Fixing Capitalism

44040355775_00e5b353ac_b

California Bank” by waltarrrrr is licensed under CC BY-NC-ND 2.0

There’s a lot of talk these days about fixing capitalism.   However, there’s a problem with much of it—there are so many things to fix that it all becomes a daunting task.  The point of view here is simpler.  There are a great many things that aren’t happening, because capitalism just doesn’t do them—and we can start by making sure those get done.

At its source this problem comes from our being force-fed the wildly radical idea that the private sector—capitalism—will solve all problems by itself.  So even when we realize that capitalism needs to be fixed, we tend to be overly concerned with all the patches.

However, even Adam Smith had no delusions about the limitations of capitalism.  As he pointed out:

  1. The private sector will not police itself.

On the contrary it will do everything possible to corrupt the free market with monopolies and government influence: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”  We’re used to hearing “private sector” and “free market” used almost as synonyms.   In fact, as Smith recognized, the free market is an ideal that can only be achieved when government holds the private sector accountable.

  1. The private sector will not provide the environment for its own success.

Smith even advocated a government program of universal literacy, quite a stretch for the eighteenth century and a pointer for us today.  This is a serious matter, because it shows how dangerous it is for the economy to punt everything to the private sector.

  1. Much of what is needed for a successful society is simply out of scope for the private sector.

Capitalism will not provide any service where there is no competitive advantage in doing it.  Public health and welfare, environmental questions, basic science, etc. are all out of scope.

Fixing capitalism strictly speaking deals only with the first category.  No amount of fixing is going to make capitalism deal with the rest.  Those issues are ours to solve.

It’s instructive to think about needs in each category.

 

  1. Policing the private sector

Monopolies are still with us and have become an increasing problem due to technology changes and weakened anti-trust enforcement.  The same is also true of corruption due to business influence on government.  These days no one even apologizes for it.

This is particularly true in the financial sector where banking, for example, has evolved into speculative gambling with losses covered by the FDIC.  You can even argue that the financial sector overall has evolved in directions that make it predatory on productive business.  After decades of Republican-inspired hands-off attitudes toward business, there is no shortage of serious issues.  However fixing all of them makes progress look far away.

Taking a step back, there is a single biggest problem:  legal tax evasion.  This is a gating item for so much progress that it just has to be dealt with.  Even before Trump’s tax cuts (and despite nominal tax rates), American companies paid the lowest effective taxes as a percent of income of any developed country.  That was largely a result of multinationals’ ability to move income to tax shelter countries—reducing rates or hiding income entirely.  Apple is only one egregious case.  The recent tax cuts made matters worse with drastically-reduced business rates, arcane rule changes for overseas income, and the new pass-through income treatment.  That pumped up the deficit—thereby hobbling government’s ability to respond to the serious sins of omission in categories 2 & 3.

What’s more, despite the insistent propaganda, taxes are actually not a primary issue for American competitiveness:

– Many studies have shown that in most industries today business profit levels reflect monopoly power to set prices well above historic levels of margin.  That’s a trend we can expect to continue.  In other words, businesses have considerable financial room to pay taxes.

– Further, as frequently noted, the savings from the tax cuts went primarily into stock buybacks.  That is companies decided the best thing to do with the tax cut money was to give it back to their investors in higher stock prices.

Conclusion:   Get the private sector (particularly large multinationals) and its investors to pay taxes.  Then work through all the rest.

 

  1. Providing the environment for economic success

If taxes aren’t the issue for American competitiveness, what is?  As we’ve noted here before, what makes for success is the technological advantage that has kept us in many areas on top of the heap.  That supports both our standard of living and our military strength.

Our technical dominance is based on three factors:

i. The dynamism of our economic system in generating new products and technologies.

ii. Broadly-based government support of research and education

iii. Remaining the preferred destination for entrepreneurs and other ambitious people from everywhere to realize their dreams

Let’s look at the current status of all three:

i. Unchallenged influence of big companies on government has favored established companies over new entrants. In part this is an anti-trust enforcement issue, but it has many other aspects.  The demise of net neutrality is one highly-visible example.

On this issue the interest of big business is strongly opposed to what makes for long-term national success.

ii. The administration is actively hostile toward science, government-sponsored research, and broad-based education. This is shown in purging of scientists from government agencies and restricting their influence on public policy.  One obvious example is in climate change.  Also the new tax law punished major research universities with a targeted tax.

Public investment in research had a major role in the prosperity of the 1950’s and 60’s and kicked off the opportunities of internet today.  The same kind of public investment has remade China as a technology powerhouse.  But our dedication to research has eroded over time:

R_D_spending

Instead we’re waiting for the private sector to do the job, which by definition means catch-up.

The story for education is similar.   In the 1950’s and 60’s we were expanding educational opportunities to whole classes of people who had never before had the chance.   Now we rank far down on the list for upward mobility.  Sudent loan debt tells the same story, and that’s only about the people DID go to college, not about the ones who were deterred by cost and DIDN’T.  Finally, educational funding in the states has never recovered from the 2008 crash.

It’s worth mentioning in passing that the value of research is not only for international competitiveness.  Basic research is part of the global project of raising human standards of living. Even when one worries about national competitiveness, progress is generally so international that openness is the ante for remaining at the forefront of progress.  Current policy to restrict international participation of US scientists weakens the country in the name of national security.

iii.  As a final point we need to emphasize the critical role that foreigners and their children are playing in maintaining our national strengths.  Many studies have shown their role both in starting new companies and in supplying the technical underpinning that makes for success.  As Steve Bannon noted (for his own purposes) such people represent more than half of Silicon Valley activity.  Google (cofounded by a foreigner) and Apple (by the son of a foreigner) are only the most obvious examples.

The current xenophobic backlash is wildly off-target.  Particularly with the weakened support for research and education, those are the people keeping our place in the sun.  (To be clear, an immigration plan that only accepts people with degrees is no counterweight to the nationalist, nativist rhetoric.)

Conclusions:

– This area has got to be fixed or we risk losing our standard of living and dominant role.  These are traditional US values and as important as ever for US success.   It we’re worried about competing with Chinese, this is where the battle will be lost or won.

– If we can get our act together, items i and iii should remain as our advantages going forward.  So we shouldn’t be defeatist about a future that is in our hands.

 

  1. Spending for the common good

This has been a bastard child for so many decades now, that there is much that needs to be caught up.  Here is one short list:

– Infrastructure (Much discussed, but with more sides to it than you might think.  See here for a good overview.)

– Climate change (Evidence has become incontrovertible, but we still need a real plan.)

– Universal health care (Needed not only as a benefit but also as an enabler for equal opportunity.)

– Opioid crisis (Much discussed, but with radically inadequate funding)

– Environmental protection (Not a luxury)

– Transitional assistance (Helping people through changes—from technology, globalization, etc.)

There is enough essential work here to pose a major challenge for government.  We need to confront the unmet needs of the society, then we need concrete plans, and finally we need to manage major operations with competence and integrity.  Despite the propaganda there is nothing unusual about effective, government-sponsored work.  However as with any other enterprises, this needs to be scrupulously well-run.  Just because good people are running it doesn’t mean there is less risk of corruption.  We have to get serious about public enterprise.

That means we have to get past the idea that there is something intrinsically wrong about working for the public good.  That’s after all nothing more than the other side of the “private sector will solve everything” coin.  We live with the continued juxtaposition of vast under-employment (3.7% unemployment doesn’t change the good union jobs replaced by Walmart) together with vast unmet needs that the private sector won’t address.  We’ve got to take the initiative to match one with the other.  This is not “make work”.  It’s essential work that isn’t getting done, because the private sector won’t do it.

Until we take that initiative, it’s hard to assess where we are as a society.  Public enterprise helps in many ways.  It helps with inequality and the middle class.  It helps with leverage for workers and standards for employment.  Many public sector jobs of their nature will be hard to outsource.  It makes no sense to talk about abstractions such as Universal Basic Income until we see how things shake out in a fully-functional economy.  The future may be less strange or scary than it seems.  (This isn’t just about public sector employment; work done by the public sector helps other trends as well.  Even in Silicon Valley each job in tech creates 4.3 other jobs as well.)

Conclusion:   We need to create the full-scale machinery for government service to do what the private sector won’t.

 

It’s always hard to foresee the future.  I remember when I was in high school, Prince Philip gave a commencement address at UCLA in which he spoke (as world expert!) about leisure.  Already then he was thinking that machines would take over work, leaving as us all to spend the rest of our lives at the beach.

That’s certainly not what happened, but there’s still something to be said for the positive spin.  Historically technology and even globalization have been good for living standards, except where societies have chosen to deny the benefits to large segments of their populations.  Both domestically and internationally we have every opportunity to do this right.  We can either organize our economy–and the world order–so that all can benefit, or we can go down in flames of our own making.

Let’s Just Do Immigration

28693267654_b115c18e38_b

Now that Trump has decided that the target for the total number of immigrants is unchanged, why don’t we just fix immigration:

  • Family unification is a good thing, but it has taken too much of the total, now 70%.
  • It’s sensible that some fraction of immigrants should get in based on special capabilities or other demonstrable merit.  (It’s worth noting that the current system is actually not so bad in that respect.)
  • It’s also sensible to have some fraction of immigration that is not so constrained.  You never know who’s going to be a hero, and diversity has value.  Moreover past immigrants mostly came from places where they were denied opportunities for such merit.  So a lottery system has value too.

As a default, divide it up 1/3 for each and call it even.  Otherwise negotiate the limits for a while and then call it done.  (As an interesting variant, Canada handles family unification with relationship points in the merit index.)

Additionally:

  • We need to settle DACA once and for all, because there is no value to anyone in not doing it.  Since we’re talking about merit, these are upstanding, fully-adapted, English-speaking contributors.  And their number, compared to Trump’s new annual totals, is on the order of 1%.
  • For the rest of currently undocumented immigrants, we had a bipartisan bill passed by the Senate in 2013.  That can still be a basis for work.  These people are almost all working and paying taxes.

This isn’t so hard.   It only takes the will to do it.

There remains the question of enforcement.  For that, the problem is that we’ve been postulating solutions without any serious analysis.   Politicians shouldn’t be arguing about this.  (Border control was never wild about the wall until they were told they”d better be.)  There needs to be an independent assessment of how money should be spent to enforce the law.

However one thing that is definite is that there is no excuse for mistreatment of desperate people looking to escape overwhelming problems for themselves or their families.  We can’t satisfy them all–immigration law is there to say who gets help–but that’s no excuse for treating them all as criminals or worse.

 

The Unreceived Message of the College Admissions Scandal

SAM_0074

The message of the College Admissions Scandal is not that there is cheating in college admissions.  As one commentator put it: “This Just In: Rich People Game College Admissions for Their Kids (Stop the Presses!)  . . .Are we shocked—shocked?”

This scandal, like each of the innumerable articles about helicopter parents, shows how desperate parents are to protect their kids from the vast inequities of the educational system (and what comes afterward).  The real scandal is that the college admissions game really matters.  So the main message isn’t about Harvard, it’s about PUBLIC education.

This country used to care about public education.   It created the GI bill.  It vastly expanded the state university systems.  It showed the rest of the world what broad access to education could do for prosperity of a country.

Then, as a conscious goal of the Koch organization and the new Republican Party, we lost it.   Education has been a major victim of the drive for lower taxes on the rich, and the 2008 crash brought this to crisis levels.  Funding for schools has never recovered.  Rises in state tuition fed the student loan debt crisis.  K-12 school funding collapsed to the point of nationwide teacher strikes.  We even have Koch-funded propaganda attacking the whole idea of mass education.  Trump’s first State of the Union address pointedly talked only about welders and vocation education.

Public education needs to be first-rate.   We didn’t achieve it for everyone in the 60’s, but we showed it could be done more broadly that ever before.  Other countries, following our lead, are now well ahead of us for both education and (as a consequence) upward mobility.

Fixing education is not a trivial matter, but it mostly depends on a commitment to doing the whole job.  There are a number of aspects:

– Money

Money doesn’t solve things all by itself, but we’ve got to stop believing it doesn’t matter.  Raising tuition and fees defeats the whole purpose.

– Value teachers

Teachers, rather than consultants and administrators, should be prime contributors to the direction of the system.

– Common core

There need to be clear national standards of what we are trying to achieve.  However, that should still leave room individual teacher creativity.

– Graduation rates

We need to understand and counteract the current declines.

– Full range of institutions

All types of student objectives should be supported with traditional universities, community colleges, and vocational institutions.

 

Above all we need to fight the current ethos of superheroes and losers, and recognize that the strength of the country is in providing everyone access to the tools to succeed.  That’s why education matters.

The Epiphany of the Right

36910561096_94dafebbc4_z

It’s often difficult to understand the logic behind the right’s continued embrace of Trump’s lies and corruption.  In thinking about it, it seems that there is something even more fundamental than identity behind it.  You might call it the epiphany of the right.

This already existed in rather pure form with the Tea Party.  Tea Party participants had the enthusiasm of true believers, and they were pretty clear about their new beliefs.  When interviewers asked people on Medicare and Social Security why they were ready to deny government benefits to everyone else, the answers came down to a simple idea: “I don’t have to care!”.  In Strangers in their own Land, the author asked a Tea Party defender of personal responsibility how a poor child in a drastically underfunded school system was supposed to succeed, and she got the same response. “I don’t have to care”.

That “I don’t have to care” has become the epiphany of the right.  It’s the all-purpose answer.   It not only absolves the believer of moral responsibility, it gets you off the hook for anything you’d rather not think about—say climate change or the actual operation of world economy.  All that nagging about equality, facts, or expertise is optional!

It’s the perfect elixir for the Trump world.  Responsibilities or standards of behavior are gone.  You don’t have to do anything you don’t want to.  Whatever you don’t like can be dealt with by any means, however brutal.  Democracy is just something else to nag about.

As with one’s personal life, this kind of behavior feels liberating and great until it isn’t.  Reality wins in the end.  But until then—there’s nothing anyone else can tell you!  I don’t have to care.

Saving the Country

6091600778_6541b71899_z

This note grows out of a comment made during the election night coverage of the midterms.  Analysts were breaking down the vote in various categories, and one of them remarked that if you just look at white voters, this seems like a completely different country:  Republican voters outnumbered Democrats 3 to 2.  They were all-in for the Trump program.

It’s worth paying attention to what that means.  Diversity is not a matter of tolerance; it’s a matter of national success.

Immigrants and their families are assets by any statistical measure.  They need to work harder to succeed, and they do it.   As the various waves of immigration entered this country, they have adapted and prospered, and the country as a whole has benefited.  It’s no accident that the most prominent players in our new economy—Google and Apple—were founded by an immigrant and the son of an immigrant.

But there is another aspect to this as well.   Outsiders (and not just immigrants) are not so easily tempted by images of an idealized past paradise.  Those siren-song images are not from their past, so they can keep focused on reality and the future.

Despite the many similarities between the Trump regime and the early stages of the “illiberal democracies” of Poland and Hungary, our diversity provides perhaps a degree of protection.  White voters have not called all the shots in the midterm election.  And it’s possible to believe that we’ve taken a first step back from the brink.

The problems of the Trump regime affect everyone.  First and foremost, we are squandering our strongest economic advantages out of ignorance and arrogance.  And we are at each other’s throats by conscious choice.  Dictatorships are not just bad for outside groups, they are historically bad for everyone.

So we should give credit where it’s due.  Three cheers for diversity in all of its shapes and colors—the saviors of the country!

 

Don’t Pretend This Election is Normal

30230113486_48fec5499d_z

On the economy:  We’ve embarked on an unprecedented binge of deficit-financed stimulus in good times.  In just the past fiscal year the deficit ballooned by an extra $300 B, far more than foreseen.   That’s a great stimulus for the election, but it will be a long, cold winter.

Erratic tariff policy is already causing layoffs and market swings, with the major impact delayed until after the election.  George Bush’s 2002 steel tariffs cost 200,000 jobs;  this time effects will go much wider.  And there is no pot of gold from these trade wars.

Finally we’re setting ourselves up for the very considerable economic consequences of ignoring climate change.

On personal welfare:  Last year’s attack on ACA showed no commitment to do anything serious about healthcare—other than remove the progressive tax that funds it.

The huge business tax cuts have produced no wage increases beyond inflation (and no jump in business investment either).  Further those tax cuts have left no room for education, infrastructure, or social services, leading to recent plans to cut Medicare and Social Security.

Supreme Court justices were chosen to fight unions and satisfy the moral pretensions of the evangelical right.  Roe v Wade is only the beginning.

On freedom: We’ve had ongoing and increasingly brutal attacks on truth and the media.  Trump’s attempts to control the FBI have not succeeded, but by all accounts a win in the mid-terms means replacing Sessions with a more obliging alternative.  We’re reached the stage where we actually have to worry about the Justice Department!

On democracy:  It needs to be emphasized that the Kavanaugh appointment completes Trump’s control of government.  With a committed majority on the Court and capitulation by Republicans in both Houses of Congress, there is effectively no check on what he does.  We haven’t had time yet to understand how bad this is going to be.  Even Constitutional limits only work if the Court will enforce them.  Without a Democratic majority in the House, there is nothing protecting the nation from whatever comes into his head—trade wars, real wars, silencing of opposition, personal vendettas, whatever.

Our founding fathers chose democracy for a good reason.  They knew all about one-man rule.  Democracy is inherently fragile, but that’s what made us what we are.  We need to preserve it.  VOTE.

Kavanaugh Nightmares

7962586726_b23b0a9053_z

This subject is too painful to talk about but too painful to leave alone.  A few points:

– The fundamental danger of the Kavanaugh appointment was of course clear from the start—it was clear from the moment that Kennedy announced his retirement.  One way or another we were going to get a Supreme Court majority for authoritarian control of the country.   Since the Supreme Court enforces the Constitution, this is the fox in the hen house.

– The Kavanaugh hearing made matters worse in two ways.  The idea that law-giving on abortion and contraception might be determined by a perpetrator of sexual assault was bad enough, but additionally we were given the spectacle of Kavanaugh’s unhinged rant about liberal conspiracies with the implied threat (now soon to be realized) of revenge.  The final act, with Collins presenting the Party’s carefully-crafted whitewash of the whole affair, was an apotheosis of hypocrisy.

– The press has thus far, as usual, attempted to normalize the situation.  The word “conservative” is a handy tool in this effort.  As if these people represented an ordinary, conservative political wing rather than a takeover of the country to subvert democracy for the foreseeable future!  Even the focus on Roe v Wade has this effect, by making it sound like the problem is limited to a few specific issues.

Instead this takeover of the court will pervade all aspects of society.  Here are a few more examples of what may be in store:

  1. Essentially all regulatory agencies risk shutdown. The new “conservative” mantra is that delegation to regulatory agencies is unconstitutional, i.e. any regulation has to be a law passed by Congress.  Since that is as a practical matter unworkable, none of it can happen.
  2. The 14th Amendment can be weakened out of existence (the Constitution only exists as interpreted by the Court), limiting the ability to address racism or LGBT issues.  This is a stated “conservative” objective.
  3. Selected portions of Medicare, Social Security, and other aid programs can be eliminated as unconstitutional. This works directly to the Koch organization’s goal of drastically cutting government to reduce their taxes.
  4. Basic problems of the society can become unaddressable. Education, student loans, healthcare, opioid crisis, etc. can be made untouchable by any future Congressional effort.
  5. Fundamental free speech rules can become unenforceable. Trump could be able to shut down the NY Times or Washington Post on whatever pretext he chooses.
  6. Rule by Presidential fiat can become the norm, as only the Court can challenge it. With the example of the current trade wars, arbitrary control of the US economy will erode its strengths for all of us.

That’s what’s looming for the not-so-distant future.  It doesn’t change our immediate goals, as the mid-term elections are now more important than ever.  But it will be a tough battle, and the unprincipled savagery of today’s Republican Party has been vividly on display.