Transformational Ideas – Page 8

Smart Guys, Smart Power

When we think of entrepreneurs involved in renewable energy, usually just one name comes to mind, Elon Musk, a smart guy who has given Tesla a new meaning. He just merged Tesla with Solar City.

But smart entrepreneurs in solar are emerging. The NYT wrote yesterday about Nicholas Beatty, a former banker who has covered about 25 acres of his farm in England with solar panels. This isn’t a new phenomenon, lots of farms have solar arrays both in the UK and elsewhere, most of which also use Rooftop Solar Forecast software to plan and manage energy use around solar intermittency:

What’s new in Mr. Beatty’s field is a hulking 40-foot-long shipping container. Stacked inside, in what look like drawers, are about 200 lithium-ion cells that make up a battery large enough to store a substantial portion of the electricity the solar farm puts out.

The battery and its smart software give Mr. Beatty an advantage over other solar panel farmers. Power prices rise and fall depending on the supply and demand. The spread between the high and low price can be dramatic. By storing power in the battery, Mr. Beatty can feed it into the grid when prices are high:

The battery effectively takes power off the line when there is too much and puts it on when there is too little…

Farmers, business owners, and homeowners looking to install a solar power system for their own energy needs and uses may want to consider the services of Gietzen Solar to help set this up.
Improved industrial-sized batteries are a way of achieving that flexibility. Mr. Beatty’s battery storage system cost about $1 million, but could increase revenue for his solar farm by as much as $250k per year. Beatty is one of many entrepreneurs and businesses trying to play the fast-shifting electric power landscape. This is a capital-intensive business:

With about a dozen friends and family members…he spent £6.5 million ($8 .1 million) to build the solar farm in 2014. The solar panels…generate about £650,000 ($810k) in revenue a year…

Improved battery storage and its smart controlling software has been one of the two pillars required to make solar power competitive with non-renewable energy sources, you could definitely say that this is a case where the question Deep Cycle Versus Shallow Cycle Solar Batteries comes into play. The other is the cost of solar panels. Tesla has been working on both axis. They have built a solar demonstration project on the island of Ta’u in American Samoa that generates 1.4 megawatts of energy. The microgrid has 60 Tesla Powerpacks, the company’s large commercial battery with 6 megawatt hours of battery storage. These batteries can be fully charged with only 7 hours of daylight from 5,300 solar panels.

The microgrid facility can fully power the island of 600 residents for 3 days on battery power. It is expected to save the island 109,500 gallons of diesel per year or $8 million in fuel costs. Ta’u previously relied on diesel fueled generators for power.

Cost of solar energy per kilowatt or megawatt hour has been uncompetitive for a long time, but that is changing. And most countries and most US states now are willing to purchase power from independent generators, like Mr. Beatty in the UK. Many in the UK, including in locations like derby, are following suit and investigating how they can benefit from installing solar panels to their properties and harness the renewable power of the sun for themselves. The Economist has this chart of the relative costs of sources of energy:

price-of-solar

All of this means that American farmers could open a new revenue stream by becoming smart solar power generators. Farmers own large acreage in sunny locations. They have a deep understanding of farming, another capital-intensive business. They understand that farming is a climate-dependent enterprise, another factor in common with solar power generation.

A key factor is whether their state allows interconnection with the power grid, and whether the state’s program to pay the independent power generator for power sent to the grid at an economic rate.

Let’s hope that Donald Trump’s fascination with coal doesn’t lead to bad policy. The Economist reports that Trump has promised to make more public land available to miners; but access to coal reserves isn’t their problem. Coal employment peaked in the 1920s, and today, fewer electric utilities want to use coal. If he intervenes on behalf of coal, he will be actively handicapping renewables and natural gas. If Trump’s energy policy is focused on a few unprofitable coal-mines, China will take a commanding lead in batteries, solar panels and wind turbines. That wouldn’t be so smart.

We are at a time when the cost of solar energy has dropped dramatically, and with greater economies of scale, it will fall even further.

It is past time for a few smart entrepreneurs to take up the disruption of the fossil fuel industry and its fellow travelers, the electric utilities.

Our New Political Majority

(This is the last column for this week. We will resume on Sunday with cartoons. Everyone has reasons to be thankful, so take the time to talk about them with your loved ones, or your close friends this week.)

Last weekend, like most Americans, Wrongo spoke with friends and family about how we got to the disappointing political place where we are today.

Der Spiegel Online asked: If you think back ten years, could you have imagined in 2006 that America’s reality would be Donald Trump as president of the US? Probably not, but ten years ago:

Economic growth and job growth both fell in 2006 as the residential housing boom came to an end.
Wages were the smallest share of national income since the government began compiling the statistic in 1947.
Consumer debt soared to new heights, while consumer debt payments rose to the highest on record.

Those were dispatches from the ongoing war that corporations and neoliberal economic elites made on our citizens. And it didn’t stop there. After 2006, we had the financial meltdown and the Great Recession. Banks had to be bailed out. Millions of people lost their jobs. Debt grew, and faith in government’s willingness and ability to improve the fortunes of their citizens evaporated.

The clear losers were workers in traditional economic sectors, particularly in manufacturing. According to a study by economists David Autor, David Dorn and Gordon Hanson, the increase in imports from China have resulted in the loss of 1.5 million manufacturing jobs since the early 1990s.

But automation had a greater impact: In total, some 6.9 million manufacturing jobs were lost in the US between the early 1990s and 2011. For those who have lost their jobs, it seems that their political representatives have forgotten them. Particularly when establishment Democrats and Republicans continue to push for more trade, by which they mean more imports from our global corporations who continue to export those jobs to lower-wage countries.

In 2016, despite substantially better economic times, many American still worried about losing their jobs and their financial security. They saw themselves as the losers in a game that only helps corporations and the elites. This domination of our politics by the economic elites has produced a defacto disenfranchisement of everyone else.

A new political map has emerged, one that doesn’t neatly fit into the Left vs. Right model of our politics. The new dividing line is between those who support, and those who oppose, America’s economic elites and their neoliberal policies. Those on both sides of the old ideologies who distrust the elites are connected by their fear of being left behind. This was clear in 2016 in those precincts where Trump outperformed Romney, and where Clinton underperformed Obama.

This is today’s landscape, but in 1998, Richard Rorty, an American philosopher who died in 2007, wrote “Achieving Our Country” which predicted our current political situation. According to the NYT, the following fragment of the book has been retweeted thousands of times since the election:

Members of labor unions, and unorganized unskilled workers, will sooner or later realize that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realize that suburban white-collar workers — themselves desperately afraid of being downsized — are not going to let themselves be taxed to provide social benefits for anyone else.

At that point, something will crack. The nonsuburban electorate will decide that the system has failed and start looking around for a strongman to vote for — someone willing to assure them that, once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen, and postmodernist professors will no longer be calling the shots.

One thing that is very likely to happen is that the gains made in the past 40 years by black and brown Americans, and by homosexuals, will be wiped out. Jocular contempt for women will come back into fashion…All the resentment which badly educated Americans feel about having their manners dictated to them by college graduates will find an outlet.

Rorty’s basic contention is that the left abandoned its core philosophy in favor of a neo-liberal worldview that promoted globalism and corporatism. Rorty said in a lecture in 1997:

This world economy will soon be owned by a cosmopolitan upper class which has no more sense of community with any workers anywhere than the great American capitalists of the year 1900.

Mr. Rorty’s most prescient words:

The cultural Left has a vision of an America in which the white patriarchs have stopped voting and have left all the voting to be done by members of previously victimized groups.

Rorty said that in 1998. And in 2016, it was Hillary Clinton’s failed election strategy.

What’s so striking about “Achieving Our Country” is Rorty’s argument that both the cultural and political left abandoned economic justice in favor of identity politics, ignoring too many economically disadvantaged Americans.

According to voter turnout statistics from the 2016 election, 58.4% of eligible voters actually voted (135.2 million). Clinton received about 63.7 million votes (27.5% of eligible voters) to Trump’s 62 million, (26.8%) while 9.5 million votes went to others.

This means that 41.6% of America voted for nobody, far outweighing the votes cast for Trump or Clinton.

That the majority of Americans did not vote is not because they don’t care. They voted no confidence in a political system that forgot about them a long time ago.

A minority elected Trump. The majority voted against our neoliberal political system.

(BTW, Tuesday was the 53^rd anniversary of JFK’s assassination. While it remains fresh in Wrongo’s mind, it hardly registers in the minds of the press or the public. A new idea on Oswald’s motives appeared in the LA Times. Take a look.)

Hail The Orange Overlord

(Wrongo will say more about Veteran’s Day during Sunday’s cartoon edition. For today, let’s acknowledge that Veteran’s Day is one of America’s most patriotic holidays, and that this year, it feels very disappointing to many of us. Leave that aside. Take a minute to reflect on those who fought for us so that we have the right to vote for whomever we please.)

Regarding the election: Aren’t you happy that America is on its way to being great again?

For both the winners and the losers, please don’t make things worse than they have to be by deepening the divide between the two political camps. Most of all, try to be understanding of each other. Half of the country is not reacting well to this, and some on both sides are going to say things that they’ll regret, or that put them at odds with you and your core values.

People aren’t at their best when they’re afraid and confused, so take a beat, and let the next month or two go by without overreacting. There will plenty of time to do that after the inauguration.

And there is little value for Democrats in performing a self-flagellating post-mortem. We can analyze the results, but we can’t change them. We know what went wrong, even if we won’t admit it. Here’s what has to happen:

Democrats need to find a way to make sure that their primary process favors new faces with bold, inspiring ideas. We can’t have any more competent retreads. Mondale, Dukakis, Gore, Kerry and Hillary Clinton were all competent technocrats who were really weak candidates. How many times must we replay this record before changing direction?
It’s time for Democrats to stop using white working classas a pejorative. Not so long ago they were the bedrock of the New Deal Democratic Party. Find a way to be respectful. Think about how to bring them back to the Democrats’ side.
There is one argument that we need to see less of: that the demographic makeup of the US is sure to produce a Democratic paradise. This argument is false, as we learned on November 8, and it promotes lazy thinking by the leaders of the DNC: the “We’ll just sit back and they’ll drop into our hands like ripe fruit” kind of thinking.

Finally, the notion that since the old white people will die off, we should focus solely on Millennials is stupid. Time makes more old people every day. And as people age, they change their opinions and politics.

Hillary and her campaign team failed. They raised $1.1 billion by Election Day, and lost conclusively. Their strategy, and its execution were both failures. If you spent a $billion in the corporate world and failed, you would be fired immediately by your organization. Dems should take no consolation from Hillary winning the popular vote. It doesn’t change who the president is. The real numerical difference is very small, and may even be reversed by the time all votes are counted.

Hillary did not articulate an inspiring vision. Her damned emails and the Clinton Foundation were self-inflicted wounds. Her team’s strategy of micro-targeting, which worked well for an inspiring candidate Barack Obama, was self-limiting for the technocrat Clinton.

The 2016 problem that Democrats failed to address was that nearly half of the electorate was dissatisfied enough that they were willing to vote for Donald Trump, arguably the least qualified person to ever hold the office. And Clinton and her campaign team had no message or vision directed at the group Donald inspired.

Presidential campaigns are an affair of the heart, but Hillary was a cerebral candidate in a highly-charged emotional situation.

The so-called Deplorables have spoken. Democrats have opened the door and let the Right Wing demons in. The GOP now has free reign. And doubtless, there will be no mercy dispensed as they roll back the new deal legislation that remains of the books.

It is likely that the “lesson” the DNC will learn from their loss will be to move even further to the right. Yet, when Americans have to choose between an ersatz Republican-lite and the real thing, they will choose the real thing every time. If the DNC had an ounce of clever thinking, they would recognize the need to be once again have a platform that is:

Fully committed to adding more jobs, jobs, jobs
For reining in the economic power of large corporations
For reversing income inequality
For Medicare for all
For additional taxation of the highest personal income brackets
Against endless war
Against Citizens United

The question is whether progressives attempt to “reform” the Democratic Party, or whether they organize a new party. It might begin like the Republicans began when they split from the Whigs. The Whigs split started in 1850, and by 1856, the Whigs were no longer a national party.

Maybe in these times, a new “American Justice” party could recruit Elizabeth Warren, Bernie Sanders, Kamala Harris, Tulsi Gabbard, Gavin Newsom and most important, a battalion of young messengers to bring a third party to power in the US.

If that doesn’t happen, we need to see the DNC leadership’s heads on a pike.

In either case, we face a decade or more of rebuilding progressivism into an American political majority.

China’s Grand Strategy

In December 2015, Wrongo linked to a year-end prediction in the LA Times:

“One Belt, One Road”, also known as “OBOR,” is a new development strategy initiated by China in 2015 to promote its economic connectivity and cooperative relationship with nations in Eurasia by helping them develop infrastructure. These initiatives should also help Chinese exports.

OBOR is called the new Silk Road by the Chinese. The Silk Road was an ancient network of trade routes linking China’s merchants with Central Asia, the Middle East, Africa and Europe in the seventh century.

Now, China’s president, Xi Jinping, wants his country to revisit the time when the Silk Road was a conduit for diplomacy and economic expansion, and when Chinese silk was sent across the globe.

OBOR has drawn remarkably little attention and comment in the US, especially by our politicians and pundits, who prefer to focus on old white men in red ball caps.

This is surprising, considering OBOR’s economic implications and its geostrategic significance.

OBOR seeks to convert the Eurasian land mass into a single economy by interconnecting a network of roads, railroads, pipelines, ports, airports, and telecommunications links, and, based on these, to create a series of logistics corridors (One Belt). Supplementing this will be a maritime component (One Road), aimed at linking Southeast Asia, Oceania, and North Africa, through the South China Sea, the South Pacific Ocean, and the Indian Ocean. China would develop deep water ports and then build the infrastructure to link them to interior markets. Here is a graphic that shows the “One Belt, One Road” project:

OBOR Source: The Economist

China plans to commit $4 trillion to build out the OBOR project. That may sound like a lot, but China currently has $3.5 trillion in reserves, mostly in US$. The Chinese say that they have 900 deals in 60 countries in place, or in negotiation, or planned. Most would be designed, built and managed by Chinese enterprises, along with local partners. The Chinese government will directly or through several newly established funds they control, provide the financing for both the Chinese companies and their local partners, with low-interest loans or grants.

OBOR will enable China to employ the large project development capacity that it has built up during its industrialization and infrastructure development drive, much of which China now sees as surplus to current needs.

By seeking to use OBOR to create a Eurasian bloc, China resurrects Mackinder’s World Island Theory, described as: Whoever controls the Heartland of Europe and Asia will rule the world. The corollary is: Who controls the Land Power will unavoidably compete with who controls the Sea Power. Today, the US is the Sea Power, while control of the Land Power is up for grabs, and China is betting that OBOR can help it become the Land Power.

This is China’s Grand Strategy.

Russia is in an interesting position. On the one hand, China is its ally, particularly in oil and gas, with Russia as supplier, and China as the buyer. China will need Russia’s military strength along with its own to offset the military power of the US once the real competition begins. Also, Russia cannot ignore the positive significance that a strong OBOR could provide in its relations with the US and the EU.

China’s bet is that the US is losing its grip in Europe. And that the EU will not be a long-term player politically even if it is economically. The EU is challenged from within by stagnant economies, and challenged from the East by Russia, who sees the EU’s expansion to former Soviet bloc nations as both military and political threats. Possibly, Germany can be spilt off from the rest of Europe.

This is China’s plan for global economic and political primacy in the 21st century. The US response has been to continue playing geopolitics with breathtaking ineptitude: When you are number one, you ally with number three (Russia), against number two (China). Or better yet, get them to fight each other.

But when the US tries to contain both simultaneously, it pushes them together.

Most significant, an autonomous Asian nation is promulgating a global economic and political expansion through bilateral deals. It is presenting a positive and credible vision of future commercial and political success for many countries who no longer trust the West, if indeed, they ever did.

This is very much against the multilateral trade model that the US and the EU have stood for in the past 70 years. Sadly, the West has not demonstrated any positive vision for the future since the end of the cold war.

But trust Trump. He’ll make a great deal, and those Chinese will certainly stay at home.

Hillary Should Grab Populism and Run With It

The biggest change in our politics in the past 20 years is the rise of populism on the left and right. The populists believe that we are led by a selfish elite that cannot—or will not—deal with the problems of ordinary working people, and there is ample evidence that they are correct.

Trump and Clinton say they will bring back jobs that corporations have shipped offshore. They make China the scapegoat for lost economic opportunity, while the real causes are automation and the triumph of the spreadsheet in corporate strategy.

Those jobs are never coming back, and a candidate who says they can negotiate with foreign governments to bring jobs back demonstrates either their naiveté about the true cause of job loss, or a simple desire to BS the American public.

Voters can see through that.

Economic and cultural insecurity are the bedrock causes for populists. Unemployment and stagnant wages hurts working-class whites, while cultural issues are a top issue for older white Americans. The first group sees their jobs threatened by automation and globalization. They join with older whites in seeing immigrants as scroungers who work for less, grab benefits and if you believe Trump, commit crimes.

Both groups also believe that American society is being undermined by diversity and foreign-born citizens.

This is the battle line of the 2016 presidential election. The mediocre economy that has been with us for nearly 20 years has caused real harm. We remain a wealthy country, but certain groups now see their opportunity slipping away. Slow growth, or no economic growth, means only a few elites will do well, and most voters see the self-serving political class as siding with the elites.

So can a candidate unify an electorate that now plays a zero-sum political game?

The Pant Load has the better position in this game, since he can exploit pre-existing fears that are based in fact.
The Pant Suit must carefully calibrate her message, but she cannot be a “maintain the status-quo” candidate and win.

Clinton would do well to consider what William Berkson said in the WaMo:

If there is one national goal that Americans can agree on, it is opportunity for all.

Berkson makes the point that since President Reagan, Republicans have advocated a simple theory of how to grow the economy: The more you reduce government involvement in the economy and the more efficient markets become, the more the economy grows.

Sorry, but the simplistic theory of free market economics has been drowned in a tsunami of fact in the past 35 years. Berkson says:

Both Democratic administrations since Reagan—that of Bill Clinton and Barack Obama—have raised taxes, and under them, the economy grew more rapidly than under the tax-cutters Reagan and George W. Bush.

This opens a path for the Pant Suit. In order to win, she must assure voters that she will deliver more and better jobs. Family income must go up. But how to achieve this?

By advocating a policy of economic opportunity through public investment in infrastructure. It fulfills the promise of opportunity for all, a populist message that has proven to work throughout America’s past. And it allows Clinton to hammer the GOP Congress and Paul Ryan about the lack of any track record for laissez-faire policies, since they have never worked, not even once, as a miracle cure for jobs and income inequality. This would be an open return to Keynesian economics. Here is Eduardo Porter in the NYT:

The Keynesian era ended when Thatcher and Reagan rode onto the scene with a version of capitalism based on tax cuts, privatization and deregulation that helped revive their engines of growth but led the workers of the world to the deeply frustrating, increasingly unequal economy of today.

And led to the low growth economy that drives today’s populist anger.

How to fund that infrastructure expense? More revenue. For the last 40 years, Democrats have been unwilling to counter the conservative argument that higher taxes are a redistribution of wealth between classes. Clinton should argue that current tax policy is really a transfer of resources from tomorrow’s generation to today’s. This is a strong populist message.

Younger Millennials understand this clearly. They already believe Social Security will not be there when they need it. She can win them over if she makes a case for new jobs and new revenues.

When conservatives say that it is unfair for people in their highest earning years to pay more taxes on that income, Clinton can point out that this is a past-due bill that they need to pay just as their elders paid higher taxes that supported the current earners when they were starting out. It was that investment in public resources such as public education and infrastructure, and in research, technology and industry that enabled today’s peak earners to get where they are.

While the strategy opens Clinton to criticism from Grover Norquist and the right about fiscal irresponsibility, it pits Trump against the Tea Party and the GOP. He would need to choose between being a populist or a doctrinaire fiscal conservative. Either way, it will bleed votes from some part of his base.

The strategy could work in down ballot races as well, particularly in the Rust Belt. Maybe working class conservatives will hear her, and not vote against their economic interests for once.

We’ll see if she will move from status quo, to “let’s go” as a campaign strategy.

What NH Should Teach Us

The popular vote in NH was about 521,000. Of that number, 278k went to Republican candidates, and 243k went to Democrats. Bernie led all candidates with 145,700 votes, with Trump second at 97,300 votes. Hillary was third at 92,530.

For the record, the 2008 turnout was: 287,342 for the Democrats and 238,979 for the Republicans.

The media is all over the demographics of the NH primary, and how Bernie won all segments except for people over 65 years old, and those who make more than $200k, both of which went to Hillary.

But one headline from NH ought to be that the Dems performed 15% worse than eight years ago, while the GOP performed 14% better than they did when a NH resident (Romney) was on the ballot!

In Hillary’s post-primary speech, she said that there isn’t a huge difference between the two Democratic candidates. Bernie talked about how the party had to come together down the road to prevent a White House take-over by the GOP.

But are these candidates that similar?

Let’s hear from Benjamin Studebaker, who says that Sanders and Clinton represent two very different ideologies, a neo-liberal view represented by Ms. Clinton and an FDR big government program viewpoint represented by Mr. Sanders:

Each of these ideologies wants control of the Democratic Party so that its resources can be used to advance a different conception of what a good society looks like…This is not a matter of taste and these are not flavors of popcorn.

Studebaker thinks that Hillary is ideologically similar to Barack Obama, describing that in 2008: (emphasis by the Wrongologist)

The most prominent difference between them was the vote on the Iraq War. On economic policy, there never was a substantive difference. The major economic legislation passed under Obama (Dodd-Frank and the Affordable Care Act) did not address the structural inequality problem that the Democratic Party of the 30’s, 40’s, 50’s, 60’s…existed to confront.

In fact, while inequality decreased under FDR, Truman, JFK, and LBJ, it has increased under 3 Democrats: Carter, Clinton, and Obama. It also increased under 3 Republicans: Reagan, Bush I, and Bush II.

Now comes the Hill & Bernie show. Sanders is not running to try to implement a set of idealistic policies that a Republican-controlled Congress will block; he is running to take the Democratic Party away from its current leadership that is unwilling to deal with the systemic economic problems that have led to wage stagnation and the shrinking of the middle class in America.

But can he be successful? David Brooks said in the NYT:

Bernie Sanders…has been so blinded by his values that the reality of the situation does not seem to penetrate his mind.

OK, that must mean that Sanders has no shot. The conventional wisdom is that the Democratic Party cannot be reclaimed by the FDR/LBJ types, or that if it is reclaimed, it will lose in 2016.

But, in the 1968 and 1976 Republican primaries, a guy named Ronald Reagan ran to take the Republican Party back from the Richard Nixon types who went along with the Democrats on welfare and regulation. He was bidding to return the Republicans to their 1920’s Conservative roots. Everyone in the 60’s and 70’s knew that Reagan couldn’t pull that off. But he did.

How? Yesterday, we spoke of Movement Conservatism, where Republicans built a conceptual base, a popular base, a business base, and an institutional infrastructure of think tanks, and by the 2000s, Conservatives again controlled the Republican Party.

So, one lesson from the NH primary is that the contest for the 2016 presidential nomination is not just a contest to see who will lead the Democrats, it’s a contest to see what kind of party the Democrats are going to be in the coming decades, what ideology and what interests, causes, and issues the Democratic Party will prioritize.

The Republican Party faces exactly the same problem in 2016.

And these facts make the 2016 primaries far more important than in any other recent election.

This is about whether the Democratic Party is going to care about inequality for the next decade. We are making a historical decision between two distinct ideological paradigms, not a choice between flavors of popcorn.

Choose carefully.

Enabling the Tea Party Revolution

Tuesday is the first Democratic Presidential debate of the 2016 election cycle. It is 100% certain that you will not hear any one of the Democratic hopefuls discuss how the Democrats in the House of Representatives have enabled the current chaos in the House by Republicans.

How have they enabled Republicans? Democrats routinely save them from their dysfunction. On Sunday, we discussed that raising revenues and deciding where to allocate funds was the primary task of the party that controls Congress.

That would be the Republicans.

We also said that whenever John Boehner has tried to pass his own spending bills using just Republican votes, he’s failed. He then goes to Nancy Pelosi and asks her to get some Democrats to vote to keep the government open, and the Democrats then vote for a Continuing Resolution, or a short-term Debt Limit increase. This is enabling bad behavior.

Enabling is doing certain things for someone that they could, and should be doing themselves.

They enable Republicans by bailing them out when they have painted themselves into a corner on fiscal matters, in the same way that people help alcoholics continue to (ab)use their drink of choice, by allowing them to avoid the full consequences of their actions.

When John Boehner can’t keep the government open or pay our bills and protect our nation’s credit rating, his party should crash and burn. Instead, his “friend” Pelosi does the equivalent of hiring a high-priced lawyer to quash Boehner’s drunken driving arrest. Boehner drives on, but his party doesn’t govern on its own.

And when the smoke clears, the Republican leadership extracts no price from their Republican Revolutionaries, who are allowed to keep their committee assignments, and receive campaign funds from the National Republican Campaign Committee.

So, there is no political price that the Republican Revolutionaries have to pay for bad behavior.

Democratic enabling has allowed a minority of Republicans to not just persist with their brinksmanship, but along the way, they have vastly strengthened their political power. There is no reason why Dems should vote for Republican appropriations bills, that is the job of the majority. The GOP needs to act like a majority party, which means they must learn how to fund the government on their own, or share power with those who will work with them to fund it.

The value to Democrats for their enabling is that they can say they are saving the country from the Republican Revolutionaries. But, the opposite result has actually happened. Democrats have enabled the Republicans to badmouth Washington DC and Congress, to bluster about how they can insist on defaulting on our debts, or about shutting down the government.

This has allowed Republicans to develop an increasing tolerance for avoiding basic political realities. Now, the Republican Party has snapped its moorings. Now, they have to dig out of the hole they have spent time and effort digging, all the while “supported” by the Democrats.

There are two possible outcomes. First, the Republicans could elect a Speaker that they agree to follow, but that seems to be the opposite of what the Republican Revolutionaries want, which is a Speaker who will follow their demands. The link details the 21 demands of the Freedom Caucus, including that the Speaker candidate must agree to shut down the government until some of the legislative achievements of the Obama Administration are repealed. Otherwise, the Caucus will deny their votes to that candidate.

The second possible outcome is a bipartisan coalition that will keep the government open and pay our bills.

Since we definitely need to do that, then that coalition should elect the next Speaker. Given the makeup of Congress, that Speaker ought to be a Republican. But for Democrats to enter a coalition, they need to extract concessions: The Republican Speaker needs to bring some Democrats onto the leadership team, demoting recalcitrant Republicans.

We could be at a turning point in the House’s process. It has been a two-party place for most of its history, with the majority party electing the Speaker. But there was a four-party stalemate of the House during the Eisenhower administration. The Democrats split along FDR/Farm-Labor/Dixiecrat lines, while the Republicans were split between the Old Guard Republicans who supported big business and dismantling the New Deal; and the Modern Republicans, who supported individual freedom and the market economy, but thought the government should provide necessary social welfare assistance.

That split was the start of the modern conservative movement’s push for ideological purity, that push and the Democrats’ recent enabling has given us the three party split we now see in the House of Representatives.

The Republicans could elect a Speaker at any time, and restore the two-party process.

Otherwise, we could be in a three-party scenario that might function like a parliamentary system, with occasional votes of “no confidence”, and the formation of a new coalition that elects a new Speaker, and then, new committee chairs.

If a coalition happens, it will happen because the Republicans realize that they cannot elect a Speaker on their own who hasn’t promised to deliver a global economic catastrophe in early December when we have to raise the debt ceiling.

Interesting times, eh?

Pope Francis on Capitalism

With the Pope starting his visit to the US, most focus will be on Conservatives’ support for the Catholic Church’s views against abortion and gay marriage. Conservatives are far less enthusiastic about Francis’ views about climate change and capitalism, both of which are covered in Pope Francis’ encyclical, Laudato Si’.

While the Wrongologist has not read Laudato Si´, he did read an extensive and thoughtful review by William Nordhaus in the NY Review of Books, who says the Pope thinks that the degradation of our environment is a symptom of deeper problems: rapid change, unsustainable over-consumption, indifference to the poor, and the decay of social values.

Nordhaus notes that the encyclical contains an extensive discussion of the features of markets and modern capitalism. It emphasizes dysfunctional tendencies and distortions, witness his criticism of excessive consumption:

Since the market tends to promote extreme consumerism in an effort to sell its products, people can easily get caught up in a whirlwind of needless buying and spending. Compulsive consumerism is one example of how the techno-economic paradigm affects individuals. [Paragraph 203]

And Francis’ criticism of the distorting effect of the drive for profit:

Once more, we need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations? [Paragraph 190]

Nordhaus quotes Francis, who argues that profit-seeking is the source of environmental degradation:

The principle of the maximization of profits, frequently isolated from other considerations, reflects a misunderstanding of the very concept of the economy. As long as production is increased, little concern is given to whether it is at the cost of future resources or the health of the environment; as long as the clearing of a forest increases production, no one calculates the losses entailed in the desertification of the land, the harm done to biodiversity or the increased pollution. In a word, businesses profit by calculating and paying only a fraction of the costs involved. [Paragraph 195]

Francis singles out financiers for special disapproval:

In the meantime, economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment…. [Paragraph 56]

The Pope criticizes capitalism’s push to make ultra-consumers of everyone:

This paradigm [consumerism] leads people to believe that they are free as long as they have the supposed freedom to consume. But those really free are the minority who wield economic and financial power. [Paragraph 203]

Pure capitalism ignores two major shortcomings of those economies run by Mr. Market: The first is the emergence of monopolies, or things like unregulated pollution, which distort market outcomes. The second is inequality of opportunities and income. And much has been written about rising income inequality, particularly by Seitz and Piketty, and Joseph Stiglitz.

However, it would be inaccurate to point solely to the depletion of resources or pollution as major causes of rising poverty. Instead, it is forces such as the labor-saving nature of new technologies like robots, rising imports from low- and middle-income countries, and the capture of our income taxing system by corporations and the wealthy that have distorted our markets.

Specifically, as economist Arthur Okun has written, markets do not have automatic mechanisms to guarantee an equitable distribution of income and wealth:

Given the chance, [the market] would sweep away all other values, and establish a vending-machine society. The rights and powers that money should not buy must be protected with detailed regulations and sanctions, and with countervailing aids to those with low incomes. Once those rights are protected and economic deprivation is ended, I believe that our society would be more willing to let the competitive market have its place.

So, as this week rolls out, expect to hear many voices on the right argue that Francis is an unrealistic economic fool. In particular, expect to hear George Will’s arguments this week in the National Review echoed by the media. Here is a representative quote from Mr. Will: (emphasis by the Wrongologist)

Francis’s fact-free flamboyance reduces him to a shepherd whose selectively reverent flock, genuflecting only at green altars, is tiny relative to the publicity it receives from media…He stands against modernity, rationality, science and, ultimately, the spontaneous creativity of open societies in which people and their desires are not problems but precious resources. Americans cannot simultaneously honor him and celebrate their nation’s premises.

See what George Will did there? He says that climate denialism is pro-science, while belief in climate change is anti-science.

Know the enemy by their arguments.

Too Much Focus on GDP

(Wrongo is back from his project. Regular blogging begins again today.)

In our lifetime, Gross Domestic Product, or GDP, has been transformed from a narrow economic indicator to our universal yardstick of progress. This spells trouble. While economies and cultures measure their performance by it, GDP ignores central facts such as quality, costs, or purpose. It only measures output: more cars, more accidents; more lawyers, more trials; more extraction, and more pollution. All count as success in the GDP equation. In fact, our cumulative real GDP growth since 2008 is 6.9%.

But we need to focus on other yardsticks to understand what is really going on with our economy. First, take a look at the growth in job openings (blue line) vs. growth in hourly wages (red line):

In the past, the two have usually moved in tandem, which makes sense, since the laws of supply and demand should also apply to employment. But since 2011, and most notably in the past year, they have diverged starkly, with wages drifting back to where they were in 2012, while unfilled job openings have skyrocketed: Job openings are now higher than at the height of the tech boom in 2000. And yet, worker’s wages um, suck.

What happened? Perhaps huge numbers of people are now returning to the labor market after years on the sidelines. We know that many people want a job, but stopped searching for lack of opportunities, while many others want more than the part-time work they’ve managed to find. The uneven pace of wage growth shows there is plenty of slack in the labor market. This is supported by Bloomberg’s report that we still need another 2.4 million jobs to reach “full employment”, (5.1%).

So by definition, we can’t be in a tight labor market.

Some of the difficulties driving American job growth are the problems in the global economy. We see low growth in the developed world, coupled with the continuing impact of automation and the movement of much of our remaining manufacturing jobs to low-wage developing nations.

Take a look at another chart, showing the growth in productivity vs. growth in wages:

Hourly compensation grew in tandem with productivity until 1973. After 1973, productivity grew, but the typical worker’s compensation has been relatively stagnant. This divergence of pay and productivity has meant that the majority of workers did not benefit from productivity growth.

This is another way of saying that the economy could afford higher pay, but didn’t provide it.

The analysis confirms that since 1973, the largest factor driving the gap between productivity and median compensation has been the growing inequality of wages. The divergence between wages and productivity we see above, along with increasing concentration of wealth in the very top of the social strata, are not just correlated, they have a causal relationship.

The two charts demonstrate the shift of income from labor to capital. Larry Mishel of EPI notes that from 2000 to 2011, there was a shift from income derived from labor to income derived from capital, accounting for roughly 45% of the gap shown above.

Workers have lost their share of gains in productivity. It was stolen by capital.

Thorsten Veblen distinguished between the Captain of Business, whose focus was on goods production, and the Captain of Finance, who concerned himself with manipulating money. He deplored the replacement of Industry by Finance; and the situation today is far worse than in the early 1900s. (Veblen died in 1929.)

The development of finance since the late 1970s has been near-pathological. It has been essentially unregulated, left free to become an oversized parasite. It has assimilated more and more of our traditional economic activity through “financialization“. The recklessness of that was made clear by its damage to the housing market in 2008, followed by the huge loss of jobs that occurred in its aftermath.

It is that crisis that leaves wages weak today. It is those jobs that we have been looking for the past eight years.

It is well past time to put finance back in its place. The Dodd-Frank law will never be enough, since it continues to allow the very innovations in finance that can take down the financial system, even while pretending to decrease them.

Capitalism has a phenomenal capacity to lift people out of poverty. But it does so at a cost. Capitalism changed before, and it’s time for it to change again. Free markets have existed for thousands of years; capitalism as we now know it, for fewer than 150.

Effective and productive free markets should also provide workers a living wage. If today’s capitalism isn’t the means to that end, it is time to change it.

Monday Wake-Up Call – July 20, 2015

The Wrongologist is like many who tried to read “Gravity’s Rainbow” by Thomas Pynchon back in the day, and could not finish it. However, there is a wonderful thought in the book: “If they can get you asking the wrong questions, they don’t have to worry about answers.”

That thought describes the campaign by those who are against the Iran deal. Get people thinking about anything but the deal, and there is a good chance it will not be approved in Congress.

But this isn’t only a US-Iran deal. Our Congress can’t derail the deal, it can only nullify US participation in it. If that happens, we will be the ones left out. For more than a decade, Iran has been near the top of our Middle East agenda. Along the way, the risks inherent in Iran’s nuclear program have been inflated, in part because it helps drive the prevailing Western view of Iran as a rogue state; in part, because it was crucial to the sanctions regime that the Western countries constructed, and ideally, it might have helped to topple the regime.

This view prevails today in Israel and Saudi Arabia as well as among Washington’s neo-cons, all of whom see Iran as the major source of disorder in the region.

Before getting bogged down in the debate about the deal, stop and appreciate the single most important accomplishment here. We live in a world where nuclear weapons are easy to develop or to purchase, which is a huge potential problem. We must have a non-proliferation program that the international community agrees on and will make every effort to enforce.

What’s key in the Iran deal is that the world united to say that it’s very important that we don’t sit back and do nothing while new countries get nuclear weapons. In this sense, the accomplishment isn’t really specific to Iran. The most significant thing is that we can agree that non-proliferation is the goal, and come together to prevent the spread of nuclear weaponry. If Turkey or Saudi Arabia decide tomorrow that they want a nuclear weapons program, there will be a credible system in place to deter them.

And if blocking Iran from making a nuclear bomb was the real goal, this deal offered the best choice. Despite what Netanyahu and American chicken hawks believe, we cannot eliminate their nuclear program by bombing Iran. The West cannot invade Iran and succeed with that goal. either. If you take Netanyahu and the neo-cons at their word, sanctions won’t work.

So, it is not surprising that the deal’s opponents offer NOTHING as an alternative.

Time will tell if the deal delivers on what it’s supposed to do. Iran has been an implacable foe of the US (and vice-versa) for 36 years, and that isn’t going to change overnight. But there is the real potential for a thaw in the hostile relations between our two countries, and this makes Israel and our (Sunni) Arab friends and enemies very uncomfortable. This deal also gives us a chance to take a look at the mess in the ME within a new paradigm. The old paradigm has not worked. It created a hole so deep that the region is at risk of never being able to crawl out of it.

While our traditional allies are understandably anxious, they’ve come by their anxiety honestly. And, if we take Einstein’s definition of insanity being the belief that doing the same thing over and over again will give you a different result, then our allies and their friends in Congress are insane.

The most prominent arguments against the deal aren’t really arguments at all. The people making them don’t like the deal because they don’t like Iran, and because the deal has some upside for Iran. That is, of course, the nature of deal-making. The chicken hawks don’t want to come out and say they oppose diplomacy in all forms and simply want a war with Iran, so we get their reframing and bluster instead.

Peacemaking has risks. War also brings risk.

The one lesson Americans never ever seem to learn is probability assessment. Our politicians always lock into one factor they are sure will predict the future with certainty.

Well, it’s time for them to grow up. If the Iran deal is a curtain, it is a deal that allows us a good amount of time to figure out what’s behind the curtain.

Behind every curtain is another curtain, the future, and nobody knows what’s back there. So, wake up Congress, debate the deal, but approve it.

Here to help wake them up is #3 in our songs of summer series, here is “Summertime” by Janis Joplin from 1969:

If your daddy’s rich and your mama’s good lookin’, you better not cry.

If you read the Wrongologist in email, you can see the video here.

The Wrongologist

Geopolitics, Power and Political Economy

Category: Transformational Ideas