Let's put an end to the political clichè that education is the panacea for all that ails our society. It's mistaken: education can leverage the human resources student bring to school, but educators can't reverse inequalities and injustices.
Eliminating poverty in the still-richest country in the world can't be pushed forward to the fabled day in which schools make the current generation of slum kids into self-made entrepreneurs of the future.
That's the trick all politicians play during electoral campaigns -- Obama played it, too. The game gets repeated every four years in four easy moves:
1. Campaigns are occasionally made to face up to social problems, profound radical socioeconomic inequality, hell, the ongoing class war (which is waged by the rich on the rest of us, not by selected interest groups the GOP picks on).
2. The press interrupts the circus around nonissues governments have no business in and no real power over, such as sexual morality, and tosses a cream-puff economic question.
3. The politicians respond in wise-sounding tones that what we need are schools that will help raise up every child, no matter his or her background.
4. The elected politicians proceed to forget no. 3 and leave education, training and public aid programs that support work as underfunded as before -- at least after the first year, when the TV twinkies have turned their attention to the pressing issue of Britney's weight.
So everything stays the same. After all, politicians are bought and kept bought for the purpose of keeping things the same.
In reality, although funding schools instead of torture "contractors" would be a better use of our tax money, what really needs to happen is to throw money at the parents of the children who go to school.
Make sure every parent has the skills and work support to get, keep and advance in jobs that pay family sustaining wages. Inspire more parents to read to their children, to enjoy learning for its own sake.
Throw money at family food baskets so every parent and child is well fed, at nutrition programs that teach what food to buy, at rent and home buying.
Throw money at adult literacy and job skills training for adults.
Throw money around so that no child ends up coming to school from a home run by uncles and grandparents, where food and clothes and good, clean fun are scarce and books and reading even scarcer. Throw money around so all children will feel safe in the homes of well-paid, secure working parents.
Then the children will be able to learn, yes, in well stocked schools that have roof leaks repaired and heating or air-conditioning working and windows pristine and clean, with teachers motivated by real leaders, not educationese speakers, to inspire learning.
But that costs money, political will and commitment to see change through. Now, not when the kids grow up.
Showing posts with label political economy. Show all posts
Showing posts with label political economy. Show all posts
Tuesday, January 20, 2009
Sunday, January 11, 2009
Missing in the Stimulus Talk
Absent from almost all the discussion about stimulating the economy is any mention of the poorest Americans and the unemployed, even though the stimulus bang for the buck is highest for food stamps (aka SNAP) and unemployment compensation and the lowest for tax cuts.
Take today's discussion on NBC's Meet the Press. Only former congressman David Bonior (D-Mich) brought up the notion that the essential problem of the American economy is the growing disparity between the rich and the rest of us.
Bonior mentioned something I have come across at least once a week for the past few years: that 90 percent of all the income gains since the last recession went to the top 10 percent of all income earners. I've mentioned this disparity before (see here).
Yet everyone else was worried about the debt, the deficit, whether infrastructure projects would happen fast enough and whether there were enough tax cuts.
Yet the most effective way to get money circulating out there is to put federal dollars into food aid and unemployment checks. Why? Because the folks who get that aid aren't going to bank the money, they'll spend it right away on necessities. That spending will get consumption back up, build confidence and generate jobs.
The infrastructure projects are great for the skilled middle class, which is fine -- we need a robust middle class. But it's slower and most low-skill, low-wage workers won't benefit.
Tax cuts don't help at all. To owe taxes you have to have income, remember? If you have income, at a time like this you'll likely bank any more money you get. That's right: it will sit in the vaults of the same banks that aren't lending to anyone any more.
See an excellent explanation of how this works here.
Yet instead of the important things that ought to be discussed, Meet the Press host David Gregory did not ask a single question about disparity or about suffering, as if the whole world was composed of comfortable Washington policy gnats like himself and his guests.
Take today's discussion on NBC's Meet the Press. Only former congressman David Bonior (D-Mich) brought up the notion that the essential problem of the American economy is the growing disparity between the rich and the rest of us.
Bonior mentioned something I have come across at least once a week for the past few years: that 90 percent of all the income gains since the last recession went to the top 10 percent of all income earners. I've mentioned this disparity before (see here).
Yet everyone else was worried about the debt, the deficit, whether infrastructure projects would happen fast enough and whether there were enough tax cuts.
Yet the most effective way to get money circulating out there is to put federal dollars into food aid and unemployment checks. Why? Because the folks who get that aid aren't going to bank the money, they'll spend it right away on necessities. That spending will get consumption back up, build confidence and generate jobs.
The infrastructure projects are great for the skilled middle class, which is fine -- we need a robust middle class. But it's slower and most low-skill, low-wage workers won't benefit.
Tax cuts don't help at all. To owe taxes you have to have income, remember? If you have income, at a time like this you'll likely bank any more money you get. That's right: it will sit in the vaults of the same banks that aren't lending to anyone any more.
See an excellent explanation of how this works here.
Yet instead of the important things that ought to be discussed, Meet the Press host David Gregory did not ask a single question about disparity or about suffering, as if the whole world was composed of comfortable Washington policy gnats like himself and his guests.
Saturday, December 13, 2008
Detroit Is Dead, Long Live Detroit!
Having had the misfortune of dealing with the United Auto Workers, I feel it couldn't have happened to a nicer bunch of hacks to be blamed for the auto bailout that wasn't. Aiding the merriment were the Republicans handing pretty decent political cover to Democratic leaders Nancy "Can't Count Votes" Pelosi and Harry "Spineless" Reid.
The next president can pretty much write his ticket in the face of this bunch of losers. And, yes, Motor City has pretty much had it now -- except that bankruptcy in 2008 is a far cry from bankruptcy in 1929. The Big Three, or Big Two, or maybe just Ford, will still be making those made-to-fall-apart pollutemobiles no one wants to buy for years to come.
Let's face it. If Brooke Shields were doing a commercial campaign for U.S. automakers her script couldn't credibly have women dying to get American engineering.
The quality of American cars has never been all that great. They've been big. They've been mass-produced. They've been marketed and mythologized.
Sure, up to 1970, somewhat more than two-thirds of all cars worldwide were American. But that was because the Europeans had committed continental suicide by the hundreds of millions in two, count 'em, world wars.
Remember those blue-gray Citroën 2CVs of the late 1940s, the "umbrella on four wheels," that were France's anticipation of big-wheel tricycles? And, of course, everyone remembers the postwar VW bug! And what about the East German sputtering Trabant, an engineering miracle in a country in which even machinery bolted down was taken home to Uncle Joe Stalin?
All of those European cars were ridiculously simple, toy vehicles that lasted and lasted and lasted well after the Berlin Wall fell.
And Japan, we'd dropped the bomb on them -- no wonder they were making those tinny scooters in the 1960s. Today Honda is laughing all the way to the bank.
Yet talk about historic irony! What undid the U.S. auto industry was the same military-industrial complex that gave it a near monopoly after World War II.
This came home to me reading Robert Reich's Supercapitalism. The economist relates, almost as an aside, how the curious confluence of shipping related to the Vietnam War created a natural pathway for the entry of Japanese cars into the U.S. market in the 1960s and 70s.
The Vietnam War came back to bite the USA.
Now the auto union that created Michigan's much vaunted "little Sweden" of high pay, good benefits and pensions, by refusing a wage concession, has probably helped create a job hemorrhage. Not that they should have conceded.
I certainly would have asked that management take pay cuts first. Pay cuts? Pink slips! They're the culprits, after all.
But the UAW deserves a little blame, too. This is the union that, if you find out their press office's phone number demands to know who told you. They shoot themselves in the foot every chance they get.
So do the Repubs, and Pelosi and Reid and the whole crew. It's Christmas. How else would you get so many blowhards felled in one big stroke?
The next president can pretty much write his ticket in the face of this bunch of losers. And, yes, Motor City has pretty much had it now -- except that bankruptcy in 2008 is a far cry from bankruptcy in 1929. The Big Three, or Big Two, or maybe just Ford, will still be making those made-to-fall-apart pollutemobiles no one wants to buy for years to come.
Let's face it. If Brooke Shields were doing a commercial campaign for U.S. automakers her script couldn't credibly have women dying to get American engineering.
The quality of American cars has never been all that great. They've been big. They've been mass-produced. They've been marketed and mythologized.
Sure, up to 1970, somewhat more than two-thirds of all cars worldwide were American. But that was because the Europeans had committed continental suicide by the hundreds of millions in two, count 'em, world wars.
Remember those blue-gray Citroën 2CVs of the late 1940s, the "umbrella on four wheels," that were France's anticipation of big-wheel tricycles? And, of course, everyone remembers the postwar VW bug! And what about the East German sputtering Trabant, an engineering miracle in a country in which even machinery bolted down was taken home to Uncle Joe Stalin?
All of those European cars were ridiculously simple, toy vehicles that lasted and lasted and lasted well after the Berlin Wall fell.
And Japan, we'd dropped the bomb on them -- no wonder they were making those tinny scooters in the 1960s. Today Honda is laughing all the way to the bank.
Yet talk about historic irony! What undid the U.S. auto industry was the same military-industrial complex that gave it a near monopoly after World War II.
This came home to me reading Robert Reich's Supercapitalism. The economist relates, almost as an aside, how the curious confluence of shipping related to the Vietnam War created a natural pathway for the entry of Japanese cars into the U.S. market in the 1960s and 70s.
The Vietnam War came back to bite the USA.
Now the auto union that created Michigan's much vaunted "little Sweden" of high pay, good benefits and pensions, by refusing a wage concession, has probably helped create a job hemorrhage. Not that they should have conceded.
I certainly would have asked that management take pay cuts first. Pay cuts? Pink slips! They're the culprits, after all.
But the UAW deserves a little blame, too. This is the union that, if you find out their press office's phone number demands to know who told you. They shoot themselves in the foot every chance they get.
So do the Repubs, and Pelosi and Reid and the whole crew. It's Christmas. How else would you get so many blowhards felled in one big stroke?
Friday, December 12, 2008
Liberal, Conservative, Democrat, Republican, Green
In a political version of American political eeny, meeny miney, moe, my headline attempts, in response to recent comment to my recent essay about conservative ideas, to count some of the possible varieties.
Individuals, of course, do not come in pure unalloyed laboratory state. We can be, as one commenter wrote, conservative in social customs and liberal politically. Or, as some (gold-digging?) Washington women claim, Democrats are fiscally liberal about the public purse, but not on a date when it's their dime.
But, careful! "Liberal" and "Conservative" have checkered histories when it comes to a social, economic and political worldview, for short, a political economy.
Conservatism, as I failed to mention, usually arises after the alleged thing to be conserved is gone or has been changed. The Counter-Reformation attempted belatedly to get rid of Protestantism ... too long after Luther had let the cat out of the bag.
Indeed, this is where it gets tricky.
In the 17th and 18th century Europe, all countries -- except Switzerland -- were monarchies of one sort or another, interrupted by occasional upstarts, such as Cromwell. The challenge came from the promoters of the industrial revolution and the new form of banking based on money traded as capital.
These were skilled, educated, city-dwelling and mercantile-minded burghers, the future bourgeoisie, who had neither land nor title but aspired to a place in society. The monarchist nobility, based on agrarian wealth, fiercely opposed the budding industrial capitalists.
The Cromwellian civil war in England might be deemed an expression of that conflict.
But note: the capitalists were the liberalizers of trade, the "Liberals," while the monarchists and agrarians were mercantilist and protectionist "Conservatives." In Continental Europe, this is still the prevailing nomenclature.
Liberal democracy is, hence, capitalist democracy, in which the government is a committee of the capitalist class -- the men of Philadelphia in 1776, the ones who penned the words "we, the people," were all male, white gentry who owned vast estates with slaves or urban industrial enterprises founded on indentured servitude.
The Whig, Federalist, Democratic and Republican parties, the only ones ever allowed to compete to win in electoral contests to see who has the biggest bankroll and the craftiest lawyers, were all only teams -- call them Harvard and Yale -- with a common ideology even to this day.
Today's conservatives, as we saw, seek a status quo ante that never existed.
Contemporary liberals, in contrast, are really social democrats, seeking to extend the democratic experiment begun for the privileged few to all classes and races, to economic power as well as civil power.
We are about to see how this plays out.
Individuals, of course, do not come in pure unalloyed laboratory state. We can be, as one commenter wrote, conservative in social customs and liberal politically. Or, as some (gold-digging?) Washington women claim, Democrats are fiscally liberal about the public purse, but not on a date when it's their dime.
But, careful! "Liberal" and "Conservative" have checkered histories when it comes to a social, economic and political worldview, for short, a political economy.
Conservatism, as I failed to mention, usually arises after the alleged thing to be conserved is gone or has been changed. The Counter-Reformation attempted belatedly to get rid of Protestantism ... too long after Luther had let the cat out of the bag.
Indeed, this is where it gets tricky.
In the 17th and 18th century Europe, all countries -- except Switzerland -- were monarchies of one sort or another, interrupted by occasional upstarts, such as Cromwell. The challenge came from the promoters of the industrial revolution and the new form of banking based on money traded as capital.
These were skilled, educated, city-dwelling and mercantile-minded burghers, the future bourgeoisie, who had neither land nor title but aspired to a place in society. The monarchist nobility, based on agrarian wealth, fiercely opposed the budding industrial capitalists.
The Cromwellian civil war in England might be deemed an expression of that conflict.
But note: the capitalists were the liberalizers of trade, the "Liberals," while the monarchists and agrarians were mercantilist and protectionist "Conservatives." In Continental Europe, this is still the prevailing nomenclature.
Liberal democracy is, hence, capitalist democracy, in which the government is a committee of the capitalist class -- the men of Philadelphia in 1776, the ones who penned the words "we, the people," were all male, white gentry who owned vast estates with slaves or urban industrial enterprises founded on indentured servitude.
The Whig, Federalist, Democratic and Republican parties, the only ones ever allowed to compete to win in electoral contests to see who has the biggest bankroll and the craftiest lawyers, were all only teams -- call them Harvard and Yale -- with a common ideology even to this day.
Today's conservatives, as we saw, seek a status quo ante that never existed.
Contemporary liberals, in contrast, are really social democrats, seeking to extend the democratic experiment begun for the privileged few to all classes and races, to economic power as well as civil power.
We are about to see how this plays out.
Monday, October 20, 2008
Joe the Plumber -- the economics
A correspondent has asked me a question about the assumptions underlying the whole Joe the Plumber discussion in the last debate between Barack Obama and John McCain: how much must a company take in before the owner takes home $250,000?
Keep in mind that companies, unlike individuals, are taxed on profits, not on income (unless it's capital gains from investments). From everything a company receives as revenue for the goods or services it sells, one must first subtract the legitimate business expenses (materials, labor, overhead, etc.) that for the purposes of the tax code are deductions.
What's left is profit. Since Obama said he is exempting businesses with taxable income (profit) of $250,000, that means, assuming a low profit margin of 10%, that the company had to have revenue of $2.5 million. That profit can be plowed back into the company, after it is taxed, or distributed before taxes as a dividend to the owner(s), then taxed as the owner's income.
But wait! The owner can still have made $250,000 from the business with a smaller revenue.
Say Joe's business makes $1.25 million, or half of what we just said. If 10% was profit, that would be $125,000 the company could pay him as a dividend, assuming he's the sole owner. Joe could, in addition, have paid himself $125,000 in salary throughout the year.
This is not typical for a plumbing business of that size and I understand that the real Joe makes about $40,000 a year.
Moreover, at that level, the business would not pay additional taxes, according to what Sen. Obama said, because the profits were not $250,000. If Joe took $124,000, he would still be below the $250,000 at which his personal taxes will not be raised.
Last thing. The real median household income in the United States was $50,233 in 2007, the last year for which data are available. This means that half the households made more and half made less.
Want to know what percentage of households earned $250,000? About 5%.
The great myth that John McCain is selling is that Obama raises your taxes. If you are like 95% of all Americans, including me, that's just not true.
Sure, Obama will raise taxes on 7-home households like those of John McCain and his buddies. People at that level will not go hungry.
Keep in mind that companies, unlike individuals, are taxed on profits, not on income (unless it's capital gains from investments). From everything a company receives as revenue for the goods or services it sells, one must first subtract the legitimate business expenses (materials, labor, overhead, etc.) that for the purposes of the tax code are deductions.
What's left is profit. Since Obama said he is exempting businesses with taxable income (profit) of $250,000, that means, assuming a low profit margin of 10%, that the company had to have revenue of $2.5 million. That profit can be plowed back into the company, after it is taxed, or distributed before taxes as a dividend to the owner(s), then taxed as the owner's income.
But wait! The owner can still have made $250,000 from the business with a smaller revenue.
Say Joe's business makes $1.25 million, or half of what we just said. If 10% was profit, that would be $125,000 the company could pay him as a dividend, assuming he's the sole owner. Joe could, in addition, have paid himself $125,000 in salary throughout the year.
This is not typical for a plumbing business of that size and I understand that the real Joe makes about $40,000 a year.
Moreover, at that level, the business would not pay additional taxes, according to what Sen. Obama said, because the profits were not $250,000. If Joe took $124,000, he would still be below the $250,000 at which his personal taxes will not be raised.
Last thing. The real median household income in the United States was $50,233 in 2007, the last year for which data are available. This means that half the households made more and half made less.
Want to know what percentage of households earned $250,000? About 5%.
The great myth that John McCain is selling is that Obama raises your taxes. If you are like 95% of all Americans, including me, that's just not true.
Sure, Obama will raise taxes on 7-home households like those of John McCain and his buddies. People at that level will not go hungry.
Monday, October 13, 2008
Thinking Toward a New Economy
We're accustomed to thinking of money and possession as real, tangible things, when in reality both are imaginary. Until we face up to this and reconsider the implications, we will never be free of the lazy habits of mind that trap us all in our present economic predicament.
Money simply does not exist in and of itself. It doesn't have a fixed value. It doesn't represent anything.
Until 1971, true, all convertible currencies were ultimately backed by an international monetary system that rested on the U.S. dollar, which in turn was theoretically backed by 35 ounces of gold bullion. When Richard Nixon devalued the dollar, the international system put in its place a parallel purely symbolic unit, the Special Drawing Right, which was initially supposed to represent the theoretical value of US$ 1,00 = 0.888671 grams of fine gold.
Of course, the dollar value of gold (and conversely the gold value of dollars), is a moving target in actual living experience. There is no such thing as an SDR.
In brief, in and of itself, money is a fiction. We all work for and dream of and believe in (our national religion is really the worship of the dollar) something that, in reality, doesn't exist.
The second customary thought we must abandon is the notion of the right to possess. No one really owns anything.
Sure, if I go into your house and take your computer, you can call the cops, have me tried and put in jail. In theory, society gives you have the power of coercion to your computer as yours and not mine.
Note, however, that in some less safe neighborhoods, where cops are not in evidence, your chance to exercise your property claim is highly suspect. Everything belongs to whoever can seize it first and hold onto it by brute force.
The reality is that those who possess the most have access to the most powerful forms of coercion, from thugs to cops to the atomic bomb. They gain that access by convincing the thugs and cops and military to accept the fictional item known as money, in exchange for protection of their right to possess.
In fact, all of this is always temporary. Even the rich get feeble and die. We possess nothing, not even our bodies.
Everything that has happened in recent weeks on Wall Street and in the financial sector is merely the dawning of these two truths: money does not really exist and no one really owns anything.
Money simply does not exist in and of itself. It doesn't have a fixed value. It doesn't represent anything.
Until 1971, true, all convertible currencies were ultimately backed by an international monetary system that rested on the U.S. dollar, which in turn was theoretically backed by 35 ounces of gold bullion. When Richard Nixon devalued the dollar, the international system put in its place a parallel purely symbolic unit, the Special Drawing Right, which was initially supposed to represent the theoretical value of US$ 1,00 = 0.888671 grams of fine gold.
Of course, the dollar value of gold (and conversely the gold value of dollars), is a moving target in actual living experience. There is no such thing as an SDR.
In brief, in and of itself, money is a fiction. We all work for and dream of and believe in (our national religion is really the worship of the dollar) something that, in reality, doesn't exist.
The second customary thought we must abandon is the notion of the right to possess. No one really owns anything.
Sure, if I go into your house and take your computer, you can call the cops, have me tried and put in jail. In theory, society gives you have the power of coercion to your computer as yours and not mine.
Note, however, that in some less safe neighborhoods, where cops are not in evidence, your chance to exercise your property claim is highly suspect. Everything belongs to whoever can seize it first and hold onto it by brute force.
The reality is that those who possess the most have access to the most powerful forms of coercion, from thugs to cops to the atomic bomb. They gain that access by convincing the thugs and cops and military to accept the fictional item known as money, in exchange for protection of their right to possess.
In fact, all of this is always temporary. Even the rich get feeble and die. We possess nothing, not even our bodies.
Everything that has happened in recent weeks on Wall Street and in the financial sector is merely the dawning of these two truths: money does not really exist and no one really owns anything.
Saturday, October 11, 2008
Time to Rethink the Economic System
"We're all socialists now, comrade," blared the star columnist of Britain's Telegraph newspaper yesterday, mocking the precipitous fall of major banking institutions into government tutelage. Perhaps this is the way capitalism was destined to synthesize its contradictions into socialism, rather than what happened in 1917.
Here in the United States, as in Iceland and elsewhere, de facto nationalizations became the prevailing response to the present economic emergency -- with more apparently to come. Karl Marx certainly believed socialism would be the outgrowth of developed forms of capitalism.
The Leninist state need never have occurred, save for two things: the obduracy of Russian monarchic despotism and its industrialized Western capitalist backers, on one hand; and the backwardness of the nations that adopted it, on the other.
Much more natural is the bloodless, so far seamless movement this autumn with Fannie, Freddie and several European banks: a simple takeover by the only social institution financially able -- knock on wood -- to do so, the government.
Was the historic slump in Wall Street trading last week the plutocrats' reaction? Do they still think, despite their egregious failures that, as one trader put it, "capitalism ought to be allowed to work things out"?
Does anyone? Does anyone really expect that the "free market" (which is free only some) can resolve the allocation of resources needed to fulfill all of society's basic needs?
Think of a few of the most urgent needs looming in the United States alone: the retirement and aging of the huge baby boom generation, the growing underclass without access to health care, and the deteriorating physical infrastructure. Consider, in global terms, the pervasive conflicts abroad fed in large part by gross economic inequality and unimaginable suffering.
Can anyone really pretend that the free market on Wall Street is no more than a select garden club for a very tiny few, entirely disconnected from the real needs that exist in the nation and abroad?
Isn't it time to begin thinking of democratizing the economy, of enshrining economic rights on a par with the civic rights already in the U.S. Constitution? Shouldn't it be that just as every citizen is entitled to political equality in the eyes of the law, that every human being is entitled to the basic material conditions that make for a dignified life?
Americans are accustomed to dreaming of being rich, without bothering to think much of those outside their immediate family. Isn't it time we dreamed of living in a society where no one is poor?
Couldn't the Human Dream become the hope of shared freedom from want?
Here in the United States, as in Iceland and elsewhere, de facto nationalizations became the prevailing response to the present economic emergency -- with more apparently to come. Karl Marx certainly believed socialism would be the outgrowth of developed forms of capitalism.
The Leninist state need never have occurred, save for two things: the obduracy of Russian monarchic despotism and its industrialized Western capitalist backers, on one hand; and the backwardness of the nations that adopted it, on the other.
Much more natural is the bloodless, so far seamless movement this autumn with Fannie, Freddie and several European banks: a simple takeover by the only social institution financially able -- knock on wood -- to do so, the government.
Was the historic slump in Wall Street trading last week the plutocrats' reaction? Do they still think, despite their egregious failures that, as one trader put it, "capitalism ought to be allowed to work things out"?
Does anyone? Does anyone really expect that the "free market" (which is free only some) can resolve the allocation of resources needed to fulfill all of society's basic needs?
Think of a few of the most urgent needs looming in the United States alone: the retirement and aging of the huge baby boom generation, the growing underclass without access to health care, and the deteriorating physical infrastructure. Consider, in global terms, the pervasive conflicts abroad fed in large part by gross economic inequality and unimaginable suffering.
Can anyone really pretend that the free market on Wall Street is no more than a select garden club for a very tiny few, entirely disconnected from the real needs that exist in the nation and abroad?
Isn't it time to begin thinking of democratizing the economy, of enshrining economic rights on a par with the civic rights already in the U.S. Constitution? Shouldn't it be that just as every citizen is entitled to political equality in the eyes of the law, that every human being is entitled to the basic material conditions that make for a dignified life?
Americans are accustomed to dreaming of being rich, without bothering to think much of those outside their immediate family. Isn't it time we dreamed of living in a society where no one is poor?
Couldn't the Human Dream become the hope of shared freedom from want?
Tuesday, September 30, 2008
Wing Nuts are Right -- and Left
The House failure to pass the bailout plan has evoked images of lunatics in charge of the asylum. Yet there is one sense in which the wing nuts, most of whom are right-wing, are right and, ironically, also left: a traditional bailout of financiers by the committee of capitalists we call the government is certainly not the answer to what ails the United States -- or the world.
Any solution to the problem of a burst bubble of snake oil mortgages has to begin where the problem began. One cannot perennially expect that an economy whose ever greater productivity is relentlessly squeezed out of service and production-line workers, but whose rewards flow only to the top, to be based on a firm grounding.
Why is there a credit crisis? Because Americans have overborrowed. Why have Americans overborrowed? Because the nation's vast economic engine depends on consumption and, since the incomes of average Americans have stagnated for the last five years in a row, purchasing has had to occur on credit.
Don't believe this? Consider that between 2005 and 2006, the top 1 percent of households (with incomes above $375,000) added $73,000 to their incomes, the next 9 percent gained $16,000 and the bottom 90 percent (below $105,000 a year) increased their incomes by just $20.
That's a finding that is consistent with data for all of the current decade, as examined by two economists who also found that income disparity is the largest it has ever been in the United States since ... wait for it ... 1929. (See a paper based on the research, Striking it Richer: The Evolution of Top Incomes in the United States by Emmanuel Saez.)
And who is finding themselves unable to pay their mortgages? The stagnating majority, who have reaped only a quarter of the wealth generated by their labor in the past economic expansion.
Unless we collectively make it possible for the 90 percent to increase their incomes, no amount of lending to financiers will solve the problem. Yes, ladies and gentlemen, this calls for answers remarkably similar to -- gasp! the salts! -- socialism.
Americans hear "socialism" and their McCarthyist muscle makes them see Soviet Gulag prison systems. Yet socialism has been very successful in Sweden, Britain, France, Germany, Spain and Italy, where not everything is government owned, as in the old Soviet Union, but the society as a whole guarantees everyone's basic well-being.
Indeed, the capitalist class in this country has always believed in socialism for corporations and the rich, of which the proposed bailout plan was a perfect example. I am just suggesting that all of us get a bit of that socialism, instead of their doling out capitalism for the middle class and the poor, while taking our tax money to subsidize themselves.
Specifically, this moment in history calls for a top-down revision of the American economic system, for a vast democratization of the economy similar to the democratization of civic life begun in 1776. I can think of two basic principles that would undergird such a new society:
This priority-reordering scale of values would mean that any bailout plan would seek first to perform the tasks the failing institutions are performing.
In the case of AIG, for example, instead of securing the firm itself, the goal would have been to secure the insurance policies while seizing the money and firing the entire management. When IndyMac was seized, regulators first froze all foreclosures, then began an analysis of the outstanding loans, one by one.
This may take trillions and many years. But only a framework to deliver help first at the bottom and only secondarily to the top, a framework that would be gradual, one that recognizes that the current structures simply don't work, will ultimately solve the many problems facing the United States and the world.
So the obstructionists of George W. Bush's 9/11-style call for a blank check were right. We all need to sit down and think our way out with a little deliberation. Perhaps we need to wait to after the presidential election, so we can start from scratch to build a new economic democracy from scratch.
Any solution to the problem of a burst bubble of snake oil mortgages has to begin where the problem began. One cannot perennially expect that an economy whose ever greater productivity is relentlessly squeezed out of service and production-line workers, but whose rewards flow only to the top, to be based on a firm grounding.
Why is there a credit crisis? Because Americans have overborrowed. Why have Americans overborrowed? Because the nation's vast economic engine depends on consumption and, since the incomes of average Americans have stagnated for the last five years in a row, purchasing has had to occur on credit.
Don't believe this? Consider that between 2005 and 2006, the top 1 percent of households (with incomes above $375,000) added $73,000 to their incomes, the next 9 percent gained $16,000 and the bottom 90 percent (below $105,000 a year) increased their incomes by just $20.
That's a finding that is consistent with data for all of the current decade, as examined by two economists who also found that income disparity is the largest it has ever been in the United States since ... wait for it ... 1929. (See a paper based on the research, Striking it Richer: The Evolution of Top Incomes in the United States by Emmanuel Saez.)
And who is finding themselves unable to pay their mortgages? The stagnating majority, who have reaped only a quarter of the wealth generated by their labor in the past economic expansion.
Unless we collectively make it possible for the 90 percent to increase their incomes, no amount of lending to financiers will solve the problem. Yes, ladies and gentlemen, this calls for answers remarkably similar to -- gasp! the salts! -- socialism.
Americans hear "socialism" and their McCarthyist muscle makes them see Soviet Gulag prison systems. Yet socialism has been very successful in Sweden, Britain, France, Germany, Spain and Italy, where not everything is government owned, as in the old Soviet Union, but the society as a whole guarantees everyone's basic well-being.
Indeed, the capitalist class in this country has always believed in socialism for corporations and the rich, of which the proposed bailout plan was a perfect example. I am just suggesting that all of us get a bit of that socialism, instead of their doling out capitalism for the middle class and the poor, while taking our tax money to subsidize themselves.
Specifically, this moment in history calls for a top-down revision of the American economic system, for a vast democratization of the economy similar to the democratization of civic life begun in 1776. I can think of two basic principles that would undergird such a new society:
- All people have the inalienable right to the basic necessities of life, including food, clothing, shelter, schooling, work and life itself.
- Beyond what is needed for the bare necessities, all earnings must bear a direct relationship to work making something or delivering a service.
This priority-reordering scale of values would mean that any bailout plan would seek first to perform the tasks the failing institutions are performing.
In the case of AIG, for example, instead of securing the firm itself, the goal would have been to secure the insurance policies while seizing the money and firing the entire management. When IndyMac was seized, regulators first froze all foreclosures, then began an analysis of the outstanding loans, one by one.
This may take trillions and many years. But only a framework to deliver help first at the bottom and only secondarily to the top, a framework that would be gradual, one that recognizes that the current structures simply don't work, will ultimately solve the many problems facing the United States and the world.
So the obstructionists of George W. Bush's 9/11-style call for a blank check were right. We all need to sit down and think our way out with a little deliberation. Perhaps we need to wait to after the presidential election, so we can start from scratch to build a new economic democracy from scratch.
Tuesday, August 05, 2008
The Other Kind of Welfare
As poverty month approaches -- the poverty rate is released at the end of August -- I am drawn to considering how rarely, despite the American myth, anyone really pulls themselves up by one's own bootstraps. Most of us owe who we become as adults, occupationally, financially, socially and, of course, psychologically, to someone else.
The phrase "pulling oneself up by one's bootstraps," which prompted the computer term bootstrapping, or simply booting, arises from the tall tales of adventure told of Karl Friedrich Hieronymus, Freiherr von Münchhausen. The derring-do was satirized in 1785 by one Rudolf Erich Raspe in The Surprising Adventures of Baron Munchhausen. In that work, Munchhausen pulls himself out of a swamp by his shoe laces, without help.
In reality, almost anyone who is not poor today had considerable help, even if it wasn't from a formal public assistance program. There's such a thing as what I would call Middle Class Welfare, much as there is simply naked, decadent and obscene privilege for the rich.
Most likely you know MCW. Set aside your rhetorical preparation for the oppression olympics and you'll recognize the decent schooling you received, the food and clothing, the vacations, the parents with sufficient education and intellectual interests to spur you to inquire.
Maybe, like my father, yours worked in the public sector and actually was supported by taxpayers. That goes for everyone from mail carried to president, from U.S. bureaucrat to U.N. envoy. The taxpayers of the world have long -- for millenia, even -- supported a class of scribes and experts to aid the king or ruler.
Even if your father worked in the private sector ... you never heard of corporate subsidies? Think of employment during the Depression and employment after: what made the difference, if not massive war spending and later the military-industrial complex as described by that wild-eyed radical Dwight David Eisenhower.
Every generation in your family who went to a university was partially subsidized. You didn't really think your tuition actually pays for 100% of the costs of a college education, did you?
Indeed, here's my proposition. Society is not a business and is not intended to make a profit, nor much less to be efficient (which even the very profitable businesses aren't).
Moreover, human beings make thoroughly inefficient, wasteful investments. You have to spend about 20-30 years feeding and clothing them to get 30-40 years of middling, complaining output, then you have to spend a fortune for 20 years more postponing their inevitable breakdown and demise. All in all, a losing proposition.
That is why welfare for everyone, that is, a social support for the basic needs and dignity of everyone, is an essential requirement for a sound, functioning and vibrant society.
Yes, you too, get and need welfare.
The phrase "pulling oneself up by one's bootstraps," which prompted the computer term bootstrapping, or simply booting, arises from the tall tales of adventure told of Karl Friedrich Hieronymus, Freiherr von Münchhausen. The derring-do was satirized in 1785 by one Rudolf Erich Raspe in The Surprising Adventures of Baron Munchhausen. In that work, Munchhausen pulls himself out of a swamp by his shoe laces, without help.
In reality, almost anyone who is not poor today had considerable help, even if it wasn't from a formal public assistance program. There's such a thing as what I would call Middle Class Welfare, much as there is simply naked, decadent and obscene privilege for the rich.
Most likely you know MCW. Set aside your rhetorical preparation for the oppression olympics and you'll recognize the decent schooling you received, the food and clothing, the vacations, the parents with sufficient education and intellectual interests to spur you to inquire.
Maybe, like my father, yours worked in the public sector and actually was supported by taxpayers. That goes for everyone from mail carried to president, from U.S. bureaucrat to U.N. envoy. The taxpayers of the world have long -- for millenia, even -- supported a class of scribes and experts to aid the king or ruler.
Even if your father worked in the private sector ... you never heard of corporate subsidies? Think of employment during the Depression and employment after: what made the difference, if not massive war spending and later the military-industrial complex as described by that wild-eyed radical Dwight David Eisenhower.
Every generation in your family who went to a university was partially subsidized. You didn't really think your tuition actually pays for 100% of the costs of a college education, did you?
Indeed, here's my proposition. Society is not a business and is not intended to make a profit, nor much less to be efficient (which even the very profitable businesses aren't).
Moreover, human beings make thoroughly inefficient, wasteful investments. You have to spend about 20-30 years feeding and clothing them to get 30-40 years of middling, complaining output, then you have to spend a fortune for 20 years more postponing their inevitable breakdown and demise. All in all, a losing proposition.
That is why welfare for everyone, that is, a social support for the basic needs and dignity of everyone, is an essential requirement for a sound, functioning and vibrant society.
Yes, you too, get and need welfare.
Wednesday, July 30, 2008
Not "Bitter"? American Exceptionalism at Work
Remember when everyone jumped on Barack Obama for saying that blue-collar workers were "bitter"? Now here's one "bitter" unemployed man who's gone on a rampage in Tennessee that proves precisely Obama's point.
The Illinois senator and presumed Democratic presidential nominee said the following in April:
He is also the poster boy for American Exceptionalism, the notion that somehow the rules of life that apply everywhere else, don't apply to the United States. One version is a "my country right or wrong" kind of nationalism.
A more complex U.S. exception is the self-defeating, self-hating bitterness at economic injustices that -- inexplicably and illogically -- drives a certain kind of working class American to vote or and support, precisely the ethos and the leaders who would do him the most harm. The classics are blue-collar Republican voters who loved Reagan even though he gave them a 10% unemployment rate (1982) and a complete wipe out in a huge number of smokestack industries.
The exceptional American is the Southern white who hates unions -- hey, who wants to work for better pay and benefits, that's sissy stuff! -- and hates blacks and hates liberals -- hey, who wants social insurance, anyway? -- and loves the GOP.
The Republican has played with his religion by promising to abolish abortion but never once in 30 years really trying, got him riled up about gay marriage and 9/11, then picked his pocket clean and sent his kid to Iraq with inadequate armor and a ridiculous plan. Yet who does he hate? The liberals! The gays!
Can't say I understand this exceptional American guy. He's been suckered so many ways, so many times, by so many hate-radio talk-show hosts, televangelists and huckster politicians.
No wonder he's bitter.
The Illinois senator and presumed Democratic presidential nominee said the following in April:
You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them.And they fell through the Clinton Administration, and the Bush Administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. And it's not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.Now there's Jim David Adkisson, 58, who shot eight people, killing two, in a Unitarian Universalist Church, stating as his reason his hatred of liberals and homosexuals. Except for the fact that he's in Tennessee, Adkisson could be the poster boy for Obama's statement: he is an unemployed, luckless, bitter man.
He is also the poster boy for American Exceptionalism, the notion that somehow the rules of life that apply everywhere else, don't apply to the United States. One version is a "my country right or wrong" kind of nationalism.
A more complex U.S. exception is the self-defeating, self-hating bitterness at economic injustices that -- inexplicably and illogically -- drives a certain kind of working class American to vote or and support, precisely the ethos and the leaders who would do him the most harm. The classics are blue-collar Republican voters who loved Reagan even though he gave them a 10% unemployment rate (1982) and a complete wipe out in a huge number of smokestack industries.
The exceptional American is the Southern white who hates unions -- hey, who wants to work for better pay and benefits, that's sissy stuff! -- and hates blacks and hates liberals -- hey, who wants social insurance, anyway? -- and loves the GOP.
The Republican has played with his religion by promising to abolish abortion but never once in 30 years really trying, got him riled up about gay marriage and 9/11, then picked his pocket clean and sent his kid to Iraq with inadequate armor and a ridiculous plan. Yet who does he hate? The liberals! The gays!
Can't say I understand this exceptional American guy. He's been suckered so many ways, so many times, by so many hate-radio talk-show hosts, televangelists and huckster politicians.
No wonder he's bitter.
Friday, July 11, 2008
The Beast Drops the Second Shoe
No one outside the policy loop ever believed me when I said that the Republicans were amassing federal deficits on purpose to, as Reagan budget David Stockman director said, "starve the beast" of government spending on social programs. Now there's a debate on how to cut social spending even when Bush is gone!
If you don't believe me, just go to the Brookings Institution's Taking Back our Fiscal Future page and the Center on Budget and Policy Priorities' A Balanced Approach to Restoring Fiscal Responsibility page, just up this week. You'll see a debate by the wonkiest wonks on how totrim slash every social program currently funded by the federal government, especially Social Security, Medicare and Medicaid.
Reagan ran up more debt than all his predecessors put together and his spiritual son Dubya gave money to rich people who didn't need it with a purpose in mind: to make sure that if you face illness, old age, job loss and related risks that predictably all of us are likely to face in a lifetime, and you are not rich, you're on your own, baby, no matter how much you contributed.
Need proof Reagan and Bush actually knew what they were doing?
Now you know and you can't say no one told you.
If you don't believe me, just go to the Brookings Institution's Taking Back our Fiscal Future page and the Center on Budget and Policy Priorities' A Balanced Approach to Restoring Fiscal Responsibility page, just up this week. You'll see a debate by the wonkiest wonks on how to
Reagan ran up more debt than all his predecessors put together and his spiritual son Dubya gave money to rich people who didn't need it with a purpose in mind: to make sure that if you face illness, old age, job loss and related risks that predictably all of us are likely to face in a lifetime, and you are not rich, you're on your own, baby, no matter how much you contributed.
Need proof Reagan and Bush actually knew what they were doing?
- "So we have the tax relief plan [...] that now provides a new kind -- a fiscal straightjacket for Congress. And that's good for the taxpayers, and it's incredibly positive news if you're worried about a federal government that has been growing at a dramatic pace over the past eight years and it has been." (President Bush, August 24, 2001)
- "John Anderson tells us that first we've got to reduce spending before we can reduce taxes. Well, if you've got a kid that's extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker." (Candidate Ronald Reagan in 1980)
Now you know and you can't say no one told you.
Saturday, July 05, 2008
Armageddon or a Bump?
Having predicted ten of the last three recessions, my reputation for being a curmudgeon who is ready to predict disaster is entrenched. Yet on impending doom at the present time, color me agnostic.
In the face of those who call agnosticism a cowardly position, I rise to assert that in most cases it is the only sane position.
After all, do we have proof that God does not exist? Is there any certainty that, as happened in 1993-94, economic gloom will not begin to be replaced by the largest boom and fiscal surplus in history?
In the midst of a bearish stock market, l see reason to take the longer, mid-range view that everything will not collapse. High gas prices provide a needed incentive to curb and replace consumption of fossil fuels. Inflation is part of the set of pressures that will lead to restoring the purchasing power of working people. The Iraq quagmire may yet spare us more dangerous adventurism.
Silver linings aside, change will likely involve discomfort, shock and surprise -- it always has. Yet to insist dogmatically on atheism or on the end of civilization as we know it makes no sense.
Let's be clear about the sources of current anxiety.
A fair amount of doomsaying comes from my very large and noisy generation, the Boomers. It is not uncommon for people reaching retirement and the eventual end of life to have an apres moi le deluge (let disaster follow after me) attitude. My life is ending, such a view proclaims, so the world must be.
Another bit comes from the young, who have never seen a similar historical juncture. As Mark Twain put it, "History does not repeat itself, but it does rhyme." The Devil knows more because he is old, says a Spanish saying, than because he is the Devil. So if you've seen this before, as I have, this moment is not so unique.
Yet another source of belief that society as we know it is at an end comes from some who would like to see, at a minimum, profound change, in the present social, political, economic order, or a combination of the three. One need not be an extremist to believe that a good, all-sweeping socioeconomic twister would give us a chance to make a clean start on the road to whatever utopia one favors.
In my experience, however, worsening conditions do not create "revolutionary conditions," or an alternative equivalent, but merely misery.
Give me hope. Give me patience. I am tired of saviors and quick fixes.
In the face of those who call agnosticism a cowardly position, I rise to assert that in most cases it is the only sane position.
After all, do we have proof that God does not exist? Is there any certainty that, as happened in 1993-94, economic gloom will not begin to be replaced by the largest boom and fiscal surplus in history?
In the midst of a bearish stock market, l see reason to take the longer, mid-range view that everything will not collapse. High gas prices provide a needed incentive to curb and replace consumption of fossil fuels. Inflation is part of the set of pressures that will lead to restoring the purchasing power of working people. The Iraq quagmire may yet spare us more dangerous adventurism.
Silver linings aside, change will likely involve discomfort, shock and surprise -- it always has. Yet to insist dogmatically on atheism or on the end of civilization as we know it makes no sense.
Let's be clear about the sources of current anxiety.
A fair amount of doomsaying comes from my very large and noisy generation, the Boomers. It is not uncommon for people reaching retirement and the eventual end of life to have an apres moi le deluge (let disaster follow after me) attitude. My life is ending, such a view proclaims, so the world must be.
Another bit comes from the young, who have never seen a similar historical juncture. As Mark Twain put it, "History does not repeat itself, but it does rhyme." The Devil knows more because he is old, says a Spanish saying, than because he is the Devil. So if you've seen this before, as I have, this moment is not so unique.
Yet another source of belief that society as we know it is at an end comes from some who would like to see, at a minimum, profound change, in the present social, political, economic order, or a combination of the three. One need not be an extremist to believe that a good, all-sweeping socioeconomic twister would give us a chance to make a clean start on the road to whatever utopia one favors.
In my experience, however, worsening conditions do not create "revolutionary conditions," or an alternative equivalent, but merely misery.
- In the U.S. 1980s, Ronald Reagan broke the back of unions, presided over double-digit unemployment, cut aid to pregnant women and children, created a whole generation of homeless and spawned an economy in which working people could be forced to accept declining wages and benefits while profits soared. In 2000, far from rebelling, the populace meekly submitted to massive electoral fraud by Reagan's heir, George W. Bush.
- In the South American 1970s, a variety of military governments under the doctrine of "national security" coined by one Cesar Augusto Pinochet, used the pretext of leftist-inspired agitation or turmoil to torture, murder and banish hundreds of thousands throughout the continent. In the 1990s, freed from the military boot, various electorates brought to office presidential administrations that privatized even parks and introduced beggar-thy-neighbor social policies under the aegis of Milton Friedman.
- In Eastern Europe there is a wry joke to describe a similar historic parabola in that region: What is worse than Communism? Post-Communism.
Give me hope. Give me patience. I am tired of saviors and quick fixes.
Monday, May 12, 2008
That 70s Oil Crisis is Baaack!
We Americans, who collectively have memories no longer than the average television commercial, are forced regularly to do. Helping recall the oil crises of the 1970s is the memory of televised long lines at gas stations summoned by the recent experience of paying hundredths of a cent over $4 per gallon of gasoline at the pump for the first time (granted, I buy premium).
Back in 1973, the first crisis, such things were irrelevant to me: I did not own or drive a car. Moreover, for most of the cold season I lived as a student in Canada where, thanks to the tar sands of Alberta, OPEC's oil embargo had no practical effect.
Let's backtrack.
The Organization of Petroleum Exporting Countries had declared an embargo on all Western allies of Israel on Oct. 16, 1973, smack dab in the middle of the Yom Kippur (or, depending on your perspective, Ramadan) War started by Egypt and Syria. The Arab belligerents haled the initiative for the first two days but, as might have been expected, the Israeli army began to sweep them back. OPEC intervened.
On the whole, my feelings about the Middle East can be summed up in the notion that those Arabs and Israelis deserve one another. We should let them blow each other up to smithereens, if that's what they want.
A funny thing happened to an inveterate neutral like myself: I found that when oil was scarce the price of everything rose. Coming back to the USA in the spring, I found galloping inflation.
Why? Because, if you think of the economy as a complex organism (within which we're all microbes), oil is its blood. (Note the interaction between blood and oxygen and you'll find good imagery for the interaction of oil-produced hydrocarbons and air pollution.)
Note the items involved, because they come up again: steady U.S. oil consumption, trouble in the Middle East, sharp crude oil price increases (to about half what they are now), inflation.
In 1979, I was similarly uninvolved at a personal level, as I lived in London, England, where no sane person would drive.
Once again: oil consumption remained unabated, leading President Carter to preach about "malaise" in the middle of the "Me Decade," when no one was listening; Iran had its revolution and oil supply became unstable; prices rose to well above $80 for a barrel of crude, inflation (then stagnation) ensued.
Now we have another crises: a decade of U.S. gasoline gluttony leading to SUVs and Hummers, Iraq-Afghanistan-Iran plus unstable Lebanon, crude oil prices at over $100, inflation, coupled with a slowing economy.
This time we have three new factors: India and China have become big consumers; some believe the world supply is nearing known limits; and the short-term sustainability of an oil-based economy has been called into question by climate change predictions.
Perhaps this time we can learn that among those factors that we can influence, it's perhaps time to change the roles of oil producers and consumers.
We were warned about this by Jorge Agustín Nicolás Ruíz de Santayana y Borrás (aka George Santayana) in his the following passage, whose third sentence is oft-quoted remark that "Those who cannot remember the past are condemned to repeat it."1
1. "Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. In the first stage of life the mind is frivolous and easily distracted, it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in which instinct has learned nothing from experience." (The Life of Reason, Volume 1, 1905)
Back in 1973, the first crisis, such things were irrelevant to me: I did not own or drive a car. Moreover, for most of the cold season I lived as a student in Canada where, thanks to the tar sands of Alberta, OPEC's oil embargo had no practical effect.
Let's backtrack.
The Organization of Petroleum Exporting Countries had declared an embargo on all Western allies of Israel on Oct. 16, 1973, smack dab in the middle of the Yom Kippur (or, depending on your perspective, Ramadan) War started by Egypt and Syria. The Arab belligerents haled the initiative for the first two days but, as might have been expected, the Israeli army began to sweep them back. OPEC intervened.
On the whole, my feelings about the Middle East can be summed up in the notion that those Arabs and Israelis deserve one another. We should let them blow each other up to smithereens, if that's what they want.
A funny thing happened to an inveterate neutral like myself: I found that when oil was scarce the price of everything rose. Coming back to the USA in the spring, I found galloping inflation.
Why? Because, if you think of the economy as a complex organism (within which we're all microbes), oil is its blood. (Note the interaction between blood and oxygen and you'll find good imagery for the interaction of oil-produced hydrocarbons and air pollution.)
Note the items involved, because they come up again: steady U.S. oil consumption, trouble in the Middle East, sharp crude oil price increases (to about half what they are now), inflation.
In 1979, I was similarly uninvolved at a personal level, as I lived in London, England, where no sane person would drive.
Once again: oil consumption remained unabated, leading President Carter to preach about "malaise" in the middle of the "Me Decade," when no one was listening; Iran had its revolution and oil supply became unstable; prices rose to well above $80 for a barrel of crude, inflation (then stagnation) ensued.
Now we have another crises: a decade of U.S. gasoline gluttony leading to SUVs and Hummers, Iraq-Afghanistan-Iran plus unstable Lebanon, crude oil prices at over $100, inflation, coupled with a slowing economy.
This time we have three new factors: India and China have become big consumers; some believe the world supply is nearing known limits; and the short-term sustainability of an oil-based economy has been called into question by climate change predictions.
Perhaps this time we can learn that among those factors that we can influence, it's perhaps time to change the roles of oil producers and consumers.
We were warned about this by Jorge Agustín Nicolás Ruíz de Santayana y Borrás (aka George Santayana) in his the following passage, whose third sentence is oft-quoted remark that "Those who cannot remember the past are condemned to repeat it."1
1. "Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. In the first stage of life the mind is frivolous and easily distracted, it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in which instinct has learned nothing from experience." (The Life of Reason, Volume 1, 1905)
Monday, May 14, 2007
Look Who Won the War
The offloading of red-ink bleeding Chrysler by Mercedes-Benz automaker Daimler at a gigantic loss, on the heels of Toyota's displacement of General Motors as the top auto seller in the USA, is an odd outcome for an industry that was once indisputably American-led. Did Germany and Japan ultimately win World War II?
Halting my own German-made car at a stop light, I count the vehicles around me by provenance and it's not hard to reach that conclusion.
The least mysterious element is how this situation came to be. It could not be expected that Europe and Japan would wallow in ruins for generations, nor that American-made cars would continue to make up 69 percent of all autos made worldwide -- as was true in 1968 -- forever.
The underpinnings of the lifestyle that permitted someone who did no more than apply bolts to a machine all day to send children to the very expensive higher education in the United States was bound to end. Indeed, American automakers went from making the best cars to making the cars most predictably doomed to fall apart.
"Planned obsolescence" was popularized starting in 1954 by American industrial designer Brook Stevens, the idea being that goods could be made in such a way that they would need to be replaced within a certain span of time, thus forcing the consumer to buy it again and again. The idea came from British economist Bernard London, who in 1932 proposed that planned obsolescence would be a way to stimulate consumption and end the Great Depression, which devastated the UK as much as the USA.
Planned obsolescence works best with a monopoly (Microsoft and its treatment of users with what it deems to be "old" software). It also works with an oligopoly, a market or industry dominated by a few sellers.
The oligopoly was the prevailing structure of American industry from the 1950s to the 1980s, when the Reagan Administration deregulated everything. Autos? Chrysler, Ford, GM. TV? ABC, NBC, CBS. Cereals? Kellogg, General Foods, Post. And so on ...
Are we better off having to buy our own telephones from companies that obfuscate the options, having to choose between competing local and long distance companies? Wasn't there a certain stability and certainty in knowing that when we moved the phone would be there before the furniture?
What's next: brands of oxygen? I was going to say water, but that is now sold, expensively and anti-ecologically.
And what about Germany and Japan? They have oligopolies, too. Autos? Bundes Motor Werke (BMW), Daimler and Volkswagen. (Himself rode in Benzes and VW bugs, just check the pictures from the 1930s.) Or Toyota, Mitsubishi and Nissan.
The Germans and Japanese had two comparative advantages. Both stem from what Leon Trotsky called, in another context, the relative advantage of underdevelopment. First, their industrial base was wiped out by 1945 so that for the past half-century, they've been working in plants that are 30 or 40 years newer than ours. Secondly, and this is truer of the Japan than Germany, their small internal market meant focusing outward -- and, until Europe fully unifies or China emerges, there is no larger single internal market than that of the United States.
They set out to conquer by listening to consumer demand, while American auto executives turned a deaf ear to the market. All German and Japanese businessmen learned to speak English, not just in translation, but the American cultural idiom. You would be hard-pressed to find Japanese-speaking U.S. executives and few speak even German.
American companies export products with the Americanizing idea. Blue-jeans sell youths U.S. hipness in France. Toyota does the reverse. They Americanized to suit the market. They even put plants here.
That's how German and Japanese automakers beat American competitors, both in timeliness and intensity of response, when Americans switched from the showboats with fins to low-gas-mileage compacts. Today, even the South Koreans (KIA) are first in the U.S. market with hybrids and high-mileage cars.
Buying an American car today is a singular act of stupidity. In a couple of years it will need huge repairs, in four or five it will need to be discarded.
I have a 17-year-old German car that may well last another 17; yet it draws oohs and ahhs from men and women alike. Although I really purchased it for its sturdiness and solid engineering. Could you say the same for anything coming out of Detroit?
Yet even German carmakers are Americanizing. The most recent model Mercedes will display, alongside the oil pressure gauge, the song a plugged-in iPod is playing. From what I hear on e-mail lists, all these electronics are making Benzes subject to the sort of recurrent breakdowns that plague American cars.
Are the Japanese next?
I suspect redemption, or at least an entirely new paradigm, will come with the next great global battle: against the effects of industrial depredation of the environment. Collective survival will force redesign of the combustion engine and a massive shift to a cleaner, probably still unknown, fuel.
Are we Americans capable of rising to the challenge? Or have we, like the Romans once had, become too comfortable to be able to change?
Halting my own German-made car at a stop light, I count the vehicles around me by provenance and it's not hard to reach that conclusion.
The least mysterious element is how this situation came to be. It could not be expected that Europe and Japan would wallow in ruins for generations, nor that American-made cars would continue to make up 69 percent of all autos made worldwide -- as was true in 1968 -- forever.
The underpinnings of the lifestyle that permitted someone who did no more than apply bolts to a machine all day to send children to the very expensive higher education in the United States was bound to end. Indeed, American automakers went from making the best cars to making the cars most predictably doomed to fall apart.
"Planned obsolescence" was popularized starting in 1954 by American industrial designer Brook Stevens, the idea being that goods could be made in such a way that they would need to be replaced within a certain span of time, thus forcing the consumer to buy it again and again. The idea came from British economist Bernard London, who in 1932 proposed that planned obsolescence would be a way to stimulate consumption and end the Great Depression, which devastated the UK as much as the USA.
Planned obsolescence works best with a monopoly (Microsoft and its treatment of users with what it deems to be "old" software). It also works with an oligopoly, a market or industry dominated by a few sellers.
The oligopoly was the prevailing structure of American industry from the 1950s to the 1980s, when the Reagan Administration deregulated everything. Autos? Chrysler, Ford, GM. TV? ABC, NBC, CBS. Cereals? Kellogg, General Foods, Post. And so on ...
Are we better off having to buy our own telephones from companies that obfuscate the options, having to choose between competing local and long distance companies? Wasn't there a certain stability and certainty in knowing that when we moved the phone would be there before the furniture?
What's next: brands of oxygen? I was going to say water, but that is now sold, expensively and anti-ecologically.
And what about Germany and Japan? They have oligopolies, too. Autos? Bundes Motor Werke (BMW), Daimler and Volkswagen. (Himself rode in Benzes and VW bugs, just check the pictures from the 1930s.) Or Toyota, Mitsubishi and Nissan.
The Germans and Japanese had two comparative advantages. Both stem from what Leon Trotsky called, in another context, the relative advantage of underdevelopment. First, their industrial base was wiped out by 1945 so that for the past half-century, they've been working in plants that are 30 or 40 years newer than ours. Secondly, and this is truer of the Japan than Germany, their small internal market meant focusing outward -- and, until Europe fully unifies or China emerges, there is no larger single internal market than that of the United States.
They set out to conquer by listening to consumer demand, while American auto executives turned a deaf ear to the market. All German and Japanese businessmen learned to speak English, not just in translation, but the American cultural idiom. You would be hard-pressed to find Japanese-speaking U.S. executives and few speak even German.
American companies export products with the Americanizing idea. Blue-jeans sell youths U.S. hipness in France. Toyota does the reverse. They Americanized to suit the market. They even put plants here.
That's how German and Japanese automakers beat American competitors, both in timeliness and intensity of response, when Americans switched from the showboats with fins to low-gas-mileage compacts. Today, even the South Koreans (KIA) are first in the U.S. market with hybrids and high-mileage cars.
Buying an American car today is a singular act of stupidity. In a couple of years it will need huge repairs, in four or five it will need to be discarded.
I have a 17-year-old German car that may well last another 17; yet it draws oohs and ahhs from men and women alike. Although I really purchased it for its sturdiness and solid engineering. Could you say the same for anything coming out of Detroit?
Yet even German carmakers are Americanizing. The most recent model Mercedes will display, alongside the oil pressure gauge, the song a plugged-in iPod is playing. From what I hear on e-mail lists, all these electronics are making Benzes subject to the sort of recurrent breakdowns that plague American cars.
Are the Japanese next?
I suspect redemption, or at least an entirely new paradigm, will come with the next great global battle: against the effects of industrial depredation of the environment. Collective survival will force redesign of the combustion engine and a massive shift to a cleaner, probably still unknown, fuel.
Are we Americans capable of rising to the challenge? Or have we, like the Romans once had, become too comfortable to be able to change?
Wednesday, March 15, 2006
Customer Disservice: The Solution
My struggles with Apple, as we have seen, are only part of a very large and growing American folklore of customer disservice. One need not be obsessive about it, but this is no longer the country in which the customer is always right.
This isn't just Apple. It's Corporate America. As a business executive, albeit in a small company, I have a pretty good idea what has been going on. Let me blow the whistle from my corporate perch.
It's scarcely a secret that during the Cllinton Era boom the public became accustomed to prices of manufactured goods that went down or stayed the same. The Bush Era recession extended that through 2004.
What have companies done to squeeze those humongous profits?
Consumers know executives have tweaked the contents of products and played shell games with the terms of sale. Less visibly, they also cut costs. Products are shoddier, less well-made; hence the popularity of imports. Detroit hasn't made the best car in decades.
Lastly, they've increased productivity. Human labor is always the most expensive ingredient (although, as we shall see, not always reasonably so). Management has two choices: find some way to make it possible for workers to produce more in the same number of hours, or distribute more work among fewer workers. American companies have done both.
The result is a collective suicide of American business. GM, Ford, IBM, the airlines and more are filing for bankruptcy to avoid pay hikes and pension costs, while laying off employees by the tens of thousands week after week.
The problemo with the boardrooms, however, is that they're led by folks making 431 times what employees make. Yes, you read that right. The CEO-worker pay ratio reported last September went up from 301:1 to 431:1 (see my source here).
Executive pay has grown exponentially just as their companies have become ever bigger failures. To be fair, there are perverse economic mechanisms that actually force some companies into that juncture. Some companies produce more book value earnings when they are going down than when they are rising and profits are in the future.
But let's think the unthinkable for an instant, especially for publicly held corporations. Maybe if corporations fired one of these 431-ers, they could hire 431 customer service people.
Or, say, hire 215 workers paid enough that they'd care about a customer's problem; or 107 better paid customer service reps and 107 better paid manufacturing workers to make better made goods.
The possible permutations are endless. But maybe if we invested more in workers, more of them would care about what they make and more would care about keeping the customer satisfied. Maybe more of them could afford to be customers themselves.
This isn't just Apple. It's Corporate America. As a business executive, albeit in a small company, I have a pretty good idea what has been going on. Let me blow the whistle from my corporate perch.
It's scarcely a secret that during the Cllinton Era boom the public became accustomed to prices of manufactured goods that went down or stayed the same. The Bush Era recession extended that through 2004.
What have companies done to squeeze those humongous profits?
Consumers know executives have tweaked the contents of products and played shell games with the terms of sale. Less visibly, they also cut costs. Products are shoddier, less well-made; hence the popularity of imports. Detroit hasn't made the best car in decades.
Lastly, they've increased productivity. Human labor is always the most expensive ingredient (although, as we shall see, not always reasonably so). Management has two choices: find some way to make it possible for workers to produce more in the same number of hours, or distribute more work among fewer workers. American companies have done both.
The result is a collective suicide of American business. GM, Ford, IBM, the airlines and more are filing for bankruptcy to avoid pay hikes and pension costs, while laying off employees by the tens of thousands week after week.
The problemo with the boardrooms, however, is that they're led by folks making 431 times what employees make. Yes, you read that right. The CEO-worker pay ratio reported last September went up from 301:1 to 431:1 (see my source here).
Executive pay has grown exponentially just as their companies have become ever bigger failures. To be fair, there are perverse economic mechanisms that actually force some companies into that juncture. Some companies produce more book value earnings when they are going down than when they are rising and profits are in the future.
But let's think the unthinkable for an instant, especially for publicly held corporations. Maybe if corporations fired one of these 431-ers, they could hire 431 customer service people.
Or, say, hire 215 workers paid enough that they'd care about a customer's problem; or 107 better paid customer service reps and 107 better paid manufacturing workers to make better made goods.
The possible permutations are endless. But maybe if we invested more in workers, more of them would care about what they make and more would care about keeping the customer satisfied. Maybe more of them could afford to be customers themselves.
Thursday, January 12, 2006
Economic Insight
There must be a chemical in the brain that reacts to an enlightening presentation the way pleasure suffuses over the entire body when one takes refuge in an English country inn for the absolutely perfect cup of tea on a wet and miserable afternoon.
There's a similar chemistry in my brain connected to the "aha!" moment that occurs when some august theory can be applied to my entirely all too ordinary daily life.
This was what occurred to me this week as I was hearing Benjamin Friedman, a Harvard professor of economics, speak about his new book, The Moral Consequences of Economic Growth, which -- in brief -- argues that economic growth brings greater social mobility, tolerance of diversity, fairness and robust democratic institutions, or what he calls "moral positives."
Challenged on that point, Friedman went on to explain that “what matters for happiness, or ‘satisfaction’ as pollsters put it, is not the absolute level of living, but the living standard relative to something else.” Research points to two powerful benchmarks of material well-being.
“Imagine that you were in Garrison Keillor’s Lake Woebegone, where everyone is better off than everyone else,” Friedman said. “Then imagine a world in which everybody has a sense of being better off than in the past. Then they would experience less urgency for economic growth personally and be willing, as some have suggested here, to let other people come along for the ride.”
It doesn't really matter if I make X amount of money by itself. What matters is the psychic reward of knowing that it's more than amount Y made by certain people with whom I compare myself. Then there's the final Oedipal victory in discovering that not only is this Not Your Father's Car, he couldn't have afforded anything this good -- or it wasn't invented back then.
This certainly explains why, living comfortably in the richest country in the world, my peers so often feel poor. John D. Rockefeller was once asked what was his ultimate financial goal. "To have just a little more," he replied.
So what do I do with this? I'm not sure. Perhaps this is one of these moments in which an insight simply needs to simmer before we know what is to be done.
There's a similar chemistry in my brain connected to the "aha!" moment that occurs when some august theory can be applied to my entirely all too ordinary daily life.
This was what occurred to me this week as I was hearing Benjamin Friedman, a Harvard professor of economics, speak about his new book, The Moral Consequences of Economic Growth, which -- in brief -- argues that economic growth brings greater social mobility, tolerance of diversity, fairness and robust democratic institutions, or what he calls "moral positives."
Challenged on that point, Friedman went on to explain that “what matters for happiness, or ‘satisfaction’ as pollsters put it, is not the absolute level of living, but the living standard relative to something else.” Research points to two powerful benchmarks of material well-being.
“Imagine that you were in Garrison Keillor’s Lake Woebegone, where everyone is better off than everyone else,” Friedman said. “Then imagine a world in which everybody has a sense of being better off than in the past. Then they would experience less urgency for economic growth personally and be willing, as some have suggested here, to let other people come along for the ride.”
It doesn't really matter if I make X amount of money by itself. What matters is the psychic reward of knowing that it's more than amount Y made by certain people with whom I compare myself. Then there's the final Oedipal victory in discovering that not only is this Not Your Father's Car, he couldn't have afforded anything this good -- or it wasn't invented back then.
This certainly explains why, living comfortably in the richest country in the world, my peers so often feel poor. John D. Rockefeller was once asked what was his ultimate financial goal. "To have just a little more," he replied.
So what do I do with this? I'm not sure. Perhaps this is one of these moments in which an insight simply needs to simmer before we know what is to be done.
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