Tag Archives: economics

The Trillion-Dollar Coin Hits the Big Time

January 14, 2013 – 8:01 am

The notion that President Obama could avoid the debt ceiling by minting a trillion-dollar platinum coin and depositing it in the government’s account at the Federal Reserve has been around for a while now. (I first noticed it in July, 2011.) It sounds ridiculous because it is. (Even people who favor the idea understand that.) It’s a wacky solution that underlines just how wacky the whole debt-ceiling problem is in the first place.

Think about the situation President Obama will find himself in (by about mid-February) if the debt ceiling isn’t raised: Laws passed by Congress tell the President what taxes he can collect, what money he must spend, and that (even though these numbers don’t balance) he can’t borrow. Meanwhile, the Constitution tells him that his first duty is to “faithfully execute the laws”.

What’s he supposed to do? Several people, including Matt Yglesias, claim that the Budget and Impoundment Act of 1974* leaves the administration with no legal choices other than something off-the-wall like a trillion-dollar coin.

During the 2011 debt-ceiling crisis, the Very Serious Persons of the punditocracy did not stoop to comment on the trillion-dollar coin. Instead, they just refused to believe that our politics had gotten that dysfunctional. Congress might appear to be steaming headlong towards welching on all our nation’s commitments, but at the last minute wisdom would prevail. And lo: Congress temporized, giving a Super Committee of the Wise time to design an austerity plan.

Well, that worked out just dandy, didn’t it? The Super Committee deadlocked in the same place Obama and Boehner had: Republicans would not raise rich people’s taxes by a single dime, and Democrats refused to thrust all the sacrifice onto the old, the sick, and the poor. That deadlock set up the fiscal-cliff conflict that Congress again avoided at the last minute, but didn’t resolve. Now we’re looking at a second debt-ceiling showdown.

I think that sequence of events has been an eye-opener for the VSPs: Seriously? You want to do that again? [Yes, they do.]

Suddenly, the trillion-dollar coin doesn’t look so crazy. Well, it is still crazy. But picking a path into the fiscal future is starting to feel like picking a Bull Goose Loony at the asylum. Tom the Dancing Bug provides the proper level of seriousness:

So this week the trillion-dollar coin suddenly went from a fringy absurdity to a policy option that every VSP needs to have an opinion on. The WaPo asked financial types how the markets would react. Wednesday, NBC’s Chuck Todd asked about it at a White House press briefing, and Jay Carney dodged. “I would refer you to the Treasury.” Saturday, the Treasury issued an official denial.

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

But a lot of other VSPs regard it as a viable option. Paul Krugman was one of the few to comment during the 2011 debt-ceiling crisis: “Outrageous behavior demands extraordinary responses.” He came back to it this week, characterizing Obama’s options as:

one [the coin] that’s silly but benign, the other [default] that’s equally silly but both vile and disastrous. The decision should be obvious.

Thursday he added: “we need a strategy to deal with the crazies if they really do prove irredeemably crazy, which seems all too possible.”

Former CBO director Donald Marron more-or-less agrees: The coin option “lacks dignity”, but “might be better than the alternatives if we reach the brink of default”. Former Director of the Mint Philip Diehl says minting the coin would work and have no obvious bad effects on the economy. As a co-author of the law it takes advantage of, he writes:

Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

And Atlantic’s Matthew O’Brien adds:

If it’s a choice between defaulting on our obligations, and minting a trillion-dollar coin, I say mint the coin. In an ideal world, Obama would end the platinum coin loophole in return for the House GOP forever ending the debt ceiling, as Josh Barro proposed, but I’ll settle for anything that involves us paying our bills as we promised.

So far, most conservatives still refuse to take this idea seriously. But they want the rest of us to take their don’t-raise-the-debt-ceiling threat seriously, and threaten impeachment if Obama somehow circumvents it.

Continuing to stake their claim as the Party of Stupid, Republicans at the NRCC tweeted an image** of a coin made out of a trillion dollars worth of platinum — as if that’s how coinage works. And the Network of Stupid made the same mistake even after the NRCC had been widely lampooned.

But liberals have an objection also, which Ezra Klein expressed like this:

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch.

The right way for this crisis to end, Klein believes, is for the remaining grown-ups in the Republican Party (i.e., the business community) to take back control in order to save the day. That will start a civil war inside the party, so they will only do it if they have no choice; if they think Obama can still pull a day-saving gimmick out of his hat — especially one that could make him vulnerable politically — they won’t.

That’s why wannabe Republican grown-up Philip Klein (no relation) says minting the coin “would be tossing a life preserver to Republicans”.

Obama apparently agrees. That’s why he’s steadfastly refusing to take the burden off Congress by embracing any executive-branch gimmicks. He thinks Congress should pass a clean debt-ceiling bill. If House Republicans want to tie the ceiling increase to unpopular spending cuts, they can spell out what those cuts are. He isn’t going to give them any political cover.

[I’ve explained the politics of this many times: The American people have only very hazy notions of how the government spends money. So “spending” in general is unpopular, but the particular things the government actually spends on — Medicare, Social Security, defense — are very popular. Republicans want to take advantage of this by opposing “spending” but getting Obama to specify which programs to cut.]

Here’s how I put all that together: The coin would be a last resort, and while Obama should hold it in mind to buck up his resolve, the administration is right to deny that they are open to it — until the public understands that we are in last-resort territory and clamors for any kind of solution.

“Last resort” means: The Republicans have blocked a clean bill raising the debt ceiling. The Treasury has run out of books it can juggle to keep paying the bills. The government has shut down all but the most essential services, furloughed its workers, and the public has felt the first pinches: Retirees find that there is no one to process their Social Security applications. Income tax refunds are delayed indefinitely. Defense contractors are filing lawsuits to get paid. And there’s a big interest payment due on the national debt that there may not be money to cover***. The stock market is crashing. Wall Street is begging its bought-and-paid-for congressmen to do something. But still the House majority refuses to raise the debt limit.

Then — and only then — does Obama go on TV, explain the coin loophole to the public, say he has reconsidered his decision not to use it, and promise to trade away that ridiculous power forever if Congress also eliminates the ridiculous debt ceiling.

If that scenario plays out, America will be a laughing stock to the rest of the world. But we will have taken a pratfall, not tumbled into an abyss.

*After President Nixon “impounded” money Congress appropriated to buy stuff he didn’t like, Congress passed a law demanding that future presidents spend whatever Congress appropriates.

**Their image contains a false frame I can’t let pass: It’s not “Obama’s spending”, it’s the spending of the United States of America, duly authorized and appropriated according the Constitution.

***As Josh Barro points out: It isn’t just that incoming revenue covers only 60% of expenditures over the course of a year. Both revenue and expenses are “lumpy”.

It would be impossible to give certainty to people and entities owed money by the federal government about when and whether they would be paid; they would have to wait and see how much money the government could come up with on any given day.

By weeklysift | Posted in Articles | Also tagged | Comments (9)

Two Observations on the Robot Menace

December 10, 2012 – 11:02 am

Not what I’m talking about

No, I don’t mean the Cylons from Battlestar Galactica. I’m talking about what the economists call technological unemployment, i.e., there are no jobs because machines do everything. Or, as Keynes defined it:

unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.

Now, this is not a new idea, so it’s something of a mystery why so many people started talking about it this week. I think the original impetus was the news that Apple is planning to move some of its Mac production back to the U.S. This validates the predictions of a rebound in American manufacturing that have been bouncing around for a while now, and fits with the “insourcing” trend identified in the current issue of Atlantic.

After the initial cheering died down, people started envisioning those new manufacturing jobs: Probably there won’t be many of them, because even minimum-wage Americans make a lot more than Chinese factory workers. So any large-scale new American manufacturing plant only makes sense if most of the work is done by entities not covered under minimum-wage laws or represented by unions: robots, in other words. (Another workerless manufacturing technology is 3D printing. It’s going to be huge someday, but it doesn’t seem to be news on any particular day.)

So the complete story is: High-paying unionized factory jobs in the Rust Belt get replaced by low-paying non-unionized factory jobs in China, which in turn get replaced gradually by robots in China, until eventually there’s no reason not to have those robots work in the U.S., closer to the buyer.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

So if the “insourcing boom” isn’t going to be a jobs boom, where will the jobs of the future come from? That was the theme of Race Against the Machine and The Lights in the Tunnel, two books I already told you about last year. But this week the topic got hot again. Kevin Drum worried about it. And Matt Yglesias said, basically: No problem, when the robots do all the manufacturing, we’ll still have jobs taking care of old people, an answer that Drum, in turn, derided as “our bedpan and canasta future“. Paul Krugman also weighed in, twice, three times.

Krugman’s insight was the most interesting: Moving jobs to China (or back) just replaces labor with other labor. But robots and other automations replace labor with capital. (Or, if you want to use Marxist terminology that Krugman avoids: It replaces living labor with dead labor, since capital is just the residue of labor done in the past.) This could be why the corporate-profit share of the economy is surging while labor’s share of the economy is falling.

If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents.

Kevin Drum plays this vision out:

the owners of capital will automate more and more, putting more and more people out of work. Liberals will continue to think that perhaps this can be solved with better education. Conservatives will continue to insist that people without jobs are lazy bums who shouldn’t be coddled. The lucky owners of capital won’t care. Their numbers will decline, but the ones who remain will get richer and richer. The rest of us will have no jobs, and even with all this lovely automation, our government-supplied welfare checks will be meager enough that our lives will be miserable.

I don’t have an answer, either to jobs or inequality, but there are two general observations you need to keep in mind when you think about this stuff:

First, technological unemployment is fundamentally a social problem, not an economic problem. For comparison, think about all the automation that has replaced “jobs” inside a parallel social system, the family. Our ancestors used to spend an enormous amount of time walking down to the creek and carrying back buckets of water (which get damn heavy after a few steps). Modern plumbing delivers that water to your kitchen with the turn of a tap. Is that a problem? No. Within the family, replacing work with leisure is a pure benefit.

The problem only shows up in the money economy, where “leisure” becomes “unemployment”. In a world of robot-produced abundance, our system for distributing the abundant goods gets screwed up. The economy no longer needs human workers to produce goods, but we individual humans still need jobs to justify our claim to receive those goods. An outside observer might wonder: Couldn’t those goods just be given to the people who need or want them? Answer: Not without screwing up our motivational systems and our ideas about personal worth and identity.

It’s a social problem.

(As an aside, this is why supply-side economics looks at things exactly backwards: Increasingly, supply is not the problem. Demand is the problem. How do we give people permission to consume the goods we can so easily produce? Agriculture, where technological unemployment started, is a prime example: The world produces plenty of food and could produce a lot more. But hungry people have no money; that’s another way of saying that our economic system can’t justify distributing our abundant food to the people who need it.)

Second, whenever you visualize this process, you can’t forget the time dimension. Economists love to talk about how this all works out in the long run: When you no longer need to spend your time hauling water, you realize that you’ve always wanted to see Paris. As the old goods become producible with little labor, desires for new goods arise, creating new jobs — airline attendants, tour guides, museum curators, waiters in sidewalk cafes. My water-hauling ancestors had no use for such people, but I do.

The real problem, as Keynes already knew in 1930, is pace. It’s not that there will never again be anything of economic value for humans to do. But will new desires arise and new markets develop as fast as automation replaces current jobs? Keynes’ most famous (and most inappropriately quoted) line is “In the long run we are all dead.” He was making precisely this point about time: Don’t give me your steady-state model and claim that the real economy will “eventually” converge to it. If you’re not worrying about the timing, you’re not working on the real problem.

By weeklysift | Posted in Articles | Comments (8)

Five Pretty Lies and the Ugly Truths They Hide

August 27, 2012 – 10:39 am

A week after Todd Akin’s “legitimate rape” comment, we should be long past the “OMG — I can’t believe he said that!” stage. It’s time to take a longer view and ask ourselves what the Akin incident says about the larger picture.

You can find takeaways at many levels. First, contrary to Akin’s personal damage control, he didn’t “misspeak“. He really believes that many pregnant women — like maybe this one — make up their rape stories.

At a slightly more general level, and contrary to Republican damage control, you can observe that Akin is typical of the party. Not only is his no-rape-pregnancy lie common, but Paul Ryan agrees with him about redefining rape, and the official party platform calls for banning abortion with no rape exception. (Mitt Romney claims to support such an exception, but as usual, he’s speaking out of both sides of this mouth. Whose delegates are writing this platform? And if he won’t actively oppose a no-exceptions party platform, what makes you think he’ll veto a no-exceptions bill when Congress sends it to him?)

But here’s what I think is the most important Akin takeaway. When confronted with an ugly consequence of his policies — women forced by law to bear their rapists’ babies — Akin papered it over by telling a pretty lie: It doesn’t happen; the female body doesn’t work that way.

Isn’t that pretty? Wouldn’t the world be nicer if no woman who “really” got raped had to worry about pregnancy? Of course it would.

Akin may not have intended to lie; maybe he believes what he said. But does he believe this bogus biology because it makes sense? Of course not. Because an expert told him? The “expert” is someone he sought out precisely for that purpose; real experts would have told him the opposite.

I have a simpler explanation: Akin believes the lie because it’s pretty. The lie tells him that he’s not a monster. It helps him avoid the ugliness of his beliefs.

That thought pattern makes him absolutely typical of the conservative movement today. When implemented, conservative policies cause a lot of ugliness. And when confronted with these ugly consequences, conservatives rarely adopt a more compassionate position. A few brave ones talk about necessary sacrifices and breaking eggs to make omelets, but most just paper over the ugliness with a pretty lie.

“Raped women don’t get pregnant” is just the first lie on my list. Here are four others:

2. The uninsured can get the medical care they need in the ER.

The lie. As he prepared to veto a 2007 bill providing health insurance to children, President Bush said it very clearly:

People have access to health care in America. After all, you just go to an emergency room.

That’s what Governor Rick Perry meant during his presidential campaign when he said:

Everyone in the state of Texas has access to health care, everyone in America has access to health care.

Mississippi Governor Halley Barbour agreed: “there’s nobody in Mississippi who does not have access to health care”

Why it’s pretty. It’s so distressing to hear statistics like 50 million Americans don’t have health insurance. (Texas and Mississippi rank #1 and #2 in percentage of the population uninsured.) But wouldn’t it be nice if that number didn’t really mean anything? if insurance was just a bookkeeping device, and nobody really went without care?

Why you shouldn’t believe it. It’s true that the uninsured can get emergency care. If you’re in a car accident, if you’re having a heart attack, if you’re not breathing when they fish you out of the lake — EMTs and the ER will do their best to save your life even if you can’t pay. But as the Houston Chronicle points out, emergency care can’t replace regular care:

About half of uninsured adults have a chronic disease like cancer, heart disease or diabetes. The lack of regular care for the uninsured is why they have death rates 25 percent higher than those with insurance; more than half of uninsured diabetics go without needed medical care; those with breast and colon cancer have a 35 percent to 50 percent higher chance of dying from their disease; and they are three times more likely to postpone needed care for pregnancy. Clearly, the uninsured don’t get the care they need

What it hides. Lack of health insurance kills people. It kills lots of people — more than car accidents or our recent wars. The technical public-health term is amenable mortality — the number of people who die unnecessarily from treatable conditions. An article in the journal Health Policy says:

If the U.S. had achieved levels of amenable mortality seen in the three best-performing countries—France, Australia, and Italy—84,300 fewer people under age 75 would have died in 2006–2007.

France, Australia, and Italy don’t have smarter doctors or better medical technology, but they do have something conservatives are determined to see that Americans never get: universal health insurance. When a questioner confronted Rick Santorum with these facts, he replied:

I reject that number completely, that people die in America because of lack of health insurance.

Of course he does. If he accepted what the public health statistics say, he’d have to admit that his policies condemn tens of thousands of people to death every year. “Pro-life” indeed.

3. Tax cuts pay for themselves.

The lie. The most recent vintage is from the Wall Street Journal’s defense of the Romney tax plan:

Every major marginal rate income tax cut of the last 50 years — 1964, 1981, 1986 and 2003 — was followed by an unexpectedly large increase in tax revenues

Or you could hear it from Mitch McConnell:

That there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.

The claim is pretty widespread on the Right: Cutting taxes stimulates the economy so much that the government ends up collecting more revenue even at the lower rates.

Why it’s pretty. Everybody likes a tax cut, but deep down we all know that taxes pay for important things: roads, schools, defending the country, keeping the poor from dying in the streets, and so on. But wouldn’t it be great if we could pay less tax and pretend that money for all those things will appear by magic?

Why you shouldn’t believe it. This has been tried over and over again. It never works. Pointing out that it didn’t work for Bush is shooting fish in a barrel — nothing worked for Bush — but this didn’t even work when Reagan tried it. The Economist’s “Democracy in America” column looked up the numbers:

The federal government’s receipts for 1981-86, in billions of 2005 dollars:

1981    1,251.1
1982    1,202.6
1983    1,113.4
1984    1,173.9
1985    1,250.5
1986    1,277.2

Do you see the “unexpectedly large increase in tax revenues” resulting from the 1981 marginal rate income tax cut? Me neither! It took five years just to get back to par.

What it hides. A huge transfer of wealth to the rich. This lie is the first move in a cruel shell game: First, cut taxes with the promise that it won’t cause a deficit. Then, when it causes a deficit (as it always does), don’t respond “Oh, we were wrong. Let’s raise taxes back to where they were.” Say: “Government spending is out of control! We have to cut food stamps, education, Medicare …”

Stir the two steps together, and you get a cocktail voters would never have swallowed in one gulp: We’re going to cut programs people rely on so that the rich can have more money.

4. Gays can be cured

The lie. Homosexuality is a choice that results in an addiction, but (like alcoholics and drug addicts) gays can learn to choose differently and become ex-gay.

Why it’s pretty. Suppose you think gays are going to Hell, and then your son turns out to be gay. Or suppose you’ve been brought up to believe gays are evil, and then in junior high you start feeling same-sex attractions yourself. Of course you’re going to want to believe that this situation is fixable.

Why you shouldn’t believe it. It’s almost impossible to 100% prove a negative like “Gays can’t be cured”. But if a well-funded movement to teach people to fly had been running for years, and yet no one actually flew, reasonable people would develop a strong conviction that this wasn’t going to work.

That’s the situation with the ex-gay movement. The extreme lack of success has reached the point where the movement itself has started to splinter. The original ex-gay group, Exodus International, now rejects attempts to “cure” gays and instead focuses on “helping Christians who want to reconcile their own particular religious beliefs with sexual feelings they consider an affront to scripture.” This has caused a schism, with the new group, Restored Hope Network, continuing to promote therapies to cure gays.

What it hides. Pure bigotry is the only reason to discriminate against gays.

As discrimination wanes, it becomes obvious that unrepentant gays can find love, form long-term relationships, raise children who are a credit to the community, and (in short) do all the things that are usually thought of as part of a good life. They can also serve in the military, be good teachers, have productive careers in the private sector, pay taxes, do volunteer work — everything that constitutes good citizenship.

To prop up anti-gay discrimination (and even to try to reinstate it in places where it has been torn down), and to do so even though the people discriminated against didn’t choose to be gay and can’t change it — that’s pretty ugly.

5. Obama’s election proves racism is over.

The lie. John Hawkins put it like this:

So, the moment Obama was elected, people started asking the obvious question, “How serious of a problem can racism still be in the United States if a black man can be elected President?” The honest answer to that question is, “Not very.”

Just this summer, Boston Globe columnist Jeff Jacoby reacted the same way to a black man becoming head of the Southern Baptist Convention:

The pervasive racism [Martin Luther King] confronted is primarily a historical memory now, while King himself is in the American pantheon. … America’s racist past is dead and gone.

Why it’s pretty. Pat yourself on the back, white America! You used to have a problem, but you kicked it.

So if any blacks or liberals are still complaining, feel free to ignore them. They just want the government to give them “more free stuff” by taking what you earned, or to use the charge of racism as “their sledgehammer … to keep citizens who don’t share the left’s agenda from participating in the full array of opportunities this nation otherwise affords each of us”. If anybody’s really oppressed these days, it’s whites.

Why you shouldn’t believe it. Barack Obama’s election was definitely a sign of racial progress, just like Jackie Robinson joining the Dodgers in 1947, Jesse Owens’ Olympic gold medal in 1936, or Jack Johnson becoming heavyweight champion in 1908. But racism didn’t end in 2008 any more than it ended in 1908.

Let’s start by debunking the logic: In 2008, a year when everything broke wrong for the Republicans, Obama got 53% of the vote. For the sake of argument, let’s say that’s more-or-less what a white Democrat would have polled. Does that prove racism is over? No, it just proves that Republicans already had the racist vote.

Then we get to evidence that points the other way: Trayvon Martin. (Nobody jumps to the defense of black men who shoot unarmed white teen-agers.) Birtherism. (No white president has faced this kind of persistent, baseless accusation.) The racial dog-whistles in the Romney campaign. The racist anti-Obama pictures and cartoons that circulate in viral emails. (But don’t you get it? These are jokes. Like the “Don’t Re-Nig in 2012” bumper sticker. Clever, huh?) The attempt to legalize anti-Hispanic racial profiling in Arizona and other states. I could go on.

It’s not just that 1 in 3 black men will spend time in jail, it’s that this fact isn’t seen as an emergency that requires outside-the-box solutions. If white men were imprisoned at the same rate (no matter what they were imprisoned for), the number of possible explanations and solutions would skyrocket. But black men … that’s just how they are; what can you do?

(For a longer discussion of racism in the Obama era, see Ta-Nehisi Coates’ article in the current Atlantic.)

What it hides. Indifference to human suffering. At a time when poverty is at a level we haven’t seen in decades, the House has passed bills to gut safety-net programs like Medicaid and food stamps.

That can only happen if the white middle class is convinced that the poor are different and deserve their fate. And the best way to accomplish this is through racial stereotyping: The poor are black, and blacks are lazy. Both statements are false, but they work.

How to respond. This is far from an exhaustive list; I just picked the pretty lies I could document and refute fairly quickly, and I didn’t even touch well-covered lies like “Global warming is a hoax.” or “Abstinence-only sex education works.” But I hope the five I’ve listed are varied enough to establish the pattern.

If you have any conservatives friends, relatives, or co-workers, you probably hear pretty lies all the time. (“The poor have it good in America. They’re the lucky duckies who don’t have to work, because the rest of us are paying for their X-boxes and cable TV.”) Probably you’ve already tried to respond by googling up facts and presenting them, so you understand that this never works.

I sympathize with your frustration.

But it’s important take the next step and ask why presenting the facts doesn’t work. It’s simple: Facts are not the source of the belief. Conservatives aren’t mistaken, they’re hiding something.

What they’re usually hiding is cruelty. Conservative policies are cruel, but individual conservatives usually aren’t, or at least they don’t want to see themselves like that. The only way to square that circle is with a lie.

Once the lie is in place, “facts” will be found to support it. A whole industry is devoted to supplying fake facts. And since fake facts are easier to manufacture than to refute, you will never fight your way through the swarm.

I don’t have a foolproof method for converting conservatives, but I can tell you this much: You don’t understand a pretty lie until you’ve seen all the way through to the ugly truth it’s hiding.

That’s where you should be focusing your energy. Don’t just refute the lie. Expose the truth.

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Monopoly’s Role in Inequality

July 30, 2012 – 11:32 am

For several years I’ve been dipping into the subject of rising inequality, usually in book reviews like this one of Hacker and Pierson’s Winner-Take-All Politics. But all along a mystery has been nagging at me, and I think I’m finally getting to the bottom of it.

Inequality. The basic story is simple: Inequality in the United States has risen dramatically since the mid-70s. And the effect gets more extreme the farther out you go. It isn’t just that the top 10% is pulling away from the bottom 90%. The top .01% is pulling away from the top .1% even faster. The multi-billionaires are pulling away from the mere billionaires. (If you want graphs and numbers, look here.)

Obviously you can’t account for all that with education or competition from China. Maybe those factors explain why unskilled workers are having such a tough time, but they say little about the millionaire/billionaire divergence. Ditto for tax rates. Sure, the rich pay a much lower tax rate than they used to, but the explosive growth in their net worth is much bigger than tax rates can account for, and the mega-rich don’t get a significantly better tax deal than the ordinary rich. (Plus, tax cuts start with Reagan in 1982, not the mid-70s.)

Clearly something has happened to the structure of the market, but I couldn’t figure out exactly what.

Monopoly. Barry Lynn’s book Cornered: The New Monopoly Capitalism and the Economics of Destruction looks like the puzzle piece I was missing. Lynn claims our economy is now full of monopolies and near-monopolies — businesses big enough to dictate terms to their customers and/or suppliers.

In the mid-20th-century industrial economy, you got mega-rich by imitating Henry Ford: You figured out how to make things people wanted for a price they wanted to pay. Now you get mega-rich by building choke-points between producers and consumers.

WalMart exemplifies the current paradigm. WalMart makes nothing, but it is big enough to dictate how its suppliers will make things and what prices they can charge. In many of its rural markets, WalMart also dictates what people can buy. If your product isn’t on WalMart’s shelves, it’s not for sale. (WalMart also drives consolidation elsewhere in the economy, which produces big fees for Wall Street. For example, Procter & Gamble bought Gillette largely to improve its negotiating position with WalMart. In slightly different ways, Amazon and Google are trying to duplicate the WalMart model in the online economy. If your book isn’t on Amazon, it’s not for sale.)

Many near-monopolies are less visible than WalMart or Amazon. Lynn begins his book with the story of a pet-food recall, which suddenly made it obvious that many “competing” brands of pet food were actually all packed in the same factory. And Ford lobbied for the government bailout of “competitors” GM and Chrysler because it feared their common suppliers would go bankrupt. Many markets, Lynn says, are hydras: The countless brands on the shelves are just heads that spring from a common body.

The ends against the middle. Reading Lynn, I’m getting a clearer vision of how markets work. The purest form of market is what you can see at any big farmer’s market: Lots of consumers dealing directly with lots of producers. It’s rare that anybody gets really rich from these interactions, but many small producers have a chance to make a living and become independent.

Obviously the global economy has to be more complicated than that. But markets are created by rules, and the rules can be structured to favor either the ends (producers and consumers) or the middle. Producers and consumers benefit from transparent markets, where the rules force middlemen to treat everyone more-or-less the same.

But markets can also be structured to give middlemen as much freedom as possible. The most profitable way to use that freedom is to create choke-points where a toll can be extracted or one producer can be played off against another. In an opaque market, the way to get rich is not to produce things, but to build middleman power that allows you to dictate terms up and down the supply chain. (I don’t have space to go into it here, but keeping the internet transparent is what net neutrality is about, and why Comcast doesn’t like it.)

In a nutshell, what has happened since the mid-70s is that deregulation of old markets and under-regulation of new markets has made our economy more opaque. The people in the best position to take advantage of this are the very rich. Meanwhile, workers and small businessmen — the middle-class people who actually make stuff and deliver services — lose out. In the short term consumers may win or lose, depending on whether the middlemen’s advantage is in raising or lowering prices. But in the long run consumers lose options, power, and quality.

The most interesting thing politically is how the rhetoric of freedom works. Freedom for the middleman leads to domination of producers and consumers. “Freedom” seldom works out to mean more options for everybody.

One worked-out example. If you’ve watched much cable or satellite TV lately, you probably saw Viacom’s ads against DirectTV, like this one.

If you’re a DirectTV subscriber, Comedy Central (and other Viacom channels) went dark for nine days before the two corporations resolved their dispute, so you had to do without The Daily Show or watch it online.

Here’s the point: Maybe you couldn’t watch Jon Stewart for a week, but the problem had nothing to do with either you or Jon Stewart. He wasn’t asking for a raise; you weren’t balking at the price of watching the Daily Show. But both you and Jon were irrelevant when two giant middlemen had a power struggle.

Each brought a lot of power to the struggle. In most of its markets, DirectTV is the only alternative to the local cable monopoly, while Viacom is one of a handful of megacorps that dominate TV content. (Disney, Time Warner, NBCUniversal, NewsCorp, and CBS are the others. National Amusements owns a big chunk of both Viacom and CBS. Comcast plays both sides of the street, being both a cable monopoly and a partner with GE in NBCUniversal.)

Viacom thought it had the upper hand, so it was demanding a bigger payout from DirectTV and insisting DirectTV carry its new Epix channel. I haven’t sorted out yet who won.

These middlemen outweigh both you and Jon Stewart. If Jon doesn’t work for one of the six big media companies, he can’t reach a major audience. If you don’t deal with either DirectTV or a cable monopoly, your TV choices shrink considerably.

Transparent markets. But it’s not hard to imagine a TV system that works differently: Cable or satellite systems could be common carriers, making a fixed amount whenever they connect a TV producer with a TV consumer. Cable and satellite would still compete, but only by changing that fixed amount or by offering more reliable service to the consumer.

With that kind of middleman transparency, small TV companies could spring up and get their shows seen, so Jon Stewart would have a lot more than six choices. You and Jon would have more power, Viacom and DirectTV less.

Even more interesting is what happens to the profit motive: The way to make money in this transparent system is to create shows people want to watch and deliver them reliably. Wheeling and dealing to amass middleman power wouldn’t accomplish much.

Government regulation would probably be necessary to bring this system about, but it would still be capitalism. The marketplace would just be structured differently, so that the benefits and opportunities of capitalism would accrue to producers and consumers rather than to financiers and empire-builders.

Probably this restructured marketplace would lead to more small companies and fewer megacorps, more millionaires and fewer billionaires.

Picture the same transparent-market principle spreading across the economy: More small businesses, more places to look for jobs, greater variety of products, and more opportunity to go into business for yourself. Less inequality.

By weeklysift | Posted in Articles, The Sifted Bookshelf | Also tagged , , , | Comments (21)

What Shaving Taught Me About Capitalism

July 16, 2012 – 10:20 am

A couple months ago, I ran into an article on TechDirt that linked to another guy’s post on his personal blog, both making the same ridiculous point: Shaving technology hasn’t really improved since World War II.

Anybody who watches sports in real time (when you can’t fast-forward through the commercials) knows this is crazy. For decades, shaving has had a “revolution” every two or three years: disposables, cartridges, comfort strips, double-blade, triple-blade, and now even 5-blade cartridges. Each revolution makes shaving a little more expensive, but it achieves the perfect comfort and safety that the previous revolution fell short of.

Or so the ads say.

But these guys on the internet were saying that all the revolutions were just marketing nonsense, and that I (and just about every other male on the planet) had been taken in by it. Shaving itself hadn’t gotten any safer, easier, or more comfortable since the last few bugs were worked out of the double-edged safety razor, a technology that is more than a century old.

All these “improvements”, they claimed, had only two purposes:

  • to create a patentable technology that would protect the manufacturer from generic competition for another 20 years or so.
  • to provide a marketing gimmick that would make men fork over big bucks for a product no better than one they could buy cheaply.

That couldn’t be right. Could it?

Reclaiming the way of my ancestors. It’s actually not that simple to find out. My local supermarkets and drug stores sell double-edged blades if you look hard enough for them — they get one hook in the whole shaving aisle — but the razors they fit into are nowhere. No worries, though, that’s what the internet is for: I got a perfectly functional razor (in the old butterfly style my Dad used) for about $20. That lone hook in my supermarket carries 5-blade packs for $2. Above it, rows of 8-packs of Gillette Fusion cartridges go for $32.

Do the math: 40 cents apiece vs. $4 apiece. Even for somebody like me (who goes bearded in the cold half of the year) that could add up.

But what about the experience and the quality of shave? You have to hold the handle at a slightly different angle (because the double-edged blades sit perpendicular to the handle rather than being angled like the cartridges), and that takes a day or two to get used to. After that, in my opinion, the “improved” 21st-century razor is no better and might even be worse.

Connoisseur shaving. Once you start browsing through shaving web sites, you quickly discover the other side of the market: straight-razor shaving, like the old-fashioned barbers did before King Gillette (his real name, apparently) invented his double-edged blades. (BTW, it turns out this great American entrepreneur was a utopian Socialist.)

Today, straight-razor shaving is a way for a man to establish his connoisseur identity, and it carries a comparable price tag. A high-class straight razor can set you back hundreds. Then you need a leather strop, and the perfect brush and bowl to mix your special shaving soap, and on and on.

Upper-crust malls have a chain of shops called The Art of Shaving, many of which include a barber chair where a straight-razor professional can demonstrate proper technique.

Does it make a difference? I got the cheap cousin of the classic straight razor — a $19 arm-and-handle that holds half of a double-edged blade. Straight-razor shaving turns out to be like driving a manual transmission or baking a cake from scratch. It takes some learning, there’s a certain satisfaction to mastering it, and even if you never do it again, you’ll have a deeper appreciation of what’s really going on when you shave.

Here’s the deeper appreciation I got: All blade shaving comes down to covering your face with something slick, and then dragging something sharp across it. You can improve by making the slick stuff slicker or the sharp thing sharper, but pretty soon you’ve gone as far as you can go. Beyond that, it’s all marketing.

Profit margins. So let’s review. Shaving has basically been a solved problem for at least half a century. By the 1970s the patents on those solutions had expired, and nothing of importance has been invented since. In a sensible world, all men would know this and the factories would focus on delivering cheap high-quality double-edged razor blades.

That didn’t happen because it wouldn’t have made anybody rich. Since a standardized, patent-expired product like the double-edged razor can be made cheaply by anybody, the profit margin is too small to buy Super Bowl ads or pay stupendous CEO salaries.

So instead, the market has gone two ways. The mass market has kept research labs busy churning out phony “improvements” that generate market-protecting patents and give advertisers something to work with. And vast amounts of money have been spent persuading men (successfully!) that there’s something new worth paying up for and something primitive about the double-edged safety razor.

For men who have caught on to that game, a connoisseur market sells expensive shaving paraphernalia to bolster an overclass identity. So whether you’re a mass-market Gillette-Fusion-type guy or a connoisseur wielding a buffalo-horn-handle Damascus-steel-blade straight razor, you support a market with high profit margins.

Computers, razors, and public schools. This isn’t a personal-care blog, so I didn’t tell you any of that because I think you care about shaving. Instead, I believe there’s a lesson here about capitalism and politics.

Whenever we have a public discussion about the virtues of the free market, we always end up talking about computers. Computers keep getting better and lighter and faster and cheaper because that’s what the market does; it forces everybody to improve or die.

So we’re always promised that if we turn the magic of the free market loose in some new area — if we get rid of public schools, say, and let the market educate our kids, or if we stop regulating healthcare and let hospitals, doctors, and insurance companies compete freely — we’ll see the same incredible progress we’ve seen in computers. Everything will get better and cheaper in ways no one can imagine now.

But how do we know that the education market or the healthcare market won’t turn out to be like shaving? What if, instead of low prices and spectacular improvements, we get high prices funding marketing campaigns that obscure and denigrate the low-profit-margin solutions that already exist and actually make sense?

Realistically, it could go either way. Neither the computer market nor the shaving market is an invention of some political propagandist. Both exist in the same economy.

Capitalism is double-edged that way. Sometimes the market inspires scientists and engineers to build a better mousetrap. But sometimes it’s the advertisers who turn out to be slicker and sharper than the rest of us.

By weeklysift | Posted in Articles | Comments (11)

The Economics of Leviticus

July 9, 2012 – 11:59 am

Culture war conversations often end with a verse from Leviticus, the old testament book of laws. After the verse has been quoted, it does no good to point out that the implied solution is impractical or unfair or causes needless suffering. God has given his command and we should be carrying it out, whether it makes sense to us or not.

Strangely, though, the economic parts of Leviticus aren’t quoted with the same air of ultimate authority. If they were, Biblical literalists might have to become radicals rather than reactionaries.

For example, when vulture capitalists ruin towns by closing factories and shipping jobs overseas, someone might quote Leviticus 19:9-10, which clearly denounces business practices that wring out every last dime of profit.

When you reap the harvest of your land, do not reap to the very edges of your field or gather the gleanings of your harvest. Do not go over your vineyard a second time or pick up the grapes that have fallen. Leave them for the poor and the foreigner.

The foreigner? You mean, like, illegal aliens? Could be. Leviticus 19:33-34 says:

When a foreigner resides among you in your land, do not mistreat them. The foreigner residing among you must be treated as your native-born. Love them as yourself, for you were foreigners in Egypt.

It doesn’t say anything about a green card, it just says “resides among you in your land”. (Don’t argue with me, argue with God. I’m just reading literally.)

But by far the most radical part of the book is Leviticus 25, the chapter that institutes the Jubilee Year.

Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property and to your own clan. The fiftieth year shall be a jubilee for you; do not sow and do not reap what grows of itself or harvest the untended vines. For it is a jubilee and is to be holy for you; eat only what is taken directly from the fields. In this Year of Jubilee everyone is to return to their own property.

“Their own property” includes anything that has been sold or repossessed:

If one of your fellow Israelites becomes poor and sells some of their property … [and] if they do not acquire the means to repay, what was sold will remain in the possession of the buyer until the Year of Jubilee. It will be returned in the Jubilee, and they can then go back to their property.

Basically, every 50th year all mortgages and foreclosures are cancelled and land goes back to its original owners. Anybody whose debts forced them into slavery is freed.

I know what you’re thinking: “That would never work.” And you’re absolutely right: It would never work with our modern capitalist notion of private property. But guess what? Leviticus has a completely different understanding of property:

The land must not be sold permanently, because the land is mine and you reside in my land as foreigners and strangers. Throughout the land that you hold as a possession, you must provide for the redemption of the land.

So the Earth itself belongs to God, while human deed-holders only own what the land produces.

If you sell land to any of your own people or buy land from them, do not take advantage of each other. You are to buy from your own people on the basis of the number of years since the Jubilee. And they are to sell to you on the basis of the number of years left for harvesting crops. When the years are many, you are to increase the price, and when the years are few, you are to decrease the price, because what is really being sold to you is the number of crops.

Leviticus was talking about an agrarian economy. If you wanted to apply this today, you might generalize to something like this: The Bible does not support private ownership of the means of production. The owner owns the product, not the means of production.

Taking Leviticus 25 seriously would force a sweeping re-visioning of the economic system. That would be a lot of work, and cause a certain amount of distress for the people who own property under our more free-trading definition. Why go to all that trouble? Unless you think this the Word of God or something.

By weeklysift | Posted in Articles | Also tagged | Comments (11)

77 cents, part II: What if secretaries became programmers?

May 14, 2012 – 12:05 pm

When I was a kid in the 1960s, wage discrimination against women wasn’t something you had to ferret out with statistics.

My grade school was owned by the Lutheran church my family belonged to, and the congregation had to approve  the teachers’ salaries each year. So everyone knew that Male Teacher and Female Teacher were two different professions with different pay scales. If we hired a man and a woman straight out of the same Lutheran teachers’ college, we’d pay the man significantly more.

Everyone knew why: Male teachers (even if currently single) would need to support a family, while women (even if currently childless) taught either before or after their real profession, which was raising children.

That kind of thinking hung on longer in religious workplaces than elsewhere, but it wasn’t uncommon. Men made more than women, even if they were doing the same job. It was out in the open because nobody was ashamed of it.

Today, such overt separate-pay-scale discrimination is both illegal and socially unacceptable, so remaining wage discrimination (if any) must be hidden. That’s why we do statistics.

Last week I verified that at the grossest level, women still make less. In 2011, women working full time made 82 cents for every dollar made by men working full time. (The often-quoted 77 cents figure is a year older and figured slightly differently, which tells you something about the sensitivity of the calculations. In what follows I’ve been careful not to mix data from different sources. Everything comes from the Bureau of Labor Statistics table that leads to the 82-cent estimate.)

But why do women make less? Is it for reasons we can all live with, or is the pay gap an injustice that needs fixing? Several reasons are frequently offered, together with explanations why we can live with those reasons. (Never forget that those are two separate conversations. Even if the whole pay gap could be boiled down to something as simple as “Girls don’t like math”, we’d still need to discuss whether that’s a problem we can or should fix.)

For each proposed reason, there’s a study proving that it’s not the whole story. Today I want to look at one of the most popular explanations of the pay gap: Women choose lower-paying professions. In other words, the overall averages compare female special education teachers to male aerospace engineers. No surprise who makes more.

The Institute for Women’s Policy Research has a study “The Gender Wage Gap by Occupation” proving that occupational segregation (as they call it) is not the whole story. Using Bureau of Labor Statistics numbers from 2011 (the same ones in that 82-cent calculation), they list the 20 most popular occupations (out of around 400 listed by the BLS) for men and for women. Four occupations are on both lists, and six more are too segregated (i.e., construction worker, teacher assistant) to provide a reliable estimate of the minority gender’s earnings.

In the 30 remaining occupations, men make more in 28, and the other two are low-pay occupations where the female advantage is small: Female “stock clerks and order fillers” make $1.03 for every male dollar, and female “bookkeeping, accounting and auditing clerks” make $1.003. On the other pan of the scale, men have huge margins in high-pay occupations like “financial manager” (where women make 66 cents on the male dollar) and “chief executive” (69 cents).

So clearly, occupational segregation isn’t the whole story of the wage gap. But here’s the more interesting question: Granted that it isn’t the whole story, how big a part is it?

Maybe there’s a study that answers that question, but I didn’t find it. So I crunched some numbers myself. I started with the numbers in Table 1 and Table 2 of the IWPR report, restricting my attention to the 30 comparable occupations.

Eliminating the duplicate occupations and totaling up, we’ve got 18.4 million men making a total of $16.4 billion per week ($892 each) and 20.9 million women making $15.0 billion per week ($715 each), or about 80 cents on the dollar. So these 30 occupations are slightly better than average for both men ($832 overall) and women ($684), with women making almost the same relative wage (80 cents on the dollar) as in the total survey (82 cents).

To understand what I did next, imagine that there are only two occupations: male-dominated “software developers” and female-dominated “secretaries and administrative assistants”. (These are two of the 30 from the IWPR study.)

 occupation  # men  men $  # women  women $
 software  812  $1606  179  $1388
 office  84  $757  2059  $651
 Total/average  896  $1526  2238  $710

(The number of workers is in thousands.) So our miniature, two-occupation economy (call it “2-Job World”) employs 3,134,000 people (896,000 men and 2,238,000 women) and has a total weekly payroll of  $2.96 billion ($1.37 billion to men, $1.59 billion to women). Overall, its men average $1526 per week and its women $710. So the unfortunate women of 2-Job World make only 46 cents for every dollar a man makes, even though they make 86 cents on the dollar in each occupation. (That’s why I picked those two for my example.)

Amateur economists in 2-Job World — there are no professional economists, that would be a third job — could analyze their pay gap by constructing two counter-factual models. In each model, each occupation maintains the same the total number of jobs and the same total payroll, but women move towards equality in two different ways.

In 2-Job World Fantasy #1, the ratio of men and women in each profession equalizes. Overall, 29% of the workers are men. So in Fantasy #1, 29% of workers in each occupation are men. But the wage gap within each occupation stays the same: 86 cents on the dollar. That changes the table to look like this:

 occupation  # men  men $  # women  women $
 software  283  $1735  708  $1499
 office  613  $728  1530  $626
 Total/average  896  $1046  2238  $902

Basically, bringing lower-paid women into software allowed us to raise salaries in general, while bringing higher-paid men into the secretarial pool forced us to cut salaries there. But now we have an economy where there is no occupational segregation, and women make (surprise) 86 cents on the dollar.

In 2-Job World Fantasy #2, we leave everybody in their current job, but equalize pay within the occupations, so everybody makes the average salary for their occupation. That gives a table like this:

 occupation  # men  men $  # women  women $
 software  812  $1567  179  $1567
 office  84  $655  2059  $655
 Total/average  896  $1481  2238  $728

And here you wind up with women making 50 cents on the male dollar. You’ve only nudged the pay gap by 4 cents.

(I know what some of you are thinking: Where’s the extra 10 cents? Shouldn’t the 4 cents from equalizing pay and the 40 cents from equalizing occupational segregation add up to 2-Job World’s whole 54 cent pay gap? Congratulations, you have just discovered non-linearity. Equalizing pay in the already-desegregated world of Fantasy #1 would have a 14-cent effect, while it only has a 4-cent effect in the original 2-Job World.)

So 2-Job World looks like some people’s intuition about our whole economy: The big money is in getting women to become programmers instead of secretaries.

But when I applied the same two fantasies to the more representative 30-Job World, it came out exactly the other way. In 30-Job World (where women make 80 cents on the dollar), Fantasy #1 (desegregating the occupations) only gets us a 3-cent gain to 83 cents.

But Fantasy #2 (where both men and women make the average salary for their occupations) raises women’s relative pay to 92 cents. It gains women 12 cents rather than 3 cents.

So at least in 30-Job World, getting equal pay within each occupation turns out to be about four times more important than getting equal representation within the occupations.

Why? While programmers and secretaries are part of 30-Job World, the bigger effect comes from occupations that are already fairly well integrated, but men just make more, like retail sales supervisors: about 1.3 million men and 1.0 million women, but the women make 79 cents on the dollar.

Is that how things work in the overall economy (400+ Job World, if you use the BLS categories)? I’m not ready to say that yet. But until I see a better analysis, I’m going to be very skeptical of anybody who claims the wage gap is even largely due to women’s choice of professions. I’d be surprised if it ultimately explained more than a nickel of the gap.

Technical notes:

If you need to see for yourself, I’ve posted the larger tables: 30-Job World Actual, 30-Job World Fantasy #1, 30-Job World Fantasy #2.

I anticipate this objection: When I eliminated the 6 occupations where there wasn’t a large enough sample to get a good estimate of one gender’s wages, I disposed of exactly the occupations where desegregation would make a difference.

Strange things happen when you put those occupations back in, and they work backwards from what the objector might expect. Five of the six are male-dominated working-class jobs. When you lump them together, they pay less than even the female average in 30-Job World.

So the main effect is to pull the male average down, which gets the wage ratio in 36-Job World up to 83 cents. From there, Fantasy #2 gets you to 94 cents. Fantasy #1 is hard to apply (because you don’t know what to pay the minority gender). But if you equalize even further (just for those 6 occupations) by paying the minority gender the overall occupational average , you only get up to 84 cents — higher than in 30-Job World Fantasy #1, but showing a smaller improvement over 36-Job World Actual.

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Jesus Shrugged — why Christianity and Ayn Rand don’t mix

April 30, 2012 – 12:19 pm

To a sizable number of conservatives, Ayn Rand’s novel Atlas Shrugged is practically scripture. To another sizable number, Christian scripture is a law higher than the Constitution.

If you want to appreciate just how strange that is, consider the passage that gives Atlas Shrugged its title:

“Mr. Rearden,” said Francisco, his voice solemnly calm, “if you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders – what would you tell him to do?”

“I … don’t know. What … could he do? What would you tell him?”

“To shrug.”

Both Francisco d’Anconia and Hank Rearden are heroes of the novel. Ultimately, Francisco convinces Hank and many other right-thinking capitalists to vanish and let the success-punishing world economy fend for itself without their genius and productivity. Francisco’s exit is particularly dramatic: He destroys all the assets that he can’t take with him into hiding.

The capitalists are Atlas. They shrug and let the world economy collapse. (Well, Francisco does a bit more than shrug. He didn’t just let those copper mines collapse. But never mind.)

Now imagine entering the novel to ask this question: “Mr. d’Anconia, if you saw Jesus, whipped and with a crown of thorns on his head, his knees buckling, his arms trembling, but still trying to drag his cross down the streets of Jerusalem to Golgotha – what would you tell him to do?”

To shrug?

That impossible image – Jesus shrugging off the cross and returning to Heaven six weeks early – sums up the incompatibility of Randism and Christianity. Rand taught that the powerful bear no obligation to the helpless. Jesus had other ideas.

Rand held private property rights to be absolute. That’s how Francisco can guiltlessly blow up his mines. They’re his. Forget superstitious nonsense like Psalm 24’s “The Earth is the Lord’s and the fullness thereof.” Property is not something you hold in trust for a higher power. Owning property entails no moral responsibility at all. It’s yours. Do whatever you want with it.

Short of pure Orwellian doublethink, there’s no way to square that with Christianity. Rand herself didn’t even try. She found “the inviolate integrity of man’s soul” and “a code of altruism” to be “a great, basic contradiction in the teachings of Jesus”.

This is why men have never succeeded in applying Christianity in practice, while they have preached it in theory for two thousand years. The reason of their failure was not men’s natural depravity or hypocrisy, which is the superficial (and vicious) explanation usually given. The reason is that a contradiction cannot be made to work.

And that brings us to Rep. Paul Ryan’s recent go-round with the Catholic bishops and the Jesuits of Georgetown University.

Ryan is a Randist whose budget plan Francisco d’Anconia would love. As Paul Krugman sums up, “it slashes taxes for corporations and the rich while drastically cutting food and medical aid to the needy”. It deals with the resulting deficit increase by closing unspecified tax loopholes that lobbyists will undoubtedly manage to keep open once they get specified.

But Ryan also claims to be a good Catholic, so now he’s trying to make that work too. Like Peter denying Jesus, Ryan now calls his Randism “an urban legend“. But that trick is hard to pull off in the Age of Google, when everything you’ve been saying for years is easily retrievable. You know who started that urban legend? Paul Ryan.

Unfortunately for Ryan’s attempt to wash his budget in the blood of the lamb, popes have been handing down bleeding-sacred-heart encyclicals on economic policy since Rerum Novarum in 1891. (You can get the general flavor from this week’s Sift quote or  my article on John Paul II’s Laborem Exercens.) Worse, the Church has actual experts who keep track of these things, so you can’t just cherry-pick the Catholic tradition for out-of-context quotes and expect nobody to call you on it.

Ninety members of the Georgetown faculty called Paul Ryan on it:

we would be remiss in our duty to you and our students if we did not challenge your continuing misuse of Catholic teaching to defend a budget plan that decimates food programs for struggling families, radically weakens protections for the elderly and sick, and gives more tax breaks to the wealthiest few. … In short, your budget appears to reflect the values of your favorite philosopher, Ayn Rand, rather than the Gospel of Jesus Christ.

The particular doctrine Ryan misuses is called “subsidiarity” (first enunciated in Rerum Novarum). As theologian Meghan Clark explains it:

According to the principle of subsidiarity, decisions should be made at the lowest level possible and the highest level necessary.

And BeliefNet editor David Gibson elaborates:

[Subsidiarity] argues that lower levels of society (individuals, families, communities) should be allowed to carry out social functions that they can fulfill and larger society (state and federal governments), meanwhile, should provide help (“subsidium,” is the formal Latin term) to cover things the smaller units cannot. … If Washington has to do it, so be it; if Mayberry can do it, all the better. But if Mayberry can’t, then Washington has an obligation to step in.

Conservative policy genuinely based on subsidiarity would work upward from below: As local churches, charities and neighborhood organizations developed plans and raised resources to care for the poor and helpless, local governments could re-purpose their resources on services that the state now provides. States could similarly replace federal programs, and the federal government would shrink because there was less for it to do.

None of that is actually happening in any significant way. Instead, conservatives at all levels cut programs and taxes, using the excuse that problems would be better handled further down the chain. But down-the-chain conservatives are not reaching up to take the responsibilities that up-the-chain conservatives are dropping.

I could sympathize with, say, Ryan’s desire to cut federal services for the poor in his district if conservative Governor Scott Walker were eager to expand Wisconsin’s state programs to take up the slack (and raise state taxes to pay for them) as subsidiarity demands.

But is he? I don’t think so.

If elected at all levels, conservative officials from the president to the councilman would shrug and let responsibility for the poor drop like a stone. That’s not subsidiarity, and it’s not Catholic or any other kind of Christian.

Francisco d’Anconia, though, could probably give a great speech about it.

By weeklysift | Posted in Articles | Also tagged | Comments (40)

Seven Issues the Election Should Be About

April 9, 2012 – 12:05 pm

You may not have noticed, but the general election campaign started this week. I say that for two reasons:

  • Mitt Romney’s victory in Wisconsin pretty well seals his nomination. Republicans understand now: No white knight is coming to save them. It’s Romney or four more years of Obama.
  • President Obama’s speech Tuesday was essentially a keynote address for the fall campaign.

We can already see what that campaign will be like. Romney won the GOP nomination by raising massive amounts of money and carpet-bombing any prospective rival with negative ads. President Obama is projected to raise just under a billion dollars. In either case, you really can’t spend that kind of money on warm, fuzzy stuff. Constant advertising annoys people, so the best you can hope for is to transfer their annoyance to your opponent.

Given how politics has been going, we can anticipate that major issues will be dodged, misrepresented, and even lied about. The media, which ought to be ferreting out the information voters need to make a wise choice, will instead focus on whatever gaffes or stinging comebacks they can find or manufacture, no matter how irrelevant or trivial.

That’s a shame, because there really is an important debate to be had. I don’t claim to know what Mitt Romney believes in his heart – recently his campaign has suggested that we don’t know his “real views” yet – but I know what his party and the conservative movement stands for. Similarly, I’m never sure exactly how much liberalism President Obama is going to defend, but I have a good idea what liberalism means.

It’s a significant contrast. A honest debate between those two worldviews, resulting in a clear choice by a well-informed electorate, would be a tremendous plus for this country.

OK, it won’t happen. But we shouldn’t just shrug and let the candidates off the hook. Even as we see the waters start to circle around the sewer drain, let’s review what this campaign should be about.

1. Inequality. We’ve been in a vicious cycle for 30 years now: The rich get richer; they use that money to buy more political power; and then they use that political power to lower their taxes, weaken the the regulations they have to follow, and otherwise game the system in their favor – plus make it easier to buy political power.

The Republican Party has been the main (but not the only) vehicle for the rich, so it will be interesting to see whether President Obama succeeds in raising this issue, or if conservatives manage to label it all as envy and class warfare. I thought Obama laid it out pretty well Tuesday:

In this country, broad-based prosperity has never trickled down from the success of a wealthy few. It has always come from the success of a strong and growing middle class. … And yet, for much of the last century, we have been having the same argument with folks who keep peddling some version of trickle-down economics. They keep telling us that if we’d convert more of our investments in education and research and health care into tax cuts — especially for the wealthy — our economy will grow stronger. … Now, the problem for advocates of this theory is that we’ve tried their approach — on a massive scale. The results of their experiment are there for all to see.

2. The National Security State. At a time when government is supposed to be tightening its belt, we continue to spend more on defense than all our potential enemies put together. Is that really necessary? How much money could we save with a less aggressive foreign policy that didn’t inject us into every conflict?

Would the world really be a worse place? We’ll never know how the Arab Spring would have handled Saddam if we hadn’t spent all that blood and treasure in Iraq.

And then there’s the internal effect on our liberty and democracy. Government surveillance gets ever more intrusive, and more and more of the government’s actions are secret. How necessary is that?

The opposing case is that the world is a dangerous place, and would be even more dangerous if the US didn’t police it. Maybe Norway can keep its freedom defended with (and from) a relatively small security force, but the US doesn’t have that option.

It’s President Obama’s fault that we won’t have this discussion. (Ron Paul was the only Republican candidate who wanted to talk about it.) He has largely continued the Bush national security policies rather than challenge them.

3. Climate change. There are lots of legitimate liberal/conservative issues to hash out concerning how to deal with climate change: Should we lower CO2 by market mechanisms (cap and trade), by a carbon tax, or by direct government regulation? Should we bargain hard to get other countries to do their part, or should we take the lead? What CO2 level should we be shooting for and how fast should we try to get there? How do we balance the expense of current CO2 reduction versus investments in future research? Can geo-engineering play a role?

We aren’t having those debates because the fossil fuel corporations have spent enormous amounts of money to make the existence of climate change the issue, when in fact the science is well established. The Republican Party has been acting as a wholely-owned subsidiary of the fossil fuel companies, and some Democrats have also been either bought or intimidated by energy-industry cash.

4. The Deficit. Elsewhere I’ve presented the idea that the deficit is not the doomsday device many would have you believe. But it is a symptom of a broken political process. Congress’ main job is to figure out what we as a people want to buy and how we’re going to pay for it. If it can’t do that, what can it do?

A big chunk of the problem is the misinformed electorate. Survey after survey shows that we grossly overestimate how much money is spent on welfare, foreign aid, and whatever National-Endowment-for-the-Arts-type program we find most offensive. We also grossly underestimate how many government services we use personally, and we’re misinformed about how our taxes compare to Americans of recent decades. (Hint: Our taxes are far lower, especially for corporations and the wealthy.)

About half the country thinks we can eliminate the deficit with spending cuts that don’t touch “programs that benefit people like you”. That wishful thinking allows candidates to get away with proposing big-but-vague spending cuts that exempt defense, Social Security, and Medicare — just about everything we spend big on.

5. Immigration. Both liberals and conservatives are conflicted about immigration. There is no ideologically pure answer to our immigration problem, which is why the conversation never goes anywhere.

The centuries-old dream of American employers is to have a workforce that can’t vote. So their ideal is to have temporary foreign-worker programs: We bring people in for ten years or so, get them to work hard for very little money, and then send them home.

But working-class whites see immigrants-taking-American-jobs as one of the social changes they want the Republican Party to protect them from. Hence the rhetoric about rounding up the millions of undocumented Hispanic workers and sending them home.

The last thing the Republican Party wants is millions of poor, non-white new citizens — who would probably vote for Democrats. Democrats would like that, but the unions that support Democrats probably wouldn’t, for the same reason as conservative working-class whites.

Everybody agrees that we shouldn’t have millions of undocumented people wandering around. It’s a security risk, makes our worker-protection rules unenforcible, and generally undermines the rule of law. But since neither side has a solution it wants to take to the voters, both will posture about the issue rather than try to make progress.

6. Health care. Our health care system is a mess. We spend way more per person than any other country, and we get worse results. This is a great country for someone as rich as Dick Cheney to get a heart transplant, but it’s a terrible country for a poor pregnant woman to get pre-natal care. When you average it out, our life expectancy sucks and we lead the industrialized world in unnecessary deaths.

ObamaCare (like the RomneyCare it’s based on) is an imperfect first step at reform. I think it gives away far too much to health insurance companies and drug companies, but that’s politics. If Congress repeals it or the Supreme Court throws it out, we’re essentially nowhere, because the “replace” part of the Republican “repeal and replace” slogan is just a word; there is no actual plan that addresses any of the substantive issues.

And liberals shouldn’t let Obama say “Done now.” ObamaCare has a lot of holes that need filling.

7. The future of democracy. This issue runs through a lot of the others. Ideally, individual voters would educate themselves about the issues that concern them and elect candidates to represent their views. If they really felt strongly, they’d donate $20 or $50 to a campaign.

We’re far, far away from that ideal, and moving farther all the time. The Supreme Court has ruled that money equals speech, and that more speech is better than less. So elections are dominated by massive spending that produces better propaganda — not better educated voters.

In addition, while voters may wake up in time for an election, the big-money interests never sleep. Defeat some special-interest measure like SOPA, and within a few months it will be back in a different form. The big banks can hire entire staffs of lobbyists to write loopholes into new regulations. Voters don’t have the time to ferret that stuff out, and if they did, they couldn’t organize themselves fast enough to do anything about it.

We aren’t having this discussion because no candidate who took it seriously could raise enough money. Worse, neither party even has an ideal vision of how to handle it. The closest thing to a practical reform vision I’ve seen so far is Lawrence Lessig’s.

Resist. Chances are, this election will be decided by something stupid: a blip in the unemployment numbers, a new Romney gaffe on the Etch-a-Sketch scale, or Obama’s inability to prove that he is not a shape-shifter from the Gamma Quadrant. Heck, we’ve had elections decided on the Pledge of Allegiance.

But we don’t have to give in to that. Collectively, social networking ought to give us Arab-Spring-level power, if we exercise it.  We can refuse to respond to nonsense. We can keep coming back to the real issues. It may not work in this cycle. But eventually, we might be able to drag the candidates back to what’s important.

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What is Job Creation?

January 16, 2012 – 12:16 pm

Tuesday the Washington Post’s fact-checker awarded three Pinocchios (“significant factual error and/or obvious contradictions”) to Mitt Romney’s claim to have created 100,000 jobs through his work at Bain Capital.

Meanwhile, Romney’s opponents were assailing him as a job destroyer, a “predatory corporate raider” according to a pro-Gingrich SuperPAC. Rick Perry accused Bain of looting companies and “getting rich off failure“.

Lost in all this attack-and-defense is the question: What does it mean to create a job, anyway? Let me repeat something I wrote a little over a year ago:

A bunch of factors need to come together to create a job. There has to be something worth doing, a worker willing and able to do it, a capitalist to pull together all the tools and materials of production, and a customer willing and able to pay for the product or service.

So the economic environment needs to supply an opportunity and people need to fill three roles: worker, capitalist, and customer. Conservatives assume that workers and customers always appear by magic, so a job is created whenever a capitalist shows up. If that were true, then conservative economics would make perfect sense: Keep rich people’s taxes low, and they’ll be able to fill the capitalist role in more and more places, creating more and more jobs.

In fact, though, any one of the three roles might be scarce. Picture a rural hospital that would love to have a cardiologist. The money and the customers are there, they just don’t have a worker. (We don’t usually think of cardiologists as “workers”, but they are.)

During construction booms, production might be held up by all kinds of worker shortages — plumbers, electricians, carpenters. Maybe the only thing holding up a new restaurant in Tulsa is that the local workforce doesn’t include the right kind of chef. In these cases, it’s the worker who is the “job creator”, not the capitalist. What triggers the existence of the job is the arrival of the scarce worker, who could be hired by any of a number of interchangeable capitalists.

In the recent recession, workers and capitalists have both been abundant, but customers have been scarce. Business Insider puts it like this:

If a company is going to hire someone, then a crucial question they must ask is: Is this person going to help make or do something that someone is going to buy. You can talk all you want about taxes or regulation, but if end demand for a product or service isn’t there, there’s no reason for a company to hire.

That’s the logic of stimulus: Put more money in people’s pockets and they will create jobs by becoming customers.

(That insight, by the way, provides the proper response to the slogan “I never got a job from a poor person”. You’ll also never get a job from a capitalist with no customers, no matter how rich he is or how little tax he pays.)

Finally, let’s consider the economic environment. Suppose a new interstate gets built, with an exit near a town that has a lot of unemployment. Three local businessmen want to build a fast-food franchise on a choice piece of land near the exit, and the Burger King franchisee outbids the McDonalds and Dunkin Donuts franchisees. So the Burger King gets built and employs 15 burger-flippers.

As soon as the new interstate changed the economic environment, all three roles were abundant. So who “created” those 15 jobs? The government did, by building the interstate. Government infrastructure projects have created jobs as far back as the Erie Canal, which made Buffalo into a grain-processing center.

But wait. Government can’t create jobs. Everybody knows that: Rick Perry, Ron Paul, Herman Cain, Eric Cantor, everybody. If you’re too stupid to understand why not, this conservative economist will explain it to you.

Maybe they all need to think it through again.

But let’s get back to the original topic: How many jobs did Mitt Romney create or destroy during the business career that netted him a quarter billion dollars?

Quite possibly none. If capitalists weren’t the scarce commodity in the deals he did, Romney might have been just another interchangeable cog in the economic machine. He probably is no more responsible for the jobs at Staples than the clerks who man the counters or the people like me who get our copying done there. Maybe the store would be in a different place, wear a different name, and employ different people, but as far as the overall economy is concerned it would make no difference.

Ditto for the job destruction in companies like AmPad. Money was there for pirates to capture, and there were plenty of them around. Mitt was the pirate who captured that particular treasure ship (and he’ll have to work out the ethics of it with his conscience and his God) but did he change anything? Ultimately, probably not.

By weeklysift | Posted in Articles | Comments (9)