Relevant and even prescient commentary on news, politics and the economy.

Nick and Joe are doing their best to beat back Milton Friedman et al

Nick Hanauer, Joseph Sitglitz videos.

This is the latest presentation Nick Hanauer has made regarding the upside downness of our economy and the backward, selfish thinking that has gotten us here. In this one he is talking to his “plutocrat” friends:

We plutocrats need to see that the United States of America made us not the other way around. That a thriving middle class is the source of prosperity in capitalist economies, not a consequence of it. And we should never forget, that even the best of us, in worst of circumstances are barefoot by the side of a dirt road selling fruit.

He takes on economics and how it is used today by plutocrats to reinforce their positions:

…for thousands of years, these stories were called divine right. Today, we have trickle down economics. How obviously, transparently self-serving all of this is.

 

Then comes Joseph Stiglitz talking about the cause and fix for income inequality.  This is based on his latest book.     He lays the cause to the “supply side” economics and thus the results of politics and policy.  It was a “disaster”.

The financial sector in recent years has been more active in taking money out of corporations than putting money into the corporations.  The flow is going the other way.

It is nice to hear someone talking about the solution in a comprehensive way.  A way that reflects understanding society and its economy in the same manor we have come to understand the environment.

Wouldn’t you just love to see them together on one of the Sunday morning shows around at table with say Senator Warren and Sanders and on the other side the Koch brothers and say Paul Ryan, McConnell and Boehner?  Maybe a Chicago School boy or girl?  Let’s throw in Jack Lew or who ever is the latest to hold that position.  How about someone from labor and the US Chamber to balance it out?  Better yet, how about simply a table of Nick, Joe, Warren, Sanders, Labor and Robert Reich maybe also Paul Krugman.  Forget the fair and balance act.

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Moving the goal posts on ACA success (w/update)

Right. So the the same day that I posted about the substantial fall in the uninsured rate for adults that we have seen since Obamacare went into effect, a conservative writes at the Wall Street Journal making exactly the same arguments that Matt Yglesias had refuted. Cliff Asness writes in the WSJ:

That more people would be insured was never in dispute. If you mandate that people buy something, penalize them if they don’t and give it away to some, more people will end up with it. The proper response to this is: Duh.

So, as I said, Yglesias had already refuted this, giving a number of examples of conservatives who predicted there would be no reduction in the number of uninsured Americans. Today, Paul Krugman takes us to Jonathan Chait’s response to Asness, where of course he piles on more examples of conservatives predicting a failure to improve the uninsured rate. Then he goes further. Asness wrote that a critical issue was “how many people covered by ObamaCare were previously uninsured.” You can probably guess Chait’s answer: “Well, that’s why you measure the net number of uninsured people, not just the gross expansion of coverage under Obamacare.” Which leads us back to the chart showing the substantial fall in the uninsured rate that was in my last post (and Yglesias’, Krugman’s and no doubt many more besides).

The latest round is that yesterday Asness responded to Chait. Here is where the goal post move comes in:

In contrast the rise in coverage is heralded by a myriad of Obamacare supporters as one of two major pieces of proof the law is working. But, how can something we knew before the fact be proof of anything?

Did you catch that? If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn’t count as proof that the law was good. This is silly. We didn’t actually know the insurance rate would fall, but we had economic models that told us it would. So not only is the fall evidence that the law is working, it’s evidence that the models were right!

Somebody wake these people up.

UPDATE: @HaroldPollack points me to a new J.D. Power survey finding that people who signed up for insurance on the exchanges were more satisfied (696 out of 1000) than people with non-exchange plans, usually through employers (679 out of 1000). People re-enrolling on the exchanges scored even higher, with a score of 744 for people who re-enrolled on the Exchanges. Private plans offering multiple options were able to reach the 696 average for Exchange enrolees, which means that companies offering one insurance option had to be doing substantially worse than 679. Not surprisingly, new enrolees for 2015 were a large 55 points more satisfied than 2014 enrolees, who of course went through the disastrous rollout of healthcare.gov.  So people like their subsidies and they like their actual insurance policies, on average. Maybe that’s why Republican Senators are getting antsy that there will be hell to pay if the Supreme Court rules for the plaintiffs in King v. Burwell.

Cross-posted from Middle Class Political Economist.

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Michigan

I just posted a comment in the Comments thread to Bill H’s post on Michigan from Tuesday, and on a whim, because these issues hit a nerve for me, I’m reposting my comment as a full post here:

I love this post.  It hits upon a few of my obsessions, but especially these two: The lack of metropolitan-area public transportation (the complete absence of it or the utter inadequacy of it) in so many large metro areas in this country, and the local (rather than state or federal) funding of public education.

The public-transportation issue is just so in-your-face stunning in southeastern Michigan.  Detroit, for idiotic it’s-the-Motor-City reasons, is the only large Rustbelt city that has no rapid-transit system.  The most obvious—and I mean, it’s really, really obvious—way to revive Detroit and turn southeastern Michigan back into a thriving region is a system of fast, reliable, reasonably comfortable regional public transportation.  A sort-of diamond-shaped system running from Detroit to Ann Arbor to Lansing to Flint, through Pontiac, and back to Detroit would work miracles in a lot of people’s lives.  Add on a tail that runs from Detroit south through an area known as Downriver (which is mostly so-called working-class white) to Toledo, and ….

Michigan’s a surprisingly pretty state—lakes, rivers, tributaries galore—and it’s very green (literally).  It has large expanses of beautiful beaches.  It has two major public research universities and good regional state university system that includes a large one in Detroit.  It should not be a state in decline.

As for one of Bill’s larger points—this country’s obsession with complete local control over really important, basic government functions, and states’ rights to violate individuals’ rights at will—this plays a huge role in this country’s loss of economic competitiveness and its loss international esteem.  In no other democracy or advanced economy in the world do parents have to obsess about what school district this or that prospective home is in.  Does anyone think that, say, Canadians or Germans or Australians or the French worry about school districts?  Has anyone in this country stopped to think of why they don’t?

Nice post, Bill.

One thing Bill mentioned that I didn’t discuss in my comment is that Michigan (like several other states) tends to vote Democratic for president but Republican for government and state legislators.  That’s very largely a function of the fact that in modern times most states elect their statewide officeholders—governor, attorney general, etc.—in non-presidential-election years, and the drop-off in the number of Democrats who vote in those elections is dramatic.

So ALEC controls most state governments.

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Scott Walker Dumped?

Over at Addicting Info, Nathaniel Downes is reporting Scott Walker has been dumped by the Koch Bros as their sponsored candidate for President. I wonder if he had to return the ring?

It appears Scott has taken an anti-immigration stance which is something the Koch Brothers oppose. Scott made it apparent, illegal and also legal immigrants are not welcome which is rich in itself as much of Wisconsin is made up of Germans and Norwegians who immigrated to the US and settled in Wisconsin. Scott made his views known during an interview with The Washington Post.

In terms of legal immigration, how we need to approach that going forward is saying . . . the next president and the next Congress need to make decisions about a legal immigration system that’s based on, first and foremost, protecting American workers and American wages.’ He went on to cite favorably Sen. Jeff Sessions (R-Ala.) on the subject. ‘The notion that legal immigration hurts the economy and native workers has been rebutted repeatedly and is widely disparaged by a host of pro-growth conservatives and scholars. Mair, whose work on immigration reform is well known, took to Twitter to denounce ‘the full, Olympics-quality flip-flop.’”

This a populist viewpoint and one would expect it to come from Senator Warren’s lips (sans the nativist part) and not Scott Walker’s. Of course, Scott may be attempting to curry the favors of Labor after going after the public unions in Wisconson . . . think anyone will believe him? This stance is in direct conflict with the Koch Bros. who want more immigration which would dilute the labor pool even more thereby shrinking wages. Daily Intelligencer Jonathan Chait is reporting Jeb Bush will be allowed an interview for the candidate position also. Koch early-on support for Scott Walker was disputed by David Koch.

“Let me be clear, I am not endorsing or supporting any candidate for president at this point in time,” Mr. Koch declared for the record.

A Corpocracy at work.

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Warren Answers Obama

“’We cannot afford a trade deal that undermines the government’s ability to protect the American economy,’ Warren said in the letter, also signed by Sens. Tammy Baldwin (D-Wis.) and Edward J. Markey (D-Mass.).”

In a later email to her supporters:

“‘The government doesn’t want you to read this massive new trade agreement. It’s top secret,’ Warren wrote in the email. ‘Why? Here’s the real answer people have given me: ‘We can’t make this deal public because if the American people saw what was in it, they would be opposed to it.’

‘For more than two years now, giant corporations have had an enormous amount of access to see the parts of the deal that might affect them and to give their views as negotiations progressed. But the doors stayed locked for the regular people whose jobs are on the line,” Warren wrote. “We’ve all seen the tricks and traps that corporations hide in the fine print of contracts. We’ve all seen the provisions they slip into legislation to rig the game in their favor. Now just imagine what they have done working behind closed doors with TPP.”

Besides watering down Dodd-Frank’s ownership restrictions (clip above) on risky derivative ownership (which Obama agreed to changes to requiring TBTF to separate risky investment ownership from TBTF and placing them in separate corporations not eligible for Main-Street-Rescue) during budget negotiation with the Repubs; Warren, Brown and other Senators have pointed out other potential issues with the TPP and fast tracking it besides fighting this one.

– “the deal could include provisions that would allow foreign companies to challenge U.S. policies before a judicial panel outside the domestic legal system, increasing exposure of American taxpayers to potential damages.”

– “grant foreign companies access to U.S. markets without being subject to restrictions on “predatory or toxic financial products’ and that would restrict the U.S. government’s ability to impose capital controls, such as transaction taxes, on international firms.”

The TPP is not really about free trade amongst countries as much as it dictates who and who will not feel the impact of it. Corporations and a relative few at the upper end of the income chain have benefited the most from TPP agreements in the past at the expense of the lesser income classes (The China Syndrome: Local Labor Market Effects of Import Competition in the United States).

Most of the countries included in this TPP agreement are poorer and have a greater abundance of Labor. The typical result for all countries in the agreement is total income increases with the end result in the US being most of the income is distributed upwards in the income chain. Unskilled labor producing goods in a highly skilled country will be worse off as international trade increases in relation to the global market producing a similar or the same product. In relation to the global market, a first world production worker is a less abundant factor of production than Capital when compared to 3rd world production workers. As Spencer England has shown productivity gains have been skewed heavily to Capital at the expense of Labor.

As I stated no TPP will be good for the middle class and a genuine trade agreement would also impact the middle class in an adverse manner even if there was an increase in total income unless there were stipulations and policies within it. President Obamas claiming Warren and other populist opponents of the TPP are wrong is not true as there is no indication this TPP will impact the middle class in a manner he suggests. Furthermore cloaking it in secrecy from the US and presenting it in a similar manner for an “up or down vote” as the former Bush administration did does not foster support for it. Main Street has already paid too much for corporations and rescuing Wall Street from their gambling.

Would you agree to a contract making you liable for someone else’s agreements and sight unseen? If it sounds too good to be true, it probably is not. Warren for Pres!

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Hughes on First?

Sandwichman cross post taken from Econospeak Have to admit, the spectre of mailman flying a gyrocopter onto the lawn of the Capitol building appeals to the Sandwichman’s weakness for eccentric idealists.

From the Tampa Bay Times, here is the letter that Doug Hughes was delivering to 535 members of both houses of Congress.

Dear ___________,
Consider the following statement by John Kerry in his farewell speech to the Senate —

“The unending chase for money I believe threatens to steal our democracy itself. They know it. They know we know it. And yet, Nothing Happens!” — John Kerry, 2-13

In a July 2012 Gallup poll, 87% tagged corruption in the federal government as extremely important or very important, placing this issue just barely behind job creation. According to Gallup, public faith in Congress is at a 41-year record low, 7%. (June 2014) Kerry is correct. The popular perception outside the DC beltway is that the federal government is corrupt and the US Congress is the major problem. As a voter, I’m a member of the only political body with authority over Congress. I’m demanding reform and declaring a voter’s rebellion in a manner consistent with Jefferson’s description of rights in the Declaration of Independence. As a member of Congress, you have three options.

1. You may pretend corruption does not exist.
2. You may pretend to oppose corruption while you sabotage reform.
3. You may actively participate in real reform.

If you’re considering option 1, you may wonder if voters really know what the ‘chase for money’ is. Your dismal and declining popularity documented by Gallup suggests we know, but allow a few examples, by no means a complete list. That these practices are legal does not make them right! Obviously, it is Congress who writes the laws that make corruption legal.

1. Dozens of major and very profitable corporations pay nothing in taxes. Voters know how this is done. Corporations pay millions to lobbyists for special legislation. Many companies on the list of freeloaders are household names — GE, Boeing, Exxon Mobil, Verizon, Citigroup, Dow …
2. Almost half of the retiring members of Congress from 1998 to 2004 got jobs as lobbyists earning on average fourteen times their Congressional salary. (50% of the Senate, 42% of the House)
3. The new democratic freshmen to the US House in 2012 were ‘advised’ by the party to schedule 4 hours per day on the phones fund raising at party headquarters (because fund raising is illegal from gov’t offices.) It is the donors with deep pockets who get the calls, but seldom do the priorities of the rich donor help the average citizen.
4. The relevant (rich) donors who command the attention of Congress are only .05% of the public (5 people in a thousand) but these aristocrats of both parties are who Congress really works for. As a member of the US Congress, you should work only for The People.

1. Not yourself.
2. Not your political party.
3. Not the richest donors to your campaign.
4. Not the lobbyist company who will hire you after your leave Congress.

There are several credible groups working to reform Congress. Their evaluations of the problem are remarkably in agreement though the leadership (and membership) may lean conservative or liberal. They see the corrupting effect of money — how the current rules empower special interests through lobbyists and PACs — robbing the average American of any representation on any issue where the connected have a stake. This is not democracy even if the ritual of elections is maintained.

The various mechanisms which funnel money to candidates and congress-persons are complex. It happens before they are elected, while they are in office and after they leave Congress. Fortunately, a solution to corruption is not complicated. All the proposals are built around either reform legislation or a Constitutional Amendment. Actually, we need both — a constitutional amendment and legislation.

There will be discussion about the structure and details of reform. As I see it, campaign finance reform is the cornerstone of building an honest Congress. Erect a wall of separation between our elected officials and big money. This you must do — or your replacement will do. A corporation is not ‘people’ and no individual should be allowed to spend hundreds of millions to ‘influence’ an election. That much money is a megaphone which drowns out the voices of ‘We the People.’ Next, a retired member of Congress has a lifelong obligation to avoid the appearance of impropriety. That almost half the retired members of Congress work as lobbyists and make millions of dollars per year smells like bribery, however legal. It must end. Pass real campaign finance reform and prohibit even the appearance of payola after retirement and you will be part of a Congress I can respect.

The states have the power to pass a Constitutional Amendment without Congress — and we will. You in Congress will likely embrace the change just to survive, because liberals and conservatives won’t settle for less than democracy. The leadership and organization to coordinate a voters revolution exist now! New groups will add their voices because the vast majority of Americans believe in the real democracy we once had, which Congress over time has eroded to the corrupt, dysfunctional plutocracy we have.

The question is where YOU individually stand. You have three options and you must choose.

Sincerely,

Douglas M. Hughes

See also: WHAT IS OUR ONE DEMAND?

See also: Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens”

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.

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The Campaign-Finance Transparency Canard … In All Its Orwellian Splendor

For the reasons explained above, we now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.

Citizens United v. Federal Election Commission, Anthony Kennedy, John Roberts, Antonin Scalia, Clarence Thomas, Samuel Alito, Jan. 21, 2010

I should have foreseen it on Monday.  That was the day that the Washington Post published a high-profile article by Matea Gold, one of the Post’s national political reporters, headlined “Big money in politics emerges as a rising issue in 2016 campaign.”  Five of the Post’s other national political reporters contributed to the piece, two of them reporting from New Hampshire.

By “it”—that is, the thing I should have seen coming—I mean the Orwellian attempt by Republicans to blame campaign-finance laws for the billionaire co-optation of politicians instead of on, say, the Supreme Court’s dismantling of those laws.

The thrust of Gold’s article is this: Historically, the general public laments the influence of large campaign-finance donors—those who contribute directly to campaigns or parties, and those who run or contribute to ostensibly independent PACs and, now, SuperPACs—most people cite specific substantive policy concerns such as the state of the economy, rather than the influence of large donors, as their main political concerns, because, well, most people don’t connect government policy to who’s paying for the policymakers’ elections.  But now, because of the clear, well-known effect of Citizens United (and McCutcheon v. FEC, whose name and specifics most of the public does not know, but whose effect the public does know, albeit under the rubric of Citizens United), large swaths of the public are, finally, connecting the dots between government policy and campaign-finance practices, whatever the guise.

Uh-oh.  Much of the public is now not only onto the Koch brothers, but recognizes that the Koch brothers and others who are nearly as wealthy are effectively the puppeteers to the candidates for national public office—and may soon become aware that that is as true of elections for state government.  All three branches of it.

Not to worry.  Republican pundits Ed Rogers and Kathleen Parker have the answer.  Which they’ve wasted no time in laying out in their respective forums in the Washington Post forums, Rogers in his blog there surprisingly honestly titled “The Insiders,” Parker in her syndicated column.

Rogers, a longtime high-profile Republican political consultant inside and outside Republican White House administrations, and now (to quote the bio line at the bottom of his blog posts) “the chairman of the lobbying and communications firm BGR Group, which he founded with former Mississippi Gov. Haley Barbour in 1991,” announces in both the title and the body of a blog post yesterday that he is “embarrassed by our campaign finance system.”  Yup.  The first paragraph of his post reads:

I’m embarrassed by our campaign finance system. And as a long-time participant in the system, for me to get here, it must be pretty bad. So-called “campaign finance reform laws” have created a surreal world where the official campaigns aren’t where the campaigning is being done. I can’t say it any better than the recent article “Trading Places” in the National Journal. Tim Alberta and Shane Goldmacher, who wrote this thoughtful piece about the impact and increasing necessity of super PACs, said, “[SuperPACs] pose an existential threat to the old order. The campaigns themselves may soon become subordinate; as Mitt Romney demonstrated in the 2012 primary, a candidate can win without an effective campaign but not without an effective super PAC.” How can the public interest be served in a world where an unaccountable super PAC is actually bigger than a candidate’s formal campaign?

It can’t, Rogers concludes.  But not because a few exceedingly wealthy people are dictating candidate campaign platforms—they hold their own private primaries these days—and, of course, actual government policy by those whom they sponsored as candidates.  Uh-uh.  No, Sir. No, Ma’am.  No how. No way.  It’s because of a lack of transparency regarding who is funding whose SuperPACs.

And whose fault is it that this system has developed and is having the effect that it’s having?  The drafters and supporters of the post-Watergate and 2001 McCain-Feingold campaign-finance statutes!  Without which we would have had no commandeering of candidates, elected officials and (consequently) of government policy!  Uh-uh.  No, Sir. No, Ma’am.  No how. No way.

If extremely wealthy individuals could donate unrestricted amounts of money directly to campaigns and parties, and have to identify themselves as doing that, the public would also be entitled to transcripts of these folks’ phone and in-person conversations, and email exchanges, with their candidate-proxies/elected-officials, see.

Problem solved!  Or it would be, if only we would just kill the remaining campaign-finance restrictions before the Supreme Court does, and require it all to be … transparent.

Rogers’ post reminds me of those old children’s black-and-white game book puzzles in which the object is to find the obscured animal in the thicket of the drawing’s foliage.  He’s now, finally, after many decades as a participant in the system, embarrassed by that system, because of how very bad it now is.  But it’s the campaign finance reform laws—the so-called ones, not the real ones—that have created a surreal world where the official campaigns aren’t where the campaigning is being done.

Yes, that’s right.  You probably thought that the Supreme Court’s literally spontaneous campaign finance “reform” law announced under the auspices of First Amendment jurisprudence in January 2010, and “enhanced in the name of freedom by the court’s majority last year in McCutcheon v. FEC, striking down most of the McCain-Feingold law, played some role in creating a surreal world where the official campaigns aren’t where the campaigning is being done.   But it didn’t.  Uh-uh.

We know that, because although Rogers admits that it is only now that he’s finally embarrassed about our campaign-finance system–13 years after McCain-Feingold was enacted but four years after the Supreme Court decimated that statute–he’s embarressed by the system propogated by McCain-Feingold, a system that is now a quaint memory.  The embarrassment is totally unrelated to the Supreme Court’s nullifiçation of most of the statute.  Which explains why he doesn’t mention Citizens United, much less McCutcheon. He doesn’t mention the Supreme Court and Citizens United, at all.

So there.

The animal figures in the drawing are really, really obscured.  But he assures us that they’re there.  The campaign-finance laws left standing for now, he complains, are quickly rendering the campaigns themselves subordinate.  As Mitt Romney demonstrated in the 2012 primary, a candidate can win without an effective campaign but not without an effective super PAC.  So, how can the public interest be served in a world where an unaccountable super PAC is actually bigger than a candidate’s formal campaign? he asks.

But by design, he’s asking the wrong question.  So I’ll ask the right one, which is: How can the public interest be served in a world where a handful of billionaires puppet campaigns of others for public office and have secret, direct access to the candidates and who direct campaign positions the goal of which is to ultimately dictate government policy?  It is not, and it cannot.  And that’s true whether unlimited money goes directly to a candidate or party, or both, or whether instead it goes to a SuperPAC.

The demand for transparency is largely a canard, a way to render false assurances that the problem is entirely or mainly secrecy of the identity of the benefactors.  We know who the Kochs are and whom, and what, they support, because they’ve been open about it.  Same with Sheldon Adelson and Tom Steyer.  So what?

Parker’s column today is worse than Rogers’ post, but because of its obvious Orwellian feel will just prompt shrugs, I’d guess.  She writes, in a piece titled “Mr. Hughes Goes to Washington”:

Setting aside for now the debate about security, let’s turn our attention to [gyrocopter pilot Doug Hughes’] proclaimed mission of shining a light on our corrupt campaign finance system and his urgent plea for reform.

We tried that, Mr. Hughes, and it created an even bigger mess. [Italics in original.]Today’s salient political adage goes like this: Behind every successful politician is a billionaire — or several.

We did indeed try that, Ms. Parker.  And for a decade or so it worked reasonably well.  But, see, that decade saw the Democrats take control of both houses of Congress from the Republicans as well as the election of Barack Obama.  So although the Supreme Court majority initially killed most of McCain-Feingold in order to allow corporate CEOs to use shareholder money to support Republican candidates directly and indirectly, what we have as a result is less the influence of corporate money than the purchasing of federal, state and local government policy by a billionaire.  Or several.

It turns out that it’s the “several” part that Parker, and probably Rogers, finds problematic.  Parker dedicates much of the remainder of her column to Hillary Clinton’s call last week for mandated transparency in campaign finance in its various forms, because, well, transparency has not been Clinton’s strong suit.  Clinton has a pretty broad base of large donors, apparently. Anyway, Parker writes:

This tells us two things: Transparency polled well in focus groups; Clinton is adept in the art of political jujitsu.

Campaign finance reform is indeed on many minds, if only in greater America. Beyond the Beltway, people like Doug Hughes choke and spit when talking about politics and politicians. The notion that a few rich people can determine who leads this essential nation is a sour, cynical-making joke that borders on the criminal.

As noted in the quote from Citizens United that opens this post, Justice Kennedy and four of his colleagues beg to differ.  But Parker and Kennedy agree on the elixir.  Parker continues:

There’s nothing free about paid-for elections — unless everybody knows where the money came from. [Italics in original.] Ever since the 2002 Bipartisan Campaign Reform Act, generally known as “McCain-Feingold,” our two-party system has been on life support. If in pre-reform America, too many wealthy people were donating large sums to candidates, at least we usually knew who they were. In post-reform America, too many are still giving large donations — but in the shadows.

As one philanthropist put it to me, “Money will always find a way.”

Funny, but I wasn’t aware that the two-party system was on life support between 2002 and 2010, although I guess it might have appeared that way to someone who liked the idea of a one-party system as long as the one party is the Republican one.  (I am not such a person.)  I’d argue instead that the two-party system’s demise, as Parker and Rogers seem to mean it, came not as a result of the enactment eight years earlier of McCain-Feingold but instead from the rise of the Tea Party and therefore as a result of that Supreme Court opinion that cannot be mentioned in polite company.  Or in Republican pundits’ commentary.

Nor am I aware that money always finds a way in the other democracies. The other democracies in the world–the actual ones, and there are a number of them–manage to ensure that it doesn’t.

Left unexplained by these folks, and by others, possibly including Hillary Clinton, is why they believe that the purchase of candidates’ platforms and, ultimately, of elected officials’ policy positions is pernicious only when done via SuperPAC; the purchase of candidates and entire parties is fine, because, see, we know that Republicans audition with the Kochs, and we know these brothers are billionaires many times over, but that would be unimportant if only the brothers could make direct payments to the campaigns and parties.

Hillary Clinton may be adept at political jujitsu, but suffice it to say that she has no monopoly on it.

I do accept Parker’s characterization (however unwitting but by her own terms accurate) of Kennedy & Friends’ actions as bordering on criminal, though. And that money does find a way in this democracy.  But only in this democracy.  By resounding democratic majorities of 5-4.

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The Continued Demise of Detroit Under Governor Snyder and Michigan

Naked Capitalism has an article The Continuing Depopulation of Detroit on Detroit which I attempted to answer. No one cause can be assigned to answer what happened to Detroit since 1950 and well before the first black Mayor was elected. I attempted to put this into perspective. This is not an easy and nor will it be a brief story to tell about Detroit and there are many factors to point to which led to its decreased population. In 1950, Detroit had a population of 1.8 million and was a white-dominated city. Detroit was rolling in jobs then from the OEMs and Tiers.

The past

Between 1950 and the 1967 ~300,000 residents had already left Detroit before the riots. which was equivalent to 3 earlier decades of population growth from 1930. After the war and flush with cash manufacturing war munitions, the OEMs began to abandon the multi-story factories in Detroit for single story and sprawling plants in the suburbs and like what you might see in Wixom, down river, Lordstown, Beloit, etc. With the plants went the jobs and Detroit lost ~130,000 jobs by 1967. 25 new plants had been built and none were located in Detroit during the same time period. Not only was this a way to improve on manufacturing efficiency, it was a calculated attack on unions and UAW power. By 1960 and while still called Motor City, Detroit could no longer claim such a distinction as only Chrysler was building cars in the city.

Just in time to help the transition to the suburbs were the FHA and VA new housing products requiring only 3% down payment and favored new developments over older city areas. White workers moved from the racially mixed Detroit areas to the suburbs such as Wixom, Livonia, Royal Oak, etc. located around the city and in places such as Indiana, Ohio, and Illinois. What stopped blacks from taking advantage of FHA and VA loans was the lack of equal access housing laws. Developers, realtors, banks, etc. were able to block blacks from moving into these new developments in Wayne, Oakland and other counties. As I mentioned, FHA guidelines favored new suburban developments over older and riskier city developments.

As a point of reference, Detroit suffered its first deficit in 1961 well before Coleman Young took office in 1974. Much of this came from the transitioning of plants and labor outside of the city. What also hurt the city and if you are familiar with it are the successive rings and diagonals of highways in and around the city which create barriers to travel as Detroit has little in the way of mass transit. Bring mass transit up in the richest county in Michigan (Livingston) and you will see a myriad of reasons not to have it and maintain the status quo of too big, too often and too fast. Hey gas is cheap and we do not need any mass transit which is still a philosophy of much of Michigan. Brighton as well as other suburbs have <1% black residents and there is a fear of easy access. Michiganders also have the distinction of driving their TBTOTF vehicles the farthest of any other US workers to get to work. Not having mass transit places a burden on the inner city as auto travel is not cheap and inefficient in comparison. Before one can point to black leadership (Kilpatrick) as causing Detroit issues today; one might look at Cavanaugh, Miriani, Gov. Romney, Federal housing policy, open discrimination, the OEMs, and big oil as laying the groundwork for the slow decline of the city. Much of which led up to the racial tensions in large cities such as Detroit and Chicago. Unemployment was at 14% for blacks and 7% for whites in Detroit and it did not take much for some black Vietnam vets who fought on some of the same dirt as I did later in 68 and 69 to get into a scuffle with the Detroit police igniting the 1967 riots occurring well after white flight. White flight was already in full bloom by 1967 and what followed were small businesses leaving the city.

And what did the courts do?

Justice Thurgood Marshall’s dissenting opinion:

“School district lines, however innocently drawn, will surely be perceived as fences to separate the races when, under a Detroit-only decree, white parents withdraw their children from the Detroit city schools and move to the suburbs in order to continue them in all-white schools.”

Justice Douglas’ dissenting opinion:

“Today’s decision … means that there is no violation of the Equal Protection Clause though the schools are segregated by race and though the black schools are not only separate but inferior. Michigan by one device or another has over the years created black school districts and white school districts, the task of equity is to provide a unitary system for the affected area where, as here, the State washes its hands of its own creations.”

The 1974 SCOTUS decision in Milliken v. Bradley:

“In a 5-to-4 decision, SOTUS held school districts were not obligated to desegregate unless it could be proven that the lines were drawn with racist intent. Thus, officially arbitrary lines which produced segregated districts could not be challenged.” Again and the same as United States v. Cruikshank, SCOTUS supported state rights and local control over schools above Federal interference to correct the result of local and state direction resulting in segregation.

If there was any hope the wall of the economic and racial wall of segregation surrounding Detroit would be broken, it failed in SCOTUS. Attempting to break the separate but equal doctrine of schools failed leaving Detroit schools two thirds occupied by black students and supported by a deteriorating tax base. The NAACP had brought suit in Federal Court. The lower courts agreed with the NAACP only to be overturned by SCOTUS. The NAACP sued based on there being a direct relation between unfair housing practices as found in FHA policy, redlining (earlier in my hash above), and educational segregation. The 6th District COA had specified it was the state’s responsibility to desegregate (sound familar?). Here is the Catch 22; since the violations were found in the city and also in the newer developments, the very same policies and redlining which kept blacks out of the new suburbs could not be blamed on the suburbs. Detroit was effectively walled in by economic class and race.

Metropolitan Detroit provides >50% of the Michigan GDP as Canada’s largest port of entry to the state of Michigan. Without it, Michigan would be just another large vegetable farm and salt mine. While people outside of Detroit blame blacks and snub the city, their salaries would be dramatically lower without the city and many of them would leave.

So what is happening today?

We moved here from MadCity Wisconsin due to work. I do throughput analysis, brown field layouts, purchasing, distribution, logistics and materials. There are not many of us Druckers around anymore. If you really believe Labor is the issue as many economists would have you believe, you join the ranks of the seriously misguided. Labor has not been an issue since the sixties. That manual direct labor has been eliminated or moved overseas and other forms of labor are not as prevalent is not an issue of race or education, it is the result of a movement to avoid other infrastructural costs prevalent within the US.

Michigan has a habit of voting for Dems in national elections at 54% or greater of the electorate. Yet Michigan sent 8 Repubs to The House and 5 Dens in 2012. How can that be? Michigan packs its districts thereby diluting the impact of its Dem constituents. If you talk to the pols, they will claim it is the result of where people live rather than how districts are drawn. I would direct you to Huffington and Sam Wang for a better explanation as the space here is too small to get into it (I did write on Michigan gerrymandering pre-2014 on AB if you Google it). At worst, Michigan should be split evenly in Repub and Dem House representaton. Much of the radical change in The Congressional House was reinforced in Michigan and five other swing states to give the Repubs much of the majority they enjoy today there. Michigan has also begun to lay the groundwork to change how the Electoral College is selected in Michigan doing a split plus two for the majority winner of the state. For those of you who believe this is a far better approach, Google Justice Posner (7th District) and the Electoral College which I believe was printed on my old haunts Slate Mag. Given the present districting, the result in Michigan will be a disenfranchising of the Dem majority vote it has enjoyed in National Elections. Thank you Koch Bros!

With Detroit’s bankruptcy? Funny thing happened there also, CDS were paid off at 80-90% to investors (Geithner where are you???). Read the DEMOS argument against the imposed Detroit bankruptcy (The Detroit Bankruptcy) which the appointed Emergency Manager’s (Kevin Orr) staff took time to answer in rebuttal. The state of Michigan slashed Detroit revenue sharing ($67 million) making a bad situation even worst for cash flow. The rest of the state rode on Detroit’s already weakened economic being to balance its budget. The issue was cash flow to stave off the bankruptcy and the state only made it worst given the Repub political stance of the state ( since 1990, Repubs have controlled the state Senate [solely] and state House [a majority of the time] during census years and other years). It is far easier to blame former black mayors rather than assume blame for laying the groundwork economically and racially causing much of Detroit’s demise. There is much pent up anger in outlying areas from Detroit. Today, the Govenor Snyder state has refused to help Detroit schools leaving them with > than a $100 million deficit after 4 state designated emergency managers.

Sorry for the length of this chemo/steroid rough-cut dialogue. I get a lot of energy after being pumped-up and had written this into the night from a lack of need for sleep. I believe this paints a truer picture of what took place in Detroit before Coleman came to power, what took place from 1967 onward to Kilpatrick, and how the city continues to be plundered.

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Darwin Wept: Pyramid Schemes, Collusion, and Price-Fixing, the Modern American Way

The story hardly bears repeating:

Pricing is the ultimate miracle of Darwinian markets. Competitors who produce goods at lower prices thrive, expand their operations, and produce more. Those who charge higher prices (for equivalent goods) are driven to extinction when sensible purchasers abandon them for their more-efficient competitors. This inexorable mechanism drives innovation, investment, and productivity, and the eternal grinding evolutionary churn of “creative destruction.” Survival of the fittest makes us collectively fitter, and fills our wants and needs at ever-lower prices.

All of that, or course, requires price competition among producers. The ultimate bogeyman, choking that mechanism, is competitors colluding to fix their prices. If they agree not to compete with lower prices — collectively stealing higher profits from their customers — the pricing mechanism doesn’t exist, and its manifest benefits are denied us.

It’s a compelling and convincing story. But: The key word in that second paragraph is “agree.” It’s illegal, of course, for competing firms to explicitly collude to set higher prices. But price collusion occurs constantly at higher, institutional levels, where it is unstated, implicit…and profoundly pernicious.

The Economist highlights this reality in its recent package on family companies. We’re not talking mom-and-pop shops: this is about vast networks of corporations controlled and owned by small groups of families — especially common in Asia (South Korea!), but also in Europe. The small control groups at the top of these pyramids have every incentive to back off on price competition among their subsidiaries, reaping higher profits at the expense of their customers. And they have the wherewithal to do it:

Randall Morck, the academic, finds that in large parts of the world pyramidal business groups allow “mere handfuls of wealthy families” to control entire economies.

A stylized diagram depicts the rather obvious mechanism for this control and collusion:

With all competitors controlled, ultimately, by a handful of actors, price collusion seems inevitable.

Interestingly, The Economist continues:

This problem is particularly marked in developing countries, but is also common in much of the rich world, except in the Anglo-Saxon sphere.

In America, we do things differently. In a recent Slate article,  and  explain our innovative, fiendishly clever, and truly “exceptional” mechanism for pyramid control:

Mutual Funds’ Dark Side: Why airlines and other industries keep prices too high

They cite a paper by José Azar showing that:

United’s top five shareholders—all institutional investors—own 49.5 percent of the firm. Most of United’s largest shareholders also are the largest shareholders of Southwest, Delta, and other airlines. The authors show that airline prices are 3 percent to 11 percent higher than they would be if common ownership did not exist. That is money that goes from the pockets of consumers to the pockets of investors.

We’ve all watched this airline-pricing scenario play out over recent months, with fuel costs plummeting while airfares remain unchanged.

More:

The investment management company BlackRock is the top shareholder of the three largest banks in the United States; BlackRock is also the largest shareholder of Apple and Microsoft. The companies that are the top five shareholders of CVS are also the top five shareholders of Walgreens. (And yes, one of them is BlackRock.) Institutional investors dominate the economy.

If you’re like me, you’re immediately wondering: Really, how does the price-fixing actually happen? The answer isn’t terribly surprising, or far to find (emphasis mine):

How exactly might this work? It may be that managers of institutional investors put pressure on the managers of the companies that they own, demanding that they don’t try to undercut the prices of their competitors. If a mutual fund owns shares of United and Delta, and United and Delta are the only competitors on certain routes, then the mutual fund benefits if United and Delta refrain from price competition. The managers of United and Delta have no reason to resist such demands, as they, too, as shareholders of their own companies, benefit from the higher profits from price-squeezed passengers. Indeed, it is possible that managers of corporations don’t need to be told explicitly to overcharge passengers because they already know that it’s in their bosses’ interest, and hence their own. Institutional investors can also get the outcomes they want by structuring the compensation of managers in subtle ways. For example, they can reward managers based on the stock price of their own firms—rather than benchmarking pay against how well they perform compared with industry rivals—which discourages managers from competing with the rivals.

(This is right out of Chomsky’s Manufacturing Consent: media corporations control news content by hiring people who they know will deliver the content, and message, they want. Those who do so are promoted and rewarded. They don’t need to tell them explicitly what to write.)

In America, you don’t find the explicit, extreme, and obvious family-pyramid control that’s so apparent in some other parts of the world. Control and ownership is more widely distributed across perhaps a hundred or a thousand families at the top. (Before you object: it depends on how you define “family” and “the top.”) How could price collusion happen among this larger group, with the inevitable incentives for some to defect with lower prices and take market share from the others?

Simple: America’s richest families have farmed out their collusion to institutional entities who control markets (and market pricing), with small groups of institutions controlling all the players in each industry.

The Darwinian view that underpins the “free market” belief system reveals a fundamental misunderstanding of a key evolutionary mechanism: groups can thrive and propagate at the expense of other groups, if members of one group are better cooperators. That cooperation can take myriad forms (both beneficial and pernicious to the common weal), and there are myriad evolutionary mechanisms by which that cooperation can arise. However it arises, in the case of price-setting within groups, we call that cooperation “collusion.”

In Posner and Weyl’s telling locution, “Competition among mutual funds cannot substitute for competition among corporations.” Ditto if you replace “mutual funds” with “private equity firms.” And likewise: competition among limited-liability corporations (Can’t pay off that loan? The people walk away scot-free) is based on incentive structures that are utterly orthogonal to those of independent butchers and bakers.

The agents operating those institutions know quite clearly which side their personal bread is buttered on. The families who ultimately own everything, meanwhile, are many stages removed from, largely unconscious of, any particular pricing decisions. But they can be confident that those decisions are being made in their families’ best interests.

Adam Smith, poster-boy for free-market enthusiasts, understood this reality better than most:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

He could not perhaps have conceived, however, how cleverly colluders would construct institutions that would achieve that price collusion, while masking and obscuring it even from their own eyes. He perceived the familiar “principal-agent” problem of joint-stock companies quite clearly:

The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own…. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

But he didn’t perceive these institutions’ potential for price collusion.

America’s founders, on the other hand, displayed and expressed a far deeper distrust of limited-liability, joint-stock companies. Charters for such companies were uncommon and extremely restricted in their scope (building a particular public work, for instance) well into the 19th century. “Any legitimate business purpose” is a very recent innovation.

But there’s another crucial innovation: corporations owning shares in other corporations (the very crux of modern pyramid-control schemes, familial and institutional). This was not even legal under state corporate charters until late in the 1800s. The ill effects of that rule change were not long in coming, and had to be addressed vigorously via the trust-busting and rule changes of the early 1900s. (See: interlocking directorships and The Pujo Committee.)

Proponents of free markets seem unaware that that “peculiar institution” — corporations owning corporations — is in fact very peculiar indeed. It is arguably the most destructive innovation ever to strike at the miraculous wonder of the free market’s pricing mechanism.

Further Reading

Anti-Competitive Effects of Common Ownership. April 15, 2015. José Azar, Martin C. Schmalz, and Isabel Tecu.

Concentrated Corporate Ownership. 2000. Randall K. Morck, ed.

Competitive Effects of Partial Ownership: Financial Interest and Corporate Control. 2000. Daniel P. O’Brien and Steven C. Salop.

Do Publicly Traded Corporations Act in the Public Interest? March 1990. Roger H. Gordon.

Financial transaction costs and industrial performance. April, 1984. Julio J. Rotemberg.

 

Cross-posted at Asymptosis.

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