Tweet
There are many stupid things you have to believe if you want to be taken seriously on financial matters. These myths about economic and financial matters form the playing field for the debate over financial reform. Simon Johnson says that these myths are a kind of social capital which finance companies like JPMorgan Chase and Goldman Sachs have accumulated over the years. One channel of this influence is the revolving door, men (they’re always men) moving from the finance companies to government and back, trailing clouds of the perfume of money. Another channel is the unexamined claim of expertise of business people. These channels of influence only work because Congress and the White House uncritically accept these myths.
Here are five:
1. Finance companies are geniuses at risk management.
2. Finance companies must be allowed to grow to gargantuan size if they are to compete.
3. Finance companies allocate capital to its highest and best use, with the corollary that any government interference in finance company business is evil.
4. Open borders for trade and capital benefits all Americans. We know it benefits China. Benefits for US workers aren’t so easy to track down. Most Americans think we need to manufacture things here.
5. The US is the greatest economy in the world. Compare Germany’s manufacturing sector with ours; it offers high wages and beats the US in exports.
These and other myths are the ground on which all economic battles are fought. If we want to argue for re-imposition of Glass-Steagall, we have to start from miles away, arguing that at least some financial regulation is a good thing. If we want to argue for some kind of industrial policy, we have to overcome the rote objection that government is no good at picking winners, and that we are already the greatest. If we argue that we need to improve our infrastructure, we are told that markets will fix things, and we should privatize the infrastructure.
The myths are accepted by all of the financial elites. Peter Wallison, an employee of the American Enterprise Institute, asserts that speculation is a perfectly good thing, because it provides liquidity. That is such an obvious truth that Wallison doesn’t think people should waste time thinking about it.
Several months ago, I was on a blogger call with one of the Treasury people who was explaining the Administration’s ideas about regulating swaps. I asked if it wouldn’t be a better idea to discourage speculative activity and encourage productive investments. The official said that it was not really possible to separate the two. It doesn’t matter which party is in power, both agree on these myths.
This is a serious problem for progressives. We have not created an alternative view of capitalism, as have so many other nations. Let’s start by getting away from the myths, and thinking about society as it exists.
Right now a tiny number of people reap a massive share of the economic benefits of living in our society. IRS data shows that in 2007, the top 400 households earned an average of $345 million each, and paid income taxes at an average rate of 16.6%. Adjusted for inflation, their income increased five-fold between 1992 and 2007. Vast amounts of that wealth are going to hedge funds for the purpose of speculating. Little of it is going into productive activity. This happened while 90% of Americans didn’t even keep place with inflation over the past decade, our infrastructure deteriorated, our factories left the country, our national debt increased dramatically, and poisonous politics destroyed the ability of the majority to govern.
Here’s a first draft of a question: Why should a few people reap such a disproportionate share of the fruits of the labor of all of us? Here’s the catch: you can’t use myths or talking points. It isn’t an answer that “they earned it, they should keep it”. It isn’t an answer that the Constitution or the Founding Fathers or Adam Smith or Ayn Rand said it was a good idea. Those and other myths are out of bounds. Let’s think about whether the current structure is the best way to organize things. Here’s the rephrased question:
Assume that you know what you know today about our society. Assume you are in charge of designing the rules for our society, not knowing where you will wind up in that society. What is your justification for establishing social arrangements with the current distribution of rewards?
image courtesy cobalt123
106 Comments
Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About Firedoglake
When the best (best defined as congruent with reality) financial reporting is on Comedy Central, and the worst financial reporting (worst defined as opposite of events that actually occurred) is on MSNBC–it is pretty clear that we are victims of a shell game here.
The Progressive alternative is articles like yours–speak it out! Call ‘em out! This, “finance is so complicated, only we experts understand it” stuff is a con game.
Your assertion that all professionals in the finance biz believe those myths is incorrect, but like republican talking points, they do get repeated a hell of a lot on teevee. Don’t conflate this with acceptance of these beliefs, those people know they are full of shit but it pays them well enough. The finance industry has creamed off a lot of crop.
Don’t forget though that the US is the world’s largest manufacturer. People rarely mention that or presume it’s China, but that is not the case. Redirecting govt policy to favor manufacturing and technology and away from finance and insurance will help a lot.
But of course speculative activity is a misallocation of resources and so inefficient. This contradicts your myth 3:
I don’t pay attention to most of what our elites inside or outside of government have to say on economics or finance. It is all cover, something to confound the rubes, while they continue their great kleptocratic enterprise.
I would add to these the idea that complex instruments and the plethora of “new” institutions that make up the paper economy and the shadow financial system increase market efficiency and stability. If you go back to the speeches of Geithner and others prior to the bubble burst and the meltdown, financial innovations like these were the big talking points. When the meltdown hit, folks like Bernanke and Geithner became defensive about these but never rejected them. Now over a year out from the meltdown, the defensiveness isgone and these things are being touted far more aggressively.
The best alternative is to publicize the con game–put the spotlight on the shells, and laugh at the notion that all this financial stuff is just too hard for us lay-people to understand. Comedy Central did a great job revealing how asinine MSNBC was in swallowing financial nonsense put out by Ponzi schemers et. al.
whyknot is correct–we need to get back to making things/building things–and not fall for the fantasy that we can all make a living by moving paper money around and/or pressing each others’ pants.
Don’t forget too that we have lost 30% of our manufacturing jobs since 2001. Increased efficiencies don’t even begin to cover such losses. Industrially we are being hollowed out. We need a new industrial policy to create a sustainable, green economy for a post-petroleum world.
“Your assertion that all professionals in the finance biz believe those myths is incorrect, but like republican talking points, they do get repeated a hell of a lot on teevee. Don’t conflate this with acceptance of these beliefs, those people know they are full of shit but it pays them well enough.”
___
You are correct. From 2000 to 2005 I worked in subprime risk management, making fine money. Most of my colleagues were extremely bright, otherwise nice people. They all knew we were ripping people off, but rationalized it away. ‘It’s a legal business. If we don’t do it, someone else will. No one forces our customers to take our products…’
In 2004 we got bought by a Wall St. bad paper firm. My Sup, a fine young Mormon VP of Risk, came to me. The new marching orders in a word? “Securitization.”
I knew this shit would go south — as it indeed did. It was so obviously wrong. I could not continue. I quit in Feb 2005 to take 23% less money doing medical information technology consulting with the Medicare QIO.
I tell people I’d drive a cab before ever going back to that prior kind of stuff. And I mean it.
We are far too quickly picking sides left and right. In the process of becoming two American tribes the facts get lost in favor of faith feelings peer pressure hate anger and distrust. What we see on TV on ALL channels is by design to distract us from the facts raise our blood pressure and tear people down. Don Henley was 25 years ahead of his time with his song dirty laundry.
Facts:
Tarp was not 700 billion it was 800 billion. 100 billion of pork was added. Out of that 100 billion extra Comcast got half a billion. Just one example because almost every special interest got their slice of that extra 100 billion.
Tarp was only a tiny fraction of the wall street bailout. When you count zero interest loans assuming toxic access and underwriting loans made by wall street to other countries (see Greece) and used to buy more credit default swaps the total wall street bail out is close to 24 trillion.
Stocks go up when jobs are outsourced
A 20 year gold standard medical study proves marijuana works for chronic pain Aids MS and other ailments. Here is the .pdf http://www.cmcr.ucsd.edu/CMCR_REPORT_FEB17.pdf
The unemployment rate for folks that make 100k+ is less than 3% – the rate for folks that make less than 30k is higher than it was during the great depression of the 1930′s
Walmart is China’s third largest trading partner
Unless we fix this list of issues we are all screwed. From 100′s of years of future taxes to repay the wall street bailout to the mind blowing piles of money and damaged lives from the war on drugs if all the little people don’t stop fighting over stupid left right crap turn off the yak box talk to each other work with one another we will all be slaves to our rich masters.
I suppose the greatest myths of all are that:
1. We don’t live in a kleptocracy
2. There is a real difference between Democrats and Republicans.
3. The economy has stabilized.
Still reading the post, but this really aroused my ire:
You are telling us that an official literally could not distinguish between speculation and productive investment?!
S/he could not distinguish between speculating in currencies, commodities, or stocks — as opposed to lending to someone to build a manufacturing plant that would produce windmills for electrical generation, or a new type of moped…?
This makes my hair stand on end.
Let people speculate all they want. Just add a Tobin Tax to the churn.
And a 90% marginal tax rate on compensation combined gross of any kind over $1 million/year.
Vegasboomer, reminds me of an old joke–this would be the current version–”Don’t tell my mother I’m a financial risk manager–it would break her heart. Tell her I play the piano in a whore house.”
Hugh, there is a difference between Democrats and Republicans–some Democrats still care about “We, the people.”
From today’s NYT:
400 households isn’t a very good indicator of what is going on, IMHO (besides, I don’t trust the NYT when it comes to reporting the truth). The bottom 50% of U.S. wage earners pay about 3-4% of the tax burden…the top 50% makes up the difference. The top 10% of U.S. wage earners pay about 65% of the tax burden. That’s just the Federal taxes, and then the State and Local governments add their tax rates on top of that, e.g. sales tax, more income tax, property tax, etc.
When businesses and people started bailing in Sept/Oct 2008, the Federal tax revenues started falling, i.e. The Democrats are Coming! There has now been so much private sector bailing and government spending going on that the Dem politicians are preparing a 23-25% VAT on top of all the other taxes, and the VAT will include all Americans…all spending Americans. The economy will get seriously worse at that point…
S/he could not distinguish between speculating in currencies, commodities, or stocks — as opposed to lending to someone to build a manufacturing plant that would produce windmills for electrical generation, or a new type of moped…?
___
“Get started today! Open a free practice account, try out your strategies risk-free, and then, when you’re ready, enter the Exciting New World of Forex!!”
Jeez…
I agree. As you would expect, the Obama Administration has rejected it on the ground that speculation is good:
LOL.
The phrase “Quantitative Analyst” has now become a resume liability, largely thanks to Li’s Gaussian Copula.
Any time I see the name “Gauss” associated with any non-physical phenomenon. my hand slides reflexively over my wallet.
Yeah, Masaccio. Try to imagine my surprise.
Too much simple merit in the idea.
(Great image, BTW!)
Okay, I think that what you mean is: if you were drawing up rules for society today, the above are the existing assumptions, but that’s because they’re accepted. That doesn’t make them true.
First, I would state that much of the wealth has been generated by privatizing resources (water, energy, minerals, technologies) that the people now profiting from their legal ownership did not invent, develop, nor produce. They were able to gain control through a legal-political process that is a social dynamic, not an engineering process, not a technical process, and not a ‘real’ process. A very small group have been able to concentrate wealth via the legislative-political process, but some of these people are heirs, or have engaged in activities far removed from the actual development of the processes or goods or services over which they hold economic sway.
Second, I would say that at a certain level, economic concentration is not ‘efficient’, because it becomes kind of … crystalized in economic actors like hedge funds, or other activities that are 98% superficial and not directly engaged in actual production of real goods or widely available services. So that as money becomes held in these concentrated ‘pools’, rather than mimic the activity of ‘flow’ (like tides, like rivers), something about the very act of concentration alters its nature. It becomes less predictable, and more destructive; it is either behaving like a super-calm weather pattern (which functions like a huge low-pressure system) that is always precedent to hyper-events, like cyclones, tornadoes, or hurricanes. In other words, like larger river systems, as money/water concentrates, it builds up inner dynamics that are inherently volatile and destabilising.
—————————–
FWIW…
Here was a preliminary stab that I took at the whole topic of our failure to understand Public Goods, and the fact that because conservatives/GOP don’t account for them in their economic models of ‘market behavior’, there is no conceivable way that they will ever be able to address large social problems like health care reform: Shoe-ness, Car-ness, and Diamond-ness are commodities; Sick-ness is not. Market Failure for ‘Sick-ness’ requires a Public Option.
Apparently you didn’t click through. The NYT reprinted a report from Bloomberg. The information is from the IRS. The article says: “The data was first reported by Tax.com, a Web site run by Tax Analysts, a publisher in Virginia.”
Apparently you don’t understand the point of the post, either. Those income statistics are facts, which I use to pose a question. You can answer the question, or not, but you don’t get to make up your own facts.
Beautiful stuff.
OK… everyone gotta read the “Shoe-ness…” piece. Wow.
The image is courtesy of our wonderful week-end editors, who regularly save me from my low-tech skills.
I like your image of wealth concentration: pools that become stagnant.
Simply untrue. There is no one who believes that in this Administration, no one in the Senate. There may be about 5 who believe it in the House but how consistently I’m not sure.
http://www.cbpp.org/cms/index.cfm?fa=view&id=2908
Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.[1]
During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.
I think this deserves to be a lead graf in every paper everywhere, with the added bit: speculative activity is here defined as ‘Ponzi schemes and fake anti-Terraist stuff’, aka Republican stimulus. God forbid any of the talks on TED, even the one from Bill Gates (I know!) about all that goshdurn speculative activity we need in order to escape from the oil import trap that is, along with Ben Bernanke’s general evil, making our Fed raise discount rates to appease money holders about the weakness of the recovery and the debt they hold.
Sociopaths do not equal geniuses. Great post. Washes the bile out of my mouth from when the Governator got to say that California pension plans, 7/8s of which are paid for by them, are way too awesome for such peons and need to be cut, and wasn’t challenged by the host. He was on with Ed Rendell, my governor, whom I don’t like for the Sestak cockblock among other things, but not for this. He couldn’t even challenge that b/c he was busy with his own time immediately after debunking some CPAC nonsense that presaged Arnie’s comments.
One of my iron laws is that tax policy is more about social engineering than economics. Our current tax policy seeks to resurrect a feudal state, of government of, by, and for the rich.
Copy that.
Congratulations you are a fine human being. It would be great if more people from the industry would just say of course I knew but it paid well. Claiming no one could have known is utterly asinine.
Several months ago, I was on a blogger call with one of the Treasury people … I asked if it wouldn’t be a better idea to discourage speculative activity and encourage productive investments. The official said that it was not really possible to separate the two.
When the President we elected believes this bullshit, and surrounds himself with Wall Street crooks as advisors and takes money from the worst perpetrators, and the Congress is bought and paid for by the same interests, it makes little difference what our “alternative view of capitalism” or correct “structure of society” is.
Our biggest problem, as I see it, is liberal acceptance of regulation as the answer to these problems, when regulation will NEVER work. Many, many important liberal bloggers, for example, believe that it is unnecessary or impossible to separate banking from speculative trading.
Our main problem in addressing the myths you identify — by developing a different narrative — is not the enemy on Wall Street, or even the enemy in the White House or Congress. It is the enemy within progressivism: the Drums, Kleins, Yglesisis’, et al.
On this subject, many of the so-called progressives are not really progressive at all.
At the core of error in all of the 5 (and my #6) myths that you state is the mispricing, the refusal to take into account, the problem of Public Goods.
Our society is too large, too complex for us all to collectively share all Public Goods in equal amounts; people tend to take care of what is **theirs** and not care for ‘the commons’. (See: Tragedy of the Commons, by Garett Hardin.)
But as the population has mushroomed since the 1950s, as resources have been depleted and damaged, and as unprecedented new pressures have started to mount on basic resources, the assumptions on which capitalism was originally founded back in the 1600s (Hudson’s Bay Compact), which was a way to ‘share’(hold) the risks involved in discovering, then controlling, resources, are coming into question because this system is leading us toward a kind of Blade Runner-like scenario: pollution, degraded quality of living spaces, social breakdowns.
IIRC, Russia in the 1990s became a wild-west of oligarchic power-grabs to control energy resources (still going on, no doubt). That’s a socially dysfunctional, destabilizing system; and we’ve seen a somewhat similar phenomenon in the West (partly fueled, no doubt, by economic activity of oiligarchs seeking ‘investments’ in the West, because as near as I can tell the old USSR doesn’t have enough social capital to protect and support the kinds of civil government and public infrastructure that formed the basis of post-WWII productivity in the US).
The conservatives have never correctly articulated the role of basic, public infrastructure in the widespread public affluence of post-WWII America. My state (Washington) only developed high schools in the 1920s and 1930s; to have a high school diploma was a big deal. Science labs weren’t widely constructed until the 1950s and 1960s; that’s really only about half a century of widespread public education through age 18 (for those who didn’t drop out).
You can’t have a Boeing, or a Microsoft, or an AT&T without widespead public education, and our failure to cost out the following has been a long-time progressive failure. For instance:
1. We are used to pricing the ‘salary and benefits’ of an elementary school teacher. I know quite a few, and to take just one (marvelous!) 3rd grade teacher, her former students hold the following kinds of jobs: accountants, programmers, project manager, doctor, horticulturist, food service manager… all of those people use the math skills that she taught them in the third grade in their daily work.
So what if they hadn’t mastered their math by age 9? Having a superb teacher boosted those kids every subsequent year of their education, whether or not they went to college, community college, trade school, or on-the-job training.
So if you took one portion of one year’s productivity of all her former students — it would be phenomenal.
2. If you look at even one teacher that way, there’s a case to be made that although she didn’t ‘make’ those students what they are today — she sure contributed, and at a critical time in their development! So all the cumulative years of productivity of ALL her former students would be calculated in millions of dollars. Yet her work in public education is not recognized for its value; you’d think using today’s myths, that Wall Street is more productive than this astoundingly successful elementary school teacher.
3. We need to stop buying into the bullshit insta-economic topics of the conservatives; they are blinded by short timelines.
We need to look at longer timelines, just for a basic starter!
If you look at a Wall Street analyst moving money, that’s fine; they moved money, but they did not ‘build brains’, they did not ‘build knowledge’, they are not building ‘social skills’ required in complex, demanding work environments.
Teachers are!
Apart from the nonsense they get paid, the value of their work is not **accurately accounted** using the kinds of metrics that have been used to worship daily market and stock price fluctuations.
Start looking at just one good teacher’s 20 or 30 years’ worth of ‘student productivity’:
– That’s 30 years, of maybe 30 kids a year, so 900 students over time.
– And all of those 900 students, don’t they contribute over a subsequent 30 years? Of course they do ;-))
– So then what kinds of work are they engaged in, that they would be **completely** unable to do if they did not have a solid education?
Try comparing Zaire’s ‘productivity’ with US productivity for starters.
And then go backward up the alphabet.
We misprice things terribly.
We put value on things that can be easily measured over very short timelines.
This has proven disastrous, socially, economically, and for many individual lives.
Bullseye.
There are some other myths.
1. Markets have existed without the intervention of government.
2. Businessmen who “have to make a payroll” are experts on the economy as a whole and on economic policy.
3. Financial assets are the only ones that matter; plant, equipment, labor, expertise, and so on are just incidental aspects of the the economy.
4. Return on investment calculations have been proven to be true by empirical analysis of results after the fact and are edicts from God. I ran into this one through an assignment to figure out how to “prove to management” that specific IT investments were actually delivering the promised return on investment. Turned out that the data depended on political decisions about the assignment of the benefits of that investment to all of the factors of production that went into that investment. My manager finally gave up on the project and went with the tried and true method of office politics.
5. The lag in the effects of investment are unrelated to the practical lags of doing stuff like constructing a building, installing equipment, screening and hiring labor, setting up information systems, having a team settle in to working together.
6. It is possible for large numbers of people to be unemployed for a decade. (This from the New York Times this weekend in an article on the “new normal”). Someone really needs to study economies that exist in communities with chronically high unemployment.
a) I put in the wrong link for Wallison’s comment on speculation: here is the correct link.
b) In her rebuttal, Stout explains why Wallison is wrong about speculation in swaps. Here’s a taste:
Until we stop making big decisions based on very, very short-term outcomes, we’re going to be toast.
Just because we have ‘instant communication’ does not mean that everything short-term has value; we need longer timelines as our baseline for measuring genuine value, because ‘value’ is something that withstands the tests of time.
In that context, a good public school teacher has tremendous value over time.
Whereas the ups-and-downs of Wall Street, not so much…
The GOP is very, very short-term focused, as are the conservatives of the K-k-k-karl Rove style.
They are all about this election, this candidate, this news item: now! now! now!
Progressives need to ignore that sillyness and insist that things that have genuine value require time to measure and price accurately.
A river may have generations of salmon spawn in it, until a builder damages the spawning beds, after which no subsequent generations can be born. The GOP is like that short-term builder, insisting on his/her right to have their dream house, right now, today!
Longer timelines are an essential element of cracking the destructive myths that have wreaked havoc on a lot of people around the world, including Americans.
(BTW: Soros interviewed in FT today, but I’ve not yet read it; been here too long… ;-)
Dear Dr. Sinai:
Exactly who is going to buy all the products that the machines produce?
Thanks. See my posts “Tranche Warfare” and “The Dukes of Moral Hazard.”
I just fell into that subprime risk gig, anyway. It wasn’t something I sought out (and will never again do). I’d been out of work taking care of my terminally ill daughter (while in grad school to boot!), and desperately needed a job.
I’m a big fan of regulation, that’s true. I was securities commissioner in Tennessee when the Reagan SEC launched its deregulation program. One of their big ideas was the “bright line” test for regulation. My idea was to cut out the bright lines, and then use a proper mix of civil and criminal prosecution to encourage people to stay well within the lines. I never thought it was perfect, but it raises the opportunity cost when serious prosecutions, both civil and criminal, are in the regulatory toolbox. Nowadays, that kind of thinking isn’t even possible, because one of the myths is that giving government officials leeway to make judgments is itself a bad idea.
Progressives know what has to be done; they are just unwilling to bring the hammer of austerity down on their constituents while at the same time de-wealthing the rich.
Everyone has to take a huge hit, the rich have to be decimated.
Tennessee, ‘eh?
A rumination from one of my posts:
It’s only complicated when the lawyers hired to make it complicated fill everything with so much fine print you know its gotta be a scam. A lot of what passes for high finance is really just fraud in the inducement that’s covered by legions of defense lawyers and lobbyists. Anyone who says other wise is usually just a paid for flunky of the same groups perpetrating these massive scams.
assertion that all professionals in the finance biz believe those myths is incorrect”
True, The ethics rules of the Society of Actuaries requires you state the limitations, and estimated effect if known of the limitations, in any report submitted. Sadly, most of what was done with derivatives, post Clancy and then Jim at JP in the very early 80′s, was by PHD’s pulled out of universities at 7 to 10 times the salary of a young university quant, and those limitations were not pushed into the face of management (a decision that did save those PHD’s their jobs and which caused actuaries to not be the preferred hire for these positions). But those that listened, like most ins. co’s that were not driven by casualty and “special product” earnings, actually came of of this mess with only major – but not fatal – scaring (the Met is buying up the pick of the fallen these days).
LOL.
Shorter “Innovative Financial Products” -
Inscrutable scams.
Well said.
Sure looks like the hammer of austerity has been brought down on the constituents already.
Masaccio, yet another of your fine postings, thanks so much for continuing to hammer HARD on the financial ruin of our country . . . the myths are grand, live large in the MSM (may Cramer be damned to hell) and as Hugh and you and other say, are kabuki to cover the kleptocracy in action as our nation is feudalized by the facist joining of corporations and government.
A MUST Read For Anyone Who Wants To See How MSM Is Part Of The Kleptocracy
This blog details in GREAT DEPTH (a four hour read, minimum) how the MSNBC Cramer’s and such aid and abet the theft and pillage of our investments, how they help to break companies, and more. All in conjunction with Wall Street, Banks, Investment Firms, Elected Officials, and yes, even the mafia!!!!!
Top to bottom, the kleptopracy that’s in full swing (and HAS been for decades) is exposed as are all the players.
The blog also chronicles newer examples and other stories of crime and cooperation between all facets of our society aside from the original tale of Deep Capture, which is based on one company’s trials and tribulations against the criminal onslaught to break them.
The reporting is stellar, factual, detailed and sourced.
A must read for ANYone well versed or not regarding the present state of our business community/government/economic relationships. Pure expose, start to finish, the likes I’ve only seen long ago when Gary Webb Outed Contra’s And Cocaine.
Another forgotten tale of pure journalism that was erased and swept under the rug, as was the reporter in this case.
If this single change was made, we could fund every progressive initiative we have talked about this past year and still reduce the deficit.
Rotl, appreciate your trying to answer Masaccio’s question(s:
“Here’s a first draft of a question: Why should a few people reap such a disproportionate share of the fruits of the labor of all of us?” ; I ,for one, cannot justify the ‘disproportionate share’ and haven’t been able to for 50 years now.
This question really gets to the ‘heart’ of capitalism and how such is implemented.
In case others missed it, let me refer them to this book discussion that was held on FDL.
And ask the question “Do you really think that capitalism in the U.S. would be the same if ,as in Europe, the Board (s)of Directors of companies were required to have worker representation on them?”
“Assume that you know what you know today about our society. Assume you are in charge of designing the rules for our society, not knowing where you will wind up in that society. What is your justification for establishing social arrangements with the current distribution of rewards?” ; simply put, I cannot justify “establishing social arrangements with the current distribution of rewards?”
The situation where the number of persons seeking material amenities outweighs the resources of the planet, where the number of persons for the current economic status quo(and for the foreseeable future) is not consistent with the needs of such an environment, where the mechanisms for economic activity are leading to environmental collapse, and where the meme of scarcity is prevalent within the average consciousness is a situation that I wish I could provide a resolution to.
Well put. However, the truth is only the poor and the middle class are going to take the hit. The wealthy own the political system just like they own everything else. The last 40 yrs. they’ve waged a furious class war against the rest of us and with Obama’s victory we all saw just how well they did. Today, even reform enriches them further. The deck is now so stacked against the rest of us, I’m afraid nothing short of a Revolution will ever change things. The period from 1933 to 1970 was seen by the aristocracy as a hated period of leftists reforms that needed to be remedied and that’s now accomplished. The War is over they won.
Most of these products come under the category of scamming AKA baffle them with BS scams.
As a small businessman for 25 yrs. I have to say this. If u have never had to make a payroll don’t be so critical of those that have had to. The truth is you might hold people like me in contempt for having to do this because you have a deep seated prejudice against the process that it requires. This kind of attitude is usually evident in people who work for Gov’t at some level and never have to do it. Get over it friend those of us that were making those payrolls might not have been economic geniuses but we were paying a lot of people’s salaries and benefits ( in public service) and pensions and in many cases we now have no pension and no benefits and they do.
I found your entire comment so intriguing I had to reply. While I concur with your tone and big picture, and appreciate some stats you cite there that I didn’t know, you have a couple of sweepers I disagee with:
1) ‘Picking Sides Left And Right’ . . ‘two american tribes’ is pure veal pen language. Progs, and most in this blog, have two other sides, right and wrong. For you to lump progs into a Dem/Rethug bowl is a great disservice to all progs who both post and read this forum.
2) Your closing remark again lumps together some catch-all phrased groupings that just are NOT the reality that exists with respect to groupings.
You mis align the left with others and then again present an adversarial ‘battle’ that the left is playing a part of that exists ONLY in the MSM, ie, yer repeating MSM and centrist talking points and mis representing and misstating what the left and the progs are, and are about.
Nice work.
But it’s a failed overall call to action designed to lure ‘catcalls’ against the left in a polite veal pen manner as to what the left is, and what the left is all about.
For MY record, the left is in general of a mind to help, support and preserve the best interests of we the people, the right exists to preserve its own little cadre.
You fail to acknowledge what I see is the reality of the left and its challenges.
The enemy of we the people is a class war, and the present ‘system’ of corporate facism (wherin the corporate structure lies in bed with our elected offals) is where the war is being played out.
I don’t see the right as being interested in the needs of the masses, only their own.
Thanks for your comment.
Thank you for a semblance of sanity in a clusterfucked creation only RL Carroll might have parodied.
“. . . could not distinguish. . . ”
WOULD NOT!!!
They know full well they are engaged in a criminal ripoff for their own personal benefit. Top to bottom!
BTW: This is why I advocate no longer supporting Dems. The rethugs will drive us into the ground faster but the Dems will just as surely crash us.
My point is that it is a logical fallacy to think that what an economy needs is the same as what a single business firm needs.
I understand the difficulties involved in making a payroll, but that experience does not make one an expert on economic policy. Because an economy is not just one balance sheet but an interconnected closed network of millions of balance sheets.
I am just tired of that phrase being used as a routine put-down of people who do understand how an economy works. It’s like saying only infantry soldiers understand international relations.
Track and tax EVERY speculative and derivatives based transaction.
Better yet, return Glass/Steagall and separate banking from investing, and then limit investing to investing and NO speculative buying and selling with respect to short selling or bundling/repackaging of ANY assets!!!
The banks keep the deeds and original transactions for loans, and the investment community can’t purchase them to rig the markets with phantom stock outlays be they for or against the original paper.
Thanks. The psychological strain of trying to keep money covering all the bases can take a toll, and I for one appreciate your comment.
And when government doesn’t help, it’s a tough and bitter experience. I really gave Geithner a lot of slack, and I don’t envy him the job.
But reading something like masaccio’s report that a government employee cannot distinguish between rampant speculation, as opposed to the quite different activity of genuine investment makes me absolutely nuts. It would actually make more sense to me if that person was a Bush I or Bush II era employee.
Anyone who’s ever had to worry about a payroll would spot the distinction between speculation and productive investment in a heartbeat.
Bingo, spoken out loud, for all to see.
They is agin us, and not for us . .
Why don’t people enrage and act over this kind of shit?
Wow, that’s so full of disinformation and talking point phrasing there’s no where to start to do justice in reply to your posits.
But it’s full of it, start to finish, word by word . . . nicely spun, Mr. Rove.
BTW, I lost all of my 401(k) in three years of unemployment after the burst of the IT bubble. Because of my IT experience, I was “overqualified” even for part-time retail jobs according to the interviewers. I was denied the opportunity of retraining for another field because I had “too much education”.
Social Security is my only retirement. And I worked in the private sector for 32 years after working 5 years in a local government job. And I tried starting my own business three separate times.
Damn, that’s a brain full for a non-econ to wrap around, but I’ll say what I DO understand of your posits I agree with fully.
We got screwed cuz the have’s consolidated what they had, and they’re still doing it to the masses.
Along the way, from Founding Fathers to now, the funnel for the masses widened and then narrowed. It’s REAL narrow now . . . and I ascribe that to privatization, deregulation, consolidation.
So in THOSE processes, I’m coherent and fully agree with you!!!
What a great comment, that’s one for the bookmards, it’s a primer of sorts!! Whew!
Had NO idea you were this deeply knowledgable about such matters. Thanks for sharing. Exemplary, on your part.
I think the person did not understand the distinction, because it’s the kind of statement that reveals their ignorance so grossly that they would not knowingly look that dumb.
Clarification? People raging on financial reporting by MSNBC; do they really mean CNBC?
Another great post. One cavil, however. You state:
This is a serious problem for progressives.
Given that the word “progressive” has been made into something resembling an epithet, I’m of the opinion that a better way of selling (what are clearly better) ideas would be to frame them as something other than “progressive.” What that terminology might turn out to be is up for discussion. However, adopting different terms does stand a chance of opening up the debate across board. Semantics matter, especially in an era of 24-hour cable and radio talk show yammering.
Translation: Slide arguments under the radar by calling them something innocuous, the theory being that the arguments are already floating before they can be crushed by stupid labeling.
Considering the crossover use of Kramer, yes.
Yep.
It would be interesting to contrast this approach with one that aims not at the means of commerce but the ends of commerce. By this I mean to raise the following question: Should we be regulating (taxing) selected tools of commerce or should we be addressing the uneven distribution of wealth and income that result from their application. It seems that when we try to address the tool set, clever people, interested in gaining great wealth will find new tools. However, if we use taxation to simply manage the disparity of wealth in society we don’t need to deal with an evolving toolset.
The idea that no person can contribute enough to society that they are entitled to the wealth of a small to medium country should not be hard to grasp. Start taxing income over $1M @ 90% and increase progressivity from there.
Meanwhile fund:
Education
Medical Care
Nutrition
A green economy
Infrastructure
etc, etc, etc.
You lie. And distort. You do it well, but obvoiusly.
I’m wowed.
Call me blown out of the water, blown away, enthralled, spellbound, mesmorized, schooled and informed.
Wow.
*bows*
Um, I don’t recall you ever unloading all your guns at once into this space, only regular comments of common sense and such.
Am I wrong, or is this the first of the depth of your commenting I’ve seen?
Cuz it’s incredible, how could I have missed it before . . . wow.
FWIW, I’m personally a huge fan of Dylan Ratigan’s show at MSNBC. He often does a good job of sythesizing larger trends, and along with Maddow, and maybe PBS’s Frontline and some of the Financial Times’ interactives, Ratigan probably does the best job that I’ve seen in the media of trying to explain PROCESSES. He’s very, very good at that and IMVHO it sets him apart from the rest of the media.
He really does about the best job that I’ve seen of trying to offer CONTEXT for whatever specific topic he’s covering in a given day. (Maddow, Olbermann, and Ed Schultz also clearly put a lot of effort into trying to synthesize the background context of an issue when they start a segment; Fareed Zakaria does it quite well, also.)
But I can certainly understand the disgust with CNBC, and I share it.
I agree with TarheelDem that NBC’s crossover use of Kramer (or Cramer?) is confusing. I find it obnoxious, but that’s a matter of personal taste.
That is a fantastic analogy. Spot on.
That’s very kind of you; masaccio’s posts, starting in fall of 2008, started me reading more economics and these topics have been much on my mind the past year or so.
I don’t believe the current system is sustainable, and since I’m not a big fan of riots or violence, I have enormous respect for those who seek to come up with solutions that can address the heartache and – certainly in my own case, furious anger – that I think some of us continue to experience as we see month in, month out that… well, to quote Dylan Ratigan, “a slot machine in Vegas has more oversight than a credit derivative”.
But thanks again for your kind words.
You and I have VERY similar stories. Know the ‘feeling’.
Right, lets start here: I define top earning households are those with incomes over $250K. The top earning households contribute approximately $1T to the federal budget of about $3.5T about the same comes from everyone else and the rest is deficit.
If we revised the tax rates as follows:
90% for > $87M
75% for > $ 5M
33% for > $250K
This would yield additional revenues of approx $1.25T
Frankly, I don’t think the rates above are progressive enough but imagine ways we could transform this country with these sorts of revenues.
But no, you would rather tell us the poor rich are already overburdened and are the heart of everything good in the country.
BTW: By “You” I don’t mean Larue but Karmi @15.
Progressives aren’t unwilling in ANY manner, way, shape or form, they are just phreaking non existent for the most part in government.
Progressives among we the people, now, know what needs to be done.
Just a lil quibble with your phrasing . . . but progs CAN save this nation. They WILL, as we the people, need to modify their ability and capability to influence shit, though, if they hope to have an impact soon enough to stave off a moment when it’s impossible to save it all.
Like peak oil, I’m not sure when that moment will come, or if it already has.
But that moment looms, heavily.
Those were interesting cases. I was involved in several of them in different capacities.
Lie and distort? Care to explain?
We could do all that if we brought the troops home from Iraq and Af’/Pak, stopped our interventionist ways, and cut the Pentagon spending for anything other than national self defense (homeland defense, not interventionist defense).
And we’d STILL have a HUGE budget for space based activity that might lead to innovative means of generating renewable energy.
Ok, yeah, some Merlot with lunch and dreams . . . I fess up. ;-)
It ain’t over, it’s never over.
But yeh, the mountian’s phreakin steep, and tall, too.
On we plod, and hope, and do what we can.
It’s never over. History has proven that.
I’ve worked for smaller businesses a lot in my life, be they in the food business or non-profit research and education.
Making payroll is a regular nightmare that recurs on and on and on.
That I got paid, for the most part (too often didn’t), is testament to folks like you.
Our system has failed small business, has failed to provide the credit lines at reasonable rates to KEEP small business ‘making payroll’, and that shit began to happen when fucking Reagan deregulated banking/investing and Clinton finished it off.
Thanks for your efforts to keep folks employed in your time.
I think you misunderstand the comment. I agree that business skills are crucial in business. You can’t run a law practice without recognizing that. I missed a number of draws so my people could be paid. The skills needed in government include many of those of business. There are other skills not needed in business, such as prosecutorial discretion, and a clear understanding of the reasons for your job so that you can actually do it well. The plain fact is that profit maximization isn’t one of the skills that is useful in government. The real thrust of the job is to deal with things like those reader of Tea leaves discusses, such as externalities, the Lords of the Senate, and things with very long-term payouts.
Many of the people who comment on the economic threads are business people themselves, and are very used to business matters, and not a single one of them has ever suggested that running a business is evil per se, or that the skills needed to operate a business are inconsequential.
Me and mine are fast chasing on yer heels . . . we got wiped out savings wise since ’04, 401k wise, as the markets fell. Still working (she is) and trying to make up for what we lost to the markets, while making up for what I’m not making.
And the search for employment for a 55+? Here in Sacto? Brutal. There’s retail, or customer service at Home Depot or WalMart and such . . . . I’m not quite ready for that . . . physically. But getting ready for it . . .
Want fries?
The problem with regulation in this area, as I see it, is that once folks who call themselves progressive accept that there is no way to separate banking from trading or speculation — and the corollary that a “bank” can the use our money, not theirs — to do so, they have traded away the strongest, most sensible tool they have: separation — a tool that worked in the past during one of the nation’s most productive periods.
I’m not at all saying that is what you propose. I know you don’t. I am saying that, given the way many of our most important progressives think about this, regulation is very unlikely to work.
Oh thank you, I’ve been a Dem my whole life, but think Clinton sucked ass as a President despite voting for him both times. He enjoyed some kind of rock star status for getting elected twice but rarely did I like anything he did and was dismayed at his deregulation of the financial sector. Took less than 10 years to drive the global economy into a nosedive. When I hear people talk about how great Clinton was for the economy I laugh. He could hardly have been worse in the long-run.
Really? That’s as bad as Xtian or any other kind of ‘believers’ too blind to see reality . . . to think it’s NOT intentional at that level of our economy, but it’s stupidity is truly frightening, and I’m scared of the fucks who ARE doing it intentionally with full knowledge they are killing the lower classes while they steal all that wealth.
Wow . . . another whack on MY head, that econ folks that well educated are stupid? Hard to accept.
Ok, as I did the ‘Deep Capture’ thang, I’ll admit I should have said BOTH MSNBC, and CNBC, WRT Cramer.
My bad.
The MSNBC business coverage is no less bullshit, however, I hope you would not challange that.
As someone else said, when Comedy Central is our best source for economic truth . . . ;-)
As you say, I’m certain that commercial banking can be separated from investment banking and merchant banking. I think they should be separated. The financial elites, those who think that economics is a science and a useful one, don’t agree, and that’s true of most democrats and all republicans.
It’s Cramer.
Kramer was on Seinfield, Cramer is the Money Fuck, he’s the evil.
Please Read This
I hate Cramer almost as much as I hate Nixon, Reagan, and the Bushies.
And yes, the hate is worth it, he’s evil, and still in service and unconvicted and unjailed, the bastid.
Cramer should have been convicted for his work in Deep Capture, Alone.
Hope you’ll read that, if you haven’t. Hours of reading there, all sourced and attributed.
FWIW, that matches my recollection about general comments.
Indeed, it’s been my view, certainly among some of us who also comment at EW’s, that capitalism is viewed as a means of trying to solve some of today’s problems **if** it can be cleaned up from the kinds of managerial capitalism, or ‘crony capitalism’, or Big Finance capitalism that has wrought so much destruction — some of it quite clearly evidenced on this thread by people who come across as smart, hard-working, conscientious, curious, resolute people.
If it ain’t working for some of the commenters here, it ain’t working as far as I’m concerned.
But figuring out how to fix it… that’s a biggie.
I’m against violence, but believe at times civil disobedience is ultimately necessary.
Worked for Ghandi, MLK, and for me during Vietnam War era.
Granted, civil disobedience is often (if not always) usurped a bit with agitators bent on creating violence.
Coupled with a status quo police force violence is almost ensured. But if the people continue on their quest, mountains CAN be moved.
Like you, I’ve been READILY convinced the present system is unsustainable, going back to my teens in the early 70′s. And that belief has grown each and every passing decade.
If it’s NOT changed, then general chaos and violence are inevitable.
I hope for peaceable change, but if it’s not coming soon, the worst becomes more and more likely.
Thanks for the chat’s, ROTL, Seaglass, Massachio, and all other in this thread.
A very worthy one, and greatly informative for this reader.
Bookmarked, for all the great comments, alone, not to mention Massachio’s original intent.
A good Sunday afternoon to get schooled and share as well . . .
*bowstoall*
Thank, I assumed that, but was about to ask . . *G*
Nope. No need to.
Please explain how it all worked post FDR due to his and following efforts to regulate banking and investing?
But it won’t work now?
I don’t get it . . .
The more I review his deregs of media, the more I dislike his time serving us.
He punched the final holes that enabled the present clusterfuck in media ownership to yield what it has.
Along with Reagan, Clinton made sure the left, the middle and any dissenting views regarding the status quo would NOT get heard on tv or radio.
Pure Goebbels.
I couldn’t even get “want fries”. Discrimination against education and experience.
Clinton’s POV was to match Repub fund-raising and then try to slap some progressive ideas on it later. What a fucking disaster. Once he aligned with corporate money he tarnished the whole argument for Democratic ideas.
The question as posed by this fine diary is the Progressive alternative and I believe the Volcker Rule is a good way to re-force the the old separation in banking while limiting at least the type of moral hazard that has taken root as a result of this crisis-caused recession. So I’m reasonably satisfied with the tonic while still furious with the illness.
The regime we have in place now is very different than the one we had then. I think we may agree on all this.
My point is simply that we have just witnessed a massive failure in regulation at every level. But many who call themselves progressive don’t support taking the simple step of returning banking to what it was during the period you cite. They actually seem content to accept the first three myths that masaccio cites above, and that regulation is the answer. I think this is just nuts.
FWIW, I think the pattern is the same in HCR. Many who call themselves progressive think regulation is the answer to our problems. I think we have witnessed a massive failure of regulation in this area also.
We need deep structural change in both areas. I am of the opinion that reliance on regulation — which is now even politically infeasible in both areas — actually worsens the situation to the extent that structural problems are left intact.
There’s a pretty solid case that could be made based on environmental studies of predator-prey relationships that supports this claim, IMVHO.
Think of the predator as the business, always after ‘prey’. The prey learns to escape the predator (‘thanks, but I have enough credit cards, shoes, fishing poles…) and so the predator learns to respond with some new behavior or trait. That can stay stable over time (it doesn’t always; sometimes the prey just get all eaten up).
Business acts like this with regulators, as near as I can tell – the problem is that the regulators either: (1) become captured, or (2) can’t hire people as smart as the business people, or (3) have their regulatory budgets cut, or (4) have all new regulatory positions outsourced to private contractors who aren’t invested in reguting.. or any other number of reasons.
In that case, the regulators are static, so they can’t adapt. The businesses adapt by the week; the regulatory structures are so ossified and dysfunctional that they can’t address the morphing businesses.
To try and codify regulatory behaviors may be a fool’s errand, but perhaps sometime masaccio can weigh in on it.
Guaranteed full employment with the government acting as the employer of last resort.
The fewer people that are working, the less goods and services which will be produced. Thus, full employment will collectively make us a wealthier nation.
Our government economists say that we cannot currently afford to employ our entire workforce but logically the exact opposite is the truth.
Skimming through I have not seen one myth that needs some debunking because you hear it used as a rationale for much of the tax giveaways and general transfer of wealth from public funds that flow to large private firms.
The myth is that small businesses are the engine of the economy and job growth and for that reason this sector should be relieved of any tax burden in good time and in bad.
Now this is a myth either because “small businesses” is a catchall phrase and the real beneficiaries are large monopolies. Or it’s a myth that small businesses ever need to be favored by public funds for the economy to function at full employment.
My own view is that the public has no obligation to finance the working of any business large or small. And that the only valid use of public funds is for public works or programs.
I don’t watch MSNBC during the day so I don’t see much, if any, of its financial coverage except for what might get rolled into KO’s or Rachel’s shows (usually about a specific issue or event, like a big rise or drop in the Dow).
However, if you love CNBC, you’re really gonna love this:
Guess who addressed the National Assoc of Governor’s meeting today (Sun) about the costs of health care on the economy…wait for it…
Maria Bartiromo.
Isn’t she the one who told Andrew Weiner that if Medicare was so great, why didn’t he sign up for it?
I think you might not be very well informed about the wage situation in Germany. Yes, germany is among the worlds largest net exporters (being second to China last year, otherwise being the largest net exporter for the past 5 years or so).
germany wages have been stagnant to falling in real terms in the past 15 years. The country has seen anemic growth for most of the past 10 years (under 2%), and exports is the only part of the economy that has done well. Internal demand has stagnated for 15 years, and the general negative sentiment has led to extremely high savings rates. These have not protected them from this recession, or from others prior to it. Unemployment rates in the 8-10% rate have been the norm for the past 10 years.
There is currently a large discussion about how work doesn’t pay….and how many people in Germany are working for under $6 an hour. There is major wage arbitrage in Germany competing with Eastern Europe with wages averaging abotu 1/3 the German wage levels.
A lot of those giant exporters have outsourced much of their work to those cheaper countries, and it is just the final assembly that is still done in Germany. More than 60% of the value addition on a German car is realized in countries ouside fo Germany, largely based on free trade agreements with countries in Eastern Europe.
And those manufacturers that you talk about….last year they had a drop in sales of 19%..if it were nto for the short work system (which is essentially corporate welfare, because it allows companies to have their workers half on unemployment insurance, half on wage in exchange for not laying anyone off). I just recently saw an article that says that this short work has made Germany less competitive coming out of the recession compared to companies in countries where they have been able to adjust the workforce to the demand.
And it is not like intenral demand has made up the lost business…germany exports expensive machines, especially to countries like China and India and the middle east. the growth of developing countires is what fuels german export growth…that and when America does well they send Porsche’s over.
LOL Yeah, that made my head spin around, too.