Tag: Capitalism’s Flaws

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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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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We’re Too Short to be on This Ride

The Daily Escape:

Lion’s Head, Capetown South Africa, viewed from Tabletop Mountain – 2012 photo by Wrongo

A WaPo report said that Donald Trump discussed giving Janet Yellen another term as head of the Federal Reserve, but was concerned that she was too short. He thought that at 5 feet, 3 inches, she just wasn’t tall enough to get the job done.

Wrongo thinks Yellen’s performance was about the same as her predecessor, Ben Bernanke, and her successor, Jerome Powell. Shouldn’t the real question be: Do we know what’s wrong with our economy, and do we have people in place with enough strength and/or courage to fix it? They can also be short, as long as they have ability and vision.

And it isn’t only in the US: (brackets by Wrongo)

Income inequality has increased in nearly all regions of the world over the past four decades, according to the World Inequality Report 2018. Since 1980, the global top 1% of earners have…[garnered] twice as much of the global growth as have the poorest 50%.

More from the World Inequality Report: (emphasis by Wrongo)

Such acute economic imbalances can lead to political, economic, and social catastrophes if they are not properly monitored and addressed….Governments need to do more to keep society fair…Public services, taxation, social safety nets – all of these have a role to play.

We’re seeing a slow-rolling social catastrophe in the US. We’re seeing alienation across class, race, age and gender. We’re divided as never before, with the possible exception of the pre-Civil War period.

Aren’t we all too short to be on this ride?

Central banks play an integral part in the global economy, and their performance (including the Fed’s) during the 2008 Great Recession was for the most part, admirable.

But central banks can only use monetary policy to partially solve issues of economic inequality. The most robust solutions lie in fiscal policy. Fiscal policy is how Congress and other elected officials influence the economy using spending, taxation and regulation.

Take student loans. Many of our university students are simply being led to the debt gallows. Currently, 44.5 million student loan borrowers in the US owe a total of $1.5 trillion. Student loans are the fastest growing segment of US household debt, seeing almost 157% growth since the Great Recession.

From Bloomberg:

Student loans are being issued at unprecedented rates as more American students pursue higher education. But the cost of tuition at both private and public institutions is touching all-time highs, while interest rates on student loans are also rising. Students are spending more time working instead of studying. (Some 85% of current students now work paid jobs while enrolled.)

Student loan debt has the highest “over 90 days” delinquency rate of all household debt. More than 10% of student borrowers are at least 90 days delinquent. Mortgages and auto loans have a 1.1% and 4% 90-day delinquency rate, respectively,

And if the student loan can’t be repaid, it isn’t expunged by bankruptcy. In fact, students can’t outlive their debt. The feds can garnish social security payments to repay a student’s outstanding debt.

As young adults struggle to pay back their loans, they’re forced to make financial choices that create a drag on the economy. Student debt has delayed marriages. It has led to a decline in home ownership. Sixteen percent of young workers aged 25 to 35 lived with their parents in 2017, up 4% from 10 years earlier.

We are only beginning to understand the social costs of our politics. We are in the midst of a brewing social disaster. And these are self-inflicted wounds, fixable with different government policies. But, most of today’s politicians are too short to get on that ride.

So, how to solve the simultaneous equations of high poverty rates, income inequality and an impending social disaster?

It won’t be easy, and it starts with politicians admitting that our economy doesn’t work for everyone, and that it must be reformed. Then, we can move beyond the tired rallying cries of “more tax cuts” to a capitalism which incorporates a social consciousness that can get people on the track to better paying, and more secure jobs.

An April 2018 study of survey data from 16 European countries found that economic deprivation increased right-wing populist tendencies. Sam van Noort, a co-author of the report said:

Individuals who “feel economically less well-off” were more likely to be attracted by the far right…and radical right respondents are more likely to be male, subjectively poorer, less educated [and] younger.

This will also happen here, unless the voters have determination, and even the short politicians have courage.

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Capitalism Must Be Reformed

The Daily Escape:

Mt. Fuji, Japan at sunset – November, 2018 photo by miles360x

From the Economist:

In 2016, a survey found that more than half of young Americans no longer support capitalism.

One reason that young people have lost faith in capitalism is the exceptional market concentration that has taken place in the US in the past few years. US firms have gotten bigger, often by acquiring their competition. This is true across many markets. Vox reports that: (parenthesis by Wrongo)

Four companies…control 97% of the dry cat food sector: NestlĂŠ, J.M. Smucker, Supermarket Brand, and Mars. According to the report, NestlĂŠ has a 57% (share of)…the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies. Altria, Reynolds American, and Imperial have a 92% market share of the cigarette and tobacco manufacturing industry. Anheuser-Busch InBev, MillerCoors, and Constellation have a 75% share of the beer industry. Hillenbrand and Matthews have a 76% share of the coffin and casket manufacturing industry.

On November 26th, the Open Markets Institute, an anti-monopoly think tank, released a data set showing the market share of the largest companies in each industry. Pulling the data together was a challenge, because the FTC halted the collection and publication of industry concentration data in 1981, during the time of Ronald Regan. Now, David Leonhardt of the NYT has turned it into a table:

As you can see, big companies are much more dominant than they were just 15 years ago. More from Leonhardt:

The new corporate behemoths have been very good for their executives and largest shareholders — and bad for almost everyone else. Sooner or later, the companies tend to raise prices. They hold down wages, because where else are workers going to go? They use their resources to sway government policy. Many of our economic ills — like income stagnation and a decline in entrepreneurship — stem partly from corporate gigantism.

Sarah Miller, deputy director of the Open Markets Institute, told Vox: (brackets by Wrongo)

… [When] you go to the store, you see all of these brands, but guess what? They’re all being operated by the same companies…She called the system a scam economy where competition is an illusion, and choice is an illusion.

The primary issue with corporate concentration is its potential to drive up prices. The fewer sellers, the fewer choices consumers have for goods and services, and thus, there is less pressure for the big competitors to hold prices down.

Even if many consumers don’t immediately realize they are victims of concentration, it’s visible when millions of homes only have one internet provider. Or, when four cellphone providers control 98% percent of the market (Verizon, AT&T, T-Mobile, and Sprint). And if the T-Mobile and Sprint merger plan goes through, there will be just three.

Ultimately, monopolies aren’t just an economic problem. They are also a political one. Democrats believe that anti-monopolism can be a political winner. It’s a way to address voters’ anxiety over high drug prices, digital privacy, and low wages.

We have been at this rodeo before. At the start of the 20th century, we broke up monopolies in railways and energy. In 1984, we broke up AT&T, only to see the “Baby Bells” recombine in the 1990s. We’ve simply stopped enforcing our anti-trust laws over the past 40 years.

Meanwhile, the public has been manipulated to believe that ever larger companies are in their best interests. We celebrate the “right” of large corporations to operate in unfettered ways.

But, Econ 101 shows that the trajectory of a monopoly starts 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 Washington Post.

The required anti-trust laws are already on the books, but interpretation of them has changed over the years under Republican administrations. Eventually, we will have to break up existing giants, like we did before. One obvious candidate is Amazon, a company that will soon dominate the supply chain and all logistics in the US.

Facebook, which has gobbled up Instagram and WhatsApp, may be another candidate.

America is very late in addressing the negative outcomes of free markets, so there’s no time like the present to begin to Make America Love Small Business Again.

Voters need to push for anti-trust enforcement, which can only be done by the federal government. We have to insist that the protection of citizens is more important than protecting the 1%.

Let’s close with this quote from Louis Brandeis: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

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Monday Wake Up Call – August 13, 2018

(Wrongo will be taking the next few days off. He has blog fatigue, and also needs to work on some deferred maintenance here on the fields of Wrong. He’ll be back later this week, unless events require him to jump back in sooner.)

The Daily Escape:

Abandoned house, Wasco, OR – 2018 photo by Shaun Peterson.

We wake up today to Yanis Varoufakis, the former finance minister of Greece’s, review of “Crashed: How a Decade of Financial Crisis Changed the World” by Adam Tooze posted in The Guardian. Tooze is an economic historian at Columbia University in NYC.

This isn’t a review of Tooze’s book, which sounds fascinating. Rather, it’s a meditation on one of Varoufakis’s ideas in his review of the book. Varoufakis says: (emphasis by Wrongo)

Every so often, humanity manages genuinely to surprise itself. Events to which we had previously assigned zero probability push us into what the ancient Greeks referred to as aporia: intense bafflement urgently demanding a new model of the world we live in. The financial crash of 2008 was such a moment. Suddenly the world ceased to make sense in terms of what, a few weeks before, passed as conventional wisdom – even McDonald’s, for goodness sake, could not secure an overdraft from Bank of America!

Tooze focuses on the causes of the Great Recession in 2008, and the implications for our 10-year long economic recovery. He observes that neoliberalism’s mantra about markets had to be shelved to save the US economy: (emphasis by Wrongo)

Whereas since the 1970s the incessant mantra of the spokespeople of the financial industry had been free markets and light touch regulation, what they were now demanding was the mobilization of all of the resources of the state to save society’s financial infrastructure from a threat of systemic implosion, a threat they likened to a military emergency.

We have no idea where the current aporia will take us, particularly since this “moment” has already lasted 10 years, and the hard-won economic progress may be easily reversed. Varoufakis continues:

Moments of aporia produce collective efforts to respond to our bewilderment. In the late 18th century, the pains of the Industrial Revolution begat free-market economics. The crisis of 1848 brought us the Marxist tradition. The great depression produced both Keynes’s General Theory and Friedman’s monetarism.

We are clearly at a point of intense bewilderment. What direction is correct for our economy and our society? The concept of aporia may explain why no real solutions have emerged in the past 10 years.

Tooze thinks that the world economy today is at a similar point to where it was in 1914. That is, we’re headed to a global war based on the competition of the advanced economies for resources (this time, it’s markets, water and energy), while the Middle East is at war, competing to determine which variant of Islam will be transcendent.

Varoufakis thinks we are more likely to be where we were in 1930, just after the crash. Since 2008, like back then, income inequality has continued to grow, and we have a potential fascist movement in the wings. Varoufakis asks if today’s politicians have the vision, or the ability, to corral corporatist power on one side, and the emerging nationalist movement on the other.

We’re into the post-2008 world, one in which the owners of society, the largest corporations along with the international capitalists, portray austerity as our only answer. They stress the need for continued globalization and the upward transfer of wealth via tax cuts as the best chance to survive and prosper after the 2008 crash.

This is global capitalism at work: Continuing to extract all the wealth that it can in every economy with a compliant government.

People are getting near a breaking point. They want a better life, and they want to regain political control. The challenge for capitalists and their politicians is: Can they continue to distract the base, keeping them compliant with corporatism and the financialization of our capital markets?

Capitalism ought to fear nationalism, because a nationalist movement could easily rally the poor and the middle class against Wall Street and corporate America. But, for the moment, capitalism seems to be stirring the nationalist pot. To what end?

Whether a fight against Wall Street and Corporatism will emerge, whether it will evolve into a fascist-style rallying cry remains to be seen.

We’re too early in this iteration of aporia to know or to see where we are going clearly. We need an alternative to today’s global capitalism because the track we’re on could easily turn the world into a gigantic Easter Island-like landscape.

What alternative to today’s capitalism (if any) will develop? Will ordinary people have some say in the alternative?

Stay tuned.

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It’s Past Time To Make Changes To Our Economic System

The Daily Escape:

2011 Art piece by Steven Lambert

Does capitalism work for you? Well, you certainly work for capitalists. The real question is whether capitalism still provides economic security to all of us.

Steve Lambert, the artist who designed the sign, engaged with people across America over a three-year period about whether capitalism was still working. He learned that people were split about 50/50 on the premise:

People usually first react to the piece by falling back on the comfort of abstractions and repeating popular myths. For example, the true/false dilemma is much easier to resolve when the only alternatives to capitalism are presumed to be failed communist dictatorships. It’s also much easier to pretend that the only “true” definition of capitalism is the kind of free-market extreme idolized by thinkers like Ayn Rand and Friedrich Hayek

Or thinkers like Paul Ryan, Mitch McConnell and Donald Trump. Lambert learned that people generally agreed with the concept, assuming “you are willing to work hard, or work smarter”:

I’ve always found the formulation “work hard, work smart” disturbing. When you invert the expression, it implies: if capitalism doesn’t work for you (that is, if you’re poor, out of work or have a demeaning job), it’s your fault. To put it more bluntly, you are lazy and stupid.

If we ignore the fact that until recently, wages have stagnated for decades, and that what most people earn in a lifetime is insufficient to cover a modestly comfortable retirement, maybe you can say that capitalism is working.

We have been told that federal budget deficits impair our ability to grow the economy, or to put food on our individual tables. In fact the opposite is true. This idea makes us believe that our ability to earn a living requires some degree of suffering by other Americans.

As Claire Connelly says: (emphasis by Wrongo)

“We can’t afford it” has been the proverbial comforter of opponents of the welfare state harking back to the Clinton / Blair days….This argument has been used as an emotional crutch for people who don’t want to admit that they’re comfortable with homelessness and unemployment….If their bottom line is stable.

This lie sets us against each other, implying that the well-being of everyone else is a direct threat to our own. And who wins? The beneficiaries of the newly lowered taxes, corporate America and its management teams. More from Connelly:

Do we really want to live in a world….Where most people will be lucky to earn minimum wage, or wait for months to get paid. If at all. A world where we are not entitled either to a job, or an education, or affordable health care or a social safety net?

We are likely to see a $1.3 Trillion budget pass both houses of Congress this week. It is deficit spending run wild. Wrongo knows that both parties believe that deficits don’t matter, and to a great extent, he agrees.

But these deficits are larger than they had to be, due to the massive corporate and wealthy individual tax cuts the Republican House and Senate just passed. And it’s not only the size of the deficits, it’s the mis-allocation of funds by our neo-con overlords.

This is what capitalism has delivered for America: More than 45 million of us (14.5%) live in poverty. In 2016, another 49.5 million Americans were age 65 and older, and half of them (24.75 million) had yearly income of less than $23,394.

That adds up to about 70 million (22%) of Americans.

One idea that is gaining attention is a Jobs Guarantee program. The Center on Budget and Policy Priorities (CBPP) recently released a paper arguing for a national jobs guarantee through a national infrastructure bank. The CBPP plan envisions an infrastructure bank that would fund vital projects and ensure that jobs are well-paid. The government would use this job-creating ability to expand jobs in sectors where the market won’t currently invest, like a national high-speed internet network.

Government guarantees of employment aren’t radical. They aren’t communism, or socialism. We did it before with the New Deal. It reinforces traditional American values around work, and it builds the tax base by taxation on the jobs created. Here’s a final quote from Steve Lambert:

My favorite response to the sign was from a 17-year-old high school student in Boston. She said: “Capitalism can’t work for everyone. If it did, it wouldn’t be capitalism.”

This is where the conversation needs to go: We have to change an economic system that fails so many.

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Capitalism, It’s Not You, It’s Me

There is a meme that has gone global since the early days of the Occupy movement. Here it is as a wall graffiti from Greece that uses the same meme we first saw in NYC in 2011:

Capitalism Lotek

Just kidding capitalism, it really is you.

The artist is a Greek who styles himself as Lotek. The name Lotek is derived from the short story (and later, a film) by William Gibson called Johnny Mnemonic. The story is set in 2021, in a world ruled by corporations. An anti-authoritarian gang that are called Lo-Teks, fight the power. They are in fact not low tech at all, but are high tech hackers. Sound familiar?

Greece is surely a place at war with neoliberalism and free market capitalism. So is it also time for us to reconsider capitalism?

Consider this from Mark Blyth in Foreign Affairs:

An inherent tension exists between capitalism and democratic politics since capitalism allocates resources through markets, whereas democracy allocates power through voting.

The compromises both systems have struck with each other over recent history shapes our contemporary political and economic world. Blyth observes:

  • In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems.
  • Starting in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back.

And today, capital markets and capitalists are setting the rules, and democratic governments follow them.

Some background: Cutting taxes in the 1980s caused government revenues to fall. Deficits widened, and interest rates rose as those deficits became harder to finance. At the same time, conservative govern­ments, especially in the UK and the US, dismantled the regulations that had reined in the excesses of the financial service industry since the 1940s.

The financial industry began to grow unchecked, and as it expanded, investors sought safe assets that were highly liquid and provided good returns: the debt of developed countries.

This allowed governments to plug their deficits and spend more, all without raising taxes.

But the shift to financing the state through debt came at a cost. Since WW II, taxes on labor and capital had provided the foundation of postwar state spending. But, as govern­ments began to rely more on debt, the tax-based states of the postwar era became the debt-based states of today.

This transformation had pro­found political consequences. The increase in government debt has allowed capitalists to override the preferences of citizens:

  • Bond-market investors can now exercise an effective veto on policies they don’t like by demanding higher interest rates when they replace old debt with new debt.
  • Investors can use courts to override the ability of states to default on their debts, as happened recently in Argentina
  • They can shut down an entire country’s payment system if that country votes against the interests of creditors, as happened in Greece in 2015.
  • Citizens United dictates who runs for office in the US, and in many cases, who wins.

Now that the financial industry has become more powerful than the people, should we blindly follow capitalism’s meme as the only way forward?

Free-market rhetoric hides the dependence of corporate profits on conditions provided for, and guaranteed by, governments. For example:

  • Our financial institutions insist that they should be free of meddlesome regulations while they depend on continuing access to cheap credit from the Federal Reserve.
  • Our pharmaceutical firms have resisted any government limits on their price-setting ability at the same time that they rely on government grants of monopolies through our patent system.

To use a sporting metaphor, it’s as if the best football team purchased not only the best coaches and facilities, but also bought the referees and the journalists as well. Those responsible for judging economic competition have lost all authority, which leaves the dream of ‘meritocracy’ or a ‘level playing field’ in tatters.

In our country, the divide between the business oligarchs, the political class and “the people” increasingly appears unbridgeable, marked by hostility and deep distrust. When people are told for a generation that government mustn’t make decisions that interfere with free markets, it is inevitable that people will lose faith in democratic governance, and in government’s capacity to help them solve their problems.

Capitalism in its current form no longer works for the people. We have seen a reaction in the start of movements by Occupy, by Bernie, and by others in Europe.

Remember that the greatest prosperity in living memory in the US came during the brief social democratic moment, in the 1950s and 1960s, when the constraints on business were the greatest.

More democracy and more economic justice are the necessary foundations for the path to a more prosperous, and sustainable economy.

A reformed capitalism must be a part of what emerges from that fight.

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Workin’ in a Coal Mine

American Experience ran a documentary called “The Mine Wars” on January 26th. It told the story of West Virginia coal miners’ battle against mine owners at the start of the 20th century.

Few know that the WV mine workers struggle against the mine owners led to the largest armed insurrection after the Civil War and turned parts of West Virginia into a war zone that required federal troops to pacify.

The battle started in 1920 with a shootout in Matewan, WV. It was triggered by a plan by the United Mine Workers (UMW) to organize Mingo County, where Matewan is located, and the thuggish reaction by mine owners. There is a fine movie that documents this, “Matewan”, by John Sayles.

The town’s union-sympathizing Police Chief Sid Hatfield confronted a group of private detectives from the Baldwin-Felts company who were hired by the coal mine owners. The detectives had come to Matewan to evict the families of unionized miners. The “Battle” of Matewan left seven Baldwin-Felts men dead, along with the mayor and two townspeople.

Some background: Workers were paid based on the weight of the coal they mined. Each car brought from the mines theoretically held a specific amount of coal (2,000 pounds). However, cars were altered by owners to hold more coal than the specified amount, so miners would be paid for 2,000 pounds when they actually had brought in 2,500. In addition, workers were docked pay if rock was mixed in with the coal. Miners mostly lived in company-owned homes, and were forced to shop at company-owned stores.

The UMW started organizing and striking in WV in 1912. When the strikes began, the mine owners used hired guns to inflict plenty of violence on miners and their families.

There is a sordid history of similar efforts throughout the US. Check out the Ludlow Massacre in 1914.

But before WWI, the UMW was unsuccessful in changing working conditions or wages for miners. The US entry into WWI in 1917 sparked a boom in demand for coal, also bringing increasing wages. After the War, demand for coal fell, and so did miners’ wages.

At that time, the largest non-unionized coal region in the eastern US were WV’s Logan and Mingo counties, and the UMW made them a top priority. Mine owners in Logan bought off the Logan County Sheriff Don Chafin to keep the union out of the county. In 1921, after increasingly violent confrontations with the owners and their hired guns, miners moved to fight back.

In August, approximately 5,000 armed union men entered Logan County. Logan city was protected by a natural barrier, Blair Mountain. Chafin’s forces took positions at the top of Blair Mountain, while the miners assembled near the bottom of the mountain. There were skirmishes and deaths. On September 1, President Harding sent in federal troops to break up the battle, and the miners soon surrendered to the feds.

By 1924, UMW membership in the state had dropped by about 50% of its total in 1921.

Mine owners also engaged in a PR campaign that portrayed the UMW as “Bolsheviks”. The Red Scare in 1919-1920 was based on fears that the labor movement would lead to radical political agitation, or would spread communism and anarchism within the country. This sense of paranoia was driven in part by the mining companies.

Does any of this sound familiar? How many red scare equivalents have we had in the last 100 years?

Corporations have always been at war with workers. Here’s the real question: Is it possible for capitalism, by its very nature, NOT to incite a constant battle between the .01% and everyone else?

Probably not. Class is a feature of capitalism, so it follows that class conflict will always be part of capitalist economies. We may find ways to mitigate the effects of that conflict, but it will always be a struggle to do so.

At the same time, we see every day that the interests of private capital are not aligned with the needs of society as a whole. We re-learn these lessons because our public institutions periodically get co-opted by capital. Until private capital’s stranglehold over our political process is ended, it will always try to rig the system.

The miners’ struggle in West Virginia was not just a backwoods conflict. The WV experience has direct relevance to today’s American economy, to today’s capitalists, and to the state of labor in America today.

What happened in West Virginia is an object lesson for what all of America might look like with unfettered corporatism.

Take a look and listen to Lee Dorsey’s 1966 hit “Workin in Coal Mine” written by the late, great Alan Toussaint:

For those who read the Wrongologist in email, you can view the video here.

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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.

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