Lynn Stuart Parramore en Have We Been Denying Our Human Nature for Four Hundred Years? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">A devil called Eurocentric modernism unhinged us from our real wants and needs.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>*Originally published on the <a href="">blog of the Institute for New Economic Thinking</a></em></p><p>Across the globe, a collective freak-out spanning the whole political system is picking up steam with every new “surprise” election, rush of tormented souls across borders, and tweet from the star of America’s great unreality show, Donald Trump.</p><p>But what exactly is the force that seems to be pushing us towards Armageddon? Is it capitalism gone wild? Globalization? Political corruption? Techno-nightmares?</p><p>Rajani Kanth, a political economist, social thinker, and poet<strong>,</strong>goes beyond any of these for the answer. In his view, what’s throwing most of us off kilter— whether we think of ourselves as left or right, capitalist or socialist—was birthed 400 years ago during the period of the Enlightenment. It’s a set of assumptions, a particular way of looking at the world that pushed out previous modes of existence, many quite ancient and time-tested, and eventually rose to dominate the world in its Anglo-American form.</p><p>We’re taught to think of the Enlightenment as the blessed end to the Dark Ages, a splendid blossoming of human reason. But what if instead of bringing us to a better world, some of this period’s key ideas ended up producing something even darker?</p><p>Kanth argues that this framework, which he calls Eurocentric modernism, is collapsing, and unless we understand why and how it has distorted our reality, we might just end up burnt to a crisp as this misanthropic Death Star starts to bulge and blaze in its dying throes.</p><p><strong>A mass incarceration of humanity</strong></p><p>Kanth’s latest book, <a href=""><em>Farewell to Modernism: On Human Devolution in the Twenty-First Century</em></a>, tells the history of a set of bad ideas. He first caught the scent that something was off as an economics student in India, wondering why, despite his mastery of the mathematics and technology of the discipline, the logic always escaped him. Then one day he had an epiphany: the whole thing was “cockeyed from start to finish.” To his amazement, his best teachers agreed. “Then why are we studying economics?” demanded the pupil. “To protect ourselves from the lies of economists,” replied the great economist Joan Robinson.</p><p>Kanth realized that people are not at all like Adam Smith’s <em>homo economicus</em>, a narrowly self-interested agent trucking and bartering through life. Smith had turned the human race — a species capable of wondrous caring, creativity, and conviviality — into a nasty horde of instinctive materialists: a society of hustlers.</p><p>Using his training in history and cultural theory, Kanth dedicated himself to investigating how this way of thinking took hold of us and how it delivered a society which is essentially asocial — one in which everybody sees everybody else as a means to their own private ends. Eurocentric modernism, he argues, consigned us to an endless and exhausting Hobbesian competition. For every expansion of the market, we found our social space shrunk and our natural environment spoiled. For every benefit we received, there came a new way to pit us against each other. Have the costs become too high?</p><p><strong>The creed of capture</strong></p><p>The Eurocentric modernist program, according to Kanth, has four planks:  a blind faith in science; a self-serving belief in progress; rampant materialism; and a penchant for using state violence to achieve its ends. In a nutshell, it’s a habit of placing individual self-interest above the welfare of community and society.</p><p>To illustrate one of its signature follies, Kanth refers to that great Hollywood ode to the Western spirit, “The Sound of Music.” Early in the film, the Mother Superior bursts into song, calling on the nun Maria to “climb every mountain, ford every stream.”</p><p>Sounds exhilarating, but to what end? Why exactly do we need to ford every stream? From the Eurocentric modernist viewpoint, Kanth says, the answer is not so innocent: we secretly do it so that we can say to ourselves, “Look, I achieved something that’s beyond the reach of somebody else.” Hooray for me!</p><p>“That’s our big dream,” says Kanth. “Everyone and everything is a stepping stone to our personal glorification.” When others get in our way, we end up with a grim take on life described succinctly by Jean Paul Sartre: “Hell is other people.”</p><p>Sounds bad, but didn’t Eurocentric modernism also give us our great democratic ideals of equality and liberty to elevate and protect us?</p><p>Maybe these notions are not really our salvation, suggests Kanth. He notes that when we replace the vital ties of kinship and community with abstract contractual relations, or when we find that the only sanctioned paths in life are that of consumer or producer, we become alienated and depressed in spirit. Abstract rights like liberty and equality turn out to be rather cold comfort. These ideas, however lofty, may not get at the most basic human wants and needs.</p><p>What we lack, according to Kanth, is a realistic approach to anthropology, without which our forays into economics, psychology, sociology, and pretty much everything are hopelessly skewed. In his view, the Eurocentric modernist tradition, influenced by the Judeo-Christian idea that we are distinct from the world of nature, seeks to separate us from the animal realm. We are supposed to be above it, immortal, transcending our bodies and the Earth.</p><p>But it doesn’t quite work.</p><p>We may be able to perform dazzling technical feats, like putting a colony on Mars, but we will pay for it by working even harder and longer hours so that a few may get the benefit.  A whole lot of lost time and suffering, and for what? Kanth points out that the Bushmen do not have a Mars rocket, but they do have a two-and-a-half-day workweek — something that most modern humans can only dream of. What’s more significant to the lives of most of us?</p><p>“We have become unhinged from our own human nature as heat-seeking mammals,” says Kanth. “What we really crave is warmth, security, and care — the kinds of things we get at home and in close social units.” Our greatest human need, he says, is something far more humble than launching rockets: we want to huddle.</p><p><strong>Why we don’t need utopias</strong></p><p>Utopian dreamers have often longed for a more hospitable way of living. But Kanth believes that when they look to politics, economics or philosophy for answers, they are missing the best inspiration:  human anthropology. The key is not to project ourselves into the future, but to learn from the practical, beneficial ways humans have lived in the past and still do, in some cases, in the present — places where our worst instincts are contained through affective reciprocities, goodwill, and care.</p><p>Kanth thinks what we’d much prefer is to live in what he calls a “social economy of affections,” or, put more simply, a moral economy. He points out that the simple societies Europeans were so moved by when they first began to study them, conjuring images of the “noble savage,” tended toward cooperation, not competition. They emphasized feeling and mutual affection. Karl Marx got his idea of communism from looking at the early anthropological studies of simple societies, where he was inspired by the way humans tended to relate to each other.</p><p>“Today we are taught to believe that society doesn’t owe us a living,” says Kanth. “Well, in simple societies they felt the exact opposite. Everybody owed everybody else.  There were mutual ties. People didn’t rely on a social contract that you can break. Instead, they had a social <em>compact</em>. You can’t break it. You’re born with it, and you’re delighted to be part of it because it nurtures you. That’s very different from a Hobbesian notion that we’re all out to zap each other.”</p><p>Kanth points out that you don’t have to just look to the Bushmen or to Aboriginals for examples: you can find them in America and elsewhere in networks of women and workers, as well as traditional and tribal societies that have carried on the tradition of a moral economy.</p><p>Women, he emphasizes, have retained the instinct to nurture because the human child is especially vulnerable compared to the young of many animal species. They have to create peaceful, nurturing conditions or the human race can’t survive.</p><p>“There is no other fount of social morality itself,” says Kanth. He faults Eurocentric modernists for centering on male aggression and taking it to represent everybody, which is unfair.</p><p>As Kanth sees it, most of our utopian visions carry on the errors and limitations born of a misguided view of human nature. That’s why communism, as it was practiced in the Soviet Union and elsewhere, projected a materialist perspective on progress while ignoring the natural human instinct for autonomy— the ability to decide for ourselves where to go and what to say and create. On the flip side, capitalism runs against our instinct to trust and take care of each other.</p><p><strong>So what do we do?</strong></p><p>Kanth, like many, senses that a global financial crisis, or some other equivalent catastrophe, like war or natural disaster, may soon produce painful and seismic economic and political disruptions. Perhaps only then will human nature reassert itself as we come to rediscover the crucial nexus of reciprocities that is our real heritage. That’s what will enable us to survive.</p><p>Hopefully it won’t come to that, but right now, we can learn to “step out and breathe again,” says Kanth. We can “reclaim our natural social heritage, which is our instincts for care, consideration, and conviviality.” Even in large cities, he observes, we naturally tend to function within small groups of reference even though we are forced into larger entities in the workplace and other arenas.  There, we can build and enrich our social ties, and seek to act according to our moral instincts. We can also resist and defy the institutions that deny our real humanity. Rather than violence or revolution, we can engage in “evasion and disobedience and exile.”</p><p>We had better get to it, he warns. To put it bluntly, Eurocentric modernism is not compatible with human civilization. One of them has got to go.</p><p> </p><p> </p><p> </p><p> </p> Fri, 10 Mar 2017 07:51:00 -0800 Lynn Stuart Parramore, AlterNet 1073630 at Visions Belief Books Culture Economy Sex & Relationships Visions World modernims human nature anthropology war economics biology morally sexism catastrophe social institutions freud Homo Obnoxious: Is Toxic Masculinity Really Taking Over the Country? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Maybe the real problem is a lack of positive paths to manhood.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>It wasn’t supposed to turn out like this. We were said to be approaching the demise of a certain type of swaggering, predatory masculinity: let’s call him Homo Obnoxious.</p><p>As men like Roger Ailes, Bill Cosby, Anthony Weiner, and Billy Bush scrambled unsuccessfully to find cover in the old-boy bastions of privilege, Homo Obnoxious appeared to be lumbering around like a dinosaur under the weight of his own cultural baggage. His habitat was shrinking: it seemed as if men who defined themselves by devaluing women, putting down men who didn’t think like them and treating sexual relations — and most everything else — as power-tripping performances might be ready for mounting in a Museum of Masculinity Past.</p><p>Books like Hanna Rosin’s <em>The End of Men</em> hailed an era in which women, and men of a different mold, would rapidly pull ahead in every arena. In <em>The Future of Men: Masculinity in the Twenty-First Century</em>, Jack Myers heralded a seismic shift in human relations. “We are entering a new age of female dominance and a reshaping of the male psyche, the male libido, and the male ego,” Myers wrote. “This is the new reality, and it will gain greater and greater momentum. Nothing in the history of humanity can prepare us for this newly upside-down world.”</p><p>Reality check: Homo Obnoxious is moving into the White House. The world is upside-down, but not for the reasons Myers anticipated.</p><p>The president-elect is signaling to boys across the country what it means to be a successful man. He gets more thuggish with each passing day, appointing knuckle-dragging members of his tribe to run the country. Meanwhile, alt-right dudes who cope with masculine anxiety by proclaiming superiority over women and people of color are feeling validated, enjoying influence they could hardly dream of a year ago. As one self-identified "neomasculine" blogger <a href="">put it</a>, “I’m in a state of exuberance that we now have a President who rates women on a 1-10 scale in the same way that we do and evaluates women by their appearance and feminine attitude.”</p><p>Yikes. But before we concede that toxic masculinity has suddenly reasserted itself as the dominant force in the cultural universe, let’s pause to take a breath. Let’s admit, for example, that although arenas of male experiences differ depending on where you live and how much money you have, Homo Obnoxious was never just a creature of any one party, class or region. The truth is that he is nurtured at every stage of an American boy’s journey into manhood, and without trying to understand what our society does to promote his development and how boys and men might be persuaded to reject his allure, he will continue his rampage across the land.</p><p>Let’s take a look at three breeding grounds where Homo Obnoxious cuts his teeth.</p><p><strong>The playground</strong></p><p>So many have a story like mine. It was a day soon after I had transferred to a new public high school in North Carolina. Two popular senior boys — baseball stars on a winning team — approached me across a crowded stair landing. I smiled, then felt rough hands shove me against the wall as the two sang obscene lyrics in my ear. That was not the last or the most violent encounter I had with Homo Obnoxious-in-training during my education.</p><p>Aggressive misogyny, of course, permeates many school sports teams, as the <a href="">recent case</a> of the men’s soccer team at Harvard illustrates. There, at America’s most hallowed university, a spreadsheet compiled by male players portraying members of the women’s team in degrading sexual terms was brought to light. A student <a href="">explained</a> the commonplace nature of the behavior to the <em>New York Times: </em>“I think Donald Trump is so extreme that we like to believe that these extreme incidents of sexism and discrimination are, like, isolated to him,” he said. “But it’s important to recognize that they’re just as rampant in our generation.”</p><p>Responding to recent <a href="">revelations</a> of decades-long sex abuse by both faculty and students at St. Georges, a New England prep school where Billy Bush was an ice hockey star, a former student described the warped sexual atmosphere and lack of guidance from adults in a <a href="">letter</a> to the rector of St. Paul’s, another elite prep school where a tradition of <a href="">predatory sexual competition</a> bred danger:</p><p>“I went to St. George’s School in the '80s and am a heterosexual, success-oriented, competitive guy. I remember being self-conscious about my not getting any action while some of my male friends got tons. I felt less-than, like a loser when it came to girls and sex…Nowhere in my development …did any adult ever reinforce in me that it is all right to go at your own pace, that sex isn’t competition. The cultural norm was that sex was another place to be competitive, where you could be classified as a winner or a loser.”</p><p>Let’s think about that. When competition is the preferred mode of group interaction, it’s no wonder boys end up stuck with obsessions about the number of their sexual encounters and a tendency to degrade the objects of their pursuits.</p><p>In <em>A Bigger Prize: Why Competition Isn't Everything And How We Do Better,</em> Margaret Heffernan discusses the destructive role that competition plays in American education and how it turns kids off of many potentially valuable collaborative activities. A large percentage end up not wanting to participate anything, including sports, in which being the winner or loser is everything.</p><p>Heffernan points out that if we teach kids that success is all about individual performance, they grow up to be what she calls “heroic soloists.” In relating to others, they tend to focus on what’s in it for them, suppressing the instinct to be generous or share credit or empathy. Our president-elect, steeped in the values of self-interest capitalism and competition in everything from football and beauty pageants to reality TV tournaments, is the epitome of a heroic soloist — one who has been rewarded richly in celebrity, power and money.</p><p>Teaching kids the value of creative collaboration and offering rational guidance on sexuality or gender relations at school has to be a part of cultivating a different path to manhood. American sex education, for example, if it is taught at all, often consists of either shaming abstinence lessons or alarming medical discussions of STDs and pregnancy, with little acknowledgment of the need to develop compassionate ways to express sexuality or the importance of challenging sexual stereotypes in media and culture. It doesn’t have to be that way; in a <em>New York Times</em> op-ed, Pamela Druckerman <a href="">highlighted</a> how topics like the complexity of love are openly discussed in French sex-ed, while Dutch teachers work to inculcate respect for people who don’t fit traditional sexual and gender molds.</p><p>If they don’t have blueprints of masculinity that allow for confidence and strength without domination in the playground and in the classroom, boys grow up thinking that a hero is somebody who is in everything solely for himself. This does not mean that we send male students to re-education boot camps, as certain right-wing pundits have warned is the true agenda of coastal elites. It means that adults take it upon themselves to guide students, whatever their sexual orientation or gender identity, in imagining ways of being men that are not destructive to themselves and others. It means not shaming them because they are male, but rather encouraging them to develop pride in characteristics and values that are socially beneficial, like putting others before themselves, honesty and strength in caring and self-restraint. That would be a start.</p><p><strong>The campus</strong></p><p>When I arrived at the University of Georgia in 1988, a sophomore from my hometown issued a helpful warning not to ever hook up in a certain popular fraternity house. The guys, I was informed, videotaped girls through holes in the walls and watched the tapes together on Sunday morning. This foreshadowing of the age of digital shaming and abuse was my introduction to the group norms associated with Greek life. Some misogynist rituals were performed under the radar, but others were out in the open and normalized, from parties where lists trashing women in sexual terms were posted on walls to “mixers” with sororities in which fraternity guys inscribed phalluses and misogynist phrases on the T-shirts of freshman girls.</p><p>There is nothing wrong with guys wanting to hang out, share common interests and form lasting social bonds with one another. But as young men begin to leave home, there aren’t enough opportunities for them to do this in a way that breeds healthy, socially responsible attitudes and behavior. Beyond the sports field, college fraternities are another place where antisocial activity is too often the norm, a lot of it targeting women. The “Animal House” frat image grounded in the degradation of women, based on fraternity life at Dartmouth in the 1960s, has been ascendant for decades, linking manliness to out-drinking peers and egging them on in sexual exploits. (Was Donald Trump in a fraternity? Of course: he was a <a href="">Phi Gam</a> at Fordham.)</p><p>The negative image is based in reality. On alcohol consumption, a U.S. Department of Education's Higher Education Center survey shows that 75 percent of fraternity members <a href="">engaged</a> in heavy drinking, compared with 49 percent of other male students. Some — including many college presidents — have <a href="">argued</a> that since the drinking age was raised to 21, alcohol consumption has gone undercover, causing students to associate drinking with transgression and pushing it far from the supervision of older adults and more open social events. Lowering the drinking age, they suggest, might bring alcohol back into a more normalized atmosphere where students mix with older adults in supervisory roles, thus obviating the need for secretive binge-drinking and its attendant hazards and regression.</p><p>Some say fraternities should accept girls, and in a few cases, colleges have banned frats altogether, <a href="">arguing</a> that they are obsolete. At Amherst in Massachusetts, where fraternities were prohibited in 2014, students and faculty have <a href="">discussed</a> ways to create social groups that get rid of some of the destructive things associated with fraternities while providing the cohesiveness and sense of belonging that make them attractive, like residential communities with selective membership centered around a particular theme.</p><p>This is all well and good, but how likely is it to spread into regions of the country far flung from elite coastal universities? Places where fraternities have emerged as a way of attracting less affluent students to college with the promise of bonding and bacchanalia, to be translated into fundraising dollars after graduation?</p><p>College men — and young men who don’t go to college —need to have positive narratives that allow them to feel good about being men and being men together. Challenging sexual assault is important, but they need to learn much more than “no means no”: they need guidance in emotional honesty and intimacy, the challenges of navigating relationships and masculine ideals to strive for in which cultivating large numbers of women as hookups and drinking into oblivion are not the marks of masculine status. Beyond this, they need to see that life offers them more than the prospect of being a loser in the workforce that awaits them when schooling is done, and they also need opportunities to see that work in areas like caregiving, for example, are rich in positive masculine values. When a male nurse can be viewed as stronger and sexier than a Wall Street parasite, we will have gotten somewhere.</p><p>Popular culture reflects a hunger for a vision of masculinity that rejects Homo Obnoxious. Jesse Pinkman, the young meth cook in the TV series <em>Breaking Bad</em>, illustrates the despair of recession-era young men without decent job prospects who search for status, meaning, and self-worth. There’s a lot wrong with Jesse, but in his evolution as a character we see his growing resolve to form intimate, caring bonds with the women in his life and the men in his posse, too. The blockbuster franchise <em>Fast and Furious</em> shows the <a href="">need</a> for even the most testosterone-driven men — racecar drivers in this case — to develop respect and lasting relationships with the men and women in their social group.</p><p>These fictional guys hunt for alternatives to a brutal, global capitalist system that casts them as losers. They want to find the dignity that dissolves when we mire them in student debt, consign them to dead-end jobs and say, Oh well, globalization happens. If we continue to do this, they will bond together in ways that can quickly become dangerous to society as a whole, and they will look for outsider narratives that offer something more that the empty promise of upward mobility currently on offer from politicians who think that the paltry social safety net and worker protections currently in place are over-generous (politicians from both major parties). Sometimes, in the case of the white supremacist groups that have begun to creep out of the woodwork, that something will be very scary.</p><p><strong>The internet</strong></p><p>There has been a lot of recent research on how online porn and video games are helping to inculcate alienation and destructive patterns in boys and young men. Stanford psychologist Philip Zimbardo's book <em>Man (Dis)Connected): How Technology has Sabotaged What it Means to be Male</em> provides insight onto how Homo Obnoxious gets his brain wired.</p><p>Zimbardo discusses how young male brains can become shaped at a cellular level in ways that inhibit their social development through excessive time spent on gaming and porn, even losing their ability to read the social cues of face-to-face contact. Many, he points out, are drawn to these realms as a seemingly safe and easy way to gain a sense of achievement that may not be available in the winner-take-all competition of school and the workforce. These virtual worlds are tailored to provide an addictive system of goals and rewards that produce guys who are afraid of intimacy. They end up eschewing real-world experiments that might result in rejection, and real-time spontaneity that leaves them disoriented and frightened. Drained of self-confidence, they search for narratives of manhood that provide at least the simulacrum of power and dignity.</p><p>Some go on to find self-help, intellectual and political forums online collectively termed “the manosphere.” Some of this has merged with the recently designated "alt-right.” In the more benign forums, we find guys like mild-mannered Brian Begin, co-founder of Fearless Man website, who invites guys to join a brotherhood of men who have learned the secret of confidence and self-love. A shy video gamer who found himself working in a miserable office cubicle and unable to talk to women, Begin eventually threw away his games and launched a self-help journey that revealed to him he needed to learn to “feel” — to experience emotions at a deep, visceral level and connect to others despite fear of rejection. Although Begin’s quest for dignified masculinity rests in part on the fantasy of making piles of money and dating beautiful women, his hunger for self-esteem and the experience of genuine emotion seems real, as does his impulse to see women as something other than a collection of body parts. He doesn’t want to be a nervous “beta” male, and while much of his rhetoric is traditionalist and half-baked, he is on to something in pointing to the critical need for connection. In his workshops, the first thing he does is to hug the men who participate.</p><p>Unfortunately, much in the manosphere openly promotes the far more noxious stuff, like sexual predation in the pickup community, where guys give each other creepy tips on “mind-controlling” women and duping them into sex. Other sites, like Mensactivism, boil with anger at feminists and take a paranoid stance against what they imagine is an epidemic of false rape claims and women who will take advantage of them at every opportunity. Mensactivism buzzes with articles like “Men are the downtrodden sex” and blogs expressing hope that a Trump presidency “could radically change colleges’ response to sexual assault.” In these sites, loneliness and fear are vented as rage — the rage that comes when people don't know what to do with their suffering.</p><p>Yet for all the bluster and bullying on such sites, you don’t have to dig far to find clues to what is bothering these young men so profoundly at their core. The blogger who likes Trump’s rating system for women <a href="">asks</a> a series of questions in a meditation on so-called neomasculinity, which despite its name, is mostly a throwback to outdated myths of male superiority: “What code of morality or principles should guide men in their daily lives? Is there a deeper life meaning that can help us set better goals?” The answers he comes up with may be bitter and sad, but the questions themselves are not stupid, and they point to a lack of compass to give direction. Online, the lost boys find each other, making up the missing codes themselves out of a mixture of bravado, hurt and bitterness.</p><p><strong>The road ahead</strong></p><p>When I sat down to write this article just after Trump’s election, I felt angry and confused swallowing the reality that the country is going to be led by a man who brags about sexual assault. But gradually, I’ve come to feel something else, a sense that the Trump election may in part be a sign that a giant population of American men — particularly the Trump voters but also men across regions and classes — are in turmoil, and that most are looking for a way out. If we simply shout them down and disparage them, we can be pretty sure that the worst among them, the already-committed members of Tribe Homo Obnoxious, will gain strength, not lose it. Some are likely already too far down the road of hate for redemption, but I believe these are a small minority. The rest are struggling, watching, looking for signs, searching for stories that might give them a sense of a more positive path ahead.</p><p>Over Thanksgiving, I attended Sunday services at a conservative Southern Baptist megachurch in Raleigh, North Carolina, partly because I wanted to hear and see for myself what men in that context were thinking and talking about it — men who were the most likely in town to have voted for Trump. If I were to believe the assumptions of some of my liberal friends in New York, where I currently live, they would be spewing racial hatred, misogyny and homophobia — a seething collection of “toothless rednecks,” as one New Yorker put it on my Facebook page.</p><p>That’s not what I heard. The sermon was delivered by a young minister with the demeanor of a kindly basketball coach, one who was not afraid of emotions and wept at times as he spoke. His message, it seemed to me, was tailored to deliver balm to the heart of hurt manhood. God was the benign father and Christ was a brother — even a lover — who valued those gathered so deeply he would give his life for them. Men were presented as the ones who went out into the world while moms stayed home, a 1950s trope to be sure, but they were also asked to give up their self-centeredness, their narcissism. The minister urged them to see power as something that could be used to confront their own shortcomings, to serve and protect others. The solo adventurer was not vaunted here. Trump was not the emblem of the kind of masculinity valued here.</p><p>As much as I reject his outdated gender framework, the minister appeared a man with whom I shared some basic concerns—about the allure of consumerism, for example. He was not an alien, but a person trying to confront the ills of modern society, many of which bother me as much as him, though our emphasis and answers are different.</p><p>Men are confused, and how could they not be? Ever since the 1950s brought women into the workforce en masse, and the Pill released them from reproductive shackles in the ‘60s, a profound change in human relations has been happening in painful fits and starts. In the grand scheme of history, a few decades is an incredibly short amount of time to adjust to such a cataclysm. No wonder we’re still flailing about trying to figure out how to cope. Identity, expectations, culture and hormones are a complex dance. Social construction is a dynamic process, and hardly linear.</p><p>And let’s face it: Hillary Clinton’s election was not likely to bring a great gender renaissance in America, or any kind of renaissance for that matter. If Clinton were on her way to the White House, there is much reason to believe that ordinary men — and women— would see little improvements in their lives. That would be the case as long as those in charge are stuck in paradigms of dysfunctional capitalism and neoliberal blindness. Anger would continue to fester, and many working-class white men, in particular, would become even more entrenched in their reactionary rage.</p><p>As America’s boys see Trump acting out, some will feel their own worst instincts validated. But for others, the idea of “being a man” might mean distancing themselves from his kind of behavior. I do believe that men—and women—are less likely to assert power by denigrating and dominating others when they have a sense of real agency in their lives. It may not be helpful to talk about the end of men, or the rising dominance of women, but rather to remember that for all of us—men, women and transgender—our ability to manifest prosocial behavior depends a lot on having a sense of power and purpose in our lives. Growing inequality, the gig economy, strangling oligopolies, widespread poverty, a shrinking middle class, and government policies geared to appease the rich do not promote this outcome.</p><p>For those who reject Donald Trump, figuring out how to achieve a better life for everyone in our society instead of condemning “deplorables” is, in my opinion, a more productive way to go. The co-creation of a more peaceful and fulfilling world requires our most dedicated efforts in imagination, connection and listening to those who do not share our particular vision. Homo Obnoxious will only have the last word if we forget our common humanity.</p> Sun, 25 Dec 2016 15:05:00 -0800 Lynn Stuart Parramore, AlterNet 1069311 at Culture Culture Economy Election 2016 News & Politics Sex & Relationships The Right Wing masculinity trump hillary clinton misogyny the internet fraternities college sports Deplorable Is There a Historic Economic Shift Underway? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Global elites can&#039;t count on business as usual.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This interview was originally published on the <a href="">Institute for New Economic Thinking blog</a>.</em></p><p>Milwaukee-born Jim Chanos, founder and managing partner of New York-based Kynikos Associates, teaches University of Wisconsin and Yale business students about corporate fraud. During his life and career, he has witnessed seismic shifts in economic thinking and the relationship between labor and capital. Chanos shares his thoughts on the world emerging from the election of Donald Trump and the tumultuous political events of 2016.</p><p><strong>Lynn Parramore: Leading up to the election of Trump, we had eight years of Obama, and before that, eight years of Bush. Before we get to the president-elect, how do you assess the records of those past presidents in terms of basic policing of markets and corporate fraud?</strong></p><p>Jim Chanos: Bush was the MBA president who was going to be pro-business, cut taxes and deregulate. Meanwhile, he had two recessions on his watch, less employment than when he started, and two bear markets in the stock market — probably the worst president for business since Herbert Hoover. The business guy!</p><p>Yet, he did tighten up the Justice Department and go after corporate crime. The Ashcroft Justice Department, as bad as it was in lots of other things, went after corporate fraud and accounting fraud, criminally. In 2002, we got Sarbanes-Oxley to curb fraud.</p><p>I don’t know that all this was Bush’s predilection — remember, his biggest supporter was Enron. But because of Enron and the other scandals, he got backed into a corner to go hard on them. I’ve joked that the only person who put more corporate executives in jail than George W. Bush was his father during the savings-and-loan crisis.</p><p>On these issues, I’d rather have Bush any day of the week than Obama. Both Eric Holder and Lanny Breuer of Obama’s Justice Department said in TV interviews and testimony that they factored in non-judicial aspects as to whether to mount prosecutions. I think that this had political costs to the Democrats. The crony capitalism still bothers people — the idea that Wall Street got off scot-free and they are still struggling. That lack of justice applied equally under the law was corrosive, not necessarily for Obama personally, but certainly for the party following him.</p><p><strong>LP: How do you see a Trump presidency in this light?</strong></p><p>JC: You and I have <a href="">talked</a> about how it has become a cost calculus for lots of corporations and financial institutions to cheat. If I get caught, they say, I’m just going to pay a fine. How does this change with new faces in Washington? You still have this very pro-corporate group on Capitol Hilll whose main bailiwick, in my opinion, is to protect the corporate class and the very wealthy. You’ve got what ostensibly is a proto-populist in the White House with a cabinet that is a mélange of different types, so who knows?</p><p>In my overall view, stuff happens to change people. If we go back to Bill Clinton, his “Putting People First” manifesto in ’92 was quite left-of-center, but he didn’t govern that way. If you look at things like NAFTA, welfare reform and cutting capital gains taxes  — well, in many ways, Ronald Reagan would have been proud of him.</p><p>Events conspire to derail our perceptions of presidents. When we look at their platforms, we think we know where things are headed. But in modern times, the only two presidents that I can think of who really got their ideas and platforms enacted wholesale were FDR and Reagan. Everybody else has gotten compromised, or has had events overwhelm them.</p><p><strong>LP: What do you make of the expectations of the economy under Trump?</strong></p><p>JC: I worry about the heightened expectations from the people who voted for him thinking that he’s their savior. That’s what scares me — unmet expectations. For the swing voter in the Midwest who voted for this guy because he thinks coal mines are coming back or the plants are going to reopen — it’s not going to happen.</p><p><strong>LP: What about the rise in bank stocks since the election? Are banks anticipating deregulation?</strong></p><p>JC: Almost all stocks are going up, mostly because of the belief of lower taxation. But after Obama’s election, most stocks went down and kept doing down until the following March — and then they tripled! So I wouldn’t read a lot into the first month or two.</p><p>It could be that banks are anticipating deregulation, but so what? Deregulated to what end? They’re still going to have the capital requirements, which are international. Putting capital standards on them is the biggest way in which they were regulated.</p><p>In the bigger picture, if you think this is an uncertain presidency and we’re not quite sure where he’s going and how events will conspire, it’s not that important to get too worked up because things will happen and you’ll have to react. If, however, this is a once-in-a-50-year change in global thoughts about capitalism, then you have to pay attention.</p><p><strong>LP: If this is a once-in-50-year change, what’s at stake?</strong></p><p>JC: Part of my view is that in the 1930s, we rejected the individuality of the ’20s and before. After the crash and the Depression, we finally put the corporate class and bankers to the sidelines. Whether it was Keynesianism or the New Deal in the West, or state fascism or the advent of Stalinism, you saw more government control over the economy. This was good for workers and large governments. It was more nationalistic and led, obviously, to the next conflict. But the rise of government planning and government involvement was good for nominal GDPs. It was not good for the asset-holding classes—stocks and bonds did terribly over that period, right? You wanted to be a worker, you wanted to be labor, not capital.</p><p>The period from the late 1970s to 1980 changed all that. You had Thatcher and the U.K. and Reagan in the U.S. Mao died in 1976, the Solidarity movement in Poland began in 1978, and the Soviet Union peaked in power in 1979. You saw that the pendulum had gone too far and now we’re going to cut taxes on capital, we’re going to be more globalistic, and trade was going to improve. Since then, capital has risen and assets have done better than labor. Taxes have been light on financial assets and heavy on labor. Everything was reversed on its head.</p><p>If we look at the events of 2016 — Brexit, the Italian referendum, Trump, and the rise of nationalist China — are these the harbingers of something bigger? Or are they just a coincidence? The ground seems to be fertile for things to change globally. If so, does this give rise to a more nationalistic, protectionist, statist scenario? Are labor prices going to go up again? Are we going to tax capital and emphasize wages?</p><p>We’ll see.</p><p><strong>LP: Going back to Trump’s promise to bring jobs back to the U.S. — can the government even do that?</strong></p><p>JC: In the case of the ’30s, you had massive public works spending and government spending, so you created construction workers. But on that front, we’re not going to compete anymore, as the Carrier guy said. Mexican labor is $3 an hour. No amount of retraining for a lower-skilled assembly job is going to change that. The only thing that will replace that Mexican worker himself is a robot. And a robot is infinitely cheaper than even the cheapest labor.</p><p>Surveys show that there are jobs open in the economy, but there’s just not a skill level to fill all of them. Our problem is the displacement in things like mining, assembly, low-end manufacturing – that’s where the job losses have occurred. It is just very hard under almost any scenario no matter what your politics are to see where those jobs are going to come back.</p><p>To the extent that you have wholesale, large, construction-like projects, then you will put people to work at relatively high rates, but the jobs are episodic and not necessarily career paths. When I was making $14 an hour working steel in Milwaukee in the summers in college, a steel worker could basically say, “all right, as long as I understand that I’m going to work in this factory, I can have a nice living for my family.” Those jobs are gone. The plants closed. So the whole idea that someone can now say, “I can work in the Carrier plant for $20 an hour and be assured of a job for life and security and put my kids through college” — that doesn’t exist anymore.</p><p>That’s where the problem and discontent will come — when you’ve sold that dream and it doesn’t happen. In that scenario, Trump begins to have a pretty short honeymoon.</p><p><strong>LP: You’ve long been linked with China. What do you make of the positions of China and the U.S. in the international economy, and how do you think they’re changing?</strong></p><p>JC: To me, the rise of Xi Jinping is a big event still underestimated in the global political economy. He is more of a personality than either Deng Xiaoping or Mao Zedong, certainly higher in stature internally than his predecessors. He is not first among equals in the Politburo Standing Committee — he’s first. This goes along with the theory about the rise of nationalists such at Putin in Russia. Xi Jinping is also a nationalist. He talks about the China Dream, China getting back to past glories, and not exporting communism. What you would have heard Mao say.</p><p>He’s a member the Chinese Communist Party, but the Party exists now as a political apparatus, not an ideology. China would not have the type of capitalism it has today if this were not the case. So these are not Marxist-Leninists, but rather just a fantastic single party in control. We have to understand it in that light.</p><p>China is increasingly a geostrategic rival. In the past, China looked toward protecting what it had — making claims on Taiwan and Tibet and ancillary areas, but the Chinese were really content not to compete in the global Cold War between the Soviet Union and the United States. Now we have this multi-polar world, and China sees itself clearly as the prime actor in the Pacific willing to fill any vacuum that the United States begins to pull away from.</p><p>Xi Jinping comes in and immediately he rewrites the passport maps. He sets the air traffic and extends the air defense zones. More ominously, he begins to militarize the South China Sea, and puts military bases on the islands, which alarms pretty much everybody. (And yet if you look at a map of the Pacific, the only country that really needs to traverse the South China Sea is China itself —oil going from the Middle East to Japan goes around it. The South China Sea is symbolic more than it is geostrategic).</p><p>I think, however, that Trump has decided that China makes a convenient media punching bag. You can claim that China took your jobs and China is a bogeyman. It seems to me that president-elect Trump does best when he has someone to fight against. However, the broader issue will be that foreign policy and national security events have a whole different dynamic than beating up on a defense contractor for an air conditioning plant.</p><p>What will be the ramifications? How will China react? What do you do about countries like the Philippines that are in the middle — a country that has elected its own interesting president, someone who seems to want to embrace China after decades of being staunchly a U.S. ally? What does this do for Japan? Japan itself has a nationalist, Shinzo Abe, who wants to increase military spending and take off the yoke of the Japanese constitution block on an expanded military.</p><p>There are many questions, but whatever you might think, China and Japan, while big trading partners, are not the best of friends in that neighborhood. Finally you’ve got the wacky guy in North Korea. What’s he going to do?</p><p>This whole area just keeps quietly but relentlessly getting to be more dangerous. I think that at some point in the first four years of the Trump administration, the Pacific is going to heat up again.</p><p>People are talking about starting a trade war with China but they haven’t really thought it through, because if you talk to corporate execs in the United States, they’re sort of quietly terrified. Often the supply chain, even in U.S. manufacturing, relies on parts from Mexico and China coming in. We are pretty interconnected. Lots of businesses, and workers, too, will get disrupted in ways we can’t even think of in a trade war. There’s a reason why people studied the 1930s with the tariff walls that went up and the disruptions that happened. It’s negative for growth.</p><p>So stay tuned, it’s going to be interesting. </p><p><strong>LP: To turn to Europe, you’re a Greek-American, and you have been critical of the Eurozone’s attitude toward Greece. What do you make of the situation there now?</strong></p><p>JC: The key issues for Greece now revolve around two entities that are not Greek. First you have the EU as a whole. We continue to have these bombshells, like the Italian referendum and Brexit — and you’ve also got elections coming up elsewhere in 2017.</p><p>I think Greece was sort of the Spanish Civil War to what’s about to be the EU’s WWII in that it was the opening preview of all of the problems that are going to come to the fore if Catalonia wants to become independent, if Italy wants to leave, if France wants to leave. The EU is being held together by chewing gum and string right now.</p><p>With this rise of nationalism  — if that’s what it is and it continues — the EU is going to find itself increasingly a victim of people wanting self-determination in northern Europe. That’s the first thing. Second is something I’m much more concerned about which nobody’s paying attention to, and that’s the continued rise of Erdoğan in Turkey. He has not only consolidated his power through a series of purges —thousands and thousands of journalists and academics have been thrown in prison since the aborted coup — but increasingly he is becoming more militant and Turkey is becoming a pro-Islamic state that is part of NATO. He’s throwing wild monkey wrenches into the whole Middle Eastern situation by making claims on land that was owned by the Ottomans, pre-WWI, like modern-day Iraq, modern-day Syria, and modern-day Greece and Bulgaria. He's warned the EU that he will open Turkey's borders to undocumented immigrants if EU membership talks are frozen. Like Xi Jinping, he’s putting out these old maps and saying: this is our real land. Erdoğan is yet another nationalist.</p><p>Poor Greece is at the crossroads of all these seismic events and Ottoman Empire II. You’ve got the possible weakening or dissolution of the EU, and Greek debt problems are about tenth on the list of issues in that region. They’re going to struggle, no doubt about it. Every time the Greek economy starts to show some green shoots, it seems to stall and fall right back down again.</p><p><strong>LP: What do you hope might happen in this emerging world?</strong></p><p>JC: This is the tough thing about being in the financial markets. You can have opinions on all this stuff and either get it wrong or have it not matter.</p><p>First, I hope our system of free trade holds up. That’s one thing I believe in fervently. The evidence seems to be that a rise of tariffs and trade walls and barriers will be bad for global growth. Given the debt overhang that’s out there, which is relentless, the ability of economies to service debts in a global trade war will be greatly curtailed, so I’m clearly watching that.</p><p>I also continue to be concerned, on a stand-alone basis, with the giant debt bubble occurring in China. It has done nothing but just gotten bigger since you and I last sat down. Despite all the talk of reform, there really hasn’t been any. The Chinese are more reliant on the state than ever — on state lending and state banks. The debt continues to grow at twice the rate of growth, and now the currency is depreciating.</p><p>We’re getting a situation where the Chinese economy is still a very important driver of global growth, but increasingly it is using the old methods that the Chinese themselves said only a few years ago that they would have to change. But they can’t, because every time they try, the economy slows too fast.</p><p>China continues to be half of the demand for global commodities. It basically supports Africa and countries like Australia and Brazil. Almost 40 percent of global GDP is either China or commodity-exporting countries whose prime market is China. That’s considerable. So we have to look not only at China’s role with us, but China’s role on its own because it is such a driver for global growth, Chinese growth represents 1 point of the 3 percent GDP growth, so if China were not growing at all, we’d be at 2 percent. Doesn’t sound like a lot but it is. We have to keep our eye on what’s going on there. A global trade war would probably send China into a really steep recession. </p><p>How would an average worker navigate a rising trade barrier globally? It’s scary. If we look back at the ’30s template, one major outlet was, of course, a giant arms race. By the late '30s, you had the whole world realizing the threats of fascism and rearming rapidly. Keynesian government spending was what pulled up the economies; it just had some really bad repercussions from 1939-45. But if we get into any kind of global arms race with China, either conventionally or otherwise, that would be Reagan-like. I don’t know what the numbers would mean in terms of employment, but you would take a lot of manufacturing people and turn them to making other things. </p><p><strong>LP: How do you rate the current moment with big periods of change you’ve seen in your lifetime?</strong></p><p>JC: I had this odd personal journey from being a union pipefitter and boilermaker as a college student — I made more money in two-and-a-half months making steel than I did my first year on Wall Street. I went from being a product of the industrial Midwest and putting myself through college by working in a steel mill, to being the beneficiary of the Reagan-Thatcher era. I saw the world change, but I didn’t really understand until years later what an important period the late ’70s/early ’80s was (and a great period for music, by the way!).</p><p>If we’re in one of those periods now, if 2016 is like 1932 or 1979 — then you not only have to change your portfolio, you have to change your lifestyle. That’s one of the things we’ve been telling clients. If this is a major shift to populism, nationalism, greater state involvement, and less globalism, then you really have to rethink almost everything in your life.</p><p>Certainly, if you were a capitalist in 1932, you might be best served to change your outlook. And if you were a union leader in 1979, it would have been good to change your outlook. The question will be, in 2016, would it be best for the Davos man or woman, the globalists, to change their outlook?</p> Thu, 22 Dec 2016 07:36:00 -0800 Lynn Stuart Parramore, AlterNet 1069284 at Economy Economy Labor World capitalism labor nafta welfare reform trump obama corporate fraud george w. bush bill clinton stock market wall street populism nationalism Capitalism in the Time of Trump? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Brexit and Trump have brought the problems of capitalism into sharp relief.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Mariana Mazzucato, professor of the economics of innovation at the Science Policy Research Unit of the University of Sussex and author of <a href="">The Entrepreneurial State: Debunking Public vs. Private Sector Myths</a>, has made a passionate case for the government’s active role in the economy, sending the old laissez faire notion that markets can run themselves into the dustbin where it belongs. In a new book co-edited with Michael Jacobs, <a href="">Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth</a>, she offers a bold new vision for contemporary capitalism that works for the people and the planet. What chance does this vision have in the age of Trump and Brexit? Mazzucato shares her view. This post originally appeared on the <a href="">Institute for New Economic Thinking blog</a>. </em></p><p><strong>Lynn Parramore: The new book is called 'Rethinking Capitalism.' What aspects of capitalism do you think were most responsible for recent political shifts like Brexit and the election of Donald Trump?</strong></p><p>Mariana Mazzucato: In the book, we set out various failures in the model of capitalism that has dominated the last three decades — from instability of growth to increasing inequality to the threats of climate change. We argue that these failures are connected to failures of economic thinking.</p><p>Effects of these failures on the electorates of the U.S. and the U.K. are fairly well documented, and some – such as the inability to deliver growth that includes everyone – have now become electorally significant. Growth in productivity has diverged from growth in the share that working people can expect right across advanced economies, but this trend started earlier and has been more pronounced in the U.S.</p><p>To give you some stats, real median household incomes in the U.S. were basically the same in 1989 <a href="">as in 2014</a>. But we are also seeing similar challenges in the U.K. in the stagnation of real wages. Recent analysis from the U.K. Institute for Fiscal Studies suggests <a href="">that wages will</a> still be below 2008 levels in 2021. People work hard and companies make big profits, but employees don’t see that they share in the wealth they help to create.</p><p>For too long, these problems have been ignored. And the results of the U.S. election and the EU referendum showed that people were no longer willing to vote for the status quo.</p><p>Where there is less agreement is on the reasons why. It would be a mistake to overstate the similarities between the Brexit vote and Trump’s win—but there are common themes, not least in the rallying cries that the winning campaigns used. They focused on a supposed economic threat posed by outsiders, as immigrants or as trade partners. This fuelling of anxieties underpinned a narrative centered on the need to “regain control,” whether of borders or of economic forces. Unfortunately, simplistic framing of the problems leads to simplistic answers.</p><p>Another similarity of Brexit and Trump’s campaigns was an attack on so-called elites. This is not so much a failure of capitalism as of its high priests in the economic profession, for which we must all take some responsibility.  </p><p><strong>LP: So what’s the real story of what’s not working for so many?</strong></p><p>MM: If we look at the complexity of the challenges facing western societies today, we see that the problems are not really about outsiders, but have their roots much closer to home.</p><p>Our current model of capitalism and the dominant ideas in policy making have led to a failure of investment by both the public and the private sector in the things that drive productivity, and which affect its distribution. Shareholder value theory — the destructive idea that companies should be run solely for the benefit of shareholders — has led to financialized businesses that do not invest in the areas that will lead to future growth or the invention of useful new products. Companies prefer to put money in the pockets of shareholders or to hoard cash rather than to raise wages or invest.</p><p>But it is not just how these ideas have affected the private sector. They have also had a detrimental impact on our understanding of the role government can play in raising both the rate of growth and shaping its direction. Mainstream economic theories popular in the last several decades have tended to downplay the government’s role in markets and to increase skepticism about even that more limited role. Austerity, particularly in Europe, has added to the problem. It has not worked, even on its own terms.</p><p><strong>LP: In your earlier book, <a href="">The Entrepreneurial State</a>, you describe a model of capitalism that would address many of these problems. How does it work?</strong></p><p>MM: My work has shown how a different understanding of the role of the state in growth can unlock private investment. Markets are not static entities that are ‘intervened’ in (for good or bad) but are outcomes of public and private interactions. In my view, the state should be active and work in cooperation with private businesses to spur growth that’s sustainable and inclusive. The policy process is about co-creating and co-shaping of markets, creating new opportunities for business investment —and negotiating a better deal for the public too.</p><p>Historically, it has been an entrepreneurial state that stimulates and gives direction to new technological opportunities. It is those opportunities that  stir the animal spirits of business to invest—and we can do that again. The examples I give in my book show that public investments are not only important for affecting the rate of growth but also its direction. And that these investments were most successful when mission driven, rather than aimed at single sectors. The venture capital industry entered biotechnology only decades after the National Institutes of Health led the way. Similarly, Apple’s i-products were only made possible due to the hefty public financing of all the technologies that make those products smart and not stupid: internet, GPS, touchscreen and Siri. Today there are opportunities in green: indeed Germany is using its Energiewende policy as a way of envisioning a green transformation and innovation across many sectors.</p><p>If we want growth today to be more innovation-driven, more inclusive and more sustainable, then we need a more active state, not a less active one. Yet we still hear the dogma that we should just fix market failure by focusing on science and infrastructure, and to "level the playing field."</p><p>Fixing markets isn’t enough. We have to actively shape and create them and tilt the playing field in the direction of the growth we want.</p><p><strong>LP: What’s your impression of the possibilities to get things moving in a better direction in the wake of recent political shifts?</strong></p><p>MM: Brexit and Trump have brought the problems of capitalism into sharp relief, but both are only making things worse. Take the investment challenge – businesses invest where there they see technological or market opportunity. Brexit has shrunk the market opportunities. Exiting trade deals will do the same for the U.S. Those deals must be actively shaped and governed to make growth more inclusive.</p><p>But—to look on the bright side—because the problems are now in greater focus and can no longer be pushed aside, maybe policy makers will be more creative in trying to address them.</p><p>I see signs of that, for example, in Theresa May’s explicit embrace of industrial strategy, with a seeming interest in focusing this on missions that help make a better society, which I’ve <a href="">discussed recently</a> with various people in the government. There is a lot of flesh to be put on the bones – but there is at least an opening for a more pragmatic, less ideological debate about how to build economies that work for people, within the limits of our planet.</p><p>With a Trump administration we don’t know enough yet to make predictions, but if past behavior is any indication, I am not encouraged. As I wrote in an <a href="">article for the Guardian</a>, as a businessman, Trump has been associated with some of the worst excesses of a particular style of value-extracting and asset stripping capitalism: set up businesses, let them fail, avoid paying suppliers, use bankruptcy laws to avoid taxes for decades, then set up another business somewhere else. It is this model that is the cause of many problems we see today.</p><p><strong>LP: Trump seems to be rethinking fiscal policy with his proposal for an infrastructure program, which interestingly is a focus he shares with former candidate Bernie Sanders. What is your opinion of that focus?</strong></p><p>MM: Too many politicians seem to reach for ‘infrastructure’ as the default answer to investment, as if roads and bridges were the answer to everything. Even the IMF and the World Bank seem to mainly offer infrastructure spending as an alternative to austerity, although they are right to focus on the need for investment.</p><p>While infrastructure is of course important, it must be part of a bigger vision. The point is not to simply dig ditches but to steer those investments towards transformational growth. We should be investing where the public returns are greatest – that is in innovation. If we look at Germany’s infrastructure policy, it has been driven by its mission-oriented focus on green infrastructure.  This affects both innovation and infrastructure, old industries and new. The German steel industry, for example, has adapted to the policy by lowering its material content through a ‘repurpose, reuse and recycle’ strategy.</p><p>Added to this, my specific concerns with Trump’s plans are that they are likely to investments in infrastructure where the private returns are highest (for example toll roads and bridges) rather than where the public gains are greatest. </p><p><strong>LP: Speaking of green, how have the stakes of rethinking the economics of climate change shifted with Brexit and Trump</strong>?</p><p>MM: Green is not just about renewable energy. It’s also about creating a new direction for the whole economy. This requires government to step up, not step back, creating the kinds of mission-oriented public organizations that will enable us to tackle climate change — as ambitious as those that got us to the moon. It also requires the financial sector to be less short-term since we know that short-term finance has distorted incentives and directions in areas like biotechnology.</p><p>A new <a a="" href=";site=25" new="">study</a> we are doing with data produced by Bloomberg New Energy Finance looks at the role of public banks and other public entities in providing the strategic, patient finance for the green revolution. An interesting attribute of public banks is that they don’t only de-risk the downside, but also get a share of the upside. This brings us to John Maynard Keynes’ idea of the ‘socialization of investment,’ which could provide new thinking on the types of public and private deals that the 21st century requires. </p><p>Brexit and Trump’s election are forcing countries to come up with new radical ideas. In this context, rethinking capitalism means rethinking the role of the public sector, the role of the private sector, the role of finance, and the relationship between them all. What is needed is both  a New Deal in terms of mission-oriented investments but also a new deal in terms of a modern social compact—one that allows the state to socialize not only risks but also rewards. Maybe then innovation-led growth will also become growth that includes all of us. </p><p> </p> Fri, 09 Dec 2016 08:08:00 -0800 Lynn Stuart Parramore, AlterNet 1068552 at Economy Economy Election 2016 Labor Visions capitalism trump brexit 2016 Election fiscal policy innovation infrastructure economics Black Lives Still Matter <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Alicia Garza, co-founder of the Black Lives Matter Network, shares a vision for women of color.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the <a href="">Institute for New Economic Thinking blog</a>.</em></p><p>The Black Lives Matter movement has made the demand for equality heard in America and around the world. A key component of this vision is economic fairness, particularly with regard to worker protection in industries that are not appropriately regulated, like domestic work. Alicia Garza, the co-founder of the Black Lives Matter Network and special projects director for <a href="">National Domestic Workers Alliance</a><em>,</em> believes that creating more possibilities for women of color to thrive in a rapidly changing economy is a top priority not only because it is fair, but because the well-being and prosperity of the entire country depends on it.</p><p>While some have argued that the on-demand gig economy has many positive aspects for women, such as the ability to stay home when a child is sick, Garza is clear that the hype is far from the reality. The idea of scheduling flexibility applies much more to employers than to workers. She notes that the gig economy has been unfavorable to unions and collective bargaining, and that attractive-sounding rhetoric about individual choice and freedom often translates into classifying most workers as entrepreneurs who are responsible for their own positions. That, she says, must change. She would also like to see regulation that sets wages.</p><p>“The gig economy brings opportunities for innovation but it doesn’t necessarily offer protections for workers in the form of paid sick days, overtime pay and even the right to address grievances with your employer. It’s nebulous enough that you have many employers but nobody’s responsible for the bottom line in terms of making sure that you have the fundamental basics that you need in order to be able to provide that labor,” says Garza.</p><p>Garza has long been working to secure the rights of homecare workers and house cleaners who face challenges on multiple front. Domestic workers have not been covered by most federal labor protections which has left them vulnerable to mistreatment. When they come to the U.S. from abroad, they are liable to experience exploitation, especially if they lack documentation, and working in a private residence also leaves them open to abuse. Garza points out that it is crucial for these workers to have more access to citizenship.</p><p>She notes that within the gig economy, the hazards for domestic workers who are dispatched increase further because there’s less regulation. “The bad dynamics that exist in the gray market in this sector are being replicated to scale—which is really scary,” she warns.</p><p>Garza points out that a project of the National Domestic Workers Alliance called Social Innovations has been working with large companies that are dispatching workers to have them sign on to a “<a href=";ie=utf-8&amp;oe=utf-8">Good Work Code</a>” consisting of values like transparency and shared prosperity. So far, about 200,000 employers have signed what she describes as a gold standard for how a company should protect workers.</p><p>Another high priority for Garza is closing the wage gap between women of color and white women, which perpetuates cycles of poverty and disenfranchisement. She notes that the service sector, especially the health care industry, which is the fastest-growing industry in the U.S., is an area of focus because it is rife with low wages and is also a place where women of color are concentrated. As America ages, the need for a new paradigm is growing urgent.</p><p>“The rate of people turning 65 or older is happening faster and faster,” says Garza. “That means that we have a real disparity between people who are adequately trained and adequately paid to provide care and a disparity in terms of the price of care.”</p><p>Garza points out that more Americans are now called upon to take care of children and aging parents simultaneously, and that this is quickly becoming impossible for many, especially people of color who face a racialized wealth gap.</p><p>“We need to provide subsidies for families who are in that position,” says Garza. “We need to provide tax credits in order to really incentivize the kind of care that people really want, which is often not in facilities but in the comfort and privacy of their home. We also need to cut the cost of what that care entails. If we’re able to focus on that, I think there’s lots of opportunity to improve the quality of life for folks.”</p><p>Another agenda item is making sure that there are services for black women who are experiencing violence in the home. Garza notes that the rate of incarceration for black women is increasing rapidly: “They are the fastest growing population in prisons and jails,” she says.  “A major reason for this is violence that they are experiencing in their own homes—intimate partner violence and other forms of violence.”</p><p>Garza emphasizes that one big indicator for incarceration for black women is poverty. “That’s why we have to stop the increases in penalties for things like writing a check that doesn’t have sufficient funds or increasing crackdowns on things that people do to survive in an economy that doesn’t have room for them,” she says.</p><p>Finally, Garza outlines the need to remove restrictions that black women are subjected to in the political realm.</p><p>“What we know is that black women, when we vote, tend to vote the most progressively and to vote for things that are going to bolster our economy and bolster our communities. When we block black women from voting, we actually block that potential of unlocking visionary solutions to the problems that we face in our communities.”</p><p>Garza would like to see more opportunities for black women to run for office.</p><p>“If you look at how black women vote, that is also how we lead,” she says. “Creating more space for black women to become elected officials and to be setting public policies certainly skews toward the potential for having more comprehensive solutions that really look at root causes of why it is that black women are facing some of the problems that we’re seeing.”</p><p>As the dust settles on the presidential election, Garza already has her eye on the next battle: the midterm elections. She sees the composition of Congress as critical to achieving the kinds of policies that will improve the lives of those who are suffering economic injustice. The Black Lives Matter movement has made it clear that economic equality is the unfinished business of the civil rights struggle, and that the struggle will go on, no matter who is in the White House.</p> Sun, 20 Nov 2016 07:35:00 -0800 Lynn Stuart Parramore, AlterNet 1067389 at Economy Activism Economy Election 2016 News & Politics Visions black lives matter inequality wealth wealth inequality income inequality gig economy domestic workers immigration The Hidden Reason for America's Racial Trauma, and How to Fix It <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Baby Bonds can restore fairness for black citizens who have been held back from economic security by centuries of prejudice. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Originally posted at the <a href="">Institute for New Economic Thinking</a>. Interested in race &amp; economics? Join the Institute for an illuminating </em><em><a href="">conference</a> </em><em>in Detroit, Nov. 11-12.</em></p><p>Imagine a black child from a family of modest resources gets the opportunity to attend an elite college preparatory school. Motivated by a love of learning and strong desire to achieve, she excels in school and goes on to attend highly regarded universities, earning advanced degrees. Surely that child is well positioned to ascend the ladder of economic prosperity in America, right?</p><p>Not so fast.</p><p>The goal of broadening financial wealth to all Americans, regardless of race, gets plenty of applause across the political spectrum. But so far this goal has remained devilishly elusive. To understand why you have to know how people come by wealth in the first place. It’s popular to say that we build wealth through discipline—by hitting the books, working hard and saving money. The reality is a little different.</p><p><strong>Past injustice shapes present reality</strong></p><p>Darrick Hamilton knows this from personal experience. Despite his family’s modest means—not poor but hardly affluent—he attended the Brooklyn Friends School, an elite private institution where teachers emphasized social justice. Hamilton started college at Oberlin excited to seek out his path to the American Dream. But he soon found out that the path was smoother for some than for others.</p><p>All around him, white kids from affluent families were getting checks in the mail from their parents—money that could be spent on tuition, extracurricular activities and the kind of socializing that builds professional networks. Black students of more modest means, on the other hand, were often at a disadvantage even when their parents were able to help financially. If they received money from home, things besides books demanded financial attention. The same was true if they had jobs. Even when black students worked hard and saved diligently, the money was often spoken for before it was time to pay the tuition bill for the semester.</p><p>The reason has to do with the cumulative effects of centuries of gross economic disadvantages that black families have endured, from slavery to Jim Crow and beyond. The legacy of those severe headwinds is that even when an individual family is able to reach the middle class, there is still likely to be a constellation of poorer extended family members in need of various kinds of financial assistance. When they call, you help, if you can. Economists call this “wealth leakage.”</p><p>Hamilton noticed this phenomenon play out among black students at school and in the professional realm. Rather than enjoying resources from parents and grandparents, they often had to provide money for cousins, nieces, uncles, and siblings.  After obtaining his Ph.D. in economics at UNC-Chapel Hill, Hamilton, who now teaches economics and urban policy at the New School in New York, focused on how poverty in the family increases the racial wealth gap for middle-class black individuals.</p><p>The source of wealth building in America, he realized, is less what you save than your capacity to invest in an asset through money given by parents and grandparents. These transfers are critical to the acquisition of assets, like a home or a small business—the kinds of things that require huge down payments.</p><p>“If you’re not fortunate enough to get that down payment or have that resource at a key juncture of your life,” observes Hamilton, “you will not have that pathway towards building economic security that somebody else has. You could be a jerk. You could be a good person. It has little to do with the particular individual.”</p><p>This logic flies in the face of the long-cherished belief that education and hard work are the great equalizers in American society. Many still insist that much present day inequality is caused by bad individual decisions and not by structural problems associated with discrimination. But the vast inequality between black and white citizens suggests that there’s more going on than poor choices. In 2013, according to the Federal Reserve’s Survey of Consumer Finances, the median household wealth was $134,230 for whites compared to a paltry $11,030 for black Americans.</p><p>The reason, says Hamilton, is pretty clear: “In a capitalist system, if you lack capital, it just locks in inequality.”</p><p>Fortunately, he thinks the problem can be alleviated if we are willing to aim the attack at the source. Hamilton and his colleague William A. Darity Jr. of Duke University are stratification economists, pioneers in an emerging subfield of social science who focus on the structural dimensions of a person’s economic position. They propose a solution to wealth inequality that may appeal across the political spectrum: Why not give every American baby seed capital so they can grow up to take part in the capitalist system? This could be done, they argue, through “Baby Bonds” that would be set up for every child born.</p><p><strong>How Baby Bonds work</strong></p><p>Baby Bonds, in Hamilton’s formulation, would be funded directly out of Treasury and held in an account by the federal government, similar to Social Security. The amount a child receives would depend on the wealth position into which she is born. If she’s the offspring of Oprah Winfrey and Bill Gates, she might get $500, but upwards of $50,000 if she is born at the lowest rungs of the economic ladder. The average amount for a child would be around $20,000. Accounts would be guaranteed a nominal one-and-a-half rate of return, and the payout would not take place until the child becomes an adult. At that time, you get to spend the money—but not just on anything. The funds would have to be used for a “clearly defined asset-enhancing activity,” like financing a debt-free education, purchasing a business or buying a home. (The program would need to be coupled with financial reform and regulation to mitigate predatory effects, including extraordinary tuition increases aimed at exploiting better-resourced young adult baby bond recipients.)</p><p>A commission would be set up to identify exactly what kinds of activities might qualify.</p><p>“These conditions are set up to protect the resource,” says Hamilton. “In my own situation, if I had received an infusion of cash as a young adult, there would have been a lot of family needs to take care of before I could begin thinking about self-investment like purchasing a home. Specifying what the money can be spent on may not guarantee an outcome, because people still choose the investment they engage in, but it at least ensures that the investment is an asset-enhancing endeavor which can help build wealth over the long run.”</p><p>Unlike some past proposals for child savings accounts, Baby Bonds are designed so that it doesn’t matter if your parents can contribute or not. Hamilton says this is done so that however good or bad or affluent or poor your parents may be, as a citizen you get some seed capital so you can take part in the American economic mobility system.</p><p>But wouldn’t such a program be too costly?</p><p>Not at all, says Hamilton. He notes that there are about 4 million children born every year, so if the average account is at $20,000, the whole program might cost $80 billion. If you add another $10 billion, the very highest estimate for administering the program, it comes to $90 billion maximum. That might sound like a lot, but not when you consider what the federal government already spends trying to promote asset ownership through the tax code. He cites a report on all such policies (like the mortgage interest reduction and reductions in capital gains) by <a href="">CFED</a>, a Washington-based non-profit focused on expanding economic opportunities for low- to moderate-income Americans. All told, these programs cost <a href="">over $500 billion</a>. (The mortgage interest deduction alone is estimated to cost more than $405 billion for tax years <a href="">2014 through 2018</a>).</p><p>Next to these figures, Baby Bonds looks like a bargain. They also have the advantage of distributing the capital where it’s needed most. Federal programs already in place tend to funnel money toward the more affluent, says Hamilton, noting that the bottom 60 percent of earners get about 5 percent of that $500 billion, while the top 10 percent get well over half. He thinks that Baby Bonds could be fully funded simply by capping the existing mortgage interest reductions.</p><p>So how would a race-blind program help to close gaps in wealth and income between black and white Americans?</p><p>Hamilton points out that about 85 percent of black households fall below the national median of the wealth distribution, so the means test for the Baby Bonds program as well as its target needs to be keenly focused on wealth.  </p><p>Baby Bonds address wealth in two ways: First, because of the way black people are clustered at the poorer end of the wealth distribution, more will qualify for the program. Secondly, because the program is focused on asset-enhancing activities, they will benefit when they become adults and are able to use the funds to build the kinds of assets that have so often been out of reach historically.</p><p><strong>A potential political winner?</strong></p><p>Inequality has been a hot topic this political season, but much of the discussion has focused on student debt. Hamilton acknowledges that this is important, but it’s not enough to close the racial wealth gap.</p><p>“It will help avoid wealth leakage for millions of people and black individuals that end up going to college,” he says. “It’s certainly the case that black students are disproportionately impacted by student debt. But this only helps those who actually end up going to college. It’s limited in its approach.”</p><p>Something more is needed. He notes that in other countries, programs similar to Baby Bonds have already been implemented, such as a child trust program set up in 2005 that gave every British citizen born on or after Sept. 1, 2002, an investment account to build savings that would help fund their transition to adult life.</p><p>The UK program differed from Baby Bonds in several key ways: it was smaller in scale, parents could add to the account, and the trust was unconditional, meaning that the money could be used for anything rather than a specific set of potentially wealth-building activities. Unfortunately, the program sank under a wave of austerity in 2011 following the global recession, so it’s unclear exactly how well it worked because the children who received the accounts are not yet old enough to have used them.</p><p>Could Baby Bonds work in America? Hamilton observes that in the past, both conservatives and liberals have endorsed programs designed to give American children a stake in the future. KidSave, a program conceived by senators Bob Kerrey of Nebraska and Joe Lieberman of Connecticut as co-sponsor, would have allotted each child a small deposit at birth (around $1000), with additional $500 deposits every year for five years. The money would then be invested in a limited number of mutual funds, but it couldn’t be withdrawn until retirement, when a substantial nest egg would have theoretically grown. Various versions of the plan attracted support from conservatives like Senator Rick Santorum of Pennsylvania and the Heritage Foundation.</p><p>The premise behind Baby Bonds is slightly different; it’s based on the recognition that the problem in building wealth is not savings.</p><p>“Most Americans don’t save, period,” says Hamilton. “It’s really getting access to that asset that’s going to appreciate. Homes give Americans most of their wealth, or, if not homes, some other asset. So this is moving us a bit from that narrative of how to leverage poor people to do better things by giving them incentives to saying, well, why don’t we empower them with an account so that they actually can make decisions that can lead to their mobility.”</p><p>Hamilton observes that Baby Bonds simply arm everybody with the opportunity to benefit from the markets—an idea the most die-hard free market champion might appreciate. “If conservatives really believe in the fairness of the markets,” he says, “then let’s give everybody opportunity to participate. We’re talking about babies, so this is before we start coming up with narratives about the deserving poor or the undeserving poor. We’re saying, at birth, we’re going to give everybody a chance to engage in economic mobility in America.”    </p> Mon, 31 Oct 2016 08:34:00 -0700 Lynn Stuart Parramore, AlterNet 1066000 at Economy Economy Visions baby bonds wealth inequality racism race racial prejudice economy capitalism Here’s What Nobody Understands About Race in America <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">There&#039;s a new key to unlocking the mystery of inequality between black and white citizens.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>As an undergraduate at Brown University in the 1970s, William Darity, Jr. expected to learn the reasons behind the inequality he’d seen all around him growing up in the Middle East and North Carolina. He realized pretty quickly that economists were not going to be much help.</p><p>Darity, the son of North Carolinians, spent his first eight years in Lebanon and Egypt while his father worked for the World Health Organization, then lived until the age of 12 in Chapel Hill, North Carolina. During the Jim Crow era, he visited his grandmother in a town where a railroad track divided the city into black and white sections, marking two separate economic worlds.</p><p>At Brown, Darity was disappointed by how his teachers explained why some people reap the benefits in a society and some don’t. Most taught that some individuals and groups grew more prosperous than others because of differences in education — what economists refer to as “human capital.” Labor economists tended to say that educational differences meant that some people were more productive than others, which explained why some flourished and others languished in the long run. They believed that competitive markets would ensure that everybody ended up earning according to what they produced. Those with higher earnings were able to save more, and so they accumulated more wealth over the course of their lifetime.</p><p>Darity wondered, then, why disparities persist, even when markets are competitive. <strong></strong>Black Americans, for example, are paid less than their white counterparts at every level of education.</p><p>Motivated by what he describes as youthful hubris, Darity got a Ph.D. in economics and set out to change the way economists deal with these issues. Today he is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics and the director of the Samuel DuBois Cook Center on Social Equity at Duke University. With a group of colleagues that include Darrick Hamilton and James Stewart, he has developed a framework for understanding the inequality problem, which he calls “stratification economics.” The new approach—interdisciplinary and integrating economics with psychology and sociology—expands the boundaries of how economists analyze intergroup differences.</p><p>“The traditional approach says that educational attainment is a consequence of parental investment,” says Darity, “but it doesn’t explain how parents can feasibly make those investments.” The explanation he puts forth is a blow to the long-cherished view of America as a land of equal opportunity, where it’s not supposed to matter who your parents and grandparents are or how much money they have.</p><p>But that, says Darity, is the key. In his view, the capacity of parents and grandparents to invest in their children is contingent on their wealth position.</p><p>“Parental wealth and the provision of inheritances as well as gifts over the parents’ lifetime can support the young person and give them a foundation for their own basis for wealth later,” he explains. “The greater the wealth position of your parents, the greater the degree of economic security that you experience during your childhood, so that you’re more likely to have better levels of health and a better sense of confidence about your ability to be successful in a society.”</p><p>The real driver of inequality, then, is not an individual’s level of education and productivity, but the resources that parents and grandparents are able to transmit.</p><p>“This has strong implications if we’re looking at racial and ethnic differences in the accumulation of wealth,” Darity observes. “This can be tied to — especially if we’re thinking about black/white differences — the long-term consequences of enslavement; the Jim Crow period; and social policies that created wealth for whites but didn’t do so for blacks, like the GI Bill and the subsidization of the purchases of homes with public funds which is disproportionately made available to whites.” (Black veterans had <a href="">limited choices</a> of colleges and often <a href="">could not</a> take advantage of the GI housing provisions.)</p><p>Many social scientists have sought cultural explanations for racial disparities, rather than the structure of stratification Darity proposes. For example, sociologist and former Senator Daniel Patrick Moynihan, Labor Secretary under President Lyndon B. Johnson, argued in his influential 1965 report, “The Negro Family: The Case For National Action,” that the high rate of families headed by single mothers was in large part to blame for economic inequality. Darity notes that this line of thinking has very deep roots.</p><p>“If you go back to W. E. B. Du Bois’ study, <em>The Philadelphia Negro</em>, it kind of runs along two paths. One path is focused on the impact of discrimination on people’s earnings and their occupational status, but another path concerns issues surrounding family structure and the like that fall directly into the path of the dysfunctionality kinds of arguments.”</p><p>The cultural explanation is appealing to policymakers because it excuses them from the challenge of remedying inherited stratification through large-scale reforms.</p><p>“There’s actually something convenient about those arguments in the sense that if you took them seriously, it would mean that blacks were fully capable of engaging in the self-correction to improve their situation, so there would not necessarily be any need to rely upon social policy that would require the political support of whites,” says Darity.</p><p>But he believes that this ‘self-correction’ logic applies only in exceptional cases.</p><p>“Obviously there are always going to be individuals who are outliers, who accomplish great things with minimal resources. But if we’re thinking about patterns at the average, then I think one of the most dramatic statistics that we’ve discovered in the work that we’ve been doing is that blacks with a college education, that is, blacks who have a college degree, have two-thirds of the net worth of whites who never finished high school. That’s a stark sense in which somebody has taken personal responsibility, has been motivated, has achieved, but there’s not the same payoff.”</p><p>Some hoped that the Obama presidency might herald a new era of economic equality, but those dreams have yet to be fulfilled. Darity notes that Obama’s speeches emphasize ending a culture of victimization and the taking of personal responsibility. “That kind of message is not very different from the position that would be taken by the researchers at the Manhattan Institute [a conservative think tank],” he says. “Essentially what he’s done is to embrace a set of arguments that attribute racial disparities primarily to dysfunctionality in the black community.”</p><p>Darity is unimpressed.</p><p>“If you buy the black dysfunction story, then the key is for young black men to pull up their pants or the equivalent,” he says. “But that’s a very different policy from saying, well, we should assure all Americans a human right to work. Or even if we don’t talk about an employment guarantee, then at least the basic income guarantee.”</p><p>“If we’re concerned about black-white disparities specifically and we want to have a race-specific policy, then I think we have to start talking about a program of reparations [for slavery].” (Darity and his wife, Kirsten Mullen, are currently completing a book that details how a reparations program might be executed, due to hit the shelves by mid-2017.)</p><p>“If we are not willing to pursue race-specific policies,” Darity argues, “then we need universal programs that are race-conscious in the sense that they will disproportionately benefit the most disadvantaged groups even though they are programs that everyone is eligible for.” One such program would be a federal job guarantee.</p><p>Darity has also worked with economist Darrick Hamilton to devise a wealth redistribution program through “Baby Bonds,” which would help put Americans on more equal footing without confiscating any existing wealth.</p><p>“That’s essentially the provision of a trust fund to each newborn infant, but while it’s universal it’s not uniform. The amount would be contingent upon the wealth position of the child’s family. We think in terms of a $50 endowment for a child of somebody like Bill Gates, but a $50,000-$60,000 endowment for children whose families are in the lowest quintile of the wealth distribution.”</p><p>And because racial disparity in income, wealth and employment is so deeply embedded in the structure of U.S. society, he says remedying it will require truly transformative policies.</p><p>Asked if there have been improvements in the way academic economics tackle issues of inequality since his student days in the 1970s, Darity does not have particularly good news:</p><p>“Actually, I think it’s shifted even further to the right so that alternative approaches are even more marginalized now,” he says. “The ideological content of economics is masked somewhat by the high degree of technical requirements. So in some respects I think economics is even less open than it was when I was first exposed to the field.”</p><p>Darity has seen positive signs in the work of the Institute for New Economic Thinking, the efforts of economist Joseph Stiglitz, and the Roosevelt Institute, which recently put out a report drawing heavily upon stratification economics as a frame for analysis. He hopes to get a paper published in the <em>Journal of Economic Perspectives</em> on stratification economics that would expose a larger audience of economists to the ideas.</p><p>His work suggests that until economists deal with the reality of the structural dimension of inequality, racial disparities will not only be a stain on American society, but will continue to limit America’s broader economic prosperity.</p> Sun, 23 Oct 2016 08:44:00 -0700 Lynn Stuart Parramore, AlterNet 1065743 at Economy Economy Visions race racism racial injustice economy economics stratification economics wealth wealth gap income gap inequality 3 Things to Know to Hold Wells Fargo Accountable for Big-Time Fraud <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Justice requires that we all understand why corporations engage in rampant misconduct and fraud.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Just about everyone wants to hold Wells Fargo accountable for a scheme in which sales quotas drove employees to set up phony credit card and bank accounts without customer knowledge. A Donald Trump adviser <a href="">declared</a> the behavior “stupid” and “greedy,” while Hillary Clinton <a href="">proposes</a> to make it easier for consumers to take companies to court for such behavior. So far, Wells Fargo has fired over 5,000 regular workers and the Consumer Financial Protection Bureau has fined the bank $185 million. “Hold Wells Fargo Accountable” even has its own <a href="">Facebook page</a>.</p><p>Will it make any difference? Not much, warns William Lazonick, a leading expert on American corporations and co-author of a <a href="">new study</a> on CEO pay sponsored by the Institute for New Economic Thinking. Until critics truly understand why companies have strong incentives to create such schemes in the first place, they will go on doing so, hurting workers, customers and taxpayers. The entire economy will be dragged down and economic inequality will continue to rise.</p><p>As Lazonick explains, the Wells Fargo cross-selling scandal and other scams that ripple across the headlines are born in a business culture in which executives are focused on jacking up stock prices in the short term so they can cash in on stock options and awards. As long as this continues, the urge to cheat will be too tempting for most to resist.</p><p>Here are three things anyone wanting to hold Wells Fargo accountable needs to know.</p><p><strong>1. American businesses have become stock manipulation machines.</strong></p><p>When a company does a stock buyback, it purchases its own outstanding shares, a financial trick that reduces the number of shares on the open market and boosts the price per share. As Lazonick <a href="">points out</a>, the 449 companies in the S&amp;P 500 index that were publicly listed from 2003 through 2012 used over half their earnings to buy back their own stock, almost all through purchases on the open market. Buybacks continue apace.</p><p>When companies do this, profits that could have been used to develop new products, pay workers fairly, and invest in the long-term health of the firm are diverted to prop up share prices. Executives love buybacks, because they often get paid in stock-based instruments. They can time stock price-boosting activity and cash in at the optimal moment to line their pockets.</p><p>Before 1982, the Securities and Exchange Commission considered stock buybacks to be a potentially unlawful form of stock price manipulation. But that year, under the sway of Reagan-era enthusiasm for unfettered markets, the SEC loosened its rules. This change, plus a shift toward stock-based compensation for top executives, has exacerbated economic inequality by pushing pay at the top into the stratosphere while shortchanging workers. Instead of growing companies in the long term and paying workers what they deserve, executives have focused on boosting stock prices in the short term for their own benefit. Stock buybacks drain trillions of dollars from the real economy and produce nothing of value.</p><p><strong>2. Focusing on short-term stock prices leads to corruption.</strong></p><p>As long as companies are incentivized to boost stock prices in the short term, executives will be tempted to do that by any means necessary. The problem is not just buybacks, Lazonick emphasizes. They will also engage in all sorts of misconduct and even outright fraud, whether it’s Wells Fargo setting up fake credit card accounts or pharmaceutical firms resorting to price gouging, as Mylan has done with its EpiPen.</p><p>Lazonick points out that even the most vocal critics of such shady business practices often don’t understand what’s behind them. “When Mylan raises the EpiPen price,” he explains, “they use a million phony arguments to justify why they are doing it, but the truth is that they are doing it to boost the stock price so that executives can gain.”</p><p>Simply stopping a particular shady activity will not solve the problem, says Lazonick. As long as the incentives for stock price manipulation are there, companies caught in one scam will just move onto another. “It’s totally corrupting,” he observes. “There may be some ethical constraints going on in some companies, but the scams still continue. Price gouging has been going on in pharmaceutical companies for thirty years. No one should be surprised about Mylan. Or the next Mylan.”</p><p>Lazonick notes that even if an executive doesn’t want to engage in unethical behavior to boost stock prices, the pressure to do so from, say, an activist investor may be too great. Her job may depend on it. “CEOs who resist may be gone pretty quickly,” he notes.</p><p><strong>3. Punishment means little until executive pay is understood.</strong></p><p>Big fines, clawbacks and withholding executive pay may sound great in terms of punishing wrongdoing, but they don’t mean much when they are based on fiction.</p><p>The Wells Fargo board announced that CEO John Stumpf would lose unvested stock awards and would not be paid his annual salary while the investigation into the cross-selling scam was going on. But how much does he actually get paid? How much are his stock awards really worth? Turns out, hardly anybody really knows.</p><p>Lazonick’s research with Matt Hopkins shows that for decades, corporate executives have been making far more money than anybody reports, because the metric used to estimate what they take home is wrong.</p><p>When people talk about how much a CEO like Stumpf makes, they are usually basing the number on something called ”<a href="">estimated fair value</a>” (EFV) of his or her stock options and stock awards. But that doesn’t represent what Stumpf puts in his bank account and reports on his tax return. In the case of stock options, that estimate derives from a celebrated economic theorem, often referred to as the Black-Scholes model after the two economists who formulated it. But the real numbers require looking at “actual realized gains” (ARG)—that’s how much stock-based pay is worth at the time executives actually cash in.</p><p>When you use the EFV metric, Stumpf’s compensation numbers from 2006-2015, for example, add up to $179 million. That’s a lot of money, to be sure, but if you use the correct ARG numbers, you see that Stumpf’s taxable, take-home pay for those years was actually $259 million. That’s 1.45 times more than the vast majority of reports indicate.</p><p>Even the most progressive organizations have been incorrectly stating CEO pay, says Lazonick. The AFL-CIO, for example, has long decried a ratio of CEO-to-average-worker pay of about 350:1. The actual figure, according to Lazonick’s research, is more like 700:1. He warns that people need to realize that they have been given false information.</p><p>"Reporters and others who are questioning executives on these things just quote the wrong numbers. The executives must be laughing all the way to the bank. The ones who are doing all the buybacks and the price gouging and the scams to get their stock prices up are the same ones for whom the actual realized gains are far out-pacing this phony metric of estimated fair value. The public is being misled."</p><p>The actual numbers that determine what executives take home reflect stock price volatility—the kind of volatility that happens, for example, when a buyback or cross-selling scam jacks up the price.</p><p>No wonder executives are happy nobody understands it. There’s no accountability if there’s faulty accounting. Lazonick and his colleagues were surprised when they found out how far off reported estimates of actual CEO pay have been. "Once we really took a deep dive into how to estimate executive compensation, we realized how complicated it is to understand. We knew there was a there was a problem of measurement, but we didn’t know how systemic it was or the extent of it. The reality is astonishing."</p><p>Lazonick points out that while understanding CEO pay numbers is important, even more important is realizing what’s driving those numbers. Executives engage in stock price manipulations schemes because they expect to time the market and take home giant piles of money when those prices rise temporarily.</p><p>Stock buybacks that shortchange workers and scams that defraud customers drive the numbers. They fatten the bank accounts of executives and leave everyone else high and dry.</p><p>It would be helpful, of course, if regulators would catch misconduct and fraudulent activity earlier, but ultimately, says Lazonick, the solution must come from taking on the corrupt culture of self-centered stock manipulation behind these activities.</p><p>The fix, he says, is a relatively simple one.</p><p>“The rule that was changed in 1982 has become a big problem. The SEC should not allow stock buybacks that encourage corporate executives to benefit from stock-price manipulation and to engage in unethical behavior. It’s time that we recognize how corrupting to business and how damaging to our economy this has become.”</p> Fri, 14 Oct 2016 08:18:00 -0700 Lynn Stuart Parramore, AlterNet 1065366 at Economy Economy wells fargo banks big banks fraud ceo pay stock manipulation stock market corporations stock buybacks The Zentrepreneur: Ayn Rand in Lotus Position? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"> A trendy new breed of capitalist promises efficient enlightenment, but often delivers something very different. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>You’ve seen the entrepreneur game-changing up a Silicon Valley storm. Perhaps you’ve met more recent additions to this can-do tribe: there’s the micro-entrepreneur, eagerly hopping along Task Rabbit with dry cleaning deliveries, and the social entrepreneur, hacking world hunger with a single app.</p><p>Now there’s a new market maven in town. He levitates on puffs of peace and profundity, eager to transform your soul-deadening slog through late-stage capitalism into an ecstatic trip to Nirvana.</p><p>Behold, the zentrepreneur. Rolling self-help, New Age mysticism, eastern religion, philosophical fads, and crack marketing into one intoxicating package, the zentrepreneur proclaims freedom from the nasty business of business with blissful buzzwords: <em>Belief, sustainability, consciousness, positivity</em>.</p><p>The zentrepreneur can manifest as a management consultant, Tony Robbins-style guru, business creator, or yoga-obsessed executive who sees capitalism as a spiritual practice and employees as templates for enlightenment.</p><p>John Murphy, president of Venture Management Consultants, <a href="">peppers</a> his speech with words like “zenergy” to describe the miraculous transformation of “timid, skeptical, hesitant” workers into transcendent beings flowing with “life force.” In Forbes, David K. Williams <a href="">defines</a> the zentrepreneur thus: “It’s an inside-out executive who remains calm under every circumstance while adding value to the world and achieving impossible goals.” Life coach and bestselling author Sarah Centrella, a “single mom living on food stamps” until she discovered “instant peace” and <a href="">dreamed</a> her way to an executive position at a software company, <a href=";btkr=1#nav-subnav">sums up</a> the zentrepreneur’s mission with a simple mantra: “Hustle, believe, receive.”</p><p>Let’s take a look at how this marvelous species came to be.</p><p><strong>The wise don’t strive to protest</strong></p><p>The year was 1988. Ronald Reagan, well into his <a href="">senility</a>, offered hope to those who feared being swept into the dustbin of free market mania taking over the globe.</p><p><a href="">Addressing</a> the people of the Soviet Union at Moscow State University, the great leader revealed the secret of America’s success: a breed of superior men whose courage and vision had unleashed a technological revolution and untold economic growth. Reagan promised that the free market, undeterred by government intrusion, was the hero’s playing field; his mission no less than “breaking through the material conditions of existence to a world where man creates his own destiny.” (Women, presumably, could tag along.)</p><p>A new avatar of the American dream was born. Armed with individual creativity and nimble mastery of economic dynamism, the risk-taking entrepreneur would make amazing things that everybody wants and catapult himself to unimaginable heights of wealth.</p><p>In the years that followed, a seemingly endless parade of gurus sang the virtues of entrepreneurship to college campuses and webinar students, instructing working-class people that entrepreneurial ambition was the answer to living a meaningful life in the absence of job security. Pursue your passion! Only the dull and feeble would cling to the quaint notions of long-term employment, pensions and paid vacations.</p><p>By practicing relentlessness self-promotion, obsessive competitiveness, and inexhaustible bravado, the entrepreneur could harness the energy of armies of unpaid interns and blaze a trail to bankable glory. And lo, those who excelled at the entrepreneur’s most lucrative activities, like appropriating the work of others and slathering nonsense in sexy-sounding jargon, sometimes did just that.</p><p>Yet for most, the path was less glorious, for in addition to taking on the risk of starting a business, would-be entrepreneurs were also asked to accept the medical bankruptcies, crushing student loans, unemployment and do-it-yourself retirement plans that often greeted our hero on the journey. Most of the time, startups flopped. Unable to float on their parents’ bank accounts, many a dreamer slinked back to the miserable confines of the corporate cubicle with no higher purpose other than keeping the repo man from the door. On a playing field far from even, the giddy aspirations of entrepreneurial capitalism seemed a depressing joke.</p><p><strong>Make prosperity from suffering</strong></p><p>The year is 2016. After a global financial crash, the Great Recession and a decades-long campaign against working people, vast numbers of Americans struggle to survive in a cauldron of social tension fueled by poverty and a sorrowful lack of economic opportunity. Into the appalling desolation of the modern workplace, certain prescient persons have brought forth a beacon of hope. They aim to reinvent work as something humane and meaningful, suffusing the office, the assembly line and the retail counter with joy and higher purpose.</p><p>Ajit Nawalkha, CEO of <a href="">Mindvalley Media</a> and self-described zentrepreneur, offers this hypnotic message to his touted 2.8 million followers: “You Are Compelled To Create Positive Change And Inspire Transformations That Matter.” As a self-becoming creature, you will do this by signing up for courses with titles like “Bending Reality” and “Becoming Limitless,” and you will be taught “to think like some of the greatest non-conformist minds of our era, to question, challenge, hack and create new rules for your life so you can define success on your own terms.” You<strong></strong>will “learn to magnetize clients and find the rhythm that will grow your business by leaps and bounds….”</p><p>The first order of this new business model is to dispense completely with logic.</p><p>Nawalkha explains this key premise in—what else?—a <a href="">TedX talk</a>. All you have to do to fulfill your capitalist potential is to tap into the lizard brain of pure emotion and promise to change people’s lives. Logic is your avowed enemy. Get it? Good.</p><p>Buoyant in his wisdom, Nawalkha imparts the wondrous journey of the online shoe retailer Zappos, founded by startup star and happiness guru Tony Hsieh, co-founder of Microsoft and author of <em><a href="">Delivering Happiness</a></em>, the bestseller that outlines his path from worm farmer to legendary Silicon success.</p><p>Under Hsieh’s guidance, Zappos may not have transfigured the lives of its customers, but its bearded and neon-tressed executives clearly ran some very interesting experiments on employees. Deploying a non-hierarchical management concept known as “<a href="">Holacracy</a>,” in which “fun-gineer” is a job title and the office is transformed into a playpen overflowing with fuzzy stuffed animals, the wise men of Zappos encouraged workers to meditate and commanded them to pursue a carefully prescribed advanced state of consciousness known as “Teal." Their progress would be documented in a database called GlassFrog. Every employee would act like an entrepreneur and be adaptable, flexible, resourceful, and creative at all times. “Create fun and a little weirdness,” was a core company value.</p><p>The selling of shoes over the internet was to be an unending spiritual celebration. But a funny thing happened on the way to Nirvana. Touring Zappos headquarters, journalist Roger Hodge <a href="">found</a> that the company’s touted “work-life integration” ethos tended to produce a culture of never-ending toil, while its “self-organization” program seemed to breed rampant confusion among workers, who languished in endless meetings and often did not know what they were supposed to be doing, or perhaps more to the point, what the size of their next paycheck might be.</p><p>Perhaps it was the 2009 acquisition by Amazon, a meaner manifestation of California-style capitalism, that interrupted the journey to joy and meaning<strong>.</strong>Or maybe workers just got tired of selling shoes under the guise of a group therapy session. Whatever it was, many fled: in 2015, the turnover rate for the company soared to 30 percent, creating a “Zappos exodus” of employees taking buyouts and leaving their artisanal popsicles behind. The company made its numbers that year, but <em>Fortune</em> <a href="">reports</a> that it may have lowered its 2016 targets. In any case, for many, the Zappos <em>esprit de corporation</em> appears to be dissolving into demoralization and dysfunction. Zappos became zippo.</p><p><strong>The Inner Light knows no boundaries. Does capitalism?</strong></p><p>Is the zentrepreneur really trying to do good, or is he simply Ayn Rand disguised in a saffron-yellow meditation robe?</p><p>Some, of course, are simply hustlers bent on “magnetizing clients” and picking the pockets of hapless consumers with purpose-driven hooey. Others are no doubt earnest in their quest to find meaning and spread positivity, but while meditation and stuffed animals are swell, a zentrepreneur may do more to “add value” to life on Earth by ceasing to pursue society-disrupting activities like tax-dodging that weakens every public good and stock buybacks that divert profits from workers. A more equitable society<strong>,</strong> and airports that do not resemble third-world excrescences, are not the airy “impossible goals” of the smiling-Buddah executive, but real, concrete goals which America has achieved in the past to make life more tolerable for the masses—a step needed before we get to blissful.</p><p>Zentrepreneurship, with its whiffs of sanctimony and superiority, smells of what Tibetan Buddhist meditation master Chögyam Trungpa <a href="">referred</a> to as spiritual materialism, a term sometimes linked to the idea of spiritual narcissism—the ego in love with its own transcendent possibility. Compassionate capitalism ends up sounding a lot like its counterpart in the political realm, <strong>“</strong>compassionate conservatism,” in which politicians preached the virtues of charity and philanthropy while the wealthy worked behind the scenes to shrink their tax burdens down to virtually nothing. Unless we have collective bargaining, a strong safety net, sane corporate governance, and some measure of democracy, positive thinking is no match for unbridled capitalism. We will all be subject to the whims our corporate overlords, however benign-sounding.</p><p>In an interview with <em>Awareness</em> magazine, Ron Rubin, owner of Republic of Tea, <a href="">channels</a> zenned-up libertarian gospel that makes it sound as if being economically challenged is nothing more than a lifestyle choice. “Because the Zentrepreneur realizes that time is hard to find and is easy to lose, we discuss the importance of living a life of choice and not a life of chance,” advises Rubin. “It is you who must be the relentless architect of your own unique possibilities.”</p><p>Memo to Rubin: without access to quality education, universal healthcare, living wages, and a clean and safe environment, making sales calls in lotus position will not save the vast majority of us from shrinking possibilities. Oligopolies will still swindle us. Big industry will still pollute nature. Money-driven politics will still render the greedy aims of the rich into law. “Choosing” transcendence is not enough to negate the somewhat less marketable proposition that collective action is the only way out of this mess.</p><p>Here is a bit of wisdom for the current age: A sh*t sandwich served with saffron tastes pretty much...<strong> </strong>well, the same.</p> Sun, 28 Aug 2016 06:05:00 -0700 Lynn Stuart Parramore, AlterNet 1062599 at Economy Belief Culture Economy Labor Visions entrepreneur Zappos ronald reagan business buddhism capitalism Stark New Evidence on How Money Shapes America’s Elections <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Oversights of two generations of social scientists have weakened democracy.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the <a href="">blog</a> of the Institute for New Economic Thinking.</em></p><p>Outrage over how big money influences American politics has been boiling over this political season, energizing the campaigns of GOP nominee Donald Trump and former Democratic candidate Sen. Bernie Sanders alike. Citizens have long suspected that "We the People" increasingly means "We the Rich" at election time.</p><p>Yet surprisingly, two generations of social scientists have insisted that wallets don't matter that much in American politics. Elections are really about giving the people what they want. Money, they claim, has negligible impact on elections.</p><p>That was a good line for Cold War propaganda, and good for tenure, too. Corporate titans seized upon it to argue that their money should be freer to flow into political campaigns. Not only billionaires, but academics argued that more money in elections meant more democracy.</p><p>Even today, many academics and pundits still insist that money matters less to political outcomes than ordinary citizens think, even as business executives throw down mind-boggling sums to dine with politicians and Super Pacs spring up like mushrooms. The few dissenters from this consensus, like Noam Chomsky, are ignored in the U.S. as "unpersons," though they are enormously respected abroad.</p><p>This is a scandal. It has stymied efforts at campaign finance reform and weakened American democracy. </p><p>Political scientist <a href="">Thomas Ferguson</a>, director of Research at the Institute for New Economic Thinking, has spent a career setting the record straight with clear empirical evidence in a field where such research has been shockingly rare. Ever since his 1995 book <a href="">Golden Rule: The Investment Theory of Party Competition</a> blasted through received academic wisdom by showing how wealthy individuals and businesses strategically invest in political parties for the biggest pay off, Ferguson has been the man to seek when you really wanted to know how elections work and who controls them. </p><p>White collar criminologist William K. Black and others still recall Ferguson's <a href="">famous warning</a>, issued long before the nominating convention in 2008, that the contributions from big finance piling up in Barack Obama's campaign war chest meant that his promises of sweeping reforms of finance were not to be believed. In 2014, he <a href="">foresaw</a> the unraveling of America's two major political parties and predicted that voters feeling betrayed would increasingly abandon both. </p><p>"Want a happy ending?" he quips. "See a Disney movie."</p><p>In recent years, Ferguson has often worked with two other talented researchers, Paul Jorgensen and Jie Chen. The three have <a href="'l%20Journal%20of%20Pol%20Econ%202013.pdf">tracked</a> the generous funding of President Obama by high-tech businesses engaged in spying on the American public and the waves of money from polluters into the Republican Party.</p><p><strong>Spend money, win votes</strong></p><p>Now the researchers have turned their attention on political money in Congressional elections in a <a href="">new paper for INET</a>.</p><p>They begin with a simple question: What are the facts about total campaign spending and election outcomes? As they write: "We can pool all spending by and on behalf of candidates and then examine whether relative, not absolute, differences in total outlays are related" to the differences in votes received by the major political parties. </p><p>Their answer is stunning: there is strong, direct link between what the major political parties spend and the percentage of votes they win—far stronger than all the airy dismissals of the role of money in elections would ever lead you to think, and certainly stronger than anything you read in your poli sci class.</p><p>They show the strength of this relationship through a simple graph. The line going out to the right in the graph shows the Democratic percentage of the total money flowing into the race for the major parties and runs from 0 to 100 percent. The vertical line shows the percentage of the major party vote that the Democrats won. Dots represent individual House races in 2012.</p><p>As Ferguson, Jorgensen, and Chen sum up, "At the bottom left Democrats spend almost no money and get virtually no votes; at the top right, they spend nearly all the money and garner virtually all the ballots, calculated as proportions of totals for the major parties."</p><p></p><div alt="" class="media-image" height="479" width="480"><img alt="" class="media-image" height="479" width="480" typeof="foaf:Image" src="" /></div><p>If money and voting outcomes were unrelated, then the dots representing individual House races in 2012 would be scattered all over the square. If they were perfectly related, the dots would all cluster tightly on a line.</p><p>Not only in 2012, but in every election for which the data exists (from 1980 to 2012), Ferguson, Jorgensen and Chen found that the graphs came out with neat, straight lines, with minimal scattering of dots. The link is clear: when the Democrats spend more than Republicans, their candidates win. When Republicans spend more than Democrats, they win.</p><p>There was but one exception, the Senate races of 1982, when Senator William Proxmire, whose disdain for fundraising was legendary but who still won elections, brought down the average. Otherwise, with alarming regularity, Democrats and Republicans candidates' share of the vote was correlated, to an astonishing degree, with the amount money spent in the campaign. </p><p>Nothing like this graph has ever made its way into a political science textbook. That it now exists sure should change what Ferguson, Jorgensen, and Chen call the "optics" of the campaign finance discussion. But will it? Does money just follow popular candidates?</p><p>Political scientists have long had a way out of admitting the implications for democracy of such a direct a relationship between politics and money: the idea that the wealthy tend to spend on the most popular Congressional candidates. Their "influence," the thinking goes, is thus nothing more than a reflection the will of the people. They don't force any outcome other than the one that voters would choose. Political scientists call this idea "reciprocal causality."</p><p>Ferguson, Jorgensen and Chen tackle this issue head on. They use a cutting-edge method invented by Dutch statistician Peter Ebbes and recently studied by Irene Hueter in another <a href="">new INET paper</a>. The researchers find that while reciprocal causation happens, its extent is not large: money's effect is direct and powerful. </p><p>They confirm their conclusion by using another method now widely employed in finance and economics: they look at published gambling odds on the chances of a Republican takeover of the House in 1994. These are relevant because a huge wave of money swept the Republicans to victory in that election, but the odds never moved very much. The relative lack of change rules out the idea that soaring expectations of victory drove the wave. But the wave, when it came, nevertheless produced a big change in the electoral outcome, just as a money-driven "investment theory" of political parties would predict.</p><p><strong>Eccentric gazillionaires or big corporations driving elections?</strong></p><p>Their paper closes by examining the notion that right wing politics in America has been driven by donations piling up from eccentric entrepreneurs like investor and conservative mega-donor Foster Friess — the sort of people who are widely imagined to populate the <a href="">Forbes 400 list</a> of wealthiest Americans – rather than mainline big business corporations, such as those on the <a href="">Fortune 500 list</a>. </p><p>On the contrary, the researchers find that "a simple count of firms and investors on Forbes show that the largest American corporations support Tea Party Congressional candidates and organizations supporting the movement, such as Freedom Works, at much higher rates than Forbes 400 members. Even making due allowances for Dark Money, the difference is substantial."</p><p>Evidently American big business firms are not centrist, as many pundits would have it. As Ferguson and his colleagues put it, "Stories that the steady rightward drift of the American political universe is somehow the work of exceptionally ideological individual entrepreneurs are huge over-simplifications. If the center is not holding in American society — and it rather plainly is not — America's largest companies are as implicated as anyone else; indeed, perhaps more so."</p><p> </p><p>This state of affairs explains why economic inequality has grown into a crisis, with social unrest amplified by economic distress. Because of this money-driven system — which has been getting worse since 1970s up to the current dysfunctional mess — when the rich don't feel like paying taxes, we all suffer. Infrastructure collapses, schoolchildren and sick people suffer, and hard-working citizens are robbed of their fair share of the country's prosperity and end their lives struggling to keep body and soul together.</p><p> </p><p>Ferguson, Jorgensen, and Chen conclude, "It goes without saying that this news is not reassuring; particularly in elections below the federal level – in states and local elections, we suspect, money has come to dominate outcomes to a frightening degree, not least because it is unlikely that the Republican advantage is offset there to the degree that it has been in recent federal elections. If it turns out that the U.S. has entered a Post-Democratic age, the situation will not be improved by social scientists behaving like ostriches. It is time economics, political science, and history recognize the reality of industrial and financial blocs within parties and acknowledge money's powerful effects on elections."</p><p> </p><p>If mainstream social scientists are not pursuing the truth, what exactly are they pursuing? Whatever it is, it does not appear to be good for democracy.</p> Wed, 10 Aug 2016 08:15:00 -0700 Lynn Stuart Parramore, AlterNet 1061587 at News & Politics Economy Election 2016 News & Politics The Right Wing money and politics elections election 2016 election 2012 newt gingrich corruption republicans democrats donald trump hillary clinton Over $100,000: That's How Much Big Finance Rips You Off <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">New research shows that the average U.S. household loses over $100,000 to destructive activities of bankers and financiers.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the <a href="">blog</a> of the Institute for New Economic Thinking.</em></p><p>America’s financial system is broken for all but a few at the top; that much is plain. The rest sense that we are stuck on the minus end of some great financial formula, but given the complexity and size of Big Finance, it’s hard to pin down exactly why it happens and how it all adds up.</p><p>Enter economist Gerald Epstein of the University of Massachusetts, Amherst. He has dived in and crunched the numbers, and the results are eye-popping. Epstein and his colleague Juan Antonio Montecino look at exactly how families, taxpayers and businesses get ripped off by dubious financial activities and tally up the costs in a new paper for the Roosevelt Institute, “<a href="">Overcharged: The High Cost of Finance</a>.” (The Institute for New Economic Thinking has also supported <a href="">several papers</a> by Epstein.)</p><p>Epstein and Montecino report the grand total of the loss to Americans: "We estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy."</p><p>That is indeed a drag.</p><p>The researchers look at three key areas, including the excessive profits nabbed by financiers; the price of diverting resources away from non-financial activities; and how much you lose from blowups like the 2008 financial crisis.</p><p>I asked Epstein how all this breaks down for an ordinary American employee—say, a retail store manager we'll call Jane. Epstein explained to me how bankers and financiers shrink Jane's wallet as she goes about her normal activities.</p><p><strong>See Jane Lose</strong></p><p>Epstein begins with a few examples, such as late fees on credit cards.</p><blockquote class="blockquote-pull"><p>A late fee might be $30. Interest rates can go up as high as over 20 percent. Then there are the ATM fees which Jane may not see, and which Congress tried to limit with little success in Dodd-Frank. Consumer groups have also tried to limit bank and credit card fees, but also unsuccessfully because the bank lobby is so strong in protecting them. If Jane has an erroneous fee, good luck to her in getting that reimbursed.</p></blockquote><p>If Jane is lucky enough to have some retirement savings, she is very possibly getting taken for a ride there, too. Epstein notes that if you have a 401(k) plan and your employer has hired an asset management firm to manage your funds, the costs are very high compared to index funds or low-cost managed funds. Often 2 percent is skimmed right there.</p><p>“If Jane had put $10,000 into an index fund instead of an actively managed fund,” he notes, “then after 30 years, she would have 44 percent higher wealth, and after 40 years, she would have 65 percent higher wealth. After 35 years or so, Jane loses half of the wealth that could have been hers without the high fees paid through actively managed funds.”</p><p>An employee is often given the illusion of choice between different funds, but in reality they may all have high fees and do no better—or even worse—than the overall stock market. Even if Jane has the choice of an index fund, notes Epstein, she may still get swindled. If the employer has set things up with an asset manager, fees on index funds can still be higher than if you do it yourself.</p><p>What can Jane do? Can she educate herself on the intricacies of fee structures to avoid this pitfall? Good luck with that, says Epstein.</p><p>“There’s very little requirement that these asset managers provide real, clear, upfront information about the fees, about the returns relative to alternatives, and so on.” He explains that managers and advisers typically don’t even have fiduciary responsibility to Jane and her fellow employees. In other words, they aren’t obligated to do what’s in her best interest and they may well have conflicts of interest, luring people into investments that produce the biggest fees for themselves.</p><p>The asset management company, the broker or the manager is richer; Jane is poorer.</p><p><strong>Big Finance Family Values</strong></p><p>Jane’s whole family is going to pay heavily for all these overpayments, which for poor families, include gouging by payday lenders and other predators. But there are hidden costs, too, which pile up from a financial system that is too big and attracts vast numbers of talented, smart people who want to get rich instead of teach, practice medicine or build things.</p><p>This bloated, inefficient financial system tends to lower economic growth—Epstein reckons that between 1990 and 2005, the cost to the overall economy was between 2½ to 4 trillion dollars. Americans have also paid because of the banking shenanigans which helped set off the 2008 financial crisis—they may have lost their jobs or seen their wages reduced or their homes foreclosed. Many never regain their financial footing.</p><p>“If you add up all of these costs,” says Epstein, “which we do in this report, you get a figure somewhere between 13 trillion and 23 trillion dollars. That comes out to between $40,000 and $70,000 for every man, woman and child in the U.S. from roughly 1990 to 2005.”</p><blockquote class="blockquote-pull"><p>Jane’s household lost $105,00 and $180,000. The typical household would have doubled its wealth in retirement if not for these costs. Frankly, these numbers are probably underestimated because of conservative estimates we used.</p></blockquote><p>Epstein calls the whole process a “negative sum game." This means it costs people like Jane more than simply a dollar to transfer a dollar of wealth to financiers—significantly more because of all the ways their destructive activities impact her, like reduced governments services due to a stagnant economy. “We actually pay five dollars for every extra dollar that ends up in the pockets of bankers,” Epstein notes. “It drags down the economy as a whole.”</p><p>Neoclassical economists love to talk about the efficiency of the market. But this is anything but efficient.</p><p>“We’re not saying that there’s no financial activity which is useful,” Epstein emphasizes, “but we are saying that the kinds of finance that generate these high rents and these high profits, are also extremely damaging to all the Janes and Johns in our economy.”</p><p>He points out that these financial activities are a big engine of inequality: “The benefits are accruing to the one percent and the costs are hitting the 99 percent.”</p><p><strong>Taking Back the Economy</strong></p><p>Can the excess costs of finance be reduced? Can the financial sector once again play a more productive role in society?</p><p>Epstein and Montecino say yes. “To accomplish this,” they write, “we need three complementary approaches: improved financial regulation, building on what Dodd-Frank has already accomplished; a restructuring of the financial system to better serve the needs of our communities, small businesses, households, and public entities; and public financial alternatives, such as cooperative banks and specialized banks, to level the playing field.”</p><p>“We know how do this,” says Epstein. “In the past, we had strict regulations on banks by the New Deal coalition, but they fell apart in part because the bankers themselves were never happy with it. They did ok, but not so much better than, say manufacturers. They made respectable incomes, but not mega profits. So they pressed very hard to get rid of the restrictions, and they eventually got their way. By 1999, with the repeal of Glass-Steagall, it was a fait accompli.”</p><p>Financiers and bankers still have enormous political power through the revolving door and they’ve managed to poke enormous holes in Dodd-Frank. In Epstein’s view, the next president has to make breaking up the biggest banks a priority if the wild horses of finance are to be corralled.</p><blockquote class="blockquote-pull"><p>The banks are too big to fail, too big to manage, too big to jail. Our results suggest that they use subsidized government funds in the form of bailouts to do risky, destructive speculative activities. That’s the number one priority. Number two is to bring the shadow banking system, which includes like hedge funds and private equity funds, under strict regulation, which they aren’t now. Number three is to make the regime of regulation of derivatives much stronger.</p></blockquote><p>Epstein is also keen on the idea of alternative financial institutions, such as postal banks, which the U.S. Postal Service has been discussing bringing back (such banks existed in the 1930s and ’40s). “That way,” says Epstein, “people don’t have to go to the pawnbroker for a credit card. We really need alternatives for all financial areas, everything from mortgages to retirement investing.”</p><p>The public option for finance is not yet being discussed among mainstream political candidates, but perhaps, like the public healthcare option, the time to take it seriously is on the horizon.</p><p>Epstein adds that much more research needs to be done by economists to study the myriad processes by which Americans are drawn into the financial web and the ways in which they are overcharged, a whole range of activities from student loans to debt collection. “We need to know more about how they affect us as individuals and collectively.”</p> Thu, 28 Jul 2016 05:27:00 -0700 Lynn Stuart Parramore, AlterNet 1060792 at Economy Economy banks banking industry rip off finance big finance profit retirement inequality debt How Business School Is a Driving Force in America's Increasingly Unequal Society <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Students are still taught to extract resources from workers, taxpayers and the real economy.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the <a href="">blog</a> of the <a href="">Institute for New Economic Thinking</a>.</em></p><p>Over the last several decades, American business executives have made decisions that have exacerbated the inequality that chokes prosperity for the country. They have misallocated resources and they have awarded themselves mind-boggling compensation packages while workers have suffered stagnant wages and increasing job insecurity.</p><p>The stats are shocking: In 1965, a typical CEO took in about <a href="">20 times</a> what an average employee earned, while the latest figures from the AFL-CIO put current CEO pay at <a href="">373 times</a> what the average worker makes. (Amazingly, according to a forthcoming paper for the Institute for New Economic Thinking by Matt Hopkins and William Lazonick, even that ratio is grossly underestimated because it is based on grant-date fair value estimates of what stock options and stock awards might be worth, rather than how much CEOs actually take home when they exercise stock options and when stock awards vest.)</p><p>Inequality <a href="">holds back</a> the growth of the entire economy, as research supported by INET has shown. Even today’s business elites are worried about its impact: In a 2015 <a href="">poll</a> of over 2,700 Harvard Business School alumni, respondents said that they were more concerned about growing inequality than ever before. They saw it as a serious threat to the country, and to the bottom line of U.S. corporations. According to Harvard professors Jan Rivkin and Michael Porter, and Harvard Business School senior fellow Karen Mills, who <a href="">reported</a> on the findings, respondents “remain pessimistic on balance about the likelihood that firms will lift American living standards by paying higher wages and benefits in the near term.”</p><p>In other words, don’t look to American companies to help solve inequality anytime soon. The pessimism of the Harvard alums comes despite business-school programs in recent years <a href="">adding courses</a> that examine issues related to inequality.</p><p>Why is there so little expectation that today’s MBAs will run companies differently than their predecessors have done in light of the inequality crisis? What are they learning or failing to learn?</p><p>William Lazonick, professor of economics at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness, sees something in the core teachings of business schools that ensures firms do not give workers a fair shake. Lazonick, who has been on the faculty of Harvard Business School and of INSEAD business school in France, observes that starting in the 1980s, business schools underwent a transformation in philosophy and orientation that reflected shifts in the economics discipline and in the economy at large.</p><p>During that time, Wall Street was taking off and American businesses were becoming increasingly financialized —meaning that executives started to base all of their business decisions on the goal of boosting their firms’ stock prices. When corporations become financialized, executives turn their attention away from investing in the productive capabilities of employees, which is the basic building block for rising American living standards. They also tend to allocate fewer resources to research and development, which is where innovation happens. Instead, executives watch the stock market — in large part because their own compensation was increasingly based on the value of the company’s shares. (See Lazonick’s INET paper, "<a href="">Profits Without Prosperity</a>.")</p><p>Throughout the '80s, fewer MBA graduates went into industrial corporations; more headed to Wall Street to make a quick buck. Business schools tailored their hiring to match this trend. They hired professors, particularly economists, who favored theories that tended to prioritize the interests of shareholders and executives who cater to them.</p><p>Lazonick notes that in 1985, for example, Harvard Business School hired economist Michael Jensen. Jensen, a former University of Chicago student of Milton Friedman, co-authored a famous and often-cited business paper, “Theory of the Firm,” in which he argued that the single goal of a company should be to maximize the return to shareholders. He became one of the most highly visible proponents of shareholder value ideology. Jensen and supporters of this theory believed that it would cause executives to focus on the actual performance of the firm and increase shareholder value over time. They were dead wrong: instead, executives turned their attention to the short-term goal of boosting stock value over the long-term prospects of the company and executive pay shot into the stratosphere.</p><p>As Lazonick explains, shareholder-value ideology provides a cover for destructive behavior that tends to heighten inequality in our society. For executives, focusing on shareholder value means that they stop concentrating on the actual work of running a business and creating useful things and services. It boosts their motivation to shirk taxes or lay off workers in the hope that demonstrablycutting costs in an already profitable corporation would boostthe stock price in the short term. It also prompts them to allocate more of their profits to shareholders in the forms of dividends and stock buybacks rather than using it to give workers a raise or invest in the technology to improve productivity or create new products.</p><p>By the 1990s, anyone taking courses in finance would be inculcated with the view that shareholders are the only constituents who really matter to a company. “When this notion came in, a lot of business school professors didn’t believe it,” Lazonick points out, “but once it took over, there wasn’t much debate.” Today, professors focus more on mathematical models and nurturing the “quants” who will go on to work on Wall Street than on teaching students how to run a business. Lazonick believes that many of those teaching currently do not even understand the significance of shareholder value and how it negatively impacts corporate governance and promotes inequality.</p><p>Shareholder value ideology lets executives argue that it is their <em>duty</em> to exclude workers and taxpayers and other stakeholders from sharing in the gains of innovative enterprise.</p><p>Lazonick says this is baloney. He is not alone: None other than Jack Welch, former chairman and CEO of General Electric, has called shareholder-value ideology the "<a href="">dumbest idea in the world</a>." Yet business executives still pretend that maximizing shareholder value is their primary fiduciary obligation, which is nonsense except in few restricted cases, such as when a company is going to be sold.</p><p>Lazonick notes that prior to the 1980s, business schools taught that executives and directors of U.S. public corporations had a responsibility to many stakeholders, such as customers, employees, suppliers, creditors, communities and the country. But for the last several decades, students have been taught how to extract wealth from these constituencies in order to line the pockets of executives.</p><p>In Jack Welch’s view, this is no way to run a company. “Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”</p><p>Lazonick argues that challenging thedistorted shareholder value framework is an urgent priority in the discipline of economics, pointing out that even among well-known economists who challenge many aspects of economic orthodoxy, there is little talk of shareholder value. Until economists reckon with the problem, he warns, MBAs who go on to hold positions of influence in politics, corporations and a wide range of organizations will likely be steeped in a vocabulary, language and culture that reinforces the growing inequality which hurts everyone — including businesses.</p><p>Lazonick emphasizes that economists need to acknowledge that the economy should be run so that people can have decent standards of living on a widespread basis, which requires a theory of how this state of affairs might come to pass. In his view, economists need a theory of innovative enterprise in which the corporation retains earnings and reinvests them in the productive capabilities of the people it employs. “Retain-and-reinvest” is the antithesis of “downsize-and-distribute” — the current strategy in which the firm lays off experienced workers who cost more and funnels cash to shareholders. Focusing on keeping and investing in such valuable employees is the way to get to an economy that produces more job security, more exciting innovation, greater economic equality, and prosperity for all. </p> Wed, 13 Jul 2016 06:27:00 -0700 Lynn Stuart Parramore, AlterNet 1059778 at Economy Culture Economy Education MBA business school Havard INET shareholder value ideology taxpayer corporate governance inequality ceo compensation innovation The Surprising Way to Stop Bankers From Robbing the American People <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Pernicious cultural norms inside American banks and regulatory agencies crowd out basic ethics.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the <a href="">blog</a> for the <a href="">Institute for New Economic Thinking</a>.</em></p><p>Does morality have a place in the realm of banking and regulation? That it feels awkward to even raise the issue is convenient for bankers who engage in reckless and harmful activities every day without fear of punishment.</p><p>Ed Kane, professor of finance at Boston College, believes it's vital to discuss moral questions, in plain English, without abstractions. Following his own advice, he is blunt in characterizing some of the behavior in the banking industry in recent years: "Theft is a forced taking of other people's resources," he says. "That's what's going on here." Kane urges a deep inquiry into our culture to understand why bankers so commonly get away with crimes in the United States.</p><p>In 2007, just before the housing bubble burst, Goldman Sachs chief Lloyd Blankfein wrote to a colleague to discuss how the bank could deal with toxic mortgages — "<a href=";pg=PA236&amp;lpg=PA236&amp;dq=lloyd+blankfein+cats+and+dogs&amp;source=bl&amp;ots=mzea31TR7t&amp;sig=jgHXDhbUxIaMFlmEA8r2MNG_5Bw&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwj847fetIzNAhWBej4KHbQZDUcQ6AEIXjAM#v=onepage&amp;q=lloyd%20blankfein%20cats%20and%20dogs&amp;f=false">cats and dogs</a>" as he called them — on the books. Blankfein's bank went on to sell the toxic junk to unwitting investors who were told they were sound, while taking short positions on the very same securities. As the Financial Crisis Inquiry Report <a href=";pg=PA236&amp;lpg=PA236&amp;dq=lloyd+blankfein+cats+and+dogs&amp;source=bl&amp;ots=mzea31TR7t&amp;sig=jgHXDhbUxIaMFlmEA8r2MNG_5Bw&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwj847fetIzNAhWBej4KHbQZDUcQ6AEIXjAM#v=onepage&amp;q=lloyd%20blankfein%20cats%20and%20dogs&amp;f=false">noted</a>, one structured finance expert compared Goldman's practices to "buying fire insurance on someone's house and then committing arson."</p><p>Still, Blankfein and his fellow bankers later pocketed billions of dollars from the American people in the form of a <a href="">bailout</a>. They profited at the expense of their clients and society. Nobody went to jail.</p><p>In Kane's view, the word "should" — used in the moral sense — needs to be reinserted into the vocabulary of bankers. Today's executives may spend a lot of time considering the question, "Could we get away with it?" but there is little focus on the question, "Is it right to do it?"</p><p>In a new paper for the Institute for New Economic Thinking, "<a href="">Ethics vs. Ethos in US and UK Megabanking</a>," Kane argues that when bankers make reckless and harmful choices while counting on unlimited taxpayer support to bail them out, they are plainly stealing. He calls it "theft by safety net." Through the safety net, Kane explains, big banks demand that the public provide protection and relief from distress. They put great pressure on the government, which acts as a middleman in the robbery, just as in a "protection racket." As Kane puts it, "the government then, by dint of its authority, takes the money from hapless taxpayers."</p><p>Why is this not considered a crime? Because, says Kane, politicians nearly everywhere are bought off by bankers. Plain and simple. The regulators who might intervene are more worried about their careers and hopping through the revolving door between government and the industry.</p><p>In Kane's view, pernicious cultural norms within banks and regulatory agencies have crowded out fundamental moral principles. Regulators in both the U.S. and the U.K. are fully aware that the reckless pursuit of profits is one of the main reasons for the expanding scale and frequency of financial crises over the last 50 years, but they tend to approach the issue differently.</p><p>Kane sees things as much worse in the U.S., where, he observes, authorities are stuck on the idea of toughening corporate-level rules: capital and liquidity requirements, corporate fines, periodic stress tests, and so-called living wills. That's not enough, says Kane. The British have done this, but they have also supplemented corporate restraints and punishments by defining a new crime called "reckless misconduct leading to the insolvency of a bank."</p><p>Besides that, Kane notes, it has been long been illegal in the U.K. for an individual director to allow a corporation to issue new debt if he or she knew or should have known that the firm was insolvent. In the U.S., Dodd-Frank Act allows a limited clawback of stock-based bonuses in the wake of a bank failure, but it does not make individual bankers criminally responsible for actions that they should have known were reckless. Prosecutors typically settle lawsuits and bankers find ways to put taxpayers on the hook.</p><p>In the U.S., Kane argues, the <a href="">Dunning–Kruger effect</a> — a cognitive bias named for two Cornell researchers in which people can't recognize their own weaknesses — compounds the problem. If you don't recognize your inability to make sense of things using an ethical code, for example, how can you overcome the shortcoming? Part of the problem is that ethical codes have to be taught and practiced. "College education in the U.S. has been much more watered down," observes Kane. "In the U.K., people still have some training in philosophy that helps them to see the ethical implications of their actions."</p><p>Philosophy for financiers? Yes, says Kane. "When I present these ideas in Europe, I get much more enthusiastic reception than in the U.S., where people have this relativistic view of ethics." He argues that in America, there is a common perception that whatever feels good at the moment must be okay and that this kind of thinking justifies nearly any behavior. "Kant is still a force in modern philosophy," says Kane, "and he tries to develop an objective, non-theological reason for not hurting other people." Hurting others to please yourself, says Kane, is the essence of theft. It's a problem caused in part by ethical blindness.</p><p>"The regulators in the U.S. just don't see things ethically," notes Kane. "They see that they have tools, and they can do things with them to help them weather a crisis. They use the tools to put taxpayers in the hole. Even worse, this behavior worsens booms and busts and misallocations of resources that leave a lot of people unemployed when the bubble breaks. I've looked regulators in the eye and they tell me they just don't get it — they don't see the transfer of value to fat cats that bailouts entail through an ethical lens. They view it through the norms of their employer."</p><p>A code of ethics, says Kane, is what connects us. Acting in one's self interest may be the mantra of capitalism. But the self is not an autonomous unit; it is connected to other selves, as Kant emphasized: "Kant says that you can't escape that connection," says Kane. "Think of a couple in love. The other person's happiness is part of their own." On the other hand, "narcissistic individuals don't see themselves as connected. They do whatever makes them feel good in the moment and are unconcerned about the fallout." That, says Kane, is a dangerous way of thinking and at odds with thousands of years of thinking about how to approach morality. "All religions deal with that in not terribly different ways. It can't be right to make yourself happy by hurting someone else."</p><p>As Kane sees it, holding accountable the individual, rather than the corporation, is hugely important to dealing with crimes in the banking industry. "Individuals are the ones who act recklessly," he points out. "Banks don't act recklessly." The punishment of the individual is not a matter or revenge of retribution, it is about deterrence.</p><p>Kane believes changes are needed in the culture of banks and regulatory agencies, but of course by the time people enter jobs in those institutions, they are already well into adulthood and their ethical frameworks have already taken shape. Is it too late?</p><p>"It really gets down to our family structure," says Kane. "Many children are not being disciplined. They're not learning about their obligations to other people. They're learning only about the obligations of other people to them. When they sense that their parents are lying and cheating, well, it's seen simply as a betrayal."</p><p>The educational system in the U.S. doesn't help. "The thing that our schools teach better than anything else is how to copy. Who to copy from. How to get away with it," says Kane. Getting students to think about ethics is about more than simply adding an ethics course to the curriculum. It's about changing the incentives: "What people teach in ethics is the history of ethical theory. They don't teach operative ethics."</p><p>Kane believes that students need to be taken through numerous real life scenarios in which they can apply ethical principles. In business schools, students get bombarded with case studies in which they look at a company, identify a problem such as poor sales, and try to figure out how to solve it. But, he argues, they need to go through well-designed ethical case studies. When your bank holds toxic mortgages, what should you do? What would Kant's model suggest that you do? What does the Golden Rule indicate as a course of action?</p><p>According to Kane, no amount of policy tweaks or added regulatory staff can solve this basic problem of ethics and cultural norms. There is no way around the necessity of inculcating an ethical perspective on the choices we make.</p> Wed, 08 Jun 2016 07:25:00 -0700 Lynn Stuart Parramore, AlterNet 1057948 at Economy Culture Economy Education Visions banking industry economics morality big banks too big to fail goldman sachs lloyd blankfein bailout dodd-frank Media You Can Trust in a Capitalist Society? Here's an Idea <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">A new book by economist Julia Cagé advocates a participatory business model for independent media. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post originally appeared on the blog of <a href="">the Institute for New Economic Thinking</a>.</em></p><p>Imagine a world where publications are controlled not by zillionaires or governments, but by readers, journalists, crowdfunders and other shareholders. A world in which news outlets offer a wide range of consistently reliable, informative news, and where content is not determined by the power of money.</p><p>Sounds utopian? French economist and Institute grantee Julia Cagé doesn’t think so.</p><p>In her new book, <a href="">Saving the Media: Capitalism, Crowdfunding, and Democracy</a>, Cagé examines what’s gone wrong with the media in Europe and the United States, how we got into this mess, and how a new business model could save a public resource essential to the functioning of democracy. She explores a media landscape in which the drive to entertain and cater to the affluent has crowded out quality and where plummeting ad revenue and destructive competition have created conditions that lead to laid-off employees and shuttered newsrooms. Cagé proposes instead a model firmly anchored in the notion that news is a public good that can revive our societies and enable us to debate the issues that will shape our collective destiny.</p><p>Along the way, Cagé dispels pervasive industry myths, such as the notion that the web is decimating audiences for print media. She concludes that the audiences for the two platforms are actually about equal in size, adding that because newspapers are often read by several people, counting only paid subscribers doesn’t provide a clear picture. She also argues that their influential role in public conversation should entitle media organizations to more state support than is currently the case. “What must be recognized is that the news media provide a public good, just as universities and other contributors to the knowledge economy of the twenty-first century do,” she writes. “For that reason they deserve special treatment by the government.”</p><p>Cagé argues that if society expects the media to provide quality, unbiased information in order to allow the public to make informed decisions, then relying on market forces to shape the industry is a perilous choice. Surveys have shown that large majorities think that the media are biased—hardly a favorable condition for democracy. She warns that democracy depends on more than just diversity of media sources; it requires diversity in the ownership.</p><p>Glancing back through media history, Cagé notes that when shares of American newspapers began trading on the stock exchange in the 1960s, strategies to boost payouts to shareholders negatively affected the quality of news. Circulation shrank as papers targeted wealthy audiences in order to increase advertising revenues, and it shrank further as the quality of news decreased. This not only hurt the economic stability of the newspapers, but hurt democracy, too, as citizens were deprived of quality sources of information.</p><p>The logic of market forces does not produce the media content a democratic society needs in order to make informed choices.</p><p>Cagé is unimpressed by the example of Jeff Bezos’ acquisition of the Washington Post—and the argument that the media’s best hope lies in billionaire owners who have made their fortunes elsewhere. While investment in media may be welcome, that model offers no protection from the possibility that these moguls will unduly influence publications to serve their own interest, much as wealthy political donors use their contributions to impact elections. Even worse, they may simply be fickle vanity investors who see their media properties as a source of amusement.</p><p>Cagé finds more promise in various experiments in Europe and the U.S. to turn media companies into nonprofits, but she observes that this option carries is its own hazards. For example, the Bertelsmann media company (a majority shareholder in Penguin Random House), owned by the Bertelsmann Foundation in Germany, offers enviable stability to its publications, but the owners do not forfeit the right to intervene in the management of the company—meaning the editorial independence of its media outlets is effectively sacrificed.</p><p>Democratic management of media companies, she admits, does not have a spectacular track record. Different forms of cooperatives have been tried in Europe and the U.S., but financial challenges and the complexity of large news organizations have dogged these efforts.</p><p>Cagé seeks to a path between the Scylla of “hypercapitalism” (large investors with unlimited power) and the Charybdis of “hypercooperation” (one person, one vote) to come up with an altogether new media structure. Her vision is a novel economic and legal template based on crowdfunding and power-sharing. It hitches together elements of a joint-stock company and a foundation to create what she calls the nonprofit media organization (NMO), the purpose of which is to bring new capital to the media by granting attractive tax advantages, to stabilize the capital base by making investments irrevocable, and to limit the decision-making power of outside investors. It’s a kind of hybrid model based on the world’s great universities, which combine commercial and non-commercial activities.</p><p>Cagé’s model seeks to avoid giving up power to large shareholders, but she doesn’t believe absolute equality among shareholders is realistic. In her model, voting rights increase with the size of contributions up to a certain limit so that small shareholders retain an incentive to invest. But she recognizes that capital is capital, and large contributors will have more say than smaller, although smaller contributors can band together into societies, say for readers or journalists, to amplify their voices.</p><p>There are plenty of details to be worked out, given the laws and tax structures in various countries. The book does not offer a finished solution, but attempts to initiate a vital and timely discussion about ways to strengthen the media—and by extension, democracy—at a moment of low voter turnout, rising citizen alienation from institutions and hysteria in politics, and sub-optimal public debate.</p> Mon, 16 May 2016 06:37:00 -0700 Lynn Stuart Parramore, AlterNet 1056434 at Media Economy Media Visions media journalism capitalism CROWDFUNDING democracy inequality newspapers foundations Is the 1% Really the Problem? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Unpack the numbers on America&#039;s highest earners and there&#039;s a stark division between the well-off and the dangerously affluent. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>“We are the 99 percent” is a great slogan, but is it distracting our attention from a sinister reality? There’s strong evidence that it’s not the 1 percent you should worry about—it’s the 0.1 percent. That decimal point makes a big difference.</p><p>Over the last decade, a gigantic share of America’s income and wealth gains has flowed to this group, the wealthiest one out of 1,000 households. These are the wildly exotic and rapidly growing plants in our economic hothouse. Their habits and approaches to life are far divorced from the rest of us, and if we let them, they will soon cut off all our air and light.</p><p>The 99 percent would do well to find common ground with bulk of the 1 percent if we can, because we are going to need each other to tackle this mounting threat from above.</p><p>To <a href="">make it</a> into the 1 percent, you need to have, according to some estimates, at least about $350,000 a year in income, or around $8 million accumulated in wealth. At the lower end of the 1 percent spectrum, the “<a href="">lower-uppers</a>,” as they have been called, you’ll find people like successful doctors, accountants, engineers, lawyers, vice-presidents of companies, and well-paid media figures.</p><p>Plenty of these affluent people have enjoyed blessings from Lady Luck, but a lot of them work hard at their jobs and want to contribute to their communities in positive ways. In times past, these kinds of citizens served on the boards of museums and cultural institutions and were active and prominent figures in their towns and cities. But now they are getting shoved aside unceremoniously by the vastly richer Wall Street financiers and Silicon Valley tycoons above them.</p><p>Those at the lower end of the 1 percent have very nice houses and take exotic vacations, but they aren’t zipping to and fro in personal helicopters or cruising the high seas in megayachts. In exorbitantly expensive places like New York City and San Francisco, the lower-uppers may not even feel particularly rich. Most of them aren't really growing their share of wealth and plenty are worried about tumbling down the economic ladder. They have reason to worry.</p><p>Some lower-uppers are beginning to realize that their natural allies are not those above them on the economic ladder. They are getting the sense that the 0.1 percent is its own hyper-elite club, and lower-uppers are not invited to the party. The 0.1 percent has pulled away because at the tippy top, income has grown much faster than it has for the rest of the affluent<strong>.</strong>Unlike the lower-uppers, the super-rich folks are armed with every tax dodge in universe: they aren’t expected to pay nearly their share to Uncle Sam. Their income comes largely from capital gains, which are taxed at a far lower rate than income earned from working. As their money piles up higher and higher, their conspicuous consumption knows no bounds—they are building palatial homes and massive art collections and even <a href="">gold-plated bunkers</a> to protect themselves in case of an uprising. Many don’t really ever put down roots in communities; they roam from New York to London to Dubai to the Cayman Islands, following the favorability of weather and tax codes.</p><p>All told, the 0.1 percent now owns about as much wealth as the bottom 90 percent of America combined. And that’s just the official numbers. Plenty of their wealth is parked overseas and in places where it’s hard to get an accurate count of what they’ve accumulated. To get into the club, which comprises around 115,000 households, you need to <a href="">start</a> with a nest egg of $20 million—and that’s at the very bottom of the super-rich group. George W. Bush just barely <a href="">makes the cut</a>. He’s very rich, but not among the highest fliers in today’s second Gilded Age.</p><p>As you move on up the 0.1 percent ladder, you get folks like Steve Cohen, the hedge fund billionaire who bought a 14-foot <a href="">shark in formaldehyde</a> for his office, as if to signal his shady business practices (his previous firm, SAC Capital, was shut down by the feds for insider trading). Cohen doesn’t have just one mansion, he has lots of them. His $23 million <a href="">principal home</a> is in Greenwich, Connecticut, featuring an indoor basketball court, a glass-enclosed pool, a 6,700-square-foot ice skating rink with a Zamboni machine that smoothes the ice, a golf course and a private art museum. He also has five other homes <em>just in the New York area alone</em>.</p><p>People like Cohen are a big part of the undue concentration of wealth at the expense of workers and communities—they create little of value for society and siphon off funds for our schools and infrastructure with tax loopholes allowed by bought politicians, like the notorious “carried interest” loophole. You also get bankers CEOs like Jamie Dimon of JPMorgan Chase and corporate chieftains paid stratospheric salaries even while driving their companies into the ground, like erstwhile GOP presidential hopeful Carly Fiorina, formerly of Hewlett Packard.</p><p>It used to be that simply being a billionaire would get you into the Forbes 400 list—that was true up until 2006. No more. Our current herd of fatcats has blown past their Gilded Age counterparts to seize an even more gigantic share of the economic pie. <a href="">According to the magazine</a>, in 2014 you had to have $1.55 billion in the bank vault to make the list. That was $250 million more than in 2013. By 2015, you had to have even more: Carol Jenkins Barnett, whose wealth derives from Publix supermarkets, was <a href="">too poor</a> to make Forbes with her paltry $1.69 billion.</p><p>The hurdle continues to rise rapidly. By 2015, the wealthiest 20 people <a href="">owned</a> more wealth than half the American population. This group is where you’ll find Mark Zuckerberg of Facebook and Larry Page of Google, as well as the most successful financiers, like Warren Buffett and George Soros. But the ranks of the very top are no longer filled by mainly by entrepreneurs or even financiers who are self-made. Increasingly, they are populated by people who, thanks to several decades of regressive tax policy, have inherited their wealth; names like Walton and Koch have become common at the apex of wealth. This is the new hereditary aristocracy of means and power. </p><p>Figuring out exactly how the very richest spend politically is hard, but it’s obvious that big contributions from the 0.1 percent are sharply rising in importance. It used to be that these gazillionaires would make their donations and then simply pick up the phone and tell Congress what they wanted done—as <a href="">Jamie Dimon did</a> when he and other bankers wanted a key part of Dodd-Frank to be rolled back in 2014. They tend to get what they want (Dimon did), and above all, what they want is not to pay taxes or have their activities regulated. That’s why you will continue to hear politicians insist that the paltry amount you can expect in Social Security is too much and that “we can’t afford” to send kids to college without plunging them into debt peonage.</p><p>Inequality of income and wealth has fed back into the political process in dramatic fashion this political season. Tycoons like Donald Trump are abandoning their behind-the-scenes positions and stepping right onto the political stage. We may be entering a new phase of American politics where the 0.1 percent more regularly takes on the mantle of public servant to run the show directly, highlighting the brokenness of our system of democratic representation. Bernie Sanders, who has made political revolution focused on wresting control from billionaires as a central theme, is clearly focused on the power of the 0.1 percent. The revolution he calls for will not likely happen unless the 99 percent and the lower-uppers can appreciate their common ground and common threat. </p><p>Mike N., a North Carolina physician and entrepreneur, is a member of the 1 percent, but not in the 0.1 percent stratosphere. “Growing inequality is bad for everyone,” he wrote to me. “I do not believe that is sustainable.” He identifies with people who have a tough time making ends meet because he did this for most of his life before his career took off. He is concerned with serving the community through charitable work and political engagement, and he believes that “all should have the opportunity for things like education and healthcare.” Mike N. is the kind of person the 99 percent can work with.</p><p>Unless we act boldly—together—to reduce private concentrations of wealth, inequality will continue to grow and that 0.1 percent will continue to explode because the returns on their wealth exceed increases in salaries and income, as Thomas Piketty noted in his book, <em>Capital in the Twenty-First Century</em>. They can get wealthier and wealthier just by sitting there doing absolutely nothing. In fact, it would be better if they did just sit there and do nothing, because when they do something, it is often reckless speculation that destabilizes the economy. By seriously taxing our wealthiest households, we could raise significant revenues and invest these funds to expand wealth-building opportunities across the economy.</p><p>Until we are able to offer a challenge to the 0.1 percent, we will continue to see democracy undermined, social cohesion blown apart, economies destabilized, social mobility stalled, and many other important aspects of our personal and public lives degraded, including our health. We need the lower-uppers to construct a social and political movement big enough and powerful enough to do it.</p> Mon, 11 Apr 2016 07:22:00 -0700 Lynn Stuart Parramore, AlterNet 1053875 at Economy Economy News & Politics bernie sanders donald trump inequality wealth tax policy 99 percent .01 percent one percent income Paul Ryan Just Now Realized He Was Ignorant About Poverty <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Rana Foroohar’s new book, &quot;Makers and Takers: The Rise of Finance and the Fall of American Business,&quot; gets to the stuff Ryan conveniently left out. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>This post was originally published on the <a href="">blog</a> of the <a href="">Institute for New Economic Thinking</a>. </em></p><p>From the lips of Paul Ryan, Chief Spokesman of Blame-the-Poor politics, came a curious mea culpa just last week: He should not have referred to hard-working Americans trying to feed their families as “takers.” Oops! (Mitt Romney gained attention for similar remarks in 2012, but his running mate Ryan had already been on the <a href="">makers/takers theme</a> for years.) Ryan further admitted that when it comes to economic distress, he didn’t really know what he was talking about.</p><p>“There was a time when I would talk about a difference between ‘makers’ and ‘takers’ in our country, referring to people who accepted government benefits,” <a href="">said the speaker</a>. “But as I spent more time listening, and really learning the root causes of poverty, I realized I was wrong.”</p><p>Well, yes. But a question: If the takers aren’t standing in the unemployment line or rushing home from the second job to change diapers, just where are they? Because an awful lot of America’s resources have gone missing. Like money that should be going to education, job training, healing the sick, retirement funds, infrastructure and, you know—<em>life</em>.</p><p>Ryan didn’t quite get to that part. As he and the rest of the country’s pundits and politicians puzzle over this crazy political season, they might do well to get themselves a copy of Rana Foroohar’s forthcoming book, <em>Makers and Takers: The Rise of American Finance and the Fall of American Business</em> (<a href="">to be released</a> May 17). The title was inspired by Ryan’s very own (now disowned) rhetoric, the favorite shorthand for trickle-down myths that paint the rich as the creators of jobs and innovative products and the rest of the population as lazy good-for-nothings.</p><p>That line worked pretty well before the financial crisis. Now, not so much.</p><p>Foroohar, Time assistant managing editor and economic columnist and global economic correspondent at CNN, has a pretty good idea where to find the takers. They are neither single moms in inner city housing projects nor unemployed white men in Appalachia.</p><p>They are the denizens of plush Wall Street offices, and they have pretty much absconded with the American dream. Despite the remarkable ability of financiers to hide behind complexity and dodge the spotlight of the media, the regulators and the law, Americans are copping onto the breadth and depth of the swindle. They have just about had it—which is why voters have been flocking in droves to the fiery Bernie Sanders, who wants to jail financial crooks and end too-big-to-fail, and to Wall Street heckler Donald Trump, who describes hedge fund managers as worthless moneymen who "<a href="">get away with murder</a>" and gleefully trashes uber-bankers like Jamie Dimon.</p><p>Foroohar has traced a seismic shift that has not only left Washington kissing the feet of Wall Street, but has turned previously normal and comprehensible activities, like making stuff and selling it, into insanely complicated financial death races where ordinary Americans are the road kill. This very shift has turned companies like Apple from makers of cool gadgets to market-rigging megabanks, pharmaceutical companies into cold-blooded financial predators, and the American dream of dignity, health and the pursuit of happiness into a fantasy for large swaths of the population.</p><p>For Foroohar, “takers” is how you refer to people who do nothing of value for society and whose activities leave students crushed with debt, retirees living in RVs, capable workers struggling to land a third-rate gig, and sick people so many tasty morsels for financial vultures.</p><p>Through in-depth reporting, historical analysis and consultation with a range of forward-thinking economic minds, including the Institute for New Economic Thinking chair Adair Turner, president Rob Johnson and grantees like Joseph Stiglitz and William Lazonick, Foroohar's book explains how our financial system stopped funding new ideas and projects and started extracting precious resources from Main Street. Her writing leaves a vivid impression that once the financial wizards get their way, nobody is safe, from the young college grad next door drowning in debt owed to predatory lenders to the child halfway around the world whose dinner fell victim to commodities speculation.</p><p>As I turned the pages, I began to imagine Big Finance as a giant exotic vine from some florid disaster movie that has grown out of control, creeping onto the roofs of our houses, reaching into the food on our plates, tightening its hold on our wallets—even taking over our minds. I’m embarrassed to say how many times I hear phrases like “human capital” and “return on investment” issuing from my own lips: finance-originated concepts used to describe relationships and activities that have little to do with spreadsheets.</p><p>Foroohar follows the financial Cheshire Cat as he baffles and jumps through tax loopholes, spins through revolving doors and sneakily gobbles up savings accounts. She shows how the trend of financialization—an ugly word for the ballooning of the financial sector relative to the overall economy—has led directly to the things that have Americans feeling so betrayed, like crappy McJobs, foreclosed futures, rampant volatility and insecurity, a stalled economy, and an increasingly painful gap between the rich and everyone else. This is why the decline of the middle class and economic inequality have become front and center issues in the 2016 presidential campaign, no matter how much elites of both parties would prefer to change the subject.</p><p>As Foroohar warns, it matters who is president and who that president listens to. It was Reagan’s advisers who brought America deregulatory fever and the rise of stock buybacks (once considered unlawful market manipulation in America), while Bill Clinton’s team later opened the floodgates of speculation with the repeal of Glass-Steagall. These administrations were marked by people whose mindsets favored markets over the real economy. That had better not go on, because if it does, the angry season of 2016 may be the dress rehearsal for something much nastier four years down the road.</p><p>The good news is that the giant imbalance of power between finance and the real economy can be fixed, and we know a lot about how to do it. The bad news is that as long as the financiers have the power, they will do everything in their power to stop sensible and entirely doable reforms.</p> Sun, 03 Apr 2016 08:55:00 -0700 Lynn Stuart Parramore, AlterNet 1053570 at Economy Books Economy News & Politics donald trump bernie sanders hedge funds one percent big finance big pharma finance business paul ryan capitalism financialization apple stock buybacks They Talk Tough, but Can Bernie or Hillary Actually Take on Wall Street and Win? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">An economist takes aim at both candidates&#039; plans.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Ed Kane teaches finance at Boston College and is a grantee of the <a href="">Institute for New Economic Thinking</a>. He studies the dangerous risks posed by big banks and sees the current system as hurting taxpayers and favoring the interests of megabankers and financiers. Recently, the financial reform proposals of Bernie Sanders and Hillary Clinton have gotten a flurry of press. Will either of them make us safer? Are economic experts using their professional expertise to judge them or blowing political and philosophical smoke? Ed Kane discusses these issues and more. This interview was originally published on the Institute for New Economic Thinking’s <a href="">blog</a>.</em></p><p><strong>Lynn Parramore: The movie 'The Big Short' showed the recklessness of bankers and financiers leading up to the crisis. Yet nobody has gone to jail, proposed reforms are mostly second-order, and the banks have tried to roll back parts of the Dodd-Frank Act. Some of those efforts have been successful, like a rule meant to protect us from just the sort of deals shown in the movie. Do you think the opinion that little has changed is justified?</strong></p><p>Ed Kane: Yes, I do. We’ve seen a reform program that favors big banks. Dodd-Frank has hurt small banks and futures commission merchants because it places new burdens of regulation on them such as the need to hire specialized compliance officers. Dodd-Frank is very complicated. Ironically, rather than disciplining big banks, these complications have ended up making big banks more dominant than ever before.</p><p>The Act creates new <em>authority</em> to discipline large banks, but the rules implementing this authority are still evolving. In both Basel and the U.S., there has been a tendency to relax proposed rules that the big banks dislike. (See a <a href="">chart</a> showing how banks have been consolidated.)</p><p>The reversal of the rule that you mention — the swaps “pushout” rule — happened in December 2014. Swaps are a type of derivative product that lets financial firms and their clients hedge against risks or bet on an asset’s value. The idea was to make banks do these risky deals in a part of the corporate structure that wasn’t insured by the FDIC, so taxpayers would not be on the hook.</p><p>While megabankers fought this provision, it seemed a very reasonable way to confront the possibility that a troubled bank might use swaps to shift losses to the FDIC if it was failing. Reversing this rule was a blatant exercise of big bank lobbying power. I was surprised not just by how politically strong these firms’ leaders feel, but how unafraid of popular disapproval they have become.</p><p><strong>LP: How would you reform Wall Street?</strong></p><p>EK: We need more than just tougher rules. We need reforms in corporate governance. Tougher capital requirements, liquidity requirements and reporting requirements at banks don’t directly address what megabanks owe to the rest of us.</p><p><strong>LP: What do the banks owe us, exactly?</strong></p><p>EK: You and I have become unthanked equity stakeholders in our country’s largest banks. We have been forced to provide a massively valuable guarantee for giant banks because authorities will always be afraid to let them fail. We are contributing to bank profits because we are <em>forced</em>to act as investors of last resort. That’s not how investing usually works! Normally, suppliers of equity have a limited liability but an unlimited possibility for gain. But U.S. citizens’ stake in big banks reverses things. We have unlimited liability and it’s hard to see that we get much in return.</p><p><strong>LP: How did we get forced into this unenviable position?</strong></p><p>EK: Bank managers are very smart. They know how to accumulate political power and how to exercise it. They stand ready to exploit any advantage they can get from taxpayer guarantees in the various markets in which they operate. In my view, federal courts must eventually see that it’s wrong to let stockholders and managers keep profits that megabanks earn from not paying a fair price for taxpayer guarantees. Stockholders and taxpayers both deserve a fair claim on profits at these banks. In reality, taxpayers are abused minority stockholders. We need to get this recognized by the courts and legislatures of the world.</p><p>Then bank managers would have to face the fact that they owe taxpayers the same ethical obligations —of competence, loyalty, and care—that they owe to stockholders.</p><p><strong>LP: Do you think that the Wall Street reform proposals discussed by presidential candidates have any chance of working?</strong></p><p>EK: Bernie Sanders says he wants to break up too-big-to-fail institutions. I need to know into what pieces? By what principles? He’s not telling me anything I can analyze. Size isn’t the only problem. It’s politically, economically and administratively difficult to let complex institutions fail. What would be his size limit? What pieces does he think can be pulled apart without harm?</p><p>The idea of breaking up the banks resonates with the public who are justly angry — and they <em>should</em> be afraid that megabank bears are going to maul them again. They sense that most of what they hear about fixing things is just talk. It worries me when Senator Sanders talks about the Federal Reserve as the “engine” of the banking industry. That’s a terribly defective metaphor. I don’t get it! The Fed doesn’t drive the banking industry. The banking industry drives the Fed. When he talks about stricter oversight of internal conflicts of interest at the banks, I wonder whether he is equally prepared to address conflicts of interest in government.</p><p>It is absurd for him to talk about preventing too-big-to-fail institutions from accessing the Federal Reserve discount facilities. The lender of last resort is a very important function of any central bank. The problem he should try to fix is to make large banks pay taxpayers a fair price for the credit support the Fed gives them. The problem with campaigners’ bullet-point financial reform proposals is that they are either too simple or too vague.</p><p>Take Hillary Clinton’s program. She has talked about a new “risk fee” for large financial firms. But she proposes to tie it to the extent to which a bank uses short-term funding to finance its operations. She should be talking about the value of the implicit government guarantees a bank receives. As taxpayers, the government needs to measure our equity position and collect fair dividends on our loss-absorbing position. I would ask officials to force megabanks to estimate taxpayers’ equity stake in their firm and to pay dividends on it quarter by quarter. That would be the right way to set the fee. Hillary Clinton doesn’t detail the scale or structure of the fee beyond addressing the extent of short-term funding.</p><p>She goes part way toward Senator Sanders in proposing to give regulators more power to break up financial firms. But federal regulators have a lot of authority already. The key is to give them the incentive to <em>use</em> that authority. When a bank is in distress, fear of disrupting the system becomes their dominant concern.</p><p><strong>LP: There’s an argument going back and forth between Bernie Sanders and Hillary Clinton about shadow banks — which include hedge funds, money-market mutual funds, mortgage originators and other lightly regulated financial institutions. What would you do about the risks posed by shadow banks?</strong></p><p>EK: Shadow banks are a moving target. Officials can’t analyze the problems they pose fast enough. Besides identifying relevant innovations, you have to demonstrate how their terms might be putting taxpayers on the hook for future losses. Researchers need to give this a lot of thought. I have seen almost no research on methods that could isolate the public-interest problems raised by the newest wrinkles in financial engineering.</p><p><strong>LP: There has been a lot of noise about something called repurchase agreements or repos. What are repos and why should we care about them?</strong></p><p>EK: Repos are contracts for the sale and future repurchase of a financial asset, such as Treasury securities. There were good reasons they got going in the '60s and '70s, but now these schemes are little more than another shadowy set of contracts that large banks use to benefit from unpriced implicit federal guarantees. Repos are now mostly a way to lend large amounts of securities to firms that want to use them as collateral in another contract.</p><p>Borrowed collateral provides a convenient way to provide comfort to the borrower’s counterparties in the follow-on contracts. But I can see no good reason for the Fed or the Treasury to subsidize repo activity by expanding the supply of Treasury debt or to increase Fed repo activity to alleviate an alleged shortage of high-quality collateral. Collateral is a substitute for due diligence by a financier — that is, actually knowing whom you are doing business with and whether they have the character and capacity to pay you back. We need more due diligence, not less.</p><p>Banks are lobbying the government to expand the supply of high-quality collateral because they want to be able to lend and borrow securities to use as collateral at a subsidized price. They’ll package their proposals not as ways to earn fees without having to perform due diligence on their customers, but as ways to improve liquidity (i.e., expand trading) in thin and therefore choppy markets.</p><p>But this is smoke and mirrors. If they get the subsidy they seek, no one will be tasked to tell us what this surge in Fed repo activity actually cost. Bottom line: there’s just not enough concern for developing ways to block the expansion of the federal guarantees in any presidential candidate program of financial reform.</p><p><strong>LP: A lot of pundits and professional economists have been weighing in on the financial reform plans of candidates like Sanders and Clinton. Paul Krugman, for example, has strongly stated his preference for Clinton’s proposals to reform Wall Street. You’ve noted the problem of lack of detail in the plans you’ve seen. As an economist, does that make it difficult for you to access their merits?</strong></p><p>EK: It does. These proposals lack the specificity to allow me, acting only as a professional economist, to draw many conclusions.</p><p><strong>LP: So could something other than the economic merits of the proposals enter into the assessments we are hearing?</strong></p><p>EK: Surely, ideology and partisanship play a huge role. Social scientists have a term, “economics imperialism.” All too often, an economist will address a set of economic proposals or ideas not as an economist but as an amateur (and often undertrained) philosopher or political scientist.</p><p>Professional economists tend to fear the word “socialism.” Putting this label on himself may have provoked at least some of the negative response Sanders’ proposals have received from economists in media outlets. Crony capitalism is not a great system, but it’s the cronyism that needs to be fixed, not private ownership. Socialism seems to make the problems of corruption, favoritism and inefficiencies in government even worse.</p><p> </p><p> </p> Thu, 18 Feb 2016 00:00:00 -0800 Lynn Stuart Parramore, AlterNet 1050846 at Election 2016 Economy Election 2016 bernie sanders hillary clinton financial reform wall street occupy wall street America's Rich May Soon Blow Past Roaring Twenties Tycoons <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Here&#039;s why economists and policy makers are in denial about inequality.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>A  </em><a href=""><em>new paper</em></a><em>  by economist Lance Taylor for the  <a href="">Institute For New Economic Thinking</a>  takes on the way economists have looked at wealth and income inequality. Taylor’s research challenges some conclusions about what’s driving inequality made by Thomas Piketty and Joseph Stiglitz. What’s really causing the startling gap between haves and have-nots? Is it mechanical market forces? Outsourcing? Real estate? As Taylor sees it, economists have gotten the answer wrong. Worker exploitation and outsized business profits are factors, but even more key are the unjustified payments to the wealthy generated by our outsized financial sector. This hasn’t just “happened.” Flawed economic theory and politicians beholden to the rich lead to policies that make it happen. We can fix the problem, but it will take bold steps.*A version of this interview originally appeared on the Institute's <a href="">blog</a>. </em></p><p><strong>Lynn Parramore: You recently dived into the debate on what causes wealth and income inequality — and whether or not we can fix it within the existing social order. Heated discussions among economists got touched off by Thomas Piketty’s bestselling book, Capital in the Twenty-First Century, but you say that a key part of the story is actually a debate that happened in the late 60s and early 70s. What is it and why should we care?</strong></p><p>Lance Taylor: It’s key because mainstream economists have been wrong in how they think about inequality for a long time. Which means that they haven’t been particularly helpful in solving the problem. This is one of the key challenges of our time. We can do better.</p><p>The debate from the 60s and 70s is known as the “Cambridge capital controversy” and took place between economists at MIT in the U.S. and at Cambridge University in the U.K. First, especially for the Brits, it was about whether distributions of income and wealth are partly shaped by social and political relationships – class conflict if you will – or mostly by “market forces.”</p><p>There were technical skirmishes at the second level – one in particular about the nature of capital and the role of the rate of profit made by producers. Most economists want to say that market processes pay different forms of capital, labor, and real estate pretty much in line with their economic productivities. Everything comes out about right. The Invisible Hand knows best. But the Cambridge debate showed that different profit rates can show up with the same combinations of capital — stuff like machines and computers — and workers. Why is that? The Invisible Hand must be guided by something other than economic factors. What, exactly? There are different answers. But you can’t ignore the question.</p><p><strong>LP: So it’s not just some kind of mechanism of production and market forces that determines who ends up with a big share of the income pie and who doesn’t. That’s a pretty big deal. Why do conventional economists want to sweep all this under the rug?</strong></p><p>LT: The debate’s conclusion has not just been downplayed. It is simply ignored. Yet the reality is that market forces alone cannot determine who gets wealthy and who doesn’t. In 1966, MIT’s Paul Samuelson, a Nobel laureate, rather graciously conceded as much. Even so, macroeconomics courses at leading U.S. and U.K. departments continued to be based on failed theory. MIT’s canonical 1989 macro textbook by Olivier Blanchard and Stanley Fischer did not bother to mention the controversy.</p><p>Economists are conditioned to believe in the optimality of the market. That’s why they have  been in denial  for so long that change is not likely in the short run. But we have to try, because getting this wrong means that economists promote machine-like models that suggest that it is simply some invisible mechanism that ensures that workers don’t get paid very much, that owners make high profit rates, and that the economy will be just fine under these conditions  Along with colleagues at the New School for Social Research (supported in part by the Institute) I am now working on growth models in which overall demand for goods and services and income and wealth distribution play much more central roles in the economy.</p><p><strong>LP: Your paper is critical of some of Thomas Piketty’s views. Can you briefly describe how you differ with his take on inequality?</strong></p><p>LT: Piketty’s data work is formidable, but questions remain. One, unsurprisingly, is about how to value capital. Possibly aside from a residence (with mortgage attached), you and I as members of households do not own physical capital. At most we own financial claims such as stocks and bonds against companies which own the physical assets.  Our personal wealth ultimately depends on how these assets and claims are valued.</p><p>The traditional way of valuing capital does not take Cambridge complications into account, but at least it does examine the costs of producing new capital goods and how rapidly they depreciate in use. Adding up their costs over time gives a “perpetual inventory” estimate of the capital stock, which we use in our growth models.</p><p>The alternative is to mark up a company’s perpetual inventory of capital by the market value of its shares. Economists talk about the ratio (they call it <em>q</em>) of these two numbers. Estimates differ in detail, but after around 1980, <em>q</em> has gone up significantly. Piketty’s estimate of the wealth of households is based on stock market valuations. That’s fine if you believe that the ratio of stock market value to capital will stay high indefinitely. But John Maynard Keynes, the 20th century’s greatest economist, warned against “the dark forces of time and ignorance which envelop our future,” especially for numbers from financial markets.</p><p>We don’t have a crystal ball, so we had better be careful when building models and equations that say what markets will do. An engineer designing an investment project is not going to look at her company’s stock market quotation. Her job is to find a least-cost combination of capital goods and labor to satisfy the project’s needs. In that sense, Piketty’s wealth estimates ignore both capital theory and what practitioners really do.</p><p><strong>LP: You’re also critical of Joseph Stiglitz’s perspective on real estate as a big driver of the giant increases in inequality in recent years. What role do you think real estate played and how is that view different from what Stiglitz proposes?</strong></p><p>LT: Here again the details are messy. Both Piketty and Stiglitz talk about “rent” which is a slithery concept. Basically it is a payment to some economic entity with a strong market position – say to a holding company controlled by your landlord, which owns your apartment, or to a politician who can arrange a tax break for your firm. Neoclassical economists interpret exploitation in terms of rents and bribes. This approach ignores the social structures that give certain people opportunities to extract such payments. In principle, crooked politicians can be removed.  </p><p>The question of how we value assets adds another layer of complication. If a rent is expected to continue over time, then, in a stable financial market, its discounted present value constitutes wealth. The simplest calculation “capitalizes” the rental flow by dividing it by the interest rate.  Rent on residential housing appears in the national accounts. As a share of GDP, it has been rising recently. But even so, its capitalized value is roughly equal to the worth of the housing stock as estimated by perpetual inventory. In the U.S., rents on agricultural land and for ownership of natural resources are small shares of GDP. You may see a lot of towers owned by new billionaires along Manhattan’s 57th street, but real estate is not the major contributor to wealth inequality. Rather, in Manhattan, the Bay area, London, and similar places, incredibly expensive real estate is a symptom of wealth that has been accumulated by other means.</p><p><strong>LP: Some of your recent work takes a detailed look at the way people in the U.S. share the economic pie and how income flows to different groups over time.  Since real estate is not a prime driver of wealth or income inequality, what is? What do you think the actual role of real estate has been relative to other factors? What are the roles of things like outsourcing? Executive compensation?</strong></p><p>LT: Let’s distinguish between income and wealth inequality. We have been working on integrating information on how income is distributed across households from the Congressional Budget Office into the national accounts. The income share of the top one percent has risen by ten percentage points since around 1990 – a <em>very</em> big change for such an indicator. Those million-odd households now get around 15 percent of national income, which is huge.</p><p>Where does this money come from? One chunk is labor pay. The top one percent of households get seven percent of the national total – that’s where high executive compensation comes in. But financial payments including interest, dividends, share buybacks, and capital gains (increases in asset prices à la Piketty and Stiglitz) are more important.</p><p>Let me bring in one last observation about national accounting. Aside from minor transfers, business profits equal interest and dividend payments to households, taxes, and business saving (retained earnings).</p><p>Two things are important to know: 1) the business profit share has been increasing steadily across business cycles (which is not supposed to happen according to the Solow model) and 2) household capital gains have exceeded business saving net of depreciation which is why that the <em>q</em> ratio I mentioned has gone up. Rich households have benefitted from both trends, along with low taxes on “carried interest” (a loophole used by hedge fund managers) and other accounting tricks. They also save more than the lower classes, say 40 percent of income for the top one percent versus 15 percent or 20 percent for households between the 60th and 99th percentiles of the size distribution and negative saving (as well as inconsequential wealth) for the rest.</p><p>Rising profits, big capital gains, and high savings explain why the rich are getting richer.</p><p>According to Piketty’s colleagues Emmanuel Saez and Gabriel Zucman, the share of wealth of the top one percent was around 50 percent on the eve of the Great Depression. With high taxes inherited from the New Deal and WWII, along with a sluggish stock market, the share fell to 25 percent in the 1960s. Now it has crept back up to around 40 percent (other estimates come in a bit lower).  Our calculations, based on a Cambridge U.K. growth model proposed by economist Luigi Pasinetti, suggest that with current saving rates and high profits the share could rise to 60 percent.</p><p><strong>LP: So pretty soon our wealthy will be riding higher than their counterparts in the Roaring Twenties?</strong></p><p>LT: Potentially, yes.</p><p><strong>LP: We know you’ve been  </strong><a href=""><strong>skeptical</strong></a><strong>  of the quick fixes pushed by folks in the political realm to fix inequality. Given the enormous size of the gap, what would it take to do it? Basic income? Wage increases? Changes to tax codes? <em>Can</em> we fix it within the existing social order?</strong></p><p>The existing social order does not necessarily guarantee that the rich will get richer (remember Keynes on the essential uncertainty of the future). But even if they do, a stiff tax on capital gains could be used to build up a socially-oriented wealth fund that would help offset that.</p><p>Look at Norway’s “oil fund,” which takes a cut of petroleum revenues and invests the money while giving a small annual pay-out from its investment returns. An example closer to home is California’s CalPERS retirement fund. The key point is that such funds can save at a higher rate than wealthy households, amassing market power and potentially using capital income for social purposes.</p><p>In the labor market, real wages of employees have lagged productivity growth, which is why the profit share for the boss has gone up. Outsourcing has played some role, but policies and legal interpretations (think of so-called “right to work” legislation and attacks on public sector unions) that reduce labor’s bargaining power have been more important. Recreating that power could reverse the trends and slow the accumulation of wealth. Our studies and others suggest that simply raising taxes on the rich and transferring the proceeds downward in the income distribution will not have a large immediate effect on distribution, but the impacts could cumulate over time.</p><p>It <em>is</em> possible to reduce U.S. wealth and income disparity, but reversing the trends of the past 30 or 40 years that got us there will not be easy or quick.</p><p> </p><p> </p> Fri, 29 Jan 2016 07:10:00 -0800 Lynn Stuart Parramore, AlterNet 1049784 at Economy Economy News & Politics inequality Joseph Stigltiz Thomas Piketty labor wealth economics taxes outsourcing real estate economy exploitation The Sneaky Way Austerity Was Sold to the Public Like Snake Oil <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">A budget approach cloaked in science and technical jargon became a tool to crush the people.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Orsola Costantini, senior economist at the Institute for New Economic Thinking, is the author of a new <a href="">paper</a> that exposes the disturbing history of how a budget approach cloaked in scientific and technical jargon became a tool to manipulate public opinion and serve the interests of the powerful. In the following conversation, she reveals how austerity has been sold to the public through a process that hurts the people, consolidates knowledge and power at the top and compromises democracy. As economic inequality reaches new heights and austerity programs are debated around the world (most recently, in <a href="">Spain</a> and <a href="">Portugal</a>), learn how a lie becomes a political and economic “truth." (This post originally appeared on the <a href="">blog</a> of the I<a href="">nstitute for New Economic Thinking</a>.)</p><p><strong>Lynn Parramore: Your recent work deals with something called the “cyclically adjusted budget.” What is it and what does it mean in the lives of ordinary people?</strong></p><p>Orsola Costantini: The Cyclically Adjusted Budget (CAB) is a statistical estimate that aids government officials when they decide what to spend money on and how much they’re going to tax you. It is mostly federal governments that use it, but also international institutions like the International Monetary Fund (IMF).</p><p>Economists will tell you this tool is imprecise. Yet national and international institutions still rely on it to justify important decisions about government spending and taxation.</p><p>But there’s something the experts aren’t telling you: the cyclically adjusted budget can be easily maneuvered depending on which way the political winds are blowing. And it appears technical and obscure enough so that regular people tend to look at it as objective and undisputable. That’s where the trouble comes in.</p><p>Politicians and government officials using the CAB can limit the range of political choices that appear viable to a community. Policymakers can avoid the hassle of taking political responsibility for these choices, too. We had to do it! The budget says so!</p><p>Look at what happened all over Europe in 2008: It’s one thing to say to students in the streets that their education and economic wellbeing are not a priority for the government while saving banks is. It’s quite another to say that politics has nothing to do with it and the economy requires taking certain actions, sometimes painful.</p><p><strong>LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?</strong></p><p>OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community. <a name="_GoBack" id="_GoBack"></a>The idea was that more consumers would translate into more profits — which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.</p><p>But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job — all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending — or justifying selected cuts.</p><p>Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.</p><p>I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.</p><p><strong>LP: You’re really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?</strong></p><p>OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It’s a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.</p><p>Even the name of this tool, the “cyclically adjusted budget,” carries an aura of respect. It diverts our attention. We don’t question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil — the notion that the federal government budget is like a household budget. Actually, it isn’t. Your household doesn’t collect taxes. It doesn’t print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.</p><p><strong>LP: How does all this play out in the U.S. and in Europe?</strong></p><p>OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It’s a ceiling on a country’s deficit, but it’s also much more than that.</p><p>Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it’s a control mechanism.</p><p>In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers’ rights and benefits or face economic doom. Tune in to the presidential debates and you’ll hear this played out — and it isn’t strictly limited to one party.</p><p><strong>LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?</strong></p><p>OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don’t get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.</p><p>In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.</p><p> </p> Wed, 23 Dec 2015 10:19:00 -0800 Lynn Stuart Parramore, AlterNet 1047846 at Economy Economy News & Politics budget austerity new deal european union spain portugal taxes economy education America’s Great Divide: How the U.S. Transformed Into a 'Dual Economy' and What Can Be Done to Reverse It <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Common to developing nations, a dual economy is taking root in the U.S. MIT economist Peter Themin explains how this happened and what can be done to stop it.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>In the America of haves and have-nots, fewer folks are “movin’ on up” like George Jefferson of the classic sitcom. In a <a href="">new paper</a> for the Institute for New Economic Thinking, Peter Temin, MIT economist and economic historian, breaks down how it happened and where we’re headed with a powerful model first used by West Indian economist W. Arthur Lewis, the only person of African descent to win a Nobel Prize in economics. Dual economies are common in less developed countries, but Temin argues that America has now diverged into a top thirty percent, where children receive excellent educations and grow up to work in sectors like finance, technology and electronics industries (FTE)— and then there’s the rest, the low-wage folks who live paycheck to paycheck and whose kids have little hope of joining the lucky ones at the top. Temin explains what drives the dual economy, what race has to do with it, how children are hurt, and why our political system can’t seem to fix anything. *This post originally appeared on the <a href="">blog</a> for the <a href="">Institute for New Economic Thinking.</a></em></p><p><strong>Lynn Parramore: Back when Sir Arthur Lewis talked about the dual economy, he was looking at developing countries where rural people initially serve as a reservoir of cheap labor for people in the cities. Why apply this model to an advanced country like the U.S.?</strong></p><p>Peter Temin: For a long time I’ve been concerned with growing inequality. At the same time I’ve seen more problems with education and the condition of infrastructure around the country. I used to see these as separate problems and kind of joked that we’re becoming a less developed country. Suddenly, I realized that Lewis’s model described all of these things as aspects of a single underlying model of the economy.</p><p>The Lewis model is very intuitive. It ties together this sense of inequality at the top of the income distribution and wage stagnation at the low end. You start thinking, how are the sizes of the two sectors limited? How do you transition between them?</p><p><strong>LP: When did this dual economy take off and what contributed to its creation?</strong></p><p>PT: I think it began in the 1970s and 80s and I trace it back to Nixon, and then Reagan who pushed it further. You had people opposed to the New Deal and to the growth of Civil Rights. It wasn’t so much new aims but rather getting more power and being able to advance these aims by various routes that were discovered and exploited in the 1970s and 80s.</p><p><strong>LP: Is moving from the low-wage part of the economy to the other, better-paid part just a choice somebody makes?</strong></p><p>PT: The key decision that you or your parents make is to get an education — critically, a college education. That is important for two reasons: knowledge and what economists call “social capital,” which might be even more important. Social capital comes during college when you learn new ways of interacting, how to choose who you can trust and how to convey to other people that they can trust you. It’s the kind of lubrication that lets the FTE economy operate. We don’t have a class or major in this. It’s part of what happens in the whole process of education that enables people to move from one sector of the economy to the other.</p><p><strong>LP: So it’s not only what goes on in the classroom, but what’s happening outside in the hallways and the social gatherings and the networking that really makes the difference?</strong></p><p>PT: Exactly.</p><p><strong>LP: You’ve noted that race plays a role that is often overlooked. What are we missing? How do racial biases relate to economic circumstances?</strong></p><p>PT: I think a lot of the language of political discussion is tinged with the overtones of race and with the residue of the long history of the long history of America, starting with slavery and continuing with reconstruction and then Jim Crow and then finally the Civil Rights Movement and law changes of the 1960s. Today the discussion isn’t overtly racist but it has the aspect of race in it. Take the Affordable Care Act — almost all the states that refused to expand Medicaid even though the federal government would pay for most of it were Confederate states.</p><p>Nobody said, “Oh, the Confederacy will rise again.” But the association doesn’t seem to be accidental. The whole concern for more states’ rights is at least in part an attempt to let states with a troubled racial history go their own way. But since it’s not considered polite to use the terms of race today, these connections are rather underground in the political environment. That’s another reason why political decisions don’t seem to get to the concerns of ordinary people. The use of terms like “Welfare Queen” inflames people and they don’t think clearly. It also distracts from the actual policies that help people in what I call the low-wage sector.</p><p><strong>LP: You point out that mass incarceration has had tremendous negative economic impacts on black men and male children. Speaking of the “Welfare Queen” label, can you say a little about the black female experience in the dual economy?</strong></p><p>PT: This needs more study because we’re not totally clear what’s happening. But we do know that when the men go to jail, black women become single parents. And if there’s anything we know about the progress of families in the post-war world, it’s that children of single-parent households do badly. That is a major problem. A lot of black women are trying to do the best they can given that the men are in jail, or, if they’ve gotten out of jail, can’t get jobs, can’t live in subsidized housing, and have all of these problems because of public policy. They’re trapped by the system, and even more than that, the children have trouble getting ahead. The children start school with an educational deficit. It’s harder for them to transition into the FTE sector. Some spectacularly intelligent and talented people do, but the numbers are still small.</p><p><strong>LP: You’ve stressed the decline of public funding for education and infrastructure that comes with this dual economy. Do you see prospects for a reversal?</strong></p><p>PT: The politics of this is very difficult because the Supreme Court has enabled the top of the FTE sector to have a disproportionate influence on the political decisions through its rulings on campaign finance and related issues. So we’re not dealing with the root problems of the dual economy. Current politics is not very responsive to the needs of the citizens.</p><p><strong>LP: Would you say that public policy is not only creating a dual economy for the present, but also locking it in for future generations?</strong></p><p>PT: Alas, that is an implication of what I’m saying. Yes.</p><p><strong>LP: If we continue on the path of the dual economy, will members of the affluent FTE sector do damage to their own interests?</strong></p><p>PT: My sense is that we need to first think about the dispersion of incomes within the FTE sector and then for the people near or at the top of the FTE structure. Those people feel themselves to be citizens of the world. They can go anywhere, and they will do fine. They did well out of the global financial crisis in 2008, and they think they can survive anything. I don’t think they’ve thought through what will happen to their position in the world economy if the U.S. really does relapse back into being a developing style economy — that it may change the shape of the world economy. Then they may have problems. The people at the lower end of the FTE economy are concerned that technology and globalization will force them down into the low-wage sector. They’re nervous about what’s going to happen to them and their children and that may shade over into politics.</p><p><strong>LP: Does having a dual economy prevent the economy as a whole from growing?</strong></p><p>PT: We have a measurement problem here. The GDP concept came in the interwar period, when manufacturing was the center, together with agriculture. You could measure the outputs and then compare them with the inputs and see economic growth and growth in productivity.</p><p>When the economy gets to be dominated more by services, and that’s very much the pattern of the FTE sector, we don’t know how to measure the output there. We need to have better measurements in order to better know what the concept of growth is that we’re thinking of, and then we can talk about the effects. There are articles in the paper and now some books about the measurement of national income, GDP, and so on. We’re at the beginning of that discussion. They’re beginning to talk at the UN and elsewhere about the human development index and so on — broadening the concept and having a different measure.</p><p><strong>LP: What are some things we might do to reunify?</strong></p><p>PT: The first step, which a lot of people are taking, is trying to help people in the low-wage economy. You can go tutor students in an urban school and that will help a few students, and that will be a good thing, but it won’t affect the structure of the economy. There are a whole variety of things, minimum wage laws and other political things that you can do which affect conditions in the low-wage economy but won’t change the overall structure. A concerted political effort is required to try to change the nature of the economy. That’s a long struggle. One reason is that the trend toward the dual economy has been going on for a generation and it’s pretty well entrenched. Politically, one would have to have a kind of big movement. One of our candidates, Bernie Sanders, keeps talking about having a revolution. Yet I think that even what he wants to do is smaller than one would need to do to get rid of the dual economy. I’m talking about a big change.</p><p><strong>LP: Then is it fair to say that really none of the presidential candidates is proposing anything that would significantly alter the structure of this dual economy as you’ve described it?</strong></p><p>PT: I think that’s fair to say, yes. The question of what to do is difficult for the same reason that measuring the output is difficult. The world is changing. We’re not going to go back to some mythical period in the past where everyone was together. The post-war growth left African Americans out of it, left women out of it in large part. So it wasn’t quite such an inclusive period. Looking backwards is not terribly useful. Technology has changed. The world economy has changed.</p><p>If I had to choose one thing to focus it would be education. That’s both because it would help determine how people could move from the lower sector to the upper sector, and also because I think very firmly that more education enhances people’s lives. We’ve focused on testing, but the things that happen in sports or art or history are difficult to test, <a name="_GoBack" id="_GoBack"></a> and they’re now being neglected. Here again we have a measurement problem. This then requires a lot more thought, more investigation. </p><p> </p> Sat, 12 Dec 2015 00:00:00 -0800 Lynn Stuart Parramore, AlterNet 1047131 at Economy Economy Education race economics inequality education nixon reagan jobs wages Blind Investing: Why Financial Gurus Are Often Deeply, Spectacularly Wrong <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Forecasting models have a serious problem: they don&#039;t work.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>In the stock market, stuff happens you didn’t see coming. It could be something huge, like a war breaking out (some call this a “black swan” event), or relatively small, like a company using a new technology to build products. These events can cause prices to go up or down, but how do you incorporate such possibilities into your decision to buy or not to buy? That is the question.</p><p>Strangely, economists’ models typically don’t account for these types of unforeseeable changes. They tend to ignore what’s called “Knightian uncertainty,” named for the influential University of Chicago economist Frank Knight, who noted the importance of recognizing future risks that can’t be precisely measured. Today, most economists and economic forecasters work with simplified mathematical models that assume this uncertainty away. Which means that they are often deeply, spectacularly wrong (see: financial crisis, 2008).</p><p>Economist Roman Frydman, who teaches at New York University, has been thinking for a long time about how people form their outlooks on the future and was an early critic of the “rational expectations hypothesis,” a theory that swept through academic economics in the 1970s. Since then, Frydman witnessed more and more of his colleagues embrace the hypothesis as the way to model precisely how market participants think about the future. But he remained deeply skeptical and devoted his academic career to honing his critique and developing an alternative. </p><p>Talking to Frydman is a bit like entering a fascinating meditation on the limits of knowledge and the nature of truth. Having lived through the failure of centralized planning in communist Poland, he is particularly sensitive to the hubris of believing that the future can be exactly mapped. Although the models he has worked on are mathematical, Frydman’s approach to economics has drawn on the narrative insights of Friedrich Hayek, John Maynard Keynes and Frank Knight. But beyond theoretical concerns about the role or efficiency of financial markets, his work has practical import for questions as big as how governments should interact with the economy, as technical as how financial services firms should design risk-management systems or use econometric models, and as personal as how to weigh advice from your financial guru.</p><p>As Frydman sees it, economists so yearned for a theory that would somehow predict the future nearly perfectly that they had to sail far from the shores of reality. With Michael D. Goldberg, he has written two books over the last decade calling for a change of course: <a href="">Imperfect Knowledge Economics</a> (2007) and <a href="">Beyond Mechanical Markets</a> (2011), both published by Princeton University Press. He also chairs the program on Imperfect Knowledge Economics (a title that itself is a challenge to the mainstream’s pretense to exact knowledge) at the <a href="">Institute for New Economic Thinking</a>.</p><p>Frydman’s research with Goldberg has led him to develop an alternative, which he calls the "new rational expectations hypothesis." His radical reframing of how economists should understand and represent rationality incorporates the most penetrating insights of the giants of 20th-century economics into a formal mathematical approach that can better capture the contours of our ever-shifting world. </p><p><strong>Lynn Parramore: The 2013 Nobel Prize in Economics awarded to </strong><strong>Robert Shiller</strong><strong>, </strong><strong>Eugene Fama </strong><strong>and Lars Hansen</strong><strong> </strong><strong>surprised many people because Shiller and Fama are widely seen as espousing opposite theories. Economist Paul de Grauwe tweeted: “Nobel Prize for Fama who led millions to believe financial markets are efficient and for Shiller who showed opposite. What a contradiction.”</strong></p><p><strong>Was the Nobel committee saying something significant in awarding the prize to seemingly clashing positions?</strong></p><p>Roman Frydman: The prize usually goes to long-accepted achievements. Not so this time. Fama was a pioneer. He focused on the importance of fundamentals—things like a company’s sales or dividends —in how stock prices move. Although his theory fueled the rational expectations “revolution” in finance, it had serious empirical shortcomings.</p><p>Shiller was working on those problems, noticing that equity prices move around too much to be justified by Fama’s theory. So something else had to be going on. Shiller’s answer was psychology. Who could object? We all have emotions: we become scared or irrationally exuberant. So-called behavioral-finance models, which focused on such considerations, became the leading competitor to the rational expectations approach.</p><p>The two theories were not only seemingly contradictory, they had sharply differing implications for how we should think about markets. For Fama, markets are nearly perfectly efficient. For Shiller, not so much – they sometimes resemble casinos with prices that don’t reflect the real value of assets. So who was right?</p><p>That issue has remained unresolved. I imagine that when the Nobel committee members wanted to give a prize related to market theories, they couldn’t give it for a settled notion because there wasn’t such a thing. Maybe they were communicating that both of these scholars had emphasized something very important about markets, but there was not yet a theory that could account for the importance of <em>both</em> fundamentals and psychology.</p><p><strong>LP: It seems obvious that both fundamentals and psychology matter. Why haven’t economists developed an approach to modeling stock-price movements that incorporates both?</strong></p><p>RF: It took a while to realize that the reason is relatively straightforward. Economists have relied on models that assume away unforeseeable change. As different as they are, rational expectations and behavioral-finance models represent the market with what mathematicians call a probability distribution – a rule that specifies in advance the chances of absolutely everything that will ever happen.</p><p>In a world in which nothing unforeseen ever happened, rational individuals could compute precisely whatever they had to know about the future to make profit-maximizing decisions. Presuming that they do not fully rely on such computations and resort to psychology would mean that they forego profit opportunities.</p><p><strong>LP:</strong><strong>So this is why I often hear that supporters of the rational expectations hypothesis imagine people as autonomous agents who mechanically make decisions in order to maximize profits?</strong></p><p>Yes! What has been misunderstood is that this purely computational notion of economic rationality is an artifact of assuming away unforeseeable change.</p><p>Imagine that I have a probabilistic model for stock prices and dividends, and I hypothesize that my model shows how prices and dividends actually unfold. Now I have to suppose that rational people will have exactly the same interpretation as I do — after all, I’m right and I have accounted for all possibilities. As economist Bob Lucas rightly put it, why wouldn’t they? They don’t want to lose their money, so I can represent how they forecast with my probabilistic model. This is essentially the idea underpinning the rational expectations hypothesis. </p><p><strong>LP: So being irrational means forecasting differently from the economist’s probabilistic model?</strong></p><p>RF: Strangely, yes. In the hypothetical world of economists’ models, irrationality means inconsistency with an economist’s exact probabilistic hypothesis about how the world might unfold over time. This is very different from the dictionary definition of rationality, which is that people think for themselves, have their own objectives, and make decisions that advance those objectives. In a standard economic model, the economist assumes what the right way to think about the world is – and that the right way is to assume that unforeseeable change will not happen. I remember vividly how uneasy I felt when I first heard this Orwellian twist.</p><p>But beyond language, this refashioning of rationality has had profound implications for the discipline. If you stick to probability, the rational expectations hypothesis does represent rationality. But that leaves you with only two options: Fama or Shiller. That’s why De Grauwe thought that these two positions were contradictory. But they’re <em>only</em> contradictory if you assume that the world can be represented without unforeseeable change, that Knightian uncertainty does not matter in real-world markets.</p><p>After all, in the real world, people <em>do</em> recognize the importance of unforeseeable change – indeed, they obsess about it. That’s precisely why they are so often forced to resort to their understanding of market sentiment and other psychological factors in deciding how to forecast the effect of fundamentals on future prices.</p><p><strong>LP: Let’s talk a bit about how the media represents the stock market. The <em>Financial Times</em> runs a story with a typical headline: “Equities face worst quarter since 2011 over fears for global economy.” Other than suggesting that I need a stiff drink before looking at my retirement account, what does that headline tell me about the way stock forecasts get made?</strong></p><p>RF: It tells you that both Shiller and Fama had some part of that story. You have the prospects of the global economy, which is Fama’s part, the fundamentals. Then you have fear, which would certainly be Shiller, the psychology. The headline puts these two things together. Yet economic theory is unable to put them together! That is the puzzle. What is the theory that could do that? It would have to be one that would open the model to unforeseeable change and Knightian uncertainty.</p><p><strong>LP: You like to toss students a brainteaser: “If markets were perfect, we wouldn’t need them.” What does that mean, and what does it say about the need for a new understanding of the role of markets?</strong></p><p>RF: For Fama and Lucas and their followers, if an economist gives you a rule that describes how outcomes will actually unfold, then there’s only one rational way to think about the future. But markets exist to enable society to take advantage of many different <em>rational</em>evaluations of the future. If there is only one rational forecast, the main reason for having markets disappears!</p><p>In the real world, there’s never just one correct interpretation or way to interpret. That’s why Friedrich Hayek argued – rightly – that central planning is impossible: it’s a pretense of exact knowledge. The planning committee sits down and figures out how the world will unfold and then allocates resources accordingly. What happens? In communist Hungary, people couldn’t find size 10 shoes.</p><p>Whenever humans – whether they are planners or economists – pretend that unforeseeable change doesn’t matter, they screw up. The Chinese are just now finding out that their weird combination of markets and centralized communist rule doesn’t work very well. After all, markets go down as well as up. George Soros understood this decades ago.</p><p><strong>LP: What did Soros discover and how did it relate your work?</strong></p><p>RF: I met George Soros in the early 1980s. The timing could not have been more serendipitous. I had just published a paper arguing that reliance on the rational expectations hypothesis in macroeconomics and financial modeling presumes that market participants and the economist must have already discovered a “true” model. Soros was completing his book arguing that participants’ understanding of the world never perfectly corresponds to the way it works.</p><p>Soros’ concept of reflexivity introduced the key reason for unforeseeable change in financial markets. Fallible market participants revise how they think about the future at times and in ways that they themselves cannot fully foresee, and this revision alters how outcomes unfold over time. So there can be no “true” probabilistic model of the market, as the last four decades of futile searching should tell us. Every model that fits the data for a period of time sooner or later becomes irrelevant. The only truth about quantitative economic relationships is that they are temporary. There are no universal laws. That’s why Soros titled his book <em>The Alchemy of Finance</em>.</p><p>Academic economists and finance practitioners ignored Soros’ argument that their models were alchemy, not science. In the absence of an alternative, many continued to search for rational expectations models that would account for longer-term economic regularities. And while others turned against the rational expectations approach and embraced behavioral finance, they continued to search for probabilistic models of irrational behavior.</p><p>I agreed that Soros’ arguments pointed to a fatal flaw in mainstream macroeconomics and finance. Once you focus on unforeseeable change as an <em>inherent</em>source of fallibility, it becomes immediately clear why there are no universal laws. For example, the consequences of historical events, such as the appointment of a Fed chair, are, at least in part, unique. These events change how market outcomes will unfold in ways that cannot be fully foreseen, let alone with a probabilistic rule.</p><p>Unlike Soros, I held out the possibility that economics was not just alchemy. But we did not see for quite some time how we could replace the probabilistic models on which mainstream macroeconomics and finance rested.</p><p>A simple idea was that unforeseeable change could have relatively moderate effects on the economy for periods of time. In such periods, you could imagine approximating outcomes with an econometric model. Although such a model could not capture the economy exactly, it could be quite useful for uncovering and testing <em>qualitative</em> regularities.</p><p>This pointed to a way forward for economics. But it was a sobering experience. If our models are to be useful for understanding real-world markets and rationality, we need to stop looking for a crystal ball.</p><p><strong>LP: Your new theory embodies that stance. And yet you call it the “new rational expectations hypothesis.” How does it work, and why does it contain the name of the old theory used by Fama and Lucas?</strong></p><p>RF: When John Muth formulated the rational expectations hypothesis back in 1961, it was truly brilliant. He said that market participants’ forecasts should be consistent with the relevant economic theory. Economists picked – and this is the key –probabilistic models as the relevant theory. But consistency just means that when you model, you represent how the market forecasts in light of your own hypothesis about how the future will unfold. It doesn’t mean that your hypothesis is correct!</p><p>The problem lies in deciding what will be relevant for the future. If my assumption about the future is that unforeseeable change is unimportant, then I’m going to get rational expectations. I’m going to get no systematic forecast errors. I will get perfectly efficient markets. But once I admit the existence and importance of unforeseeable change, I can show that rational expectations models represent irrationality in the most egregious sense. They represent people who forgo profits, because they ignore change and adhere to unchanging probabilistic rules.</p><p>The new rational expectations hypothesis (NREH) solves this problem. You keep the consistency, but you base your representation of market forecasting on a model that is open to Knightian uncertainty. Now your model allows for more than one way to forecast the future, and thus better reflects the fact that rational profit-seeking participants in real-world markets <em>do</em> respond to unforeseeable change.</p><p><strong>LP: What happens to psychology?</strong></p><p>RF: NREH takes it into account. On the most elementary level, it influences how we choose to think about the future. There are many ways to think about it, and in order to choose among them, something has to drive you toward one alternative or another.  And it isn’t simple calculation. Keynes called it “animal spirits.” A gut instinct. But it’s not pure psychology or irrational herd behavior. It’s connected to how you’re judging the fundamentals. Your psychological instincts, combined with your interpretation of fundamentals, add up to something quite rational.</p><p>Pure psychology may exacerbate market swings, but our research shows that psychological considerations alone drive the market only extremely rarely. We studied <em>Bloomberg News</em> “market wrap” reports from 1993 to 2009, and found that psychological factors are usually mentioned in connection with some movement of some fundamentals. It’s neither pure psychology nor pure fundamentals. It’s both.</p><p>Psychology is an essential component of rational forecasting. What NREH does is to capture this.</p><p><strong>LP: If I’m a risk manager in a bank, how does this new understanding help me do my job better?</strong></p><p>RF: The problem for risk managers is that standard models relate risk to the volatility of prices. By this measure, there was not much risk prior to the collapse of 2008! It’s well known that as the market keeps going up, prices become less variable. Yet Standard &amp; Poor’s, relying on standard models, actually pronounced Lehman Brothers to be an A-rated firm just before it collapsed and nearly brought down the entire financial system.  </p><p>You need something better. First, you need to be able to assess risk properly if the stock price moves away from something perceived to be a normal, fundamental value. It’s an idea that goes back to economist Jim Tobin and, before him, to Keynes: risk doesn’t depend on price variability, but on how far away prices are from the norm – which is not easy to determine, by the way. That’s the fundamentals part. But you need something from behavioral theorists, too. Two other Nobel laureates, Daniel Kahneman and Amos Tversky, showed that loss aversion is more important than variability to how people make decisions about uncertainty. Keynes knew that, too: the higher the risk of loss, the greater the fear of it. That’s the psychology part. You need a model – Goldberg and I have developed one – that combines both elements.</p><p>Then, your risk model needs to distinguish between large and small unforeseeable change. If you know that the world is buffeted by unforeseeable change, you figure that eventually there will be a big change, and that your model will become irrelevant. To do your job well, you must be on guard, test frequently for such change, and be prepared to alter your model – even though it may have worked well for quite some time. A fixed model simply won’t do the job.</p><p><strong>LP: Does your new theory help economics become more scientific?</strong></p><p>RF: Yes. Economists have long worried about being able to test their predictions empirically. If they couldn’t test them, they were philosophers, not scientists, as Soros put it.</p><p>As it turns out — and this is an important part of what I’m working on with pioneering colleagues at the University of Copenhagen — you may well be able to test the predictions of an NREH model. But you have to give up one thing: exact knowledge. You can get qualitative predictions: for example, you can say that when a company’s earnings rise, its stock price tends to rise as well. But you can’t get quantitative predictions: you can’t say exactly how much.</p><p><strong>LP: Seems like a big thing to give up. How will economists and economic forecasters stay in business?</strong></p><p>RF: It’s a big cost. It changes the status of economists. They are no longer fortune-tellers.</p><p>But, we gain something big, too. If we don’t become wedded to quantitative predictions, and we admit that both psychology and fundamentals matter, we can find out a lot about the world. We begin to understand that it is not a world of near-equilibrium; financial markets fluctuate. And we understand that these fluctuations are not necessarily a result of market inefficiency. They may be part of the way that markets try to assess what the actual values are. We begin to appreciate what markets really do.</p><p>And, when we understand better what markets do, it has an effect on government regulations, because we understand that markets sometimes go too high or too low. This awareness of the provisional nature of our knowledge has a very practical effect, actually, in the financial industry. We can adjust models as needed. In a broader sense, we gain the openness of the world and give play to creativity. We say that no one has the final answer. We get away from either/or thinking and imagine the multiplicity of possibilities.</p><p><strong>LP: So the only truth is the non-existence of the one true model?</strong></p><p>RF: It’s the genuine openness that makes our ideas – and education – more exciting. Students can think about things in an open, yet structured way. We don’t lose the structure; we just renounce the pretense of exact knowledge.</p><p>Economics is not mechanistic. It requires understanding of history, politics, and psychology.  Some say that economics is an art, but NREH is actually rigorous economics. It simply recognizes that there’s a limit to what we can know.</p><p>Economists may fear that acknowledging this limit would make economic analysis unscientific. But that fear is rooted in a misconception of what the social scientific enterprise should be. Scientific knowledge generates empirically relevant regularities that are likely to be durable. In economics, that knowledge can only be qualitative, and grasping this insight is essential to its scientific status.  Until now, we have been wasting time looking for a model that would tell us exactly how the market works.</p><p><strong>LP: Chasing the Holy Grail?</strong></p><p>RF: Yes. It’s an illusion. We’ve trained generation after generation in this fruitless task, and it leads to extreme thinking. Fama and Shiller need not see themselves in irreconcilable opposition. There is no one truth. They both have had critical insights, and NREH acknowledges that and builds on their work.</p><p><em>This interview was originally published on the <a href="">blog</a> of the Institute for New Economic Thinking</em>.</p> Thu, 19 Nov 2015 07:47:00 -0800 Lynn Stuart Parramore, AlterNet 1046014 at Economy Economy economics stock market financial crisis regulation Why Getting Radical Might Be the Most Practical Way to Fix Inequality <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Sometimes radical ideas are actually the most pragmatic.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Adair Turner, Chairman of the Board of the <a href="">Institute for New Economic Thinking</a> and former Chairman of Britain’s Financial Services Authority (2008-13), is the author of a new book that takes aim at economic and political orthodoxies, <a href="">Between Debt and the Devil: Money, Credit, and Fixing Global Finance</a>. As Turner sees it, policy makers and economic thinkers across the globe remain in thrall to the belief that only unfettered financial markets deliver the best for societies. The resulting bias favors fixed rules and mathematical models often wildly out of touch with real world conditions. Turner calls for a reality check — the recognition that circumstances change, that the future is uncertain, and that we need flexible approaches to shifting market circumstances at a time of inequality and instability. He warns that taboos against printing money and disproportionate fears of fiscal deficits are keeping central banks from taking crucial measures to stimulate economies. These taboos and fears also make us blind to the threat of out-of-control private debt and credit wasted on real estate and speculation rather than growth that lifts everyone. For Turner, thinking radically is the most practical way forward. *This post was originally published on the <a href="">blog</a> of the <a href="">Institute for New Economic Thinking</a>.</em></p><p><strong>Lynn Parramore: You’ve noted that economies have become dangerously focused on credit in recent decades and that rising inequality is connected to this trend. Can you explain the link?</strong></p><p>Adair Turner: If you look back at the story of advanced economies over the 20 years before 2007, you see an interesting pattern. During that period, the total value of national income — what economists call “nominal GDP,” meaning income unadjusted for inflation —grew at about 5 percent per year in a reasonably steady fashion. The central banks patted themselves on the back and said: This is great! Things are running smoothly. We’ve got the “Great Moderation.”</p><p>Yet during all of that time, the value of all credit, unadjusted for inflation, grew at about 10 to15 percent per year. At the time, it seemed like we needed that pace of credit growth, but when you think about it, if your credit is going to grow at 10-15 percent per year in order to get your 5 percent GDP growth per year, eventually you’re going to have a problem. This isn’t a stable system. In my view, one of the reasons that it seemed that credit had to grow faster than total income was rising inequality.</p><p><strong>LP: Why are people borrowing more when inequality is rising?</strong></p><p>AT: The richer people, when they get another $100,000, or another million, or 10 million, don’t tend to spend it as much as the poorer people would if they got another $100 or $1,000 or $5,000. All the empirical evidence suggests that the rich tend to consume a lower proportion of income than middle and lower-income people. So rising inequality can lead to a major problem with the demand for goods and services. The rich aren’t spending their additional money, so overall, more money gets taken out of the economy. Unless the richer people decide to invest their money, there would be a slowdown in the economy. This idea goes back to economists like John Maynard Keynes and Alvin Hansen.</p><p>But before 2007, we didn’t have a slowdown. Instead, the savings of the rich ended up going through the financial system and being lent to middle and lower-income people, who had 30 years of no real income increase whatsoever. The figures for the U.S. are really quite startling. If you look at the bottom 20 or 25 percent of the population, their real wages haven’t gone up for about 35 years! Meanwhile, the incomes of the top 1 percent have gone up 200 percent. This is a dramatic increase. The savings at the top have to go somewhere. At the bottom, there is a group of people who don’t feel that they’re participating in the growing prosperity, so they become very vulnerable to the delusion that if they borrow the money and buy a house, they’ll make up for their lack of real wages by house prices always going up.</p><p><strong>LP: For a while, it seemed to work. People felt like their house was the ticket to prosperity.</strong></p><p>AT: Yes, for the decade leading up to 2007, a whole lot of people who weren’t getting raises felt that they were doing ok because they managed to buy a house that was going up in price. But it all came to an end, a catastrophic end. Rising inequality can create a more highly leveraged economy, and it can then make the economy vulnerable to a crash like 2008. And in that crash, the really malign thing is that the crash itself tends to further increase inequality because it tends to be the people at the lower end of the wealth distribution who were highly leveraged and had to borrow lots of money to buy their house. In the downswing, they lose all the wealth they’ve got.</p><p>There’s a wonderful illustration of this by Atif Mian and Amir Sufi in their book, House of Debt. They show that the process of debt-fueled booms and busts is a very effective way of periodically redistributing wealth from the poor to the rich.</p><p><strong>LP: What can we do about this? Are we making any progress in stabilizing the financial system and getting all this private debt and inequality under control?</strong></p><p>AT: I do think that we need far more radical policies than we’ve had so far. I spent 4 ½ years of my life from September, 2008 to March, 2013 deeply involved in all of the details of the re-regulation of the global financial system. I was the chair of the main policy committee of the international <a href="">Financial Stability Board</a> and deeply involved with designing <a href="">Basel III</a>, which overhauled rules on banking. I was knee-deep in the nitty-gritty. I would defend what we’ve done and I think that the job we did has helped make the financial system itself more stable, and therefore less likely to cause a rapidly-developing crisis of the sort that developed in 2007-8.</p><p>That is the good news, but I think we’ve made almost no progress at all in dealing with the fundamental drivers of economies that are too reliant on debt. We have not dealt with the fundamental fragilities that arise from inequality, from the bias of the lending system towards real estate, and from global imbalances. I think we are still stuck in a post-crisis malaise — you see it less in the U.S. but you can clearly see it in Europe or Japan. Even in the U.S., the pace of job creation has picked up, but employment rates are still well below what they were in 2007. Real wages have not gone up. The capitalist system is not delivering those decade-after-decade increases it promised. We’re not where we should be in terms of our national economies. We don’t know how to get out of this malaise and I think we now have to consider more radical policies. That’s key to moving forward, particularly in Europe and Japan.</p><p>We need more radical policies so that we don’t just repeat the debt-fueled booms all over again and do another blow-up in 2025 or 2035.</p><p><strong>LP: If you could wave a magic wand and put one of these radical policies into action, which would you choose?</strong></p><p>AT: Today, because the Eurozone is in a very vulnerable position, I would like to see a small, coordinated fiscal expansion in all the countries of the Eurozone simultaneously. We would have to do it in that coordinated fashion across all member states because there isn’t a central federal budget within the Eurozone system. We could have a proportionally equal fiscal expansion in each of the member countries, financed as a one-off by the European Central Bank. Now if you print that, many people in Germany will just sort of explode over their morning coffee! But I have argued this in Germany and I have very good relationships with many German economists. Lots of them share my analysis of how we got it into this mess but they are very wary of agreeing to my proposal for how we get out.</p><p>LP: Do you think it could really happen, this expanding of public spending?</p><p>AT: There’s a very particular reason why this won’t happen in Europe. You asked me if I could wave a magic wand, right? Waving a magic wand means that you are free from all the classic, nasty, tricky bits of politics. In Europe, those are even more difficult than in any other country. Suppose you said, ok, I’m going to expand public expenditure in all these countries simultaneously. The German taxpayer, with perfect legitimacy, will say: Do you promise me that this public expenditure is honest and clean, and not some of the corrupt practices that we’ve seen in Greece? Can you really credibly promise me that this is one-off? That it will be moderate? That having agreed to it this year, you won’t come back next year and say, oh, let’s do a bit more of it? Convincing people is difficult enough even in one country with one central bank and one electorate that feels it’s part of one nation.</p><p>To achieve that degree of coordination and trust within the extraordinary, wonderful, and yet difficult thing that is the European Union — it is probably just impossible. What I say in the book is that the Eurozone will have to progress to a much greater degree of federalization with an element of a federal budget, federal taxation, and federal expenditure. If it can’t agree to that, it would be better to break up.</p><p>There need to be changes in who does what. There need to be changes to the constitution of Europe. I fault myself: I didn’t get it right in the late 90s. I was, in principle, in favor of European monetary union. But I think the experience has clearly shown that this is an incomplete political and economic union. The unsustainability of the political constitutional form has made the impact of the debt overhang even worse in the Eurozone than in countries such as the U.K. or the U.S. In the latter two, debt overhang has still created huge problems, but they haven’t been multiplied and made even worse by an inappropriate set of constitutional structures.</p><p>LP: To move forward, do we need to fundamentally change the way we think, particularly about the financial system?</p><p>AT: My work suggests two particular areas which economic theory has not paid enough attention to. One it used to pay attention to, and then it forgot. This strange amnesia concerns the role of the banking system in creating credit, money and purchasing power. It is absolutely fundamental to how a monetary economy works.</p><p>There were economists of the early 20 th century like Knut Wicksell, Friedrich Von Hayek, and John Maynard Keynes to whom that was obvious. Also Irving Fisher, Henry Simons, and Milton Friedman in his earlier writings. Then something very odd happens in the 1960s and 70s — economists stopped talking about the banking system and the credit system. We then develop a set of modern monetary economics—whether New Keynesian Economics or New Classical Economics — where we imagine that we can think about the dynamics of the macroeconomy without a rich understanding of the banking system and without understanding that the banking system creates credit, money and purchasing power.</p><p>We have got to go back to that. We’ve got to integrate that within our models and integrate that within our thinking. And reading some books written as much as a hundred years ago is a good starting point. In my book I quote, at some length, a book by Knut Wicksell called Interest and Prices, published in 1904. Remedying this amnesia is one of the priorities of the Institute for New Economic Thinking, so ironically we have to start by reminding ourselves of some old thinking.</p><p>The second crucial area of economic theory, which I think is more new because the phenomenon is new, is that we need to focus on the importance of what economists refer to as irreproducible existing assets, and particularly land. Everybody’s probably heard of Thomas Piketty and his Capital in the Twenty-First Century, a very important book. Piketty describes very significant increases in the ratio of wealth to national income, rising in many advanced economies from about 2 to 3 in 1950 to about 4 to 6 today, and he develops a theory of why that occurred. But what is striking, when you look at Piketty’s own figures, is that in countries like the U.K. and France and in several others, though not quite to the same extent, the majority of all wealth resides in the value of urban real estate. And the vast majority of the increase in the wealth-to-income ratio, which Piketty describes, comes from the increase in the value of urban real estate. The majority of that increase derives, in turn, not from new construction investment but from the increase in the value of land.</p><p>If you pick up an economic textbook, it will always describe capital like this: capital in year two is the same as capital in year one, plus net investment in that period. We have complicated mathematical theories of the determinants of returns on capital, returns on labor, in which we talk about two factors of production, capital and labor.</p><p>Well, it turns out that there is a lot in the economy that you can’t think straight about unless you add a third thing, which is land, where the value of that in year two has got nothing to do with new capital investment. It’s the land in the previous year, plus or minus what happened to the price. That makes land quite different in the economy.</p><p><strong>LP: Are these two things related, the role of the banking system and the distinct role which land plays in the economy?</strong></p><p>AT: Yes. You need these two things together to understand how modern economies really work. Instability mostly comes from the interface between the fact that the banks (or shadow banks) can create credit, money, and purchasing power in infinite quantities if we don’t constrain them, and the fact that credit is primarily created to fund the purchase of <a name="_GoBack" id="_GoBack"></a> urban real estate and land, which is somewhat fixed in supply. In economics, when you put together a highly elastic thing and a highly inelastic thing, you create extraordinary potential for turbulence, volatility, and for unstable prices. Both of those issues are largely absent from the way we have taught economics over the last 50 years. </p><p> </p> Fri, 13 Nov 2015 06:28:00 -0800 Lynn Stuart Parramore, AlterNet 1045726 at Economy Economy Adair Turner debt economy money inequality banking banks printing money recession poverty gdp credit Want a Better Economy? Could Be Time to Unleash the Devil <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Is an ancient financial taboo keeping us from prosperity? </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Adair Turner is chairman of the board of the Institute for New Economic Thinking, and came on as chairman of Britain’s Financial Services Authority just as the world sank into financial crisis in 2008. In this interview, he discusses his new book, <a href="">Between Debt and the Devil: Money, Credit, and Fixing Global Finance</a> and the critical questions — and radical solutions — that can lift the economy for everyone. (This post originally appeared on the <a href="">blog</a> of the <a href="">Institute for New Economic Thinking</a>.)</em></p><p><strong>Lynn Parramore: Your book raises fascinating questions about the way we relate to money and how modern economies work. You talk a lot about finance— all the lending and swishing around of money and credit that allows a business to invest or lets me purchase a house, and so on. Why the focus on finance?</strong></p><p>Adair Turner: A striking feature of the last 50 or 60 years in advanced economies, particularly in the U.S. and the U.K., is the dramatic increase in the relative role of finance. It’s gone in the U.S. from 2.5 percent to about 8 percent of GDP. If finance was like restaurants or hotels or automobiles or clothes, we’d say, well, if it’s grown it must be because as people got richer, they wanted to buy more of these things, and it’s up to consumers. But nobody gets up in the morning and says, I think I’ll have a really good day today: I’ll go and buy some financial services. It’s not an end-consumption good. It’s not part of what makes us enjoy life. If what finance is doing is making the rest of the economy more efficient, then it’s beneficial. But there are some very big questions about whether we need all the finance we’ve got.</p><p><strong>LP: When I walk down my city block, I pass three banks before I reach the end. I think, ok, those are the places I go to put my money and then the bank lends it out for investment. But there do seem to be more and more of them, which is kind of odd. You actually consider the question of whether banks <em>should even exist.</em> Tell me about that. Don’t we need them?</strong></p><p>AT: Banks do provide payment services, which we need. Banks also provide loans, and we certainly need some loans in the economy. But there are two big issues for debate — and I deliberately pose them, even though I don’t end up saying we should abolish banks. First, yes, we need loans and private credit. But can you have too much? Increasingly, economists are realizing that you can. If private credit to GDP, private loans to GDP, is 50 percent rather than ten percent, that’s probably good for the economy. But if it’s 200 percent, then that’s probably bad. So in my book I ask, why is it possible to have too much? And why does this create instability in the economy?</p><p>The second question is, do you want banks to be the people who provide loans? If loans weren’t provided by banks, there would be a naturally arising limit to them because a set of individuals would decide whether to pick up their money and loan it to somebody else. The really intriguing thing about banks is that they don’t just take preexisting money and lend it on. They have a capacity to create credit, money and purchasing power.</p><p><strong>LP: Wait, doesn’t the government print the money in my pocket?</strong></p><p>AT: Only a very small proportion of the money supply of an advanced economy is printed by the government. If you add up all the stuff called the “monetary base” — either the notes and coins which circulate or the holdings which the commercial banks have at the central bank, at the Federal Reserve — it’s a very small percentage, around two or three percent in the U.K. Most of the money supply is deposits at commercial banks or things which are very close to money, like deposits at money market mutual funds. That’s where most people hold the thing that is an immediately available store of value: what they think of as money. Most of that has been created by the banking system itself.</p><p>A bit of history on how banks arose: In the 13th or 14th century, you might take your gold to a goldsmith for safekeeping. But then after a while, the goldsmith says, okay, if you give me the gold for safekeeping, I can give you a receipt. Then the receipt turns out to be something you could trade to other people. The goldsmith started saying, well, not everybody’s going to demand back the gold at the same time. So I can lend some out. Finally, they realized they didn’t need to lend out the gold, they could just lend out receipts to the gold. You just ended up with a very significant increase in credit or money or various forms of money-equivalent.</p><p>That process can be controlled by the government if it imposes liquidity requirements and reserve requirements on the banks. But it has to consciously impose them because left to itself, the banking system in total can — and will —create lots of credit and purchasing power. Then, if people lose confidence, it will destroy it as well. For instance, the story described in a great historical work which Milton Friedman did with Anna Schwartz, The Monetary History of the USA, is an extraordinary process of private banks creating spending power in the 1920s, followed by the complete collapse of that spending power between 1929 and 1933. Most of that spending power increase and decrease had nothing to do with the federal or state governments—it occurred within the banking system.</p><p><strong>LP: How does this relate to financial crises?</strong></p><p>AT: Let’s look at the scale of the increase of lending that occurred. In 1950, across advanced economies, private credit was about 50 percent of GDP. It grew gradually up until the 1990s and then it grew even faster over the last 20 years up to 2007, when it reached 170 percent. The vast majority of all of that lending was actually not what the economic textbooks say banks do. They almost always say that banks lend money to entrepreneurs or businesses in order to fund capital investment. Well, that’s about 15 percent of what they do. Most is lending money against real estate. Some of that real estate is newly constructed, but most of the lending goes to people or to commercial real estate investors to buy real estate that already exists. There’s actually a socially useful function here – we need mortgages to lubricate the exchange of houses between individuals and between generations. But it’s a process that can incredibly easily get out of hand.</p><p>It can get out of hand, particularly when you’re talking about cities where it’s difficult to build new houses, like Manhattan, like San Francisco, like bits of L.A. or Miami — all the places with zoning constraints or where there’s a very strong tendency for people who can afford it to want to live in town and not right on the edge of town. In those areas, when you have a lot of credit extended, the price of houses goes up in the short term. Most of the housing value is not explained by the bricks and mortars, it’s explained by the land on which it sits. The reason why this is important is that you can get into these cycles, which we’ve seen again and again, where more credit gets extended to buy houses, so the price of houses or commercial real estate goes up, so borrowers think, oh, I’d better borrow some more money. The lender thinks, oh, it would be sensible to lend some more money. The process just goes on, up and up in a cycle until confidence breaks and then it comes down. When it comes down it drives the economy into a recession because you get a whole load of corporations or households which suddenly feel like they’ve got too much debt and they just hit the brakes on investment and consumption.</p><p>The debt just never goes away—it simply shifts around the economy from the private to the public sector. Soon it seems that all our classic policy levers are stuck. We think, well, the private sector is trying to cut debt, so why don’t we offset that with public deficits?</p><p><strong>LP: Is that what happened in the U.S. in 2009?</strong></p><p>AT: Yes, a whole load of U.S. households started cutting consumption and the economy went into a recession. Tax revenues went down, public expenditures went up, and unemployment went up. To begin with, you get a fiscal deficit and that seems fine, but the problem is, after a while the public debt goes up, and it’s as if for every unit that private debt goes down, public debt goes up two or three, and the total amount of debt goes up and up. After a while, people say, we can’t allow the public debt to go up anymore, we’ve got to try and get the fiscal deficit under control. Then you’ve got the public sector and the private sector trying to get their debt burdens under control, and that drives the economy into recession.</p><p>To fix this we say let’s have ultra-loose monetary policy. We’ll have interest rates which are zero. We’ll have quantitative easing. But if people feel that they’re over-leveraged, you can cut the interest rate to zero and they still don’t want to borrow or invest or consume.</p><p><strong>LP: And this is where we are now, right?</strong></p><p>AT: This is where the devil comes in. A lot of people say that we’re stuck in this long-term, slow, inadequate growth across the world and we’re out of ammunition to fight against it. We can’t raise the fiscal deficits and we can’t cut interest rates even more than zero. I make the point that governments and central banks together never run out of ammunition because they always have a policy instrument available. Milton Friedman — not a mad, inflationist socialist! — said that if you ever get stuck in that position, what you do is “helicopter money.” (The original Friedman thought experiment involved the central bank distributing money by helicopter<em>.</em><em>) </em>You run fiscal deficits financed by printed money.</p><p>We’ve made this a taboo because we’re terrified by Weimar Germany and modern Zimbabwe, where people did it on such a large scale that it produced hyperinflation. So people say, you mustn’t even talk about money finance or helicopter money because it will produce hyperinflation. But they simultaneously say that we can do nothing whatsoever about deflation. Now, it can’t be true that it’s as binary as that. It can’t be true that money finance is an instrument which is either incapable of doing anything or the moment you switch it on takes you to hyperinflation. Clearly, from history, it is a tool which can be used provided you design it well, in moderation.</p><p><strong>LP: So the devil is printing money?</strong></p><p>AT: It’s called the devil, because interestingly, three years ago, Jens Weidmann, the president of the Bundesbank, gave a speech in which he came pretty close to suggesting that Mario Draghi was growing horns when he first suggesting quantitative easing in Europe. Jens referred to a famous part in Goethe’s Faust, Part II, in which Mephistopheles, the devil, tempts the emperor and says, you don’t need to be constrained in your expenditure by your tax revenues or how much people are willing to lend you, you can print money! Jens argued that this illustrates what a dangerous thing it is.</p><p><strong>LP: So we have it in our cultural DNA to view the printing of money with alarm.</strong></p><p>AT: We do. But there are many historical examples of printing money successfully. The Pennsylvania Colony, back in the 1720s and 1730s, printed money, stimulated the economy, and did not produce hyperinflation. Other of the colonies printed money and produced extreme inflation. There’s a wonderful quote from Adam Smith where he says that the Pennsylvania expedient worked precisely because of the moderation, and for want of that moderation, the same expedient in the other colonies produced harm rather than benefit. It depends on how much you do.</p><p>The Union government, in the American Civil War, paid for quite a lot of the war by printing greenbacks. It did produce significant inflation, but it didn’t produce hyperinflation. On the Confederate side, it went completely over the top and produced thousands of percents of inflation, hyperinflation. Another case is when Takahashi, the Japanese finance minister, used money printing in the early '30s to pull the Japanese economy out of recession, and it worked. If you look at how America paid for the Second World War, probably 15 percent was effectively paid for by money printing. Money printing by the Federal Reserve directly funded the budget deficit. The government sold some bonds and then the Federal Reserve bought them, but it bought them permanently. That went on all the way from 1942 to '51. But it didn’t produce a hyperinflation. In 1951, it was brought to an end, but it was never reversed.</p><p><strong>LP: Perhaps we need to develop, as the Rolling Stones put it, some sympathy for the devil.</strong></p><p>AT: Monetary finance is like a medicine, which, taken in small quantities, can be very valuable, and taken in large quantities, is toxic. We have to make a choice as to whether we trust ourselves enough to create a set of rules and institutional relationships that would give us the confidence that we could use money printing and money finance in a responsible fashion in a small amount, or whether we’re so terrified that we’ll misuse it that we lock it away in the medicine cabinet, even if, in certain circumstances, it would be helpful.</p><p>My belief is that we are in such a deep deflationary problem across the world that we have to consider radical options.</p><p><strong>LP: Time to unlock the cabinet?</strong></p><p>AT: Unlock the cabinet. Now, other people would say we have to consider other radical options. If Ken Rogoff was here, he would agree with me entirely that there’s far too much debt in the world for us just to grow out of it. He would not want to do money printing, but rather big debt write-offs. Or he would say we’ve got to drive the interest rate down to a negative level. But I think all the serious analysis increasingly realizes that we are a long way from being out of the effects of the crisis of 2008, and that all our classic policy levers just haven’t worked in the way that we thought they would.</p><p>If you go back to 2009, nobody foresaw that the central bank interest rates, having gone to zero, would be there six years later. For the last two years, we’ve been involved in a perpetual game where we’re always expecting the Federal Reserve to begin to increase interest rates and we’re continually disappointed. That’s because most people, the markets, the commentary, have failed to realize what a deep deflationary impact there is of the debt that we accumulated. The book is called Between Debt and the Devil because we have to think of two different ultimate ways in which economies grow the nominal value of demand. One of them is by governments directly or indirectly printing money and spending it. The other is by the banking system creating credit, money, and purchasing power.</p><p>The problem, before the crisis, was that we were completely relaxed about everything the private financial system did in terms of creating credit, money, and purchasing power. Now we’re far too terrified of the government printing some money and creating purchasing power. What we’ve got to understand is that both government creation of money and spending power and private creation of money and spending power can be dangerous and both can be useful. Optimal policy is about using both but constraining both, rather than iconizing one and demonizing the other.</p> Fri, 30 Oct 2015 08:02:00 -0700 Lynn Stuart Parramore, AlterNet 1044964 at Economy Economy helicopter money financial crisis banks banking system credit public debt private debt lending finance financial regulation economy economic growth Central bank federal reserve civil war inflation Hyperinflation Haunted by Sex Scandals, Could David Vitter Face Political Grim Reaper? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The twisted tale of Vitter’s soon-to-be-decided political fate.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>While other pols have succumbed to death by sexual misadventure, the GOP senior senator from Louisiana has stood as an astonishing example of how to cheat the political grim reaper. Often styling himself as a paragon of GOP family values, Teflon Dave not only survived a red-hot sex scandal, he actually thrived in its wake.</p><p>Democratic congressman Edwin Edwards of Louisiana once famously told reporters that the only way he could lose an election was if “I'm caught in bed with either a dead girl or a live boy.” Senator David Vitter’s 2007 scandal featured not only a dead madam, but widespread rumors of, let us say, <a href="">very unusual</a> sexual kinks. Yet three years later, he sailed to re-election with a 20-point margin. Now the senator wants to succeed term-limited Bobby Jindal to become governor of Louisiana.</p><p>For a while, it looked like Vitter’s magic star was poised to rise to new heights. But the eve of Halloween finds several skeletons rattling in the senator’s closet, and he’s having an awfully hard time shutting them up.</p><p><strong>Sex, Lies and Larry Flynt</strong></p><p>Vitter rocketed into politics at just the right moment back in 1991. Armed with a Harvard B.A., a Rhodes scholarship and a law degree from Tulane, the clean-cut Vitter easily convinced the voters of Metairie, Louisiana, that he was the cure for the kind of stomach-turning politics represented by the likes of David Duke, former state representative and KKK Grand Wizard. Running on tax cuts, family values and strict ethical standards, Vitter handily won a seat in the Louisiana Legislature and nabbed another term in 1995, using his time there to, among other things, loudly denounce the ethical lapses of Edwin Edwards.</p><p>It was Hustler’s Larry Flynt who gave Vitter his golden opportunity. In 1998, Congressman Bob Livingston had to say farewell to his seat when Flynt exposed certain inconvenient sexual liaisons. Vitter leapt into the race to replace him. In 2000 and 2002, Vitter was re-elected with over 80 percent of the vote in what had turned into a safe Republican district. In 2004, Vitter ran for senate, weathering a storm of accusations that he had paid for sex. After lying about the allegations, he finally fessed up, apologized and became Senator David Vitter — a perch he used to blast same-sex marriage, denounce a woman’s right to terminate a pregnancy and agitate for school prayer. </p><p>But what Larry Flynt gaveth, Larry Flynt almost tooketh away. In 2007, Flynt dropped a bomb: veteran investigative reporter Dan Moldea, a paid consultant of Flynt's, had <a href="">uncovered phone records</a> revealing the senator to be a client of the famed "D.C. Madam," Deborah Jeane Palfrey (who, facing jail time for racketeering and money laundering, was found hanged in a shed in 2008, her death pronounced a suicide). </p><p>The husband and father of four cited forgiveness from God and wife, managed to dodge criminal charges, then cleverly lay low for a few months. It was lucky for him that the state and national GOP establishment had his back and there really weren’t any serious threats from Democratic challengers. So Vitter cruised on, storing up political capital and donor cash along the way, getting re-elected in 2010. In 2012, he won the eternal gratitude of the insurance industry, which <a href="">named</a> him one of its Federal Legislators of the Year for the good senator's work on its behalf. His poll numbers soaring, Vitter announced his run for the governorship of Louisiana in 2014, much to the delight of the oil and gas industry, which <a href="">showered him with money</a>. For several months, he was widely touted as the frontrunner against the Democrat and two Republicans also running in the state’s open primary.</p><p><strong>Private Eyes</strong></p><p>Starting in the summer, things began to get a bit sticky. Old rumors that Vitter liked to visit sex workers in New Orleans began to swirl, culminating in a story by Jason Brad Berry that popped up on the blog American Zombie, featuring an interview with Wendy Ellis, who claimed Vitter was her client between 1998 and 2000 and that they developed a close romantic relationship. She further claimed that he-of-the-vehement-anti-choice-rhetoric asked her to have an abortion after he got her pregnant. And she wasn’t done yet: she stated that despite his request, she had the baby and gave it up for adoption. Plus, she is dying of lupus. Vitter denied the story, but it was enough to raise the ghosts of dalliances past. His opponents salivated and pounced.</p><p>Things went <a href="">further off the rails</a> when a private eye hired by Vitter’s campaign was caught secretly recording a meeting at a coffee shop held by a local sheriff, Newell Norman. Norman noticed a man fumbling around with a smartphone that appeared to be in recording mode and confronted him. The spy fled. Livid, the sheriff sicced his deputies on the man, who high-tailed it through several suprised people’s backyards. Finally, the ill-starred, and, one must add, totally inept spy was eventually found crouched behind an air-conditioning unit, where he was promptly booked on one count of criminal mischief. And he could be staring at a felony.</p><p>What was the spying about? Had something to do with a man by the name of John Cummings, who was at the meeting. And who is John Cummings? A well-known attorney who has backed state Rep. John Bel Edwards, Vitter’s Democratic opponent. What does he know that makes private eyes eager to tape him? Beats me, but I can hear those skeletons thrashing around.</p><p>The primary was held on October 24, and Vitter barely made it through to the gubernatorial run-off. (Proving that things can always get worse, the day before the primary, Vitter reportedly <a href="">left the scene</a> of a traffic accident.) Edwards garnered 40 percent of the vote to Vitter’s 23 percent, which means Edwards will face Vitter in a runoff next month. Many call Edwards the favorite, and if you think a Democrat can’t win in Louisiana, consider the kind of guy Edwards happens to be: despite the ill luck of having a name similar to a certain North Carolina avatar of naughtiness, this Edwards is a West Point grad, U.S. Army Ranger and 82nd Airborne commander. He's anti-choice and pro-gun, perhaps just the sort of Dem that even a rabidly red state can warm up to. Vitter, on the other hand, is increasingly seen as a nasty, hypocritical piece of work who rubs a lot of people the wrong way.</p><p>A dead woman or a live boy might not cost you an election. What about a dead woman, a dying woman, an alleged love-child, an idiotic spy, and oh heck, let’s just throw it in, rumors that you have a diaper fetish? And there's still a month to go.</p><p>The election run-off is on November 21. Louisiana, you just tell the world how crazy you like it. </p>  Tue, 27 Oct 2015 13:57:00 -0700 Lynn Stuart Parramore, AlterNet 1044809 at News & Politics News & Politics david vitter sex scandal louisiana new orleans gop governor sex workers What the Steve Jobs Movie Won’t Tell You About Apple’s Success <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Think the iPhone is just a product of Silicon Valley magic? Think again. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Mariana Mazzucato is a professor in the Economics of Innovation program at the Science Policy Research Unit of the University of Sussex. Her widely acclaimed <a href="">book,</a> </em>The Entrepreneurial State: Debunking Public vs. Private Sector Myths<em>, reveals the critical role that we, the taxpayers, play in the creation of the most exciting innovations of our time through publicly funded investment. (The <a href=";qid=1445430447&amp;sr=8-1&amp;keywords=mazzucato">new U.S. edition</a> hits the shelves October 27.) Mazzucato debunks common myths about how innovation works and shapes a new narrative on how to grow a robust and inclusive economy. Think that iPhone in your pocket is simply a product of Silicon Valley magic? Think again! (This interview was originally posted on the <a href="">blog</a> for the <a href="">Institute of New Economic Thinking</a>.)</em></p><p><strong>Lynn Parramore: We constantly hear that anything to do with government is incompetent and inefficient. Yet as you show, many of the industries and products that make our lives better wouldn’t exist without government-funded research. The whole process of economic growth is hugely interdependent with governmental action.</strong></p><p><strong>What about something like the iPhone? Is it a product of Silicon Valley magic and the genius of Steve Jobs? Or is there more to the story?</strong></p><p>Mariana Mazzucato: Economists have recognized that government has a role to play in markets, but only to fix failures, like monopolies, for example. Yet if we look at what governments have done around the world, they have not just stepped in to address failures. They have actually actively shaped and created markets. This is the case in IT, biotech, nanotech and in today’s emerging green economy. Public sector funds have not only supported basic research, but also applied research and even early-stage, high-risk company finance. This is important because most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.</p><p>I often use the iPhone as an example of how governments shape markets, because what makes the iPhone ‘smart’ and not stupid is what you can do with it. And yes, everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touchscreen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA.</p><p>These agencies are all <a href="">mission driven</a>, which matters to their success, including who they are able to hire. The Department of Energy was recently run by Steve Chu, a Nobel Prize-winning physicist, who wanted the Advanced Research Projects Agency-Energy (ARPA-E) to do for energy what DARPA did for the Internet. Would he have bothered leaving academia to join the civil service just to "fix" markets? Surely not. That’s boring.</p><p><strong>LP: So what Steve Jobs and his team did was not central to the greatness of Apple?</strong></p><p>MM: It’s not that Steve Jobs was not a genius—of course he was! But the problem is that the narrative we tell around entrepreneurs like him, Bill Gates or Elon Musk is so unbalanced. We pretend that government at best was important for some infrastructure and basic science behind their empires. We see the new <a href="">Steve Jobs film</a>, which is based on a 600-page book where not one word mentions any of the public funding behind Apple’s empire.</p><p>But the real iPhone story — or the story behind biotechnology — reveals a very different narrative in which government-funded research made the most exciting innovations possible. The same could be said of Elon Musk today —Tesla and Space X not only benefit from government-funded basic research through agencies like the DoE and NASA, but they have also, as companies, received high-risk investments by the public sector. Just one example is the $465 million guaranteed loan received by Tesla by the DoE. As recently shown by an <a href="">LA Times article</a>, the entire Musk empire has received close to $5 billion in direct and indirect support.</p><p>Do we hear about that? No. Is that "story" helpful for future innovation? No.</p><p><strong>LP: You make the case that if taxpayers fund research responsible for the success of many private sector enterprises, we deserve something back. What might a fairer system of the distribution of rewards look like? Have any countries done better at this than others?</strong></p><p>MM: Government support is not only investing in upstream areas like basic research, but also in downstream areas like applied research and early-stage financing for the companies themselves. This means there are great risks.</p><p>When government provided Tesla with that guaranteed loan, it was a success. On the other hand, Solyndra got roughly the same amount ($500 million to Tesla’s $465 million), but it was a failure. Any venture capitalist will tell you that this is normal: for each success there are many failures. But what the venture capitalist has that the government does not have is the ability to use some of the upside to cover the downside and the next round of investments.</p><p>Economists argue that the government gets that upside through taxes paid by the companies benefitting from the investments; and by economic growth, which should generate higher tax receipts more broadly; and also through the spillovers from the investment into other areas, which helps the economy. But those mechanisms are limited, because of decreased corporate tax rates (and abundant loopholes), as well as the fall in what the top 1 percent pays. Also, patents are increasingly blocking the ability of spillovers to happen since the upstream tools for research are being patented (this is a new trend as patents used to be mainly for downstream products, not the science itself). And of course the globalized nature of production and innovation means that the benefits don’t necessarily stay in the country where the investments are made.</p><p>So yes, I’ve been arguing for a more realistic approach to the risk-reward problem. Once we admit that the public sector takes an immense amount of risk along the entire innovation chain, it becomes crucial to find ways to share both risks and rewards. This can be done through retaining a golden share of the intellectual property rights; through equity stakes or shares; through income-contingent loans (we do it with students, why not with business?); or through the price mechanism itself. Prices we pay for a product could reflect the public contribution.</p><p>Some countries are more courageous about this than others. In Israel, the very successful public venture capital fund Yozma retains royalties. In Finland, the public innovation fund Sitra, which backed Nokia, retains equity. And let’s not forget the obvious way to also get a return: insist that company profits generated from such investments are reinvested into production and innovation, and not spent on share buybacks or hoarded.</p><p><strong>LP: Let’s look at pharmaceuticals. If I want a breakthrough drug to treat cancer, which is more likely to deliver it to me, the National Institutes of Health or a multinational pharmaceutical company? What do you think the role of the companies is likely to be in such cases?</strong></p><p>MM: In 1980, the Bayh-Dole Act allowed publicly funded research to be patented. The idea was to facilitate the ability of science to affect commercialization—getting it out of the ivory towers. The act says that the government should have the right to control the prices for those drugs that it funds. We know that most radical new drugs (such as those with new molecular structures) are funded by the NIH, which continues to spend about $30 billion a year on pharmaceutical innovation. Yet the government has never exercised this right of price control.</p><p>This is because the narrative is so skewed toward the "value" and innovation produced by Big Pharma (or small biotech), that even when the government funds the innovation, it does not have the confidence to go the whole way and strike the right deal. We socialize the risk but privatize the gains. Recent <a href="">scandals</a> on the way that hedge fund managers like Martin Shkreli have gotten in this rotten game—making drug prices rise exponentially overnight—shows just how bad things are getting. We need to build innovation eco-systems that are more mutualistic and less parasitic.</p><p>So how should things work ideally? I think it’s only to be expected that it will be mainly public funds that invest in the research part of R&amp;D, but if Big Pharma mainly invests in the development part, that’s fine as long as they don’t pretend that they are the main innovators and charge crazy prices for that reason. The actual division of labor must be reflected in the division of the rewards (and prices, which is the way the consumer gets rewarded).</p><p>Companies cannot have it both ways! It’s also important that public funds be spent in research directions that are pushing market frontiers rather than working in existing areas. This means funding research not only on drugs but also on areas like life-style changes, even if the profit potential is lower for Big Pharma as you cannot sell that change as you can sell a medicine.</p><p><strong>LP: Six years past the financial crisis, we find ourselves with a sluggish economy. Can more public sector investment help? How do you evaluate claims that innovation has slowed down in the U.S. in recent years? Do you think large firms enhance or work against innovation on balance now?</strong></p><p>MM: The economic crisis that followed from the financial crisis is still being felt strongly across the world. There’s an insinuation that somehow the lower growth is inevitable or due to factors out of our control. But look at the increasing financialization of business (seen in the high rate of share buybacks emphasized by economist William Lazonick) and the fact that companies are hoarding profits at record levels — that points to a serious investment crisis.</p><p>It’s not about lack of opportunities. It’s because businesses are choosing to hoard profits or to use them to simply prop up stock options (and hence executive pay). That is bad for innovation and there is nothing inevitable about it. At the same time, governments are being asked to cut back with the austerity craze that continues to plague many nations. So we have a crisis of investment on both the private and public side.</p><p>But it’s not only New Deal-type investment programs that we need, but also better deals between government and business. Where did Bell Labs come from? It came from pressure by government on AT&amp;T, which was a (government-granted) monopoly, to reinvest its profits back into the real economy — back into innovation and big innovation. And they did. Where is that pressure today?</p><p>Innovation policy itself should be seen as part of the deal: the NIH could say: look, we will continue to spend on innovation, but only if you, Big Pharma, also increase your investments along the whole chain. Instead, Big Pharma gets its way and is able to do record-level share buybacks while lobbying for regressive tax policies, falling regulation, and a parasitic patent system which is blocking future innovation.</p><p><strong>LP: Why are countries so slow to learn the lessons of the entrepreneurial state? Have things improved or gotten worse since the first edition of your book?</strong></p><p>MM: Unfortunately, things are getting worse. Companies are increasingly financialized and spending less on basic research; governments are increasingly cutting back and becoming less able to do long-term thinking and be mission driven; and the vicious narrative around public debt is stronger than ever. It was private, not public debt that produced the financial crisis, yet while governments saved the day, they were then blamed! Politicians and policy makers did not have the vocabulary, and the courage, to defend themselves. Very little was done to explain to people how public debt rose after the crisis precisely due to the bailouts, and also due to the fall in tax income caused by the crisis and foolish austerity programs.</p><p>Even when government does make wise investments, it does not know how to talk about them. We have to change the frame of the debate from ideology to evidence about how markets are created — as a collective process. The mission of my book is to not only tell the history of Silicon Valley as it really was, so as to create more intelligent policies in the future, but also to enable policy makers to have a new vocabulary through which to talk about their own role—and more courage to strike the right deal. So that smart, innovation-led growth can also be inclusive growth. </p><p><em>Join Mariana Mazzucato in New York </em><em>on October 28</em><em> for a </em><em><a href="">talk and conversation</a></em><em> with Time Magazine’s Rana Foroohar and the New School’s Mark Setterfield.</em></p> Mon, 26 Oct 2015 08:47:00 -0700 Lynn Stuart Parramore, AlterNet 1044720 at Economy Economy Visions apple steve jobs innovation taxpayers tax policy drugs iphone silicon valley cia big pharma China: The Emperor Is In His Underwear <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Economic screw-ups and political stunts are getting harder to hide. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>For the past several years, well-known hedge fund manager Jim Chanos of Kynikos Associates has been an outspoken China bear. He explains how he became concerned that the world’s second largest economy is headed for trouble.</em></p><p><strong>Lynn Parramore: You’ve been skeptical towards China for a long time. What did you see that set off alarm bells?</strong></p><p>Jim Chanos: Way back in fall of ‘09 we were looking at why the global mining business was actually doing so well through the teeth of the recession, the crisis of 08-09. I knew intuitively it was because China was a vast source of demand for commodities, but I didn’t know how much until my real estate analysts put some numbers up on the white board. One of them said that as of the summer of 09, China had 5.6 billion square meters of real estate under development, both approved and pending. He said half of that was apartment buildings and half of it was commercial and mixed-use. I said, wait a minute — you’ve got the decimal point wrong because 5.6 billion square meters is 60 billion square feet. And it can’t be. He looked at me and checked the numbers a few times and said, “It’s 5.6 billion square meters.”</p><p>That was the “ah-ha” moment. If half of that was office and mixed commercial space, — 30 billion square feet out of the 60 — and China has 1.2 -1.3 billion people, then you’ve got a 5’ x 5’ office cubicle for every man, woman, and child in the country! That’s all been built, by the way. I think the latest number on that time series shows 10.6 billion meters currently under development.</p><p>It hit me as to just how vast the real estate build-out was. It was as if they had combined our commercial real estate bubble of the late 80s with our residential bubble of the millennium. Only they were doing it all at the same time. As we began to dig deeper into the numbers, we saw that their physical investments as a percentage of GDP was 50 percent. What they were doing was just stunning. They were literally building a whole country in a matter of years.</p><p>Now, when you do that, just by the nature of the accounting identity, you can control your growth. You can almost make it whatever you want as long as you have willing capital and lending ability to finance it. That’s why I always joke that China is the only industrialized country that knows its annual GDP on Jan. 1 st of that year. Because it’s planned. You can truly manufacture your growth. Now, you may end up with lots of white elephants and a banking system with lots of bad loans, and that’s the problem, whether you’re a closed system or an open system or somewhere in between (which is what I believe): a closed system with lots of leakage. At the end of the day, other countries have tried this model and it doesn’t really work that well. The Soviet Union and Japan, to some extent, in the late 80s, followed this model.</p><p>If you do dumb economic things, whether you’re capitalist, communist, or some hybrid, you ultimately pay the price.</p><p><strong>LP: How do you view what’s happening in 2015?</strong></p><p>JC: We’re getting inexorably to a tipping point in China. What has made 2015 much different from 2010, other than magnitude (almost everything I saw in 2009-2010 is twice as big today: the banking system, the economy, debt to GDP), is that the veneer of technocratic excellence has been wiped away. Now the West sees that the problems. That was not the case in 2010. I was considered a crank, someone who had never been there, never spoken Mandarin. They said, you don’t know, these people are geniuses! Now I think we’ve begun to see that, no, they make the same policy mistakes that we make. They don’t always get it right.</p><p>The other thing that’s changed dramatically, and I think more ominously, is the rise of Xi Jinping, who is a much different leader than the previous two groups of party leaders. Under Hu Jintao and Jiang Zemin, China was open for business. As long as you don’t rock the political boat, you can go to Macau, buy your three Ferraris, have fun, make money. This is the new China. Then Xi comes in, and his first speech is a fiery speech in Guangdong Province, where he absolutely rips into the Soviet Union for being soft on Perestroika. He says, what were you guys thinking about? Why didn’t you put the troops on the street the first chance you got? That was his first speech.</p><p>One of the next things he did was – I know this sounds silly, but to me it was very telling — he told the auto show models to cover up. Think about that for a second. He truly said, they’re showing too much skin and this is an embarrassment to China. Cover up! He told the kids, go to bed earlier! I began to see that this guy is different. This guy really sees himself as father of China. Some might say that now he sees himself as an emperor. Sure enough, the cult of personality stuff started. He made the PLA ( <em>People’s Liberation Army)</em> senior officers take an oath of personal loyalty to him. That’s very important. His nationalism, which was unmistakable and you couldn’t miss it by 2013-14, has also taken on a very anti-Western tone. Now, if there’s a problem with the stock market, it’s Western speculators. If there’s something going on, it’s the West’s fault.</p><p>So we’re back to the China that is sort of hostile, that is suspicious. Not the “Come to China, we’re open for business, let’s do deals.” I think that’s a big change and caught a lot of people by surprise.</p><p>When we start talking about China, we said that this model produces diminishing returns. The first international airport in a region is fantastic, the second one is questionable, and the third one is folly. In some of these cases we’re now at the point of folly on new projects. I keep pointing out to people that even if we take the Chinese numbers at face value — which pretty much no thinking person does anymore —their nominal GDP has gone from 15 percent in 2010 (ten real, 5 inflation) to 5 percent now (7 real, 2 deflation). So you’ve had, basically, even with their numbers, a 200 basis point, a 2 percent drop every year in GDP. That’s serious. I think that that’s just a factor of the law of large numbers and the fact that when you have an investment-driven model — they long ago stopped being an export-driven model — by its very nature, you begin to show diminishing returns on capital. That’s where they are. So, yes, they can keep GDP up by putting up another hydroelectric damn or building another highway, but if nobody travels on it, and there’s no river there, plus you have all this stuff you have to maintain, it’s expensive!</p><p>Finally, I believe a good 40-50 percent of that 50 percent I mentioned (physical investments as a percentage of GDP) — i.e. 20-25 percent of it —is residential real estate. They’re still building. It might be down a little bit now, it might be more like 15-20 percent of GDP, but it’s still a lot. At the top of our cycle, residential real estate was about 6 percent of GDP in the U.S. during our housing boom, the bubble. They’re 3 times that number now. You still see tons of cranes putting up blocks of apartment buildings that by their very nature are unproductive.</p><p><strong>LP: How do you view the move to liberalize the renminbi and put it into the Special Drawing Rights basket?</strong></p><p>JC: I think that ultimately they have to because they’re going to now need to be competitive with Japan and Korea in certain exports. Finally they realized that just strengthening the RMB was going to simply kill their manufacturing business because most of the stuff manufactured in China is not for domestic consumption. So I think inexorably they were the last holdout in the worldwide beggar-they-neighbor/cut interest rates/flood money trend, and now they’ve joined in it.</p><p><strong>LP: We hear a lot about China’s “new normal” – that what we’re seeing is just an extended period of slower expansion as the country transitions from an infrastructure-led economy to one driven by consumption, and that everything will turn out ok. What do you make of this perspective?</strong></p><p>JC: Well, it hasn’t happened yet. That’s the funny thing. I mean, when I first looked at China, investment was 48 percent of GDP and five years later after all this hand-wringing and realization that we have really get serious, it has plummeted to 46 percent of GDP. It has dropped 2 percent! So they talk about it, and they talk about reform, but the fact of that matter is that to get to that point, they would have to drop investment and that would put the economy immediately into a tailspin. So they’re caught between this rock and a hard place of not being able to do exactly what they know they should do, which is to cut the investment, because that will bring on a recession. It’s an accounting identity. So they won’t do it, and a couple of things happen. Every time it seems that the economy takes another leg down, they pull out another set of infrastructure projects and announce they’re going to build them.</p><p>I keep saying that they don’t have another playbook. They don’t know what else to do because to truly transform into a consumer and services-led economy, they have to stop planning stuff. They actually have to become real capitalists. They don’t want to do that. It’s seen in things like cracking down on the Internet. Why? Why are they cracking down on the Internet? Because the Internet itself is a power base, and under Xi Jinping, you can’t have another power base. So as I’ve said, I think it’s going to be very problematic for any country that’s afraid of the Internet to dominate the digital century. Yet, that’s what he’s doing. These are the conundrums that they have. They can talk about reform, they can talk about the new normal, but there’s nothing behind it. That’s what a little bit of 2015 in China has been all about –the realization that the emperor might not be naked, but he’s pretty much in his underwear.</p><p> </p> Tue, 29 Sep 2015 06:58:00 -0700 Lynn Stuart Parramore, AlterNet 1043193 at Economy Economy World China Jim Chanos real estate economics International finance Xi Jinping 10 Things You Didn’t Know About the Ashley Madison Scandal <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Fembots and fraudsters and lawyers. Oh, my!</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>As you probably know, Ashley Madison, the website offering to connect people for extramarital affairs, was detonated recently when a group known as Impact Team hacked its database and released a ginormous file containing the private info, including sexual preferences and credit card numbers, of 37 million users. Shockwaves ripped through homes around the globe as spouses realized that not only were their significant others liars and cheats, but nincompoops who used their real email addresses to explore extracurricular sex. Let’s explore the latest fallout.</p><p><strong>1. As many as 1 in 6 married men in the U.S. may have been an active user.</strong></p><p>Over at Forbes, Emma Johnson <a href="">crunched</a> the numbers and got a stunning result. She notes that according to, there look to be around 20 million male accounts revealed in the hack that show signs of email checking. If half these men were in the U.S., that leaves us with 10 million of the 61.2 million married men in the country. So there you have it: 1 out of 6 have been doing a bit of coloring outside the lines on Ashley Madison.</p><p>For Johnson, this revelation leads to more significant math: “The Ashley Madison hack should be a powerful wakeup call for women who tell themselves that their marriage is fail-proof, and they don’t have to take responsibility for their own financial wellbeing.” In other words, if you don’t want to be married to a guy who makes sexy time on websites, better make sure you can afford to go your own way. Alimony ain’t what it used to be.</p><p><strong>2. A lot of these dudes were chatting with sophisticated fembots.</strong></p><p><a href="">Investigation</a> by Gizmodo’s Annalee Newitz suggests that a large number of female profiles on the site were fakes. There were only 5.5 million female accounts to begin with out of 37 million total. As Newitz explains, “Ashley Madison created more than 70,000 female bots to send male users millions of fake messages, hoping to create the illusion of a vast playland of available women.” So men sitting at their computers getting turned on by naughty messages were often chatting with non-existent women — and paying for the privilege. Newitz finds that “for many members, these robo-encounters could come roughly every few minutes.”</p><p>How do fembots flirt? Like this, as the hack reveals:</p><blockquote><p><em>Hmmmm, when I was younger I used to sleep with my friend’s boyfriends. I guess old habits die hard although I could never sleep with their husbands.</em></p></blockquote><p>And this:</p><blockquote><p><em>I’m sexy, discreet, and always up for kinky chat. Would also meet up in person if we get to know each other and think there might be a good connection. Does this sound intriguing?</em></p></blockquote><p>But never this:</p><blockquote><p><em>I’m a bit of code cashing in on your gullibility, LOL!</em></p></blockquote><p>The bots could even talk dirty in multiple languages. Newitz has shown that the company made <a href="">boatloads of money</a> with this hustle. Leaked emails reveal that when the bots, or “engagers,” as Avid Life, Ashley Madison’s parent company called them, were turned off, the number of “guests” who became paying customers slumped. When they turned them back on, revenues went from $60,000 per month to $110,500. Is this the robot revolution we’ve been waiting for?</p><p><strong>3. An Ashley Madison spokesmodel says the site is run by “shady snakes.”</strong></p><p>Michelle “Bombshell” McGee, famed for having an affair with Sandra Bullock’s husband, was hired as an Ashley Madison spokesmodel in 2010. She let <em><a href="">Inside Edition</a></em> in on her view that the website is run by “shady snakes” who used her profile (which <em>she</em> didn’t use) to send fake messages to men. She doesn’t buy the company’s line that there were plenty of real women looking for hanky-panky on the site: “I think there are actually women on there but the real women are scam artists or porn girls looking to generate more income to the website. But almost all of them are fake profiles that Ashley Madison posted so they can maintain control.”</p><p><strong>4. If you’re a male journo who bragged of your ability to chat up women on Ashley Madison, you sound kinda stupid now.</strong></p><p>Charles J. Orlando wrote a titillating piece on YourTango of his “research” in an <a href="">article,</a> "Why Women Cheat: A Married Man Goes Undercover On Ashley Madison.” After getting the OK from his wife, despite acknowledging that he was once quite the Don Juan, Orlando gets busy.</p><p>Assuming that the site is 30 percent women (a gross overestimate as we now know), Orlando decides he “needed to stand out against all the other guys.” So he posts his real picture (you can <a href="">judge for yourself</a> whether that was a strong play) and musters all his literary and psychological finesse to create an alluring profile: not too eager, not too nice. He’s stoked when he finds 30 messages in his in-box the first night. Before long he is chatting to somebody called “SexyCat,” and “SexyCat wasn't the only one,” he gushes. “I discovered that to satisfy their deep longing for passion with minimal risk, many women sign up for Ashley Madison to have virtual sex via chat.”</p><p>He concludes that because these naughty ladies do not seem to want to meet up in person, his literary allure must be quite something:</p><blockquote><p>“In each session, I attempted to take things to the next level—an in-person meeting—but no-go. Most of these women seemed comfortable in getting what they needed online. It was arm's-length cheating for them (and perhaps one-handed typing). I hope I didn't disappoint them and that virtual cigarettes were ablaze in post-coital, pixelated afterglow of my cybersex adventures.”</p></blockquote><p>Orlando surmises that “there isn't one ‘type’ of woman looking to cheat online.” You can say that again. Some are fembots. And guess what, buddy? Fembots don't smoke.</p><p>The real humans getting pleasure here are the greedy owners of Ashley Madison.</p><p><strong>5. Even Larry Flynt is freaked out.</strong></p><p>The Ashley Madison hack is a <a href="">big headache</a> for the porn industry and other hookup sites that rely on people to share their fantasies and desires online. NBCnews reports that online adult entertainment accounts for more than 10 percent of Internet traffic, so this is big money we’re talking about.</p><p>Mr. Free Speech himself, Hustler magazine founder Larry Flynt, warns people worried about hacking to get used to the idea that online privacy doesn’t exist: "Don't do or say anything you wouldn't want to read about on the front page of the New York Times.” Ouch.</p><p><strong>6.</strong> <strong>Sex researchers are really excited.</strong></p><p>Polling people on their sexual habits is extremely time-consuming, difficult to do in large numbers, and gets responses that may or may not be honest. So naturally sex researchers are <a href="">captivated</a> by the idea of millions upon millions of Ashley Madison users whose demographic details, sexual preferences and habits are there for the searching. Even if you screen out the obvious fake accounts, you’d still be left with a trove of info far bigger than any phone or Internet survey could deliver.</p><p>Some are wondering whether using info from a criminal hack is ethical, or even legal. Opinions vary. Psychological researchers aren’t supposed to disclose any information about subjects that would allow someone to personally identify them. They would need to strip out things like names and street addresses to get past this obstacle. Then there’s the issue of informed consent. Do you go to every person and ask for permission to use the data? Other researchers argue that now the info is in the public domain, it’s free for the taking.</p><p><strong>7. Oops, your minister had an Ashley Madison account.</strong></p><p>Hardly any profession has escaped the cloud of embarrassment hanging over this scandal. Lawmakers both <a href="">Republican</a> and <a href="">Democrat</a>, <a href="">mayors</a>, <a href="">judges</a>, <a href="">NASA folks</a>, <a href="">billionaires</a>, <a href="">school employees</a>, <a href="">White House workers</a>, <a href=";IR=T">military personnel</a>, <a href="">theologians</a>, and <a href="">ministers</a> — seems like everybody and their granddad had an account. Some offer <a href="">lame excuses</a> when caught. Other <a href="">fess up</a> and try to do damage control.</p><p>Christians, you’re in luck, <a href="">says</a> Rev. Franklin Graham, the evangelist son of the famed Rev. Billy Graham: God will forgive the cheaters. The Heavenly Father probably had an Ashley Madison account, too.</p><p><strong>8. Ashley Madison may have actually worked for gay women.</strong></p><p>One of the weird revelations from Annalee Newitz’s <a href="">research</a> is that female users on Ashley Madison had a much better chance of connecting with real people because they were not the target of fembot activity — especially if they weren’t looking for straight men.</p><p>As Newitz reveals, “it would seem that the only members of Ashley Madison who aren’t inundated by spam and randos are women who seek trysts with other women or couples.” She concludes that “hiding in a haze of spam bots, women were connecting with each other and with men. We don’t know how many, nor how often, but we know they were doing it.”</p><p>Some gay users are concerned about being outed because of the hack, though, especially in places where the law could punish them. That’s scary. </p><p><strong>9. Ashley Madison may be in deep doo doo.</strong></p><p>Beyond reputational damage, Ashley Madison will likely face legal battles. Multiple class-action <a href="">lawsuits</a> have been filed in the U.S. and Canada, seeking over $1 billion so far. The company’s failure to protect customer data is the big complaint, especially because Ashley Madison’s parent company raked in millions selling $19 “full delete” packages that obviously didn’t work for users who wanted to shut down and remove their accounts.</p><p>Alas, there’s no putting this genie back in the bottle. To see the whole database where all the sex preferences and chat histories are available, you need pretty sophisticated computer skills. But anybody can check to see if an email address was included in the hack on sites like <a href="">haveibeenpawned</a>.</p><p>So where the hell was the Federal Trade Commission while what appears to be a giant scam was going on since 2001? Experts are saying that the FTC may be investigating but not saying anything since it isn't required to make public statements. Attorney James Ward <a href="">told</a> Forbes that the notoriety of the case makes it highly likely that action will be taken.</p><p>On the other hand, the fact that the parent company, Avid Life, is Canadian raises the question of the FTC’s jurisdiction. But the regulators have pursued Canadian companies before, so they may well do so in this case. Or they could let their counterparts across the border deal with it.</p><p><strong>10. Ashley Madison claims its numbers are up anyway.</strong></p><p>According to Ashley Madison, people are <a href="">still signing up</a> for the site even after the hack. It claims that “hundreds of thousands” — even actual women — have joined:</p><blockquote><p>“Despite having our business and customers attacked, we are growing….This past week alone, hundreds of thousands of new users signed up for the Ashley Madison platform — including 87,596 women.”</p></blockquote><p>Hmmm. If these women are real — and there’s not much reason to take Ashley Madison’s word for it — are they being paid? Something's fishy, because the sad news to would-be cheaters who think hot women are just dying to have sex for free with their paunchy, balding selves for the thrill of it need a serious reality check. Real ladies are just not that into you. </p> Wed, 09 Sep 2015 11:37:00 -0700 Lynn Stuart Parramore, AlterNet 1041973 at Sex & Relationships Culture Economy LGBTQ Sex & Relationships ashley madison fembot Avid Life adultery sex Joe Stiglitz: The Dangerous Economic Thinking That's Killing Greece and Threatening the European Union <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">The latest austerity deal is terrible for Greece and Europe. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>On August 18, Nobel laureate Joseph Stiglitz joined Harper’s Magazine deputy editor Christopher Beha at <a href="">Book Culture</a> in New York to discuss the Greek financial crisis. In Stiglitz’s view, the latest bailout not only ensures that the country’s depression will worsen, but undermines the entire European project.</p><p>Bad economic ideas inflict untold human suffering. When they come cloaked in a fog of Orwellian obfuscation, their poison and effects can spread with little hindrance. The public is misled. Power plays are hidden from view. </p><p>In Greece, where suicide rates have <a href="">risen sharply</a> in the wake of austerity measures, people lose hope.</p><p>Joseph Stiglitz, who has been following the Greek crisis closely and is recently returned from Athens, sets himself to the task of cutting through the fog. His plain English and fearless use of moral language to expose the ugliness behind economic and political abstractions lend clarity to a situation that is not just bringing a nation to its knees, but threatening to destroy the European project and bring on a future of conflict and hardship.</p><p>In discussing Greece’s Third Memorandum of Understanding and its draconian terms, Stiglitz observes that the MoU is really a “surrender document” that eclipses the country’s economic sovereignty and ensures that Greece’s depression — already deeper than America’s Great Depression — will get worse. An economy that is seeing youth unemployment reaching up to 60 percent is likely to lose another 5 percent in GDP. That is over and beyond the 25 percent plunge in GDP the country has suffered since the imposition of austerity measures.</p><p>Socially conservative Germans, Stiglitz warns, are doubling down on the discredited notion that austerity policies help economies recover in times of crisis. In reality, the insistence on keeping wages down, stripping bargaining power from workers, forcing small business owners to pay taxes a year in advance, and cutting pensions will only hamper demand and lead to a deepening spiral of debt. (Stiglitz emphasizes that hardly any of the money loaned to Greece has actually gone to help the Greeks themselves, but rather private-sector creditors, namely German and French banks).</p><p>Reflecting on a recent panel at Columbia University with Finance Minister Wolfgang Schäuble followed by a dinner, Stiglitz said, “My heart goes out to Greece, even more so after meeting Schäuble.”</p><p>Among the puzzling aspects of the MoU are demands for reforms on things as seemingly trivial as milk. While pensioners are eating out of garbage cans, the troika has been haggling over how old a carton of milk can be if it is to be labeled “fresh.” Stiglitz observes that if you look closely you see that special interests — in this case the big dairy companies of Holland — appear to be behind the reforms. Dutch milk sellers would prefer that their milk, which travels long distances to reach Greece, be labeled fresh, a move that will only hurt local dairies. By discouraging local production, the MoU paves the way for even more Greek unemployment and less demand for goods and services — hardly a recipe for economic health. (The chairman of the Eurogroup, it may be worth noting, is Jeroen Dijsselbloem, the Dutch finance minister.)</p><p>In Stiglitz’s view, what’s behind the ill-advised economic schemes is a power struggle in which Germany and its supporters seek to undermine the Greek economy in order to push out a government (Syriza) they do not like. In doing so they are tearing apart families, snuffing out the hopes of young people and delivering humiliation and suffering to a country. History shows that such a policy does not turn out well for anyone.</p><p>Stiglitz reminded the audience that John Maynard Keynes once issued warnings about the Treaty of Versailles, the peace settlement signed at the end of World War I, which ordered Germany to pay massive reparations. Inflicting more pain on a weakened economy would send an already-battered nation into depression. Keynes turned out to be correct: resentment of the harsh terms and the resulting high unemployment led to the rise of Adolf Hitler. Far from restoring stability in Europe, the Treaty set the stage for an unprecedented disaster and unspeakable human misery.</p><p>Stiglitz warned that Germany, a major beneficiary of debt write-offs following WWII, had not learned the lesson of its own history. Officials are blind to the reality that debt forgiveness is necessary for Greece at a time when nearly everyone, including the International Monetary Fund (IMF), recognizes that the country simply can’t pay back what it owes. Instead of remembering the terrible consequences of mass unemployment following WWI, many Germans insist that it was hyperinflation that led to Hitler, and so they tend to support central bank policies that guard against that problem rather than the far more worrisome specter of joblessness.</p><p>As Stiglitz describes, the result of all this historical amnesia and economic blindness is a “Dickensian” nightmare that recalls 19th-century debtors prisons where people were punished for the inability to pay debts and locked (literally) into a situation in which paying them was, of course, impossible. Only now, the prisoner is an entire country.</p><p>Stiglitz notes the fundamental problem that eurozone leaders will not let individual countries like Greece, Portugal or Spain change economic policies, no matter how harmful they become. Extreme right-wing elements will benefit as trust in government diminishes. As Stiglitz sees it, flaws in the design of the euro, as well as flaws in the design of the European Central Bank, which is not equipped to address unemployment, hurt Europe’s prospects and yet are extremely difficult to address because they are embedded in treaties that require the unanimous agreement of member countries to alter. He pointed out that if you look at countries like Sweden, it appears that those that did not join the eurozone seem to be in better shape than those that joined. The eurozone has been stuck in persistent stagnation, whereas Sweden’s economy, for example, is brightening.</p><p>When an audience member asked whether forgiving Greek debt would lead to moral hazard — encouraging other countries to borrow beyond their means — Stiglitz responded that it was unimaginable that any country would want to go through what the Greeks are enduring. He noted that the lenders bear even more responsibility for the current mess than the borrowers. Goldman Sachs structured irresponsible deals that allowed the Greek government at the time of the Maastricht Treaty to hide its debt. Stiglitz concluded that if anything, moral hazard is a problem on the lender side, as there is little to discourage lending money to countries that are unlikely to be able to pay back. He also noted that the idea of the Greek government selling assets in the middle of a depression to pay back debt was a bad idea, because prices are so low this amounts to little more than a fire sale.</p><p>A major global problem, Stiglitz observed, is a lack of bankruptcy laws that apply to countries — no legal framework for putting them on a sustainable path. This situation has enabled big, powerful countries like the United States and Germany to bully smaller countries into accepting economic policies that may be detrimental to their societies.</p><p>The real deficit in Europe, said Stiglitz, is a “democratic deficit.”</p><p>Is there any hope for Greece? Stiglitz did not offer any rosy scenarios, pointing out that saving Greece from ruin will not only require debt restructuring but compromises on the insistence that the county run a primary budget surplus — a policy that causes weak demand because income that is coming in is not being spent in the economy. As awful as the prospect of leaving the eurozone may be for Greece, staying in given the current terms only means a longer and deeper depression. The best way forward might be moving toward a two-currency situation, using both the euro and a “Greek euro” — a currency that would be tradable within the country’s own banking system. At least then Greece would be better able to set its course for the future. A tiny spark of hope is better than no hope at all. </p> Fri, 21 Aug 2015 06:20:00 -0700 Lynn Stuart Parramore, AlterNet 1041255 at Economy Economy World joseph stiglitz greece austerity euro eurozone germany Meet the Hedge Funders and Billionaires Who Pillage Under the Shield of Philanthropy <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">For every dollar they give, they take 44 from the rest of us. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>America’s parasitical oligarchs are masters of public relations. One of their favorite tactics is to masquerade as defenders of the common folk while neatly arranging things behind the scenes so that they can continue to plunder unimpeded. Perhaps nowhere is this sleight of hand displayed so artfully as it is at a particular high-profile charity with the nerve to bill itself as itself as “New York's largest poverty-fighting organization.”</p><p>British novelist Anthony Trollope once wrote, “I have sometimes thought that there is no being so venomous, so bloodthirsty as a professed philanthropist.”</p><p>Meet the benevolent patrons of the Robin Hood Foundation.</p><p><strong>Robin Hood in Reverse</strong></p><p>The Robin Hood Foundation, named for that green-jerkined hero of redistribution who stole from the rich to give to the poor, is run, ironically, by some of the most rapacious capitalists the country has ever produced — men who make robber barons of previous generations look like small-time crooks. Founded by hedge fund mogul Paul Tudor Jones, the foundation boasts 19 billionaires on its leadership boards and committees, the likes of which include this sample of American plutocracy:</p><p>-Hedge fund billionaire Steven A. Cohen, who, when he is not being probed for insider trading  (his company, SAC Capital Advisors, <a href="">pled guilty</a> to securities and wire fraud) is busy throwing <a href="">parties</a> for himself worthy of a Roman emperor at his Hamptons palace and bragging about his $700 million art collection. He suspends a 13-foot <a href="">shark in formaldehyde</a> from the ceiling his office, perhaps as an avatar of his business practices.</p><p>-Billionaire Home Depot founder Ken Langone, who <a href="">threatened</a> to turn off the charity donations if Pope Francis dared to continue criticizing capitalism and inequality, and also <a href="">likened</a> the plight of the wealthy in America to Nazi Germany. The GOP megadonor doesn’t care for <a href="">bank regulation</a> and it’s no surprise that he is the main <a href="">booster</a> for New Jersey Governor Chris Christie’s presidential bid, as his plan to <a href="">shred</a> Social Security is a fond wish of the tycoon’s.</p><p>- Hedge fund billionaire Stanley Druckenmiller, <a href="">funder</a> of right-wing causes who dedicates himself to spreading deficit hysteria and ginning up <a href="">generational warfare</a> on college campuses by trying to convince young people that they are being robbed by seniors using Social Security and Medicare. A long-time anti-tax crusader and <a href="">supporter</a> of such anti-labor enthusiasts as Wisconsin Governor Scott Walker, Druckenmiller <a href="">warned</a> President Obama that any attempt to tax the rich to pay for social services for the poor would be futile.</p><p>By occupation (the more useless and parasitical the better), it comes as no surprise that 12 of the 19 men in leadership positions at the Robin Hood Foundation happen to be hedge fund managers. A group called Hedge Clippers, supported by a coalition of labor unions and community groups and devoted to exposing how billionaires scheme to inflate their wealth and influence, has pointed out in a <a href="">scathing report</a> that the Robin Hood Foundation has close ties to an organization called the Managed Funds Association (MFA) that — shocker! —lobbies tirelessly for unjustified tax breaks for hedgies. Paul Tudor Jones’s top deputy, John Torell, chairs the MFA, and 31 members of Robin Hood’s governing board and leadership committees are executives at firms that belong to the highest membership levels of the organization.</p><p>The MFA was relatively small until 2007, when Congress started eyeing the “carried interest” tax loophole. Then it brought out the heavy artillery to protect elites from paying their fair share. The carried interest loophole is the MFA’s top priority.</p><p><strong>The King of Scams</strong></p><p>The carried interest loophole, as economist Dean Baker <a href="">put it</a>, is likely the worst of all the “sneaky and squirrelly ways that the rich use to escape their tax liability.”  It goes down like this: Hedge fund managers brazenly claim they deserve to pay a special low tax rate on the money they earn overseeing the funds they manage because, um, it’s not guaranteed. So they pay 20 percent instead of the 39.6 percent they would pay if the money were taxed as ordinary income. They get very rich from this windfall, just ask Mitt Romney. But you know what? Lots of workers have no guarantee about the money they’ll earn, from people selling cars to the guy who just served you a burger. Do they get a special tax rate? No, they don’t. They pay full freight. In fact, <em>almost nobody’s income is guaranteed</em>. You could get a pay cut tomorrow. Or a pink slip. Do you still pay regular income tax? Yep, you do.</p><p>This unfair tax break basically allows hedge fund managers to screw their fellow Americans out of money that could do things the illustrious patrons of the Robin Hood Foundation claim are so dear to their hearts, like building schools and feeding the poor. According to a Congressional Research Service cited in the Hedge Clippers report, closing the carried interest loophole would generate $17 billion a year. How many hungry children in New York City could that feed? All of them?</p><p>The loophole makes absolutely no economic or social sense, it’s just a way for the rich to say, hey, we’re powerful enough to lobby for this insanity, so you little people just go ahead and pay for that airport where our private jets are about to land and that road where our Porsches and limos cruise. It’s a middle finger held up to every hard-working person in America. Dirt kicked in the face of the poor.</p><p>It’s a driver of inequality and encourages risky speculation on Wall Street. Hillary Clinton, perhaps hoping to ward off the threat of Bernie Sanders, has been making noise about closing the carried interest loophole, which many a politician has made before. Given the cultural focus on inequality and the egregiousness of the policy, it may just be vulnerable. Let’s hope so.</p><p><strong>Den of Thieves</strong></p><p>The <a href="">mission statement</a> of the Robin Hood Foundation brays about all the funding it provides for school programs, generating “meaningful results for families in New York's poorest neighborhoods.” Soup kitchens! Homeless shelters! Job training! The tuxedoed tycoons throw money at all these causes “to give New York’s neediest citizens the tools they need to build better lives.”</p><p>How far does this largesse actually go toward ameliorating New York’s poverty problem? Unsurprisingly, not very far at all. In fact, as Hedge Clippers points out, the poverty rate in the city has <em>grown</em> over the course of the Robin Hood Foundation’s history, from 20 percent in 1990 to 21.2 percent in 2012.</p><p>Guess what’s also grown? The bank accounts of 19 billionaires on the Robin Hood Foundation’s boards, which have ballooned 93 percent since 2008.</p><p>Hedge Clippers applied a delicious tactic to expose the hypocrisy at the heart of the Robin Hood Foundation with stark mathematical precision— they used the organizations own metrics as an analytical tool. The foundation is famed for using grantee evaluations, cost-benefit analyses, and performance measures, including a metrics system freakishly named “relentless monetization.” So the Clippers applied these methods to the foundation’s hedge fund backers themselves, systematically exposing the degree to which they increase inequality and poverty.</p><p>How bad it is?  A chilling ratio summarizes just how bad— 44:1. That is to say, for every dollar the Robin Hood Foundation hedge fund managers studied give to the organization’s antipoverty efforts, <em>they soak up $44 from the public in the form of tax avoidance and anti-tax advocacy</em>.  The authors of the report believe that to be a conservative estimate.</p><p>Take the case of Steve Cohen, he of the shark in formaldehyde, and board member emeritus of the Robin Hood Foundation.</p><p>The tally of his recent donations to the foundation: $4,850,000.</p><p>The estimated amount he ripped off the public in 2014 by paying special low tax rates: $1,300,000,000.           </p><p>Quite a difference.</p><p>When they aren’t advocating tax swindles, members of the Robin Hood Foundation put in plenty of time fighting fair wages, trying to shred the social safety net, and killing worker protections through their associations with organizations like the Manhattan Institute, the Partnership for New York City (the voice of big business in NYC and a big foe of paid sick leave), and Fix the Debt (a notorious group devoted to crushing Social Security and Medicare).</p><p>When you think about it, it looks as if the Robin Hood Foundation members are actively trying to strip the public and strangle working people to such a degree that poverty and nickels thrown by billionaires will be all that’s left of America.  The rest of us will all be living in Sherwood Forest.  </p><p>The Robin Hood Foundation’s new motto: <em>Increasing poverty is our business.</em></p><p> </p> Wed, 29 Jul 2015 14:20:00 -0700 Lynn Stuart Parramore, AlterNet 1040112 at Economy Economy News & Politics Robin Hood Foundation taxes carried interest loophole inequality poverty new york city Ken Langone Stanley Druckenmiller Steven A. Cohen For Every One, A Basic Income? Yes! Radical Ideas About Fixing Inequality <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Tony Atkinson&#039;s new book points the way forward. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>British economist Tony Atkinson has been studying inequality — the gap in income and wealth between the top and the bottom — for nearly half a century. Now that the dogma of trickle-down has been exposed as myth, he sees economists, policy-makers and the public finally waking up to the seriousness of the problem. But how to fix it? In his new book, </em><a href="">Inequality: What Can Be Done?</a> <em>Atkinson f</em><em>ocuses on ambitious proposals that could shift the distribution of income in developed countries. This post was originally published on the blog of the <a href="">Institute for New Economic Thinking</a>.</em></p><p><strong>Lynn Parramore: When did you become interested in the topic of economic inequality? What sparked your work?</strong></p><p>Tony Atkinson: My interest in the topic actually led me to become an economics student. There was a famous book in England called <em>The Poor and the Poorest</em>, which was the rediscovery of poverty in Britain, published in 1965. I then decided to write a book about poverty when I graduated, and it was published in 1969: <em>Poverty in Britain and the Reform of Social Security</em>.</p><p><strong>LP: In terms of finding solutions to inequality, Thomas Piketty, in his book <em>Capital in the Twenty-First Century</em>, talks about a wealth tax, but many are skeptical that it could work. What is distinct about your prescriptions?</strong></p><p>TA: It’s fair to say that Piketty’s book was not about solutions. He does refer to a global capital tax, but he was much more concerned with an analysis rather than a set of prescriptions. In a way, my book was really continuing the lines of recent discussions, that is to say, we’ve identified the problem and we’ve seen some of the reasons for it, and we’ve seen our political leaders and our religious leaders all saying this is a serious problem — a “defining challenge of our time” to quote your president. So the next question, of course, is, what are we going to do about it?</p><p>What I tried to do was to set out a range of measures, which were to some extent very familiar in terms of taxes and transfers. But I also tried to stress that this is only, at best, part of the solution. One has to think much more carefully about what determines incomes people get before the government intervenes in taxing and transferring.</p><p><strong>LP: Some of the possible prescriptions you discuss, such as a basic income for all citizens, may sound radical, but you point out that they are actually already implemented as policy in many countries in various ways. Are ideas like basic income getting more attention and traction now?</strong></p><p>TA: Definitely. A lot of people I’ve talked to about the book, in different places, say, Oh! I never knew we could do that kind of thing. It’s a tragedy, in a way, that our political system has become very narrowly focused and not willing to at least debate these ideas.</p><p>The basic income is very close to the idea Thomas Paine put forward in the 1790s. (Paine’s proposal, by the way, is on the <a href="">website</a> of the U.S. Social Security Administration.) That proposal is something that I and many others think is really interesting, which is that everyone, on reaching the age of 18 or so, should receive a capital payment. It would be like a negative capital tax. That idea was also proposed years ago in America by Bruce Ackerman, a professor of law at Yale.</p><p>A capital payment, or capital grant, would contribute to solving the problem of the intergenerational distribution of income, which is something I stress in the book. That is a serious problem, which I found, for example, in discussions with Korean journalists and economists. They are very worried about generational divide — concerned that the older people have benefitted from growth and the younger people are struggling to find jobs and so on. Some of the measures I propose are designed to take money away from my generation and give it to younger generations. The capital grant certainly would do that.</p><p><strong>LP: You’ve been a strong critic of claims that we can’t afford to do much about inequality. How do you react to such claims?</strong></p><p>TA: I think that the question about whether we can afford it has two dimensions. One is the extent to which addressing inequality involves redistribution —whether in involves some people, like myself, paying higher taxes to finance a more effective system of social protection, for example. On the other hand, it’s a question about how far these measures and other measures would tend to reduce the size of the cake, to put it in a rather hackneyed metaphor.</p><p>The second argument is the one I spend more time discussing, which is to say that in the kinds of economies in which we live, there are a number of directions in which we can both make the distribution fairer and contribute to making our economies more efficient and more productive for everyone. That’s very much within the Institute for New Economic Thinking’s way of looking at the world because I’m really saying that the economic model we’ve had to think about is one in which intervention tends to reduce the size of the cake. Yet if you think about a different economic model, you have to allow for the fact that there are corporations with monopoly power. You have to allow for the fact that we have workers who have very little countervailing power, and so on. There are, in fact, ways in which the current situation is inefficient.</p><p><strong>LP: So reducing inequality may increase efficiency rather than the opposite, as neoclassical economists might argue?</strong></p><p>TA: Yes, I think that as a starting point we need to look at the world as it really is. We have unemployment and other evidence that the world isn’t working in a kind of textbook competitive fashion.</p><p><strong>LP: Let’s talk about debates concerning Britain and whether or not inequality is growing. Pikettty, for example, says that British society is becoming more economically unequal. Others refute this view. How do you read the data?</strong></p><p>TA: I think it’s very important to distinguish here between distribution of incomes and distribution of wealth. On incomes, there’s very little dispute. There is no doubt that income inequality in Britain today is very significantly higher than it was a generation ago. The Gini coefficient, which is used to measure it, is some ten percentage points higher than it was in the 1970s. And that’s a very big increase. It took us from being a country like the Netherlands or France to being a country like the United States in terms of inequality. I don’t think anyone disputes that, nor do they dispute the fact that poverty is higher than when I started out as an economist nearly 50 years ago.</p><p>Where there is much less certainty is about the wealth data, that is, how rich people are. There, our current statistics about changes in wealthy inequality are not so good — not as good as the American statistics. I think there is room for confusion there. The OECD says that wealth concentration in Britain is rising. Maybe. I’m not myself quite sure. It’s much harder to measure wealth concentration now because people are so geographically mobile. People on the “rich list” — it’s not quite clear whether they live in England or not. They might live somewhere else. It’s not clear whether the wealth is owned by them, or by a foundation, or a trust, or whether it’s spread out amongst a family. So it’s a much more complicated set of statistics to assemble today than it was 20 or 30 years ago.</p><p><strong>LP: You’ve written in your book that you feel optimistic about solving the problem of inequality. What gives you hope?</strong></p><p>TA: People often say that there’s a sense of inevitability, that there’s nothing much you can do. But what I was trying to argue in the book is that there are things you can do. The problem has been that we’ve not had on the agenda issues that would make a difference. Interestingly, even since I wrote the book the Conservative government in Britain has actually adopted the living wage as policy. Last week in the budget the chancellor announced he was in favor of paying higher wages. So there’s hope.</p> Wed, 29 Jul 2015 09:57:00 -0700 Lynn Stuart Parramore, AlterNet 1040093 at Economy Books Economy inequality Basic income thomas piety thomas paine tax policy James Galbraith: Greek Revolt Threatens Entire Neoliberal Project <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">An inside look at the referendum and what could happen next. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>James K. Galbraith, author of <a href="">The End of Normal</a> and professor at the Lyndon B. Johnson School of Public Affairs at UT Austin, has an inside view of the crisis leading to the recent referendum in Greece. Galbraith has worked for the past several years with recently departed Greek finance minister Yanis Varoufakis as both a colleague and co-author, and he has just returned from Greece, where he looked down over the rooftops of Syntagma Square as citizens made history in a strong vote against austerity. He discusses the last week’s dramatic turn of events and what is at stake going forward as the austerity doctrine — and the entire neoliberal project — come under threat. This post was originally published on the <a href="">blog</a> of the <a href="">Institute for New Economic Thinking</a>.</p><p><strong>Lynn Parramore: What’s your take on the attitudes of the creditor powers — the European Central Bank (ECB), International Monetary Fund (IMF) and European Commission (EC) — toward Greece?</strong></p><p>Jamie Galbraith: What happened on the 26th of June was that Alexis [Tsipras] came to realize, at long last, that no matter how many concessions he made he wasn’t going to get the first one from the creditors. That’s something Wolfgang Schäuble had made clear to Yanis [Varoufakis] months before.</p><p>But it was hard to persuade the Greek government of this because its members naturally expected, as you would when you’re in a negotiation, that if you make a concession the other side will make a concession. That isn’t the way this one worked. The Greeks kept making concessions. They’d present a program and the other side would say —as you can read in the press — oh, no, that’s not good enough. Do another one. Then they’d complain that the Greeks were not being serious.</p><p>What the creditors meant by that was this: when you come around and agree <em>to what we tell you</em>, then you’re serious. Otherwise not. This is the way bad professors treat extremely recalcitrant students. You come in with a paper draft and they say, no, that’s not good enough. Do another one.</p><p><strong>LP: Have the individual creditors differed on how to treat Greece?</strong></p><p>JG: There are some divisions amongst the creditors that are well known. But they’re all variations on the theme of insular, sheltered, cloistered people who do not understand what is happening in Greece and do not know the economics. So, for example, the EC tends to be a little bit nicer, the IMF tends better on debt restructuring but worse on the structural issues, and the ECB was infuriated by the fact that its technocrats couldn’t walk into any ministry in Athens and make demands and be paid attention to. So there were different aspects of this that seemed to trouble different creditors, but it all amounted to the fact that between them there was no basis for arriving at anything other than the original Memorandum of Understanding [bailout program].</p><p><strong>LP: What exactly triggered the breakdown that led to the referendum?</strong></p><p>JG: What happened was that the IMF took the staff level agreement draft that the Greeks has presented, and marked it up in red ink and presented it back to the Greeks as an ultimatum— this is what we will accept. Or rather [EC president] Juncker presented it back to the Greeks as an ultimatum. And Yanis was told, take it or leave it. So they basically had no choice but to walk away from it, to leave it.</p><p><strong>LP: How do you think the referendum has changed the situation? Has it given the Greeks leverage or not?</strong></p><p>JG: That’s a difficult question. The recent Ambrose Evans Pritchard <a href="">piece</a> is very much on the mark [“Europe is blowing itself apart over Greece and nobody seems able to stop it”]. The Greek government and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.  </p><p>But civil society took this over in the most dramatic and heroic fashion. It was an incredible thing to see. The Greeks, amazingly, voted 61 percent no. That, momentarily, gave a jolt of adrenaline to everybody in the government. But the next morning, they were back where they were before. And that’s why, of course, Yanis left at that point. What will happen now really will depend on whether there is anything forthcoming from the creditors in Brussels. It’s a very uncertain situation. It depends a lot on specific people on the Greek team.</p><p><strong>LP: What are the alternatives for Greece at this point?</strong></p><p>JG: Capitulation or exit. It really depends upon a political judgment in the Greek government, which is opaque to me. There is definitely, let’s say, a concession caucus in the circle around Alexis Tsipras. That is a problem because that is obviously not what the Greek people want.</p><p><strong>LP: What does it mean to the rest of the world if Greece capitulates or exits? What’s at stake?</strong></p><p>JG: What is at stake is a rather heroic rebellion by a very beleaguered people against a doctrine which has been destroying their lives — the austerity doctrine and the whole neoliberal project. For the rest of us, what is at stake is whether we have the moral courage in the sense of ethical responsibility to stand up to it.</p><p><strong>LP: Is the austerity doctrine — which has been widely discredited by economists — under serious threat?</strong></p><p>JG: It is definitely under threat from an increasingly emboldened political movement across Europe — certainly in Spain, certainly in Ireland, probably in Portugal, Italy, and France. So the answer is yes. This is what terrifies the European elites about the Greek situation. What Syriza did was to wipe out — and the referendum completed the job — the leadership of the previous sort of condominium of governing parties, which were a neoliberal conservative party and a neoliberlized social party. Now what do you find in the rest of Europe? Look at Germany, look at France. You find exactly the same thing. And of course, the elites in those countries  fear the same phenomenon. So what we’re seeing is an allergic reaction to what they regard as a political threat of the first order.</p> Thu, 09 Jul 2015 07:37:00 -0700 Lynn Stuart Parramore, AlterNet 1039085 at Economy Economy News & Politics World Alexis Tsipras Ambrose Evans Pritchard athens brussels earth europe European Central Bank european commission france germany greece Greek government International Monetary Fund international relations ireland italy james k. galbraith Jamie Galbraith Lyndon B. Johnson School of Public Affairs Lynn Parramore Person Career Person Travel Political geography Politics of Greece portugal spain Syntagma Square texas University of Texas at Austin university of texas Wolfgang Sch�uble Yanis Varoufakis author civil society co-author conservative party Finance Minister finance general election president professor Why Jamie Dimon Is One of the Biggest Economic Polluters in America <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Too-big-to-fail bankers blow toxic fumes that harm us all. Can we stop them?</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Ed Kane, a professor of finance at Boston College and grantee at the <a href="">Institute for New Economic Thinking</a>, studies the dangerous risk-taking of giant banks. He sees the cultures of Wall Street and regulators coming together to turn taxpayers into victims of theft and great harm. Like extreme drunk drivers before MADD or smokers on airplanes prior to the 1980s ban, megabankers currently get away with endangering others with little fear of repercussions. Kane discusses how changes in corporate law and culture must make it legally and socially unacceptable for bankers to blow their toxic fumes at the rest of us.</p><p><strong>Lynn Parramore: Let's start out talking about the relationship between taxpayers, regulators and banks. How did it become so unhealthy, particularly when banks run into trouble?</strong></p><p>Ed Kane: I think of this as a cultural problem. Organizations create a culture through some kind of mission statement, a series of buildings and staffs and procedures to promote that mission, and shared assumptions and norms about how to behave in difficult circumstances.</p><p>Financial crises are very difficult circumstances. In a crisis, the cultures of regulation and Wall Street intersect in a way that's very unhealthy for taxpayers. We get a coerced game of chicken. The world's biggest banks are aiming at the regulators and taxpayers, and the regulators want to avoid a collision. Regulators can either take over these insolvent zombies, and that's really a mess. Or they can give the zombies money and let them keep going in the hope that they'll somehow heal themselves.</p><p>The distorted culture tells the regulators to pick the second option. The regulators, the policy makers, and the central banks all around the world share the assumption that they have to rescue this industry. It's as if they jumped in their ambulances and headed straight toward every big and troubled institutions in every country. This is the cultural norm — the industry expects rescue. Taxpayers have been forced to provide a massively valuable guarantee for giant banks. It's a very unjust situation.</p><p><strong>LP: Why can't regulators see what's happening before a crisis sets in and take preventive measures?</strong></p><p>EK: Regulators see themselves in an impossible situation when they get to a crisis. The failure occurs in not understanding the risks as they build up in good times, or what appear to be good times, before things go badly. The risks aren't easy to see and bankers make them deliberately so. An environment of concealment is deeply engrained in the culture of regulators and giant firms. Much of what the banks do is kept confidential on the grounds that clients are entitled to some degree of confidentiality, and that puts the regulators at a disadvantage. They can never get all the information they need or pass all of what they do get up the chain of command to the top authorities at the central bank to properly assess what's going on.</p><p><strong>LP: We hear that giant banks like Goldman Sachs and Citigroup are raking in <a href="">megaprofits</a> in 2015, blowing past the expectations of analysts. How did taxpayers pay for those banks to make huge profits? Do we get anything in return?</strong></p><p>EK: As taxpayers, you and I are contributing to bank profits because we are forced to act as investors. You might call us equity investors of last resort. This situation reverses the usual process of stockholders or shareholders investing in a firm.</p><p>In a normal situation, equity holders have a limited liability but an unlimited possibility for gain. But when it comes to giant banks, our stake as taxpayers kicks in in just the opposite way. The guarantees that we've supplied to these firms against failure are an implicit taxpayer liability. Their value to us is negative at best. Our guarantees are the same kind of loss-absorbing equity support that shareholders ordinarily supply, but we do not get dividends as taxpayers. Banks don't pay us anything back. What we get is whatever contributions the guarantees add to the economy over and above what the megabanks take from us. There's no reason to believe that that's a fair bargain.</p><p>On the other hand, the extent of our liability is limitless if authorities do not keep the bank risk-taking in check. By that I mean if they do not recognize the ways in which managers take risks that can ruin the firm, and if they don't punish the managers who exploit taxpayers by taking such ruinous risks.</p><p><strong>LP: Banks have built their business models around this idea that taxpayers are coerced into providing them with a safety net. How does this profitable guarantee they get from us impact bank stock prices?</strong></p><p>EK: Basically, the banks have a nice little deal you might think of as a special kind of put-option. If you own a stock and you think it's going to go down, a put contract gives you the right to sell at a specified price for a particular time. The put-option lets you benefit from a decrease in the price, which limits losses on your stock holding.</p><p>Let's say things are going very badly at a particular big bank. There is effectively little shareholder support left. At this point, the put-option starts to kick in and further losses can be loaded onto taxpayers. The regulatory authorities who represent us are supposed to stop our losses — and they could do this by taking control of the assets of the firm. That is where the term "too-big-to-fail" comes in. Authorities are afraid for economic, political, and administrative reasons to take over these firms. So that gives large banks a chance to keep gambling additional funds until they find something that pays off. If the banks really can't be closed — if authorities really can't take them over and can't wipe out the shareholders — then this back-up always has value, and it gets priced into the banks' stocks.</p><p>You can see this value most clearly when a firm like AIG is absolutely on the ropes and its stock is heading toward zero but never gets to zero. Once authorities turn around and say, we're not going to take over AIG, we're going to let them keep gambling and try to get well that way, then you see the stock surge. That's how the value gets in. The central bank resembles a restaurant franchise guy who says to a sandwich shop manager, we will always supply the funds you need to expand, no matter how badly you screw up.</p><p><strong>LP: How can taxpayers get the law on our side?</strong></p><p>EK: First, people like you and I need to get the big picture across. What I'm saying is that the taxpayers are really disadvantaged minority stockholders but not recognized as such in the law. That's unjust. The law has a concept called "equitable interest." If you can be harmed by the behavior of, say, managers of a firm (in principle, anyone who invests can be harmed), then you should have an equitable interest and you should get a fair dividend for the funds you're supplying and the risk you're taking.</p><p>If the law would recognize that taxpayers actually do have an equity position in these banks, then this would create ethical obligations directly from the management to taxpayers. Instead of stealing money from the taxpayers by forcing us to come up with the funds they need when they're in great distress and getting regulators to back off in the game of chicken, they would owe us duties of competence, loyalty, and care. Bank managers would not have such strong incentives to steal money from taxpayers through the safety net.</p><p><strong>LP: That's pretty blunt. Are you saying that banks have built a business model based on theft?</strong></p><p>EK: What the too-big-to-fail banks are currently doing meets the everyday definition of theft — it's a forceful taking of resources. But of course, the stealing happens in a complex way and it's not easy to see. It's not quite as simple as observing the hold-up man pointing a gun at someone.</p><p>The remedy is to establish in law that these megabank managers owe fiduciary duties directly to taxpayers. The way it is now, managers defend their actions by claiming that they have a formal duty to maximize value for shareholders. But if they are too-big-to-fail, that norm actually entails a duty to steal value from taxpayers. That is the absolute logical consequence of affirming maximizing shareholder value as the main duty of bank managers.</p><p>We have to change corporate law. The basic idea is to change the oaths of office of central bank officials to establish that they are trustees for the portfolio of megabank guarantees that represents the equity interest of the taxpayers. Regulators should have responsibility for measuring and collecting returns that are owed to taxpayers. Economists can calculate those amounts through mathematical and statistical methods. Lobbyists, of course, will complain that this would be unreliable, but it's really not difficult to get a decent estimate. The taxpayer position is already embedded in the stock prices of megabanks, and when those positions are getting bigger — that tells you that regulatory failure is almost certainly underway.</p><p><strong>LP: Given the power of banks in our political system, how can we change laws and regulatory culture that allow the banks to rob us repeatedly? Where must the pressure come from?</strong></p><p>EK: I don't know. The fundamental issue is fair play. Wanting everyone to play fair is what we might call a "meta-norm" of our national culture. There are other ways than those I've suggested for attacking the problems in the financial sector. Some talk about breaking up the big banks or limiting how big one organization can get. Reformers have tried to promote fair play by placing restraints on campaign finance, but that hasn't gone very well.</p><p>I think the way norms are changed is very subtle. You have to have people who feel very strongly and are willing to invest a lot of resources in the process. I can think of two norms that have changed drastically over my lifetime. One is drinking and driving —extreme drunk driving used to be very common and even thought of as a joke. Then Mothers Against Drunk Driving worked slowly but surely over decades, and now drunk driving has no defenders. Similarly, smoking, which used to be seen as cool, is now viewed as a slow form of suicide. A smoker on an airplane used to insist on his or her rights to pollute the air and harm the lungs of fellow passengers. The damage they did to others was not something they thought much about. Today smokers have to beg for a place to smoke.</p><p><strong>LP: So Jamie Dimon is like a smoker on a plane, getting away with the slow destruction of the health of his fellow passengers?</strong></p><p>EK: Yes. Taxpayers and ordinary citizens are the non-smoking passengers. Smokers selfishly pursued their own pleasure without facing up to the harm they were visiting on others.The rules offering a no-smoking section resemble the ineffective capital requirements that the industry lobbyists persuade regulators to adopt.</p><p>The wealth of ordinary taxpayers is being damaged by the smoke from megabanks' reckless portfolio strategies, but ordinary citizens and ineffectual regulators cannot see the damage until it has become massive enough to cause another game of chicken —another giant crisis. To see the damage in time, we have to recognize that the safety net assigns taxpayers a disadvantaged equity stake in institutions that are too-big-to-fail. Like smokers on airplanes, bank managers fail to see that they owe fiduciary duties and dividends to taxpayers. To underscore this, we have to change the information system to surface regular estimates of taxpayers' stake in megabanks. Just like the airplane smoking ban, in which it took mountains of medical evidence to gradually change societal norms and industry practices, it's going to take a lot of work and educating the public to change this culture.</p><p>We really have to treat bankers who steal from the taxpayers as pariahs. We have to recognize that they are no different from a robber on the street, except they dress better! We have to regard them with contempt and they have to feel guilty about what they're doing. Right now they think of taxpayers as suckers and they don't feel guilty at all about the suffering they cause.</p><p>There is a lot of unorganized anger towards the banking industry around the world. Ordinary citizens have suffered from inappropriate risk-taking that happened during the boom before that 2007-2009 crisis. They are angry and they have a foggy idea that somehow the bankers did this. So it's a matter of an honest effort by the press and by academics to clarify this picture for the public and focus their anger properly. If it isn't refocused and this game keeps being played for a generation or two, then I think society will begin to see a lot of civil unrest. Before then, I hope bankers will see that they are behaving like the class nobles in the French Revolution. It is dangerous to take repeated advantage of the rest of the population. If the world's megabankers want to keep what they have, they're going to have to share it a little better. </p><p> </p> Thu, 18 Jun 2015 06:56:00 -0700 Lynn Stuart Parramore, AlterNet 1038005 at Economy Economy aig American International Group Bank managers Boston College business citigroup drunk driving Economy of the United States Ed Kane financial services goldman sachs insurance MADD Mothers Against Drunk Driving Person Career right-wing populism Subprime mortgage crisis solutions debate TaxPayers' Alliance Taxation in the United Kingdom The central bank too big to fail troubled asset relief program bank profits bank risk-taking bank banks campaign finance corporate law finance professor of finance sandwich shop manager America’s Competition Fetish Produces Human Sheep <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Teaching competition from kindergarten up makes us stupid and uninventive.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Entrepreneur and author Margaret Heffernan studies ways of thinking that hold us back and cause societal dysfunction. Her book <a href="">Willful Blindness</a> explores the costly failure to acknowledge danger in the SEC, the Catholic Church and other institutions. Her most recent book, <a href="">A Bigger Prize: Why Competition Isn't Everything And How We Do Better</a>, investigates our obsessive and damaging focus on competition. In her view, teaching competition from the earliest years produces adults who fail at creative thinking and generates a society where cheating is incentivized and people never learn to collaborate. In the following interview, she explains why this failure puts us all at risk. Heffernan recently spoke at the May 5-6 conference on <a href="">Finance and Society</a>, sponsored by the Institute for New Economic Thinking.</em></p><p>Lynn Parramore: What does your research tell us about how competition is wired into human behavior?</p><p>Margaret Heffernan: It's very clear that from birth, infants are prepared to compete for their mother's love and attention because if they don't get that, they're dead. You can see in really early experiments that babies will compete for their mother's attention if she is on the telephone or even just looking away. So it's clear to me that competition is a survival instinct to ensure that we get the resources that we need.</p><p>Of course, when it becomes more complex than that, when it becomes sibling rivalry, when it becomes a way of life, when it becomes a kneejerk reaction, that's when the problem sets in.</p><p>LP: What are some of the positive aspects of competition? Does it help us excel and achieve?</p><p>MH: Competition makes really boring things a lot more fun.If you have a boring walk to do, for example, turning it into a race makes it more fun. I think my biggest concern about competition is that when it enters into things that really matter, things that require higher order thinking, its benefits become very dubious indeed.</p><p>In my book, A Bigger Prize, there's a long section on what I see as the extremely destructive role that competition plays today in education. This is about competitive parents who are teaching their kids to be competitive and also competition within the classroom. We know from mountains of research that work in companies, for example, is done mostly in groups and teams, and we know that teamwork is really difficult. We also know that teams that are really high achieving are highly collaborative.</p><p>But none of those lessons really are being taught in an education system where you compete to get into the right school, you compete for class rankings, and you compete for college places. What we're seeing is that the more the school system and the parents double down on this "If you don't win you're toast" kind of mentality, the more kids are absorbing the message that education is all about the grade.</p><p>There are two consequences of this. If you can't get the grades then you may as well cheat because if grades are what matters, then who cares how you get them? And if you are competing against your classmates for class rankings and so on, then you are quite specifically motivated not to help them. I've lost track of the number of parents or kids who have told me stories where they were asked for help from a classmate but were advised not to help on the grounds that if the classmate did better, then they might push that individual down in the class ranking. This is so common it's just ridiculous. Yet what we know when we study high-achieving teams is that the single aspect that distinguishes them is helpfulness — information sharing and so on. So we are teaching kids to compete at an early age in a way that specifically disables the kinds of characteristics we want to see later in life.</p><p>LP: How do kids who are taught to be competitive tend to behave as adults?</p><p>MH: We produce adults who think that success is all about individual performance. I call these people "heroic soloists." Basically it's all about them. Their prevailing mindset is, What's in it for me? They aren't particularly generous either in helping or giving credit. I see these people at every level of organizations and it makes for extremely poor leaders. In some organizations these traits can really be career limiting.</p><p>Another cost is that if I'm only focused on the grades and on getting the right answer, then essentially what I'm doing I'm learning not to explore and think for myself. Of course, later in life we're going to ask people to think for themselves a lot because that's how innovation happens. But that's not at all that we're teaching. We're teaching that the high achievers are the people who get one correct answer. Your job isn't to explore or to find the best answer, just to second-guess what the correct one is. This is intellectually sterile and it encodes a sort of obedience into peoples' intellect, which is destructive. It produces what author William Deresiewicz has called "excellent sheep." If we want creative, original thinking in business or finance or whatever— that's not what this kind of system will produce.</p><p>LP: Mainstream economists have led us to believe that competitive self-interest produces the best possible outcomes for society. What's wrong with this view? </p><p>MH: In my previous book Willful Blindness, I looked at what I think of as the food chain that led to the financial crisis, which was that you had individual consumers buying houses they couldn't afford, sold to them by realtors and property people who were competing to sell more properties at a higher price and so on. As I went from the consumer to the top of the big banks, along the way I talked to the head of risk at a big Midwest bank. She said to me quite frankly, "Look Margaret, I didn't like subprime, nobody liked subprime. We all knew it was ripping off poor people. But the thing is, I'm in a competitive market for salespeople, and if I couldn't offer these high commission products, my sales force would walk out the door."</p><p>That interview stuck with me and I thought, hang on a second, classic economy theory tells you that a competitive marketplace is superior because competition provides a diversity of products which is good for the consumer, and it also, therefore diversifies risk. And yet, in this instance, competition has led every single one of these companies to copy each other, which had concentrated the risk. And I thought, Wow, that's interesting. That's specifically what's not supposed to happen. </p><p>So the book was really inspired by this idea that, okay, if competition doesn't work there, are there other areas in which it similarly fails? When I started to look, I was absolutely flabbergasted by what I found.</p><p>LP: Where did you see the most shocking failures?</p><p>MH: I think it absolutely fails in education. I would argue that it fails even in sports. A very useful piece of research done by a United States anti-doping agency shows that as sports has become more competitive and more high-stakes, more kids are dropping out of it because they pick up that sports is only for winners and if you can't win, there's no point in playing. So we have 80 percent of American kids by age of 12 doing no sports whatsoever. That's a catastrophe. This means that pro sports are not inspiring kids, they're turning them off.</p><p>I also looked at pharma, a very competitive industry where again, rather like the housing bubble, everybody's just copying each other. You get left-handed versions of right-handed drugs. For decades, we haven't had any real innovation; the competitive marketplace is not rising to the challenge of our huge health crises, like antibiotic resistance. Another interesting thing in pharma is that when these me-too drugs come out, they aren't cheaper, they're actually more expensive. Competition in that market is not even bringing prices down.</p><p>LP: Does competition actually lead to market failure?</p><p>MH: Yes. But the thing is that most economists would say that it's a perverse outcome, as if it's just sort of a once in a blue moon kind of outcome. But I would say that actually we are seeing those outcomes so routinely now that we have got to acknowledge that the higher the stakes in a competitive market, the more these outcomes become predictable.</p><p>LP: Nobel Prize-winning economist Elinor Ostrom studied the mechanisms for cooperation in human societies. How does her work illustrate alternatives to competition and challenge mainstream economics?</p><p>MH: Her work is inspiring because she's empirical, which is unusual for economists in the sense that she looked at actual projects and how they worked out. The other really interesting thing is that where many mainstream economists had always argued that centralized decision-making is more efficient, she found something different. In projects like bringing a sanitation system to Brazil, she saw that when you let these projects be decided at a grassroots level and you are prepared to take the time and effort to inform people who are going to use them, then the ultimate project is more efficient. It works better, it's used appropriately, and it's looked after better than when you impose from above. In other words, she was arguing that the tragedy of the commons is not inevitable. The more you inform and trust people, the more productive and sustainable their decision-making will be.</p><p>LP: Where else do you see creative collaboration at work among organizations and companies?</p><p>MH: I found creative collaboration in a lot of companies. It was interesting because it was easier to find than people might think. I write about companies like Arup, which is a global engineering firm; Gripple, which is a global manufacturing firm; Method Products, which is a consumer products firm; Baird, which is one of the few employee-owned banks in the United States; and I found that we're seeing an increasing number of large, global, important businesses adopt a more collaborative style both of leadership and of operations. They're proving more efficient, and I would argue, less destructive. They're not using competition to manage people.</p><p>LP: How does a focus on competition affect whole societies?</p><p>MH: One of the things you find is that the more a country believes in competition, the steeper the hierarchies tend to be. And the steeper the hierarchies, the higher the level of corruption.</p><p>The people at the top know they can get away with things, while the people at the bottom can't get things done the clean and decent way. So I suspect if you have greater and greater levels of inequality and steeper and steeper hierarchies, the people at the bottom don't believe the system will work — and it probably doesn't — and the people at the top think they can do whatever they want and nobody is going to catch them, and they're probably right. It really creates a condition where nobody believes in the system anymore. They all game it furiously, which of course means cynicism.</p><p>LP: Where is your research taking you from here?</p><p>MH: The new book I'm working on is called Beyond Measure because it's really looking at corporate cultures. It grew out my two previous books and it also grew out of a persistent experience I have working with large organizations where the people at the top feel that they can't influence the corporate culture and they don't know how. You'll see lots of senior and chief executives talking about how they're pulling on levers, but nothing is happening. The people inside the organization feel that they're too small to have an impact. So you have this kind of stalemate where everybody knows things need to change but nobody thinks they can do anything.</p><p>The new book is about the small things you can do within your organization that really can make a difference. It's really a huge cry against apathy and cynicism and it's partly about reframing some things. A big theme in all my work is the need to speak up when we see problems in organizations and the need to do that early because when problems are smaller. This is not one person's responsibility, nor is it the responsibility of one level of management — it's everybody's responsibility.</p><p>In every single organizational catastrophe I wrote about in Willful Blindness, people knew days, months, years ahead that things were wrong. To the degree that we can create cultures in which people speak up, those organizations will be healthier. Everybody from the janitor to the CEO must be prepared and willing to speak up.There are some industries, like the aviation industry, where this is common. People from the aviation industry will say that this is what has made air transport the safest form of travel in the world. Not because one or two people speak up, but because you have a culture which is called a "just culture" where everybody is expected to speak up whenever they see anything going wrong. </p><p> </p> Mon, 01 Jun 2015 12:06:00 -0700 Lynn Stuart Parramore, AlterNet 1037199 at Education Economy Education Visions 9 Arup baird brazil ceo catholic church elinor ostrom Entrepreneur and best-selling author Gripple Institute for New Economic Thinking Lynn Parramore Margaret Heffernan Method Products midwest Person Career Quotation The Organ U.S. Securities and Exchange Commission united states William Deresiewicz author bank big banks commission products consumer products few employee-owned banks finance food chain head of risk janitor manufacturing Prize-winning economist Libertarians Go After So-Called 'Vagina Voters': Which Body Part Are They Thinking With? <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Freedom is great, as long as it doesn&#039;t apply to women.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>From polls, libertarians are known to be a fairly homogenous group that <a href="">skews</a> white, male, young, affluent (i.e. <a href="">college-educated</a>), and has a reputation for somwhat less than enthusiastic <a href="">gender-inclusion</a>. Far more identify with the Republican party (43 percent) than the Democratic party (5 percent). Is it surprising that they get anxious on the subject of people with vaginas who vote for liberal/progressive candidates?</p><p>The latest freak-out comes from libertarian blogger-controversialist Brendan O’Neill, who <a href="">warns</a> in Reason magazine that “women voting for Hillary because she’s a woman are setting back feminism a hundred years,” hyperventilating that such nefarious activity “confirm[s] the descent of feminism into the cesspool of identity politics.” (In the past, Mr. O’Neill has expressed his concern for feminism by <a href="">comparing</a> it to radical Islam and <a href="">opining</a> that “stupid men, drunken men, thoughtless men and idiotic men” should not be considered rapists if they have sex with non-consenting women; clearly in his view, being a libertarian feminist would be akin to being a theological atheist.)</p><p>O’Neill warns ominously of a tsunami of so-called “vagina voters” on the basis of a <a href="">single blog</a> by Kate Harding who justifies her own vote for Hillary Clinton over Barack Obama in 2008 by pointing to Clinton’s superior experience and the fact that she is female. Harding explains that she felt it unfair she was expected to disregard the candidate’s gender in her selection, “just as those who were excited to vote for an African-American person in the primaries were supposed to pretend they never noticed the color of the candidates’ skin.” Harding acknowledges that while she would prefer Bernie Sanders in 2016, she would ultimately vote for Hillary Clinton against a Republican because she found the Democratic party “less odious” than the other, and she figured that since we’ve had 220 years of white, male presidents, it might be a good thing to have a president who understood the experience of half the population. Shocking!</p><p>As Harding put it, we have “the first fucking woman who can win…running for president, and she is at least nominally a liberal! Can we not allow ourselves to get excited about just that?”</p><p>Certainly not all women are excited about that; some sense that Hillary Clinton is not the person to challenge the largely unimpeded advance of the oligarchy, vagina or not. But to imagine that many women — and men, for that matter — should not feel that the election of a female president would be a positive sign of political inclusion is both disingenuous and stupid. The cries of vagina voting, of course, also raise the question of whether the <a href="">nearly 40 percent</a> of men polled who say they would vote for Clinton in 2016 are somehow voting against their penises. Or whether women who vote libertarian are anti-vagina.</p><p>Perhaps the vagina voter freak-out is only meant to distract us from that fact that many conservatives and libertarians have a great deal of trouble with women in general and females daring to assert themselves in positions of power in particular. Such a figure is libertarian presidential candidate Rand Paul, often hard-pressed to keep his woman-anxiety in check, whether he is making <a href="">dismissive, sexist remarks</a> to female television personalities, <a href="">mockin</a>g Hillary Clinton with a Valentine’s Day tweet directing readers to a Pinterest page imagining a White House redecorated with pink hearts and girly furniture, or <a href="">suggesting</a> that low-income, unmarried women should just stop having kids if they don’t want to be poor.</p><p>This last bit is especially hypocritical, considering that Rand Paul has described himself as “100 percent pro-life” and introduced the <a href="">Life at Conception Act</a> in 2013, which “declares that the right to life guaranteed by the Constitution is vested in each human being beginning at the moment of fertilization, cloning, or other moment at which an individual comes into being.” In this assertion, he follows in the footsteps of his rabidly anti-choice father, Ron Paul, who once <a href="">described</a> abortion as the “ultimate State tyranny” and compared federal support of the right of a woman to terminate a pregnancy to Hitler’s gassing of Jews. Ron Paul is known for pronouncing that the “rights of unborn people” is the “greatest moral issue of our time," despite the fact that libertarian guru Ayn Rand stated that <a href="">abortion</a> is a moral right, end of story.</p><p>Dealing with people who possess vaginas is clearly a dilemma for would-be anti-government crusaders. As many as <a href="">40 percent</a> of the libertarian-leaning can’t seem to reconcile their political philosophy with the horrifying specter of female autonomy and frequently resort to preposterous arguments about embryonic emancipation to justify their belief that freedom is okay as long as it does not extend to women. For all their posturing about rationality, many libertarians are clearly irrational on the subject of women, their vaginas and their freedom. Dare we say they are thinking with some other part of their body than their brains?</p><p>Libertarians tend to embrace a tired strain of 19th-century economic thought that correlates with 19th-century attitudes concerning women (witness the libertarian-leaning James Poulous making a Victorian <a href="">argument</a> that the “purpose” of women is to temper the barbaric tendencies of men). Such positions, of course, crumble when confronted with the real exigencies of the modern world. Libertarians love to talk about free markets and rational economic actors, and yet show them a woman who makes a rational decision to keep herself and her family from sliding into poverty by terminating a pregnancy and many will respond with fits of patriarchal moralistic frenzy. They have a hard time recognizing that abortion is an economic issue, even though <a href="">polling shows</a> that the public increasingly understands it is.</p><p>Many Americans living in the real world, especially those who are not wealthy, get it that a woman cannot effectively participate in the modern workforce without being able to plan pregnancies and limit the number of children she bears. Ongoing pregnancy discrimination on the job, inadequate family leave, and unaffordable child and healthcare (the U.S. is the most expensive place in the world to give birth) are among the many reasons that a woman, acting rationally, would decide to terminate a pregnancy.  </p><p>Quite rationally, women tend to support candidates who appreciate their economic and social concerns, as do many men who understand that the wellbeing of women extends to their families and the rest of society. They do not appear to be lining up behind female candidates like <a href="">Carly Fiorina</a>, who do not (Fiorina is anti-choice and does not tend to support equal pay). That’s in part why Republican men, after losing ground among women voters in the 2012 elections, are scrambling to change/soften their positions on issues like abortion. Wisconsin Gov. Scott Walker, who once opposed legal abortion even in cases of rape and incest, has lately been backtracking, telling Fox News that he “cannot change the federal law that gives women the choice whether or not to have an abortion,” a view which <a href="">angered</a> anti-choice activists. Is Walker a vagina campaigner?</p><p>It is too bad that so many libertarian and conservative men who bray about freedom do not seem to be in favor of a world in which women are free to decide what to do with their bodies without being coerced by a largely male government, or free to get the affordable access to childcare or healthcare that would certainly expand their possibilities in the world. By treating women as brainless “vagina voters,” they reveal the contempt for anyone who is not, well, exactly like them. Vaginas and libertarians do not mix very well.</p> Sun, 17 May 2015 18:52:00 -0700 Lynn Stuart Parramore, AlterNet 1036495 at Election 2016 Economy Election 2016 News & Politics ayn rand barack obama bernie sanders Candidate Position carly fiorina democratic party governor hillary clinton hitler James Poulous kate harding libertarian party Person Career Person Party Quotation rand paul republican party ron paul scott walker united states white house wisconsin campaigner cloning federal law healthcare president presidential candidate The New Corrupt Elite That Is Running Our Economy <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Talking about old systems of power and corruption doesn&#039;t begin to capture new realities.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em data-redactor-tag="em">Social anthropologist Janine Wedel, author, most recently, of <a href="">Unaccountable: How Elite Power Brokers Corrupt Our Finances, Freedom, and Security</a>, has spent decades getting to the bottom of how powerful people wield influence. In her view, old ways of talking about formal systems of power and corruption don't begin to capture new realities. Truth and transparency, she warns, have devolved into performance art. The buck stops nowhere. Could women be particularly suited to disrupt the unaccountability structured into the DNA of many of today's financial, corporate and governmental organizations? Wedel weighs in. (Accountability is a key topic in a May 5-6 conference sponsored by the Institute for New Economic Thinking, " <a href="">Finance and Society</a>," which features Brooksley Born, Elizabeth Warren, and other influential women who have challenged corrupt systems of power.)</em></p><p>Lynn Parramore: You've discussed a fascinating new kind of power broker on the world stage—a nimble, opportunistic person who floats between private and public institutions. How has this figure operated in the financial arena? Are such players different from lobbyists and other traditional influence peddlers? Can you give some examples?</p><p>Janine Wedel: In the financial arena, a well-known duo is Robert Rubin and Larry Summers, both former treasury secretaries. Rubin reached the heights at Goldman Sachs. He then went to Treasury in the 1990s, then on to Citigroup. In the lead-up to the financial crash, both Goldman and Citigroup earned billions on the unregulated derivatives he and Summers (and others) championed while in public office.</p><p>Summers has been even more influential: Treasury in the '90s, then back to Harvard, where as president, he invested some of the endowment in derivatives — a disastrous move. He then went to Wall Street hedge fund work, and then back to Washington with a top perch advising the Obama White House.</p><p>Both Rubin and Summers have moved among advisory and corporate boards, think tanks and the like. Summers, especially, maintains an active media presence. Their worldview and life experiences are enmeshed with Wall Street. Neither are lobbyists. It's not that they are beholden to Wall Street in the manner of a traditional lobbyist, but that Wall Street and Washington have substantially merged. Goldman had an express policy of placing its alumni in Washington jobs, earning it the nickname of "Government Sachs."</p><p>This is not the old revolving door, which has only one exit point. Today's revolving door has four or five or more: a player exits to an academic role, a media role, a government role, a business role, a think tank role, and straddles two or more at the same time. Traditional financial lobbyists are still out there fighting for their Wall Street clients, but they have to register. The most elite players generally do not, and their hugely important influence activities are much harder to measure and trace.</p><p>LP: Back in 1998, when Bill Clinton was president, Commodity Futures Trading Commission head Brooksley Born took on a powerful clique led by Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, his deputy Larry Summers, and SEC Chairman Arthur Levitt. They wanted to loosen the rules on derivatives; she didn't. Their victory helped set the stage for the financial catastrophe in 2007-'08, yet these men have gone on to play even more influential roles, often in financial firms that benefitted from unregulated derivatives. What does this say about who ends up with formal power today?</p><p>JW: I call what these players have done "failing up." They have made spectacular errors of judgment and are called upon to give advice on public policy. Part of the problem is that the lines between top Washington economic players and the industry they are supposed to regulate are effectively nonexistent. The know-how and inside information gleaned in "public service" are now worth huge amounts of money to financial firms looking for clout in dealing with Washington regulators.</p><p>It doesn't mean that these players were necessarily judging derivatives and looking ahead to a payday. It's more subtle. They believed that what was good for Wall Street was good for everyone. For them, private sector folks were the innovators, the wealth creators, the early adopters. The regulators, in their eyes, mostly just got in the way of all that good stuff. Now we know that the good stuff was just for Wall Street.</p><p>LP: In an article praising "difficult women" in finance, you point out that women can sometimes help disrupt corrupt systems that allow mostly male insiders to make the rules and profit from them. Why are women particularly well suited for disruption?</p><p>JW: Outsiders are well suited for disruption, and it just so happens that in the most powerful venues, women continue to remain outsiders. They may ruffle feathers not because they have a superior moral compass, but because, at least for now, they are dogged outsiders who've fought their whole lives to be with the big boys. Senator Elizabeth Warren, former FDIC chairperson Sheila Bair, and Commodity Futures Trading Commission head Brooksley Born have all acted as whistleblowers or disrupters in some part of the financial system. Their stories reveal something unusually relentless. Each has had a moment of being denied entry into elite quarters. A person like this is less likely to succumb to the groupthink that can normalize sketchy behavior.</p><p>Whistleblower Carmen Segarra is another case in point. In 2009, when the New York Fed was staring down reforms like Dodd Frank that would give it more supervisory power, NY Fed chief (and former Goldman partner) Bill Dudley commissioned what was supposed to be a confidential report by Columbia University finance professor David Beim on what went wrong at the bank that might have contributed to the crash.</p><p>Beim concluded that the culture of the NY Fed was too enmeshed in Wall Street to be a truly effective supervisor. He urged the bank to bring in disruptive outsider personalities who wouldn't be subject to regulatory capture, so they hired Segarra, who quickly became frustrated at what she saw as a too-accommodating approach by the Fed with Goldman Sachs. She was fired after refusing to tone down her report, so it's not a total win for accountability, not least for Segarra herself, but her secret recordings of what transpired as she and her colleagues discussed regulations at this hugely powerful institution have been illuminating, and resulted in congressional hearings.</p><p>Her outsider status meant she wasn't going to overly identify with the needs and wants of her peers. As she mentioned in the public radio program "This American Life," she was struck by the devastation the 2008 crash had on regular folks. This shows a strong affiliation with the world far outside Wall Street. That's an important element in disruption.</p><p>LP: You note that our legal and regulatory systems were set up to catch what you call "old-style corruption," like bribery and outright fraud, but they don't work for new, far more sophisticated and indirect styles of corruption. How can we bring more accountability?</p><p>JW: Fundamentally, ethics has become disconnected from accountability. Accountability has devolved into checklists and performances to appear accountable and satisfy the outside auditors. Anthropologists call this "audit culture." We perform for the auditor or the congressional committee or the risk compliance officer. But these checklists and performances have little to do with true accountability. We need to reunite ethics with the practice of accountability.</p><p>Also, we need to be hyper-alert to former government officials and legislators who might appear in the media or other public fora without disclosing their current roles. Why is former Congressman X on a Sunday morning chat show? He might be pushing a certain policy at the behest of a client, and yet is invariably identified by his public service role, even if it's a decade old.</p><p>Self-policing is not the answer. For example, academic economists who are also affiliated with financial firms should not be the ones to judge whether they need to disclose their corporate affiliations when they are speaking or writing about economic policy. The zeitgeist today is all about blurring boundaries, but that makes accountability difficult.</p><p>As citizens, we have to stay vigilant in terms of regulation even if it's a slog. Look at Dodd Frank; the president signed the law, but Wall Street then hired massive legal assistance to haggle over every comma and generally thwart implementation.</p><p>Reforms need to be thoughtfully considered and their actual results anticipated. The Honest Leadership and Open Government Act of 2007, aimed at strengthening disclosure requirements among lobbyists, caused a sharp decline in the number of registered lobbyists. But did they stop lobbying? No, many, if not most, simply don't register, creating a black hole of accountability. They were counting on weak enforcement because for decades we have devalued the role of regulatory enforcement.</p><p>LP: Looking at Europe, you describe how big Western banks like Goldman Sachs colluded with local leaders in ways that have been devastating to the economies of countries like Greece. Yet the president of the European Central Bank is a former Goldman Sachs managing director. How does this kind of situation impact public trust?</p><p>JW: It devastates trust. The situation in Greece is a dire one, and the Greeks are obviously railing against EU-imposed austerity measures by voting the left-wing party into power. Of course, the way Greece was operating was unsustainable. But let's just pretend for a moment that Mario Draghi did indeed have the right answer for Greece. How can you trust that he has the people's interest at heart when he is so closely associated with Wall Street people and mindsets?</p><p>LP: You've studied Eastern Europe and note that the kind of helplessness, fatalism and gallows humor common under communism is now starting to crop up here in the West, where public trust is under siege and ordinary people feel increasingly cynical about elected leaders and the democratic process. To many, the financial system is a game rigged against them, one in which they are permanent outsiders and losers. How can the outsiders regain influence?</p><p>JW: We have to support quality investigative journalism, which is dying by the day. Question what you are hearing from a powerful person and ask yourself why they are saying it. Insist on accountability legislation and support budgets for enforcement. And the next time you see a "hot" corruption case that involves a fancy watch or a stash of cash in a freezer, just ignore it and look for the bigger fish — the ones who'll never see a day in prison! </p> Tue, 05 May 2015 08:22:00 -0700 Lynn Stuart Parramore, AlterNet 1035885 at Economy Economy News & Politics World academia alan greenspan Arthur Levitt bill clinton Bill Dudley brooksley born Carmen Segarra chairman citigroup columbia university Commodity Futures Trading Commission congressman Council on Foreign Relations David Beim eastern europe elizabeth warren Employment Relation europe European Central Bank european union fdic goldman sachs greece harvard university harvard Institute for New Economic Thinking investment Janine Wedel larry summers lawrence summers Lynn Parramore Mario Draghi ny fed new york fed Person Attributes Person Career Quotation regulatory capture robert rubin sheila bair Social anthropologist subprime mortgage crisis this american life treasury secretary U.S. Securities and Exchange Commission US Federal Reserve wall street washington white house active media presence auditor author bank chairperson chief corrupt systems deputy finance professor finance formal systems head legal and regulatory systems lobbyist managing director M Big Banks Claim Reform Will Hurt the Economy. Here's Why That's Bullsh*t. <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">If we don&#039;t fix this house of cards, it will fall on us again.</div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>Anat Admati, who teaches finance and economics at the Stanford Graduate School of Business, is co-author of The Bankers' New Clothes, a classic account of the problem of Too Big to Fail banks. On May 6th she will address the “<a href="">Finance and Society</a>” conference sponsored by the Institute for New Economic Thinking, featuring influential women who have challenged the status quo, like Federal Reserve Chair Janet Yellen, IMF Managing Director Christine LaGarde, and Senator Elizabeth Warren. Admati will join Brooksley Born, former chair of Chair of the Commodities Futures Trading Commission, to discuss how effective financial regulation can make the system work better for society.</em><em> Seven years after financial hell broke loose, Admati warns that we are far from fixing a bloated and dangerous financial system —and that the system can’t fix itself. Why should you care? This gigantic house of cards could fall on you.</em></p><p><strong>Lynn Parramore: How would you describe the problem of Too Big to Fail banks. Whey does it matter to an ordinary person?</strong></p><p>Anat Admati: Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy.</p><p>We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis.</p><p>They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well.</p><p>As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy. They can even break the laws and regulations without the people responsible being held accountable. Effectively we’re hostages because their failure would be so harmful. They’re likely to be bailed out if their risks don’t turn out well.</p><p>Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders — even in the failed ones — have suffered the least. They’re thriving again and arguably benefitting the most from efforts to stimulate the economy.</p><p>So there’s something wrong with this picture. And there’s also increasing recognition that bloated banks and a bloated financial system – these huge institutions—are a drag on the economy.</p><p><strong>LP: Have we made any progress in dealing with the problem?</strong></p><p>AA: The progress has been totally unfocused and insufficient. Dodd-Frank claims to have solved the problem and it gives plenty of tools to regulators to do what needs to be done (many of these tools they actually already had before). But this law is really complex and the implementation of it is very messy. The lobbying by the financial industry is a large part of the reason that the law has been implemented so poorly and inefficiently with so much difficulty. We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits.</p><p>So we’ve had far from enough progress. We are told things are better but they are nowhere near what we should expect and demand. Much more can be done right now.</p><p><strong>LP: Banks, compared to other businesses, finance an enormous portion of their assets with borrowed money, or debt – as much as 95 percent. Yet bankers often claim that this is perfectly fine, and if we make them depend less on debt they will be forced to lend less. What is your view? Would asking banks to rely more on unborrowed money, or equity, somehow hurt the economy?</strong></p><p>AA: Sometimes when I don’t have time to unpack everything I use a quote from a book called <em>Payoff: Why Wall Street Always Wins</em> by Jeff Connaughton. He relates something Paul Volcker once said to Senator Ted Kaufman: “You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It's all bullshit.”</p><p>Here’s one obvious reason such claims are, in Volcker’s vocabulary, bullshit: Lending suffered most when banks didn’t have enough equity to absorb their losses in the crisis — and then we had to bail them out. The loss they suffered on the subprime fiasco was relatively small by comparison to losses to investors when the Internet bubble burst, but there was so much debt throughout the system, and indeed in the housing markets, and so much interconnection that the entire financial system almost collapsed.  That’s when lending suffered. So lending and growth suffers when the banks have too little equity, not too much.</p><p>Now, banks naturally have some debt, like deposits. But they don’t feel indebted even when they rely on 95 percent debt to finance their assets. No other healthy company lives like that, and nobody, even banks, needs to live like that — that’s the key. Normally, the market would not allow this to go on; those who are as heavily indebted feel the burden in many ways. The terms of the debt become too burdensome for corporations, and reflect the inefficient investment decisions made by heavily indebted companies. But banks have much nicer creditors, like depositors, and with many explicit and implicit guarantees, banks don’t face trouble or harsh terms. They only have to convince the regulators to let them get away with it. And they do.</p><p>So the abnormality of this incredible indebtedness is that they get away with it. There’s nothing good about it for society. If they had more equity then they could do everything that they do better —more consistently, more reliably, in a less distorted fashion.</p><p>Today's credit market is distorted. A key reason is that bankers love the high risk and chase returns. They are less fond of some of the lending where they are needed the most — like business lending, for example. Instead, most people get many credit cards in the mail and too many people live on expensive revolving credit. Effectively, the poor may end up subsidizing the credit card of the person who pays on time and has zero interest (and we all end up paying the enormous fees merchants are charged). So we can have too much or too little lending and live through inefficient booms and busts. Part of the reason for that is that banks are continually living on the edge in a way that nobody else in the economy would, and regulations meant to correct it are insufficient and flawed in their design. </p><p><strong>LP: Banking has been a very profitable business. Is it profitable because the risks are born by the taxpayer? Do you think the bank bonus system is part of the problem?</strong></p><p>AA: Yes, banking is partly profitable because of subsidies from taxpayers. There are probably other reasons, and not all of them good ones, in terms of the way competition works and other things. The bonus system encourages recklessness, and recklessness increases the value of the subsidies from taxpayers. Bankers are effectively paid to gamble.</p><p>It is profitable for the banks to become big even when this is inefficient, because they can do so with subsidized borrowing on easy terms. Guarantees, explicit and implicit, are a form of free or subsidized insurance. We don’t control whether what banks do with the cheap funding benefits the economy or just bankers and some of their investors. We must reduce these large subsidies that end up rewarding recklessness and harming us.  (See Admati’s <a href=";FileStore_id=3e6b2c82-dce3-4fa1-a764-04fe9e447792">July 2014 testimony before Congress</a> on bank subsidies).</p><p><strong>LP: We often hear about financial innovations that helped bring the global economy to its knees in 2008. Back in December, Congress rolled back a key taxpayer protection concerning derivatives, which Robert Lenzner of Forbes Magazine called a “</strong><a href=""><strong>Christmas present for the banks</strong></a><strong>.” What do Americans need to know about derivatives? How do they affect the Too Big to Fail problem?</strong></p><p>AA. The Christmas present was just one more small thing in a much bigger problem. The largest financial firms in America can hide an enormous amount of risk in derivatives. That's very dangerous because it makes banks more interconnected, since much of the derivatives trading happens within the financail system. It creates a house of cards — a very fragile system.</p><p>We also have bankruptcy laws in this country that perversely give unusual priority to derivatives contracts and other reckless practices. </p><p>Derivatives exacerbate Too Big to Fail dramatically because there's so much opacity in the system. Policy-makers get scared into bailing our or guaranteeing a lot of their commitments made in those markets because they won't quite know the consequences of letting them fail. It's very intimately related to Too Big to Fail. It's as if they hold a gun to your head. You don't konw whether they have bullets so you may get scared into paying the ransom. </p><p><strong>LP: Is breaking up the banks is a solution?</strong></p><p>AA: People say those words but what does it mean? How would you do it? That’s the big problem. Banks are multiple times bigger than most of the corporations you think of as big. I once made a mistake rushing through a HuffPost piece in 2010 saying that Jamie Dimon wants to be as big as Walmart. Well, at the time, JP Morgan was already 10 times bigger than Walmart by assets! When it comes to the financial sector, big is <em>really</em> big. People don’t even appreciate how big we’re talking about. Nobody else gets to be as big, and in fact, In other parts of the economy, companies that get so big often break up on their own.  But that doesn't happen in banking partly because of the perverse subsidies taxpayers provide.</p><p>The most sensible approach is to force banks and other financial institutions to have more equity, which is actually going to expose their inefficiencies and bring more investor pressure for a break-up to happen naturally without us doing it actively.  Regulators can also put significantly more pressure on banks to simplify their structure and divest unnecessary lines of businesses such as commodities (energy, aluminum, etc.). The size appears unmanageable and makes regulation difficult.  </p><p><strong>LP: What would make banking regulation more effective?</strong></p><p>AA: First of all there could be simpler regulation in some places and some cost-ineffective things could be used a bit less. Right now, we know too little about the risk and we have too little margin for error. We must reduce the opacity and increase the safety margins dramatically. Regulators make it complicated because we are unnecessarily living at the edge of a cliff all the time. We live so dangerously! There’s no need for that.  We are told that we have to live like that, but it’s that’s completely false. The system has to be made a lot more resilient. Then we can worry less and sleep better.</p><p>In addition to making things simpler, it’s very important that we are able to see more of the risk and then to enforce much stronger and simpler rules. And, of course, regulators need to be watching where the risks are going. They should not believe that just because the risks are off the accounting balance sheets that they are gone. That was a trick to get around regulations and get around accounting rules in cases like Enron. A lot of the risks were hiding — but they can be traced. Some laws that are counterproductive and make regulation harder should also be examined, including the tax code that encourages debt over equity, and the bankruptcy law that overly protects certain financial practices.</p><p><strong>LP: If we don’t deal with the problem of Too Big to Fail, what happens?</strong></p><p>AA: An ordinary person doesn’t realize it, but the impact of this unhealthy system on them happens every day. It’s doesn’t feel as acute as something like leakage from a nuclear facility because harm from the financial system is a little more abstract. You only see it when it blows. But it’s an unhealthy, inefficient, bloated and dangerous system. Because this system is so fragile, it can implode again, and our options next time will be dire again. We will either suffer a lot or bail out the system to suffer a little bit less.  </p><p>I recently shared with my students a quote by the Rothschild brothers of London, writing to associates in New York in 1863:  “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”</p><p>This is a great quote! We get tricked into thinking that we have a great financial system because we have our credit cards and whatnot. We don’t see the enormous risks that are taken in derivatives markets and some of the other practices that can topple the entire system again and which extracts fees and bonuses. The truth is that we can have a safer system that serves the economy and society better. But getting there requires that better laws and regulations are implemented and enforced. The system will not correct itself; we must demand that policymakers do a better job for the public. </p><p> </p><p> </p> Wed, 29 Apr 2015 06:32:00 -0700 Lynn Stuart Parramore, AlterNet 1035569 at Economy Economy america Anat Admati bank business chair Christine Lagarde christmas Commodities Futures Trading Commission congress Economic history economics elizabeth warren enron graduate school huffington post Institute for New Economic Thinking International Monetary Fund Internet bubble burst jp morgan jamie dimon Janet Yellen Jeff Connaughton Late-2000s financial crisis london Lynn Parramore managing director new york paul volcker Person Career Person Location Punctuation Quotation mark glyphs Quotation Robert Lenzner Ted Kaufman too big to fail US Federal Reserve walmart bank bonus system bank subsidies banking bankruptcy law co-author energy finance subsidized insurance How the Federal Reserve Is Destroying Your Economic Future <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">New research shows exactly how Fed policies exacerbate inequality. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>When it comes to what goes on in the marble corridors of the Federal Reserve, Americans tend to be suspicious. For different reasons, both the right and the left have challenged Fed policies aimed at bolstering the economy in the wake of the Great Recession. In two papers for the Institute of New Economic Thinking's Working Group on the <a href="">Political Economy of Distribution</a>, "<a href="">Have Large Scale Asset Purchases Increased Bank Profits?</a>" and the forthcoming "The Impact of 'Quantitative Easing' on Expected Profits: Explaining the Rise and Fall of the Fed's QE Policy," economist Gerald Epstein and his colleague Juan Antonio Montecino sought to find out who in the economy tends to benefit from the Fed's actions. They conclude that Wall Street and wealthy Americans are the big winners from policies like quantitative easing, while the rest see little improvement in their economic lives. End result? Inequality is getting worse.</p><p><strong>Lynn Parramore: Complaining about the Fed is something of a national pastime. What is it about this institution that attracts so much criticism?</strong></p><p>Gerald Epstein: People in America get really angry at the Federal Reserve and at the "money system" in general during economic crises. The Fed draws hostility because of its power, its insulation from democratic accountability, its lack of transparency, and because of its historical and structural connections to finance. It has a lot of power in the economy because it has a big impact on the supply and cost of credit, that is, interest rates. It also plays a key role in supervising banks and historically has seemed to take it easy on the banks when it shouldn't have, such as in the lead up to the financial crisis. Bankers themselves govern the Fed to some extent, and then there's the classic revolving door where Fed officials come from and then go back to the financial sector. Fed officials tend to believe that the institution should have a large measure of independence from democratic control, even though in law it is under the ostensible control of Congress.</p><p>So critics, often for good reason, are concerned that the Fed is wielding its vast powers in the interests of the banks and not in the interests of the people. After the financial crisis, Americans have perceived that the banks have been bailed out, but a significant proportion of the population is still in serious economic trouble.</p><p><strong>LP: Many libertarians want to audit the Fed or just plain end it, while conservatives like Rick Perry label the Fed's actions treasonous. On the other side of the political spectrum, members of the Occupy Movement and progressives like Bernie Sanders and Elizabeth Warren challenge the Fed's ties to Wall Street. </strong><strong>How do people with such vastly different ideologies end up distrusting the Fed?</strong></p><p>GE: On the surface, it may look like the right wing and progressive criticism of the Fed is similar, but there are key differences. Many of those on the right distrust the Fed and want to eliminate its power in the belief that the private economy, including the private banks, will be much more efficient, productive and even democratic if they are left to themselves: in other words, the criticism of the Fed really reflects a desire to cripple the government in the service of increasing the power and authority of the market.</p><p>The perspective of most progressive critics is quite different: they don't want to destroy the power of the Fed to regulate the macroeconomy and finance. They want to regain control over it so that it better serves the interests of the whole population.</p><p>So the right wants to destroy the power of the Fed to increase the power of finance; and the progressives want to reorient the Fed so that it will stop protecting the interests of finance and protect the interests of the broader population instead.</p><p><strong>LP: In the past several years, the Fed has been experimenting with a program of quantitative easing (QE) to pump money into the economy. Why did the Fed do it and how does it work? Who exactly does it work for?</strong></p><p>GE: Quantitative Easing is an overly mysterious term. The actual term used by the Fed is a program of large-scale asset purchases (LSAP) which is even clunkier, but more accurate. In the aftermath of the financial crisis of 2007-2008, the Fed used its power to create money and bought over $3 trillion of financial assets of various kinds in order to raise the price of those assets and lower interests, and to provide more liquidity and credit to the economy. This was supposed to make it easier for people and business to get access to cash to spend.</p><p>The question of why the Fed did this is the subject of our papers. There were actually multiple reasons for the program and it is difficult to sort out their relative importance in the Fed's thinking.</p><p>At first, the Fed wanted to keep the large banks from going bankrupt. Officials believed, of course, that if banks went under, the entire economy would be dragged down with them. But they were also interested in helping out the banks on their own terms. In our "Bank Profits" paper we discussed the close ties between the Fed and the banks, and that is significant here. Our research shows that these initial purchases of assets by the Fed in 2009-2010 did increase bank profits, especially the large players. So the Fed's policy of QE succeeded in helping these financial institutions make more money.</p><p><strong>LP: What about later? Did the Fed's actions continue to be a boon to the banks?</strong></p><p>GE: As time moved on and the economy failed to rebound, Fed officials became concerned about the need to continue large-scale asset purchases (quantitative easing) to improve a broader swath of the U.S. economy. They wanted to increase credit and liquidity to restore profitability in the broader economy as a goal in and of itself. But they also hoped that this would lead to more investment and job creation.</p><p>In our companion paper "The Impact of QE on Expected Profits," Juan Montecino and I look at three rounds of quantitative easing from 2009 till when it ended in 2014. We show that investors expected QE to benefit financial, construction and auto firms in the first two rounds of QE, but by the third round, only certain financial sectors were expected to benefit, and only to a modest extent. We argue that this lack of effectiveness in promoting corporate profits eroded the political support for QE and that contributed to the Fed's decision to end it.</p><p><strong>LP: A lot of people have argued that the Fed's policies have helped the broader economy overall. Paul Krugman suggested this in a recent New York Times op-ed. Do you agree?</strong></p><p>GE: There have been many studies of this issue. The impact of QE on generating more lending by Wall Street to Main Street and in generating more employment and increasing overall investment in the economy is quite modest. QE probably limited the initial collapse of the economy, and likely had a very small positive impact on economic growth, but its broader impact on jobs and growth in the economy seems not very big.</p><p><strong>LP: Krugman didn't say much about how low rates affect the price of assets like stocks. Should we be concerned about asset prices going up?</strong></p><p>GE: The evidence is quite clear that QE has increased certain asset prices in the economy. These include the assets the Fed bought directly, such as mortgage backed securities and long term government securities. There is also evidence that QE contributed to an increase in corporate bond prices. But what most people see is the big run-up in equity (stock market) prices in the last several years. Interestingly, it has been much harder to show that QE has caused the big rise in the stock market. A major part of the problem is that there are many possible factors that could have led to the stock market boom and it is hard to isolate the impact of QE.</p><p> </p><p>But there is no doubt that the Fed's large-scale asset purchases have caused major increases in a number of asset prices in the economy. This is especially true of mortgage backed securities and corporate bonds, and quite possibly of equities as well. For those people and institutions holding those things, the run up in prices has been a wealth bonanza.</p><p> </p><p><strong>LP: How have the Fed's actions impacted economic inequality in the U.S.?</strong></p><p> </p><p>Our papers suggest that initially, QE contributed to a pretty significant increase in inequality. It raised asset prices, which are owned primarily by the wealthy, while having relatively small if any positive impacts on bank lending, employment, wages or economic growth, so ordinary people haven't had much help. By the third round of QE in 2012-2014, the effects had likely muted quite a bit. There were probably not big impacts on asset prices from QE and the positive effects on employment growth might have strengthened somewhat.</p><p>But in the big picture, I think the evidence points to the conclusion that QE and other aspects of Fed policy increased inequality pretty significantly. This is reinforced if you take into account all the other non-standard measures the Fed used to bail out the banks early on in the crisis.</p><p><strong>LP: Lately we hear a lot of worry about what will happen if the Fed raises interest rates. How might the average person feel it if this happens?</strong></p><p>GE: Here's the interesting thing: the fact that QE and lowering interest rates almost to zero has worsened inequality, does not mean that raising interest rates will help reduce inequality. Economists have long known — and recent work by IMF economists supports this — that increases in interest rates normally worsen inequality, at least partly by reducing employment and wage growth.</p><p>So raising interest rates might lead to some initial reductions in wealth by lowering asset prices, but it could also take a bite out of your paycheck and dampen your prospects of finding a job. It's a bit of damned if you do and damned if you don't.</p><p><strong>LP: What kind of Fed policies would help close the inequality gap in the U.S.?</strong></p><p>The Fed needs to adopt new tools, on its own and perhaps in cooperation with the other parts of the U.S. government, to improve the economy from the bottom up. This includes increasing facilities for debt forgiveness for under-water mortgages and excessive student loans; increased credit facilities for small businesses and cooperatives; helping to underwrite mechanisms for creating affordable housing in cities; and more restrictive enforcement of financial regulatory rules to help rein in excessive banker risk and pay.</p><p>But the Fed cannot reduce inequality on its own; far from it. This requires a concerted effort by the government, broadly speaking, to support a variety of efforts. These include things like raising the federal minimum wage, eliminating unfair restrictions on union organizing, increased fiscal spending on needed infrastructure with a condition that these jobs will be decent paying jobs. Of course, this is just the tip of the iceberg, and far from the question of the role of the Federal Reserve.</p> Thu, 16 Apr 2015 09:01:00 -0700 Lynn Stuart Parramore, AlterNet 1034925 at Economy Economy america bernie sanders business congress Criticism of the Federal Reserve Economic history economics elizabeth warren Federal Reserve System federal reserve finance ge Gerald Epstein inflation Institute of New Economic Thinking International Monetary Fund Juan Antonio Montecino Large Scale Asset Purchases Increased Bank Profits Late-2000s financial crisis Late-2000s recession Lynn Parramore macroeconomics monetary policy new york times occupy movement paul krugman Person Career Person Relation quantitative easing Quotation rick perry u.s. government US Federal Reserve USD united states bank lending bank profits banker economist HBO’s Scientology Exposé Shows the Cult Is Much Crazier and More Ruthless Than You Might Imagine <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Director Alex Gibney lifts the lid on an international racket steeped in mystery. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>In America, salvation is big business, and he who dies with the most souls wins. Plenty of lives are wrecked along the way, but no matter. When consumer capitalism meets religious yearning, the sky’s the limit of what can you can get away with. That’s the subtext of Alex Gibney’s latest film, <a href=""><em>Going Clear: Scientology and the Prison of Belief</em></a>, which premiered at the Sundance Film Festival in January and screened on HBO on March 29.</p><p>L. Ron Hubbard, or LRH, as he liked to style himself, was an American of unprepossessing origins in search of meaning and money. Possibly he found the first, and is just now cavorting with intergalactic spirits in the sky. Most definitely he found the second, riding a rocket ship of wacked-out ambition to create what is now essentially a tax-free shell company with $3 billion in assets and real estate holdings on six continents.</p><p>Gibney doesn’t give us LRH as a madman, or even a simple huckster. The penny-a-word pulp fiction writer could have just been another loser who couldn’t manage to finish college and whose less-than-stellar naval service went awry when he inadvertently used a Mexican island for target practice and was deemed unfit for command. <em>Going Clear</em> traces the young man’s early perambulations through California occultism and various hare-brained moneymaking schemes to the Jersey Shore, where he washed up exhausted and plagued by anxiety. Another man might have just given up. But not LRH.</p><p>Instead, he marshaled a smattering of knowledge from various strains of psychological and philosophical esoterica to gin up a mental health self-help system he named Dianetics, which he introduced in a hugely successful book in 1950. For a while it seemed like LRH had finally found his pot of gold, but alas, the Dianetics fad faded like the hula-hoop craze, its foundations disintegrating into debt and disorder.</p><p>Then came the epiphany, shared with his second wife Sara Northrup, who appears in the film as the shell-shocked survivor of LRH’s dreams. “The only way to make any real money,” he told her, “was to have a religion.”</p><p>Shazaam! When he wasn’t terrorizing Sara (once at gunpoint, she claims), LRH set about grafting Dianetics onto a space opera of cosmic conflicts going back trillions of years, much of the details mined from his pulp novels. He added messages of freedom and progress that fit neatly with the values of late capitalism, sprinkled in a little New Age hoo-ha, and called it Scientology.</p><p>Behold, a moneymaking scheme for the ages was born.</p><p>LRH reasoned that if he could turn Dianetics into a religion, the U.S. government couldn’t take away any income from him in the form of taxes. Surely he’d soon be swimming in it. He grokked the American zeitgeist well enough to bet that a seeker of spiritual relief could be transformed into a steadfast consumer who would empty her pockets for the promise of conquering the anxiety of being human in an uncertain and often hostile world.  </p><p>“How would you describe your business model?” Gibney asks one former high-ranking Scientologist. “Rapacious,” he answers with a sly grin. The trick is to get would-be members to pay for higher and higher levels of training and “auditing” — a process for clearing the person of nasty spirits called “engrams” which were hanging around in the body causing trauma. After an auditing session, many acolytes poured out testimonies of euphoria. And plenty of money.</p><p>Lifted by the spirit capitalism, LRH saw how shockingly easy it was to exploit the labor of true believers. If salvation is the reward, people will scrub floors, sleep on soggy mattresses, or in the case of Nazanin Boniadi, a young Scientologist once groomed to be Tom Cruise’s bride, even clean toilets with a toothbrush on their hands and knees. In these revelations, LRH merely hit upon a holy formula that many a religious conman before him had discovered, but his particular genius was taking the show to Hollywood, where his Church of Scientology Celebrity Center became a magnet for actors facing constant rejection and roller-coaster careers. Scientology promised them succor and supernatural attainments; they couldn’t sign up fast enough. He grew expert in leveraging their fame for marketing and advertising, and later, when plum prizes like John Travolta and Tom Cruise came along, they were treated as Lords of the Scientology universe, served by underlings paid 40 cents an hour to trick out their high-priced toys and flatter their egos.</p><p>LRH knew how to pick his allies. He knew how to pick his enemies, too, most especially the United States Internal Revenue Service, which he faced off in an epic Earth-based battle lasting several decades and continuing after his departure from this life. <em>Going Clear</em> reveals that when the IRS stripped the Church of its tax-exempt status, LRH figured out that the best defense was a good offense. In a burst of moxy it’s hard for Gibney not to admire, LRH and his successors let loose thousands of lawsuits against the service until it was harassed into humbled compliance. In 1993, Scientology was granted the status of a religion, with all the attendant rights, protections and free money implied therein.</p><p>Many saner countries of the world have refused to recognize Scientology as a religion. In Chile, it is considered a cult. The Finns, the Danes, the Israelis, and the Czechs do not buy the religious line Scientology is selling. The Germans can’t seem to decide. In 2010 in Russia, some of the works of LRH were included on the official list of banned extremist materials, but removed in 2011.</p><p>In the U.S., however, what is clearly a commercial entity operated for the benefit of its executives, is free to continue, now under the leadership of David Miscavige, to extract huge fees from members, engage in horrendous labor practices, abuse and torture its members, and resort to bare-knuckles tactics to protect its interests, all in the name of religion.</p><p>Yet all is not exactly well within the Scientology universe. As AlterNet’s Kali Holloway has <a href="">noted</a>, the Church is alarmed by Gibney’s film, and has responded to the criticism of <em>Going Clear</em> with aggressive smear campaigns and a media blitz that has included a full page in the <em>New York Times</em> and a Super Bowl ad costing millions.</p><p>Gibney’s film is a valuable exposé of an international racket steeped in mystery. There’s no mystery, of course, in the protection of greedy, exploitive organizations in America, so long as there’s money to be made. Florida Attorney General Pam Bondi found that out when Scientologists <a href="">raised funds</a> for her last re-election campaign.</p><p>But Scientology may have met its biggest threat in the form of the interconnected digital universe of the Internet. For a long time, the Church was able to seclude its members from news and information from the outside world. Now it’s not so easy, and critics spread stories of what they have witnessed behind the Cosmic Curtain. Scientologists have responded by aggressively buying up Google ads and engaging in various online campaigns to discredit critics and bury unflattering portrayals. But the details of its nefarious practices are seeping out. You can’t audit an entire population.</p><p>But even if we got rid of Scientology, somewhere, out there in America, is another young hustler searching for meaning and money. Someone with charisma, stratospheric ambition and a few screws loose. As surely as the sun rises, her religion is just now slouching toward Hollywood waiting to be born.</p> Tue, 31 Mar 2015 08:18:00 -0700 Lynn Stuart Parramore, AlterNet 1034111 at Belief Belief Culture Economy alex gibney america attorney general california chile church of scientology clear david miscavige Dianetics Family Relation florida google hbo john travolta Kali Holloway l. ron hubbard Mexican island Nazanin Boniadi Pam Bondi Person Career Person Communication Prison of Belief Pseudoscience Quotation religion russia Sara Northrup Scientology Celebrity Centre Scientology beliefs and practices scientology Space opera in Scientology scripture Space opera super bowl tom cruise u.s. government United States Internal Revenue Service united states Xenu cent online campaigns penny-a-word pulp fiction writer real estate holdings the new york times the Sundance Film Festival How Globalization Is Making Human Life Miserable <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Novelist and author Rana Dasgupta explains what global capitalism has brought to India. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p><em>In the naughts, British-born novelist and author Rana Dasgupta was thrilled to call Delhi his home. The city was still buzzing with possibility after India’s 1991 entry into the world of market-driven capitalism. Today, he raises concerns that India’s economic rise has come with massive inequality, environmental destruction and potential social unrest. In Part 2 of an interview with the <a href="">Institute for New Economic Thinking</a>, Dasgupta shares his view of the contradictions and tensions of India’s economic and political scenes. What does it mean that pro-business Hindu nationalist Narendra Modi was elected prime minister in 2014, while Arvind Kejriwal, a firebrand social activist who speaks for the poor, easily won a second term to lead the nation’s capital in Delhi? How does India’s warlike capitalism co-exist with its deeply democratic spirit? What are the biggest challenges for India going forward?</em></p><p><strong>Lynn Parramore: As the American middle-class grows increasingly insecure, how is India’s new middle-class faring? How do you view its economic status and political presence?</strong></p><p>Rana Dasgupta: India plugs into the global system at a later stage, so the wealth, security and confidence the American middle-class gained through the 1950s and '60s is probably never going to happen.</p><p>A few decades ago, for instance, many college graduates in America and elsewhere worked in or even owned bookshops —small businesses that usually didn’t rise to big corporate levels. Then big chains came in and bought many of them up, and then Amazon replaced this entire system with new one in which there was a very highly paid, business-owning minority and lots of minimum wage work.</p><p>Is globalizing India going to start with all those little bookshops and then go through the entire same process? No, it’s going to go straight to the end—with the book packing and delivery labor and the people at headquarters doing the marketing and financing. The form of capitalism that’s coming in India will never have the kind of promise that it had in 1950s America, even from the outset. America had to make various concessions to its working majorities for many reasons. The economy was growing so fast over the Second World War it was just better to settle disputes: give the workers what they want and get them carrying on producing.</p><p>With the spread of global capitalism elsewhere, the business owners are more careful about giving way concessions because they’re starting off in a much less profitable kind of enterprise. They get the call center work and so on from the U.S. because of low costs, and have to be very careful about offering bargaining power to workers. They can’t start bargaining over the length of the working week or wages because the business will go under very quickly. They actually expect that India will become too expensive at some point and they’ll have to move to Bangladesh or wherever, but the costs of moving are high, so they want to put it off as long as possible.</p><p>In America, at the end of the 19th century and the beginning of the 20th century, workers were campaigning for security, to be looked after when they were sick and in their old age and so on. In India, and I suspect in lots of other places in the world, all these kinds of securities were associated with socialism. In capitalism, it’s assumed that no one is going to take care of you — and even in the Singaporean version of capitalism, the Asian values take care of all that social stuff. So it’s pure business. You take care of your sick parents, not the state.</p><p>People don’t expect these securities, and the system has been set up to make sure that that kind of thing doesn’t happen. Wages are very seductive — people say, look, I can earn like $1000 a month when my father earned maybe $200. Amazing! But I don’t have health insurance or old age insurance. People can buy themselves a mobile phone and that helps win certain political battles because middle class people can function very well at the everyday level and travel and do lots of things their parents couldn’t do. But this masks the fact that they’re very insecure.</p><p><strong>LP: In what ways has globalization impacted notions of democracy in India?</strong></p><p>RD: One shouldn’t imply that there’s no argument about these things, even among elites. There’s a lot of debate, and to some extent the election of Modi as prime minister and the election of Kejriwal, who just won a second term as Chief Minister of Delhi, are signs of this.</p><p>What is democracy supposed to do for us? Is it just about making sure that big businesses continue making lots of money? The answer is not clear. Some people think that the best thing for India is lots of dynamic big business. It’s assumed that this creates lots of dynamism in the economy generally, and it also gives a sense of symbolic power to India, which is important to people who feel that the country has been historically marginalized and treated with contempt. We would like to have our Microsofts and so on.</p><p>Modi makes a lot of his masculine power, the width of his chest and things like that. He’s an authoritarian figure who is clearly anti-democratic in a lot of his instincts, and also very charismatic. He presents himself as vegetarian, frugal and uncorrupt. He’s got this contemporary slant on Hinduism that is all about being personally hygienic in his habits, working very hard, and being devoted to development in business. Modi is actually married, but he’s always claimed to be a single man, because sex is one of those appetites he wishes to disavow. It’s like he wishes to say I don’t eat meat, I don’t have sex, I’m not interested in pleasures, women, and so on. I’m just working for the people. I don’t take money, I’m not corrupt. I started as a tea boy. I’m Hindu and I’m going to make India great. That combination of things is very attractive to some people. It’s about big business and a masculine, pure figure leading it.</p><p><strong>LP: What segments of the population are uneasy with his brand of politics?</strong></p><p>RD: Modi has been conspicuously unsympathetic to lots of people who are very uneasy for various reasons. He is uninterested in the environment, and that makes people uneasy—in Delhi for instance no one can breathe. The water’s polluted and the ground is polluted. A lot of Muslims are very uneasy because there is a quiet subtext of a Hindu purification of the nation.</p><p>There’s also this very fascist undercurrent that Modi is too intelligent to actually state, but there’s a widespread feeling that he gives assent to it to some extent. A lot of women are uneasy about this very masculinist talk of India, coming at a time when women’s security is conspicuously under threat. There’s also labor —he has withdrawn or declared his lack of interest in a lot of the safety nets that were extended by the Congress Party to the poor. He basically has a neoliberal, trickle-down idea of how the economy works.</p><p>With Modi’s huge election victory, a lot of people felt that India was supporting most the authoritarian capitalist way. But there’s another idea held in reserve which calls into question all of that — an idea of a much more radical democracy that comes closer to the people and makes the poor visible in its language. Kejriwal is part of that. The broom is the symbol of his party, the sweepers, the poorest people. He’s also interested in fighting corruption and reinventing democracy. For him, democracy is not about very remote people surrounded by enormous security and the kind of accoutrements of the most imperial British power.</p><p>Kejriwal famously operated out of his tiny apartment in an unglamorous section of East Delhi. But he’s a guy who has been brought in to run Delhi just a few months after Modi’s victory, so this signals that both political currents are alive and well, that the jury is out on how politics and capitalism fit together in India. Modi can’t be too confident when in his own backyard in the capital, a tiny rival party won massively. He should be aware of putting up too many posters of himself and becoming too much of a one-party state kind of leader, because in the background there is this other, very different possibility.</p><p>I think it’s to some extent Kejriwal’s victory is a backlash or a warning. India does have a deeply democratic spirit. That is the deepest thing about Indian culture.</p><p><strong>LP: Sounds like people in India don’t really like political extremism, but how do they feel about economic extremism?</strong></p><p>RD: I think that one of the things that happens in these kinds of countries is that people are a bit naïve about economic extremism. They take a long time to recognize it for what it is. Economic extremism could lead to political extremism because in the worst kinds of scenarios in India we could have enormous class warfare. We might have just so many people whose lives become unsustainable in the countryside arriving in the cities and realizing that they have nothing to do there and that they don’t have water to drink, and stuff like that. We might have big turbulence in the cities and then there would have to be some kind of political solution.</p><p><strong>LP: What do you hope for India’s future? Can the democratic spirit survive the continuation of the kind of warlike capitalism you’ve described?</strong></p><p>RD: I think and hope for more moderate solutions. After all, this is a democracy. Poor people have more votes than rich people. The poor in India have an immense resilience, so things can get very bad before it has any political effects. They are incredibly networked. When people in the cities don’t have anything, the people in the countryside take care of them. So there’s a lot of slack in the system even when people are in very dire situations. But ultimately if, say, 500 million people can’t feed themselves or survive, or they just don’t have anywhere to go because the countryside is just full of factories and real estate, then they convert. Hopefully there will be political ideas that have enough quality that these situations can be resolved.</p><p>There is the potential for immense wealth creation in India in the next 40 or 50 years, so there will be money and resources to redistribute and resources and as long as the tides of poverty and violence are not too catastrophic, then I think probably the system can readjust itself. Right now, within India, without anything else happening outside, there’s enough prospects for growth. In 40 to 50 years, economies of the West are going to be in dramatic decline, and in the longer term, I think the global system as a whole will face some sort of crisis and that will affect India, too. But in the medium term, India has pretty good growth prospects and hopefully there’s the quality of leadership and ideas that can redistribute some of that wealth and find livable solutions to some of these problems.</p><p>But inequality and the environment are going to be massive in Indian politics. Really, no one is talking about water, but giving 1.3 billion people clean water to drink is becoming very difficult. And you can’t survive for very long without it, so if a city of 25 million people — and there are at least two Indian cities that have that kind of number — has no water, the effects are immediate. When there’s no housing the effects could be years away, but when there’s no water, there are water riots immediately. People who don’t have it will steal it because they have to.</p><p>So water could be one of the triggering events in Indian cities for how a sort of mini-political revolution might happen and realization on the part of the middle classes that there is actually a wider world that is up against its limits.</p> Tue, 10 Mar 2015 08:25:00 -0700 Lynn Stuart Parramore, AlterNet 1033048 at World Economy World amazon america Arvind Kejriwal bangladesh Chief Minister Congress Party Delhi HTML element html india Institute for New Economic Lynn Parramore Narendra Modi Person Attributes Person Career Person Location Person Party prime minister Quotation Rana Dasgupta USD united kingdom united states age insurance cellular telephone health insurance livable solutions moderate solutions novelist and author real estate social activist When Capitalism Becomes an Act of War <!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-teaser field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even">Inside the trauma of globalization. </div></div></div><!-- All divs have been put onto one line because of whitespace issues when rendered inline in browsers --> <div class="field field-name-field-story-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even"><img typeof="foaf:Image" src="" /></div></div></div><!-- BODY --> <!--smart_paging_autop_filter--> <p>Novelist Rana Dasgupta recently turned to nonfiction to explore the explosive social and economic changes in Delhi starting in 1991, when India launched a series of transformative economic reforms. In <a href="" rel="nofollow" target="_blank">Capital: The Eruption of Delhi</a>, he describes a city where the epic hopes of globalization have dimmed in the face of a sterner, more elitist world. In Part 1 of an interview with the <a href="">Institute for New Economic Thinking</a>, Dasgupta traces a turbulent time in which traditional ways of life are dissolving as a new class of entrepreneur-warriors are wielding unprecedented power — and changing the global landscape.</p><p><strong>Lynn Parramore: Why did you decide to move from New York to Delhi in 2000, and then to write a book about the city?</strong></p><p>Rana Dasgupta: I moved to be with my partner who lived in Delhi, and soon realized it was a great place to have landed. I was trying write a novel and there were a lot of people doing creative things. There was a fascinating intellectual climate, all linked to changes in society and the economy. It was 10 years since liberalization and a lot of the impact of that was just being felt and widely sensed.</p><p>There was a sense of opportunity, not any more just on the part of business people, but everyone. People felt that things were really going to change in a deep way — in every part of the political spectrum and every class of society. Products and technology spread, affecting even very poor people. Coke made ads about the rickshaw drivers with their mobile phones —people who had never had access to a landline. A lot of people sensed a new possibility for their own lives.</p><p>Amongst the artists and intellectuals that I found myself with, there were very big hopes for what kind of society Delhi could become and they were very interested in being part of creating that. They were setting up institutions, publications, publishing houses, and businesses. They were thinking new ideas. When I arrived, I felt, this is where stuff is happening. The scale of conversations, the philosophy of change was just amazing.</p><p><strong>LP: You’ve interviewed many of the young tycoons who emerged during Delhi’s transformation. How would you describe this new figure? How do they do business?</strong></p><p>RD: Many of their fathers and grandfathers had run significant provincial businesses. They were frugal in their habits and didn’t like to advertise themselves, and anyway their wealth remained local both in its magnitude and its reach. They had business and political associates that they drank with and whose weddings they went to, and so it was a tight-knit kind of wealth.</p><p>But the sons, who would probably be now between 35 and 45, had an entirely different experience. Their adult life happened after globalization. Because their fathers often didn’t have the skills or qualifications to tap into the forces of globalization, the sons were sent abroad, probably to do an MBA, so they could walk into a meeting with a management consultancy firm or a bank and give a presentation. When they came back they operated not from the local hubs where their fathers ruled but from Delhi, where they could plug into federal politics and global capital.</p><p>So you have these very powerful combinations of father/son businesses. The sons revere the fathers, these muscular, huge masculine figures who have often done much more risky and difficult work building their businesses and have cultivated relationships across the political spectrum. They are very savvy, charismatic people. They know who to give gifts to, how to do favors.</p><p>The sons often don’t have that set of skills, but they have corporate skills. They can talk finance in a kind of international language. Neither skill set is enough on its own by early 2000’s: they need each other. And what’s interesting about this package is that it’s very powerful elsewhere, too. It’s kind of a world-beating combination. The son fits into an American style world of business and finance, but the thing about American-style business is that there are lots of things in the world that are closed to it. It’s very difficult for an American real estate company or food company to go to the president of an African country and do a deal. They don’t have the skills for it. But even if they did, they are legally prevented from all the kinds of practices involved, the bribes and everything.</p><p>This Indian business combination can go into places like Africa and Central Asia and do all the things required. If they need to go to market and raise money, they can do that. But if they need to sit around and drink with some government guys and figure out who are the players that need to be kept happy, they can do that, too. They see a lot of the world open to themselves.</p><p><strong>LP: How do these figures compare to American tycoons during, say, the Gilded Age?</strong></p><p>RD: When American observers see these people they think, well, we had these guys between 1890 and 1920, but then they all kind of went under because there was a massive escalation of state power and state wealth and basically the state declared a kind of protracted war on them. </p><p>Americans think this is a stage of development that will pass. But I think it’s not going to pass in our case. The Indian state is never going to have the same power over private interests as the U.S. state because lots of things have to happen. The Depression and the Second World War were very important in creating a U.S. state that was that powerful and a rationale for defeating these private interests. I think those private interests saw much more benefit in consenting to, collaborating in, and producing a stronger U.S. state.</p><p>Over time, American business allied itself with the government, which did a lot to open up other markets for it. In India, I think these private interests will not for many years see a benefit in operating differently, precisely because continents like Africa, with their particular set of attributes, have such a bright future. It’s not just about what India’s like, but what other places are like, and how there aren’t that many people in the world that can do what they can do.</p><p><strong>LP: What has been lost and gained in a place like Delhi under global capitalism?</strong></p><p>RD: Undeniably there has been immense material gain in the city since 1991, including the very poorest people, who are richer and have more access to information. What my book tracks is a kind of spiritual and moral crisis that affects rich and poor alike.</p><p>One kind of malaise is political and economic. Even though the poorest are richer, they have less political influence. In a socialist system, everything is done in the name of the poor, for good or for bad, and the poor occupy center stage in political discourse. But since 1991 the poor have become much less prominent in political and economic ideology. As the proportion of wealth held by the richest few families of India has grown massively larger, the situation is very much like the break-up of the Soviet Union, which leads to a much more hierarchical economy where people closest to power have the best information, contacts, and access to capital. They can just expand massively.</p><p>Suddenly there’s a state infrastructure that’s been built for 70 years or 60 years which is transferred to the private domain and that is hugely valuable. People gain access to telecommunication systems, mines, land, and forests for almost nothing. So ordinary people say, yes, we are richer, and we have all these products and things, but those making the decisions about our society are not elected and hugely wealthy.</p><p>Imagine the upper-middle-class guy who has been to Harvard, works for a management consultancy firm or for an ad agency, and enjoys a kind of international-style middle-class life. He thinks he deserves to make decisions about how the country is run and how resources are used. He feels himself to be a significant figure in his society. Then he realizes that he’s not. There’s another, infinitely wealthier class of people who are involved in all kinds of backroom deals that dramatically alter the landscape of his life. New private highways and new private townships are being built all around him. They’re sucking the water out of the ground. There’s a very rapid and seemingly reckless transformation of the landscape that’s being wrought and he has no part in it.</p><p>If he did have a say, he might ask, is this really the way that we want this landscape to look? Isn’t there enormous ecological damage? Have we not just kicked 10,000 farmers off their land?</p><p>All these conversations that democracies have are not being had. People think, this exactly what the socialists told us that capitalism was — it’s pillage and it creates a very wealthy elite exploiting the poor majority. To some extent, I think that explains a lot of why capitalism is so turbulent in places like India and China. No one ever expected capitalism to be tranquil. They had been told for the better part of a century that capitalism was the imperialist curse. So when it comes, and it’s very violent, and everyone thinks, well that’s what we expected. One of the reasons that it still has a lot of ideological consensus is that people are prepared for that. They go into it as an act of war, not as an act of peace, and all they know is that the rewards for the people at the top are very high, so you’d better be on the top.</p><p>The other kind of malaise is one of culture. Basically, America and Britain invented capitalism and they also invented the philosophical and cultural furniture to make it acceptable. Places where capitalism is going in anew do not have 200 years of cultural readiness. It’s just a huge shock. Of course, Indians are prepared for some aspects of it because many of them are trading communities and they understand money and deals. But a lot of those trading communities are actually incredibly conservative about culture — about what kind of lifestyle their daughters will have, what kinds of careers their sons will have. They don’t think that their son goes to Brown to become a professor of literature, but to come back and run the family business.</p><p><strong>LP: What is changing between men and women?</strong></p><p>RD: A lot of the fallout is about families. Will women work? If so, will they still cook and be the kind of wife they’re supposed to be? Will they be out on the street with their boyfriends dressed in Western clothes and going to movies and clearly advertising the fact that they are economically independent, sexually independent, socially independent? How will we deal with the backlash of violent crimes that have everything to do with all these changes?</p><p>This capitalist system has produced a new figure, which is the economically successful and independent middle-class woman. She’s extremely globalized in the sense of what she should be able to do in her life. It’s also created a set of lower-middle-class men who had a much greater sense of stability both in their gender and professional situation 30 years ago, when they could rely on a family member or fellow caste member to keep them employed even if they didn’t have any marketable attributes. They had a wife who made sure that the culture of the family was intact — religion, cuisine, that kind of stuff.</p><p>Thirty years later, those guys are not going to get jobs because that whole caste value thing has no place in the very fast-moving market economy. Without a high school diploma, they just have nothing to offer. Those guys in the streets are thinking, I don’t have a claim on the economy, or on women anymore because I can’t earn anything. Women across the middle classes — and it’s not just across India, it’s across Asia —are trying to opt out of marriage for as long as they can because they see only a downside. Remaining single allows all kinds of benefits – social, romantic, professional. So those guys are pretty bitter and there’s a backlash that can become quite violent. We also have an upswing of Hindu fundamentalism as a way of trying to preserve things. It’s very appealing to people who think society is falling apart.</p><p><strong>LP: You’ve described India’s experience of global capitalism as traumatic. How is the trauma distinct in Delhi, and in what ways is it universal?</strong></p><p>RD: Delhi suffers specifically from the trauma of Partition, which has created a distinct society. When India became independent, it was divided into India and Pakistan. Pakistan was essentially a Muslim state, and Hindis and Sikhs left.  The border was about 400 kilometers from Delhi, which was a tiny, empty city, a British administrative town. Most of those Hindis and Sikhs settled in Delhi where they were allocated housing as refugees. Muslims went in the other direction to Pakistan, and as we know, something between 1 and 2 million were killed in that event.</p><p>The people who arrived in Delhi arrived traumatized, having lost their businesses, properties, friends, and communities, and having seen their family members murdered, raped and abducted. Like the Jewish Holocaust, everyone can tell the stories and everyone has experienced loss. When they all arrive in Delhi, they have a fairly homogeneous reaction: they’re never going to let this happen to them again. They become fiercely concerned with security, physical and financial. They’re not interested in having nice neighbors and the lighter things of life. They say, it was our neighbors that killed us, so we’re going to trust only our blood and run businesses with our brother and our sons. We’re going to build high walls around our houses.</p><p>When the grandchildren of these people grow up, it’s a problem because none of this has been exorcised. The families have not talked about it. The state has not dealt with it and wants to remember only that India became independent and that was a glorious moment. So the catastrophe actually becomes focused within families rather than the reverse. A lot of grandchildren are more fearful and hateful of Muslims than the grandparents, who remembered a time before when they actually had very deep friendships with Muslims.</p><p>Parents of my generation grew up with immense silence in their households and they knew that in that silence was Islam — a terrifying thing. When you’re one year old, you don’t even know yet what Islam is, you just know that it’s something which is the greatest horror in the universe.</p><p>The Punjabi businessman is a very distinct species. They have treated business as warfare, and they are still doing it like that 70 years later and they are very good at it. They enter the global economy at a time when it’s becoming much less civilized as well. In many cases they succeed not because they have a good idea, but because they know how to seize global assets and resources. Punjabi businessmen are not inventing Facebook. They are about mines and oil and water and food —things that everyone understands and needs.</p><p>In this moment of globalization, the world will have to realize that events like the Partition of India are not local history anymore but global history. Especially in this moment when the West no longer controls the whole system, these traumas explode onto the world and affect all of us, like the Holocaust. They introduce levels of turbulence into businesses and practices that we didn’t expect necessarily.</p><p>Then there’s the trauma of capitalism itself, and here I think it’s important for us to re-remember the West’s own history. Capitalism achieved a level of consensus in the second half of the 20th century very accidentally, and by a number of enormous forces, not all of which were intended. There’s no guarantee that such consensus will be achieved everywhere in the emerging world. India and China don’t have an empire to ship people off to as a safety valve when suffering become immense. They just have to absorb all that stuff.</p><p>For a century or so, people in power in Paris and London and Washington felt that they had to save the capitalist system from socialist revolution, so they gave enormous concessions to their populations. Very quickly, people in the West forgot that there was that level of dissent. They thought that everyone loved capitalism. I think as we come into the next period where the kind of consensus has already been dealt a huge blow in the West, we’re going to have to deal with some of those forces again.</p><p><strong>LP: When you say that the consensus on capitalism has been dealt a blow, are you talking about the financial crisis?</strong></p><p>RD: Yes, the sense that the nation-state — I’m talking about the U.S. context — can no longer control global capital, global processes, or, indeed, it’s own financial elite.</p><p>It’s a huge psychological dent in people’s faith in the system. I think what’s going to happen in the next few years is huge unemployment in the middle class in America because a lot of their jobs will be outsourced or automated. Then, if you have 30-40 percent unemployment in America, which has always been the ideological leader in capitalism, America will start to re-theorize capitalism very profoundly (and maybe the Institute of New Economic Thinking is part of that). Meanwhile, I think the middle class in India would not have these kinds of problems. It’s precisely because American technology and finance are so advanced that they’re going to hit a lot of those problems. I think in places like India there’s so much work to be done that no one needs to leap to the next stage of making the middle class obsolete. They’re still useful.</p> Wed, 04 Mar 2015 07:31:00 -0800 Lynn Stuart Parramore, AlterNet 1032750 at World Books Economy World africa america asia central asia China Delhi facebook HTML element html harvard india Institute for New Economic Thinking Institute of New Economic Thinking london Lynn Parramore Military Action natural disaster new york novelist pakistan paris Person Career Person Location Rana Dasgupta soviet union united kingdom united states washington bank businessman Businessmen finance food ideological leader mobile phones oil president professor of literature real estate state infrastructure technology spread