In the pathbreaking 1960s movie about two Depression-era bank robbers (and lovers) “Bonnie and Clyde,” there is a scene in which Clyde tells an inquiring stranger, with pride, “we rob banks.” The stranger seems impressed, for banks were much-hated villains in those days. Many thousands of banks around the country had closed their doors overnight and had wiped out the life savings of millions of Americans. Well, this time around it seems the banks are robbing us.
First there were the hundreds of billions of taxpayer dollars used to bail out the banks (some of which went straight to their bottom lines) followed by a quick return to paying out multi-million dollar bonuses to their executives. Then there were the taxpayer funds intended to stimulate lending that the banks instead hoarded. Then it seemed that a corrupt mortgage lending system had morphed into an equally corrupt mortgage foreclosure system in which an array of probably illegal practices (like robo-signing of documents) were being used by some of our largest banks and mortgage lenders to boot delinquent homeowners out of their homes.
The haste to foreclose, rather than to renegotiate the loans, had to do with the banks’ incentives; there were fees to be had for foreclosing, but not for renegotiating. Among the many outrages that resulted were the notorious cases where banks foreclosed on homeowners who didn’t even have a mortgage. No kidding!
The result of the banks’ foreclosure frenzy was predictable (except to the bankers): the glut of foreclosed houses pushed depressed home prices even lower and produced more downward pressure on home prices, which led to even more foreclosures – a vicious circle. Now the banks are holding off on foreclosing, while some homeowners are enjoying free rent (temporarily), a practice which ensures that home prices will remain low for many years to come.
Meanwhile, bank consolidation continues, exacerbating the “too big to fail” danger, while bank profits have hit record levels (the financial industry accounted for a full one-third of our corporate profits last year), and salaries and perks are back to “normal.”
As for the new financial regulations, they amount to a pat on the wrist for the banks. Nevertheless, they have been lobbying aggressively to water them down and to gut the new consumer protection agency. The banks have never flinched on such outrageous credit traps as the 7.9 percent teaser rate on credit cards, with a “bump” to 29.9 percent if a cardholder is late on a payment even by one day. It used to be called usury.
The Goldman Sachs CEO Lloyd Blankfein famously claimed that our bankers are “doing God’s work.” I wonder which God he had in mind.
Saturday, July 30, 2011
Monday, July 25, 2011
Watch Out for “The Radical Center”
New York Times columnist Thomas Friedman is touting “The Radical Center” -- a new third-party political movement inspired out of complete disgust with the two major parties. It is being bankrolled by a disaffected Wall Street hedge fund manager – a bit of an eyebrow raiser – but that’s really not the issue.
The reason for being concerned about it is that it could be a self-defeated exercise. Third parties in this country have sometimes nudged the major parties in a different direction, but more often they have undercut the party whose interests are closest to their own. Think of Teddy Roosevelt and the “Bull Moose Party” in 1912, which split the Republicans and helped elect a Democrat (Woodrow Wilson). Or think of Ross Perot, who got 18.9 percent of the vote in 1992 and probably elected Bill Clinton. Or Ralph Nader as the Green Party candidate in 2000, who handed the election to George Bush. How different the next decade would have been!
The Radical Center is particularly problematic, because the most powerful political movements in our history have been fueled by a “cause” – a burning issue or platform – and a charismatic leader, not a vague, non-partisan disgust with the status quo. What is lacking here is a vision of where we should go as a nation. (How about a fair society?) Little good will come of this, alas.
The reason for being concerned about it is that it could be a self-defeated exercise. Third parties in this country have sometimes nudged the major parties in a different direction, but more often they have undercut the party whose interests are closest to their own. Think of Teddy Roosevelt and the “Bull Moose Party” in 1912, which split the Republicans and helped elect a Democrat (Woodrow Wilson). Or think of Ross Perot, who got 18.9 percent of the vote in 1992 and probably elected Bill Clinton. Or Ralph Nader as the Green Party candidate in 2000, who handed the election to George Bush. How different the next decade would have been!
The Radical Center is particularly problematic, because the most powerful political movements in our history have been fueled by a “cause” – a burning issue or platform – and a charismatic leader, not a vague, non-partisan disgust with the status quo. What is lacking here is a vision of where we should go as a nation. (How about a fair society?) Little good will come of this, alas.
Saturday, July 23, 2011
Armageddon?
Well, it would be the political equivalent if the quasi-religious right – AKA Tea Party libertarians – don’t come to their senses.
Many of history’s greatest calamities have been the result of delusions – false perceptions of reality (“imperfect information” in the jargon of economics) coupled with a willful egotism that ignores the stakes of others and discounts their likely reactions. Thus, in 1861 the southern slave states thought they could secede from the union with impunity. In 1941 Hitler thought his Wehrmacht would quickly defeat the feckless Russians. And in 2011 the Tea Party Republicans think they can force their vision of minimal government, and “free markets” that have been “liberated” from an oppressive state, onto an electorate that strongly disagrees with their naïve and idealistic vision. In the process, these misguided crusaders would also trample on the concept of fairness – not only President Obama’s version but the bipartisan “Gang of Six” proposal as well.
We’re now at the “drop dead” date, and it could be an economic Armageddon for this country – nothing good can come from it – unless there is a last-minute religious conversion on the right. History provides few comforting precedents. The odds are in favor of a self-inflicted disaster. What have we come to?
Many of history’s greatest calamities have been the result of delusions – false perceptions of reality (“imperfect information” in the jargon of economics) coupled with a willful egotism that ignores the stakes of others and discounts their likely reactions. Thus, in 1861 the southern slave states thought they could secede from the union with impunity. In 1941 Hitler thought his Wehrmacht would quickly defeat the feckless Russians. And in 2011 the Tea Party Republicans think they can force their vision of minimal government, and “free markets” that have been “liberated” from an oppressive state, onto an electorate that strongly disagrees with their naïve and idealistic vision. In the process, these misguided crusaders would also trample on the concept of fairness – not only President Obama’s version but the bipartisan “Gang of Six” proposal as well.
We’re now at the “drop dead” date, and it could be an economic Armageddon for this country – nothing good can come from it – unless there is a last-minute religious conversion on the right. History provides few comforting precedents. The odds are in favor of a self-inflicted disaster. What have we come to?
Friday, July 22, 2011
“The Age of Enron”
That’s how author Thomas Frank (What’s the Matter with Kansas, The Wrecking Crew) commemorated the tenth anniversary of the corporate implosion that produced one of the greatest free-market catastrophes of our time. Enron, then one of the largest, apparently most successful – and influential -- companies in our country collapsed in a matter of days when its true financial condition, and its elaborate deceptions, were finally exposed. Thousands of employees were suddenly thrown out of work, and their pensions and 401Ks vaporized.
As Frank notes in this month’s Harper’s magazine, Enron was not the first company to feature grotesque bonuses for insiders, or a fawning press, or bought politicians, or customers being fleeced by scheming predators. But the “fireball of fraud” that erupted at Enron has served as a dark model for many other examples in the decade since. What made the Enron case particularly flagrant was that its leaders – especially the CEO Kenneth Lay – championed the free market, libertarian creed. “I believe in God and I believe in free markets,” he was quoted as saying. In hindsight, Enron’s ideology was transparently self-serving.
Frank points out that we seem to have learned nothing from the Enron case. The common denominator in all of the major free-market debacles and disasters that we have experienced in the past 10 years – from the Capital Management bust to the BP oil spill, the coal mine explosion at Massey Energy, the subprime mortgage fiasco and, of course, the Wall Street meltdown – was aggressive deregulation and a permissive environment for greed and chicanery.
Deregulation invited corrupt and cynical behavior in the market place – like the Enron trader who admitted (privately) that the company was stealing from Californians after it had engineered an artificial electricity price spike in that state, or the CEO of the now-defunct mortgage lender Countrywide who acknowledged (also in private) that he was selling a “toxic product.”
Even that arch-capitalist Adam Smith recognized that a market economy depends on ethical conduct – honesty and fair dealing. But in a society like ours, where self-interest is extolled as the prime ethical precept, strict regulation in the public interest must serve as the fire wall. There is no third alternative.
Nevertheless, “deregulation” is again in vogue among conservatives and Republicans. It’s a dangerous delusion. As the philosopher Peter Singer observes, policies that are based on truth are likely to have better outcomes than when they are based on lies and ignorance. When will we learn?
As Frank notes in this month’s Harper’s magazine, Enron was not the first company to feature grotesque bonuses for insiders, or a fawning press, or bought politicians, or customers being fleeced by scheming predators. But the “fireball of fraud” that erupted at Enron has served as a dark model for many other examples in the decade since. What made the Enron case particularly flagrant was that its leaders – especially the CEO Kenneth Lay – championed the free market, libertarian creed. “I believe in God and I believe in free markets,” he was quoted as saying. In hindsight, Enron’s ideology was transparently self-serving.
Frank points out that we seem to have learned nothing from the Enron case. The common denominator in all of the major free-market debacles and disasters that we have experienced in the past 10 years – from the Capital Management bust to the BP oil spill, the coal mine explosion at Massey Energy, the subprime mortgage fiasco and, of course, the Wall Street meltdown – was aggressive deregulation and a permissive environment for greed and chicanery.
Deregulation invited corrupt and cynical behavior in the market place – like the Enron trader who admitted (privately) that the company was stealing from Californians after it had engineered an artificial electricity price spike in that state, or the CEO of the now-defunct mortgage lender Countrywide who acknowledged (also in private) that he was selling a “toxic product.”
Even that arch-capitalist Adam Smith recognized that a market economy depends on ethical conduct – honesty and fair dealing. But in a society like ours, where self-interest is extolled as the prime ethical precept, strict regulation in the public interest must serve as the fire wall. There is no third alternative.
Nevertheless, “deregulation” is again in vogue among conservatives and Republicans. It’s a dangerous delusion. As the philosopher Peter Singer observes, policies that are based on truth are likely to have better outcomes than when they are based on lies and ignorance. When will we learn?
Thursday, July 21, 2011
Going Hungry
The ballooning food stamp program provides a window into our economic underworld and the growing wasteland of deep poverty in our country that is all but invisible to affluent Americans (and the media).
As of April of this year there were almost 45 million people receiving food stamps – one in seven of us. And the Department of Agriculture – no liberal enclave – estimates that there are another 20-plus million people who are eligible but have not signed up. This amounts to about 20 percent of our population.
According to this week’s Economist, the cost of the food stamps program has more than doubled during this recession, from $35 billion in 2008 to $65 billion last year. But this hardly represents an extravagance. Eligibility for food stamps is strictly scaled to family income, with a ceiling of 130 percent of the “poverty line,” which is based on a notoriously low-ball estimate of the cost of living; it is currently set at about $22,000 for a family of four. The average recipient family receives $133 per month, including a temporary boost that is about to expire, with the maximum set at $200 a month. Many recipients report that, with escalating food prices, they are running out of food at the end of each month. In fact, the USDA puts the total number of people who experienced hunger at various times last year at 50 million, including 17 million children.
Why don’t these people work? Many of them do. But only 14 percent of the recipients earn more than the poverty line, and 18 percent have no income at all. About half of the recipients are children and another 8 percent are elderly. The average family has only $101 in savings or other “valuables.”
The food stamp program also happens to be an effective economic stimulus program at a time when governments at all levels are cutting back their spending. Each dollar of food stamp spending produces an estimated $1.73 in economic activity, whereas each tax cut dollar produces less than one dollar of economic stimulus (contrary to conservative mythology). The affluent put the extra money into savings, pay down debt, buy stocks and other “financial instruments,” and so forth. Cutting taxes for the wealthy while at the same time slashing social welfare spending is not only a moral abomination, it’s also bad economic policy.
But more important, the food stamps program mitigates the huge hunger problem in our country, and there is no effective alternative. Libertarian fantasies about substituting private charities for the food stamps program are just that. The program even benefits the rich. Without food stamps and other programs to help the poor, we would by now have had the Armageddon that conservatives fear.
As of April of this year there were almost 45 million people receiving food stamps – one in seven of us. And the Department of Agriculture – no liberal enclave – estimates that there are another 20-plus million people who are eligible but have not signed up. This amounts to about 20 percent of our population.
According to this week’s Economist, the cost of the food stamps program has more than doubled during this recession, from $35 billion in 2008 to $65 billion last year. But this hardly represents an extravagance. Eligibility for food stamps is strictly scaled to family income, with a ceiling of 130 percent of the “poverty line,” which is based on a notoriously low-ball estimate of the cost of living; it is currently set at about $22,000 for a family of four. The average recipient family receives $133 per month, including a temporary boost that is about to expire, with the maximum set at $200 a month. Many recipients report that, with escalating food prices, they are running out of food at the end of each month. In fact, the USDA puts the total number of people who experienced hunger at various times last year at 50 million, including 17 million children.
Why don’t these people work? Many of them do. But only 14 percent of the recipients earn more than the poverty line, and 18 percent have no income at all. About half of the recipients are children and another 8 percent are elderly. The average family has only $101 in savings or other “valuables.”
The food stamp program also happens to be an effective economic stimulus program at a time when governments at all levels are cutting back their spending. Each dollar of food stamp spending produces an estimated $1.73 in economic activity, whereas each tax cut dollar produces less than one dollar of economic stimulus (contrary to conservative mythology). The affluent put the extra money into savings, pay down debt, buy stocks and other “financial instruments,” and so forth. Cutting taxes for the wealthy while at the same time slashing social welfare spending is not only a moral abomination, it’s also bad economic policy.
But more important, the food stamps program mitigates the huge hunger problem in our country, and there is no effective alternative. Libertarian fantasies about substituting private charities for the food stamps program are just that. The program even benefits the rich. Without food stamps and other programs to help the poor, we would by now have had the Armageddon that conservatives fear.
Wednesday, July 20, 2011
Great Theater, But…
“This is the most humble day of my life.”
Touching, wasn’t it? The great press baron Rupert Murdoch humbling himself before a Parliamentary committee yesterday. But Murdoch used the wrong word. It was in fact the most mendacious day of his life, and the most reprehensible. True to form, this ruthless man was willing to blame unknown underlings and let them take the fall while he protected his own self-interest. Here’s an excerpt from today’s New York Times:
But his humility did not extend to declaring that he was at fault or that he should step down from his company. “I feel that people I trusted — I don’t know who, on what level — have let me down, and I think they have behaved disgracefully, and it’s for them to pay,” he said. “And I think, frankly, that I’m the best person to see it through.”
While the elder Mr. Murdoch has long had the reputation of being a hands-on manager, pressing for and savoring the scoops scored by the newspapers he had always felt were the soul of his media empire, he said in his testimony that in the case of The News of the World, he had no knowledge of the specifics of what was going on.
He did not know, for example, that his company had paid confidential out-of-court settlements of £600,000 and £1 million to two victims of phone hacking. Nor, he said, did he know that the company was paying the legal fees of Glenn Mulcaire, a private investigator under contract to The News of the World who was convicted in 2007 of hacking into the phones of staff members of the royal family.
James Murdoch said he had not known about paying Mr. Mulcaire’s legal fees either, and was “as surprised as you are that some of these arrangements had been made.”
Funny thing. Stories about widespread hacking at The News of the World had appeared in many media outlets over the past couple of years, including the London Observer and the New York Times. Evidently the Murdoch’s don’t read any newspapers except their own. The applicable legal doctrine here is “willful ignorance” in a situation where a manager should have known what was going on. Considering the damage the Murdoch’s have done to the political discourse – and ethics -- in both England and the U.S., I can only wish that justice will be done. That will be sufficient.
Touching, wasn’t it? The great press baron Rupert Murdoch humbling himself before a Parliamentary committee yesterday. But Murdoch used the wrong word. It was in fact the most mendacious day of his life, and the most reprehensible. True to form, this ruthless man was willing to blame unknown underlings and let them take the fall while he protected his own self-interest. Here’s an excerpt from today’s New York Times:
But his humility did not extend to declaring that he was at fault or that he should step down from his company. “I feel that people I trusted — I don’t know who, on what level — have let me down, and I think they have behaved disgracefully, and it’s for them to pay,” he said. “And I think, frankly, that I’m the best person to see it through.”
While the elder Mr. Murdoch has long had the reputation of being a hands-on manager, pressing for and savoring the scoops scored by the newspapers he had always felt were the soul of his media empire, he said in his testimony that in the case of The News of the World, he had no knowledge of the specifics of what was going on.
He did not know, for example, that his company had paid confidential out-of-court settlements of £600,000 and £1 million to two victims of phone hacking. Nor, he said, did he know that the company was paying the legal fees of Glenn Mulcaire, a private investigator under contract to The News of the World who was convicted in 2007 of hacking into the phones of staff members of the royal family.
James Murdoch said he had not known about paying Mr. Mulcaire’s legal fees either, and was “as surprised as you are that some of these arrangements had been made.”
Funny thing. Stories about widespread hacking at The News of the World had appeared in many media outlets over the past couple of years, including the London Observer and the New York Times. Evidently the Murdoch’s don’t read any newspapers except their own. The applicable legal doctrine here is “willful ignorance” in a situation where a manager should have known what was going on. Considering the damage the Murdoch’s have done to the political discourse – and ethics -- in both England and the U.S., I can only wish that justice will be done. That will be sufficient.
Tuesday, July 19, 2011
“A Nation at Risk”
This is the title of a landmark report by the National Commission on Excellence in Education that was published 30 years ago. The report warned that we were on a trajectory toward mediocrity as a nation without major reforms in our primary and secondary education system. Today, we have arrived at that dismal destination, and the signs indicate that things are going to get even worse.
Currently, less than one-third of our eighth graders are proficient in math, science and reading. We now rank 48th in the world in math education, according to the World Economic Forum, and we are in the middle among the 34 industrialized countries in science and reading test scores. We are also in the basement in our percentage of high school graduates.
Indeed, we now have a two-tiered system in which the educated, wealthy elite perpetuates itself while a vast underclass lacks the education and skills to move up the economic escalator (as the New York Times’ Nicholas Kristof calls it). Today, “poverty is destiny.” To make matters worse, we are relentlessly slashing public school budgets, laying off teachers and cutting school programs rather than making improvements. Meanwhile, other nations, most notably China, are leaping ahead academically.
There is plenty of blame to go around – the unions, bureaucrats, politicians, and the taxpayers have all had a hand in it. As Joel Klein, former head of the New York City public schools put it, the basic problem is that the system is run for the adults, not the children. He concludes that our dysfunctional public education system needs “radical reform.”
Among Klein’s recommendations (in the current issue of the Atlantic): We need to attract much better teachers by paying them better and rewarding merit; we need to be able to weed out incompetent or burned out teachers; we need more gifted administrators and fewer bureaucratic hacks; we need to give children more school choices; we need to allow budget allocations to follow the students and not so heavily favor the schools in affluent districts; we need to make much better use of the new technologies that are now available for improving learning; and, not least, we need to provide jobs and family stability for the students. Our vast wasteland of economic poverty also undermines our educational system.
None of this is news, but the task seems more daunting than ever. Yet the stakes are higher than ever. What we do (or don't do) will profoundly affect the future of this nation – for better or worse.
Currently, less than one-third of our eighth graders are proficient in math, science and reading. We now rank 48th in the world in math education, according to the World Economic Forum, and we are in the middle among the 34 industrialized countries in science and reading test scores. We are also in the basement in our percentage of high school graduates.
Indeed, we now have a two-tiered system in which the educated, wealthy elite perpetuates itself while a vast underclass lacks the education and skills to move up the economic escalator (as the New York Times’ Nicholas Kristof calls it). Today, “poverty is destiny.” To make matters worse, we are relentlessly slashing public school budgets, laying off teachers and cutting school programs rather than making improvements. Meanwhile, other nations, most notably China, are leaping ahead academically.
There is plenty of blame to go around – the unions, bureaucrats, politicians, and the taxpayers have all had a hand in it. As Joel Klein, former head of the New York City public schools put it, the basic problem is that the system is run for the adults, not the children. He concludes that our dysfunctional public education system needs “radical reform.”
Among Klein’s recommendations (in the current issue of the Atlantic): We need to attract much better teachers by paying them better and rewarding merit; we need to be able to weed out incompetent or burned out teachers; we need more gifted administrators and fewer bureaucratic hacks; we need to give children more school choices; we need to allow budget allocations to follow the students and not so heavily favor the schools in affluent districts; we need to make much better use of the new technologies that are now available for improving learning; and, not least, we need to provide jobs and family stability for the students. Our vast wasteland of economic poverty also undermines our educational system.
None of this is news, but the task seems more daunting than ever. Yet the stakes are higher than ever. What we do (or don't do) will profoundly affect the future of this nation – for better or worse.
Saturday, July 16, 2011
Shareholder Capitalism Versus Stakeholder Capitalism
The so-called “free market” model of capitalism that has dominated libertarian/ conservative ideology for more than 30 years is based on a core assumption that is gratuitous and self-serving for the holders of wealth, namely that “ownership” of a business firm belongs exclusively to those who have invested “capital” in it. The owners (and shareholders) have put their money at risk (though these days big investors sometimes use other people’s money) and are therefore entitled to whatever profits are produced. Needless to say, this model also has strong support in our legal system as well.
Indeed, many of our business schools and conservative business writers have stressed the single-minded objective of “maximizing” shareholder value, even sometimes (in practice) at considerable cost to the workers, the customers, and even the public interest (like the environment). The rampant outsourcing of jobs and various corporate tax dodges are two examples.
However, there is another model of capitalism that is being practiced in other countries – such as in Japan and among the Scandinavians (and in some of our own more enlightened companies) – that goes under the heading of “stakeholder capitalism.” Stakeholder capitalism, quite simply, recognizes and empowers all of the parties that have an interest in and contribute to the success (profits) of a complex modern industrial enterprise. In addition to the owners/shareholders, this may include the managers, the workers, the suppliers, distributors, franchise holders, and other players -- even the customers, the general public and the “state.”
Sometimes the stakeholder roles are formally recognized and empowered, as in Germany where workers may have a seat on the board of directors and government may play an active policy-making role. In many other cases, though, the stakeholder model is more indirect and subtle. Take the case of Lincoln Electric in Rust Belt Michigan, which was featured in the PBS Newshour the other night.
Despite the industrial decline all around it, Lincoln Electric is now more than 100 years old and going strong. It has operations and sales in 19 countries, including leading-edge wind turbines, and it has been profitable in all but two years of its existence. More remarkable, it has never had to violate its policy of not laying off workers in an economic downturn. The workers may see their hours cut during hard times (to a guaranteed minimum of 30 hours-a-week), but the company treats its commitment to its work force as sacred.
The company has also benefited from using a compensation formula where the workers are paid according to their output, an incentive system that directly rewards hard work. The performance results are phenomenal. Last year the average worker earned $68,000 and some 25 workers earned over $100,000. In addition, one-third of the profits each year are shared among the workers. No wonder that the turnover in its workforce is remarkably low, and that the level of cooperation and teamwork is high. Stakeholder capitalism works.
Contrast this with the attitude of a Wall Street investment banker toward Lincoln Electric. “I would love to get control of this company. I would cut the costs, lay off people, refinance, and make a lot of money.” And destroy the company in the name of free market “shareholder” capitalism. This has been the fate of all too many of our once great industrial enterprises. When will we learn?
Indeed, many of our business schools and conservative business writers have stressed the single-minded objective of “maximizing” shareholder value, even sometimes (in practice) at considerable cost to the workers, the customers, and even the public interest (like the environment). The rampant outsourcing of jobs and various corporate tax dodges are two examples.
However, there is another model of capitalism that is being practiced in other countries – such as in Japan and among the Scandinavians (and in some of our own more enlightened companies) – that goes under the heading of “stakeholder capitalism.” Stakeholder capitalism, quite simply, recognizes and empowers all of the parties that have an interest in and contribute to the success (profits) of a complex modern industrial enterprise. In addition to the owners/shareholders, this may include the managers, the workers, the suppliers, distributors, franchise holders, and other players -- even the customers, the general public and the “state.”
Sometimes the stakeholder roles are formally recognized and empowered, as in Germany where workers may have a seat on the board of directors and government may play an active policy-making role. In many other cases, though, the stakeholder model is more indirect and subtle. Take the case of Lincoln Electric in Rust Belt Michigan, which was featured in the PBS Newshour the other night.
Despite the industrial decline all around it, Lincoln Electric is now more than 100 years old and going strong. It has operations and sales in 19 countries, including leading-edge wind turbines, and it has been profitable in all but two years of its existence. More remarkable, it has never had to violate its policy of not laying off workers in an economic downturn. The workers may see their hours cut during hard times (to a guaranteed minimum of 30 hours-a-week), but the company treats its commitment to its work force as sacred.
The company has also benefited from using a compensation formula where the workers are paid according to their output, an incentive system that directly rewards hard work. The performance results are phenomenal. Last year the average worker earned $68,000 and some 25 workers earned over $100,000. In addition, one-third of the profits each year are shared among the workers. No wonder that the turnover in its workforce is remarkably low, and that the level of cooperation and teamwork is high. Stakeholder capitalism works.
Contrast this with the attitude of a Wall Street investment banker toward Lincoln Electric. “I would love to get control of this company. I would cut the costs, lay off people, refinance, and make a lot of money.” And destroy the company in the name of free market “shareholder” capitalism. This has been the fate of all too many of our once great industrial enterprises. When will we learn?
Friday, July 15, 2011
“Good News” for Libertarians
The debt ceiling crisis fueled by the libertarians in Congress reached crisis proportions yesterday as two bond rating agencies and the Chinese government (to our embarrassment) warned us about the consequences of defaulting on our debt. Let’s have a little anarchy.
Meanwhile, it was reported that bank lobbyists are engaged in a full-court press to unravel the Dodd-Frank banking reforms (you know, the ones inspired by the financial meltdown), while food makers rejected new FDA guidelines designed to help deal with our childhood obesity epidemic, the House of Representatives passed a bill to strip the government of some of its oversight powers regarding water quality, and a new herbicide pronounced “safe” by the maker seems to be killing trees.
Day by day, it seems, libertarians are gaining ground on their objectives – less government and more freedom for the markets. I can’t say “more power to them,” because such a deluded ideology will usher in a new kind of post-industrial dark age. Watching a nation self-destruct will be quite a spectacle.
Meanwhile, it was reported that bank lobbyists are engaged in a full-court press to unravel the Dodd-Frank banking reforms (you know, the ones inspired by the financial meltdown), while food makers rejected new FDA guidelines designed to help deal with our childhood obesity epidemic, the House of Representatives passed a bill to strip the government of some of its oversight powers regarding water quality, and a new herbicide pronounced “safe” by the maker seems to be killing trees.
Day by day, it seems, libertarians are gaining ground on their objectives – less government and more freedom for the markets. I can’t say “more power to them,” because such a deluded ideology will usher in a new kind of post-industrial dark age. Watching a nation self-destruct will be quite a spectacle.
Wednesday, July 13, 2011
Forty Cents on the Dollar
That’s how much our Federal government currently has to borrow to pay its bills, I’m told. And that’s how much of a shortfall there will be if the GOP forces a debt ceiling default.
What will happen is that the Treasury will first pay the principle and interest costs on our national debt (we would not want the bondholders to suffer), ahead of Social Security, Medicare, food stamps, or even the military. After debt service, the Treasury could either pay for the military or all the rest of our social welfare and “discretionary” spending – but not both. And that’s only a part of the damage that such an irresponsible act would produce.
The Republicans are right that we have to begin getting our deficit spending under control. But this is obviously not the way to do it. Nor will we get there with spending cuts alone – without gutting either the military, or our safety net, or both. I know that the math scores in our schools have been declining for years, but this is ridiculous. It's elementary school arithmetic.
What will happen is that the Treasury will first pay the principle and interest costs on our national debt (we would not want the bondholders to suffer), ahead of Social Security, Medicare, food stamps, or even the military. After debt service, the Treasury could either pay for the military or all the rest of our social welfare and “discretionary” spending – but not both. And that’s only a part of the damage that such an irresponsible act would produce.
The Republicans are right that we have to begin getting our deficit spending under control. But this is obviously not the way to do it. Nor will we get there with spending cuts alone – without gutting either the military, or our safety net, or both. I know that the math scores in our schools have been declining for years, but this is ridiculous. It's elementary school arithmetic.
The Sheila Bair Story
Shiela Bair, who just stepped own as head of the Federal Deposit Insurance Corporation (FDIC), is one of the unsung heroes of the financial crisis and its aftermath. She was above all a voice for fairness that the dominant players – like Treasury Secretaries Hank Paulson and Timothy Geithner and Federal Reserve Chairmen Alan Greenspan and Ben Bernanke – generally treated as “difficult” and chose to ignore.
In last Sunday’s New York Times Magazine, economics reporter Joe Nocera details how very different the outcome might have been for the country had her common sense views been heeded. This modern-day tragedy has needlessly inflicted great suffering on millions of Americans, and the end is not yet in sight.
Long before the financial meltdown and the bank bailout – driven by a corrupt mortgage market and the toxic subprime mortgage con game – Bair was warning that this was a huge financial time-bomb. It ought to be reined in. The powers that be did not listen.
When the crisis hit, she championed “market discipline” – meaning that shareholders and bond holders (the one’s whose investments are supposed to be at risk) should not be favored over depositors and the taxpayers. “Why did we do the bailouts?” she told Nocera. “It was all about the bondholders.” And protecting bank profits. But “they’re supposed to take losses.”
Once the full blown crisis hit – despite repeated assurances from the “boys club” that it could be “contained” -- Bair also objected to the way in which the bailout was done. She advocated in vain for using the long-standing FDIC practice, when a bank fails and must be “wound down,” of modifying contracts (including bonus payouts to bank executives) as needed. Such outrages as the huge multi-billion-dollar bailout package for the insurance giant A.I.G. followed by a bonus package of $165 million to the executives who created the disaster would not have happened. Likewise, she maintained that the investment banks who held contracts with A.I.G. should also have to “take a haircut” and not receive 100 percent of their insurance contracts with A.I.G. The most notorious example was Goldman Sachs, which received $12 billion in taxpayer money. These avoidable actions still fester for many of us.
Again, when the banks began an orgy of mortgage foreclosures, because it was cheaper than loan modifications and there are also incentive fees that encourage the practice, Bair (a moderate Republican, believe it or not) advocated that a $50 billion chunk of the bailout package should be devoted to creating incentives for loan modifications to help stabilize the housing market. The fund was created, but the old boys club and the banks found all sorts of objections to using it, and only a fraction of the money has been spent as intended. Now, after millions of foreclosures in a deeply depressed housing market, the banks have come to recognize that this practice has been self-defeating, and they have belatedly become more receptive to loan modifications. Score one more for Sheila Bair.
Finally, we will have Sheila Bair to thank if we are able to avoid another big bank bailout in the future. It was Bair who sold President Obama and the Congress on the idea that even “too big to fail” banks could be “wound down” if they failed; the FDIC has had a lot of successful experience with this process. This policy has now been written into the Dodd-Frank financial reform law, but whether or not it will actually be used depends on the politicians of the future. Will they have any backbone when the time comes?
In the Great Depression, everybody shared the pain. That was Sheila Bair’s instinct in the Great Recession, and it would have been much fairer. Instead, this time around the banks, wealthy investors and our corporate CEOs have come out of the crisis largely unscathed, and it is the rest of us who are still suffering the consequences. It didn’t have to be this way. It might have been prevented if our politicians and regulators had not been myopic and morally obtuse.
Now a group of ideological fanatics in the Congress, with an apparent death wish, seem bent on making matters much worse with the debt ceiling issue. They may well succeed.
In last Sunday’s New York Times Magazine, economics reporter Joe Nocera details how very different the outcome might have been for the country had her common sense views been heeded. This modern-day tragedy has needlessly inflicted great suffering on millions of Americans, and the end is not yet in sight.
Long before the financial meltdown and the bank bailout – driven by a corrupt mortgage market and the toxic subprime mortgage con game – Bair was warning that this was a huge financial time-bomb. It ought to be reined in. The powers that be did not listen.
When the crisis hit, she championed “market discipline” – meaning that shareholders and bond holders (the one’s whose investments are supposed to be at risk) should not be favored over depositors and the taxpayers. “Why did we do the bailouts?” she told Nocera. “It was all about the bondholders.” And protecting bank profits. But “they’re supposed to take losses.”
Once the full blown crisis hit – despite repeated assurances from the “boys club” that it could be “contained” -- Bair also objected to the way in which the bailout was done. She advocated in vain for using the long-standing FDIC practice, when a bank fails and must be “wound down,” of modifying contracts (including bonus payouts to bank executives) as needed. Such outrages as the huge multi-billion-dollar bailout package for the insurance giant A.I.G. followed by a bonus package of $165 million to the executives who created the disaster would not have happened. Likewise, she maintained that the investment banks who held contracts with A.I.G. should also have to “take a haircut” and not receive 100 percent of their insurance contracts with A.I.G. The most notorious example was Goldman Sachs, which received $12 billion in taxpayer money. These avoidable actions still fester for many of us.
Again, when the banks began an orgy of mortgage foreclosures, because it was cheaper than loan modifications and there are also incentive fees that encourage the practice, Bair (a moderate Republican, believe it or not) advocated that a $50 billion chunk of the bailout package should be devoted to creating incentives for loan modifications to help stabilize the housing market. The fund was created, but the old boys club and the banks found all sorts of objections to using it, and only a fraction of the money has been spent as intended. Now, after millions of foreclosures in a deeply depressed housing market, the banks have come to recognize that this practice has been self-defeating, and they have belatedly become more receptive to loan modifications. Score one more for Sheila Bair.
Finally, we will have Sheila Bair to thank if we are able to avoid another big bank bailout in the future. It was Bair who sold President Obama and the Congress on the idea that even “too big to fail” banks could be “wound down” if they failed; the FDIC has had a lot of successful experience with this process. This policy has now been written into the Dodd-Frank financial reform law, but whether or not it will actually be used depends on the politicians of the future. Will they have any backbone when the time comes?
In the Great Depression, everybody shared the pain. That was Sheila Bair’s instinct in the Great Recession, and it would have been much fairer. Instead, this time around the banks, wealthy investors and our corporate CEOs have come out of the crisis largely unscathed, and it is the rest of us who are still suffering the consequences. It didn’t have to be this way. It might have been prevented if our politicians and regulators had not been myopic and morally obtuse.
Now a group of ideological fanatics in the Congress, with an apparent death wish, seem bent on making matters much worse with the debt ceiling issue. They may well succeed.
Tuesday, July 12, 2011
Legalized Looting, It Just Got Worse
Last week it was reported that, despite our anemic economy and persistent joblessness, the CEOs at 200 big companies last year got a 23 percent pay raise, with a median income of $9.6 million, while stock option awards increased by 38 percent. America’s CEOs now average some 320 times the income of their workers, compared with 20 times as much back in the 1950s, and even today in some other countries, like Japan.
For one week, the Viacom CEO, Philippe Dauman topped the list of legalized looters with total compensation of $84.5 million for 2010. Now it is reported that the chairman and CEO of Simon Property Group – the country’s largest shopping mall owner – got an astounding one-time payout of company shares worth $120 million to stay with the company until 2019. Of course, there was little danger that David Simon would jump ship. He’s the son of the company founder and already owns 11 percent of the equity in the company, as well as $24 million in compensation for last year. I wonder how much his secretary makes?
For one week, the Viacom CEO, Philippe Dauman topped the list of legalized looters with total compensation of $84.5 million for 2010. Now it is reported that the chairman and CEO of Simon Property Group – the country’s largest shopping mall owner – got an astounding one-time payout of company shares worth $120 million to stay with the company until 2019. Of course, there was little danger that David Simon would jump ship. He’s the son of the company founder and already owns 11 percent of the equity in the company, as well as $24 million in compensation for last year. I wonder how much his secretary makes?
Monday, July 11, 2011
Some Problems with Libertarianism (Part Three)
In two previous blog items back in December of 2010, I began to lay out the case against libertarianism. It seems the time has come to extend this argument and go deeper into the fundamental deficiencies, as I see it, of a philosophy of radical freedom. Here is a third part – in the form of a rebuttal to a proselytizing libertarian philosopher -- with more to come.
In a recent on-line attempt to win over progressives to their libertarian ideology, the self-styled “bleeding heart” libertarian Matt Zwolinski claims the he too is concerned about social justice. But this turns out to be window dressing. His real agenda is to persuade us that we should trust “free markets” more and trust government much less, and he attempts to do this with seven numbered “reasons” that are highly debatable.
Indeed, his case is so full of holes that it’s like trying to hold water in a sieve. You know what is to come when he blithely begins by telling us that “respect for private property rights and free markets generally serves the interest of the poor.” Oh? As Bill Gates (lately the richest man in the world) observed: “Markets only work for people who have money.” So let’s take a look at Zwolinski’s reasons.
1. Government is coercive. Well, of course. That’s true by definition. The question is coercion by whom and for what purpose. Zwolinski (like other libertarians) characterizes government as some sort of alien force out there that is inherently inept if not corrupt, and that mindlessly restricts commerce. He asks if government coercion is any different from being mugged by another person. “All of us accept that it is wrong for us as individuals to use violence against our neighbors to get them to do the things we think they ought to do. Is it really so much less wrong when the violence is committed by the government instead?”
The answer, emphatically, is that it depends on what kind of government you have. Government in an absolute monarchy, or a strong-man tyranny (say Saddam Hussein), or even an oligarchy is likely to use coercion to advance the narrow interests of the ruler, or an elite. But a democracy, in principle, means collective “self-government,” along with a common-law tradition that at least aspires to achieve government “of, by, and for the people.” In the ideal, our representatives should enact laws (and regulations) in our common (majority) interest (including taxes), subject to Constitutional safeguards for our individual rights. We obviously fall far short of this ideal, but that doesn’t negate the principle. (Some European countries do much better than we do.) As Winston Churchill put it, democracy is the worst form of government, except for all the others -- including no government at all, I might add.
2. Regulation “often” serves the interests of the powerful, not the vulnerable. Well, yes of course, when democratic government has been co-opted, or “bought” by the rich and powerful. The Bush administration was positively subversive of government; they systematically corrupted it on behalf of the “interests of the powerful.” A return to government in the public interest is precisely what the current “war” between conservatives and progressives is about, in part. Indeed, many of the new regulations that have been fought most bitterly by the private sector business interests recently are precisely those that protect the general public against environmental pollution, food contamination, threats to public health, financial chicanery, hazards to mine safety, and much more. And almost all of these regulations were the result of egregious, even tragic private sector abuses; they were not the result of gratuitous, bureaucratic power-trips. It’s certainly true that there are cases of regulatory overreach; governments consist of fallible human beings. But on balance the public has benefitted.
3. Government is often unable to help the vulnerable. Often that’s because (conservative) government is unwilling rather than unable to help the vulnerable. Zwolinski cites as an illustration the economics textbook case of price gouging for the sale of ice after a hurricane. If government intervenes with an anti-gouging law, he claims, it might cap the price too low to encourage an increase in the “supply” of ice – in accordance with basic market supply-demand theory.
This is, of course, a highly contrived and theoretical example. In fact, a lot of price gouging in such calamities is for things with a fixed supply – like rental housing and motel rooms, where there won’t be an increase in the housing supply anytime soon, except for tents. But even in the curious case of ice, there are in fact three alternative principles available for allocating the supply – rationing, first come first served, and favoring those who can afford to pay and penalizing the poor. To me, the moral high ground, and fairer options, are one and two.
But as I say, this is all very theoretical. Funny that Zwolinski didn’t mention FEMA. In the recent tornado rampage, for instance, FEMA and local emergency preparedness services were there quickly to provide for the basic needs of those – rich and poor – who suffered injuries and losses through no fault of their own, and they did a very effective job. Such an organized, trained collective response by the government (funded by the taxpayers) is also a far more equitable (fair) approach to dealing with disasters than to rely on an often exploitative and greedy “market” response by those who are all too willing to take advantage of the suffering of others. To be sure, private donations and non-profit agencies also helped, but the magnitude of these disasters vastly exceeded their capabilities.
Overall, the private sector has a dismal record when it comes to helping the poor and vulnerable. Currently, 24 percent of the total personal income goes to the top 1 percent and 49 percent to the top 10 percent of income earners. The other 90 percent share the remaining half. Likewise, the top 20 percent hold 87.2 percent of the total wealth (excluding home equity, cars and personal belongings). Meanwhile, there are an estimated 25 million people who are unemployed or underemployed, some 25 million who are living in dire poverty (as prices continue to escalate) and about 50 million who suffered food deprivation (hunger) at various times last year. Our “free markets” (sic) do not do an adequate job of meeting our basic needs.
Government is needed to fill in the gaps. Our government already does a lot to help the poor and vulnerable where the private sector has fallen short, from unemployment insurance to child nutrition programs, food stamps, and Medicaid – not to mention Social Security and Medicare. It could do a better job if libertarians would get off their free market, ideological white horses and support more adequate safety net spending.
4. Economic growth is all-important and progressives should support it. I don’t know of any progressives who are opposed to economic growth. It’s a matter of how, and who benefits – and who pays. I think of Enron, Massey Energy (and the coal mine disaster), BP in the Gulf of Mexico, Countrywide and the rampant fraud in the mortgage market, the financial chicanery on Wall Street, and many other examples of “growth” run amok. To protect the public from such abuses, we need – you guessed it – effective government regulation in the public interest.
5. Economic liberty is very important. Zwolinski tells us “Libertarians believe that economic freedom is important not merely because it produces good results for society, but for precisely the same reasons that traditional civil liberties matter — they are an important element of personal autonomy and well-being.”
I am frankly tired of this naïve, if not disingenuous argument. The “free market” has never been free. It has always been heavily influenced if not dominated by the powerful, and politically-influential. The notion of autonomous individuals freely exchanging goods and services in the marketplace is a utopian ideal that is being promoted to justify the “freedom” of large, authoritarian, hierarchical corporations that serve their corporate interests often at the expense of their workers – from job outsourcing to denying the freedom of their employees to form unions for collective bargaining to laying off workers in the millions in the recession. Furthermore, the only effective counterweight to this enormous concentration of economic power is the power of government to act in the public interest. No wonder wealthy conservatives trash government at every turn. Why are libertarians playing into their hands? Find me a libertarian who favors harnessing and restricting the power of large corporations (it may be hard to find one), and I’ll honor him/her as a progressive in deep disguise.
6. Libertarians and progressives agree on some non-economic policies. Like immigration reforms, abandoning the misbegotten war on drugs, bringing the troops home, and opposition to agricultural subsidies. Well, that’s fine. But so what? Why don’t libertarians get some of their conservative Republican representatives/senators to come around to their views? If so, we’ll do the same with the Democrats and continue to oppose their economic views.
7. “Spontaneous order [in free markets] is more powerful than you think.” Well, there is nothing “spontaneous” about order even in physics, Ilya Prigogine to the contrary notwithstanding. And in markets, people with purposes (economic goals) are responsible for creating order/organization. There is nothing magical about it. It’s a cliché going back to Adam Smith that markets are an efficient way to organize economic activity. No progressive that I know of is calling for centralized planning like the Soviet Union or even post-war Britain under the Labour government. That’s a dead horse. But progressives oppose the naive idea that markets work better without rules of the game, and regulations, and policing and constraints that protect the public interest.
It also seems that some (many?) libertarians are in denial about the important role that our government has played in promoting and facilitating economic development in this country, going back to the post roads and canals before the Revolution to tariff protections for baby industries, land grants to underwrite the building of railroads, road construction (and a supportive infrastructure, from traffic lights to traffic cops) to pave the way for the automobile industry (sorry for the pun), subsidies for aviation development, providing mail contracts and airports for the airlines, underwriting the development of computers, the design and early development of the internet – and this only scratches the surface. The reality throughout our history has been government-private sector partnerships of various kinds. And that’s one reason, among many, why the rich should pay their fair share of our taxes.
Finally, Zwolinski claims there is no fundamental difference in values between libertarians and progressives. Even if we disagree on some things, it should be more “civil and productive.” Hey, tell that to the Tea Party. And tell that to the many conservatives (some of whom are running for President) who have published diatribes against liberals, painting them as subversives, and un-American, and evil. (I could provide some quotes.) And how about the current deficit “negotiations” (sic), where Republicans are uncompromising on a fundamental issue of fairness – sharing the pain versus protecting the rich at the expense of the “poor and the vulnerable.” Why isn’t the GOP more “reasonable?” And which side of this important social justice issue are you and the bleeding heart libertarians on, Matt?
In a recent on-line attempt to win over progressives to their libertarian ideology, the self-styled “bleeding heart” libertarian Matt Zwolinski claims the he too is concerned about social justice. But this turns out to be window dressing. His real agenda is to persuade us that we should trust “free markets” more and trust government much less, and he attempts to do this with seven numbered “reasons” that are highly debatable.
Indeed, his case is so full of holes that it’s like trying to hold water in a sieve. You know what is to come when he blithely begins by telling us that “respect for private property rights and free markets generally serves the interest of the poor.” Oh? As Bill Gates (lately the richest man in the world) observed: “Markets only work for people who have money.” So let’s take a look at Zwolinski’s reasons.
1. Government is coercive. Well, of course. That’s true by definition. The question is coercion by whom and for what purpose. Zwolinski (like other libertarians) characterizes government as some sort of alien force out there that is inherently inept if not corrupt, and that mindlessly restricts commerce. He asks if government coercion is any different from being mugged by another person. “All of us accept that it is wrong for us as individuals to use violence against our neighbors to get them to do the things we think they ought to do. Is it really so much less wrong when the violence is committed by the government instead?”
The answer, emphatically, is that it depends on what kind of government you have. Government in an absolute monarchy, or a strong-man tyranny (say Saddam Hussein), or even an oligarchy is likely to use coercion to advance the narrow interests of the ruler, or an elite. But a democracy, in principle, means collective “self-government,” along with a common-law tradition that at least aspires to achieve government “of, by, and for the people.” In the ideal, our representatives should enact laws (and regulations) in our common (majority) interest (including taxes), subject to Constitutional safeguards for our individual rights. We obviously fall far short of this ideal, but that doesn’t negate the principle. (Some European countries do much better than we do.) As Winston Churchill put it, democracy is the worst form of government, except for all the others -- including no government at all, I might add.
2. Regulation “often” serves the interests of the powerful, not the vulnerable. Well, yes of course, when democratic government has been co-opted, or “bought” by the rich and powerful. The Bush administration was positively subversive of government; they systematically corrupted it on behalf of the “interests of the powerful.” A return to government in the public interest is precisely what the current “war” between conservatives and progressives is about, in part. Indeed, many of the new regulations that have been fought most bitterly by the private sector business interests recently are precisely those that protect the general public against environmental pollution, food contamination, threats to public health, financial chicanery, hazards to mine safety, and much more. And almost all of these regulations were the result of egregious, even tragic private sector abuses; they were not the result of gratuitous, bureaucratic power-trips. It’s certainly true that there are cases of regulatory overreach; governments consist of fallible human beings. But on balance the public has benefitted.
3. Government is often unable to help the vulnerable. Often that’s because (conservative) government is unwilling rather than unable to help the vulnerable. Zwolinski cites as an illustration the economics textbook case of price gouging for the sale of ice after a hurricane. If government intervenes with an anti-gouging law, he claims, it might cap the price too low to encourage an increase in the “supply” of ice – in accordance with basic market supply-demand theory.
This is, of course, a highly contrived and theoretical example. In fact, a lot of price gouging in such calamities is for things with a fixed supply – like rental housing and motel rooms, where there won’t be an increase in the housing supply anytime soon, except for tents. But even in the curious case of ice, there are in fact three alternative principles available for allocating the supply – rationing, first come first served, and favoring those who can afford to pay and penalizing the poor. To me, the moral high ground, and fairer options, are one and two.
But as I say, this is all very theoretical. Funny that Zwolinski didn’t mention FEMA. In the recent tornado rampage, for instance, FEMA and local emergency preparedness services were there quickly to provide for the basic needs of those – rich and poor – who suffered injuries and losses through no fault of their own, and they did a very effective job. Such an organized, trained collective response by the government (funded by the taxpayers) is also a far more equitable (fair) approach to dealing with disasters than to rely on an often exploitative and greedy “market” response by those who are all too willing to take advantage of the suffering of others. To be sure, private donations and non-profit agencies also helped, but the magnitude of these disasters vastly exceeded their capabilities.
Overall, the private sector has a dismal record when it comes to helping the poor and vulnerable. Currently, 24 percent of the total personal income goes to the top 1 percent and 49 percent to the top 10 percent of income earners. The other 90 percent share the remaining half. Likewise, the top 20 percent hold 87.2 percent of the total wealth (excluding home equity, cars and personal belongings). Meanwhile, there are an estimated 25 million people who are unemployed or underemployed, some 25 million who are living in dire poverty (as prices continue to escalate) and about 50 million who suffered food deprivation (hunger) at various times last year. Our “free markets” (sic) do not do an adequate job of meeting our basic needs.
Government is needed to fill in the gaps. Our government already does a lot to help the poor and vulnerable where the private sector has fallen short, from unemployment insurance to child nutrition programs, food stamps, and Medicaid – not to mention Social Security and Medicare. It could do a better job if libertarians would get off their free market, ideological white horses and support more adequate safety net spending.
4. Economic growth is all-important and progressives should support it. I don’t know of any progressives who are opposed to economic growth. It’s a matter of how, and who benefits – and who pays. I think of Enron, Massey Energy (and the coal mine disaster), BP in the Gulf of Mexico, Countrywide and the rampant fraud in the mortgage market, the financial chicanery on Wall Street, and many other examples of “growth” run amok. To protect the public from such abuses, we need – you guessed it – effective government regulation in the public interest.
5. Economic liberty is very important. Zwolinski tells us “Libertarians believe that economic freedom is important not merely because it produces good results for society, but for precisely the same reasons that traditional civil liberties matter — they are an important element of personal autonomy and well-being.”
I am frankly tired of this naïve, if not disingenuous argument. The “free market” has never been free. It has always been heavily influenced if not dominated by the powerful, and politically-influential. The notion of autonomous individuals freely exchanging goods and services in the marketplace is a utopian ideal that is being promoted to justify the “freedom” of large, authoritarian, hierarchical corporations that serve their corporate interests often at the expense of their workers – from job outsourcing to denying the freedom of their employees to form unions for collective bargaining to laying off workers in the millions in the recession. Furthermore, the only effective counterweight to this enormous concentration of economic power is the power of government to act in the public interest. No wonder wealthy conservatives trash government at every turn. Why are libertarians playing into their hands? Find me a libertarian who favors harnessing and restricting the power of large corporations (it may be hard to find one), and I’ll honor him/her as a progressive in deep disguise.
6. Libertarians and progressives agree on some non-economic policies. Like immigration reforms, abandoning the misbegotten war on drugs, bringing the troops home, and opposition to agricultural subsidies. Well, that’s fine. But so what? Why don’t libertarians get some of their conservative Republican representatives/senators to come around to their views? If so, we’ll do the same with the Democrats and continue to oppose their economic views.
7. “Spontaneous order [in free markets] is more powerful than you think.” Well, there is nothing “spontaneous” about order even in physics, Ilya Prigogine to the contrary notwithstanding. And in markets, people with purposes (economic goals) are responsible for creating order/organization. There is nothing magical about it. It’s a cliché going back to Adam Smith that markets are an efficient way to organize economic activity. No progressive that I know of is calling for centralized planning like the Soviet Union or even post-war Britain under the Labour government. That’s a dead horse. But progressives oppose the naive idea that markets work better without rules of the game, and regulations, and policing and constraints that protect the public interest.
It also seems that some (many?) libertarians are in denial about the important role that our government has played in promoting and facilitating economic development in this country, going back to the post roads and canals before the Revolution to tariff protections for baby industries, land grants to underwrite the building of railroads, road construction (and a supportive infrastructure, from traffic lights to traffic cops) to pave the way for the automobile industry (sorry for the pun), subsidies for aviation development, providing mail contracts and airports for the airlines, underwriting the development of computers, the design and early development of the internet – and this only scratches the surface. The reality throughout our history has been government-private sector partnerships of various kinds. And that’s one reason, among many, why the rich should pay their fair share of our taxes.
Finally, Zwolinski claims there is no fundamental difference in values between libertarians and progressives. Even if we disagree on some things, it should be more “civil and productive.” Hey, tell that to the Tea Party. And tell that to the many conservatives (some of whom are running for President) who have published diatribes against liberals, painting them as subversives, and un-American, and evil. (I could provide some quotes.) And how about the current deficit “negotiations” (sic), where Republicans are uncompromising on a fundamental issue of fairness – sharing the pain versus protecting the rich at the expense of the “poor and the vulnerable.” Why isn’t the GOP more “reasonable?” And which side of this important social justice issue are you and the bleeding heart libertarians on, Matt?
Saturday, July 9, 2011
Let’s Make a Deal
President Obama seems to have seized an historic opportunity to resolve the nation’s deep fiscal deficit problems. His publicly stated goal is eminently fair – in principle – to ensure that everyone should share the pain. If a deal is struck, we’ll have to see whether or not the pain is equitably distributed. Here are some obvious examples of places to make cuts or tax increases:
* Tax deductions for corporate jets and yachts
* Tax deductions for “second homes” (AKA vacation retreats)
* The bonuses of hedge fund managers, which are taxed at capital gains rates – lower than some of their secretaries
* The multi-million-dollar incomes of corporate CEOs, which increased an outrageous 23 percent on average last year to more than 320 times as much as the workers
* Farm subsidies for absentee millionaire landowners
* Offshore tax havens for corporations and millionaire/billionaires
* Ethanol subsidies for an industry that is now doing just fine, thanks to a mandate that it be mixed into our gasoline
* Pork barrel military spending on well-healed defense contractors
* Oil and gas “incentives” for an industry with record profits, which even former President George Bush (a one-time oil man) said were unnecessary back when oil was at $55 a barrel
* Rescinding the Bush-era tax cuts, which lined the pockets of the monied class rather than the middle class
* Eliminating the preferential treatment of capital gains over ordinary income
* Eliminating or greatly reducing home mortgage interest and property tax deductions
* Changes to Social Security and Medicare that don’t penalize the poor, like adding a means test for high income retirees and raising the cap on contributions to make the wealthy assume a more progressive share of the burden
If you have other “candidates” in mind, please add them to the list.
Did I hear some of you say “dream on,” “get real” and otherwise cynical responses. Well, why not at least compile a wish list. Then we’ll see just how much the deal-makers in Washington achieve – or how far short they fall.
* Tax deductions for corporate jets and yachts
* Tax deductions for “second homes” (AKA vacation retreats)
* The bonuses of hedge fund managers, which are taxed at capital gains rates – lower than some of their secretaries
* The multi-million-dollar incomes of corporate CEOs, which increased an outrageous 23 percent on average last year to more than 320 times as much as the workers
* Farm subsidies for absentee millionaire landowners
* Offshore tax havens for corporations and millionaire/billionaires
* Ethanol subsidies for an industry that is now doing just fine, thanks to a mandate that it be mixed into our gasoline
* Pork barrel military spending on well-healed defense contractors
* Oil and gas “incentives” for an industry with record profits, which even former President George Bush (a one-time oil man) said were unnecessary back when oil was at $55 a barrel
* Rescinding the Bush-era tax cuts, which lined the pockets of the monied class rather than the middle class
* Eliminating the preferential treatment of capital gains over ordinary income
* Eliminating or greatly reducing home mortgage interest and property tax deductions
* Changes to Social Security and Medicare that don’t penalize the poor, like adding a means test for high income retirees and raising the cap on contributions to make the wealthy assume a more progressive share of the burden
If you have other “candidates” in mind, please add them to the list.
Did I hear some of you say “dream on,” “get real” and otherwise cynical responses. Well, why not at least compile a wish list. Then we’ll see just how much the deal-makers in Washington achieve – or how far short they fall.
Thursday, July 7, 2011
“We Mostly Do Fiction”
The story behind this quote involves a personal incident, but it could also apply to the Republican Party and their flacks at Fox News. They mostly do fiction.
The personal story is this: I recently contacted the coordinator for a book club in our community (which is laden with affluent retirees who live in waterfront properties), and I suggested that her club might like to read my book, The Fair Society, and then have me come to discuss it with them.
Yesterday I got a phone message from her saying, in a somewhat harsh tone, that she had read the book and had decided not to recommend it to her club. “We mostly do fiction,” she said. If I had suggested an Ayn Rand novel to her, perhaps I might have had a better reception. It struck me that, in this community as elsewhere in our society, we have a gated community of the mind – a walled off, defensive elite steeped in self-serving myths and less-than-half-truths. The search for truth is irrelevant. The very concept of fairness threatens an ideology that justifies self-interest over the common interest. According to a reviewer of my book in the Wall Street Journal, fairness is a dangerously “radical” idea.
Inside this gated community, the “huddled few” recite a conservative catechism that provides ideological comfort food. One example is the claim that the welfare state is driving us to bankruptcy. Actually, we don’t have a deficit crisis in this country; we have a revenue crisis -- with taxes at the lowest percentage of national income since 1960 (before Medicare and Medicaid) at about 15 percent, versus 20 percent in most other wealthy countries and even in our own only a decade or two ago. Top (marginal) tax rates in 1980 were 70 percent; now the top rate is in the 30s. We even had a tax surplus under President Clinton. Our deep deficit was caused by the Bush era tax cuts, two unfunded wars paid for on the national credit card, and a cratering of tax revenues in the Great Recession. Indeed, we already have the lowest level of welfare spending among the top tier countries.
Then there is the charge that President Obama’s economic stimulus package “failed,” because we haven’t returned to full employment. Wait a minute. The stimulus package was designed to be a tourniquet for a hemorrhaging economy, and it did stop the bleeding. In fact, some 40 percent of the stimulus dollars were in the form of tax cuts (which Republicans only like when they can take credit for them), and it did, after all, result in the saving or creation of some 4 million jobs. Not too shabby. To do any more, the package needed to be much larger (as some economists at the time warned), but the reason why it was not larger was because Republicans in the Senate would have blocked it. So, as I said, the Republicans these days mostly do fiction.
The latest example is Governor Mitt Romney’s charge that President Obama has made things much “worse” in this country during his watch. He’s to blame for our non-recovery – not the depression (yes, depression) in the housing market and home construction/improvement industry, or the continued outsourcing of jobs overseas, or the tight consumer credit, or the weak consumer demand (wages have been flat while CEO salaries have ballooned upwards), and other conditions in our capitalist “free market.” Come on Mitt. It’s time to stop doing fiction.
.
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The personal story is this: I recently contacted the coordinator for a book club in our community (which is laden with affluent retirees who live in waterfront properties), and I suggested that her club might like to read my book, The Fair Society, and then have me come to discuss it with them.
Yesterday I got a phone message from her saying, in a somewhat harsh tone, that she had read the book and had decided not to recommend it to her club. “We mostly do fiction,” she said. If I had suggested an Ayn Rand novel to her, perhaps I might have had a better reception. It struck me that, in this community as elsewhere in our society, we have a gated community of the mind – a walled off, defensive elite steeped in self-serving myths and less-than-half-truths. The search for truth is irrelevant. The very concept of fairness threatens an ideology that justifies self-interest over the common interest. According to a reviewer of my book in the Wall Street Journal, fairness is a dangerously “radical” idea.
Inside this gated community, the “huddled few” recite a conservative catechism that provides ideological comfort food. One example is the claim that the welfare state is driving us to bankruptcy. Actually, we don’t have a deficit crisis in this country; we have a revenue crisis -- with taxes at the lowest percentage of national income since 1960 (before Medicare and Medicaid) at about 15 percent, versus 20 percent in most other wealthy countries and even in our own only a decade or two ago. Top (marginal) tax rates in 1980 were 70 percent; now the top rate is in the 30s. We even had a tax surplus under President Clinton. Our deep deficit was caused by the Bush era tax cuts, two unfunded wars paid for on the national credit card, and a cratering of tax revenues in the Great Recession. Indeed, we already have the lowest level of welfare spending among the top tier countries.
Then there is the charge that President Obama’s economic stimulus package “failed,” because we haven’t returned to full employment. Wait a minute. The stimulus package was designed to be a tourniquet for a hemorrhaging economy, and it did stop the bleeding. In fact, some 40 percent of the stimulus dollars were in the form of tax cuts (which Republicans only like when they can take credit for them), and it did, after all, result in the saving or creation of some 4 million jobs. Not too shabby. To do any more, the package needed to be much larger (as some economists at the time warned), but the reason why it was not larger was because Republicans in the Senate would have blocked it. So, as I said, the Republicans these days mostly do fiction.
The latest example is Governor Mitt Romney’s charge that President Obama has made things much “worse” in this country during his watch. He’s to blame for our non-recovery – not the depression (yes, depression) in the housing market and home construction/improvement industry, or the continued outsourcing of jobs overseas, or the tight consumer credit, or the weak consumer demand (wages have been flat while CEO salaries have ballooned upwards), and other conditions in our capitalist “free market.” Come on Mitt. It’s time to stop doing fiction.
.
.
Saturday, July 2, 2011
Hyper-Hypocrisy
Neither political party has a monopoly on hypocrisy (nor do independents for that matter), but the Republicans seem to be especially good at it.
Remember how Newt Gingrich, the then Speaker of the House, was vigorously working to impeach President Clinton over his sordid Monica Lewinsky dalliance while at the same time supplementing his sex life with an extra-marital affair that led to his divorce.
A particularly piquant current example is associated with the Republican (Tea Party) Presidential candidate Michelle Bachmann, who rails against wasteful government spending and high taxes, among other sins, even though her family is a major beneficiary of taxpayer largesse. Timothy Egan reports in today’s New York Times that some 90,000 farm subsidy checks went out last year to landowners who actually live in cities (including several members of Congress), and that the Bachmann “family partnership” – which includes her husband and herself as well as her late father-in-law – received $251,000 in subsidy payments between 1995 and 2009.
Bachmann claims she didn’t benefit personally from these payments, even though her publicly reported financial statements show “farm income” of $102,000. In addition, the “Christian” mental health clinic operated by her husband has received $137,000 in Medicaid reimbursements and another $24,000 in state payments.
Everyone who has seen the classic movie, “Casablanca” remembers with a chuckle the scene where Inspector Renault says to Rick (as he collects his gambling winnings), “I am shocked, shocked to find gambling going on here.” Well Michelle, this is not a movie, and it’s no laughing matter.
Remember how Newt Gingrich, the then Speaker of the House, was vigorously working to impeach President Clinton over his sordid Monica Lewinsky dalliance while at the same time supplementing his sex life with an extra-marital affair that led to his divorce.
A particularly piquant current example is associated with the Republican (Tea Party) Presidential candidate Michelle Bachmann, who rails against wasteful government spending and high taxes, among other sins, even though her family is a major beneficiary of taxpayer largesse. Timothy Egan reports in today’s New York Times that some 90,000 farm subsidy checks went out last year to landowners who actually live in cities (including several members of Congress), and that the Bachmann “family partnership” – which includes her husband and herself as well as her late father-in-law – received $251,000 in subsidy payments between 1995 and 2009.
Bachmann claims she didn’t benefit personally from these payments, even though her publicly reported financial statements show “farm income” of $102,000. In addition, the “Christian” mental health clinic operated by her husband has received $137,000 in Medicaid reimbursements and another $24,000 in state payments.
Everyone who has seen the classic movie, “Casablanca” remembers with a chuckle the scene where Inspector Renault says to Rick (as he collects his gambling winnings), “I am shocked, shocked to find gambling going on here.” Well Michelle, this is not a movie, and it’s no laughing matter.
Friday, July 1, 2011
Voodoo Economics (2.1)
There is something surreal about the economic prognostications of the Republican leaders in Congress these days. Thus, House Speaker John Boehner tells us with a straight face (well, with only a hint of a smirk) that drastic cuts to government spending will create jobs while raising taxes on the wealthy, or eliminating their unfair tax subsidies, will be a “job killer.”
Actually, he’s got it exactly backwards. Reducing government spending in a weak economy will be a job killer and will have a depressing effect, while raising taxes on the “surplus liquidity” (i.e., unproductive wealth) of the rich will serve to stimulate economic growth. The new revenues are very likely to be spent where the needs are the greatest – preventing layoffs or restoring jobs for teachers, health care workers, policemen and firemen, and restoring cuts to Medicaid, child nutrition, and other safety net programs. Our overall economic problem is to increase consumer demand for goods and services, not to reduce it.
The chart that I posted on Facebook the other day showed that there has been no correlation historically between the top marginal income tax rates and economic growth in this country, going back to the end of World War Two. Higher taxes on the rich have had no significant impact on our overall economic performance (GDP).
The Republicans in Congress probably know their Economics 101, but they also know that lies pay off in politics. And politics is not about getting at the truth but about getting votes. So they peddle Voodoo Economics to us, and it’s ultimately our fault for being so gullible, and for not punishing the liars.
Winston Churchill once said that Americans can always be counted upon to do the right thing, after they’ve exhausted all the other possibilities. This time we may prove him wrong.
Actually, he’s got it exactly backwards. Reducing government spending in a weak economy will be a job killer and will have a depressing effect, while raising taxes on the “surplus liquidity” (i.e., unproductive wealth) of the rich will serve to stimulate economic growth. The new revenues are very likely to be spent where the needs are the greatest – preventing layoffs or restoring jobs for teachers, health care workers, policemen and firemen, and restoring cuts to Medicaid, child nutrition, and other safety net programs. Our overall economic problem is to increase consumer demand for goods and services, not to reduce it.
The chart that I posted on Facebook the other day showed that there has been no correlation historically between the top marginal income tax rates and economic growth in this country, going back to the end of World War Two. Higher taxes on the rich have had no significant impact on our overall economic performance (GDP).
The Republicans in Congress probably know their Economics 101, but they also know that lies pay off in politics. And politics is not about getting at the truth but about getting votes. So they peddle Voodoo Economics to us, and it’s ultimately our fault for being so gullible, and for not punishing the liars.
Winston Churchill once said that Americans can always be counted upon to do the right thing, after they’ve exhausted all the other possibilities. This time we may prove him wrong.
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