September 7, 2016 § Leave a comment
The Difference Between Approval and Advocacy
A recurring theme of my life as a trial lawyer and a political activist is the separation of my personal beliefs and standards of morality and integrity from those clients and politicians for whom I have worked. One anomaly of our culture is the general understanding that a doctor’s treatment of a patient is not presumed to imply any support or agreement with the personal habits, morality or beliefs of the patient. But lawyers and political organizers are often presumed to share those qualities with the politicians and clients they represent. To me, this is an irrational distinction.
I once was invited to address a college class. I talked about some of my work. I invited questions afterward. One persistent one was: “How can you defend someone you know to be guilty of a crime?” “If you don’t belong to any organized religious denomination, does that not leave you with no moral guidance?”
In other words, these young people had successfully completed a public education and some college study without learning anything about the fundamentals of our secular society based on our Constitution. They apparently knew nothing about the adversarial principles on which our criminal justice system is based. And, far more important, some of them believed our society consists of those with religious faith and a remainder consisting of libertines.
As I watch and listen to the present political debates I realize this ignorance deeply affects our political system.
The Bankruptcy Issue
I detest almost everything related to Donald Trump: his arrogance, his mendacity, his willful ignorance, his encouragement of every aspect of the racism, bigotry and sexism endemic as a disease in our culture.
What I don’t share is the repetitive mention of his multiple bankruptcies as evidence of his recklessness and dishonesty. I can trace my reaction to some episodes in my past.
When I was trying lawsuits for a living I did not discriminate against wrong doers and clever schemers who used their superior knowledge of the law to cause damage to others. I never facilitated their nefarious activities. I never lied to courts or other lawyers to protect them. I never knowingly permitted them to perjure themselves on the witness stand or otherwise under oath (e.g. as in depositions). But, if they obeyed my instructions and made satisfactory arrangements to pay me for my work, I enthusiastically defended them in court. My only exceptions were murderers and child molesters: The former because I did not want the responsibility for the life of a client; the latter because I knew I could not put my feelings aside and do a proper job of defending them.
When I was hanging out in courthouses, there was a type of East Texas sharpie who made a handsome living exploiting loopholes in the law. One was a person who analyzed the descriptions in land titles to find instances where there was a gap between the legal description of a tract of land and the legal description of an adjoining tract. The result was a piece of land that was not legally conveyed to anyone. It was called a “variance”. If the gap was located in the middle of land leased to oil companies where oil was being produced, the schemer would acquire title to the “variance” part and then sue to claim a portion of royalties paid to the other record owners.
One of the first times I went to court was as co-counsel with Ralph Yarborough in a case in which we represented one of these guys. We lost, but neither of us had any qualms about doing our best to defend him. Judge Yarborough, as I called him then, based of his short tenure as a district judge, had represented this client in previous legal matters.
Several years later, I represented a different type of East Texas character with similar but different ways to exploit the law. The fellow had a portable drilling rig. He hauled it to Columbus, Ohio, obtained a lease on some land, and began drilling for oil or gas. He invited local people to invest in this enterprise by advertising his effort and holding bar-b-ques and other kinds of public events on some land he rented near Columbus. Many of the local residents, who had never seen anything like the kind of show this guy staged, eagerly invested in his project. He was charming and his Texas accent and swashbuckling style was a big hit.
The drilling ended with a dry hole and everyone lost their investment. He loaded up his equipment and hauled it back to Texas without paying for the drilling costs and material he had obtained on credit. So, the suppliers who were stiffed brought a fraud suit in federal court in Houston. I represented the miscreant.
When I went to Columbus and deposed some of the local investors I was surprised to learn they still recalled with relish their adventure with the “Texas oil man”; regaled me with stories of how much fun they had and expressed concern about the suits. I also deposed some less enthusiastic victims of this failed enterprise.
When the case went to trial before a federal judge in Houston, I established that the corporation to which the subject unpaid-for items had been sold was a separate corporation with no assets. When that became apparent, the judge interrupted the proceedings and asked the lawyer for the plaintiffs: “Didn’t your clients consult Dun & Bradstreet or some agency to determine the credit worthiness of this corporation?” When the lawyer sheepishly admitted the answer was “No.” , the judge terminated the proceedings and dismissed the case.
My client was happy and I, having been paid for my work, was happy. I did not lose any sleep considering whether it was wrong to represent this client.
So, when I hear Trump accused of dishonesty because he left unpaid workers, suppliers and others unpaid when his casinos in New Jersey went bankrupt, I have no standing to shame him. I don’t know the details, but I suspect he was not foolish enough to make himself personally liable for those debts. So far as I know he merely used one of the basic pillars of capitalism: It’s perfectly all right to cheat people if you are smart enough to utilize corporate limited liability laws and the bankruptcy laws to do it. There are plenty of ways to remedy this problem but, until we do, we can’t complain when capitalist pirates use the system we have.
The Criminal Cases
I did not specialize in criminal law, not because I didn’t like it, but because most of the people I worked with, union workers and staff members, were not criminals. Their offenses were drunken escapades, strike violence episodes, family violence episodes, and other kinds of misdemeanors and non-lethal felonies. Most of them were settled with plea bargains. Some did go to trial and I had a pretty good record. I don’t recall any innocent defendant I represented but our legal system is designed to permit conviction of a crime only if all constitutional safeguards have been satisfied.
The system is, correctly in my opinion, based on the principle that guilty persons escaping punishment is preferable to allowing innocent persons to be found guilty based on unpopular conduct or overzealous prosecution. In recent decades, as a result of some very dangerous Supreme Court decisions, this fundamental principle of criminal justice has been severely weakened. I am hopeful some future legislation and appointments to the Supreme Court will undo the damage done to the safeguards against lynch law justice.
I suppose some may regard this post as a confession but I offer it as an effort to call attention to efforts to mislead Americans about the Constitutional protection that protects us all. This is important because the common law of stare decisis as applied to our legal system means that every time the Constitutional safeguards against unwarranted criminal prosecution are weakened, the loss of those safeguards applies to all of us, not just the individual whose case occasions that loss.
July 10, 2015 § Leave a comment
Some Idle Speculation
It appears to me that the EU is not making a good faith effort to guide Greece toward a viable economy. My suspicion is that, led by Germany and some European financial oligarchs, the EU is really dead set on forcing the Greek people to disavow the results of its recent election of a left-wing government. If I am right, the EU is becoming a sinister enemy of democracy, not a healthy alliance of European economies.
This smells to me like what the United States tried to do when Fidel Castro and Che Guevara freed Cuba from the oppression of Batista. We are now, decades too late, making amends for that effort. The bad odor of the EU’s treatment of Greece is more pungent because it seems to be driven by Germany. Some of the virulent rhetoric attacking Greece sounds like an echo from the 1930’s.
Yes, I know it has become verboten to make reference to Germany’s Nazi past, but we, during the past few months, have witnessed how ugly pasts are like crab grass, aggressive and hard to kill. Half our country, a hundred and fifty years ago, embraced government protection of an economy based on slavery. A brutal war was required to end slavery. But, for the past few months, a significant segment of our citizens have been passionately defending its symbols, referring to them as respected relics of cultural pride. Today, as South Carolina congratulated itself for lowering the Confederate flag, I heard a TV commentator remark that a recent poll showed that 57% opposed the decision to do so. Those opposed contend the flag represents a valued “heritage” and should be regarded as homage to their ancestors who fought in the Civil War.
I assume there are many Germans who have similar feelings about WWII and their “heritage” and ancestors. But, just as Southerners who honor the Confederate flag don’t discuss the horrors of slavery, I suspect the Germans who still recall with pride the glory of the 1930’s, don’t discuss the horrors of the Holocaust.
My suspicion is that, while the rhetoric has changed, most of those who honor the Stars and Bars have no enthusiasm for ending the continuing prejudice and racism that remains a shame and a plague in our country. I also suspect that there is a broad overlap between the German minority who feel some bitterness about the outcome of WWII and those who are prominent in Germany’s right wing political faction bitterly opposed to the democratic socialist government of Greece.
If I’m Right
If I’m right, Germany will not abide by any reasonable effort to save Greece from an economic meltdown. Unless, of course, its elected leaders resign and call for a new election. Angela Merkel will have the same reluctance to oppose the extremists in her parliament as has been exhibited by some GOP presidential candidates toward lowering the Confederate flag. The political right wing in America successfully delayed the recognition of Cuba for fifty years and, even now, Obama’s executive decision to right this wrong has not been supported by the GOP leadership.
I wish both the Russian and Chinese governments were not going through an economic crisis. The timing is terrible. I think it would be great if either of those governments would send an emissary to Greece with this message:
“It seems you guys are having some trouble getting your so-called friends to lend you money on terms allowing you to stabilize your economy. Tell you what: How about we lend you some money with a structured pay-out that will permit you to survive your problems with dignity and compassion for your people. Of course, part of the deal will be: We partner with you in deals with African nations and we get to establish military, especially naval, bases in your country on favorable terms. See, we Russians have been troubled for centuries with limited access to the Mediterranean Sea. And we would like to have a convenient base from which to launch favorable trade deals with Africa. We think this could be the beginning of a great alliance. We communists are flirting with privatizing some of our economy and you Greeks have taken some steps toward socializing some of your economy. If we’re smart, that could be the basis for mutual success.”
I know this ain’t gonna happen. The Chinese don’t know how to manage a stock market and the Russians have never learned how to manage their economy. When they have to choose guns or butter, they always choose guns. [We make the same choice, but we do a better job of marketing our guns.] Still – it’s fun to speculate what such a deal would do the European bullies who are enjoying pushing Greece around. It would give Angela something else to think about – might get her mind off the right wingers who are making so much noise about Greek socialism. Nothing like a nuclear-armed commie neighbor to focus the mind.
January 26, 2015 § 2 Comments
This essay is my reaction to Thomas Piketty’s book, Capital in the Twenty-First Century. Based on a massive database composed of comparative values of labor income, return on capital income and value of capital, Piketty argues that capitalist economic systems trend toward income and wealth inequality.
He warns that, unless this trend is countered by fiscal redistribution of capital values, the trend will, over time, result in intolerable degrees of inequality. His thesis is generally based on data that shows that the rate of return on capital, which he designates “r” exceeds the growth rate of total income or output generated by the economy, which he designates “g”. His equation is thus r>g.
Mortality and Economics
We have a unique ability. We perceive our own mortality. As medical science progresses, it becomes increasingly capable of predicting our life expectancy, based on our life styles, habits and infirmities. This information, however, is individually specific and typically concerns relatively short time periods.
Mortality tables, instead, are broadly based on aggregate groups based on age, sex and national location. They analyze longer time periods.
Until recently, we have not had a mortality table to measure the life span of our capitalist economic system. Thanks to Thomas Piketty, we now have one.
He has compiled, charted and analyzed an unprecedented database of income and wealth measurements in history, gleaned from records kept by industrial capitalist countries including the United States, European nations and Japan. His data covers the period of time from 1800 to 2012. Based on that data, he does not furnish us a date certain when capitalism will implode, but he does offer a road map of why it will implode, if several very significant and unprecedented measures are not utilized.
This is an issue that has been the subject of pivotal scholarship since 1776, when Adam Smith’s Wealth of Nations was published. Smith concluded that capitalism was a perpetual motion machine, guided by “an unseen hand”. He thought it was immortal.
In 1936, John Maynard Keynes published The General Theory of Employment, Interest and Money. His book was like Dr. Spock’s 1946 Baby and Child Care. Keynes diagnosed chronic problems of capitalism and prescribed specific remedies that would avoid their harmful results. If his directions were followed, the health of capitalism could be maintained, just as Dr. Spock explained how to guide parents’ management of their children’s way through childhood.
Piketty differs from Smith and Keynes in two ways: He differs from Smith because Smith was not analyzing reality. He was reasoning a priori, based on unrealistic assumptions about human motivation and the aggregate effects of that motivation in an unrealistically assumed marketplace. Piketty, with meticulous discipline, bases his analysis on actual data, acknowledging, step by step, its limits and approximations.
Piketty’s analysis differs from Keynes because his horizons are measured in decades and centuries, while Keynes’ are designed for solutions to problems that emerge and require solutions in months, sometimes days.
Again, Keynes’ remedies are like Dr. Spock’s short term advice for childhood’s time period. Piketty has constructed mortality tables for use during indeterminate time periods. [I have not mentioned Marx, but Marx, like Adam Smith, based his prediction of worldwide revolution on assumptions about human motivation that have, so far, proved to be inaccurate.]
A Personal Note
Beginning in February, 2014, I posted four or five essays on this blog about Piketty’s book. [See Dr. Piketty’s Remedy for Capitalism’s Potentially Terminal Illness and several subsequent posts] When I wrote those essays I thought the daunting length (over 700 pages) of his book would prevent me from ever reading it. I also feared my meager knowledge of math would put his analysis beyond my intellectual reach.
Since then two things have happened. I developed a need for a diversion from worrying about my wife’s health [She has been in hospice care for the past several months.] So, I bought a Kindle, downloaded the book and began reading.
And, as I delved into the professor’s writing, I discovered that he shared my aversion to complex mathematics, not for lack of ability but because he believes mathematical models have limited utility as tools to explain and analyze macroeconomic phenomena. He argues that, more often than not, such models are either misleading or irrelevant because they are not firmly rooted in actual data.
He writes, “For far too long economists have sought to define themselves in terms of their supposedly scientific methods. In fact, those methods rely on an immoderate use of mathematical models, which are frequently no more than an excuse for occupying the terrain and masking the vacuity of the content.”
And again: “Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in.”
The Piketty Experience
Reading his book is like taking two or three college courses from the same professor, whose syllabus might be entitled “Everything You Ever Wanted to Know About Everything.” He cites Honore de Balzac and Jane Austin more often than economists. He refers to the TV series Madmen. He presents his subject in short essays, using conversational language, punctuated with occasional deadpan humor that surprises you.
He is often at the blackboard, illustrating his lecture with yet another graph. He weaves his story back and forth from the French Revolution of 1789, to the two world wars and the Great Depression between 1910 and 1950; from the “Gilded Age” to the Great Recession of 2008. He transitions easily from French politics, to the policies of Margaret Thatcher in Britain, to those of Ronald Reagan in the U.S..
Piketty’s book reminds me of Maurice Ravel’s Bolero. [If you want to hear what I am referring to, here is a link: Bolero ][A comment appended to this performance declares that the worst job in a symphony orchestra is drummer during Bolero.] The professor discusses and analyzes each of the three parts of his argument from every angle, citing several, diverse sources of information about them, but he ties each digression tightly to the relevant elements in his argument.
His message is this: The return on capital exceeds the growth of the “flow of income” generated by a capitalist economy. The result is progressively increasing inequality of wealth favoring a dwindling number of very rich people and an expanding number consisting of everyone else.
This happens regardless of periodic cyclical gains and losses. It happens despite government efforts to counter the dislocations caused by market collapses or periodic “bubbles” resulting from “irrational exuberance”. The pace of progression may vary and may at times pause but, over time, the direction trends toward inequality.
The reason is twofold: Those with large stocks of capital cannot consume all the income generated by their holdings, so they save portions of their income and invest those savings in buying more capital. And, when they die, they leave their winnings to their heirs, who, thus, begin their lives with an unearned stake which they can invest in still more capital. So, each generation accelerates the pace and extent of inequality.
Piketty identifies the Great Depression, bracketed by two world wars, as a unique exception to this process. Those events destroyed so much capital that the trend toward inequality was temporarily interrupted. His data confirm, however, that the capitalists have recovered and the extent of inequality in western industrial capitalist nations is now equal to or greater than the days of the Gilden Age.
The bottom line is: Capitalism is like casino gambling: If you play long enough you will lose because the house skims off a little of every dollar risked so the odds and the math will get you. You may escape with some luck and careful decisions, but the crucial decision is to quit while you’re ahead. In this regard, capitalism is a crueler game than the casino’s: You can only escape from capitalism by dying. You could join Edward Snowden in Russia, but that doesn’t look like an improvement.
If you want to review the so-called “laws of capitalism” that Piketty uses to explain his argument, you can refer to the discussion of them in my “Dr. Piketty” post cited above. I discussed them and cited an excellent discussion of them in a review of Piketty’s book by Branko Milanovik.
Piketty’s Paradigm Shift
Until I encountered Piketty, I identified the basic difference between liberals and conservatives, in political terms, as follows: Liberals believe that government should redistribute income obtained through progressive income taxes to finance expenditures beneficial to the working class. Conservatives believe that progressive taxation discourages business owners from striving to expand their businesses, invest in innovative improvements in technology, and create the need for employees: Liberals deride this “trickle-down theory because it assumes that job creation is investment-driven. Liberals believe job creation is consumer-demand driven and is stimulated by distributing money to lower income workers, who will spend it and, thus create consumer demand.
Piketty has not dissuaded me from these beliefs, but he has convinced me that progressive taxation is insufficient to solve the problem of wealth inequality. Instead of proposing higher taxes on the wealthy, Piketty proposes to tax capital, not income. At first, I didn’t appreciate how fundamentally different this idea is. If it were implemented, he has convinced me that it would forever change the nature of capitalism.
The free access to investment and encouragement of technological innovation would remain. But the deception and anti-competition feature of capitalism would be severely thwarted.
Why? Because, in order to implement the taxation of capital, it would be necessary for the location and existence of capital to become accessible to the taxing authority. Stringent sanctions would become necessary to prevent the owners of capital from hiding both their property and their ownership. International agencies, modeled after the International Monetary Fund and other multinational agencies would be employed to deny access to the means of cross-border financing and transfers of funds to any money-storage facility that refused access and disclosure to the capital-taxing authority.
Piketty recognized that taxation of capital would have to be administered multi-nationally. He proposed a kind of “pilot program” to consist of the Eurozone. Eventually, he proposed that the taxation be administered on a world-wide basis. He recognized that this is not feasible now and that much political and educational work must precede such a radical change in the way business is taxed and conducted.
Piketty is like the Surgeon General, warning about cigarettes. When the first timid warning was issued, nothing much changed. Smoking was a worldwide habit and business. It took decades of litigation, research and thousands of warnings and legislative battles before smoking started to decline.
Piketty has notified us that, unless we take steps to redistribute capitalistic wealth, most of us, or our grand-children or their grand-children will be working for, and at the sufferance of a very small group of very greedy people. And, by that time, the media sources will have convinced everyone that such a system is preferable to all others.
This will not happen if the transparency contemplated by Piketty becomes a source of growing political demand. The curious thing is that we already have a working model of how it works. People typically don’t hide their ownership of real property because, if they are not the recorded owners, they cannot use it for collateral to borrow money and, if they don’t pay taxes on it and, thus identify themselves as the owners, the state or someone else may dispossess them.
This system developed here in the U.S. beginning with the Homestead Act of 1862. It tolled the end of the “open range” that has been featured in countless western novels and movies. The history of the development of this system is related in a book, The Mystery of Capital, by Hernando de Soto Polar. I described my reaction to the book in an essay posted a few years ago. [See Keeping Up With the Jones’s]
The point is that a system requiring ownership disclosure can be created. There is no reason why forms of capital other than land could not be subjected to disclosure. Tax avoiders would not be so eager to transfer their capital to the Cayman Islands if Cayman banks were required to disclose the ownership of it to a multinational taxing authority. The Piketty tax would be levied on the capital, not on its owner. But the motivation to hide ownership would be attenuated if stealth could not prevent tax liability.
Perhaps corporate lawyers would transition from being wealth-hiders to property valuation experts.
I don’t want to be too naive about this. Thomas Kuhn’s The Structure of Scientific Revolutions describes how reluctantly investors wedded to status quo techniques and “conventional wisdom” yield to new information. But, they do finally yield, if confronted with undeniable evidence.
Some “ah-ha” Piketty Moments
I know this essay reads like it was written by a college sophomore who just read Walden or The Theory of the Leisure Class. As I read Piketty’s book, I did have an echo of that kind of excitement, long since forgotten. Brain re-wiring is no longer part of my usual intake of information.
1. Piketty has not made me change my moral judgments, but he has given me new ways to see some features of my world. For example, he explains why he prefers taxation to deficit spending by government: Deficit spending is paying wealthy investors for money to finance public needs, while taxation gets their money without paying for it. Public borrowing is justifiable only when there is not enough time for the taxation process to occur.
2. Inheritance of wealth is a major contributor of wealth inequality. It is affected by the life expectancy of the population So, when medical research extends life expectancy, it slows the trend toward wealth inequality.
3. 19th Century fiction featured inherited wealth as a major determinant of a wealthy life style. 20th and 21st Century fiction does not. The reason is that land is no longer the main component of wealth. Corporate wealth now dominates.
4. Piketty writes that we are becoming a culture dominated by managers, not wealthy owners of land who no longer need to work. He also observes that we now have an elite group of managers who can fix their own salaries, so the size of the salaries is not dependent on the value of the managers’ performance. At the very top of the economic scale, meritocracy no longer prevails.
5. One reason the return rate of capital exceeds the growth rate of the economy: As the size of capital owned by an individual increases, the ability to hire expert financial management dramatically increases. So, if a person, or a foundation or private fund group owns a billion dollars worth of capital, he or it can easily afford to hire a large team of economic advisers. A person owning a few million dollars worth of capital cannot afford to hire that kind of super-managers with that kind of diverse talent. And so on, until, as Piketty puts it, the guy with a few hundred thousand dollars to manage has to depend on a CPA and “his brother-in-law”, who furnishes market tips.
The top tier of owners have managers who can find investment opportunities not publicly traded or known to less knowledgeable and less “connected” sources of information. Piketty cites data to show that the differences between the returns of different sizes of capital ownership are very significant.
I will be returning to the information in this book. It has already provoked a whole new array of comments, books about it, online interviews and press articles. I have not yet heard it discussed by politicians or featured on Sunday talk shows. I may have missed it, because I have limited my weekend commentary to Fareed Zakaria and Steve Kornacki.
My conclusion is: Piketty has convinced me that the problem he poses is real. I don’t know how bad it will have to become before it becomes intolerable and his solution becomes feasible.
I am sure of one thing: Marx’s vision of capitalism’s demise because of the collective outrage of the world’s workers was illusory because it was based on the motives and emotions of its victims. Piketty’s prediction is based on the internal mechanics of the system. The implosion will occur, not because of its victims, but because of flaws in the system unless Piketty’s tuneup saves it.
December 20, 2014 § Leave a comment
I recently finished reading “Debtor’s Prison”, the latest of several books written by Robert Kuttner, editor of American Prospect magazine and visiting professor at Brandeis University. This was a recommendation from professor Milton Lower, my economics mentor.
This is an angry book but the writer does not waste space expressing his anger. Instead he paints a vivid picture of a four-century history of stupidity, avarice and oppression that is well calculated to evoke anger in any reader equipped with even a vestigial conscience.
The History of Bankruptcy Law
The book guides you through a history of bankruptcy law, various economic booms and busts and governmental reactions to them. It is laced with nuggets of interesting details.
For example, did you know that Daniel Defoe (yes, the one who wrote Robinson Crusoe), played a significant role in redesigning English bankruptcy law by injecting the idea that it might be wise to let defaulting debtors remain free to work and earn money with which to pay their debts, instead of leaving them to rot in jail? Neither did I until I read this book.
I will not try to summarize the history that Kuttner narrates. His thesis is that bankruptcy law was historically designed to rescue investors and business proprietors whose choices and judgments proved to be disastrous. Individuals, by contrast, who, for whatever reason, found themselves unable to pay debts incurred to finance their consumer purchases, their rent or other private obligations, were regarded as immoral wastrels entitled to no remedy except confinement in prison.
About two-thirds of Kuttner’s book concern the treatment of government debt. He contrasts two different political reactions to government debt.
The Austerity Solution
One reaction is based on fear that government debt will lead to inflation by increasing the money supply and hence, reduce the value of wealth, including bonds and other forms of contractual debt (e.g. mortgages). This causes the wealthier segment of society to pressure government to reduce debt.
There are two ways to do that: raise taxes and cut expenses. Because we have a progressive tax system, raising taxes is despised even more than government debt by those with wealth. So, austerity is the constant battle cry of the wealthy, especially the rentier class, whose wealth and income consists of holding and manipulating financial obligations, not producing real goods and services.
The Consumer Demand Solution
The solution favored by Kuttner is to use government expenditures to transfer wealth, obtained either through taxation or by incurring more debt, to the working class segment of society, thus facilitating their demand for goods and services, thus creating more income for those whose businesses satisfy that demand, thus increasing taxable revenue and thus enabling government to reduce its debt.
In other words, to Kuttner, austerity remedies for excessive government debt is like using gasoline to put out a fire.
The Moral Argument
One idea that recurs throughout Kuttner’s book is his rejection of the argument that affording relief from debt is immoral. He identifies this morality argument as the basis for many of the harmful policies adopted by governments to deal with debt problems. He recounts and discusses the Rick Santelli rant that triggered the launch of the Tea Party in U.S. politics. As the collapse of the housing bubble began, Santelli erupted in a televised angry spiel, complaining that improvident home purchasers should not be helped because that would be unfair to others who had not defaulted on their mortgages.
As Kuttner notes, Santelli stupidly failed to mention that fire sales of foreclosed homes would drive down neighborhood home values, regardless of whether the owners were current on the their mortgage payments.
Another example: After WWI, Britain, France and other allies spent decades trying to punish Germany for its “war guilt” by requiring it to pay a huge “war debt”. This was obviously impossible, because the war left Germany economically prostrate, but the victorious nations, like stupid Santelli, failed to perceive the generalized damage to the entire European economy caused by keeping Germany from regaining economic stability and resuming trade with its neighbors.
Kuttner contrasts the treatment of Germany following WWI with the treatment of Germany, Italy and Japan following WWII, when the Marshal plan and other measures designed to restore their economies to economic health proved beneficial, both to them and to the economies of the allied nations who had defeated them in the war.
Kuttner also identifies the policies of Angela Merkel and her influence on the European Union’s policies toward Greece, Italy and Spain. He recounts how her insistence on stringent austerity requirements as a price for the EU’s assistance to those struggling economies needlessly condemned their populations to impoverishment and hampered their ability to recover from their financial problems. Chancellor Merkel, according to Kuttner, suffers from the Santelli stupidity virus. By extending their impoverishment, their EU trading partners suffer from diminished export markets.
Kuttner also recounts the history of the IMF, beginning with its Bretton Woods birth, when it promised to be a useful central bank with resources available to restore nations from economic crises. He describes how it was overtaken by bankers who subscribe to the Merkel-Santelli doctrine. Now it requires that, in exchange for its help, a country must condemn its population to decades of poverty and deprivation.
As a result, in the wake of the current world-wide recession, some nations, notably India, have refused to deal with the IMF, preferring instead to cope with their economic problems with policies of their own. As a result, their recovery has been less traumatic and quicker than their neighbors’, who received “help” from the IMF.
Pete Peterson – Man of Many Wrecking Crews
Kuttner’s book includes a remarkable description of how a single wealthy man, Pete Peterson, has been able, over several decades, to be a significant force behind a wide array of America’s fiscal and economic policies. Kuttner catalogs a remarkable number of ways this billionaire has managed to pick cabinet members, influence Fed policies, buy college and university curricula designed to indoctrinate generations of business school graduates and economists with Peterson’s right-wing ideology.
In this brief summary I can’t do justice to Kuttner’s carefully researched list of Peterson’s accomplishments. I can only assure you that, as described by Kuttner, Peterson makes the Koch Brothers look like amateurs. The Kochs merely buy politicians. Peterson buys the minds of thousands of people who occupy jobs where they can do more damage in a month than a U.S.Senator can do in years.
Referring to Peterson, Kuttner writes:
“A former commerce secretary under Richard Nixon, he is personally close to Democratic economic eminence Robert Rubin. The two have long promoted the idea of a grand fiscal bargain in which Democrats agree to cut social insurance and Republicans agree to higher taxes. Peterson served as chairman of the Council on Foreign Relations, and in 2002 he led the search committee that successfully recommended Rubin protege Timothy Geithner as president of the Federal Reserve Bank of New York. One can assume that Geithner, later Obama’s Treasury secretary, returns Peterson’s calls.
Peterson has spread his money around, giving over $50 million dollars to the influential Institute of International Economics, long headed by Democrat C.Fred Bergsten. The outfit was duly renamed the Peterson Institute For International Economics, a separate entity from the Peterson Foundation.”
This is by no means all of Peterson’s accomplishments. It is troubling for me to realize how much this man has been able to buy adherence to his ideas and to insinuate them into the operational policies of America. It is troubling because, as described by Kuttner, they make not the slightest sense except to enrich the wealthy and beggar the rest of us.
This is a useful and important book. Its revelations enable you to see today’s political debates with a new pair of glasses. My comments have covered only a small taste of the information in it. I recommend it if you crave the ability to understand some of the context surrounding the current debates about the deficit, tax reform and the global economic market place.
November 9, 2014 § 5 Comments
On October 20th I woke up and discovered that my eyesight had malfunctioned and, as a result, everything I looked at was a double image, one atop the other. When this problem persisted and my effort to ignore it proved to be too taxing, I finally went to a neighborhood hospital center. After a CTscan, an MRI, an EKG and a thorough series of blood tests, the message from this premier medical center was: ” Good news! You don’t have diabetes; you didn’t have a stroke; one of your cranial nerves has malfunctioned; we don’t know why, but it will probably correct itself and your eyes will return to default condition sometime in a few weeks. Put a patch on one eye and you’ll be fine. And, if that doesn’t happen, we’ll fit you with a pair of glasses with an embedded prism that will correct the problem.”
So, now I have a clue about how pirates feel, except I don’t have a peg-leg and a parrot.
This mishap has curtailed my reading and my attention to this blog. But, I do have one comment on last Tuesday’s “Republican Sweep” and the “Top to Bottom Assessment” that the Democratic Party has now launched.
I find myself agreeing with Bruce Bartlett, a conservative writer and former adviser to HW Bush and Ronnie Reagan. He recently wrote an article in American Conservative magazine entitled, “Obama Is A Republican”. He supported Obama in 2008, because he was furious at GW Bush because of GW’s fiscal policies. In his article, he cites chapter and verse to explain his contention that Obama forgot his Saul Alinsky roots and governed like a moderate Republican. Here is a link: Bartlett
I commend the article to you. Bartlett is a right-wing true believer in some economic policy fairy dust, but he has produced a thoughtful reminder of some of Obama’s policies.
I mention this article now because I think it offers a clue about why the Democratic Party voters did not vote last Tuesday. Maybe it was because they were no longer convinced that Barack Obama’s policies promised the kind of relief and change they needed. Their wage levels were dwindling. The jobs they lost were not being replaced with work that enabled them to support a family. They needed policies that targeted the excessive greed of the rentier class. They were looking for Elizabeth Warren and what they were offered was a now-fully-disclosed Barack Obama and the future prospect of Hillary Clinton. They didn’t perceive Obama as an enemy. What they perceived was indifference, not in his rhetoric, but in his actions.
I don’t think those voters were thrilled by speeches about women’s reproductive rights and gay marriage. There were three groups of potential supporters for Democratic Party candidates: Chicanos who want legalization and a path to citizenship; young people who want relief from oppressive debt and prospects for decent jobs; and working class wage earners who wante decently paid jobs. I didn’t see or hear many campaign speeches talking about those issues.
I hope the post election assessment convinces the Democrats to forget about “reaching across the aisle” and foreswearing “class warfare” and “populism”. We live in divided country. There are two sides. When the Republican side talks about “compromise” and “getting things done”, they mean “agree with us”. The voters are not sophisticated. They do not understand how the nuts and bolts of government work. But they do understand discussions of their fears and their desperation. If we want to preserve our democracy, we better begin to offer some solutions even if the solutions don’t please the tiny fraction of our population that furnishes most of the money that corrupts our politics.
I have zero confidence that my proposal will even be discussed at the high-level strategy sessions that are probably now occurring. The hallmark of political expertise in America is recognition that political policies that displease those who furnish the money in political campaigns are “tilting at windmills’ style notions and Sancho Panza is not a viable political mentor.
I have mentioned Dan Carlin before in posts on this blog. He has a channel called “Common Sense”, in which he discusses various current issues. In a recent one, he discussed what he perceives as a real threat to our democracy: Pent up rage and frustration in response to government’s indifference to the economic problems facing working class Americans. If you would like to hear his reasoning on this subject, here is a link: Common Sense
This link takes you to the home page of his blog. Scroll down and click on “The Specter of Dissent”.
June 29, 2014 § Leave a comment
I have seen reports of polling data disclosing that most Americans are indifferent to wealth inequality. They oppose measures designed to diminish economic inequality by increased taxation of both current and inherited wealth. This is surprising to me. The standard explanation for this phenomenon is that, as John Steinbeck wrote, “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” In other words, if you expect to become wealthy, you do not favor high taxes on wealth.
That explanation was never satisfying to me because it merely left me with another question: “What the hell makes you think you have any realistic chance of becoming wealthy?” Today I think I found a clue to the answer to that second question. I discovered an online web magazine (the hip word is ezine pronounced “ee-zine”), Ozy.com (named after Shelly’s sonnet, “Ozymandias”). It recently featured a story that included a statistic I had never before encountered: 77% of Americans, at some time in their life, have an annual income of $100,000 or more. But only 4.6% retain that income level for five years or more.
Stop and consider this. That gives a new and more nuanced meaning to Steinbeck’s remark. Having once experienced having a $100,000 income, it is not so hard to understand that a person might identify with wealthy people. Of course, as the Ozy article states, there are many circumstances that may lead to an increased annual income: a temporary windfall, like a bonus, an inheritance, a tort settlement, a fortuitous marriage, being hired for well-paying job. There are also lots of reasons for sudden losses of annual incomes: bad investments, job losses, medical catastrophes, death. Another likely factor at play here is that, if a working class person finds himself with an annual income of $100,000, he might well believe that he has joined the wealthy class; not realizing that, to the appropriate targets of redistributive taxation, $100,000 is pocket change.
Here is a link to the article: Accumulating Wealth
Thinking about this has also reminded me of one of my favorite literary metaphors: The unstable coach described in Edward Bellamy’s “Looking Backward”. Because, to me, this is relevant to our present situation, I will close this post with an extensive quote from the first chapter of that book:
“By way of attempting to give the reader some general impression of the way people lived together in those
days, and especially of the relations of the rich and poor to one another, perhaps I cannot do better than to
compare society as it then was to a prodigious coach which the masses of humanity were harnessed to and
dragged toilsomely along a very hilly and sandy road. The driver was hunger, and permitted no lagging,
though the pace was necessarily very slow. Despite the difficulty of drawing the coach at all along so hard a
road, the top was covered with passengers who never got down, even at the steepest ascents. These seats on
top were very breezy and comfortable. Well up out of the dust, their occupants could enjoy the scenery at their
leisure, or critically discuss the merits of the straining team. Naturally such places were in great demand and
the competition for them was keen, every one seeking as the first end in life to secure a seat on the coach for
himself and to leave it to his child after him. By the rule of the coach a man could leave his seat to whom he
wished, but on the other hand there were many accidents by which it might at any time be wholly lost. For all
that they were so easy, the seats were very insecure, and at every sudden jolt of the coach persons were
slipping out of them and falling to the ground, where they were instantly compelled to take hold of the rope
and help to drag the coach on which they had before ridden so pleasantly. It was naturally regarded as a
terrible misfortune to lose one’s seat, and the apprehension that this might happen to them or their friends was
a constant cloud upon the happiness of those who rode.
But did they think only of themselves? you ask. Was not their very luxury rendered intolerable to them by
comparison with the lot of their brothers and sisters in the harness, and the knowledge that their own weight
added to their toil? Had they no compassion for fellow beings from whom fortune only distinguished them?
Oh, yes; commiseration was frequently expressed by those who rode for those who had to pull the coach,
especially when the vehicle came to a bad place in the road, as it was constantly doing, or to a particularly
steep hill. At such times, the desperate straining of the team, their agonized leaping and plunging under the
pitiless lashing of hunger, the many who fainted at the rope and were trampled in the mire, made a very
distressing spectacle, which often called forth highly creditable displays of feeling on the top of the coach. At
such times the passengers would call down encouragingly to the toilers of the rope, exhorting them to
patience, and holding out hopes of possible compensation in another world for the hardness of their lot, while
others contributed to buy salves and liniments for the crippled and injured. It was agreed that it was a great
pity that the coach should be so hard to pull, and there was a sense of general relief when the specially bad
piece of road was gotten over. This relief was not, indeed, wholly on account of the team, for there was
always some danger at these bad places of a general overturn in which all would lose their seats.
Chapter 1 7
It must in truth be admitted that the main effect of the spectacle of the misery of the toilers at the rope was to
enhance the passengers’ sense of the value of their seats upon the coach, and to cause them to hold on to them
more desperately than before. If the passengers could only have felt assured that neither they nor their friends
would ever fall from the top, it is probable that, beyond contributing to the funds for liniments and bandages,
they would have troubled themselves extremely little about those who dragged the coach.
I am well aware that this will appear to the men and women of the twentieth century an incredible inhumanity,
but there are two facts, both very curious, which partly explain it. In the first place, it was firmly and sincerely
believed that there was no other way in which Society could get along, except the many pulled at the rope and
the few rode, and not only this, but that no very radical improvement even was possible, either in the harness,
the coach, the roadway, or the distribution of the toil. It had always been as it was, and it always would be so.
It was a pity, but it could not be helped, and philosophy forbade wasting compassion on what was beyond
The other fact is yet more curious, consisting in a singular hallucination which those on the top of the coach
generally shared, that they were not exactly like their brothers and sisters who pulled at the rope, but of finer
clay, in some way belonging to a higher order of beings who might justly expect to be drawn. This seems
unaccountable, but, as I once rode on this very coach and shared that very hallucination, I ought to be
believed. The strangest thing about the hallucination was that those who had but just climbed up from the
ground, before they had outgrown the marks of the rope upon their hands, began to fall under its influence. As
for those whose parents and grand-parents before them had been so fortunate as to keep their seats on the top,
the conviction they cherished of the essential difference between their sort of humanity and the common
article was absolute. The effect of such a delusion in moderating fellow feeling for the sufferings of the mass
of men into a distant and philosophical compassion is obvious. To it I refer as the only extenuation I can offer
for the indifference which, at the period I write of, marked my own attitude toward the misery of my brothers.”
I read this book long ago but the anger it evoked in me has proved to be permanent, although I have found less self-destructive ways to deal with it than I did when I was younger.