HAWB 1800s - The Doctrine of High Wages - How America Was Built

The United States was established as a republic, at a point in world history when all other systems of government were monarchies, oligarchies, or some other form of despotism. What, then, are the proper precepts of political economy that a republic should use to organize and structure its economy?

In Securing the Fruits of Labor: The American Concept of Wealth Distribution, 1765-1900,
(Louisiana State University Press, 1998), Oklahoma State University history professor James L. Huston writes:

The republicanism that American leaders came to advocate held sacred the ideals of individual liberty, the equality of the citizens before the law, distrust of governmental power and of political demagogues, simplicity and frugality in the behaviors of the people, and public exhibition of virtue--the willingness of citizens to sacrifice their individual self-interest to obtain the common good. An important economic corollary of republicanism established primarily by Englishman James Harrington (1611-77) during the Puritan Commonwealth was widely acknowledged by American revolutionaries: to endure, a republic had to possess an equal or nearly equal distribution of land wealth among its citizens.

As the United States began to industrialize and urbanize, increasing number of citizens no longer lived and worked on the land, let alone owned land. The great failure of Thomas Jefferson and his Democratic-Republican Party (which later became the Democratic Party) was their inability to conceive of a way in which workers and the propertyless could be just a virtuous as agrarians and pastoralists, and also be accorded a full voice in public affairs. Instead, they sought to stymie and retard the progress of industrialization in the hope of prolonging their idyll of a republic dominated and ruled by agriculturalists.

The problems of that approach should be obvious. To lift propertyless workers to the exalted station of citizens of the republic, while preserving the republican notion of an equitable distribution of wealth, a theory of wage income began to develop which certain American economists came to call, by the last quarter of the nineteenth century, the Doctrine of High Wages:

Tesla's raw materials

Those of us who are fans of green technologies must be on guard against sloppy thinking.  It is FAR too easy to ignore the fact that even while making a concerted effort to transition towards energy renewables—easily job one in any plan to save the planet from ourselves—a great deal of the old technologies and their ghastly environmental problems will be necessary to build a better future.

The following illustrates the massive environmental costs necessary to build a Tesla Model S.  Start with the simple problem caused by making something that weighs in at 4647 pounds (2108 kg.).  Assuming fabrication losses of at least 50%, that means this beast requires something on the order of 3.5 tons of raw materials and goodness knows how much energy it takes to process.  Then, because an electric car requires a radically different material set, very little of these material will come from recycling old cars.

So while the Tesla S is a hugely important car, it is obvious cars like this will play a minuscule role in replacing the monster fleets of fuel burners already on the road (250+ million in USA alone).  The new transportation systems would do well to incorporate recycled materials into their designs—something that was obviously NOT done with the model S.

I found the illustration below incredibly interesting—sometimes in the rather insignificant details.  For example, the Tesla doesn't use nearly as many rare earths as one might expect for an all-electric vehicle.  In fact, the only application seems to be for the cabin's electronics.  Apparently you can make a high-performance electric car without rare earth materials but not premium sound system speakers.

Killing the Host-How Financial Parasites and Debt Destroy the Global Economy, by Michael Hudson

Chris Hedges interview of Michael Hudson, author of Killing the Host—How Financial Parasites and Debt Destroy the Global Economy.



Michael Hudson is one of the best economists in the world. Not just because he is one of the few who actually knows about what used to be known as the American School of political economy, but he has also worked on Wall Street, and somehow came away with his soul intact. If you never read anything else on economics, you must at least read Hudson’s 1993 The Lost Tradition of Biblical Debt Cancellations (87 page pdf file). 

Chris Hedges is a former New York Times correspondent who covered almost every region of the world at one time or another. In November 1989, Hedges was in East Germany, meeting with the leaders of the opposition to Communist rule, the night before the Wall came down. According to Robert Shetterly’s Americans Who Tell the Truth website,

In 2002, [Hedges] was part of a team of reporters for The New York Times who won a Pulitzer Prize for the paper’s coverage of global terrorism. That same year he won an Amnesty International Global Award for Human Rights Journalism.

In 2003, shortly after the war in Iraq began, Hedges was asked to give the commencement address at Rockford College in Rockford, Illinois. He told the graduating class “…we are embarking on an occupation that, if history is any guide, will be as damaging to our souls as it will be to our prestige, power and security.” ... As he spoke, several hundred members of the audience began jeering and booing. His microphone was cut twice.  Two young men rushed the stage to try to prevent him from speaking and Hedges had to cut short his address.  He was escorted off campus by security officials before the diplomas were awarded. This event made national news and he became a lightning rod not only for right wing pundits and commentators, but also mainstream newspapers. The Wall Street Journal ran an editorial which denounced his anti-war stance and the The New York Times issued a formal reprimand, forbidding Hedges to speak about the war.  The reprimand condemned his remarks as undermining the paper’s impartiality. Hedges resigned shortly thereafter….

Hedges has since emerged as one of the most prominent and most unrelenting critics of the American imperialist / corporatist state. Among the many books he has written is The Death of the Liberal Class (2010).

Michael Hudson and Chris Hedges: The Real World Cost of Turning Classical Economics Upside Down

Greider on how Trump could beat Clinton

In 1997, Bill Greider penned what is arguably the finest critique of the whole "free trade" argument.  He called it One World, Ready or Not: The Manic Logic of Global Capitalism. By the time it was published, NAFTA was already four years in the rear-view mirror.  So relying on old-fashioned shoe-leather reporting, he told stories of what was happening to the victims of globalization.  This is a story that virtually no one else was telling in the growing euphoria of the ideological "success" of "free trade"—especially among among the "New Democrats" who were so infatuated with their new Wall Street buddies.

So it is with a bit of wonderment that we see the two most interesting folks running for president are getting traction from finally revisiting the central feature of neoliberalism—liberalized trade rules.  One is a self-described democratic socialist from laid back and sometimes hippie Vermont while the other is a loud and brash real estate player.  They seem to have nothing in common apart from their New York roots and their pronunciation of the word huge—yuuuge.  Yet Greider sees how their combined critique of those disastrous "free trade" deals could begin to rewrite the political narrative.

Greider is arguably the best writer / political prognosticator of his generation.  (He is certainly my favorite.)  So he may right about this.

Intel founder Andy Grove passes at age 79

Here is the story from the San Jose Mercury News, the newspaper of record for Silicon Valley. And here is the story from Wired magazine's website.

Rather than replicate their biography of Grove, I would rather point readers to an article Grove wrote in July 2010,  How America Can Create Jobs, in which he ripped into outsourcing and free trade, and asked a fundamental question: "what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?" (below)

It should also be noted that Grove was an immigrant from Hungary. Both the fact that Grove was an immigrant, and that he repudiated free trade, should be rubbed in the faces of Republicans, conservatives, and neo-liberals until they squeal.

A highly entertaining read, which ably contrasts the producer class ethos in conflict with predator class pecuniary culture, set in the context of the birth of the semiconductor industry, is The Tinkerings of Robert Noyce: How the Sun Rose on the Silicon Valley, by Tom Wolfe, in Esquire, December 1983.

Making sense of the Trump phenomenon

Watching the Republican establishment running in circles over their worries about the spectacle that is Donald Trump has literally triggered a spasm of schadenfreude.  The Democrats are predicting the collapse of his campaign and a cakewalk for their candidate—presumably Hillary Clinton.  The Stop Trump movement is pulling out all the stops—including physical disruption of campaign events.

Most interestingly, none of the attacks on Trump seem to have inflicted any damage to his growing political support.  Considering that Howard Dean's presidential ambitions were derailed by repeatedly running his joyous victory shout, one might predict that the barrage of professionally-produced negative ads run against Trump in Florida should have blown him out of the water.  Instead, his polling numbers went up with each new ad drop and he won the Florida primary going away.

Since the professional political pundits seem to have no real explanation for such loyalty beyond their slander of racism, we should probably jump in here with a good round of institutional analysis.

1. Producers vs Predators.  Once upon a time, the Republican party was a party of Producers.  My mother's side of the family were essentially social democrats with one exception—some of her cousins ran a machine shop in Minneapolis and they were loyal, lifetime Republicans.  My guess is that this strain still exists even after more than 40 years of banksters setting the Republican agenda.  Romney was a bankster and the Producer Republicans hated him.  Trump has stuck his neck out to build something—risking his personal fortune along the way. So even though few write political commentaries about Producers vs Predators, Trump's following seems to have an instinctive feel for these matters.
2. Producer-politicians are usually pretty clumsy politically.  They usually run afoul of some sort of political correctness.  But as Trump has discovered, his following is not impressed by the arguments of political correctness.
3. The enforcers of political correctness are merely a slice of the Leisure Class who want to rule by manners.  This method is extremely effective for separating the insiders from the rabble.  And so the Trump-bashers take great joy in pointing out that many of those voting for him are poor and poorly educated.  The Producers would point out that one can lack formal educational credentials and still be highly skilled.  They would also point out that before the massive de-industrialization of USA, they were NOT poor either.

Producers in politics do not have a great track record.  The two engineers who became president—Carter and Hoover—were not especially effective.  Guys like Henry Ford and Ross Perot didn't even win anything.  Hard to get around the fact that politics is a Leisure Class occupation.

Thomas Frank in his article below has discovered that the buffoonishness which is associated with the Trump campaign is mostly a distraction from his very serious arguments attacking the various "free trade" deals that mostly gave away USA industrialization in the name of short-term profits for some really stupid and cynical banksters.  Being a good Democrat, Frank spends a bunch of time reassuring us that he is still politically correct even though he has discovered perfectly logical reasons for why Trump has attracted such a loyal following.

One more thing.  The banksters and their flacks may be able to snuff out the political movements of Trump and Sanders, but until the Producer Classes are properly rewarded for their contribution to the economy and everyone who wants to work has a decent job, the problems they represent will not go away.

Undoing neoliberalism in Russia

When Russia under Gorbachev and then Yeltsin decided to "modernize" their economy, the guys who rushed in to "help" were the neoliberals.  Not surprisingly, their prescriptions mostly centered around massive de-industrialization.  That was the prescription for places like USA and UK, after all, so why not Russia where their industrial infrastructure was in an even more sorry state?  It was difficult to find any Russian industry with a world-class output, went the reasoning, so why not just shut it down and live off the income of the petroleum extraction business?

When the economic sanctions that followed Russia's annexation of Crimea in the spring of 2014 began to bite, Russia discovered that they were importing a lot of goods they had once made for themselves.  So the decision was made to start reversing the process of deindustrialization through import substitution.  This was the primary strategy of economic development in the years after WW II for much of the world.  Japan was the most successful at their planned strategy of import substitution but it worked almost everywhere it was rigorously tried.  The economic "liberals" hated it then and they most certainly hated it in 2014.

So Russia is in the very early stages of their new import substitution strategy and not surprisingly, it has produced mixed results.  Re-industrialization is almost infinitely more difficult than de-industrialization so these things take time.  Worse, Russia has a severe neoliberal hangover from the days when such was the only acceptable worldview.  The most obvious example is the crazy lady running the central bank who believes that usury is the cure for inflation—even inflation caused by externally imposed sanctions.  So the prime rate is still at 11%—a rate mathematically guaranteed to severely hamper or destroy any industrial activity.  That any import substitution is happening at all is mostly a testament to the courage and tenacity of the Russian people.

The neoliberals from places like The Economist have already deemed Russia's strategy for import substitution an utter failure.  No great shock here because such people think that Russia is literally defying the laws of their god.  On the other hand, Hellevig below thinks the project is working out well.

HAWB 1800s - It was NOT free trade - How America Was Built

During the past two weeks there have been a number of internet postings attempting to understand and explain the popularity of Donald Trump. The most insightful have been by scholars and writers who are willing to look beyond the issue of racism to see the underlying decay of the USA economy. On the Guardian's website March 7, 2015, Thomas Frank, author of What's the Matter with Kansas? How Conservatives Won the Heart of America (2004), The Wrecking Crew: How Conservatives Rule (2008), Pity the Billionaire: The Hard-Times Swindle and the Unlikely Comeback of the Right (2011), and most recently, Listen, Liberal: How the Party of the People Learned to Love Inequality (2016), pointed out that Trump actually does not talk that much about racism. Not compared to what he talks about the most: trade.

It seems to obsess him: the destructive free-trade deals our leaders have made, the many companies that have moved their production facilities to other lands, the phone calls he will make to those companies’ CEOs in order to threaten them with steep tariffs unless they move back to the US.

The fact that working Americans in flyover country are supporting Trump as a way of rejecting economic neo-liberalism and free trade, is even beginning to sink in among conservatives and Republican elites. First Things editor R.R. Reno wrote on March 4, that Trump's appeal has forced Reno to question

very powerful conservative dogma: Our economic problems will be solved by an ever-greater market freedom. This means lower taxes for the rich, those pushing the economy forward. It also means continuing the liberalization of global markets with free trade agreements, as well as de-regulation and the end of government supports for businesses (for example, the Import-Export Bank, subsidies for green power, and other market-distorting initiatives.) In rejecting this dogma, Trump is unique among Republican primary candidates.  

....globalization and ever-freer markets [are] something I’ve long thought is our best option as a nation. I half-recognized the real costs to ordinary people, but I affirmed the homeopathic dogma that still more economic freedom is the best remedy.... In each instance Trump’s successes at the polls have forced me to acknowledge a degree of blindness.

Here, the obvious observation: Those who forget history are doomed to repeat it. Or, history may not repeat, but it rhymes. Whatever. My purpose here is to explain, once again, that "free trade" has never helped a country develop economically. Every country that ever successfully industrialized has used protectionism - i.e., protected its domestic producers and workers from foreign predation.

Remembering Olof Palme

The first book I ever read that I deemed "serious" was Markings by Dag Hammarskjöld—the UN Secretary-General from 1953 until his death / murder.  His airplane had crashed under suspicious circumstances in 1961.  Markings was published in 1963.  I read it in 1965.  I was 16.

I am almost certain I would have never heard about Markings had not my father returned from some Swedish-Lutheran liturgical get-together with tales of the buzz the book had caused in the church colleges.  I am pretty certain my father did not read it.  My mother may have.  The copy I read belonged to my mother's cousin.

Hammarskjöld is an old Viking name—as compared to a peasant name like Larson.  The family has been loyally keeping the Swedish royals out of trouble for several centuries—his father served as Swedish Prime Minister during World War I and was considered a world-class expert in international law.  Dag grew up in Uppsala—Sweden's premiere university town.  He was a smart young man who had every possible educational door opened for him.  The result was spectacular as Hammarskjöld grew into a thoughtful, wise man with profound insights into the human condition.  I reread Markings a few years back and found parts that were still breath-taking.

But even reading Markings did not prepare me for my first exposure to Olaf Palme's Sweden in 1970.  Except for his well publicized criticisms of the USA invasion of Vietnam, I actually knew very little about him at all.  But as I toured that country humming with world-class industry and no slums, I started to get clues of just what it required to become the leader of the Social Democrats of Sweden.  It turned out that Palme was another of those hyper-educated, thoughtful, and brilliant public servants that Sweden could cough up on a regular basis in those days.  Not only did he make great decisions about the operation of his country, he had a sound theoretical basis for his ideas.  The result was that Palme's Sweden became arguably the most imitated and admired country on earth.

Unfortunately, his belief in the intrinsic goodness of human nature did him in.  On a cold February night, Palme and his wife went to the movies unescorted by guards.  He hated the whole security business and ditched it regularly.  It made him an easy target for an assassin.  The crime has never been solved and the list of bad guys with bad motives is long.  But whoever they were, they really took out the right guy.  The Left in Europe has really never recovered.  Sweden has lost much of its unusual character.

Why Conservatives Can't Govern

With all the attention being given The Donald, I think it is worth remembering that it doesn't really matter who it is, the plain fact is that conservatives are unable to govern. Back in July 2006, Boston College professor Alan Wolfe entertainingly explained why in The Washington Monthly:

Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world-class boeuf bourguignon: If you believe that what you are called upon to do is wrong, you are not likely to do it very well.

The only part I disagree with is where Wolfe writes that Alexander Hamilton was "perhaps America's greatest conservative." Just four paragraphs before, Wolfe approvingly paraphrased Louis Hartz's argument in the 1950s that the United States was born a liberal state. Since few others had as great a hand in forming the USA than Hamilton, the contradiction should be obvious. Was Hamilton somehow a great conservative who helped establish a liberal state? This confusion is sadly typical of most Americans today, who seem not to understand that Hamilton completely demolished and rejected the economic philosophy of Adam Smith.  In fact, as I recently posted, Hamilton championed an economic policy that was most decidedly not conservative: active government intervention in the economy to promote innovation. Contrast this to the constant insistence of conservatives and Republicans that it is government regulation which is stifling innovation. As I am attempting to show in my HAWB series - How America Was Built - almost every single transformative technology in the history of the USA economy has been promoted and funded by government before that technology achieved commercial success.