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The Wrongologist

Geopolitics, Power and Political Economy

Financial Industry Buys Politicians

The Daily Escape:

Tulip time, Skagit Valley, WA – 2019 photo by Karen Randall

Yesterday, we talked about how the Democrats might ultimately need Wall Street money for the 2020 presidential election. Now, we learn from Americans for Financial Reform (AFR), a consumer interest group, that Wall Street spent at least $1.9 billion on political campaigns and lobbying during the 2018 mid-term elections:

“The figure, which includes contributions to campaign committees and leadership PACs ($922 million) and lobbying expenditures ($957 million), reflects a massive rush of pro-industry nominees and legislation over the last two years, at a time when the biggest banks made $100 billion in profits for the first time.”

That was the largest-ever amount for a non-presidential year, outstripping the total of $1.4 billion, in the 2013-14 election cycle, by 36%.

The 63-page report, “Wall Street Money in Washington”, uses a special data set compiled by the Center for Responsive Politics on behalf of AFR in order to provide a more precise look at financial services industry spending. The data excludes spending by health insurers, who work to influence a different group of issues than do US banks.

The data also doesn’t include “dark money” that goes mostly unreported, so the actual sums of Wall Street spending are likely to be much higher.

The report breaks its findings down by Campaign Contribution and Lobbying:

Campaign Contributions:  Individuals and entities in the financial sector reported making $921.8 million in contributions to federal candidates for office during the 2017-18 election cycle.

Of the $519.6 million in party-coded contributions by individuals and PACs associated with finance, 53% went to Republicans and 47% went to Democrats. About $402.2 million in additional cash flowed from financial sector contributors to candidates through outside groups.

Lobbying: The financial industry reported spending a total of $956.8 million on lobbying in calendar years 2017 and 2018. This spending only got the financial sector to third place. The “Health” sector was second, spending $1.12 billion, and “Miscellaneous Business” which comprises companies and trade associations, was first, spending $1. 02 billion. “Miscellaneous Business” includes the US Chamber of Commerce, which spent $189.4 million.

And which politicians got the money?

In the House, Republicans did very well, with Former Speaker Paul Ryan (R-WI) leading the way. Rep. Kevin McCarthy (R-CA), now the House minority leader, and Rep. Patrick McHenry (R-NC), now the ranking member on the House Financial Services Committee, both benefited from Wall Street largesse.

The freshman class in the House, including first-term Democrats, had substantially less reliance on money from Wall Street than those Democratic incumbents who won re-election. Another report that AFR co-authored on small-dollar contributions found that 17% of money contributed to the Democratic freshman came from small donors, compared to 9.4% for incumbent members.

In the Senate, the data underscores how money moved to members who supported the industry’s legislative goals. Overall, spending favored Republicans. But the industry gave significant amounts to Democratic Senators who helped get S. 2155 passed, which was a significant rollback of the Dodd-Frank regulations.

Wall Street gave heavily to the Democratic senators who supported the bill and were up for reelection in 2018, mostly from states that Trump won in 2016. One Dem who won in 2018, was Jon Tester (D-MT); others, including Joe Donnelly (D-IN), Heidi Heitkamp (D-ND) and Claire McCaskill (D-MO) did not win.

Sen. Kyrsten Sinema (D-AZ) won after she supported the legislation as a House member.

But, not all top Senate Democratic recipients of Wall Street money did the industry’s bidding. Sen. Sherrod Brown (D-OH) opposed S. 2155.  He was the only Democrat in Ohio to win statewide office in 2018.

Who spent the most? The top five donor companies and trade associations in the financial sector were:

  • National Association of Realtors — $144,716,676
  • Bloomberg LP — $96,481,469
  • American Bankers Association — $25,769,494
  • Paloma Partners — $25,575,800
  • Citadel LLC — $20,596,381

You can see a list of the top 20 donors here. It is easy to see that turning down Wall Street funding could put a big dent in the Democratic nominee’s spending plans for 2020.

It also seems clear from yesterday’s reporting that Wall Street Democrats might bolt to Trump if the 2020 nominee is Sanders or Warren. A decision to reject Wall Street funding could hand Trump a very large gift.

The money spent by the financial services industry won’t be any lower in 2020 than in 2018. We’ll just have to wait and see if the 2020 Democratic presidential nominee rejects their support.

OTOH, this money helps Wall Street rig the system in its favor, largely by buying the support of politicians who will help insulate them from accountability.

Does any Democrat have the guts to reform capitalism?

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Boeing: Poster Child for Capitalism Reform

The Daily Escape:

La Sal Mountains in background, Canyonlands NP and Colorado River in foreground, UT – 2019 photo by Larnek

The Boeing 737 MAX story is getting worse. Just when you thought you had the whole story, you find more ugliness underneath. Ralph Nader published an open letter to Dennis A. Muilenburg, CEO of Boeing, and it’s quite the takedown, capturing the essence of Boeing’s problem:

“Aircraft should be stall-proof, not stall-prone.”

The stall-prone MAX was supposedly fixed, but then it failed. Nader has a personal interest in the MAX’s problems, since his niece, 24-year-old Samya Stumo, was among the 157 victims of an Ethiopian Airlines flight crash last month. Here’s a part of his letter:

“Your narrow-body passenger aircraft – namely, the long series of 737’s that began in the nineteen sixties was past its prime. How long could Boeing avoid making the investment needed to produce a “clean-sheet” aircraft and, instead, in the words of Bloomberg Businessweek “push an aging design beyond its limits?” Answer: As long as Boeing could get away with it and keep necessary pilot training and other costs low…as a sales incentive.”

Nader draws a connection between Boeing’s decision to “push an aging design” and their financial engineering.

“Did you use the $30 billion surplus from 2009 to 2017 to reinvest in R&D, in new narrow-body passenger aircraft? Or did you, instead, essentially burn this surplus with self-serving stock buybacks of $30 billion in that period?”

Nader notes that Boeing is one of the companies that MarketWatch labelled as “Five companies that spent lavishly on stock buybacks while pension funding lagged.” Their pension fund is only 79.6% funded. More:

“Incredibly, your buybacks of $9.24 billion in 2017 comprised 109% of annual earnings….in 2018, buybacks of $9 billion constituted 86% of annual earnings….in December 2018, you arranged for your rubberstamp Board of Directors to approve $20 billion more in buybacks.”

Nader’s focus on stock buybacks shows that Boeing had the capital to invest in developing a new plane. From Bloomberg in 2019:

”For Boeing and Airbus, committing to an all-new aircraft is a once-in-a-decade event. Costs are prohibitive, delays are the norm and payoff can take years to materialize. Boeing could easily spend more than $15 billion on the NMA, according to Ken Herbert, analyst with Canaccord Genuity….”

NMA means the New Middle-of-the-Market Aircraft. Boeing has already spent a total of $30 billion in share repurchases, with another $8 billion to come in 2019. A new aircraft would have cost half of that amount.

The main reason may have been Boeing’s earlier problems with the launch of the 787:

“In the summer of 2011, the 787 Dreamliner wasn’t yet done after billions invested and years of delays. More than 800 airplanes later…each 787 costs less to build than sell, but it’s still running a $23 billion production cost deficit.…”

The 737 MAX was Boeing’s answer. It allowed them to continue their share buybacks while paying for the 787 cost overruns. Abandoning the 737 for a new plane would’ve meant walking away from its financial golden goose. OTOH, someone should be responsible for the 346 deaths Boeing’s MAX has caused.

Finally, there are reports that some pilots are giving the MAX a vote of no confidence. The FAA has opened another 737 Max investigation based on reports on the FAA whistleblower hotline:

“A source familiar with the matter says the hotline submissions involve current and former Boeing employees describing issues related to the angle of attack sensor — a vane that measures the plane’s angle in the air — and the anti-stall system called MCAS, which is unique to Boeing’s newest plane.”

Reuters says:

“American Airlines pilots have warned that Boeing’s draft training proposals for the MAX do not go far enough to address their concerns, according to written comments submitted to the FAA.”

Stock buybacks like Boeing’s were once illegal because they are a type of stock market manipulation.

But in 1982, then President Reagan wanted to do his banker buddies a favor. So his Securities and Exchange Commission passed rule 10b-18, which created a legal process for share buybacks. That opened the floodgates for companies to start repurchasing their stock en masse.

Is it too much to ask that the Boeing CEO be asked to resign, even if he did kill a lot of people?

After all, wasn’t he only trying to maximize shareholder value?

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Taxes Aren’t Theft

The Daily Escape:

Humpback Whale, Tonga – Photo by Rita Kluge

Joseph Stieglitz has an op-ed in the NYT about saving capitalism from itself. He wants to re-brand capitalism as “progressive capitalism”: (emphasis by Wrongo)

“There is an alternative: progressive capitalism. Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society….The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.”

America has been debating the role of capitalism in our society since our beginnings. In 1790, John Adams published the Discourses on Davila in which he said that entrenched economic inequality would create a political oligarchy in America similar to what had already occurred in Europe.

The problem isn’t inequality. We’ve survived a permanent underclass, but until recently, it has been a statistical minority. But, we won’t survive today’s continuing erosion of the middle class. Stieglitz says:

“We are now in a vicious cycle: Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.”

He calls for:

“…a new social contract between voters and elected officials, between workers and corporations, between rich and poor, and between those with jobs and those who are un- or underemployed.”

Call it progressive capitalism, capitalism plus, democratic capitalism, or whatever you want. At the core of any reform of capitalism is less corporate control over the levers of power, and a redistribution of wealth. Along with the growth in economic inequality and political impotence, so grows the myth propagated by the ultra-rich that higher taxes are a public theft of their hard earned fortunes, and are a threat to their personal freedoms.

Let’s spend a minute on the difference between positive and negative rights.

In the simplest terms, negative rights (most of the Constitution’s Bill of Rights) protect us from the government. They tell us what the government can’t do. The Constitution was designed as primarily a negative rights document, to maximize our individual liberty, and to protect us from the government interfering in our lives. They are most helpful to people whose rights are already protected.

Positive rights are different. They include things like the right to an education, and in some countries, the right to healthcare. Most of us define freedom as: freedom from hunger, freedom from ignorance, freedom from exploitation, freedom from poverty, freedom from hopelessness and despair. Very few positive rights are enumerated in the Constitution, with the exception of the right to have the government protect private property.

Today, if there’s one enduring myth that drives US politics, it is the myth that the rich have earned their reward, through nothing but their own hard work and savvy. The rich want no income redistribution, which they call “socialism”, just as the fat cats said in this cartoon from 1912:

The Republicans in the 1930s called FDR a socialist. Now, as we are thinking about a New Deal 2.0, today’s Republicans want to again brand all Democrats as socialists.

Corporations and the 1% ignore how much they are helped by a system designed by them, and for them. They are contemptuous of government and public authority, which they say act as agents of the poor, attempting to extort the rich.

They forget that our government facilitates and protects their wealth. If not for the many Federal agencies that write regulations favorable to industry, the Federal Reserve, protectors of the banking industry along with others, there would be a lot less wealth for corporations and the 1% to aggregate.

Therefore, they should pay the most.

And remember, rural electrification was a federal project under FDR. The dams on the Columbia River made irrigation possible, opening up western lands to agriculture. The Tennessee Valley Authority (TVA) was the Green New Deal of its time, and was the basis for development of a modern Southeastern US. The railroads that opened up the West relied on government property provided to private companies (redistribution?) to develop.

Let’s decide to reform capitalism. First, by making it responsive to the positive rights that average Americans are longing for. Second, paying for that with much high taxes on corporations. If the loopholes created by savvy corporate tax lawyers remain on the books, let’s create a stiff Alternative Minimum Tax (AMT) for corporations.

Just like the AMT that Wrongo has had to pay for lo, these many years.

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Monday Wake Up Call – April 15, 2019

The Daily Escape:

Tax day! Wrongo got the Wrong family taxes finished, and submitted with a few days to spare. Last week was one of the many that will make you scratch your head. Here are three amazing things from last week:

  • Scientists unveiled an image of a black hole
  • That image is 50 million years old
  • Millions of Americans still believe the Earth is 6,000 years old

And just when you thought America’s cities couldn’t be any more corrupt, check out NYC’s Hudson Yards, Manhattan’s mega-project that is the largest private real estate development in the US by area. Private? City Lab reports that Hudson Yards was partially bankrolled by a federal investor visa program called EB-5, which was meant to help poverty-stricken areas:

“Specifically, the project raised at least $1.2 billion of its financing through a controversial investor visa program known as EB-5. This program enables immigrants to secure visas in exchange for real estate investments. Foreigners who pump between $500,000 and $1 million into U.S. real estate projects can purchase visas for their families, making it a favorite for wealthy families abroad, namely in China. EB-5 is supposed to be a way to jumpstart investment in remote rural areas, or distressed urban ones.”

The threshold for these EB-5 visas can be reduced to $500,000 if investors place their capital in a “targeted employment area” (TEA). The TEA can be either a rural community or distressed urban area with a high unemployment rate (at least 150% of the national average).

Investors typically obtain visas for two additional family members, so Business Insider thinks the development likely created about 10,000 EB-5 visas, the maximum permitted in any year.

These are the kind of immigrants both parties can agree should be let in!

But is Hudson Yards a distressed neighborhood? It is bordered by expensive neighborhoods such as Chelsea and Hell’s Kitchen. It sits at the start of the High Line, and is too wealthy to qualify for the EB-5 program. To solve the problem, the state included a few census tracts from Harlem as part of the Hudson Yards TEA. Here’s a map of the TEA:

This looks just like a gerrymandered Congressional district in North Carolina. And it tells you all you need to know about how our local, state, and federal politicians are in the pocket of private industry. Money is always the driving factor, and it engulfs our politicians of both parties in a stew of questionable ethics.

America can’t be bothered investing in our own people, so we sell visas to bribe foreigners to do the investing for us.

Time to wake up America! This is the tip of the iceberg for the rot in our political process. To help you wake up, listen to “Why We Build the Wall” from the 2010 album “Hadestown” by Anaïs Mitchell. This “folk opera” opens on Broadway on Wednesday. The play is inspired by the story of Orpheus and Eurydice. Here is “Why We Build the Wall”, featuring Greg Brown. Wrongo is seeing the play in the middle of May:

Note that this song was written in 2010, long before Trump, or any politician had any interest in building a wall.

Sample Lyric:

Who do we call the enemy?

The enemy is poverty,

And the wall keeps out the enemy,

And we build the wall to keep us free.

That’s why we build the wall;

We build the wall to keep us free.

Those who read the Wrongologist in email can view the video here.

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Capitalism’s Bad Smell

The Daily Escape:

New Macallan Distillery – 2018 photo via ArchDaily. There are 952 different bottles to taste on site. Bring a designated driver.  

Capitalism in America has gotten bad enough to attract the attention of The Economist:

“Two things stand out about business in America today. One is how successful American firms are: they account for 57 of the world’s 100 most valuable listed firms. The other is the bad smell hanging over a number of powerful companies.”

No one says that The Economist has a liberal worldview. They are the news journal of globalism and neoliberalism. But, even they think that the time has come to revisit how we treat our largest companies.

They go through a litany of all-too-familiar corporate abuses.

  • Boeing selling 737 MAX planes with dangerous software that you had to pay extra to get.
  • Criminal charges have been filed against Goldman Sachs in Malaysia for its role in arranging $6.5 billion of debt for a fraudulently run state fund.
  • A jury in California has just found that Monsanto failed to warn a customer that its weed killer could cause cancer.
  • Wells Fargo admitted creating 3.5 million in unauthorized bank accounts.
  • Facebook’s data practices are under scrutiny in several countries.
  • Purdue Pharma is the subject of a lawsuit by New York’s attorney general, along with McKesson and Johnson & Johnson.

The Economist points out that America has been no stranger to corporate scandals. In the 19th century meat packers sold rotten meat. In the 1960s, Detroit made cars that were in the words of Ralph Nader, “unsafe at any speed”. In the 1990s, tobacco companies and asbestos manufacturers had to settle class action suits that cost them more than $150 billion.

In the early 2000s, WorldCom, Enron and Tyco committed accounting fraud. And nobody forgets the mortgage fraud by our large banks and insurance firms that caused the Great Recession in 2008.

Back to the Economist: (brackets by Wrongo)

“Today’s crises…have common elements. The firms tend to be established, with dominant market positions. Outrage infuses social media and Congress. And yet the financial cost [to these bad actors] has been limited.”

They say that of ten big American listed firms involved in scandalous episodes, their median share price only lagged the stock market by 11% after the event. And just two of the CEOs at scandal-ridden firms were fired. Worse, for the ten firms, the total pool of senior executive pay has risen over the four most recent years to almost $600 million.

Doesn’t corporate America just see these things as the cost of doing business?

We need to remember that this just doesn’t happen here. Volkswagen cheated on emissions tests, as did Audi and Nissan. Sweden’s Swedbank is facing a criminal investigation for money-laundering.

American capitalism needs reform. The Economist says that in the past, three forces constrained corporate conduct: regulation, litigation and competition. Since the 2008 financial crisis, each of these three forces have been weakened by both our elected officials, and by US regulators. This provides an incentive for firms to take an extended walk on the wild side.

First, America’s regulatory system features both capture and incompetence. The FDA has allowed opioids to be sold in huge numbers, clearly beyond what was medically necessary. The FAA delegated its inspection process to Boeing. The FTC can’t police Facebook. The Fed, the FDIC, and the Comptroller of the Currency, our bank regulators, fail to indict bank executives. They impose fines that are small, relative to value of the gains made by rules breaking.

Second, litigation is no longer a deterrent. The Economist says that:

“Criminal cases leading to jail terms for top executives are as rare as socialists at Goldman Sachs.”

The same is true for civil actions. Arbitration clauses cause both customers and employees to forfeit the right to pursue class actions. Firms are more likely to extend cases by appealing, which can take years.

Finally, we all expect the market will punish bad behavior by corporations, because customers have options. But we know that America’s corporations have gotten larger, primarily by acquisition. That makes it harder for angry customers to move to competitors. There’s just one alternative to Boeing; Airbus, but it doesn’t have spare capacity. Users aren’t leaving Facebook. If you need OxyContin, you have just one source. Try changing your cable provider.

Econ 101 shows that the trajectory of monopoly begins with economies of scale, and ends with economies of exploitation. And remember that six corporations own 90% of the media. We won’t hear much about wrongdoing at Amazon from the WaPo.

Voters need to push for more enforcement of regulations, which can only be done by the federal government.

We have to insist that the protection of citizens is more important than protecting corporations and the 1%.

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Saturday Soother – Final Four Edition

The Daily Escape:

Aiguille du Midi – 2019 photo by Berenicids. The Aiguille du Midi (12,605 ft.) is part of the Mont Blanc massif in the French Alps. It can be directly accessed by cable car from Chamonix. If you enlarge the picture, the cable car building is visible at the very top of the mountain.

The end of Wrongo’s favorite sport, the college basketball season, happens on Monday. Tonight is the Final Four, the Wrong family’s equivalent of the Super Bowl, with family gathering for food and drink around the TV.

But, that doesn’t start until the early evening, so we’ve got time to talk about another scary piece of news this week: There will be severe human impacts caused by the next wave of automation. The bottom line is that plenty of jobs will be lost and we’ll see societal disruption as machines and robots take over American jobs. Axios takes it from there:

In a new report, the Aspen Institute nudges policymakers away from any notion that the American economy will naturally adjust as robots are introduced at an accelerated pace over the coming two and three decades.”

Axios goes on to quote Aspen’s Alistair Fitzpayne who says that, workers displaced in prior technological cycles “have experienced profound downward mobility” in new jobs at much lower pay and benefits.

The report’s executive summary warns, “Artificial intelligence and other new technologies may lead to deeper, faster, broader, and more disruptive automation”, and retraining programs may be unable to mitigate the downward trend in earnings and social status. Aspen warns that fewer jobs may be created than are destroyed:

  • No one knows how many new jobs will be produced, where they will be created, or how much they will pay.
  • Most studies play down the real possibility that the automation age could go very wrong, for an extended period, for large swaths of workers and their communities.
  • Workers who lost their jobs in the wave of manufacturing layoffs in the early 1980s, for instance, were still earning 15%-20% less in their new work 20 years later, according to the Aspen report.

Axios reports that Aspen tries to pull the punch, saying that with the right policy choices, we can choose to create an economy that works for everybody. That we can encourage employers to adopt a more “human-centric approach” to delivering the bottom line. That we can support displaced workers through retraining, reemployment services, and unemployment insurance to help them transition to new jobs and careers.

Maybe, but it seems questionable that those things will spontaneously happen. Rep. Alexandria Ocasio-Cortez (D-NY) suggests all this new technology might be liberating, but she has reservations:

“The reason we’re not excited by it is because we live in a society where if you don’t have a job, you are left to die. And that is, at its core, our problem.”

The cultural stigma attached to job loss is profound, and that is unlikely to change by adding more retraining programs. Conservatives are not about to celebrate jobless people having more time to learn, to create art, or enjoy the world they live in, as long as they are unemployed.

The merciless mantra of shareholder value above all, and our corporate masters’ acceptance of the inevitability of technological change means that low and moderate-skill workers are expendable. Efficiency for more bottom line is more important than the lives of human workers.

This coming automation disruption is hard to see now. But estimates are that it will impact as many as 40% of American workers.

The 21st Century American corporation isn’t our friend, as currently constituted and rewarded. It is the enemy of our society, because they are quietly working to eliminate our jobs. We constantly reduce their taxes, vainly hoping for them to create more jobs. We look the other way when they pollute our environment. We allow them to disproportionately finance our elections.

It’s time for a new Capitalism.

But you’ve had enough for this week, so on to the Saturday Soother. Start slowly, particularly if you plan to stay up until the last Final Four game ends at around midnight. Let’s brew up a cup of New Hampshire’s Flight Coffee’s single origin Tanzania Tarime AB, ($17/12oz.), with its floral fragrance and intensely sweet flavor. Now settle into your favorite chair and listen to “Spring Morning” by Frederick Delius, played by the Royal Scottish National Orchestra and conducted by David Lloyd Jones. “Spring Morning” is the third of ‘Three Small Tone Poems’ by Delius:

Those who read the Wrongologist in email can view the video here.

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Saturday Soother – March 23, 2019

The Daily Escape:

Milford Sound, New Zealand – photo via The Travel Guys

You know leadership when you see it. In the US, we are chronically short of inspiring leaders. But there is a great model of leadership on view in New Zealand, their Prime Minister Jacinda Ardern. Now 38, she was the world’s youngest female head of government, when she took office at age 37.

We’ve seen her response to the Mosque killings. In lieu of texting thoughts and prayers, she donned a black head scarf and led a group of politicians to visit victims’ families. She went to a high school that had lost two students in the attack, and told the children they need to fight prejudice:

“Let New Zealand be a place where there is no tolerance for racism….That’s something we can all do.”

She announced a ban on military-style assault rifles and ammunition on Thursday. She has hammered social media companies for allowing and amplifying extremism. Ardern has called capitalism a “blatant failure” due to the extent of homelessness in New Zealand.

She has spent her political capital to unite her country, not to divide it.

None of those things could have been accomplished by Trump. And none will ever be accomplished by him. He’s too politically and ideologically conflicted to give a full-throated denouncement of extremism from the right.

He doesn’t have the empathy to sit with relatives of the dead and comfort them. He’s not capable of leading us through a teachable moment. He can’t move our government to action, except to pass unnecessary tax cuts and hire right-wing Supreme Court Justices. He can’t be a role model for any positive behaviors, and is a terrible communicator to the general public.

So, look clearly at America’s politicians, and find someone who has the ability to lead like Ms. Ardern. Wrongo doubts that you will find many. Ms. Ardern is a politician not a saint, but her actions prove that politicians exist who can be effective thought and cultural leaders.

Remember that she’s just 38 years old!

Does this imply we shouldn’t be thinking that America necessarily needs an older politician driving the bus of state?

By the time you’re reading this, you’ll already know that the Mueller Report has been submitted to the Attorney General. Where we go from here depends to a great extent on the leadership of the Attorney General, the House and Senate, and the president.

Sadly, there’s no Jacinda Ardern in sight.

Time to unplug and get as soothed as we can under the current circumstances. Start by brewing up some Eaagads Estate Kenyan small batch coffee ($19/12oz.) from Austin Texas’s Greater Goods Coffee. The roaster says it pairs well with blackberry scones and citrus fruit.

Now, get to your favorite chair, put on your headphones and listen to Roxane Elfasci play “Clair de Lune” by Claude Debussy, on guitar. This 2016 live performance was in Paris. “Clair de Lune” is the third movement of “Suite Bergamasque” by Claude Debussy, from a poem by Paul Verlaine. It was written for piano, and here it is arranged for guitar by James Edwards. This is a wonderful performance of a well-known piece which is incredibly difficult to play on solo guitar:

Those who read the Wrongologist in email can view the video here.

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Monday Wake Up Call – March 18, 2019

The Daily Escape:

View from Angel’s Landing, Zion NP – 2019 photo by ducc517

Sen. Elizabeth Warren (D-MA) says that she favors “capitalism with serious rules.” David Leonhardt wrote in Sunday’s NYT:

Her platform aims to reform American capitalism so that it once again works well for most American families. The recent tradition in Democratic politics has been different. It has been largely to accept that big companies are going to get bigger and do everything they can to hold down workers’ pay. The government will then try to improve things through income taxes and benefit programs.

Warren is trying to treat not just the symptoms of inequality, but the underlying disease. Warren also called for an annual wealth tax, for people with assets greater than $50 million. She has proposed a universal child-care and pre-K program. She favors tougher guidelines on future mergers, and also a breakup of the giant tech companies (Google, Facebook) that resemble monopolies.

Of the current crop of Democrats, she’s the reform capitalism candidate. But one idea that Warren hasn’t espoused is the Financial Transactions Tax, (FTT). Wrongo first wrote about a FTT in March 2013.

Sen. Brian Schatz, (D-HI) and Rep. Peter DeFazio (D-OR) introduced a tax of one-tenth-of-one-percent, or 10 basis points (100 basis points equals 1 percentage point), on securities trades, including stocks, bonds, and derivatives. The CBO estimates that the FTT would raise $777 billion over 10 years. Sens. Chris Van Hollen (D-MD), Jeff Merkley (D-OR), and Kirsten Gillibrand (D-NY) are co-sponsors of the bill.

For the math-challenged, 10 basis points on a $1,000 trade equals one dollar. Jared Bernstein says:

FTTs exist in various countries, including the UK and France, with Germany considering the tax (also, Brazil, India, South Korea, and Argentina). The UK is a particularly germane example, where an FTT has long co-existed with London’s vibrant, global financial market.

More from Bernstein: (brackets by Wrongo)

Because the value of the stock holdings is highly skewed toward the wealthy, the FTT is highly progressive: The TPC [Tax Policy Center] estimates that 40% of the cost of the tax falls on the top 1% (which makes sense as they hold about 40% of the value of the stock market and 40% of national wealth).

Vox also reports that an FTT would mostly affect wealthy Americans, because an estimated 84% of the value of stocks is owned by the wealthiest 10% of households. Schatz isn’t the first Democrat to suggest an FTT, Bernie Sanders ran on a similar idea in the 2016 Democratic primary. He pitched it as a way to pay for free college.

Globally, there is plenty of experience with FTTs. In the UK, a 0.5% “stamp tax” is charged when someone buys shares on the stock market, and the UK market is fine. France in 2012 introduced a tax on financial transactions, and a study from the European Commission found that trading volumes declined slightly, but share prices and volatility weren’t meaningfully changed. France and Germany have pushed for a European Union-wide FTT.

Opponents include the high-frequency traders, who note that even a small FTT could upend their extremely low margin business model. Although a dollar on a $1,000 trade doesn’t sound like much, if the industry is making 4 billion trades a day, it can add up.

Time to wake up and support an FTT, America. Sens Warren and Sanders support this idea, and you should too. Those who think that the government should use the tax code to ensure that everyone has an equal opportunity to get ahead, and that we should do more to ensure the well-being of our citizens aren’t socialists.

If that makes us socialists, then Eisenhower, who presided over a 90% top tax bracket, was also a socialist.

To help you wake up, here’s Steely Dan with “Any World That I’m Welcome To from their 1975 album “Kay Lied”. This tune gives you the benefit of hearing the late, great, Hal Blaine on drums. Blaine may have been the most recorded drummer in pop music history. From the late 50s through the mid-70s, Blaine did sessions with Sam Cooke, Ray Charles, The Righteous Brothers, Henry Mancini, Ike & Tina Turner, The Monkees, Nancy Sinatra, The Fifth Dimension, The Byrds, Sonny & Cher, Mamas and the Papas, and The Grass Roots.

The famously picky Steely Dan only used Blaine for this one tune:

Those who read the Wrongologist in email can view the video here.

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The Long Battle to Reform Capitalism

The Daily Escape:

Poppies in bloom, Southern California – March 2019 photo by Leslie Simis. This annual explosion of color is enhanced this year by extraordinary rainfall

You can call the period in US history from FDR to Nixon “America’s social democratic era”.  A collection of politicians had hammered out the policies and regulations that became FDR’s New Deal in America. It became a period of post-war prosperity during which inequality narrowed, economic growth boomed, and optimism reigned.

The characteristics these policies shared were reciprocity and generosity. For the citizen, there was some form of social support that grew from Social Security in 1935 through the 1960’s with Medicare and Medicaid. In 1970, Nixon implemented the Environmental Protection Agency. There was also a willingness to care for the disadvantaged. Our Marshall Plan and our commitment to foreign aid are both great examples. The success of social democracy in the postwar era weakened the market’s power to act independently within our society.

But then things changed. Our government’s role became a helpmate for corporations, financial institutions, and their lobbyists. The result has been growing inequality between suppliers of capital and the suppliers of labor, even of highly educated labor, like teachers and professors. Economic growth slowed, and we have developed a permanent underclass that seems impervious to repair.

Yesterday, we talked about Economic Dignity, and how focusing on it might help solve inequality. Today’s market economics is partly based on the ideas of Jeremy Bentham and John Stuart Mill, economists who viewed human beings as supreme over the state. As individuals who would make rational decisions to maximize utility. It turned out to be incomplete, since it left out key dimensions of human psychology, like the individual’s need for social esteem or respect. In other words, they ignored economic dignity.

Couple that with Milton Friedman’s idea, that the mission of the firm is to solely maximize profits, that any responsibilities to its employees, consumers, or society should be ignored. Profit maximization at all costs has done great damage to American society. And conservatives and free marketers have married the ideas of these three economists, making the removal of government from markets their primary mission.

But what they call “the market” is really a bundle of regulatory (and non-regulatory) rules by which market activities operate. The mix of free and regulated market activities can be changed, even though capitalists say we shouldn’t change the rules, because it adds uncertainty to markets.

Just because in baseball, three strikes and the batter is out, or with four balls, there is a free pass to first base, doesn’t mean it has to be that way. It could be five strikes and you’re out, or three balls is a walk.

As an example, we tend to fight unemployment with “trickle-down” solutions. That means we bribe the rich and corporations to hire more. But, the bribe is always bigger than the payrolls that are generated.

We could fight unemployment with fiscal policy, such as infrastructure spending by the government. It would employ many, possibly hundreds of thousands, and there would be no need to pay any entity more than was warranted by the tasks at hand.

America needs a return to what economist Paul Collier calls the “cornerstones of belonging”— family, workplace, and nation, all of which are threatened by today’s market driven capitalism. That means capitalism has to return to the ethics of the New Deal. Joseph Stiglitz, Nobel laureate in economics, says: (parenthesis and emphasis by Wrongo)

Over the past half-century, Chicago School economists, (including Milton Friedman) acting on the assumption that markets are generally competitive, narrowed the focus of competition policy solely to economic efficiency, rather than broader concerns about power and inequality. The irony is that this assumption became dominant in policymaking circles just when economists were beginning to reveal its flaws.

Stiglitz says we need the same resolve fighting for an increase in corporate competition that the corporations have demonstrated in their fight against it. We’ll need new policies to manage capitalism.

It means higher taxes on profits.

It means paying workers more.

It means rebuilding public assets like roads.

It means teaching students to be both technically capable, and grounded in their values.

Speaking of needing to teach our students, if you think we’re not in a rigged game, think about one “USC student” who is part of the admissions fraud scandal, Olivia Jade Giannulli. She was on the yacht of the Chairman of USC’s Board of Trustees when she heard about it.

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College Admissions Fraud: A Teachable Moment About Capitalism

The Daily Escape:

Eagle pair on nest, Litchfield County CT – 2015 photo by JH Clery

With the college admissions fraud, wealthy Americans are now bribing people to get their kids into college. It’s just another way that the wealthy are rigging the game. Robert Reich enumerates:

We’ve become a nation where any number of greased poles stop your ascent. People with wealth seem unwilling to compete fairly. It turns out that executives from Pimco, Hercules Capital, and the co-chairman of the law firm, Willkie Farr & Gallagher, were named in the buy your way into Yale scam, along with a few Hollywood types.

It’s become very difficult to differentiate between applicants for the prestige colleges. Good grades and test scores and life experiences are no longer enough to help a kid to stand out the way they might have a few years ago. So some are bribing their way to the head of the line.

It’s just another cost of doing business in America. The truly wealthy can just pay for a new building and see their children get into the best universities. But, the merely rich can’t do that. OTOH, they can’t be expected to simply earn their way in.

As for the kids: They all knew whether what was on their applications was true or not. They had to be in on the scam. This is what passes for the charmed life of the rich in the USA: Kids knowingly cheat right along with their cheating, entitled parents, because they believe they deserve to go to Georgetown.

Robert Reich is correct, this is the rot that concentration of wealth has brought to our country.

Randall Lane has a long read at Forbes about “Reimagining Capitalism” in which he summarizes his one-on-one discussions with two dozen billionaires, including face-to-face meetings with the three richest people in the world, Bill Gates, Jeff Bezos, and Warren Buffett, about capitalism’s future. Lane says:

“Virtually every billionaire I spoke with acknowledged that higher taxes on the billionaire set are inevitable; most even saw them as beneficial, if correctly applied. According to Gates, Buffett, Khosla and others, the correct way to levy taxes on the superrich is….Either an estate tax without the loopholes that currently render it useless or a higher capital gains tax applied only on extreme fortunes…”

He quotes Buffett about the disparity of earnings between the top 1% and the bottom 50%:

“The market system as it gets more specialized pushes more money to the top….The natural function of a more specialized market economy is to divert more and more of the rewards to the top. That’s something I don’t think we’ve fully addressed in this country.”

Lane points out that Bill and Melinda Gates even went on Steven Colbert and called for higher taxes on the super-rich.

Younger Americans know that the deck is stacked. That may be in part why some kids play along with their parents and cheat to get into Harvard.

An often-cited 2016 Harvard University survey found that 51% of American youth aged 18 to 29 no longer support capitalism. Only 42% said they back it, while just 19% were willing to call themselves “capitalists.” A follow-up focus group study concluded that most felt that:

“Capitalism was unfair and left people out despite their hard work.”

Gene Sperling, Obama’s Director of the National Economic Council, has an interesting take on redefining our overall economic goal. He says we should strive for “Economic Dignity”. His conclusion is that the Fed and the Congress should implement a full employment monetary and fiscal policy that fosters tight labor markets.

Sperling says that would be a triple win for economic dignity, because it would lead to higher wages, and it would give companies greater incentive to provide advanced training to their employees. Meanwhile, high labor demand gives more workers some “take this job and shove it” leverage that they lack today.

Taken together, it would allow people to care for and provide opportunity to their families, something that is at the core of America’s beliefs.

Young Americans know that capitalism in its current form creates inequality, oppression, and exploitation. It could be made to work for all if it were more responsive to society’s needs, and yes, if it provided economic dignity for all.

Those who have been rewarded by capitalism shouldn’t be able to use their bounty to make the lives of others worse than they are. This isn’t just about the Koch brothers. It’s also about the merely wealthy who scam the college admissions system to get their kids into better schools.

We should be showing the young that there’s a better form of capitalism.

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