiller muses that the steep slide in housing prices—with the collateral damage on Wall Street—could end up exceeding that of the Great Depression.
Since blurting out his scary scenario last week at the New Haven Lawn Club—in a speech that prompted gloomy headlines around the country—the professor has been trying to sooth shattered nerves (including those of his business partners, who are trying to get the Securities and Exchange Commission to sign off on a new financial instrument to join Shiller’s two-year-old housing futures on the Chicago Mercantile Exchange).
The 62-year-old Shiller has been an academic superstar for years, largely because of the Standard & Poor’s/Case-Shiller home price indexes, which he developed with Wellesley College economist Karl Case as the nation’s most authoritative source on housing price trends. But when Portfolio.com caught up with him in Manhattan for an exclusive interview last week, Shiller was chastened and cautious, noting that he better not make any more predictions during the S.E.C.’s required “quiet period” before the registration of the new instrument.
“I don’t even really remember what I said exactly,” he protested. “I always think the opposite of people around me,” he added. “That’s sort of an oppositional personality.”
Lloyd Grove: How did you get into this line of work?
Robert Shiller: You mean property derivatives?
L.G: No, I mean how did you become interested in economics and being a market theorist?
R.S.: Well, I think I’m a polymath. I’m interested in everything. When I was a senior in college at the University of Michigan, I was dazzled by the choice set that we had. Young people, you can do whatever you want, and I was disappointed that I had to choose one, realistically. You like to be a renaissance man and do everything. I took long walks trying to decide whether I wanted to be a physicist or a medical doctor or a sociologist, whatever-a scientist, an astronomer.
L.G.: Did you grow up in Michigan?
R.S.: I grew up in Michigan. My father was an engineer in Detroit, and we moved to the suburbs, Southfield, when I was 13. Actually, I’m a product of the auto industry in the important sense that in 1914, Henry Ford—I don’t know if you know this history—he announced that he was paying $5 a day for assembly-line workers, which was twice the going rate. This was a very bizarre thing for him to do, and it got a deluge of applicants. So one of my grandparents was living in Gardner, Massachusetts, working in a stove shop, and my other grandfather was a tailor, operating in Chicago. And they both responded and came to the same River Rouge plant, and both took the jobs. If they hadn’t converged in Detroit, my parents never would have met, and I would not exist. So it turns out that Henry Ford—it was really kind of a dumb thing—is responsible for my being here. He was a little bit of a loose cannon, but he was saved by inflation. Because World War I came right after that, and he never had to cut back. Otherwise, he couldn’t have afforded to pay those salaries, as my understanding of history goes.
L.G.: Right, and $5 a day—that’s big money.
R.S.: It was twice what my grandfather was making in Gardner, selling stoves. So the auto industry has always been in our family, except my father worked for an industrial-oven company that sold ovens that did things like bake the paint enamel on the car body.
L.G.: Is there any hope for the American auto industry?
R.S.: Maybe in the long run, they will prevail. I know they’re having hard times now. And they’re a manufacturing industry, and they did have a labor-cost disadvantage as compared with other countries. That may not be insurmountable. But in the long run, in these other countries, I’m hopeful that their wage costs will go up too. So maybe American ingenuity will prevail in the end.
L.G.: You were among the first people who were warning about a crash in the housing market.
R.S.: Right. In 2003, I published a Brookings [Institution] paper with Case, which was titled with the question “Is There a Bubble in the Housing Market?” [in Brookings Papers on Economic Activity 2: 2003]. He’s the same guy who worked with me on the Case-Shiller indexes. We had been doing a survey on home buyers, to try to assess their attitudes. In 2003, we noted in our paper that people had very high expectations for future home-price appreciation. We thought then that it might help explain the boom that was emerging. If people were having high expectations, then maybe they’re willing to pay more for houses. But we didn’t reach a conclusion-well, it was all carefully worded back then. We thought that there might be a bubble.
L.G.: Back in 1996, at a lunch meeting with Alan Greenspan, you warned about a stock-market bubble. And then a few days later, he used the words “irrational exuberance,” which became the title of a book of yours. By 2005, you were already sounding the alarm about housing.
R.S.: Right. You can see that in the book Irrational Exuberance, in the second edition, in 2005, I raised the possibility of there being a major crisis.
L.G.: And that was ahead of a lot of people, obviously.
R.S.: It was.
L.G.: So then you had meetings with various quasi-government entities—Freddie Mac and Fannie Mae. What did you tell them?
R.S.: That they should be hedging their portfolio risks for the possibility of a decline in home prices. We just never really got their attention. We told them they had a portfolio that was heavily exposed to real estate risk and that it would be sensible for them to take hedging positions that would offset that risk, especially given their public G.S.E. [government-sponsored enterprise] status. The government officially disavows any guarantee to Fannie and Freddie. However, their debt tends to have a lower yield than other corporates. And people believe that they will be bailed out if there’s ever a problem. So we were arguing that they have an obligation to the public to manage their risks.
R.S.: I had a conference at Yale, and it was Frank Nothaft [the chief economist of Freddie Mac] who told about the risk management. And this is actually in my book that’s coming out-I’m scooping my book here.
L.G.: Well, we’ll flog your book and make sure people know it’s coming out in two months.
R.S.: That would be good.
L.G.: Princeton University Press—what’s the title of it?
R.S.: The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do About It.
L.G.: Consider it flogged.
R.S.: Flogged? What does that word mean?
L.G.: I guess flogged is what happens in Singapore if you spit on the sidewalk. So, okay, go ahead and scoop your book some more.
R.S.: I have a publicity manager, and he said I shouldn’t talk too much about it.
L.G.: Okay, but why don’t you tell me that story at least.
R.S.: Well, that story was that Frank Nothaft claimed that they had considered price declines as much as 13.5 percent. And I said, “What if it was worse than that?” And he said, “It’s never been worse than that.” And then he corrected himself. “Except for the Depression.” I don’t remember exactly what I said to that, but plausibly it was something like, “Well, that could happen again too.” So again, I started to sound at that point too academic-something like this isn’t real anymore.
L.G.: Why do you think people just have trouble listening to these things?
R.S.: Well, I can talk as a sociologist—which I’m not trained to do—but there’s a social construction of reality that happens. This is a basic principle of sociology. We have a “collective consciousness,” to quote sociologist Maurice Halbwachs. As far as I know, he coined the term. And the point is, we talk so much. The human species is incessantly talking, and this incessant talk reinforces certain memories and facts. And other facts are not reinforced because no one’s talking about them. So they elude our consciousness, and then we can’t remember them. We can’t act on them anymore, and so a certain sort of reality-construct forms. It’s also informed by some kind of intuitive thinking. In the case of real estate, people think that the growing population is inevitable, and that means home-price increases are inevitable. And these are not economists thinking clearly about what that means. An economist who thinks about that would say, “Yes, but that doesn’t make them a good investment.” If everything is priced at the present value of the cash flow with the same interest rate, then it doesn’t matter whether the cash flow is growing or not, and then everything is equally good as an investment. That’s not something that the general public understands.
L.G.: The people who were getting into subprime mortgage-backed securities presumably understood all this. They’re very sophisticated people. So what was driving them?
R.S.: Some of them were very sophisticated people [laughs], and there was a failure to communicate and a failure to put all this information together and act on it in a systematic way. There’s a famous book written by Irving Janis, who’s a psychologist, about 30 years ago, called Groupthink. He’s a social psychologist, and he points out how even expert groups can make very colossal errors. He did a number of case studies in the book, and what tends to happen—suppose you imagine yourself and a group of experts who seem to have converged on an enlightened opinion which has arguments to support it, and it has prominent influential people saying that. It can be difficult for someone to stand up in that room and air what seem to be half-baked or half-formed doubts about it. It can be kind of damaging to your reputation. And you imagine that they have a reason to dismiss these doubts. But you don’t want to be responsible for bringing it up—especially when they’re reaching a decision. Sometimes they’re trying to make an important decision. And at that time, you would think that people who have doubts should stand up and thrust them to the fore. But, in fact, they often retreat at that point, because they may just have a sense that they’re being annoying, that they will lose status in the group. If we’re close to a decision on something, and I’d raise doubts, and they’re going to go ahead anyway and do it, you might think that’s good—because it could be a disaster, and they’ll remember that you had doubts. But the likelihood is to focus on, instead, “Now I’m kind of the party pooper,” you know. “When they’re going to implement this plan, they’re not going to turn to me because I was the guy who doubted.” Things like that went through peoples’ minds, and they don’t air doubts. And when Janis interviewed people afterward and asked them their memories of the discussion, they would say things like, “I think we had a very open and fair discussion, and everyone raised their views.” That was their memory of what happened, but they couldn’t remember the other arguments. So it wasn’t happening—there was somebody who was expressing doubts, but not effectively. And so I think that’s the kind of thing that happens when there’s just a general presumption which becomes repeated everywhere.
L.G.: And do you think that’s the sort of dynamic that might’ve been operating, not only in quasi-government agencies like Fannie Mae and Freddie Mac, but also in the banks on Wall Street?
R.S.: Yeah, I mean, it became the idea that risk was just not there.
L.G.: So you often take the opposite side of what she says.
R.S.: Right.
L.G.: Like that old Monty Python routine: “This isn’t an argument. It’s just a contradiction!”
R.S.: I imagine so, yeah. So what would that be? That’s sort of an oppositional personality.
L.G.: But presumably you say these things because you have cause to believe them. You’re not just being contrary. You actually did believe that there was going to be a bust and that there were too many subprime mortgages out there. But what’s surprising to a layman like me, who knows nothing about this, was there were so few people who were willing to analyze that. And you were not only saying it-you were actually trying to get people to do something about it. And no one listened to you at the time.
R.S.: No, I think they started to listen. Everything happens with a lag through time. So for example, the O.C.C. [Office of the Comptroller of the Currency] did eventually issue guidance, but it took them a while.
L.G.: Now Alan Greenspan has been taking a lot of heat for his alleged role in all of this. And he recently tried to mount a sustained defense of himself. You probably saw that.
R.S.: I saw a Financial Times piece.
L.G.: Well, he’s been doing it everywhere—I saw it in the Wall Street Journal. He’s gone on a self-defense campaign.
R.S.: Yeah, that’s probably a good thing for him to do because people thought he was a genius. He got out in 2006, which was almost exactly the peak. So he timed his departure right. But now he’s out, and he didn’t anticipate this. Even if you look at his autobiography, it’s not there that he anticipated this crisis.
L.G.: So do you think he deserves some of the credit, or blame?
R.S.: Well, I actually think he’s a very smart and well-meaning man, but I have differences of opinion and so I can’t fault him for that. I don’t think he was dishonest. I think he was calling it as he saw it. I guess as a Fed chairman, you do have a little bit of a bias toward optimism. Because if you say anything vaguely pessimistic, it gets you in trouble. In fact, the reason why the term irrational exuberance is famous—and people forget the reason for that—is because when he uttered the words, the stock market crashed almost immediately. He did this talk in the evening, and the U.S. markets were closed, but the Japanese markets were open—and they crashed immediately. So that was the news story at the time. He just utters the words irrational exuberance, and that just causes a cascade.
L.G.: Just two words in a very long speech.
R.S.: Yeah, I told you about my experience yesterday [April 22]-a few words in my speech at the New Haven Lawn Club somehow got amplified. [In a breakfast talk that made doom-and-gloom headlines nationwide, Shiller warned that the housing market slump could be worse than the 30-percent price drop of the Depression, requiring bailouts for millions of homeowners. "I think there is a scenario that they could be down substantially more" than the historic slump of the Depression, Shiller was quoted as saying.] They took from my speech that I was saying that the home-price declines could exceed those of the Depression. And that’s it. That was the story. I don’t even really remember what I said exactly, but it was a comparison I might’ve made in the course of making this presentation.
L.G.: It’s known obviously that you have—coming up on two years—these housing futures. And you said when you started doing this that there’ll be other instruments. So you’re doing another one of those. We don’t know what it is. You can’t talk about it during a quiet period. But talk about what’s already there. How’s that doing?
R.S.: Well, we have a futures market. I have a chart of the open interest. It rose from nothing at the beginning to over a hundred million dollars, and we were very optimistic.
L.G.: How many trades did that represent?
R.S.: I don’t have the numbers.
L.G: I saw something that initially it was like 2,000 some-odd trades.
R.S.: Well, each trade has a notional value of $60,000, and it seemed to me that generally the highest it got for a day was about 100 trades. So that would be $6 million—I’m not sure I remember that exactly right. So if you added up the total volume of trades, I thought it was something like $600 million.
L.G.: So the volume of the trades sort of slacked off a little bit?
R.S.: That’s right. Because [the housing market] is in decline, yeah. I’m hopeful that it will come back.
L.G.: Right, but already you’ve bested the London FOX [the London International Financial Futures and Options Exchange, which offered property futures from May through October 1991.]
R.S.: That one ended totally in a few months [in a scandal involving the artificial manipulation of trades].
L.G.: Have you ever considered scandal futures?
R.S.: [Laughs] No.
L.G.: Tell me, what do you call your futures?
R.S.: The Chicago Mercantile Exchange Housing Futures and Options.
L.G.: Tell me what function they serve.
L.G.: People who were just incorrigible, stopped paying entirely-but people of good faith and good heart who are actually trying to pay their mortgages would benefit?
R.S.: Right. That’s why I’m writing another book now. This is a time when I’ve been having trouble getting people to appreciate the advantages of these kinds of things. But now, this is a time when they might suddenly see it. So I wrote a New York Times column some months ago pointing out that the ’30s was a time of great innovation, and it was because people saw the crisis. What people saw in the ’30s was a deterioration of faith in our government and institutions, because people saw that the Depression was happening and nothing was being done about it. And so, this gave—actually, the Hoover administration as well, but mainly the Roosevelt administration—the heart to make big changes.
L.G.: Have you managed to persuade anybody in a position of power—a legislator or the Treasury Department—that this idea you have of continuous workout mortgages is something that should be enacted?
R.S.: This is new. This is going into my book. Although in 2003, I had a different name for it. I called it income-linked mortgages, and I had home-equity insurance attached to mortgages. So I have a new name for it. But it’s the same concept.
L.G.: The mortgages can be renegotiated according to what the market is doing, and it’s done on a continual basis, not an emergency basis. And then the financial institutions are hedging their risk with these instruments?
R.S.: Right.
L.G.: You know Chris Dodd [the Democratic senator from Connecticut who is chairman of the Senate Banking Committee]. I’m assuming he’s a friend of yours. He’s your senator.
R.S.: I have never met him. I have to call him up and try to meet him.
L.G.: You really are an academic!
R.S.: Yeah, I know. I’ve talked to his staffers. I’ve talked to Barney Frank [the Democratic representative from Massachusetts who is chairman of the House Financial Services Committee] about this.
L.G.: What is Barney’s reaction?
R.S.: He has his own plan. But, you know, I should contact him again, now that you mention that, because I want mine attached to his plan. And whether that’s a possibility, I don’t know. It’s a shame that our presidential election campaign has Barack Obama and Hillary Clinton trading insults instead of talking about these issues.
L.G.: And John McCain has sort of talked a bit about it. All of them have put forward some kind of proposal.
R.S.: There’s some idea that there should be a bailout, which I agree with. I think it’s obvious that something has to be done about people who otherwise are going to be thrown out of their houses. This has been obvious to lawmakers. Every time there’s a financial crisis, going back to the early 19th century, they realize that you don’t just let millions of people get thrown out of their houses, thrown into debtors’ prison. We’re not going to let that happen.
L.G.: Have you heard anything you like so far about any of these three? McCain? Obama? Clinton?
R.S.: Um, I’m not involved with politics at the moment. Whichever one wins the election, I’ll work with.
L.G.: Sounds like you are involved with politics!
R.S.: I’m not mentioning any of them in my book.
L.G.: Well, good. Then we can talk about them without fear of scooping your book.
R.S.: But I didn’t want to mention them because I think when the book comes out, that’ll be almost over.
L.G.: Well, it may not be over. But do you get politically involved? Do you give money to candidates?
R.S.: Generally, I’m not that involved.
L.G.: Have you contributed to anybody’s campaign?
R.S.: A little bit—basically not. I don’t want to get into that. Let’s say I haven’t, basically not. It would’ve been trivial. [Federal Election Commission records show that Shiller gave $300 to the Democratic Congressional Campaign Committee in November 2006 and $500 to Connecticut senator Joe Lieberman's presidential campaign in January 2003.]
L.G.: This idea of “the ownership society” which George W. Bush has touted—you treated with skepticism. Why?
R.S.: I think it has some merit. In fact, the promotion of homeownership is a very important, stabilizing force. The Federal Housing Administration and the Veterans [Benefits] Administration have helped people of low income and also people particularly of minority status become homeowners. If we had a nation where low-income and minority people were all renters, I think it would have a different psychology. They feel more like part of this nation when they own a home. It is a good thing.
L.G.: And it’s possible that the smartest and more prudent thing to do, if you had a pile of money, rather than buy a house with it and put a down payment on a house, is to rent—and rents seem to be lower right now—and to take the money and put it in some mutual funds.
R.S.: Right, diversify. That does sound like the logical thing. Why should your investment portfolio match your consumption of housing services? When you rent, you’re much more flexible. You can move out quickly without incurring transactions costs, and everything is professionalized, all the management. So the only problem that people don’t like about renting is that it’s a little bit too standardized, and they want to have their own home. They put up their own swing set in the backyard for the kids, and they decorate it to their own taste. That matters a lot to people.
L.G.: Because most people think of their house not as an investment or a speculative kind of thing but as the roof over their head?
R.S.: As an expression of themselves. Maybe there’s an instinct, a homing instinct. One of the things that people derive the most pleasure from is working on their house. It’s part of our basic instincts, I’m imagining—I’m just talking off-the-cuff here. To some extent, you’re allowed to do that with a rental. You can decorate it as you like, but you have more limits.
L.G.: But if human beings operated purely on a rational basis and coolly analyzed the economic consequences of their actions, then it would make more sense to rent? Put your money elsewhere? Compare the growth of capital in the housing market to the other markets in which people put their money-what would be the answer?
R.S.: If you want to invest in real estate businesses, that is a sector of the economy that should be part of a diversified portfolio, but in proportion. If you invest in single homes by yourself, then you’re buying something that you need to know more about.
L.G.: Right, but can you compare the performance of somebody putting money into some mutual funds that are well managed?
R.S.: Yeah, the thing is, from 1890 to 1990, there was no real appreciation in housing values. So that means if you picked a random house, you would’ve made a profit only on the rent, if you bought a house as an investment and rented it out. And so then you’d have to be judging that cash flow. And if you picked something that rented at a high enough rate, you’d make money. But the capital gains part of it would’ve been—for the average house—nothing, in real terms.
L.G.: I see. You’re talking to someone who is in a co-op, a small one-bedroom on the Upper West Side. Manhattan is a different sort of housing market than Indianapolis, obviously—I’m just asking as a point of personal privilege, I guess.
R.S.: How is Manhattan doing? Maybe I shouldn’t even comment on that.
L.G.: Oh, Bob.
R.S.: I don’t know. I’m getting in trouble.
L.G.: I’m not talking prospectively. We’re not predicting.
R.S.: In the recent past, the co-ops and condos in Manhattan have done better than in the broader market. I’m basing that on information from Miller Samuels, which produces condo-price data, and the interpretation tends to be that Manhattan is a separate market. It’s the financial center of the U.S.—or the world—and it’s behaving similarly to how the City of London behaved until very recently. Last time I heard, they were both strong, and I think it reflects the strength of the financial sector, which is their prime industry.
L.G.: So Manhattan has been somewhat insulated or totally insulated from the housing price slump?
R.S.: It has been. Yeah.
L.G.: Tell me what your life is like now. You’re a superstar.
R.S.: I don’t know about that. The Case-Shiller index has been getting a lot of coverage. It’s kind of nice because we’ve been producing the index for 20 years now, and for 18 of those 20, they got very little attention. I think it’s because of the futures market—even though the futures market isn’t very active—it’s getting a lot of publicity. And it’s also Standard & Poor’s, which has a very good reputation. When we brought out the possibility of creating a futures market, that heightened attention to the quality of the index.
L.G.: But you’re constantly on the road. You’re traveling around the globe. How many miles do you log?
R.S.: I never totaled it up, but this week was crazy. I just know that I’m exhausted. Yale is taping my courses. They have this thing called Open Yale, and so they do this for maybe five or 10 professors a semester. It’s a new thing, so I’m going to be online now for the whole world to see. So I feel like I’m on camera, in my lectures. So I did that two times this week.
L.G.: This is your class, Financial Markets?
R.S.: Yeah, and then I was talking to the [New Haven] Lawn Club. Then I gave another talk—sort of associated—about another person’s book. But I gave a comment on it, also in New Haven. And then I gave a presentation at a departmental meeting. Then I’m here, and then I’m going to the Chicago [Mercantile] Exchange tomorrow. And then Friday I’m going to my publisher. These are all the talks. Recently, I spent a week at the New Economic School in Moscow, and that was very interesting.
R.S.: Probably since 2000, when Irrational Exuberance came out.
L.G.: And I’m sure Princeton University Press expects a similar performance from your next book. That’s a prediction. But you have a lecture agent, right? Alan Greenspan has, for instance, pocketed $250,000 for one night. Are you up to that level yet?
R.S.: I do have a speaker’s bureau.
L.G.: You’re now literally a brand name. How has that affected your life just as a person?
R.S.: Well, I had to get a full-time secretary at Yale to handle this, and there was some resistance from some people at Yale. I had to go all the way to the provost to get it, but now I do have a full-time secretary. So it’s just not a normal level of business that I’ve had.
L.G.: And I’m sure all of your colleagues in the economics department are just delighted with all the positive attention you’re getting—and the money you’re making!
R.S.: [Laughs.] I don’t know what you mean by that. I’ve had some animosity, yeah.
L.G.: What’s the old saw about academic battles being so vicious because there’s so little at stake?
R.S.: Oh yeah, I know the quote you’re looking for, something like, “The viciousness of academic battles is exceeded only by their lack of consequence.”
L.G.: And I’m not sure, but I would assume that you’re being hit with the term popularizer. You’re writing popular books. You’re not doing “serious” work.
R.S.: There is some of that, although my books are university-press books, and they are not so obviously popularization. I’m presenting them as serious, so I’m not dismissed that way—not to my face anyway. But there is some sense that I’m not, among some people—what would be the word—central to the field. The way universities work is, the market is divided up into different fields. There’s microeconomics, macroeconomics, labor economics, and so on, and often when we search for a new professor, we search by field. And this puts polymaths at a disadvantage. I remember Ben Mandelbrot, who used to be at Yale, and he would complain—he’s the one that invented fractals, and he’s one of the eminent mathematicians in the world—but he complained he couldn’t even get a job in the university, because everyone said, “He’s not my department.” And he was doing work in physics and mathematics and meteorology. So I’m not quite as universal a man as he.
When you get to scholarly work, the most important thing is that you’re original, and so you shouldn’t feel confined. It seems to me that human knowledge is so complex that it doesn’t fit neatly into fields. And you may discover that your background-what you learned at this point in your life-creates opportunities for research that nobody else is doing. So, for example, like my creating a home-price index back to 1890. It’s kind of a strange thing that no one else had done it. Why is that? I don’t know, but it may have something to do with the divisions. It’s also a sense of what you would be rewarded for in your work. And academics want to be central to their field, and this is just data collection, and so, “What does that do for me?” If they just think, “Well, there’s probably some government agency that’s doing it. If not, they ought to be doing it-not me.” It’s too lowbrow. It’s not that it’s unscholarly, because it can be done in a careful way.
L.G: Certainly you were very particular about the data you used.
R.S.: Yeah, the other thing is, this may reflect that my father was a mechanical engineer, and he got patents in industrial ovens. He started his own company, which didn’t succeed. But I think, years later, some of his values reassert themselves in my imagination. And so it made me a bit of an engineer, and that kind of mentality doesn’t abound in economics departments.
L.G.: But back to the superstar thing. Now you’re to the point where you have to be careful with things you say in public, because things that you say could move markets. What’s that like?
R.S.: Um…that’s an interesting thought. One time, I was on a TV show on business news, and before I went on, the host said, “You realize the market is falling right now? And we’re going on the air.” He didn’t explain what that meant. But there was a suggestion that I could be a problem—my bearish sentiments.
L.G.: You’ve always been pretty much a bear?
R.S.: Not always. In 1982, I was a real bull. I had 100 percent of my money in the stock market.
L.G. Now you got it all out, but you still have Kmart?
R.S.: How’d you know I still have Kmart? Yes, my mother gave me Kmart, so I didn’t want to sell it.
L.G.: But mostly you’re in Treasury notes or something?
R.S.: Largely in that, and inflation index notes.
L.G.: You’re a homeowner?
R.S.: Two houses. One in New Haven and one on an island in Long Island Sound. It’s a summer home. My neighbors don’t want the name of the island in the story. That’s what my neighbors have said.
L.G.: Really? Do they think your groupies are going to swim over?
R.S.: I don’t know what they think.
L.G.: Do you have groupies now?
R.S.: [Laughs] I wish I did.
