The Problem of Liberal Elites Part 2 On Trade

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Paul Krugman begins his 1993 defense of NAFTA by insulting its opponents gratuitously and wrongly. Then he offers the readers of Foreign Policy the defense of trade treaties they love.

The truth about NAFTA may be summarized in five propositions:

• NAFTA will have no effect on the number of jobs in the United States;
• NAFTA will not hurt and may help the environment;
• NAFTA will, however, produce only a small gain in overall U.S. real income;
• NAFTA will also probably lead to a slight fall in the real wages of unskilled U.S. workers;
• For the United States, NAFTA is essentially a foreign-policy rather than an economic issue.

NAFTA won’t affect the number of jobs, says Krugman, because the only important factor driving number of jobs is interest rates set by the Fed.

Moreover, it is a choice that responds to economic conditions; the decision to raise or lower interest rates represents a trade-off between the Fed’s desire to raise employment (drive somewhere) and its fear of inflation (a speeding ticket). …

Suppose that NAFTA really does lead to a rise in U.S. imports from Mexico, one that would, other things being the same, reduce U.S. employment by 500,000 over the next ten years. Will other things actually be the same? Of course not. The Fed, faced with the prospect of a weaker economy, will set interest rates lower than it otherwise would have. Conversely, other things being equal, if NAFTA would add half a million jobs, interest rates would be higher. The Fed will, without doubt, miss the target-but it is as likely to overshoot as to undershoot, and over the course of a decade there is no reason to suppose that the average level of employment will be any different with NAFTA than without.

How did that work out? It seems to be true that the overall impact of NAFTA on employment was neutral, though not necessarily for the reason Krugman gave. See, for example this chart showing all manufacturing (definition) jobs for the period 1987 to the present, from the Bureau of Labor Statistics:
Manufacturing jobs 1987 - present

Formulating the issue in terms of total employment, by sector or otherwise, fails to answer any of the crucial questions. What was the effect of NAFTA on communities where the factories were closed? What kinds of jobs are the new ones? How do those jobs meet the needs of workers for income, financial security and job satisfaction? What happened in specific areas? Were the results the same for Los Angeles and for Celina, Tennessee? What happened to the losers? Who profited? Aggregate studies hide the real impact of trade treaties in exactly the way that they miss the point of the farmers’ anger as I discussed in this post.

So, here’s a a story. My law partner was a Bankruptcy Trustee in Tennessee; he was assigned to handle all the cases from the area around Cookeville, TN. In the mid to late 1990s, he was called to deal with an emergency bankruptcy of a cut and sew plant in his area. This is a company that has machines to cut fabric to a pattern and sewing machines; the workers cut the cloth and sew it into clothes. In this case, it was blue jeans. One Friday after work, trucks pulled up to the factory, loaded all the machines and office equipment and moved them to Mexico. They left behind several pallets of completed jeans, which needed to be secured and sold. The workers were not paid. The jeans were “hot goods”, and became property of the US Department of Labor, which hired the Trustee to sell them and distribute the funds to the workers so they got partial payment. The secured creditors and general creditors got nothing. It was about that time my partner reported that one of his cases was a 35 year old guy with few teeth, which, his lawyer said privately, was the result of heavy meth use. That was only the first such case.

Perhaps Krugman would be surprised to learn that the Fed did not intervene to create new jobs in the Cookeville area. How exactly would that happen? Workers who lose their jobs burn up their savings or live off their friends and relations and churches, or on credit cards or the safety net until they get back on their feet. Many don’t. Trade economists like Krugman don’t count these and related losses when they run their computerized models. Most people don’t care because they get cheaper jeans. All the discussion, all the studies of NAFTA, ignore these and many more localized effects.

Krugman admits that if the job losses were very large, his model might not work. Even if the impact of NAFTA on manufacturing jobs was small, that isn’t so with China. Recent studies say that imports from China might have resulted in 2.4 million jobs lost between 1999 and 2011. Is that enough to upset Krugman’s certainty? How many millions of jobs never happened here because US corporate executives exported US-made knowledge, US-generated capital, and frequently entire US factories to other nations. Computer chips and other high-tech equipment weren’t invented in Taiwan or China or Japan, but they got the advanced manufacturing jobs, not the citizens of the US whose hard work laid the groundwork for creating those valuable assets. Worse, the corporate executives arranged to duck US taxes on their profits. Their refusal to pay taxes leads to the further deterioration of conditions in the US.

Krugman knows this. His Nobel Prize was for his demonstration that “national location of specialized production is indeterminate; there will be specialization, but how it is distributed across countries cannot be determined ex ante”, as a correspondent explained it to me in a private email. The policy of Asian nations is to grab those manufacturing operations by nay means necessary. The US, dominated by single-minded free marketeers, doesn’t have an industrial policy, or a safety net, for that matter. It relies on some magic and undefined “market” to fix everything.

Congress won’t lift a finger to help the people of Cookeville. Liberal elites, like Krugman, tell us everything will work out fine. On average.

Index to prior posts in this series.

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The Problem of the Liberal Elites Part 1

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As I pointed out in this post, conservative elites have completely lost their minds. But liberal elites have problems as well. The problem is more complex with liberals, and it will take several posts of reasonable length to get into it. To make things concrete, I’m going to begin with the liberal approach to trade, which gives me an opportunity to tie together several ideas I’ve raised based on books I’ve discussed here and at Firedoglake:

1. Karl Polanyi’s argument in The Great Transformation that societies can only handle a certain amount of change before they revolt and demand protection. Social changes will come, but the pace of change dictates how much misery will be inflicted on the losers.

2. The absence of a clear definition of market in standard economics.

3. The failure of economic theory to incorporate the impact of raw economic power, including fraud and corruption.

The text for this post is a 1993 article in Foreign Policy by Paul Krugman titled The Uncomfortable Truth about NAFTA: It’s the Foreign Policy Stupid.

Krugman begins by insulting the anti-NAFTA people.

It is as hopeless to try to argue with many of NAFTA’s opponents as it would have been to try to convince William Jennings Bryan’s followers that free silver was not the answer to farmers’ problems.

Indeed, the parallel is quite close. The populism of the 1890s represented a desperate attempt to defend agricultural America against deep economic forces that were changing it into an industrial nation. The choice of a monetary standard had very little to do with the real problems of the farm sector; a burst of inflation might have given some highly indebted farmers a brief respite, but it would have done nothing to reverse or even materially slow the industrializing trend.

Well, as I remember my high school history and related reading, that’s just wrong. My sophomore history teacher, a woman whose name I sadly have forgotten, encouraged us to read the muckrakers, and I chose Frank Norris’ The Octopus and The Pit. They tell an entirely different story, one that revolves around fraudulent financial schemes of a railroad company and traders in the pits of the Chicago Mercantile Exchange. Things haven’t changed much.

Norris’ stories fit better with this analysis published by a site operated by the Economic History Association, The Economics of American Farm Unrest, 1865-1900, written by James I. Stewart of Reed College. He explains that farmers “perceived” that their political and economic status was deteriorating. According to Stewart, farmers had three main complaints: a) farm prices were falling, decreasing their incomes, which they thought was the result of overproduction; b) monopolistic railroads and grain elevators were gouging them; and c) financial conditions, including usury by lenders, an inadequate supply of money and deflation which forced them to repay loans with more expensive dollars. They were not able to get government help for these problems because the legislatures were dominated by financial interests including banks and railroads, the oligarchs and monopolists of the day.

Stewart says that these claims do not match the statistical testing done by economic historians. For what it’s worth, I think his explanations are weak, but I’m no expert, and perhaps those silly farmers didn’t understand their lived situation as clearly as economic historians reading aggregated data decades later. Perhaps, for example, there were no usurious loans in that mix that resulted in mortgage loans averaging 2-3% above the norm in New England. After reciting the contents of several studies, Stewart explains that the real issue facing farmers was a massive increase in uncertainty and risk. As he puts it, farmers might experience one or more of the problems he discusses, or they knew someone who was affected by them, and this increased their concerns.

What were the sources of risk? First, agriculture had become more commercial after the Civil War (Mayhew, 1972). Formerly self-sufficient farmers were now dependent on creditors, merchants, and railroads for their livelihoods. These relationships created opportunities for economic gain but also obligations, hardships, and risks that many farmers did not welcome. Second, world grain markets were becoming ever more integrated, creating competition in markets abroad once dominated by U.S. producers and greater price uncertainty (North, 1974). Third, agriculture was now occurring in the semi-arid region of the United States. In Kansas, Nebraska, and the Dakotas, farmers encountered unfamiliar and adverse growing conditions. Recurring but unpredictable droughts caused economic hardship for many Plains farmers. Their plights were made worse because of the greater price elasticity (responsiveness) of world agricultural supply (North, 1974). Drought-stricken farmers with diminished harvests could no longer count on higher domestic prices for their crops.

Stewart uses the passive voice throughout this passage. But except for growing conditions each of the causes he lists is the direct result of the intentional act of specific human beings either in government or business. In particular, the section on railroads makes it clear that managers took every advantage of their monopoly status, as did the owners of grain silos. There is no doubt that the same is true of bankers and merchants in many places. The deepening involvement of the US in international grain dealings was another opportunity to hurt farmers. In bad years, some of the losses from low harvests were made up from higher prices, until the “integration” world markets. In combination, these efforts of government and business effectively dumped all the risk of bad harvests on tens of thousands of farmers, while increasing the profits of a few shippers, grain merchants and speculators.

In other words, the effect of the policies chosen by the rich and powerful was to make the lives of an important segment of the population worse. Or in Stewart’s bloodless words:

Uncertainty or risk can be thought of as an economic force that reduces welfare

In Krugman’s world, the forces facing these farmers would have been unstoppable. In the real world, as Stewart reports, the farmers organized themselves and forced legislative changes at the State and Federal level that protected them and enabled them to stay in business, the socially important business of growing food for their fellow citizens. They were able to transform the conditions of the markets they faced, using the power of government. They were able to slow the pace of change to a level that didn’t ruin their lives despite the best effort of the powerful. It’s a neat demonstration of Polanyi’s idea about people demanding protection from violent social change.

There were massive changes in the markets facing farmers as they moved from subsistence farming to commercial farming at the local and state and then federal levels, and then into the world market. There were changes in the markets from lenders, railroad companies and other vendors. There was constant change in the terms of the markets during this period, to the point that it would be unreasonable to compare the grain market in 1865 with the grain market in 1895. And Stewart says nothing about mechanization during that period. Economic historians treat the price of wheat as the outcome of market activity without apparently looking at the changes in the nature of the markets. But, as Stewart points out, the regulation of these markets changed steadily over this period, and the outcomes to farmers were improved by those changes.

Third, the central part of Stewart’s story is international trade in grain. The impetus for that change came from the powerful and wealthy shipowners, railroads, merchants and grain speculators, and not from the farmers. The roles of the people who operate railroad and overseas shipping lines, the merchants who import and export grain, and the grain speculators in Chicago is not even touched by Stewart’s account. He does not even discuss the fraud and corruption that dominated the lives of those farmers and all of society. He and other economists neatly hide the power structures that created the problems of farmers and the forces the farmers beat down to protect themselves.

That pattern is repeated over and over in the story of trade.

Index to prior posts in this series.

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How Hillary Turned Her Support for Welfare for Banks into an Auto Bailout Attack

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For a campaign that has spent days insisting Bernie Sanders should not launch attacks against her, the Hillary Clinton campaign sure engaged in some dishonest hackery last night.

During the debate in Flint, Hillary attacked Bernie for “vot[ing] against the money that ended up saving the auto industry.” She was talking about a January 15, 2009 attempt to withhold the second $350 billion of TARP funding that failed (here’s the resolution); Bernie voted not to release those funds. But the vote was not directly about auto bailout funding. It was about bailing out the banks and funding what turned out to be completely ineffective efforts to forestall foreclosures.

It is true that Bush’s failure to fund an auto-specific bailout meant that TARP funds got used to fund the $85 billion auto rescue (Bush had already spent some money on the auto companies — basically just enough to ensure they’d go under on Obama’s watch, but not enough to do anything to save them). But that’s not what the vote was (and there might have been enough money for the auto bailout in any case).

Larry Summers’ two letters in support of the additional funding (January 12, Janaury 15) in support of the additional funding certainly didn’t describe it as an auto bailout bill. He mentioned “auto” just three times between the two of them. In the January 12 letter, in support of auto loans to consumers, and in the January 15 letter, limits on what I believe is a reference to GM Finance (now Ally)’s Christmas holiday move to turn into a bank so it could access funding. Contemporary reporting on the vote also did not mention the auto bailout (though there had been discussion that it might be used the previous month).

Moreover, there had been an auto bailout vote in the Senate (on a bill already passed by the House) on December 11, which failed. Both Bernie and Hillary voted in support.

So while Hillary’s attack was technically correct — Bernie did vote against giving Jamie Dimon more free money, which had the side effect of voting against the second installment on the fund that would eventually become the auto bailout — he did not vote against the auto bailout.

But Hillary’s attack did its work, largely because national reporters appeared completely unaware that they were fighting about TARP much less aware that there had been votes in December that directly pertained to the auto bailout. Even some local reporters now appear unaware of what went down in 2008-9. John Podesta helped matters along by sowing confusion in post-debate speeches.

Here’s one of what will end up being several exceptions to the shitty reporting on this that will come too late for people to figure out what actually happened.

During the testy exchange over the auto bailout, Clinton called Sanders a “one-issue candidate” for voting against the release of $350 billion in Jan. 15, 2009, to continue funding the bailout of the nation’s banks and mortgage lenders.

Sanders joined seven Democratic senators in voting against the second wave of TARP funds. President Barack Obama ended up using some of TARP to fund the $85 billion rescue of GM, Chrysler and their auto lending arms.

“If everybody had voted the way he did, I believe the auto industry would have collapsed, taking 4 million jobs with it,” Clinton said.

[snip]

David Axelrod, a former top adviser to President Barack Obama, questioned Clinton’s attack on Sanders’ voting record in the middle of the debate.

“It wasn’t explicitly a vote about saving auto industry,” Axelrod wrote on Twitter.

U.S. Sen. Debbie Stabenow, a Clinton supporter, said after the debate that senators, including Sanders, were aware the TARP money would be used to aid the domestic auto industry.

“A lot of folks said we shouldn’t do it because somehow it was helping the banks,” said Stabenow, D-Lansing. “It was the auto bailout we were talking about. I was very clear with colleagues that we had to do this.”

Stabenow’s comment, incidentally, is proof that the money shouldn’t have been granted as it was (it wasn’t spent on auto companies until much later). While she’s right that there had been public discussion of spending some money on the auto bailout, there obviously was still so little limiting what the Executive could do with the money that there needed to be nothing explicit supporting the auto bailout to make it happen. The flimsiness of the guidelines is one of the things that enabled the Obama Administration to avoid providing real foreclosure relief, choosing instead to “foam the runway” for banks.

Don’t get me wrong. Bernie did a number of other things at the debate that hurt him last night, such as his comment about ghettos that suggested all African Americans are poor and no whites are. I think, too, the optics of his efforts to stop Hillary from interrupting him as well as his own gesticulating while she was making responses will go over poorly.

But the auto bailout attack was a pretty shameful ploy, one that otherwise would make it fair game to really hit on Hillary’s own actions in a way Bernie has not yet done. That said, it was also a probably perfectly timed attack, because it will ensure victory for Hillary on Tuesday, eliminating one of the last possibilities that Bernie might really challenge Hillary.

Update: As it turns out, Hillary should be attacking Stabenow according to her own standards, because Stabenow voted no on the first TARP vote that actually paid for the first tranche of funding to the auto companies. (Here’s the second, January 2009 one.)

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Hillary Is Now Picking and Choosing Which Obama Accomplishments to Take Credit For

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According to Hillary Clinton’s latest campaign ploy, she deserves credit for domestic policies passed under Obama — notably, ObamaCare — but not issues — in this case, trade deals — she negotiated as Secretary of State.

She rolled out former Governor and erstwhile Michigan resident Jennifer Granholm (when this story hit, some local folks were talking about how Granholm hasn’t been seen in these parts of late) to claim that Hillary can’t be held responsible for NAFTA — which she supported when it got passed by her spouse (who is, of course, a key campaign surrogate) — or for the Trans-Pacific Partnership — which she helped negotiate as Secretary of State. It’s the latter I find particularly remarkable.

“It’s not really fair to ascribe NAFTA to her when it was her husband’s administration,” Granholm said in an interview with The Detroit News. “And, of course, it’s not really fair to ascribe TPP to her when it was her boss’s administration. She can’t go against somebody who she worked for.”

As a U.S. senator from New York, Clinton voted against the Central American Free Trade Agreement (CAFTA) forged by Republican President George W. Bush’s administration.

“I think people have to be fair about looking at how she acted when she was on her own,” said Granholm, who is supporting Clinton’s candidacy.

Sanders has been talking about trade policy in speeches in Michigan this week. His campaign is planning a large rally a 7:30 p.m. Saturday night at Macomb Community College’s southern campus in Warren. Clinton and her husband were stumping for votes Saturday in Detroit.

On Thursday, Sanders highlighted trade policy at a press confernece in Lansing, previewing a potential topic of disagreement in Sunday night’s debate with Clinton at the University of Michigan-Flint.

“On the issue of trade, Secretary Clinton’s views and mine are very different,” Sanders said. “She has supported NAFTA, I opposed it. She supported permanent normal trade relations with China, I vigorously opposed the (permanent trade) with China. She supported permanent normal trade relations with Vietnam, I opposed that.”

“She supported the Colombia Free Trade Agreement. I opposed that. And she supported the Korean Free Trade Agreement. I opposed that.”

It’s unclear from Detroit News’ reporting whether Granholm includes the Colombian and Korean free trade deals in her absolution of Hillary’s responsibility or not. But as David Sirota has shown, Hillary’s own emails show some really damning details about her claims and enthusiasm for the former (which makes sense, because she is also an enthusiastic booster of Plan Colombia).

During her 2008 presidential run, Clinton said she opposed the deal because “I am very concerned about the history of violence against trade unionists in Colombia.” She later declared, “I oppose the deal. I have spoken out against the deal, I will vote against the deal, and I will do everything I can to urge the Congress to reject the Colombia Free Trade Agreement.”

But newly released emails show that as secretary of state, Clinton was personally lobbying Democratic members of Congress to support the deal, even promising one senior lawmaker that the deal would extend labor protections to Colombian workers that would be as good or better than those enjoyed by many workers in the United States.

One of the 2011 emails from Clinton to U.S. Trade Representative Michael Froman and Clinton aide Robert Hormats has a subject line “Sandy Levin” — a reference to the Democratic congressman who serves on the House Ways and Means Committee, which oversees U.S. trade policy. In the email detailing her call with Levin, she said the Michigan lawmaker “appreciates the changes that have been made, the national security arguments and Santos’s reforms” — the latter presumably a reference to Colombian President Juan Manuel Santos. She concludes the message about the call with Levin by saying, “I told him that at the rate we were going, Columbian [sic] workers were going to end up w the same or better rights than workers in Wisconsin and Indiana and, maybe even, Michigan.”

Note, too, in that email that there is no exemption claimed for the paragraph that follows on the discussion of KORUS, which has been particularly damaging to Michigan’s economy.

Look, last I checked, Hillary cleaned up on Super Tuesday claiming she is running on a continuation of Obama’s policies. While I recognize she mostly means the domestic policies she had a less direct role in, at some point we get to hold her accountable for the things she did in her actual job, which included negotiating trade deals that hurt American workers, especially while she’s claiming she’ll be Obama’s third term. Her role in trade deals — and her likely dishonesty about TPP (see this Larry Summers piece that assumes if Trump wins, TPP will be dismantled, which suggests he expects it to be fully implemented if Hillary wins) is part of who she is. Yes, she voted against a trade deal once. Yes, she also had an affirmative role in a lot more trade deals. That’s a shitty record to run on in MI (and it will be a shitty record that Trump will hammer her on mercilessly if they end up being the nominees), but it is her record, part of the extensive experience that she points to as making her best qualified to be President.

 

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Christina Romer’s Evidence Based Economics

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Christina Romer and some other Chairs of Democratic Presidents’ Council on Economic Advisors are out tut-tutting Bernie Sanders’ economic plans.

We are concerned to see the Sanders campaign citing extreme claims by Gerald Friedman about the effect of Senator Sanders’s economic plan—claims that cannot be supported by the economic evidence.

[snip]

As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic. These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.

I find Romer’s signature on this document to be interesting given what we know about a report Romer and President Obama’s other economic advisors did in the transition period in 2008. Romer had calculated that it would take $1.7-1.8 Trillion to undo the damage the banks had done. But Larry Summers not only bullied her into taking that out of the report presented to the President, but even the “compromise” $1.2 Trillion she proposed instead.

Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy—the “output gap,” in economist-speak. “An ambitious goal would be to eliminate the output gap by 2011–Q1 [the first quarter of 2011], returning the economy to full employment by that date,” she wrote. “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes and transfers to states and localities would require package costing about $1.8 trillion over two years.”

[snip]

When Romer showed Summers her $1.7-to-$1.8 trillion figure late the week before the memo was due, he dismissed it as impractical. So Romer spent the next day or two coming up with a reasonable compromise: $1.2 trillion. In a revised document that she sent Summers over the weekend, she included the $1.2 trillion figure, along with two more limited options: about $600 billion and about $850 billion.

At first, Summers gave her every indication that all three figures would appear in the memo he was sending the president-elect. But with less than twenty-four hours before the memo needed to be in Obama’s hands, Summers informed her that he was inclined to strike the $1.2 trillion figure.

[snip]

The final version of the memo had framed the debate around two basic choices—roughly $600 billion and roughly $850 billion—and these were the focus of the conversation.

In the end, Congress passed somewhere between $787 and $831 billion in stimulus — near the high side of what Summers presented, but still half of what Romer said the economy really needed.

As a result, of course, we’ve had a recovery for the banks, but far less of one for average people. That is, short-selling the stimulus put us where we are now, with millions of voters supporting outsider candidates like Sanders and Trump, because wonks like Larry Summers promised the stimulus was adequate to the problems facing the country.

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Friday Morning: It’s Five Somewhere

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This week has been really long. Painfully dragged out. Mid-week snowstorm probably didn’t help. But here we are, survivors with another week and yet another Presidential campaign debate under our belts.

I’ll keep it short and snappy given how much ugly we’ve been through.

Your information security is only as good as the stupidest person on staff
“Hello, FBI? I’m new here and I don’t have my code. Can you help a girl out?” No joke, that’s about all it took for one unnamed hacktivist to get inside the FBI. And yet the FBI demands backdoors into all mobile devices. I can’t even…

Meet your new immortal overlord: Your self-driving car
This first graf scares the crap out of me:

The computer algorithms that pilot self-driving cars may soon be considered the functional equivalents of human drivers. That’s the early opinion of the National Highway Traffic Safety Administration—and so begins our slow-burn acquiescence in the battle of man versus machine.

And not even for the reasons that PC World’s editor-in-chief Jon Phillips outlines in his editorial. If a governmental agency recognizes an algorithm as equal to a human, how long before humans are actually subordinate to artificial intelligence?  It’s bad enough corporations — legal constructs — have nearly the same rights as humans and can live forever. This needs to die on the vine right now — especially since Google is ramping up hiring for its line of self-driving cars.

Speaking of Google…

Busy week on Zika front

Media commentator Douglas Rushkoff interviewed on digital society

You left Facebook in 2013. How is that working out for you?

Professionally, I’m thinking it may be good for one’s career and business to be off social media altogether. Chris Anderson was wrong. “Free” doesn’t lead to anything but more free. Working for free isn’t leverage to do a talk for loads of money; now they even want you to talk for free. What am I supposed to do? Join YouTube and get three cents for every 100,000 views of my video? That is crap; that is insane! …

A worthwhile read, give it a whirl when the dust begins to settle.

Here’s hoping the weekend moves as slowly as this week did. Huli pau!

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Tuesday Morning: The Fat One You’ve Awaited

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Mardi Gras. The day before Ash Wednesday. Fat Tuesday. In Brazil, it’s Carnival — plenty of parades with costumed dancers and samba. In New Orleans, it means king cake, beads, and more parades, but here in Michigan, it means pączki. No parades in the snow, just an icy trek to the Polish bakery for some decadent sweets we get but once a year.

I’m still drafting this, too much stuff to weed through this morning. I’ll update as I write. Snag a cup of joe and a pączki while you wait. Make mine raspberry filled, please!

Economic indicators say “Maybe, Try Again”
Asian and European stock markets were a mess this morning. There’s no sign of an agreement between OPEC nations on production and pricing, which may lead to yet more floundering in the stock market. Yet one indicator — truck tonnage on the roads — doesn’t show signs of a recession in the U.S.

UK court cases topsy-turvy: LIBOR Six and a secret trial

  • UK can’t hold the LIBOR Six bankers accountable for their part in the 2008 economic crisis because the prosecution was sloppy. It’s pretty bad when a defense attorney asks if the prosecution was “making this up as they go along.”
  • The article’s first graf is a warning:

    Warning: this article omits information that the Guardian and other news organisations are currently prohibited from publishing.

    The case, R v Incedal and Rarmoul-Bouhadjar, continues to look like a star chamber, with very little information available to the public about the case. The accused have been charged and served time, but the media has been unable to freely access information about the case, and their appeal has now been denied. A very ugly precedent for a so-called free country.

Facebook: French trouble, and no free internet in India

  • Shocked, SHOCKED, I am: French regulators told Facebook its handling of users data didn’t sufficiently protect their privacy. The Commission nationale de l’informatique et des libertés (CNIL) told the social media platform it has three months to stop sharing users’ data with U.S. facilities for processing. CNIL also told Facebook to stop tracking non-Facebook users without warning them.
  • The Indian government told Facebook thanks, but no thanks to its Free Basics offering, a so-called free internet service. The service ran afoul of net neutrality in that country as it implicitly discouraged users from setting up sites outside Facebook’s platform. Many users did not understand there was a difference between Facebook and the internet as a whole. Mr. Zuckerberg really needs to study the meaning of colonialism, and how it might pertain to the internet in emerging markets.

Boy kicked out of school because of his DNA
This is a really sad story not resolved by the Genetic Information Nondiscrimination Act (GINA). The boy has cystic fibrosis; his parents informed the school on his paperwork, as they should in such cases. But because of the risks to the boy or his siblings with similar genes, the boy was asked to leave. GINA, unfortunately, does not protect against discrimination in education, only in healthcare and employment. This is a problem Congress should take up with an amendment to GINA. No child should be discriminated against in education because of their genes over which they have no control, any more than a child should be discriminated against because of their race, gender identity, or sexuality.

All right, get your party on, scarf down the last of your excess sweets, for tomorrow is sackcloth and ashes. I can hardly wait for the sugar hangover to come.

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On Pluralism, Bernie Sanders, and the Fight for 15

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In one of the hot-take pieces on the Democratic primary many people are talking about today, Jonathan Chait — fresh off being certified as a wonk by Paul Krugman — distinguishes between what he calls Hillary Clinton’s “pluralist” approach and Bernie Sanders’ “statist” vision.

Sanders did not so much dispute the efficacy of Dodd-Frank as to broaden the question. His fixation with Wall Street is not systemic risk — i.e., the chance that another crash will trigger an economic meltdown. He frames Wall Street as a problem of political economy, not economy. Wall Street is so big and rich that it is inherently dangerous, and will by its nature corrupt the political system.

Clinton does not believe that. Her political ideal is what some political scientists have called “pluralism.” A pluralist politics venerates the careful balancing of competing interests. It is okay to bring business to the bargaining table as long as there is also a place for labor, environmentalists, consumer advocates, and other countervailing interests. Clinton’s Democratic Party, and Obama’s, is one in which pluralist agreements struck important progress not only in financial reform but also health care, public investment, green energy, and other priorities.

Sanders does not completely reject the products of these pluralist compromises. (He grudgingly accepts them as worthwhile, piecemeal steps.) What he rejects is the political model that treats pluralism as the normal model of political action. Sanders believes the interest of the public is not divided, it is united, and only the corrupt influence of big business has thwarted it. He consequently vows to smash its power through a combination of a mass upsurge in political activism and campaign-finance reform.

[snip]

A Democratic Party as monolithically statist as the modern Republican Party is anti-government — one in which any defense of free markets or business is dismissed — would look very different than anything within American historical experience. After decades of this being taken for granted, it has finally become necessary to defend moderation as a governing creed.

Let’s ignore how Chait caricatures Sanders for the moment, warning of an awful “statist” Democratic party in which “any defense of free markets or business is dismissed,” and take his view of Hillary’s pluralism on its face.

In Hillary’s Democratic party, citizens exercise their influence through various interest groups. There’s business (presented here as a monolith), and there there’s “labor, environmentalists, consumer advocates, and other countervailing interests,” and together they compromise on incrementalist policy about which everyone gets a say.

That is, in fact, how the mainstream Democratic party organizes itself, and Hillary’s endorsement by virtually all of the organizations deemed to represent one of these players reflects it. She does have support from business, but she also has support from League of Conservation Voters, Planned Parenthood, Human Rights Campaign, and other big organizations. (There’s a breathtaking list of her endorsements here — you have to scroll down quite a way to get to the institutional endorsements.) This is what that “establishment organization” hubbub was about: that Hillary has the support of the groups deemed to represent the various pluralities of the Democratic party.

On that list are most of the national labor unions. That’s not surprising. Hillary is (still) a favorite to win nomination and after that the general election, and all these organizations are ensuring they’ll have a seat at that pluralist table Hillary sets (though it’s not clear what the unions that backed Obama early in 2008 really got out of the deal; he certainly didn’t deliver the Employee Free Choice Act, as he had suggested he’d try to do). Union leaders endorse early because it ensures they’ll have the ear of the presumptive president.

Even there, as some have noted, a few unions that let members decide who to endorse endorsed Bernie.

But here’s the thing. Just 11.1% of workers were in a union last year. And to the extent that the Democratic party’s pluralism is mediated through these national organizations, it means the views of workers as such are largely represented by organizations they don’t have any stake in, organizations whose workers make 26% more than non-union workers. And we wonder why so few of these workers show up to vote for Democrats?

I asked Chait on Twitter where these more marginalized workers would get their seat at the pluralist table and thus far haven’t gotten an answer.

This question is probably most pressing with regards to the most exciting labor organizing in recent years: the SEIU-backed Fight for 15, which has found a model that works for franchises, and which has also notched a number of key local wins for a higher minimum wage. Importantly, where it succeeds in raising wages for an entire city, people within and outside of the movement structure will do better. But a lot of workers who would be incorporated at the pluralist table by a push for a living minimum wage are not and would not be SEIU members.

Fight for 15 is an issue where there’s a clear policy difference between Hillary, who favors raising the minimum wage to $12 (which is not a living wage in many areas of this country) and Bernie, who enthusiastically supports the $15 goal.

Nevertheless, SEIU endorsed Hillary. Jacobin explained the logic shortly after the endorsement.

If Clinton is going to win — because she has to win — then delaying a primary endorsement has no upside. The union would simply jeopardize its spot on Clinton’s crowded list of favors to return.

But the access argument is also unpersuasive. In 2007 the union was divided internally over whether to back John Edwards or Obama. In the end the national union allowed its state affiliates to go their separate ways, only uniting behind Obama after Edwards had dropped out after the first round of primaries. Opting not to come out early for Obama didn’t prevent the union from mobilizing members and resources for the general election. Similarly, SEIU will be indispensable to the Democratic nominee’s chances in November, so it is hard to argue that Clinton could shut the union out.

[snip]

Comments from SEIU’s largest local suggest the union is perfectly happy to see Sanders pressing Clinton to take more left-leaning positions. But the labor movement still sees the election solely through the prism of its outcome — not in terms of what Sanders’s candidacy represents, or makes possible.

That narrow electoralism could end up harming Fight for 15 — not just the union’s most important campaign, but arguably the most important labor battle happening today. SEIU’s decision to provide the financial largesse for Fight for 15 comes from the indisputably correct observation that unless the labor movement can bring millions of low-wage workers into its fold, organized labor is scheduled for expiry.

Yet before the endorsement announcement, SEIU President Mary Kay Henry toldAl Jazeera that though the union is expecting “candidates up and down the ticket who are willing to get in the streets and champion this demand,” support for a $15 minimum wage is not a “litmus test” but an “aspirational demand.”

Over the last three years, SEIU has spent tens of millions of dollars and galvanized the labor movement around an inspiring fight. It has justified this enormous expenditure to its members by correctly arguing that they won’t be able to protect and improve their own standards unless something is done to boost the wages of the worst paid workers.

But if the union actually believed it could win on this issue — if it believed it could lead — then a litmus test is exactly what it would be. Clinton would just have to get in line. Members and non-members have shown that they are willing to fight for $15 and a union. What does it say to them if they now are asked to knock on doors calling for $12 and a Clinton?

That is, Hillary’s pluralist table, which leaves little space for the overwhelming majority of workers who aren’t represented by a union, had already dealt away the key policy platform the key voice pulling up to that table has pursued.

Partly that’s a testament to the desperation of unions — that they’re willing to trade their key issues even to get a seat at the table, and partly that’s a testament to the lack of representation for most workers who might sit there.

But having set the table like that, there’s little prospect the large numbers of workers who haven’t been as active in Democratic politics of late will have much sway in face of the powerful banks who don’t appear to have traded away key issues for their time with Hillary.

Notably: these lower income voters, along with the more widely noted younger voters, are precisely those whom Bernie is winning (though as the primary moves to more racially diverse states, that is expected to change).

There’s a key failing in the pluralist vision painted by Chait (even taking it on its face): even to win a seat at the table, labor — and really just that fraction of workers who enjoy union representation — had already started compromising, well before the bankers even sat down for their scotch.

And no matter how this primary ends up, that’s not something that’s sustainable, particularly not in the wake of the financial disaster that pushed so many people closer to the edge. If Clinton is going to win with a pluralist table, there needs to be, for both electoral and social justice reasons, a seat, a lot of seats, for all the workers who have fallen by the electoral wayside in recent years. Bernie has gotten their attention. What does Hillary plan to do to keep it?

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Thursday Morning: Better than a Week

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You know the joke: 4:30 p.m. is better than an hour away from 5:00 p.m., right? Thursday is better than a week away from the weekend. For folks traveling home for the Lunar New Year holiday in China, there are four days left to get home, and the train stations are crazy-full. But today is better than five days away from family and friends.

Goldman Sachs questions capitalism
YEAH. I KNOW. I did a double-take when I read the hed on this piece. In a GS analysts’ note they wrote, “There are broader questions to be asked about the efficacy of capitalism.” They’re freaking out because the market isn’t acting the way it’s supposed to, where new entrants respond to fat margins generated by first-to-market or mature producers.

I wonder how much longer it will take them to realize they killed the golden goose with their plutocratic rewards for oligopolies? How long before they realize this isn’t capitalism at all?

Whistleblower tells Swiss (and banks) to get over themselves on whistleblowing
Interviewed last week, former UBS banker Bradley Birkenfeld said, “We have to make some changes in Switzerland — it’s long overdue … The environment there is hostile toward people exposing corruption.” Birkenfeld’s remarks prod Swiss lawmakers currently at work on whistleblowing legislation. When passed, the law is not expected to offer protections employees have in the U.S. and the UK (and we know those are thin and constantly under attack). But perhaps the law will prevent cases like Nestle SA’s suit against a former executive who disclosed food safety risks. That suit and another alleging a former UBS employee libeled the bank may be affected assuming the EU adopts the same approach toward whistleblowing and corruption reduction.

“Computer failure” at IRS halts acceptance of tax return e-filings
No details about the nature of the “computer failure” apart from a “hardware problem” or “hardware failure” appeared in any reports yesterday afternoon and overnight. The IRS expects to have repairs completed today to allow e-filings once again; filings already submitted are not affected.

FBI agent on new car purchases: entering ‘wild, wild west’
Four cybersecurity experts spoke at a meeting of the Automotive Press Association in Detroit yesterday, one of whom was an FBI cyber squad agent. The feedback from the speakers wasn’t reassuring, apart from the observation by a specialist from a start-up automotive cyber security firm that they did not know of a “real world incident where someone’s vehicle was attacked and taken over remotely by someone hacking into the vehicle.” A lawyer whose firm handles automotive industry cyber threats undercut any feeling of relief with an observation that judges aren’t savvy about cyber crime on vehicles. I think I’ll stick with my old school car for a while longer.

The Repair Coalition formed to protect the ‘Right to Repair’
Speaking of old school car, I hope I can continue to get it repaired in the future without worrying about lawsuits for copyright violations. We’ve already seen tractor owners in conflict with John Deere over repairs, and exemptions to copyright for repair have been granted only after tedious and costly effort, and then to the farmer only, not to their mechanic. Hence the emergence of The Repair Coalition, which takes aim at repealing the DMCA’s Section 1201 — terms in it make it illegal to “circumvent a technological measure that effectively controls access to a work protected under [the DMCA].”

It’s long been an American ethic to “Use it up, wear it out, make do, or do without,” an ethic we need to restore to primacy if we are to reduce our CO2 footprint. Repairing rather than tossing goods is essential to our environmental health, let alone a necessity when wages for lower income workers remain stagnant.

That’s a wrap — I could go on but now we’re better than a day away from Friday. Whew.

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The Origins of Totalitarianism Part 5: Artistic and Intellectual Elites and the Rise of Fascism

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Previous posts in this series:

The Origins of Totalitarianism Part 1: Introduction.

The Origins of Totalitarianism Part 2: Antisemitism

The Origins of Totalitarianism: Interlude on the Tea Party

The Origins of Totalitarianism Part 3: Superfluous Capital and Superfluous People

The Origins of Totalitarianism: Interlude on The Commons

Capitalism Versus The Social Commons (published at Naked Capitalism; discusses privatization using Rosa Luxemburg theory)

The Origins of Totalitarianism Part 4: Humanity under Totalitarianism

The Origins of Totalitarianism: Interlude on Right-Wing Authoritarianism

Arendt uses the term “elites” to mean the highly trained and educated intellectuals in Germany and Austria, and artists and composers and writers who together make up the intelligentsia. She begins by describing the breakdown of the class structure in those countries, “…when the smugness of spurious respectability gave way to anarchic despair….” The elites hated the pretensions of the bourgeoisie, hated the class structures they imposed to support their positions and oppress the rest of the people, and hated the bogus morality they proclaimed in public and ignored in private. For decades, they assaulted the bourgeoisie, sometimes with satire, sometimes more directly, with attacks against their conventional religion and philosophy. They welcomed the First World War, hoping that it would wipe out the existing culture. After the war they hrejected restoration of the prior structures.

Arendt attributes two desires to individual members of the post-war elites: the desire for anonymity, for losing themselves in the midst of the people; and a yearning for violence to wipe out any remaining influences of the old bourgeoisie morality and respectability.

These people felt attracted to the pronounced activism of totalitarian movements, to their curious and only seemingly contradictory insistence on both the primacy of sheer action and the overwhelming force of sheer necessity. This mixture corresponded precisely to the war experience of the “front generation,” to the experience of constant activity within the framework of overwhelming fatality. P. 331.

The violence of the totalitarian movements was attractive to these elites precisely because it seemed to be a “ …kind of philosophy through which to express frustration, resentment, and blind hatred, a kind of political expressionism which used bombs to express oneself, which watched delightedly the publicity given to resounding deeds and was absolutely willing to pay the price of life for having succeeded in forcing the recognition of one’s existence on the normal strata of society.” P. 332 Arendt refers to this as a temporary alliance between the mob and the elites. In Part 3, we saw the distinction between the mob and the masses. The former are the unemployable, who at least shared some of the morality and attitudes of the class to which they once belonged or aspired to. The elites were thrilled to see the mob attack respectability, for example, when the steel barons were forced to accept the housepainter Hitler.

Arendt claims that the elites believed that all of the theories they were raised to accept had failed utterly and spectacularly and had caused enormous damage. Even the bourgeoisie had only the public appearance of morality. In private their morals were those of the mob. It thrilled the elites to see the academic theories that had nurtured them, theories like dialectical materialism, replaced with crackpot ideas and conspiracy theories. In this atmosphere it was wonderful to shove the faces of the bourgeoisie in their hypocrisy, and to express the anger and cruelty hidden behind their public faces. There were no limits to this decadent idea, as the French writer Celine showed in his Notes for a Massacre, in which he proposed to kill all the Jews.

Andre Gide was publicly delighted in the pages of the Nouvelle Revue Frangaise, not of course because he wanted to kill the Jews of France, but because he rejoiced in the blunt admission of such a desire and in the fascinating contradiction between Celine’s bluntness and the hypocritical politeness which surrounded the Jewish question in all respectable quarters. How irresistible the desire for the unmasking of hypocrisy was among the elite can be gauged by the fact that such delight could not even be spoiled by Hitler’s very real persecution of the Jews, which at the time of Celine’s writing was already in full swing. P. 335.

The current form of this idiocy is the ranting from the Republicans about political correctness. We don’t have time for political correctness, says Trump, merely speaking more frankly than his dog-whistle competition, and handing out a license to his followers to express their misogynist, homophobic, racist and other irrational hatreds.

Arendt also tells us that the elites recognized that the bourgeoisie were deeply cynical about the government. They operated it for their benefit in secret, and publicly claimed that all of their policies would benefit the rest of society. This blatant hypocrisy added to the hatred of the elites for the rich. Once they were content with the teachings of Karl Marx, who thought that the state would wither away. After WWI, that wasn’t radical enough for the elites. They wanted action at the price of anarchy and violence. But when the leftists tried to overthrow the bourgeoisie and the post-WWI government, the Social Democrats sicced the right-wing Freikorps on them and killed them and their intellectual leaders, including Rosa Luxemburg.

Of course the project of dismantling the 19th Century morality and certainty of the middle classes continues today among some of our elites. Just look at the ideas about truth espoused by Richard Rorty (a follower of John Dewey), or the attacks on fundamentalist religion from Sam Harris and others, or this from the New York Times Magazine:

In person, [Rachel] Bloom comes across as someone who takes honesty to its natural conclusion. “I like deconstructing things, ….. I like cutting the legs out from under something that feels secret. Something that’s like — ‘Oh, breasts are sexy.’ They’re floppy, Jell-O-filled sacks! In high school, I was once watching the surgery channel and ended up watching a breast reduction. The inside of a breast is disgusting. It looks like the inside of a couch.”

Arendt’s elites have been playing this game of epater le bourgeoisie, shock the middle class, for decades, and there is no end in sight. It’s a fun game, with no physical violence, and no real effect on politics or public life. Today, it’s pretty much self-neutering. Elite discussions of performance art or post-structuralism are irrelevant to the lives of practically everyone.

There are many lessons in Arendt’s story for the Sanders wing of the Democratic Party and for Trump Republicans. Among them is the simple fact that the rich and powerful people will use every tool to preserve their power and wealth.

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