Capitalistic Musings
S >>
Sam Vaknin >> Capitalistic Musings
Pages:
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 | 12 |
13
Greenspan concurred earlier this year in "USA Today": "Countries that
have gone down this path invariably have run into trouble, and so would
we." An International Finance Discussion Paper released by the Fed in
December 2000 found, as "The Economist" put it, that "deficits usually
began to reverse when they exceeded 5% of GDP. And this adjustment was
accompanied by an average fall in the nominal exchange rate of 40%,
along with a sharp slowdown in GDP growth."
Never before has the current account deficit continued to expand in a
recession. Morgan Stanley predict an alarming shortfall of 6 percent of
GDP by the end of next year. The US is already the world's largest
debtor having been its largest creditor only two decades ago.
Such a disorientating swing has been experienced only by Britain
following the Great War. In five years, US net obligations to the rest
of the world will grow from one eighth of its GDP in 1997 to two fifths
of a much larger product, according to Goldman Sachs. By 2006, a sum of
$2 billion dollars per day would be required to cover this yawning
shortfall.
Rogoff - and many other scholars - foresee a sharp contraction in
American growth, consumption and, consequently, imports coupled with a
depreciation in the dollar's exchange rate against the currencies of
its main trading partners. In the absence of offsetting demand from an
anemic Europe and a deflation-struck Japan, an American recession may
well translate into a global depression. Only in 2003, the unwinding of
these imbalances is projected by the IMF to shave 3 percentage points
off America's growth rate.
But are the twin - budget and current account - deficits the inevitable
outcomes of American fiscal dissipation and imports run amok - or a
simple reflection of America's unrivalled attractiveness to investors,
traders, and businessmen the world over?
Echoing Nigel Lawson, Britain's chancellor of the exchequer in the
1980's, O'Neill is unequivocal. The current deficit is not worrisome.
It is due to a "stronger relative level of economic activity in the
United States" - he insisted in a speech he gave this month to
Vanderbilt University's Owen Business School. Foreigners want to invest
in the US more than anywhere else. The current account deficit - a mere
accounting convention - simply encapsulates this overwhelming allure.
This is somewhat disingenuous. In the last three years, most of the net
inflows of foreign capital into the spendthrift US are in the form of
debt to be repaid. This mounting indebtedness did not increase the
stock of income-producing capital. Instead, it was shortsightedly and
irresponsibly expended in an orgy of unbridled consumption.
For the first time in a long time, America's savings rate turned
negative. Americans borrowed at home and abroad to embark on a fervid
shopping spree. Even worse, the part of the deficit that was invested
rather than consumed largely went to finance the dotcom boom turned
bust. Wealth on unimaginable scale was squandered in this fraud-laced
bubble. America's much hyped productivity growth turned out to have
been similar to Europe's over the last decade.
Luckily for the US - and the rest of the world - its fiscal stance
during the Clinton years has been impeccable and far stronger than
Europe's, let alone Japan's. The government's positive net savings -
the budget surplus - nicely balanced the inexorable demand by
households and firms for foreign goods and capital. This is why this
fiscal year's looming budget deficit - c. $200 billion - provokes such
heated debate and anxiety.
Is there a growing reluctance of foreigners to lend to the US and to
finance its imports and investment needs? To judge by the dollar's
slump in world markets, yes. But a recent spate of bad economic news in
Europe and Japan may restore the global appetite for dollar-denominated
assets.
This would be a pity and a blessing. On the one hand, only a flagging
dollar can narrow the trade deficit by rendering American exports more
competitive in world markets - and imports to the USA more expensive
than their domestic imperfect substitutes. But, as the late Rudi
Dornbusch pointed out in August 2001:
"There are two kinds of Treasury Secretaries those like Robert Rubin
who understand that a strong dollar helps get low interest rates and
that the low rates make for a long and broad boom. And (those) like
today's Paul O'Neil. They think too much about competitiveness and know
too little about capital markets ...
Secretary of the Treasury Paul O'Neil, comes from manufacturing and
thinks like a manufacturer (who) have a perspective on the economy that
is from the rabbit hole up. They think a weak dollar is good for
exports and a hard dollar hurts sales and market share. Hence they
wince any time they face a strong dollar and have wishy-washy answers
to any dollar policy question."
The truth, as usual, is somewhere in the middle. Until recently, the
dollar was too strong - as strong, in trade-related terms, as it was in
the 1980's. Fred Bergsten, head of the Institute for International
Economics, calculated in his testimony to the Senate Banking Committee
on May 1, that America's trade deficit soars by $10 billion for every
percentage rise in the dollar's exchange rate.
American manufacturers shifted production to countries with more
competitive terms of trade - cheaper manpower and local inputs. The
mighty currency encouraged additional - mostly speculative- capital
flows into dollar-denominated assets, exacerbating the current account
deficit.
A strong dollar keeps the lid on inflation - mainly by rendering
imports cheaper. It, thus, provides the central bank with more leeway
to cut interest rates. Still, the strength of the dollar is only one of
numerous inputs - and far from being the most important one - in the
monetary policy. Even a precipitous drop in the dollar is unlikely to
reignite inflation in an economy characterized by excess capacity,
falling prices, and bursting asset bubbles.
A somewhat cheaper dollar, the purported - but never proven - "wealth
effect" of crumbling stock markets, the aggressive reduction in
interest rates, and the wide availability of easy home equity financing
should conspire to divert demand from imports to domestic offerings.
Market discipline may yet prove to be a sufficient and efficient cure.
But, the market's self-healing powers aside, can anything be done - can
any policy be implemented - to reverse the deteriorating balance of
payments?
In a testimony he gave to the Senate in May, O'Neill proffered one of
his inimitable metaphors:
"All the interventions that have been modeled would do damage to the
U.S. economy if we decided to reduce the size of the current account
deficit. And so I don't find it very appealing to say that we are going
to cut off our arm because some day we might get a disease in it."
This, again, is dissimulation. This administration - heated
protestations to the contrary notwithstanding - resorted to blatant
trade protectionism in a belated effort to cope with an avalanche of
cheap imports. Steel quotas, farm and export subsidies, all manner of
trade remedies failed to stem the tide of national red ink.
The dirty secret is that everyone feeds off American abandon. A sharp
drop in its imports - or in the value of the dollar - can spell doom
for more than one country and more than a couple of industries. The USA
being the global economy's sink of last resort - absorbing one quarter
of world trade - other countries have an interest to maintain and
encourage American extravagance. Countries with large exports to the
USA are likely to reacts with tariffs, quotas, and competitive
devaluations to any change in the status quo. The IMF couches the
awareness of a growing global addiction in its usual cautious terms:
"The possibility of an abrupt and disruptive adjustment in the U.S.
dollar remains a concern, for both the United States and the rest of
the world ... The question is not whether the U.S. deficit will be
sustained at present levels forever - it will not - but more when and
how the eventual adjustment takes place ... While this would likely be
manageable in the short term it could adversely affect the
sustainability of recovery later on."
Another embarrassing truth is that a strong recovery in Europe or Japan
may deplete the pool of foreign capital available to the USA. German
and Japanese Investors may prefer to plough their money into a
re-emergent Germany, or a re-awakening Japan - especially if the dollar
were to plunge. America requires more than $1 billion a day to maintain
its current levels of government spending, consumption, and investment.
There is another - much hushed - aspect of American indebtedness. It
provides other trading blocks and countries - for example, Japan and
the oil producing countries - with geopolitical leverage over the
United States and its policies. America - forced to dedicate a growing
share of its national income to debt repayment - is "in growing hock"
to its large creditors.
Last month, Arab intellectuals and leaders called upon their
governments to withdraw their investments in the USA. This echoed of
the oil embargo of yore. Ernest Preeg of the Manufacturers Alliance was
quoted by the Toronto Star as saying: "China, for example, could
blackmail the United States by threatening to dump its vast holdings of
U.S. dollars, forcing up U.S. interest rates and undermining the U.S.
stock market. Chinese military officials, he claimed, had included this
kind of tactic in their studies of non-conventional defence strategies."
These scenarios are disparaged by analysts who point out that America's
current account deficit is mostly in private hands. Households and
firms should be trusted to act rationally and, in aggregate, repay
their debts. Still, it should not be forgotten that the Asian crisis of
1997-8 was brought on by private profligacy. Firms borrowed
excessively, spent inanely, and invested unwisely. Governments ran
surpluses. As the IMF puts it: "To err is human and this is as true of
private sector investors as anyone else."
Anarchy as an Organizing Principle
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
The recent spate of accounting fraud scandals signals the end of an
era. Disillusionment and disenchantment with American capitalism may
yet lead to a tectonic ideological shift from laissez faire and self
regulation to state intervention and regulation. This would be the
reversal of a trend dating back to Thatcher in Britain and Reagan in
the USA. It would also cast some fundamental - and way more ancient -
tenets of free-marketry in grave doubt.
Markets are perceived as self-organizing, self-assembling, exchanges of
information, goods, and services. Adam Smith's "invisible hand" is the
sum of all the mechanisms whose interaction gives rise to the optimal
allocation of economic resources. The market's great advantages over
central planning are precisely its randomness and its lack of
self-awareness.
Market participants go about their egoistic business, trying to
maximize their utility, oblivious of the interests and action of all,
bar those they interact with directly. Somehow, out of the chaos and
clamor, a structure emerges of order and efficiency unmatched. Man is
incapable of intentionally producing better outcomes. Thus, any
intervention and interference are deemed to be detrimental to the
proper functioning of the economy.
It is a minor step from this idealized worldview back to the
Physiocrats, who preceded Adam Smith, and who propounded the doctrine
of "laissez faire, laissez passer" - the hands-off battle cry. Theirs
was a natural religion. The market, as an agglomeration of individuals,
they thundered, was surely entitled to enjoy the rights and freedoms
accorded to each and every person. John Stuart Mill weighed against the
state's involvement in the economy in his influential and
exquisitely-timed "Principles of Political Economy", published in 1848.
Undaunted by mounting evidence of market failures - for instance to
provide affordable and plentiful public goods - this flawed theory
returned with a vengeance in the last two decades of the past century.
Privatization, deregulation, and self-regulation became faddish
buzzwords and part of a global consensus propagated by both commercial
banks and multilateral lenders.
As applied to the professions - to accountants, stock brokers, lawyers,
bankers, insurers, and so on - self-regulation was premised on the
belief in long-term self-preservation. Rational economic players and
moral agents are supposed to maximize their utility in the long-run by
observing the rules and regulations of a level playing field.
This noble propensity seemed, alas, to have been tampered by avarice
and narcissism and by the immature inability to postpone gratification.
Self-regulation failed so spectacularly to conquer human nature that
its demise gave rise to the most intrusive statal stratagems ever
devised.
In both the UK and the USA, the government is much more heavily and
pervasively involved in the minutia of accountancy, stock dealing, and
banking than it was only two years ago.
But the ethos and myth of "order out of chaos" - with its proponents in
the exact sciences as well - ran deeper than that. The very culture of
commerce was thoroughly permeated and transformed. It is not surprising
that the Internet - a chaotic network with an anarchic modus operandi -
flourished at these times.
The dotcom revolution was less about technology than about new ways of
doing business - mixing umpteen irreconcilable ingredients, stirring
well, and hoping for the best. No one, for instance, offered a linear
revenue model of how to translate "eyeballs" - i.e., the number of
visitors to a Web site - to money ("monetizing"). It was dogmatically
held to be true that, miraculously, traffic - a chaotic phenomenon -
will translate to profit - hitherto the outcome of painstaking labor.
Privatization itself was such a leap of faith. State owned assets -
including utilities and suppliers of public goods such as health and
education - were transferred wholesale to the hands of profit
maximizers. The implicit belief was that the price mechanism will
provide the missing planning and regulation. In other words, higher
prices were supposed to guarantee an uninterrupted service.
Predictably, failure ensued - from electricity utilities in California
to railway operators in Britain.
The simultaneous crumbling of these urban legends - the liberating
power of the Net, the self-regulating markets, the unbridled merits of
privatization - inevitably gave rise to a backlash.
The state has acquired monstrous proportions in the decades since the
Second world War. It is about to grow further and to digest the few
sectors hitherto left untouched. To say the least, these are not good
news. But we libertarians - proponents of both individual freedom and
individual responsibility - have brought it on ourselves by thwarting
the work of that invisible regulator - the market.
Narcissism in the Boardroom
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Part I
Part II
The perpetrators of the recent spate of financial frauds in the USA
acted with callous disregard for both their employees and shareholders
- not to mention other stakeholders. Psychologists have often
remote-diagnosed them as "malignant, pathological narcissists".
Narcissists are driven by the need to uphold and maintain a false self
- a concocted, grandiose, and demanding psychological construct typical
of the narcissistic personality disorder. The false self is projected
to the world in order to garner "narcissistic supply" - adulation,
admiration, or even notoriety and infamy. Any kind of attention is
usually deemed by narcissists to be preferable to obscurity.
The false self is suffused with fantasies of perfection, grandeur,
brilliance, infallibility, immunity, significance, omnipotence,
omnipresence, and omniscience. To be a narcissist is to be convinced of
a great, inevitable personal destiny.
The narcissist is preoccupied with ideal love, the construction of
brilliant, revolutionary scientific theories, the composition or
authoring or painting of the greatest work of art, the founding of a
new school of thought, the attainment of fabulous wealth, the reshaping
of a nation or a conglomerate, and so on. The narcissist never sets
realistic goals to himself. He is forever preoccupied with fantasies of
uniqueness, record breaking, or breathtaking achievements. His
verbosity reflects this propensity.
Reality is, naturally, quite different and this gives rise to a
"grandiosity gap". The demands of the false self are never satisfied by
the narcissist's accomplishments, standing, wealth, clout, sexual
prowess, or knowledge. The narcissist's grandiosity and sense of
entitlement are equally incommensurate with his achievements.
To bridge the grandiosity gap, the malignant (pathological) narcissist
resorts to shortcuts. These very often lead to fraud.
The narcissist cares only about appearances. What matters to him are
the facade of wealth and its attendant social status and narcissistic
supply. Witness the travestied extravagance of Tyco's Denis Kozlowski.
Media attention only exacerbates the narcissist's addiction and makes
it incumbent on him to go to ever-wilder extremes to secure
uninterrupted supply from this source.
The narcissist lacks empathy - the ability to put himself in other
people's shoes. He does not recognize boundaries - personal, corporate,
or legal. Everything and everyone are to him mere instruments,
extensions, objects unconditionally and uncomplainingly available in
his pursuit of narcissistic gratification.
This makes the narcissist perniciously exploitative. He uses, abuses,
devalues, and discards even his nearest and dearest in the most
chilling manner. The narcissist is utility- driven, obsessed with his
overwhelming need to reduce his anxiety and regulate his labile sense
of self-worth by securing a constant supply of his drug - attention.
American executives acted without compunction when they raided their
employees' pension funds - as did Robert Maxwell a generation earlier
in Britain.
The narcissist is convinced of his superiority - cerebral or physical.
To his mind, he is a Gulliver hamstrung by a horde of narrow-minded and
envious Lilliputians. The dotcom "new economy" was infested with
"visionaries" with a contemptuous attitude towards the mundane:
profits, business cycles, conservative economists, doubtful
journalists, and cautious analysts.
Yet, deep inside, the narcissist is painfully aware of his addiction to
others - their attention, admiration, applause, and affirmation. He
despises himself for being thus dependent. He hates people the same way
a drug addict hates his pusher. He wishes to "put them in their place",
humiliate them, demonstrate to them how inadequate and imperfect they
are in comparison to his regal self and how little he craves or needs
them.
The narcissist regards himself as one would an expensive present, a
gift to his company, to his family, to his neighbours, to his
colleagues, to his country. This firm conviction of his inflated
importance makes him feel entitled to special treatment, special
favors, special outcomes, concessions, subservience, immediate
gratification, obsequiousness, and lenience.
It also makes him feel immune to mortal laws and somehow divinely
protected and insulated from the inevitable consequences of his deeds
and misdeeds.
The self-destructive narcissist plays the role of the "bad guy" (or
"bad girl"). But even this is within the traditional social roles
cartoonishly exaggerated by the narcissist to attract attention. Men
are likely to emphasise intellect, power, aggression, money, or social
status. Narcissistic women are likely to emphasise body, looks, charm,
sexuality, feminine "traits", homemaking, children and childrearing.
Punishing the wayward narcissist is a veritable catch-22.
A jail term is useless as a deterrent if it only serves to focus
attention on the narcissist. Being infamous is second best to being
famous - and far preferable to being ignored. The only way to
effectively punish a narcissist is to withhold narcissistic supply from
him and thus to prevent him from becoming a notorious celebrity.
Given a sufficient amount of media exposure, book contracts, talk
shows, lectures, and public attention - the narcissist may even
consider the whole grisly affair to be emotionally rewarding. To the
narcissist, freedom, wealth, social status, family, vocation - are all
means to an end. And the end is attention. If he can secure attention
by being the big bad wolf - the narcissist unhesitatingly transforms
himself into one. Lord Archer, for instance, seems to be positively
basking in the media circus provoked by his prison diaries.
The narcissist does not victimise, plunder, terrorise and abuse others
in a cold, calculating manner. He does so offhandedly, as a
manifestation of his genuine character. To be truly "guilty" one needs
to intend, to deliberate, to contemplate one's choices and then to
choose one's acts. The narcissist does none of these.
Thus, punishment breeds in him surprise, hurt and seething anger. The
narcissist is stunned by society's insistence that he should be held
accountable for his deeds and penalized accordingly. He feels wronged,
baffled, injured, the victim of bias, discrimination and injustice. He
rebels and rages.
Depending upon the pervasiveness of his magical thinking, the
narcissist may feel besieged by overwhelming powers, forces cosmic and
intrinsically ominous. He may develop compulsive rites to fend off this
"bad", unwarranted, persecutory influences.
The narcissist, very much the infantile outcome of stunted personal
development, engages in magical thinking. He feels omnipotent, that
there is nothing he couldn't do or achieve if only he sets his mind to
it. He feels omniscient - he rarely admits to ignorance and regards his
intuitions and intellect as founts of objective data.
Thus, narcissists are haughtily convinced that introspection is a more
important and more efficient (not to mention easier to accomplish)
method of obtaining knowledge than the systematic study of outside
sources of information in accordance with strict and tedious curricula.
Narcissists are "inspired" and they despise hamstrung technocrats
To some extent, they feel omnipresent because they are either famous or
about to become famous or because their product is selling or is being
manufactured globally. Deeply immersed in their delusions of grandeur,
they firmly believe that their acts have - or will have - a great
influence not only on their firm, but on their country, or even on
Mankind. Having mastered the manipulation of their human environment -
they are convinced that they will always "get away with it". They
develop hubris and a false sense of immunity.
Narcissistic immunity is the (erroneous) feeling, harboured by the
narcissist, that he is impervious to the consequences of his actions,
that he will never be effected by the results of his own decisions,
opinions, beliefs, deeds and misdeeds, acts, inaction, or membership of
certain groups, that he is above reproach and punishment, that,
magically, he is protected and will miraculously be saved at the last
moment. Hence the audacity, simplicity, and transparency of some of the
fraud and corporate looting in the 1990's. Narcissists rarely bother to
cover their traces, so great is their disdain and conviction that they
are above mortal laws and wherewithal.
What are the sources of this unrealistic appraisal of situations and
events?
The false self is a childish response to abuse and trauma. Abuse is not
limited to sexual molestation or beatings. Smothering, doting,
pampering, over-indulgence, treating the child as an extension of the
parent, not respecting the child's boundaries, and burdening the child
with excessive expectations are also forms of abuse.
The child reacts by constructing false self that is possessed of
everything it needs in order to prevail: unlimited and instantaneously
available Harry Potter-like powers and wisdom. The false self, this
Superman, is indifferent to abuse and punishment. This way, the child's
true self is shielded from the toddler's harsh reality.
This artificial, maladaptive separation between a vulnerable (but not
punishable) true self and a punishable (but invulnerable) false self is
an effective mechanism. It isolates the child from the unjust,
capricious, emotionally dangerous world that he occupies. But, at the
same time, it fosters in him a false sense of "nothing can happen to
me, because I am not here, I am not available to be punished, hence I
am immune to punishment".
Pages:
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 | 12 |
13