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

Explaining Class Warfare

 
Last month one hundred and fourteen thousand unemployed moochers…suddenly yank the government teat out of their mouths, get off the couch for forty hours a week? Why?
 
 
I say follow the money; cause I found out, that right around the time those people got those jobs…they started getting paid!
 
And just where does that money come from? Right out of the pockets of the job creators. How’s that for your socialist redistribution of wealth? Folks, it’s called class warfare.
 
 
Mr Colbert has created a new party that will issue a certificate to sooth the hurt of the job creators. The Certificate of Richness issued by:
Protecting Industry Titans and Yachtsman party. The P.I.T.Y. party.
 
And right on cue:
 
 
If President Obama is re-elected and raises taxes, Westgate Resort’s David Siegel says he will have to lay off workers and downsize his company — or even shut it down.
 
 

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It is in the interests of bankers and landlords to masquerade as capitalists

An comment worth noting on an  interesting post Where Are You in the Economic Strata? by Barry Ritholtz is the following (hat tip Mike K.):

In my opinion, aspirational voting is the consequence of a rational
dedication to ethics based upon false assumptions of what is ethical.
As I see it, there are two forms of income. The first type of income
is generated through productive achievement that benefits others and
grows the economic pie – this is the symbiotic relationship between
labor and capital. The second type of income is generated through
rent-seeking behavior that simply alters the flow of money, but does
not grow the economic pie – examples of this include
fractional-reserve banking and the land increment of rent. It is in
the interests of bankers and landlords to masquerade as capitalists,
but they are not capitalists (since they don’t grow the capital stock)
– they are rent-seekers.

Republicans are people who correctly see the benefits of capitalism
(the expansion of the capital stock that adds value to labor), but
they are fooled into thinking bankers and landlords are capitalists.
Democrats are people who correctly see the evils of wealthy
rent-seeking individuals, but they incorrectly attribute rent-seeking
to capitalism. In my opinion, Democrats would be wise to change their
target from “the 1%”, which may include capitalists that help others
(Apple is not the problem), and focus their attention specifically on
the rent-seekers (banking is the problem). By using this strategy,
Democrats can align themselves with Republican voters who support
productive capitalist activities, while at the same time exposing the
rent-seekers who masquerade as capitalists. In my experience,
Republicans are increasingly skeptical of banking. They are starting
to get that banking is different from other capitalist activities.
There is a real opportunity for Democrats, but they’ve got to be sure
they select the correct bogeyman.

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More on Markets and Neoliberalism from Crooked Timber

Actual markets in the American economy are extremely rare and unusual beasts. An economics of markets ought to be regarded as generally useful as a biology of cephalopods, amid the living world of bones and shells. But, somehow the idealized, metaphoric market is substituted as an analytic mask, laid across a vast variety of economic relations and relationships, obscuring every important feature of what actually is. And, then we wonder why the “thinking” and policy debates that result are stupid and corrupt.
—  Bruce Wilder

Emphasis added.   This is in the context of a critique of neoloberalism, here described by Henry Farrell:

In fact, it is not free markets with vigorous competition among producers, but instead, a mixture of big firm oligopoly and cosy and frequently corrupt relationships between state officials, who have been told to subcontract out parts of government, and the businesses which supply these new services, in what is at best a murky approximation to a real marketplace. You can read this as a statement that classical liberalism has some good points as well as some bad ones. You can equally well read it as saying (and this is the more fundamental point), that regardless of whether or not classical realism had some good arguments, these don’t have anything much to do with actually-existing-neoliberalism which is a crony capitalist fantasy.

This lays bare the greed, dishonesty, corruption and manipulation inherent to neoliberalism, and simultaneously exposes the concept of “the market” as an absurd quirk of the typical economist’s imagination.

Each of these meaty comments is highly worthy of recognition.  The cephalopod reference made the first one utterly irresistible, and prompted this post.

The bad news is that there doesn’t seem to be any way out.


Here, John Quiggin provides a good functional definition of neolibealism – the first I’ve ever seen – and a very thoughtful critique of neoliberalism as a political cum economic ideology.

The core of the neoliberal program is
(i) to remove the state altogether from ‘non-core’ functions such as the provision of infrastructure services
(ii) to minimise the state role in core functions (health, education, income security) through contracting out, voucher schemes and so on
(iii) to reject redistribution of income except insofar as it is implied by the provision of a basic ‘safety net’.

Quiggin judges neoliberaism to be a failure, for different reasons in different places.  I’m going to quibble with his definition of failure, type iii, though: a failure to deliver the promised outcomes.  With a focus in the inherent dishonesty and corruption inherent to neoliberalism, I can only view it as highly successful in the U.S.  This is because there is a real hidden agenda lurking behind the false public agenda.
 
Wilder describes how it works in a follow-up comment: (Be sure to read the whole thing.)

Neoliberalism, it seems to me, uses the myth of the market, to rationalize rule-making, which serves the rentiers (is dynamically inefficient) and which promotes authoritarian, and therefore unfair, resolution of conflict.

Quiggin describes the type iii failure in the U.S:  “The basic problem is that, given high levels of inequality, very strong economic performance is required to match the levels of economic security and social services delivered under social democracy even with mediocre growth outcomes.”  Of course, no such strong economic performance is forthcoming.

However, the real agenda is not general economic security.  Quite to the contrary, it is to maximize and maintain a high level of inequality, such that the small, elite minority has absolute control over the impoverished majority, precisely because their economic security is severely limited.  I cite as evidence the extreme form of 21st Century Republican party neoliberalism, which even attacks the existence of a basic safety net.  Note also their ongoing attacks against labor unions, health care reform, and education at all levels.

The job is not yet complete, but I have to view the record of neoliberalism in the U.S., to date, as a smashing success.

I posted this on my blog in slightly different form as a Quote of the Day entry. But it makes such a fitting companion piece to Dan’s from earlier today that I decided to put it up here, as well.

 H/T to Unlearningecon

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Discussion at Crooked Timber on ‘what are markets’

Well, sort of on markets.
There is an interesting conversation going on at Crooked Timber our public debate in the econosphere and political rhetoric . Henry posts on the use of arguments over the term neo-liberalism and finishes with:

For what it’s worth, I think that the open information agenda, and the political inequality agenda have a lot more in common than most people think (I have been planning for some time to do more writing on this over the next year). I think it would be a lot more useful to frame the argument as one between different ways of restructuring markets so as to tackle problems of inequality at their source than as one between neo-liberalism and its critics

Lifted from comments,  Bruce Wilder offers this observation:

To a large extent, we are all intellectual victims of economists, dead and otherwise, who really do not know what they are talking about. The main problem with the standard analysis of the “market economy”, as well as many variants, is that we do not live in a “market economy”. Except for financial markets and a few related commodity markets, markets are rare beasts in the modern economy. The actual economy is dominated by formal, hierarchical, administrative organization and transactions are governed by incomplete contracts, explicit and implied. “Markets” are, at best, metaphors.

The elaborate theory of market price gives us an abstract ideal of allocative efficiency, in the absence of any firm or household behaving strategically (aka perfect competition). In real life, allocative efficiency is far less important than achieving technical efficiency, and, of course, everyone behaves strategically.
In a world of genuine uncertainty and limitations to knowledge, incentives in the distribution of income are tied directly to the distribution of risk. Economic rents are pervasive, but potentially beneficial, in that they provide a means of stable structure, around which investments can be made and production processes managed to achieve technical efficiency.
In the imaginary world of complete information of Econ 101, where markets are the dominant form of economic organizations, and allocative efficiency is the focus of attention, firms are able to maximize their profits, because they know what “maximum” means. They are unconstrained by anything.
In the actual, uncertain world, with limited information and knowledge, only constrained maximization is possible. All firms, instead of being profit-maximizers (not possible in a world of uncertainty), are rent-seekers, responding to instituted constraints: the institutional rules of the game, so to speak. Economic rents are what they have to lose in this game, and protecting those rents, orients their behavior within the institutional constraints. Those constraints are in the nature of a public good, and if that public good is well-provided, the behavior is socially beneficial and technically efficient.
It is within this context, that risk and innovation (aka, changing institutional structure) can pay off.
So, yes, licensing barbers can make perfect sense. It creates a small economic rent, and if that rent is tied effectively to barbers being scrupulous about safe and healthy technical practice, that’s a economic benefit. The gain is in technical efficiency, not allocative efficiency.

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"Business Leaders of Today are Not Capitalists"

Via Mark Thoma comes this thinking on the nature of our economic system and by John Kay at the Financial Times in Business Leaders of Today are Not Capitalists.

John Kay says that the term “capitalism” is misleading in modern economies:

..So the business leaders of today are not capitalists in the sense in which Arkwright and Rockefeller were capitalists. Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital. They have obtained these positions through their skills in organizational politics, in the traditional ways bishops and generals acquired positions in an ecclesiastical or military hierarchy. …

And Mark comments on the article:

This is an important point, and it relates directly to the claim by many that inequality is needed in capitalist economies as an engine of growth. I think small businesses still operate in something resembling old fashioned capitalism — owners putting their own resources at risk to open a new business — but big business is another story (and in some cases, such as the finncial industry, too big too fail considerations reduce risk considerably for high level executives making arguments that this type of risks motivates innovation, etc. hard to swallow).

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Thought-Experiment of the Day (6 April 2011)

I want to open a pizza place. I find an available space; a previous pizza place that went out of business. The only catch is that there are four other pizza places nearby, none of which is overcrowded, except at the peak of peak hours.

One–a block or two away, on another street–is the oldest and best: table service, other dishes, liquor license. The other three–two across the street, one up the block–all offer traditional and Sicilian slices and fountain and bottled sodas.

My store will offer regular and Sicilian slices, with fountain and bottled sodas.

When I use up all my capital and go out of business, is there any rational observer who would describe that as a “failure of the market”?

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The Class war summed up in quotes

By Daniel Becker

I just want to lay out the debate going on in our economy right now. There are 4 debaters. President Obama/Geithner et al, President Obama 2008, the rich (or capitalist, those who make their money from money) and the rest of us.

From President Obama’s 60 Minute interview:

PRESIDENT OBAMA:…And it turns out that actually the people who are most likely to use that money and spend that money are actually people of more modest means, and if what we’re concerned about is how we can grow the economy, there are more efficient ways to recirculate dollars out there and get people to spend.

PRESIDENT OBAMA:…But probably the biggest uncertainty right now for a lotta companies is there gonna be enough demand out there for the products, and we’ve gotta make sure that we’re workin’ with them to try to improve that.

KROFT: You’ve got a situation right now that banks have not significantly loosened up credit in spite of all the money that they’ve received, in spite of the fact that they’re quite profitable right now. And you’ve got manufacturing companies that haven’t replaced many of the jobs or hired back the people that they’ve cut. How do you get the banks to loan money, and how do you get businesses to hire people back?

PRESIDENT OBAMA: Well, it starts with businesses wanting to hire people back because they see customers out there. And so everything that we can do to expand consumer confidence, everything that we can do to get businesses to invest in plants and equipment through the tax code, through accelerated depreciation, through keeping taxes on middle class families where they are, as opposed to having them spike up — all that can make a difference. The more companies are doing well, the more likely they are to go to banks and say, “We need to borrow.”

The two Obama’s are struggling to have it both ways and thus the lack of action on issues such as easing unionization while going to South Korea for a trade deal ala NAFTA.

However, the other 2 parties in this debate have been very clear for years now. I present “Other People’s Money” 1991

The Capitalist represented by Lawrence Garfield:

“Ah, but we can’t,” goes the prayer. “We can’t because we have responsibility, a responsibility to our employees, to our community. What will happen to them?” I got two words for that: Who cares? Care about them? Why? They didn’t care about you. They sucked you dry. You have no responsibility to them. For the last ten years this company bled your money. Did this community ever say, “We know times are tough. We’ll lower taxes, reduce water and sewer.” Check it out: You’re paying twice what you did ten years ago. And our devoted employees, who have taken no increases for the past three years, are still making twice what they made ten years ago; and our stock – one-sixth what it was ten years ago. Who cares? I’ll tell you. Me. I’m not your best friend. I’m your only friend. I don’t make anything? I’m making you money. And lest we forget, that’s the only reason any of you became stockholders in the first place. You want to make money! You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You want to make money! I’m the only friend you’ve got. I’m making you money. Take the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell ’em ya gave at the plant. And by the way, it pleases me that I am called “Larry the Liquidator.” You know why, fellow stockholders? Because at my funeral, you’ll leave with a smile on your face and a few bucks in your pocket. Now that’s a funeral worth having!

The rest of us represented by Andrew Jorgenson:

“…The entrepreneur of post-industrial America, playing God with other people’s money. The robber barons of old at least left something tangible in their wake- a coal mine, a railroad, banks. This man leaves nothing. He creates nothing. He builds nothing. He runs nothing. And in his wake lies nothing but a blizzard of paper to cover the pain. Oh, if he said, “I know how to run your business better than you,” that would be something worth talking about. But he’s not saying that. He’s saying, “I’m gonna kill you because at this particular moment in time, you’re worth more dead than alive.” Well, maybe that’s true, but it is also true that one day this industry will turn. One day when the yen is weaker, the dollar is stronger, or when we finally begin to rebuild our roads, our bridges, the infrastructure of our country, demand will skyrocket….God save us if we vote to take his paltry few dollars and run. God save this country if that is truly the wave of the future. We will then have become a nation that makes nothing but hamburgers, creates nothing but lawyers, and sells nothing but tax shelters. And if we are at that point in this country, where we kill something because at the moment it’s worth more dead than alive, well, take a look around. Look at your neighbor. Look at your neighbor. You won’t kill him, will you? No. It’s called murder, and it’s illegal. Well, this, too, is murder, on a mass scale. Only on Wall Street, they call it maximizing shareholder value, and they call it legal. And they substitute dollar bills where a conscience should be. Damn it! A business is worth more than the price of its stock. It’s the place where we earn our living, where we meet our friends, dream our dreams. It is, in every sense, the very fabric that binds our society together. So let us now, at this meeting, say to every Garfield in the land, here, we build things, we don’t destroy them. Here, we care about more than the price of our stock. Here, we care about people. Thank you.”

Unfortunately, the President appears to be debating parallel to the real debate.  Capitalist vs the rest of us.  Time to get engaged sir

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"Ben Tre Logic" Redux: History Repeats Itself

Forty years ago, in 1968, an American major after the battle of Ben Tre in Viet Nam was quoted by Peter Arnett as having declared, “It became necessary to destroy the town to save it.”

Now, we have the contemporary version, from U.S. President George Walker Bush: “I’ve abandoned free-market principles to save the free-market system.”

This, apparently, is why banks are being paid not to make loans.

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Perception v. Reality

Perception, per the NYT: Fed Leaves Key Rate Steady as It Worries About Growth

Reality: TSLF (Mar 11), PDCF (Mar 16), expanded acceptable collateral pool (multiple times, most recently Monday), loans to the parent from the subsidiaries to cover capital needs.*

And it may not be enough. (Of course it’s an AIG link.)

There’s more than one way to manage monetary policy. And Ben Bernanke is using all of the ones that will not increase aggregate consumer spending.

At least that’s the optimistic view. UPDATE: Brad DeLong appears to disagree. UPDATE II: But Mark Thoma is thinking the same way I did (though he’s much better at the number-sense game).

*I note, strictly for the record, that since this was a New York State, not a Federal, initiative, it may well become illegal under the current Administration’s proposed guidelines for the SEC. If there’s an intelligent reporter out there, maybe they should ask the campaigns whether they oppose Governor Patterson’s actions?

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Action, Reaction

In honor of this post (from another blog whose political posts I’ve stopped reading; Hilzoy is in good company*), I have decided today to shave off my beard and mustache.**

After all, David (“Axis of Evil”) Frum is always right, as John Holbo originally documented:

This sentiment or intuition or feeling (whatever you call it) produces a strangely hypertrophic concern with what seem (to me anyway) like rather ornamental details:

“If I am bearded, and I notice that my boss and the last four men in my section to win promotion are clean-shaven, I will find myself slowly nudged toward the barbershop.”

which led to:

Frum: Just think about it. Our economy depends on a healthy culture.

BG: But you don’t even care about the economy. You said you don’’t.

Frum: I wish you hadn’t mentioned that.

BG: But I did.

Frum: Look, if you shave the beard, everything will be better.

BG: You’’re a moonbat.

Frum: It’’s all related to foreign policy and wheelchair access in public school, in ways that would take a long time to explain.

*Exception noted.

**This, of course, has nothing whatsoever to do with a much higher proportion of white hairs being prominently displayed in those two parts of the hair.

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