Day trip to Morehead

On Monday Chris and I drove about three hours to Morehead, KY for a free concert, Women in Traditional Music. It was quite a gathering, featuring ten different women who have labored long in the field. We went mostly because Ginny Hawker was going to be there, but also for our first chance to see Hazel Dickens perform. Just about anyone who follows mountain music would put Hazel Dickens in the first row of the pantheon, for both her excellent songwriting and her powerful, straight from the heart singing.

There was a morning performance at a local school which we missed because we had errands to run in Lexington on the way. But we arrived around 1:30pm for what was billed as a 2pm workshop. They decided to do a song circle instead, with each artist talking a little bit and then performing a song. Probably the better choice; we heard some good singing and some entertaining stories about life as a woman in professional music.

The workshop ended at 3:30, and Chris and I went to fetch our instruments. When I had emailed Ginny to let her know we would be there, she asked if we would help her out on one of her songs at the evening concert; of course we said of course, and got to work studying her recording of it. A couple of days later she emailed again, asking if we would also be willing to provide backup for Hazel Dickens. It didn’t take me long to agree to that one, and so we spent the weekend beforehand working through the songs Hazel was likely to choose from. So after the workshop we went upstairs and first rehearsed Ginny’s song with her, then ran through some songs with Hazel.

The show itself went well. It was held in the Morehead Conference Center, a nice new facility with an auditorium that held a few hundred people. The format was for each of the ten artists to do two songs, except for Hazel Dickens who did three, and then led a last song with everyone on stage. It was a different sort of thing for us; wait backstage until about 2/3 through the show, come on for one song, come off until the last artist, come on for Hazel’s first song, come off again, come on for Hazel’s third song, stay for the finale. Fortunately there was no need to fuss with microphones or where to stand on stage, so it all proceeded smoothly.

During the workshop Hazel Dickens said that she is often asked what she did to get to where she was in the profession, and she replies that she didn’t really do anything except pursue the music as best she knew how; the rest just happened as it happened, and there was no overall career plan guiding her. I could relate to that. It’s way too early to guess how the “career” of the Ridgewood Boys will turn out. But since our gifts are modest enough, we decided early on not to make performing the center of our life, but instead to focus on doing as well as we could with the music within the limits of a life devoted to other things. And even so a number of good things have happened; we’ve met musicians we admire and gotten to be friends with some of them, we’ve performed at festivals, we’ve played at the Carter Fold, and now we’ve been onstage with a legendary mountain musician. None of it was planned. And we’re grateful for all of it.

Incentives to work in a market economy

When we stopped watching television back in the early 90s, we kept a small TV and a VCR so that the kids could watch videos. Eventually we began watching videos ourselves, but almost all of them were pre-1965, comedies or musicals or light dramas.

Occasionally while watching a video with the kids, I noticed something strange in myself: I would tear up or otherwise feel some emotion welling up uncontrollably. And I’m not talking about intense movies; I recall it very clearly while watching The Little Mermaid! The emotions weren’t unprovoked, but quite the opposite—the music and the dialog and the situation were all aimed squarely at manipulating me. What surprised me was that it was working, in a way it never had when I watched TV and movies regularly. Somehow my ability to defend myself against such manipulation had withered through lack of practice, and since manipulation has to be ham-handed these days in order to break through a media-soaked person’s defenses, feeble me stood the risk of being slammed around.

It’s only gotten worse over the years. At Christmas the kids were watching It’s a Wonderful Life, a movie I very much admire for Jimmy Stewart’s performance as a basically nice guy who finally breaks under the stress and becomes, well, not such a nice guy, at least for awhile. I was in another room, half-listening, and when they came to the part of the movie where George starts yelling at Uncle Billy for losing the money, I had to shut the door. I simply couldn’t stand the anger and intensity that Stewart was pouring out, even overheard in another room, in a movie I have seen dozens of times.

I think a similar thing is happening to me as I continue to study the history of free market economics. For so long I assumed that the rules of the free market were simply a truth about life (probably even found in the Bible … somewhere), and so if I saw some piece of damage done by the free market I figured it must be justice—rough justice, sometimes, but still justice. Now I that believe the free market is just one of many ways that an economy can be organized, and one that is mostly invented by utopians, I’ve lost some of my callousness about that rough “justice,” and it is often painful to read about what it has done to real people in real places.

Here is an example, the first couple of pages from the “Markets and Man” chapter of Polanyi’s The Great Transformation. I had to put the book down for awhile after reading this.

To separate labor from other activities of life and to subject it to the laws of the market was to annihilate all organic forms of existence and to replace them by a different type of organization, an atomistic and individualistic one. Such a scheme of destruction was best served by the application of the principle of freedom of contract. In practice this meant that the noncontractual organizations of kinship, neighborhood, profession, and creed were liquidated since they claimed the allegiance of the individual and thus restrained his freedom. […]

This effect of the establishment of a labor market is conspicuously apparent in colonial regions today. The natives are to be forced to make a living by selling their labor. To this end their traditional institutions must be destroyed, and prevented from re-forming, since, as a rule, the individual in primitive society is not threatened by starvation unless the community as a whole is in a like predicament. Under the krall-land system of the Kaffirs, for instance, “destitution is impossible: whosoever needs assistance receives it unquestioningly.” No Kwakiutl “ever ran the least risk of going hungry.” “There is no starvation in societies living on the subsistence margin.” The principle of freedom from want was equally acknowledged in the Indian village community and, we might add, under almost every and any type of social organization up to about the beginning of sixteenth century Europe, when the modern ideas on the poor put forth by the humanist Vives were argued before the Sorbonne. It is the absence of the threat of individual starvation which makes primitive society, in a sense, more human than market economy, and at the same time less economic.

Ironically, the white man’s initial contribution to the black man’s world mainly consisted in introducing him to the uses of the scourge of hunger. Thus the colonists may decided to cut the breadfruit trees down in order to create an artificial food scarcity, or may impose a hut tax on the native to force him to barter away his labor. In either case the effect is similar to that of Tudor enclosures with their wake of vagrant hordes. […]

Now, what the white man may still occasionally practice in remote regions today, namely, the smashing up of social structures in order to extract the element of labor from them, was done in the eighteenth century to white populations by white men for similar purposes. Hobbes’s grotesque vision of the state—a human Leviathan whose vast body was made up of an infinite number of human bodies—was dwarfed by the Ricardian construct of the labor market: a flow of human lives, the supply of which was regulated by the amount of food put at their disposal. Although it was acknowledged that there existed a customary standard below which no laborer’s wages could sink, this limitation also was thought to become effective only if the laborer was reduced to the choice of being left without food or of offering his labor in the market for the price it would fetch.

This explains, incidentally, an otherwise inexplicable omission of the classical economists, namely, why only the penalty of starvation, not also the allurement of high wages, was deemed capable of creating a functioning labor market. Here also colonial experience has confirmed theirs. For the higher the wages, the smaller the inducement to exertion on the part of the native, who unlike the white man was not compelled by his cultural standards to make as much money as he possibly could.

The analogy was all the more striking as the early laborer, too, abhorred the factory, where he felt degraded and tortured, like the native who often resigned himself to work in our fashion only when threatened with corporal punishment, if not physical mutilation. The Lyons manufacturers of the eigtheenth century urged low wages primarily for social reasons. Only an overworked and downtrodden laborer, they argued, would forgo to associate with his comrades and escape the condition of personal servitude under which he could be made to do whatever his master required from him. Legal compulsion and parish serfdom as in England, the rigors of an absolutist labor police as on the Continent, indented labor as in the early Americas were the prerequisites of the “willing worker.” But the final stage was reached with the application of “nature’s penalty,” hunger. In order to release it, it was necessary to liquidate organic society, which refused to permit the individual to starve.

Folk economics: jobs for high school students

Before 1990 my interest in social issues was sporadic, and my views were run-of-the-mill. But I do remember very clearly, during our time in Boston, reading an article in Newsweek magazine that gave me my first clue that something, somewhere was seriously out of whack. It mostly discussed what they portrayed as a growing problem, namely the number of students who were sleeping through most of the school day because they were exhausted from their night jobs working retail.

Now, I was newly married at the time, and my thoughts on how teenagers should be raised were vague. I did think that it would be good if they held down a part-time job, because (a) I hadn’t, and as a result wasted a lot of time; (b) I thought that high school was a waste of time, mostly a way of keeping cheap labor off the market, and so I figured that time spent working had to be more productive than time spent in school; (c) I thought that working would do more to build a teen’s character than attending school.

Two things about the article stuck with me long after I read it. First, although it presented exhausted, sleeping students as a problem, the article never made it clear why this was a problem, i.e. the fact that these students slept through most of the day didn’t have any observable effect on their studies. Although I thought that high school was a waste of time, I was surprised to see that it was a complete waste of time.

Second, I was shocked at the descriptions of how the teens spent the money they earned at their jobs. Recall that at this time running shoes were popular, and none too cheap; well, one girl proudly posed for a photograph in front of her closet, which contained seventy-five pairs of running shoes. It wasn’t the foolishness of so many shoes that shocked me—it was the fact that she could afford such extreme frivolity while working a low wage job at a McDonalds.

I think I wasn’t cynical enough at that time to understand what was actually going on in this situation. Neil Postman taught me to look more deeply when searching for economic motivations, when he explained the economics of commercial television this way: the advertiser is the buyer, the television network is the seller, and you are the product. Since then, when puzzled about social or economic arrangements I’ve tried to think long and hard about the question, Cui bono? (Who benefits?).

So, who benefits in this case?

  • The school system, which gets paid for warehousing these teenagers, whether awake or asleep.

  • Parents, whose teenagers are too busy working and spending to get into serious trouble.

  • Older laborers, who might otherwise suffer competition from teenagers if they were allowed to work reasonable jobs at reasonable hours.

  • The economy, which needs a constant stream of new consumers who have been trained to see food and shelter as givens and frivolous luxuries as essentials.

  • You and me, who would otherwise be paying twice as much for our hamburgers at fast-food emporia staffed by employees who actually expected a living wage.

Folk economics: the oil burner

One of the novelties we encountered in New England was radiant heat. We loved it. After years of enduring the eternal draftiness of forced hot air systems, it was almost luxurious to live in a house that maintained a steady air temperature rather than blowing warm air at you. For twenty years afterwards we longed for radiant heat, and finally we have it again, although it now comes from our wood stove.

The heating system in our New England farmhouse used forced hot water, that is, water which was heated in the basement and then periodically circulated through pipes that ran through radiators in each of the rooms, then back down to the basement to be reheated. Quiet and gentle. One nice thing, sort of, was that there was no point in turning down the thermostat in the house while you were away; it might take as much as eight hours to lower the house temperature five or six degrees—and then another eight hours to bring it back up, while you waited shivering. So we left the thermostat alone, and the house was always warm.

One thing I didn’t understand for years after leaving New England was that there was a very prominent switch, located in the front entryway, that would shut off the water circulating system. Another feature that seemed like a good idea but turned out not to be one was way the system made domestic hot water—a large copper coil suspended in the hot water tank, through which water would pass and be heated on its way to the hot water taps. It worked fine, except when the heating system decided it was time to circulate hot water through the radiators; the circulator would come on, the hot water would be sent up to the radiators, cold water would be brought back to the hot water tank—and until that water was heated again, the large copper coil would not produce hot water for the taps. This cycle repeated every hour or so, and I learned to time my showers so they would just be finishing as the circulator came on. Too bad I never asked anyone about that switch; it is obvious to me now that it was there to fix exactly that problem.

A second novelty for us was the oil burner that heated the water. We’d heard about heating with oil, but the norm in oil-rich Texas was gas or electricity. And we knew that the oil burner in our house was near the end of its useful life; the house inspector gave it another year or so, maybe. So one of our early expenses was having it replaced with a new one.

The rest of this story won’t surprise anyone. It’s one I’ve lived through many times since. I mention it only because it was our first major purchase where we had to choose among options we didn’t and in some sense couldn’t understand. (The only other major purchases prior to this were a Honda Civic in 1982 and the New England farmhouse, neither of which involved the kind of choice I’m talking about.)

Not having the vaguest idea of how an oil burner worked, much less what sorts of features were important in one, we took an approach that has ended up working for us over the years: (1) put it off for awhile; (2) look through the phone book for a dealer in our area who carried a brand we recognized, if only vaguely; (3) have the dealer come to our house and present us with the various options he thought were suitable for us; (4) read through the brochures he left with us; (5) choose the second most expensive option.

There is some amount of reasoning behind the idea of choosing the second most expensive option, but I won’t go into it because I really have no idea whether it is sensible or just rationalization. This approach did serve us well, though, for one reason: it helped us to not spend much time making the choice. Which I think has been beneficial; realistically, I could have spent a good deal of time learning about oil burners and their various features, and still not been able to make an intelligent choice. What ended up happening was that I put my trust in various places: a local dealer, a nationally known brand, a certain price level. Putting one’s faith in such things probably worked better in the past than in modern times, when customer bases are large enough that a local reputation is not so important, and companies do a close study of how exactly to advertise and explain their product so as to maximize the money they extract from their customers. But I can’t think of a major purchase I regret making this way, and in some cases (like the wood stove we bought when we moved here) we have been very pleased with the results.

Note #1: We followed such a policy until recently because we could afford it; none of those major purchases over the years ever put such a strain on the budget that it would have made a major difference to us to shave 10%, 20%, even 30% off the cost. Now things have changed, and we need to be more careful to spend only what is essential. But we do still lean towards paying extra for quality.

Note #2: After coming away from the oil burner experience feeling helpless and stupid, I invented the internet. Well, not really, but I thought there could be a great service, one worth paying for, which would allow you to instantly educate yourself when faced with a major purchase, a place you could call and get an information packet about, say, oil burners—how they worked, how long they lasted, what features were and weren’t important, how to amortize the cost over the expected life, maybe even a list of dealers and prices for your area. Most of that is now available over the internet, and I avail myself of it constantly. But still I only have time and energy to deepen my knowledge just a little bit, e.g. when I bought our BCS walk-behind tractor I understood walk-behind tractors, and tractors in general, much better than I ever understood oil burners. But in the end I really didn’t know very much, and I ended up buying the second most expensive model. And we’re plenty happy with it.

Reading history

It continues to amaze me how much I don’t know.

Once when I heard Jim Petersen, the Navigators missionary I admire so much, give a talk he mentioned that in addition to following a regular Bible reading plan he always tried to keep one or more questions in mind as he read—and sure enough he would eventually find the answers, sometimes in surprising places. For some time now my general reading has been directed by the same principle; questions will start to burn in my mind, and I will start tracking down the books that might answer them. And reading those will often give rise to new questions, or refine the questions I had come to them with, sending me off to look for yet more books that might hold answers.

Why those answers are mostly contained in books of history, I don’t know.

Here’s a small example of this. In December I learned that Allan Carlson had written a new book, Third Ways. I’ve learned so much from Carlson in the past few years that I didn’t hesitate to order a copy, even though it was fairly recent and still in hardback. In the book, Carlson reviews seven separate twentieth-century efforts to develop a “third way” of approaching economic activity that is neither capitalistic nor socialistic. I read through it quickly—Carlson is always a pleasant and easy read—and although I enjoyed the book quite a bit, I wasn’t sure I had learned much from it.

Around the same time I committed to re-reading Henry Hazlitt’s Economics in One Lesson and writing some posts about it in January. It was easy enough to commit to that, since I remembered thoroughly enjoying the book when I read it five or six years ago (we even carry it in our bookstore). But as I started in on reading it, I found myself surprised to be at odds with much of what Hazlitt was saying. And time and again the questions raised in my mind pointed back to Third Ways. So I sat down and re-read Carlson’s book, this time with pencil in hand, and ended up underlining about a third of it—despite being an easy read, the book is dense with information, and because it is heavily footnoted it is a good starting place for researching alternatives to free market economies.

The chapter that intrigued me the most was about Karl Polanyi, whose best-known book is The Great Transformation, a revisionist history of the industrial revolution and the rise of laissez-faire capitalism. Polanyi claims that the idea of self-regulating markets being the natural state of human economic behavior is nothing but a myth, and one of recent origin. His own conclusion is quite different:

Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. […]

Previously to [1800] no economy has ever existed that, even in principle, was controlled by markets …. Gain or profit made on exchange never before played an important part in human economy.

In fact, Polanyi claimed that laissez-faire capitalism was critically dependent on the centralized bureaucratic state, a nineteenth-century innovation; only such a state could provide the highly artificial environment required for the self-adjusting market to operate at all.

These may sound to modern-day conservative ears like the words of a crank, but it wasn’t always so. Carlson mentions that “sociologist Robert Nisbet’s 1953 conservative classic, The Quest for Community, can be read as an extended commentary on Polanyi-inspired themes.” Nisbet writes:

Laissez faire … was brought into existence. It was brought into existence by the planned destruction of old customes, associations, villages, and other securities, by the force of the State throwing the weight of its fast-developing administrative system in favor of the new economic elements of the population. … There is, indeed, a sense in which the so-called free market never existed at all save in the imagination of the rationalists.

Polanyi’s book I had to order, but I found that Nisbet’s book was already on my shelf, so I ordered myself a copy of that. I’ve now read Nisbet and am well into Polanyi, and what do I find in both books but repeated references to the calamitous sixteenth-century transition in England when peasants were forced off the land and into the cities. The definitive book about this is apparently R.H. Tawney’s The Agrarian Problem in Sixteenth Century England, so I ordered a copy of that, and was dismayed to find how fat it is, but comforted by the fact that I know Tawney is pretty readable. And while I was at it I thought I should get a copy of Tawney’s much better known book Religion and the Rise of Capitalism, which starts with medieval (of course) times and proceeds to trace economic thought as developed by Luther, Calvin, and the Puritans.

All this because I had some questions about free market capitalism. And in the meantime my copy of Arguing About Slavery sits there, waiting for me to get back to it.

Ridgewood Boys update

This winter has been a little more active than usual for us. We have performances coming up in Whitesburg, Kentucky and Big Stone Gap, Virginia. And we are also performing weekly at the Bread of Life, a local eatery run by the Galilean Children’s Home, a local charity; we’re there along with Jerome Lange on Friday nights 5:30pm – 8:30pm.

Because we’re usually not this active, we try to come up with a winter music project to keep us busy. This year we wanted to make some progress on an idea we’ve had for awhile, recording a series of budget CDs that collect together the songs we know in sensible ways—brother duet songs, early bluegrass songs, Carter Family songs, Stanley Brothers songs, Flatt & Scruggs songs, and so on.

Up till now our setup has been fairly simple, using a small analog mixer to record ourselves playing live. The major drawback to that is that we had to live with the balance of instruments and vocals as they were when we played, i.e. there was no way to deal with the individual sounds separately once they had been recorded. Recently, though, a company called Alesis introduced a series of inexpensive mixers that would send individual sound tracks straight to the computer, where they could be balanced and tweaked after the fact. We bought the low-end model which records eight tracks (plenty for our purposes), and have been learning to use it. It’s a marked improvement to be able to, say, bring up the volume of the banjo during its solo and then take it back down for the verse and chorus, or to bring up the fiddle just during the pause where a fill is being played.

Up till now we’ve also only recorded ourselves as we sound live, i.e. either banjo/bass or guitar/bass plus singing. So we thought it would be fun to use this new gizmo to record ourselves as a full band, so to speak, with Chris overdubbing multiple instrument parts. For our first test run we first laid down the basic version of “Otto Wood the Bandit,” with banjo, bass and vocals. Then Chris went back and recorded a fiddle track to go with it, and finally a guitar track. The test run showed up a number of issues we have to resolve before we can do it for real, some in how we play and some in how we record, but even so it was a treat to hear one of our songs played as a full band. The next test will probably be “Banks of the Ohio”; we usually do this with guitar, bass and vocals, but last Friday at the Bread of Life Chris said he had been thinking of a nice fiddle part that could be added in.

As soon as we produce some tracks that are listenable, I will post them here.

Option ARMs

This tedious story has a staggering punch line.

The fuss about subprime mortgages is appropriate, but it has also been masking a bigger mortgage problem that lies a little further down the road, namely the Option Adjustable Rate Mortgage (Option ARM).

“So far the public is largely unaware Option ARMs are going to cause problems,” said Scott Stern, Chief Executive of Lenders One Mortgage Cooperative, whose 100 members originate $40 billion in mortgages annually. “But mortgage servicers know what’s looming in the pipeline.”

To the prudent person, the terms of an Option ARM sound insane. Every month you have one of three choices: pay an amount that covers the interest due plus a bit of the principal; pay only the interest due; or pay a “minimum payment” which doesn’t even cover the interest, thereby increasing the principal of the loan (sometimes called “negative amortization”).

Option ARMs also allowed people to buck the system and buy well beyond their means.

“An Option ARM fed the American aspirational mentality and allowed people to get into a home beyond what they could afford,” said Joe Dombrowski, an executive consultant at Brookfield, Wisconsin-based Fiserv Lending Solutions. “The minimum payment makes that possible.”

So, a mortgage that allows the buyer to purchase a house far more expensive than he could buy with a normal mortgage, and one that potentially puts the buyer deeper into debt each month. How prevalent are these insane arrangements?

According to the Fed, in 2005 $1 trillion in new mortgages were issued, with another $1 trillion in 2006. ARMs made up about half of the total, according to the Mortgage Bankers Association (MBA). The MBA said Option ARMs made up 7.2 percent of all home mortgages in 2005 and 14.4 percent in 2006, giving a total of around $210 billion for those two years alone.

So, roughly 11% of the buyers in 2005 and 2006 used Option ARMs, and the rate was increasing during that time. How many of those buyers were going further into debt via minimum payments?

According to a December 2006 Fitch Ratings report, almost 90 percent of people who got an Option ARM in 2006 used little or no documentation and more than 90 percent were suffering from negative amortization.

Industry insiders estimate at least 60 percent of Option ARM borrowers make only the minimum monthly payment. A Jan 22 issue of “Mortgage Strategist” a research note from investment bank UBS, estimated up to 80 percent pay the bare minimum. […]

In the meantime, as borrowers continue to make their minimum monthly payments their mortgage increases in size. But the minimum payment also rises as a result.

So, nearly all these buyers owe more than the original price of the house, most of them are digging themselves deeper into the hole each month by paying the minimum, and the minimum gets increasingly difficult to pay. Is it possible for these buyers to somehow turn things around?

Industry insiders say that as long as housing prices continue to rise and selling a house is not a problem, Option ARMs are straightforward to refinance. “Unfortunately the economic conditions are working against a lot of borrowers facing resets,” said Dale Vermillion, a mortgage industry consultant and consumer advocate.

With falling house prices, selling is difficult for Option ARM holders as they would net far less than they still owe their lender — even supposing they can sell in a slow market. As they owe far more than the house is worth and the market has been hit by a credit crunch, they also can’t refinance. Bruce Rose’s house in Boston, for instance, was valued at $325,000 in January 2006, but he owes more than $500,000.

So, here’s the punchline: aside from the turmoil caused by subprime mortgages, an additional 11% of the mortgages written in 2005 and 2006 are almost guaranteed to go into default.