Call me a pessimist, but... (On Sustainable Development)

The idea of "sustainable development" is not radical, crazy or hard to understand. Most anybody would have a hard time arguing against it, in theory. It just means economic development today that doesn't happen at the expense of future economic growth. Some people have called unsustainable development a "tax on the future" because it's indeed stealing prosperity from the young and generations that haven't been born yet. 

The obstacle to sustainable development is not a lack of know-how or technology. By and large, we know what to do. But it does require trade-offs and sacrifices; and the pain won't be equally distributed. And that's the rub. 

The obstacle to sustainable development is politics -- to be more precise, power. Those with power don't like it. (As an aside: I posit that those in power, among them some very "smart" and "visionary" thinkers, rarely think seriously about the future, alas.) 

The people seriously concerned with sustainable development are by and large powerless: scientists, professionals in the "biz," activists, mid-level bureaucrats and such. They say and do and write enough to force those in power to pay lip service to their arrived at consensus. But that's about as far as it goes. 

No, I'm not talking about an opposing global conspiracy. Real conspiracies are rare, and they're usually stupid, for stupid, shortsighted aims.... 

The real obstacle to change is that power is concentrated in a few hands, yet separated by nations, cultures and geographies, with few formal nodes of interdependence, where common aims can be realized.... 

An attendant obstacle is certainly capitalism. More broadly, the obstacle is our global political economy, with its capitalistic innovations tacked on to feudalistic holdovers and narrow nationalistic structures. 

"There is a lack of global leadership," we hear again and again. True. But from where are the necessary global leaders supposed to emerge? It's asking too much from our global political economic systems. 

Ideally, democracy should save us. The good ideas should convince the majority of what is needed, and republican leaders should pay heed to their wishes. Ideally, yes. But that's naive.

First, we don't have real republican democracy in most countries, either by force of regimes or by failed states of many stripes. Second, even where there is formal democracy, concentrated power (read: wealth) still trumps democracy by various well-understood technical means. (Again: there is no conspiracy here; secrecy is not at all necessary for concentrated power to subvert democracy; the facts are are all well-documented for those who take the time to pay attention.)

So where does that leave us? Up the proverbial creek, I'm afraid. 

The richest nations do tend to be democratic. And democratic polities can exercise their power -- when dramatic events move them. But unfortunately, the world -- and sustainable development -- cannot wait for dramatic events to awaken the confused and slumbering giant of democratic public opinion. By the time the giant comes to, it will be too late.

Yes, I'm talking about global warming. And the death of our oceans and fisheries. And water shortages. And new global pandemics. And massive extinctions. And die-offs of millions if not billions of people. -- And for those ensconced in the relative safety of the developed, democratic world, something beyond mere discomfort and inconvenience, but drastic cuts in standards of living and overall well-being. 

By nature I'm not a pessimist. But I simply do not see how our current political economic system can react -- or should I say, fail to react -- otherwise. Everyone is to blame -- and hence no one. I hope I'm wrong and that smarter, more visionary and leadership-worthy individuals will prove it.

This post was inspired by this book review : http://dx.doi.org/10.1016/S0140-6736(15)61215-6

Peter Thiel: 'Capitalism and competition are antonyms'

I'm not a fan of Peter Thiel, but in his rich guy's hubris he doesn't mind shattering a few conservative, pro-business myths when warmed up by an interviewer. Such as this one [emphasis mine]:

One-of-a-kind companies are monopolies. Every successful zero to one company that achieves a breakthrough is by definition going to be a monopoly. Monopolies are great companies. Super competitive ones are not.

In my view, capitalism and competition, which are said to be synonyms, are really antonyms. In a world of perfect competition, all the capital is competed away. Capitalism is really about the accumulation of capital.

Google is a very capitalist company. They have had no competition since 2002 when they definitively distanced themselves from Microsoft or any other competitor.

On the other hand, if you were to open a restaurant in San Francisco, it would be a very competitive business, but not a very capitalist one.

For this reason, some more thoughtful conservatives such as Pat Buchanan prefer to use the distinguishing term "free enterprise" instead of capitalism, because capitalism is not really something that most people on Earth will ever really participate in as free agents. (HT: Karl Marx). 

Moreover, capitalism requires constant growth (return on capital) or it will die, whereas free enterprise does not necessarily, hence capitalism's endless hunger for technological innovation, new markets, tax gimmicks or anything to give a return on capital to investors. 

In contrast, by opening the 10th lemonade stand (or Starbucks) on the block, somebody could be said to be participating in the system of competitive free enterprise, even if their chances of success are slim to none. The lemonade stand's owner could hardly be considered a "capitalist."

'Monopolies Are Great Companies. Super Competitive Ones Are Not,' Says PayPal Co-Founder Peter Thiel

By Nathan Gardels

September 8, 2014 | The WorldPost

URL: http://huff.to/1CKmUPc

Reich: How to save capitalism from itself

I'm stitching several of Robert Reich's remarks together here:

In the United States, the progressive movement in the early 20th century pursued a very similar agenda: They sought a progressive income tax, limits to campaign spending, break-ups of corporate monopolies, food safety and health regulations, labor rights, etcetera. Those changes occurred not because of a cataclysm but because political reformers had enough influence to push extremely important reforms. I am looking to those historical periods for inspiration about the future. They give me hope.

[...] In the United States, we can already see the beginning of a populist and progressive reaction to the concentration of economic wealth. I disagree with the goals of the Tea Party, but it’s important to remember that the movement began as opposition to the bail-outs of Wall Street and rejected the establishment of the Republican Party. On the Left, you had the short-lived Occupy movement. But we can see the rebirth of progressivism in the election of people like Bill de Blasio or Elizabeth Warren. They were elected on explicitly progressive platforms. And if we are to believe surveys, the U.S. public is increasingly weary of concentrated economic power. The Supreme Court decisions on campaign finance are widely greeted with dismay and anger.

[...] I have nothing but admiration for Thomas Piketty’s book, but I think that it shows a lack of political sophistication if you believe that only crises can generate waves of political reform. I believe – and I think that history bears me out – that democratic capitalism has something like a balance wheel: The public becomes deeply offended by great concentrations of economic and political power. That offense quickly moves to outrage, and that can have serious political consequences. 

Reich: "I am optimistic because I see no alternative"

Interview with Martin Eiermann

June 17, 2014 | The European

URL: http://www.theeuropean-magazine.com/robert-reich--2/8636-robert-reich-on-inequality-and-austerity

Obama 'closing' Vatican embassy because he can't stand left-wing Pope?

Just kidding. Seriously though, if President Obama were a true socialist then he should be doing everything he could to support Pope Francis' denunciation of trickle-down economics and unbridled capitalism.

Pope Francis understands economics better than most politicians

By Heidi Moore 

November 27, 2013 | Guardian

URL: http://gu.com/p/3kyy4

Study: 19th-cent. U.S. wealth vested in slaves

I've said it before: America was a country built by slaves; and that wealth persists. To ignore that, and yet to revere our Founding Fathers who got rich on the backs of slaves, is to deny reason and history.

To wit, let's recall this brief but fascinating Bloomberg analysis last year:

The U.S. won its independence from Britain just as it was becoming possible to imagine a liberal alternative to the mercantilist policies of the colonial era. Those best situated to take advantage of these new opportunities -- those who would soon be called "capitalists" -- rarely started from scratch, but instead drew on wealth generated earlier in the robust Atlantic economy of slaves, sugar and tobacco. [...]

This recognizably modern capitalist economy was no less reliant on slavery than the mercantilist economy of the preceding century. Rather, it offered a wider range of opportunities to profit from the remote labor of slaves, especially as cotton emerged as the indispensable commodity of the age of industry.

In the North, where slavery had been abolished and cotton failed to grow, the enterprising might transform slave-grown cotton into clothing; market other manufactured goods, such as hoes and hats, to plantation owners; or invest in securities tied to next year's crop prices in places such as Liverpool and Le Havre. This network linked Mississippi planters and Massachusetts manufacturers to the era's great financial firms: the Barings, Browns and Rothschilds.

But you know... maybe that is indeed what the Tea Parties and far-right conservatives really want: a return to late 18th and early 19th-century America, when a white elite got rich on the backs of dark-skinned slaves?  What else can we infer from the Republicans' recent "work or starve" political economy?

America's Slaves Were More Valuable Than All Its Industrial Capital Combined  

By Matthew Yglesias

July 18, 2013 | Slate

Thomas Piketty and Gabriel Zucman have a new paper out (PDF) about the historical evolution of wealth in a number of different prominent countries, and it features this chart for the United States that really drives home the amazing reality of America's antebellum slave economy. The "human capital" consisting of black men and women held as chattel in the states of the south was more valuable than all the industrial and transportation capital ("other domestic capital") of the country in the first half of the nineteenth century. When you consider that the institution of slavery was limited to specific subset of the country, you can see that in the region where it held sway slave wealth was wealth.

In their discussion, the point Piketty and Zucman make about this is that slave wealth was the functional equivalent of land wealth in a country where agricultural land was abundant. The typical European wealth-holding pattern was of an economic elite composed of wealthy landowners in a environment of scarce usable land. In America, land was plentiful since you could steal it from Native Americans. That should could have led to an egalitarian distribution of wealth, but instead an alternative agrarian elite emerged that did happen to own large stocks of land but whose wealthy was primarily composed of owning the human beings who worked the land rather than owning the land itself.

1955 film: The wonderful world of bygone capitalism

(HT: Chief).  This great '50s movie with its Rod Serling soundalike narrator cheerleading American pluck and industry gives us many modern issues to consider. Many things are still true today... or they are lost truths, unfortunately, such as the vital role of the federal government in regulating inflation and aggregate demand. 

Other things are outdated and proven false; for instance, nowadays nobody thinks industry's job is robotically to "match production to consumption" via distribution and marketing, (with their focus on bigger production to lower marginal costs), and priming consumption with advertising.  Today it's all about innovation and delighting customers.  Marketing's primary job is to get closer to the customer and listen, perhaps start a dialogue with him, not simply beam "buy this!" messages at him.

To me, what's most poignant is the video's optimism about the future -- looking at big demographic trends, seeing big opportunities everywhere, and recognizing government's role in seizing those opportunities. We don't think that way anymore; it smacks too much of socialist central planning. But that's indeed how America used to be run: by ambitious, idealistic, unabashedly big thinkers.  

Whereas today we have what is encapsulated in the title of Paul Krugman's textbook on macroeconomics: The Age of Diminished Expectations.

The end of the film about the opportunities presented by increasing leisure time is also poignant. The film predicts: "Both trends, rising productivity and shorter hours, will continue."  But with the benefit of future hindsight, we know one of those trends, shorter hours, stopped sometime in the 1970s.  Meanwhile, productivity gains have continued -- U.S. workers are still the most productive in the world -- but real U.S. wages have been stagnant for about 30 years.  

For those in service industries, today we have a whole new problem: too few hours.  Employers and temp agencies have taken the concept of "just in time" production with machines and applied it to human laborers, who are now struggling to get enough regular work hours to take care of themselves and their families.  They can forget about bygone-era benefits like paid vacation, health insurance and a company pension.

As we all know now, the marvelous cycle of U.S. mass production and consumption described in this film came crashing down some time in the 1980s when middle managers realized they could get a nice promotion and a raise by cutting costs of production by moving operations overseas, then marketing what used to be U.S.-made products back to U.S. consumers.  This worked for a while... until everybody did it.  Industry didn't stop to think who would buy their products when nobody had good-paying manufacturing jobs anymore. Thousands of "invisible hands" of business choked middle-income workers' wages and hence America's overall economic prosperity.

My man Chief agrees with all that, but for him the most interesting aspect of the video is that it "reflects what was then a CONSERVATIVE position!"  I mean, this video was produced by "American Industry," that's what it says.  You don't get any more conservative than that. Continued Chief: 

Look at how far rightward the conversation has drifted from 1955 until today...  For the longest time, under Alan Greenspan, there was this unbelievable dogmatism surrounding the idea of removing regulatory fetters from the market. And notice, this video doesn't talk at all about growth in the financial sector (where most of the growth has been over the last quarter century).  All it talks about is "industry", not stock options or the Dow.... I just find it fascinating that what amounts to Republican, pro-business propaganda in 1955, is left of center in today's economic conversation.

Indeed the good ole' days keep changing, depending on who's doing the reminiscing.

The Wonderful World of Capitalism, in 1950s Cartoon Form

Courtesy of the Prelinger Archive

URL: http://bcove.me/wbyjuuvc

The morality of capitalism v. redistribution

Where to begin with the question "Is capitalism moral"? Let's start with the title. Kind of a loaded question. Anyway let's be precise. Pearlstein is really discussing political economy, i.e. how our laws and governance influence commerce and the general welfare. Pearlstein means to debate the role that government should play in the economy. 

To start, Pearlstein correctly notes that, "For most of the past 30 years, the world has been moving in the direction of markets," and yet increasingly over that same period we have "stagnant incomes, gaping inequality, a string of crippling financial crises and 20-somethings still living in their parents’ basements."

Thus Republicans have pivoted, Pearlstein says, to focusing on capitalism's moral superiority because they certainly can't make a prima facie case for capitalism's benefits. Unfortunately, Pearlstein takes their bait and tries to analyze, more or less objectively, which side -- the "free-market capitalists" or the "redistributionists" -- is indeed morally superior, and the flaws with each.

The truth, as with most things, is muddled and complicated.  But I want to lay down a few markers. First, very few liberals/progressives/Democrats insist on having this "moral" debate. Why? Because we liberals are outcome-based. By contrast, conservatives and free-marketeers believe that one's moral principles should determine the rules of the game, and if one's moral principles are sound, then ipso facto, the results will take care of themselves. More precisely, conservatives believe that economic results are morality-free; only our political economics must be morally sound.

Let's admit though that his whole debate has been predicated by recent shitty economic outcomes. For a liberal, a more appropriate question would be to ask: whose political economy is the most responsible for the shitty state of today's economy?  True liberals would be even more precise: what specific policies have led us to these terrible outcomes? Conservatives would obviously like to dodge this question, and instead talk in philosophical or moral abstractions, parables and anecdotes, because the facts -- the results -- of their 30 years of neo-liberal rule do not support the morality of their political economy.

Second marker: to quote Paul Rosenberg: "economics used to be called 'political economy', because the great classical economists never lost sight of the fact that economics was a thoroughly political activity, not something outside of the life of a political community." In other words, economics never, ever, ever happens in a political vacuum. Thus, the notion that, in some ideal country, the free-market capitalism of Adam Smith hums and churns along for the betterment of all, unfettered by and independent of government, is naive and silly. Government has a role to play, it sets the rules of the economic game, we all know that.  To what extent government is involved is a matter of degrees. 

Again, liberals believe that government's role should be evidence- or outcomes-based, i.e. tweaked according to the outcomes achieved, whereas conservatives believe that outcomes, like people, should take care of themselves. What's important for them is to set up a system of rigid, unchanging moral conditions under which people operate.

Third marker: noting the terrible results of recent deregulation, privatization-outsourcing and tax cutting is not the same as saying "capitalism is bad." Conservatives and perhaps Pearlstein would like to provoke us liberals into saying that. It's not necessary, or rather, it's an academic argument rather than a real one, since we have not had a "free-market" system for a very long time, if ever. Indeed the U.S. Government has been "meddling" in the economy for a very long time, just in different ways and to varying degrees. 

The recent political-economic bag is mixed: just as union membership has been plummeting, charter schools have been blooming, taxes on the One Percent were being cut, and regulations on Too Big To Fail banks were being torn down, so was USG spending on the military-industrial complex going through the roof (Afghanistan, Iraq, and the Department of Homeland Security apparatus), not to mention Dubya's tremendous addition to the Medicare entitlement -- altogether resulting in a 91 percent increase in our national debt from 2002-2009. 

To be sure, we also had the Great Recession from 2007-2009 that is almost entirely to blame for our persistently high unemployment and deficits since then. This begs the question: what political-economic philosophy was more responsible for the Great Recession? Because we wouldn't be having this discussion right now if it weren't for the Great Recession. You could skip all the junk I wrote above and below, and if you answer this one question correctly, then you are nearly at the truth....

But anyway, back to Pearlstein. He critiques liberals because "they have yet to articulate the moral principles with which to determine how far the evening-up [redistribution] should go -- not just with education but with child care, health care, nutrition, after-school and summer programs, training, and a host of other social services."  There are two big problems with where Pearlstein is going with this.

First, his critique is simply untrue. Liberals have laid out their moral principles, most eloquently in President Roosevelt's 1941 "Four Freedoms" speech that included the "freedom from want," and then in President Johnson's "Great Society" initiatives in the 1960s.  

In fact, our moral calculus is much easier to understand than conservatives'. We believe that, in the richest, most powerful nation in the history of the world, nobody should go hungry, uneducated or without health care. Furthermore, we believe that our nation's children, elderly and disabled deserve special care and protection, including additional food, medical and housing assistance. This is pretty easy to understand, and to verify. Can a child perform well in school relative to his peers? Does a person go hungry or malnourished? Does a child have a roof over his head? And so on. Depending on the answer, we have a moral obligation to do something. It couldn't be easier to understand.

Second problem: Pearlstein asks liberals to lay out: 1) our moral principles [check]; but also, unfairly, 2) a formula for government redistribution that is clear and will work forever and ever, amen. That's just childishly naive, I'm sorry. Pearlstein needs to get real. First, he ignores political reality that demands compromise. Nobody gets his way all the time, 100%. And let's just remind ourselves why this matters: if tomorrow President Obama would say that a "fair share" of taxes on the One Percent was, say, 30 percent, then this would be all anybody could talk about. Conservatives and their armies in think tanks, cable and talk radio would parse and mince it to death for weeks and months. When in fact it's all relative; and liberals don't care what the number is, as long as it generates sufficient revenues and ensures economic growth. (But historically, until the 1980s, the top marginal rate didn't fall below 70%).  At the end of his essay, Pearlstein admits as much:

Moral philosophers since Adam Smith have understood that free-market economies are not theoretical constructs -- they are embedded in different political, cultural and social contexts that significantly affect how they operate. If there can be no pure free market, then it follows that there cannot be only one neutral or morally correct distribution of market income.

Second, Pearlstein fails to acknowledge that liberals, unlike conservatives, think and act according to feedback loops: from problem/result --> intervention --> result/problem, and so on. Therefore, without observations of actual events, we cannot tell you what will be a fair and equitable taxation rate 5, 10 or 50 years from now, or a fair distribution of wealth. We won't even hazard a guess. 

Such tolerance for uncertainty drives doctrinaire conservatives to conniption. But that's a fundamental difference between us.  Therefore, a real liberal would start with our current and projected expenditures and sources of revenue and go from there; he wouldn't start the analysis with, "Well, it's just plain unfair and immoral for somebody to pay more than x percent of his gross income in taxes."  And besides, if that is my "moral" conviction, then how in the world can we debate that? We'd start at an impasse.

Pearlstein does argue that the distribution of economic rewards will shift over time, but liberals already know this:

[T]he way markets distribute rewards is neither divinely determined nor purely the result of the “invisible hand.” It is determined by laws, regulations, technology, norms of behavior, power relationships, and the ways that labor and financial markets operate and interact. These arrangements change over time and can dramatically affect market outcomes and incomes.

Pearlstein's next critique of liberals is that they "have been able to create a welfare state only by addicting a middle-class majority to government subsidies -- subsidies that now can be financed only by taking more and more money from the rich." 

Do I really need to cite statistics about tax and income inequality and the disappearing U.S. middle class?  If so, read this, this, this, this and this. And don't even get me started about the $29 trillion bank bailouts, that primarily went to save financial markets in which the top One Percent owns 42 percent of all financial wealth, and the top 20 percent owns about 90 percent. The TBTF bank bailouts clearly demonstrate who is really "addicted" to Big Government and to what degree! 

Overall, although Pearlstein leans conservative, he touches on most of the important questions. The main take-aways from our debate are these:

• Pure capitalism (or socialism, for that matter) has never existed anywhere, nor can it;
• We are only worried about rising deficits and redistribution payments because of the Great Recession that in turn resulted from financial deregulation that conservatives support, even to this day;
• Liberals should never feel obligated to justify the morality of their political economy, when if fact we are much clearer on this than conservatives who claim to care about the poor just as much as we do, yet have no idea how to remedy persistent poverty;
• Liberals should not fall into conservatives' trap of naming "ideal" marginal tax rates, debt:GDP ratios, or anything of the kind, because 1) it's unwise tactically, in a political system that demands compromise, and 2) the correct answers will change over time.

A final note on political-economic morality: Pearlstein doesn't mention it but I will: conservatives' economic morality depends on personal pain and suffering. They firmly believe that pain teaches us lessons and can be personally redeeming; therefore, for redistributionist Big Government to deny a person the pain that he "deserves" is to deny him the chance to learn and improve himself.  

There is also a religious conservative variant of this belief: even if one's suffering wasn't caused by one's poor decisions, it may still be part of God's plan for that person; therefore, for redistributionist Big Government to prevent that pain and suffering is to interfere with God's plan for that person. Moreover, government assistance to a suffering person denies true Christians the opportunity to curry favor with God by performing charitable works for that suffering person. 

I hope I don't have to explain how sick and twisted such moral reasoning is, much less why it cannot be the basis for our country's political economy....

Finally, a note on redistribution. I will take the liberty here of quoting myself at length:

[L]et's recall for a minute what the U.S. Government -- any government from the dawn of human civilization -- actually does, in pure basics: it collects taxes from the people how it sees fit, and then spends that money how it wants. It does not, for example, say, "Mr. David Koch, since you contributed 0.01 percent of federal income tax revenues in FY 2011, we are allocating 0.01 percent of the FY 2012 federal budget to you."  

Since our government doesn't do this -- since no government has ever done this, ever -- then by definition, what our government does is redistribute wealth.  Moreover, sooner or later all government spending ends up in private hands -- just not necessarily (and not usually) in the hands that gave it its money in the first place.  If that's not redistribution then I don't know what is.

Is capitalism moral?

By Steven Pearlstein

March 15, 2013 | Washington Post

URL: http://wapo.st/WLTcrp

Obama worst socialist ever...but what does it mean?

I'm glad to see that people are actually looking up the words "socialism" and "capitalism" in the dictionary, since these words -- especially socialism -- get thrown around quite carelessly in U.S. political discourse. Judging by the number of times you hear the "socialist" label applied on talk radio and FoxNews, you'd think there were more socialists in America today than in Russia circa 1917.

The truth is, there are no real socialists left in America anymore, at least not in government. It's a bogeyman label used to scare independents and keep deer-like Republicans in line. 

There have even been attempts by conservatives to re-define socialism to cover just about anything to the left of Sen. Rand Paul.

President Obama is certainly not a socialist, or if he is, he is the Worst Socialist Ever, as I've noted before. A true socialist in the White House would not allow the One Percent to to take 93 percent of economic gains since the Great Recession, or stand idly by while U.S. corporate profits reached an all-time high.

Lots Of Confused People Looked Up The Word 'Socialism' In The Dictionary Because Of The Election

By Jason Linkins

December 7, 2012 | Huffington Post

URL: http://huff.to/SDZfIX

Energy myths: POTUS and 'energy independence'

It seems my work is not done because I keep hearing two misconceptions in America repeated:

1) The President of the United States has something to do with gas prices; and 

2) The U.S. can and should be "energy independent."

The first is a myth because of supply and demand.  As for supply, with the exception of cartels, it's all poured into one big pool of oil, figuratively speaking.  As for demand, it's growing in China and other developing countries and there's nothing we can do about it. 

The second is a myth because there is a world market for oil, coal and natural gas, all highly fungible commodities.  America is not Venezuela and Obama is not Hugo Chavez: it's not "our" oil and gas, we don't nationalize it.  It belongs to huge MNCs like Shell and BP.

It does make sense to talk about "energy security," which Roger Altman explains: 

"Let's get to the point where the amount we import from rogue or potentially rogue nations who might be hostile to us is down to a point where, if suddenly that supply was interrupted or shut off, we go right on."

Even so, it's a global market and we must keep this caveat in mind:

Increased energy security on the supply side, however, does not mean energy independence on the economic side. A smaller share of the oil we use in the U.S. comes from foreign sources today than was the case a decade ago. But an increase in the world oil price has left U.S. consumers paying more at the gas pump and reminded them of their continued dependence on market events beyond White House control.

So if people want to blame something, blame capitalism.

Can A President Control Prices At The Pump?

By Michel Martin

October 25, 2012 | NPR

URL: http://n.pr/RiDxuF 

Energy Independence For U.S.? Try Energy Security

By Tom Gjelten

October 25, 2012 | NPR 

URL: http://n.pr/QYAvrGe

If Bain was the Harvester, then Romney was...the Grim Reaper?

The last sentence is the best: 

Romney mentioned that it would routinely take up to eight years to turn around a firm—though he now slams the president for failing to revive the entire US economy in half that time.

That mask was made from magic underwear - Yikes!

NEW ROMNEY VIDEO: In 1985, He Said Bain Would "Harvest" Companies for Profits

This clip shows the young CEO focusing on businesses as targets for his investors, not as job creators or community stakeholders.

By David Corn

September 27, 2012 | Mother Jones

URL: http://m.motherjones.com/politics/2012/09/1985-romney-bain-harvest-firms-profits-video

Ryan's parish priest: 'He shouldn't wrap himself in Catholic teaching'

So here's what Father Stephen Umhoefer had to say about his hometown boy Paul Ryan:

Umhoefer also laments what he calls an excess of individualism in America that is sometimes abetted by politicians. He prepared for (Center for Media and Democracy) CMD a section of the church catechism, which states that the church "has refused to accept, in the practice of 'capitalism,' individualism and the absolute primacy of the law of the marketplace over human labor." Umhoefer said that he doesn't mean to accuse Ryan of choosing individualism as a creed over community, but that Ryan's promotion of Ayn Rand to his staff and others is "an alternative universe of which he is a member.... What I call an excessive attitude of individualism is doing a great deal of harm to us as a society because we are forgetting society values," said Umhoefer.

"What I wish for Paul -- he is so smart and so articulate and has made this whole budget, which he can defend on his own view ... of how the economy and politics work. I wish he wouldn't bring in the Catholic church. He doesn't need to if his economic and political argument are strong, and I'm sure he believes that they are."

It's too bad Ayn Rand is dead, because then we could get quotes from her saying how Ryan is a "compromiser" who betrayed the absolute principles of Objectivism. Then we'd see how Ryan is neither Catholic nor Randroid, nor anything else at his core except a hyper-ambitious suck-up to the rich and powerful.

VP Role for Paul Ryan Has His Former Parish Priest Worried

By Jonathan Rosenblum

August 15, 2012 | PR Watch

URL: http://www.prwatch.org/news/2012/08/11707/vp-role-paul-ryan-has-his-former-parish-priest-worried

Adam Smith on selfishness v. self-interest

UPDATE (06.08.2013): Originally, I posted this article without any commentary although I found it extremely interesting, and, I won't kid you, very heartening for my progressive beliefs. For some reason it's one of my most popular posts.  I'm not sure why.  Maybe it's because people of all stripes, even today, see Adam Smith as the final authority on capitalism.  

Personally, I'm not willing to go that far. Experience and scholarship have contributed much to our understanding of capitalism/free enterprise, call it what you will, since Smith's time.  To give one giant example: Keynes. Say what you want, but the guy invented macroeconomics. Until him, there was only microecon, Smith's provenance. So we gotta give prop's where they're due.

Nevertheless, it's certainly worth discovering in the article that follows what Adam Smith himself actually thought about "capitalism," a word that wasn't even invented in Smith's lifetime; it was coined by 19th-century socialists to disparage what they saw as an economic system that exploited the working class.

I'm no economic scholar, I'm not even an entrepreneur. However, during extensive international experience as a consultant I've seen in developing countries what confirms Smith's belief that a certain moral underpinning (trust, fair dealing, a man's word is his bond, deal on a handshake, etc.), not to mention robust courts that enforce verbal as well as written contracts, are necessary for "economic individualism" to flourish without harming the common good. As Americans and Westerners, we overlook their powerful role too often. And it undermines our credibility when we preach the virtues of the "free market" to developing nations: like criticizing the composition of their roof while ignoring the crumbling foundation.  

Speaking of the common good, or general welfare, that's a concept under constant threat in the U.S., although it's specifically mentioned in the U.S. Constitution. Constitutional "purists" tell us there are no superfluous words in that revered old parchment, so it's worth contemplating what exactly was meant by the general welfare, and how it can be protected. Alright, enough of my two cents.



A Tale of Two Smiths: What Capitalism's Founder Would Think of Goldman's Greed

By John Paul Rollert

April 20, 2012 | Next New Deal

Adam Smith made a distinction between self-interest and selfishness -- and he knew that too much of the latter would lead a nation to ruin.

It has been over a month since Greg Smith's letter of resignation sent Goldman Sachs into full PR panic mode. Since then, the firm has completed its great "muppet" sweep, Mr. Smith has secured a blockbuster book deal, and Lloyd Blankfein has found himself fighting off stories of a growing power struggle at the top of Goldman high command.

All of this makes for good copy, but it risks obscuring the enduring moral dilemma at the heart of the original letter. Namely, when it comes to doing business, can we make a meaningful distinction between self-interest and selfishness? Or, apropos of Mr. Smith, should a place like Goldman ever hold itself to a higher standard than "How much money did we make off the client?"

Another Smith certainly thought so: Adam Smith, the founding father of modern economics. He first made his name as a moral philosopher with The Theory of Moral Sentiments, a careful diagnosis of the concern we have for others, the attention we show ourselves, and how the tension between the two underwrites a common code of ethics.

One of the principal villains of Smith's work was Bernard Mandeville, an occasional philosopher who impishly elided fine-grained distinctions. His scandalous work, The Fable of the Bees, was an allegorical poem involving a thriving beehive that bore more than passing resemblance to 18th-century England. Accounting for the affluence and ease the bees enjoyed, Mandeville made two contentions sufficient to give any high-minded economist heartburn. 

First, he claimed there was no essential difference, morally speaking, between the con man and the merchant. Both were driven by selfish instincts to get the better of their fellow man (or bee), and to that end, both trucked in deceit. Yes, the con man broke the law, but the merchant hid behind it.

Mandeville's second claim was even more scabrous: So be it. Vice, not virtue, kept the wheels of commerce turning, with the benefits shared by all:

Thus Vice nurs'd Ingenuity,
Which join'd with Time and Industry,
Had carry'd Life's Conveniences,
It's real Pleasures, Comforts, Ease,
To such a Height, the very Poor
Liv'd better than the Rich before,
And nothing could be added more.

If these lines sound a little bit like "greed is good," then you get Mandeville's point. Human beings are selfish, and thank goodness for it. Otherwise, we might end up like the bees, who are nearly wiped out after a spell of virtue saps their ambition, spoils their economy, and exposes them to outside attack.

When he stepped forward to challenge these views, Smith knew that he had to provide a compelling distinction between pursuits that are self-interested and those that are merely selfish. He granted Mandeville that there was "a certain remote affinity" between them insofar as both are motivated by a concern for personal well-being, but he appealed to common sense in saying that that we don't view all human desires equally. My interest in having a clean shirt is not only legitimate, it's laudable, whereas my longing for a panda skin sportcoat is not only illegitimate, it's an outrage.

Fair enough. But how exactly do we make these distinctions? Smith says we come by them naturally, by engaging others and discovering where our desires echo, overlap, and, finally, are at odds with one another. This process, iterative and ongoing, defines our moral sentiments, the felt necessities of right and wrong that shape and restrain our actions.  It also defines for us what Smith called "a fair and deliberate exchange," the very type of interaction at the heart of a commercial enterprise. 

When he turned his attention to economics, Smith did not think of himself as devising a system that was antagonistic or even alien to the one he had already developed. A free market provided individuals a space to engage each other in the pursuit of their own private interests, but that realm was not free from moral sentiments, nor should it be. Engaging in business was no less a part of human interaction than raising children or making friends, and the idea that a commercial sphere dominated by the grossest behavior would not contaminate the rest of society was not only silly, it was dangerously naive.  

This was Smith's greatest difference with Mandeville: He did not believe that a nation in which people pursued their interests irrespective of one another would be affluent. It wouldn't even be stable.  Riven by "hostile factions," society would seethe with conflict, for people with different interests would view each other with "contempt and derision."  In such an environment, Smith observed, "[t]ruth and fair dealing are almost totally disregarded," for the interests of others have no moral claim on us.

Is Goldman Sachs such an environment? Greg Smith says so, but only the people who work there know whether the culture is as "toxic and destructive" as his letter claims. Yet to the degree that clients are viewed with contempt and derision, especially by leadership, Adam Smith would say that we should hardly be surprised, as the other Mr. Smith seems to be, by "how callously people talk about ripping their clients off." This is to be expected. The line between selfishness and self-interest, in business as in all human pursuits, appears only when we feel that the interests of others occasionally require us to restrain our own. When we stop caring, that line disappears, and with it some very worthy things — personal integrity, self-respect, professional pride — that money can't buy.

John Paul Rollert is an Adjunct Assistant Professor of Behavioral Science at the University of Chicago Booth School of Business.

Recovered history: Rural Brits forced from their land and into factories

Take everything you thought you knew about Adam Smith and his contemporaries and capitalism and throw it in the crapper.  

According to Yasha Levine, the new book by Prof. Michale Perelmen, The Invention of Capitalism, shows what these Enlightened Ones really thought about industrialization and the poor, working class -- simply by quoting them!  (Gee, whoda thoughta doin' dat?!)

Now I'm not saying let's throw over the West to Marxism -- the likely throw-away retort of my would-be antagonists.  No.  But I am saying, once again:  there never was a golden age.  Our predecessors were almost always worse than we were, if not in words and refined manners then in thoughts and deeds.  (Think four-year-olds in factories; slavery; debtors' prisons; woman as second-class citizens, etc.)  And this is why conservatism is fundamentally wrong: there is not much good in history to harken back to.  The past is darkness illuminated only by occasional stars.  There is only forward, forward, to a perfection of human society.  

And that is why Progressivism is where it's at:  reining in capitalism's abuses and taming the corporations who have no allegiance to humanity, only the bottom line, because -- unlike our friend Mitt maintains -- they are not people.  We are the people.  And if we want corporations to act more like people, then we need government to force them.  That is the undeniable vector of political economy over the past 200 years, and that's where history is inevitably taking us further, whether Tea Parties like it or not.  

But to perfect ourselves we have to acknowledge our ugly qualities -- many of them inherited from even uglier forbears -- in the mirror.  So read this and get yerselves edumacated, folks.

Recovered Economic History:  "Everyone But An Idiot Knows That The Lower Classes Must Be Poor, Or They Will Never Be Industrious"

By Yasha Levine

April 5, 2012 | The Exiled

URL:  http://exiledonline.com/recovered-economic-history-everyone-but-an-idiot-knows-that-the-lower-classes-must-be-kept-poor-or-they-will-never-be-industrious/

Bloomberg: U.S. economy powered by slavery

Just keep this in mind when folks talk about going back to the "good old days" of the 18th and 19th centuries.

America's economy was powered by slavery, and the wealth generated by slavery reverberates in today's companies like Lehman Bros., Berkshire Hathaway and JPMorgan Chase.

How Slavery Led to Modern Capitalism: Echoes

By Sven Beckert and Seth Rockman

January 24, 2012 | Bloomberg

URL: http://mobile.bloomberg.com/news/2012-01-24/how-slavery-led-to-modern-capitalism-echoes.html

B Corporations: The synthesis of Adam Smith?

Adam Smith Was Not Schizophrenic

By Kyle Westaway

December 1, 2011 | HBR Blog Network

Despite the recent crackdowns in New York and Los Angeles, it's not surprising that the Occupy Wall Street movement has exploded into 900 chapters. The Occupy movement — as well as The Tea Party — are both "mad as hell" about the current state of affairs. Both sides share a general dissatisfaction with our current capitalist system. The left wants to end capitalism. The right says if we could just get the government out of the way, then the capitalist system would work.

I think both groups' conception of capitalism is off the mark. To gain some clarity, we need to consult Adam Smith.

Adam Smith, the father of modern economics, was the first to assert the concept of free market capitalism. In his most popular work The Wealth of Nations he wrote about the oft-quoted "invisible hand." But in his first work, The Theory of Moral Sentiments — which he considered his most meaningful contribution — he writes about our duty to fellow members of society. Pundits on either end of the political spectrum quote whichever work suits their argument. Predictably, the right quotes Wealth of Nations and the left quotes The Theory of Moral Sentiments. Given the gap between modern capitalism and the morals-based approach from his first book, one can't help but wonder if Smith was an intellectual schizophrenic, essentially promoting two competing theories.

I don't think he was. In fact, I see his two preeminent works amounting to a unified theory, a blueprint for a more stable and sustainable version of capitalism; a conscious capitalism. The Wealth of Nations presupposed actors in the capitalist system operating on the moral framework he laid out in the Theory of Moral Sentiments. The free market has no conscience of its own: it is made up of billions of people transacting. Though Smith asserts that each of these people are guided by their self interest, he presupposes that each of the actors in the marketplace are guided by some internal morality and an awareness of one's place within the broader context of his community — locally and globally.

The current version of capitalism is not the one envisioned by Smith at all. He was seeking to create a system defined by efficient allocation of resources driven by self-interest, but guided by self-restraint. This is conscious capitalism.

The current version of capitalism's guidance from self-interest in the corporate world is evidenced in the legal duty to maximize shareholder value, which opens directors up to a lawsuit from their shareholders if they make a decision that fails to make the highest possible profit for their shareholders. Thus, the duty to maximize shareholder value handcuffs directors that want to make decisions that seek to create benefit for people and planet as well as financial returns.

There is debate whether this duty exists, but it is such a dominant perception among directors that it is the practical reality. In order for corporations to be free from the shackles of maximizing shareholder value, the fiduciary duties must be broadened.

Fortunately, many state legislatures in the United States are seeing the need for a new legal structure that embraces conscious capitalism by broadening the fiduciary duty from maximizing shareholder value to maximizing stakeholder value — the legal mandate to take make decisions that pursue not only a positive benefit on the bottom line of the shareholders, but also the community, environment, employees and suppliers. This broadening of fiduciary duty is a fundamental shift at the very core of the corporation. This new type of corporation that embraces conscious capitalism by broadening fiduciary duty is known as a Benefit Corporation.

The Benefit Corporation embodies the theories of both The Wealth Nations and the Theory of Moral Sentiments, and ushers in a version of conscious capitalism that promotes both self-interest and the benefit of society. Adam Smith would be proud.

Channel Marx to save capitalism?

Give Karl Marx a Chance to Save the World Economy

By George Magnus

August 28, 2011 | Bloomberg

Policy makers struggling to understand the barrage of financial panics, protests and other ills afflicting the world would do well to study the works of a long-dead economist: Karl Marx. The sooner they recognize we're facing a once-in-a-lifetime crisis of capitalism, the better equipped they will be to manage a way out of it.

The spirit of Marx, who is buried in a cemetery close to where I live in north London, has risen from the grave amid the financial crisis and subsequent economic slump. The wily philosopher's analysis of capitalism had a lot of flaws, but today's global economy bears some uncanny resemblances to the conditions he foresaw.

Consider, for example, Marx's prediction of how the inherent conflict between capital and labor would manifest itself. As he wrote in "Das Kapital," companies' pursuit of profits and productivity would naturally lead them to need fewer and fewer workers, creating an "industrial reserve army" of the poor and unemployed: "Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery."

The process he describes is visible throughout the developed world, particularly in the U.S. Companies' efforts to cut costs and avoid hiring have boosted U.S. corporate profits as a share of total economic output to the highest level in more than six decades, while the unemployment rate stands at 9.1 percent and real wages are stagnant.

U.S. income inequality, meanwhile, is by some measures close to its highest level since the 1920s. Before 2008, the income disparity was obscured by factors such as easy credit, which allowed poor households to enjoy a more affluent lifestyle. Now the problem is coming home to roost.

Over-Production Paradox

Marx also pointed out the paradox of over-production and under-consumption: The more people are relegated to poverty, the less they will be able to consume all the goods and services companies produce. When one company cuts costs to boost earnings, it's smart, but when they all do, they undermine the income formation and effective demand on which they rely for revenues and profits.

This problem, too, is evident in today's developed world. We have a substantial capacity to produce, but in the middle- and lower-income cohorts, we find widespread financial insecurity and low consumption rates. The result is visible in the U.S., where new housing construction and automobile sales remain about 75% and 30% below their 2006 peaks, respectively.

As Marx put it in Kapital: "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses."

Addressing the Crisis

So how do we address this crisis? To put Marx's spirit back in the box, policy makers have to place jobs at the top of the economic agenda, and consider other unorthodox measures. The crisis isn't temporary, and it certainly won't be cured by the ideological passion for government austerity.

Here are five major planks of a strategy whose time, sadly, has not yet come.

First, we have to sustain aggregate demand and income growth, or else we could fall into a debt trap along with serious social consequences. Governments that don't face an imminent debt crisis -- including the U.S., Germany and the U.K. -- must make employment creation the litmus test of policy. In the U.S., the employment-to-population ratio is now as low as in the 1980s. Measures of underemployment almost everywhere are at record highs. Cutting employer payroll taxes and creating fiscal incentives to encourage companies to hire people and invest would do for a start.

Lighten the Burden

Second, to lighten the household debt burden, new steps should allow eligible households to restructure mortgage debt, or swap some debt forgiveness for future payments to lenders out of any home price appreciation.

Third, to improve the functionality of the credit system, well-capitalized and well-structured banks should be allowed some temporary capital adequacy relief to try to get new credit flowing to small companies, especially. Governments and central banks could engage in direct spending on or indirect financing of national investment or infrastructure programs.

Fourth, to ease the sovereign debt burden in the euro zone, European creditors have to extend the lower interest rates and longer payment terms recently proposed for Greece. If jointly guaranteed euro bonds are a bridge too far, Germany has to champion an urgent recapitalization of banks to help absorb inevitable losses through a vastly enlarged European Financial Stability Facility -- a sine qua non to solve the bond market crisis at least.

Build Defenses

Fifth, to build defenses against the risk of falling into deflation and stagnation, central banks should look beyond bond- buying programs, and instead target a growth rate of nominal economic output. This would allow a temporary period of moderately higher inflation that could push inflation-adjusted interest rates well below zero and facilitate a lowering of debt burdens.

We can't know how these proposals might work out, or what their unintended consequences might be. But the policy status quo isn't acceptable, either. It could turn the U.S. into a more unstable version of Japan, and fracture the euro zone with unknowable political consequences. By 2013, the crisis of Western capitalism could easily spill over to China, but that's another subject.

(George Magnus is senior economic adviser at UBS and author of "Uprising: Will Emerging Markets Shape or Shake the World Economy?")