William Black on Krugman

The economists from UMKC are on a tear.  As well they should be.  They have been beavering away in almost total obscurity keeping the light of Institutionalism alive.  It's kind of a lonely pursuit but it has one overwhelming advantage—you are correct so much more often than the convention-wisdom economists (who are almost always wrong.) And the folks who got it so disasterously wrong in 2008 haven't altered their worldviews one iota so they are still disasterously wrong.

Today, we see Bill Black give Paul Krugman a royal smackdown. Krugman has a lot of fans so taking him on entails some risk.  But the fact remains that while Krugman is easily the most enlightened economist who is allowed to write for the New York Times, he is a thoroughly conventional thinker. And in his recent role as defender of Clintonism, he was forced to sound even more like a shill for Wall Street than normal. So Black is facing a high hanging curve ball here because Institutionalists live to take on anyone willing to embarrass themselves by spouting the neoliberal idiocies.

Even so, I am pretty sure that folks like Black and Hudson are NOT getting ahead of themselves. The neoliberals are shameless.  They do not change their POV just because they are wrong.  So I must assume that most of the time, the heterodox economists at UMKC must content themselves with celebrating their small victories at their small parties.

A Short Crash Course in American Political Economy

What is our system of government supposed to be? A republic. But a republic is so ill defined that even John Adams famously wrote "the word republic, as it is used, may signify anything, everything, or nothing."

According to historian Gordon Wood,

The sacrifice of individual interests to the greater good of the whole formed the essence of republicanism and comprehended for Americans the idealistic goal of their Revolution…. To eighteenth-century American and European radicals alike, living in a world of monarchies, it seemed only too obvious that the great deficiency of existing governments was precisely their sacrificing of the public good to the private greed of small ruling groups. [1]

Just as important: are there principles and policies of political economy that are supposed to distinguish a republic from other forms of government: monarchies, oligarchies, plutocracies, dictatorships, etc.?

Since it became clear that President Obama was unwilling to directly confront the power of Wall Street, I have read deeply trying to answer these questions for myself.

Contrary to what many on the left believe, the US Constitution is NOT solely designed to protect the rich. Our system of government definitely has been twisted to that end, but I do not believe that was the intent of Hamilton, the one Founder most responsible for laying the foundation of the USA economy. (And remember, Washington used Treasury Secretary Hamilton basically as a prime minister, and agreed with or acceded to literally all of Hamilton’s economic beliefs and policies. This was in no small part a function of their shared experience at the pinnacle of American military command during the Revolutionary War, when they both identified Britain’s major strategic advantage to be Britain’s ability to raise funds and float debt through its financial system.)

Culturally, the most important aspect of a republic is supposed to be equality, especially economic equality. This is of course contrary to the view that the government was set up solely to protect property and the accumulation thereof. It was not – at least, not by Hamilton.

Economic equality is basic to a republic because, the idea was, no person can be fully independent and be a good citizen if their livelihood depends to some extent or other on another person’s largess, benevolence, or tolerance. This was the basis of the fight between the Hamiltonians and the Jeffersonians. Jefferson believed that only farmers who owned their own land were independent enough to honestly exercise the duties of citizenship. Jefferson wanted to delay the advent of industrialization and subservient factory labor as long as possible. This is why Jefferson acceded to the Louisiana Purchase, which he would otherwise have opposed on the grounds that the federal government has no express power to acquire so vast territory. [2] With the Louisiana Purchase, yeoman squeezed out of the established eastern seaboard would be able to cross the mountains, and buy, steal, or somehow take the land of the native Americans and set themselves up as independent farmers, thus extending in both space and time Jefferson’s ideal agrarian republic.

Hamilton, by contrast, understood that the economy could not be frozen in time and remain entirely agrarian. Industrialization HAD to not only proceed, but be encouraged [3], for the USA to have any chance of resisting the intrigues and hostility of the European powers – which remained committed to eradicating the American experiment in self-government until the US Civil War. (France and Spain landed troops in Mexico and Caribbean at the beginning of the war; the Mexican republic was eliminated and Maximilian, younger brother of Austrian emperor Francis Joseph I, was installed as puppet emperor. The British government of Lord Palmerston was preparing to land troops in Canada in 1862, but was deterred by the pro-USA street fighting in London and elsewhere which was led by the British allies of Italian revolutionary Giuseppe Garibaldi.)

Hamilton’s great insight was that economic development depended entirely on improving the productive powers of labor. This meant the development of science and technology, and the spread of machinery to replace muscle power, both animal and human. The correct view of Hamilton must be precise: it was not that Hamilton sought to encourage and protect wealth, but to encourage and protect the CREATION of wealth. (Read Section II, Subsection 2, “As to an extension of the use of Machinery...” in Hamilton’s December 1791 Report to Congress on the Subject of Manufactures, if you want something to read today.)

This is where Marxist analysis fails catastrophically. Yes, much of economic history is that of elites accumulating wealth through exploitation, fraud, and violence. BUT: how was that wealth which is stolen created in the first place? Thorstein Veblen, and his discussions of industrial organization versus business organization, are far more useful in understanding the COMPLETE economic story, not just the exploitation side of it. I believe that once you understand this, you can understand why Elon Musk is much more useful to society than Peter Thiel. Musk and Thiel are both rich: should we therefore oppose and denigrate both because they are rich, and we dislike our system of government which has been mutated, diminished, and twisted so that it serves and protects the rich almost exclusively? No. I admire Musk because he has used his PayPal lode to create new wealth (which takes the corporate forms of Tesla, SpaceX, and Solar City), while Thiel has used his PayPal lode to fund libertarian ideas which are fundamentally hostile to what America is supposed to be. In Veblen’s analysis, Musk is an industrialist, while Thiel is merely a businessman.

In the nineteenth century, it was generally understood that the system established by Hamilton was in opposition to the “classical economics” of Adam Smith, David Ricardo, Thomas Malthus, and the other apologists for the death and destruction wrought on entire countries by the British East India Co. and the British empire. In the 1820s, Henry Clay coined the term “American system” to distinguish it from the British system. Michael Hudson has pointed out that in addition to these two systems of political economy, a third was developed in the nineteenth century: Marxism. [4]

It is easy to be confused by American history, because at the same time that the American System was being built and practiced, the British system was competing with it for control of the domestic economy and polity. To the extent that people today mistakenly believe that the American economy was founded on the ideas of Adam Smith (it most emphatically was not: Hamilton explicitly rejected the ideas of Smith) the British system is winning.  Michael Hudson has written at least two excellent overviews of this fight within the USA between the American and British systems. [5] For now, the simplified version is that the British system was dominant in the slave South, and fought for free trade in opposition to the American System’s protective tariffs.

After the Civil War, American railroads and industries were reorganized a number of times, placing them under ever greater control by bankers and financiers located in Boston, New York, and other large cities. This period of economic consolidation is typified by the creation of the "trusts.” In response, a number of populist political movements and parties arose in opposition: the Greenback Party, the Grange, the Farmers Alliances, the People’s Party, the Non-Partisan League, and the Democratic Farmer Labor Party of Minnesota. Note that the policies they fought for in the half century after the Civil War became the economic basis of Franklin Roosevelt’s New Deal. the Greenback Party, the Grange, the Farmers Alliances, the People’s Party, the Non-Partisan League, and the Democratic Farmer Labor Party of Minnesota. Because those were all populist—and the policies they fought for in the half century after the Civil War became the economic basis of Franklin Roosevelt’s New Deal.

Here’s a 4-minute video on the Greenback Party’s 1876 presidential candidate Peter Cooper (who founded Cooper Union in New York City), and the policies of the Greenbackers. Along the lines of the issue posed by Musk versus Thiel, note that Cooper was among the richest men in USA.

Rethinking the economy with Hudson and Brown

Micheal Hudson is on a roll.  In this video, he explains that mainstream economics is not nearly so sub-moronic as it looks.  Rather these folks are doing their fine work to provide an intellectual gloss to activities that actually harm the economy by claiming that the pirates are really earning their crazy paychecks.  Economics once called these financial extractions "unearned income."  (I remember those lectures...sigh)  He also does a fine job of explaining what happens to any economist who dares challenge the dominant narrative.

Published on Nov 2, 2016

With every major financial recovery since the second World War beginning in a place of greater debt than the one before it, how could we not have foreseen the financial crisis of 2008? In this episode of Meet the Renegades, economics professor and author, Michael Hudson argues we did.

How could an economy that created so much debt also save the banks rather than the economy itself, following the 2008 financial crisis? Michael discusses the phenomenon of debt inflation and how the economic curriculum should change.

"If you're teaching economics, you should begin with the relationship between finance and the economy, between the build up of debt and the ability to pay."

Michael discusses the 'Great Moderation', a common misrepresentation of a healthy economy in which job productivity was increasing, labor complacency was at an all-time low was a complete myth. Michael argues that 'traumatized' workers were too in debt to fight for better working conditions leading up to the 2008 financial crisis and how this reflects neo-classical ideas.

Michael offers solutions - urging the importance of writing down the debt and keeping basic services in the public sector, ridding the economy of financial tumors through a proper tax policy based upon the this public sector model.

Here Ms. Brown explains how Trump, if he actually knew the history of monetary practice, could make good on his promise to rebuild the nation's infrastructure.  In addition, he gets to appoint at least five new Fed Governors so all of this is well within the realm of the possible.  The only thing stopping Trump from becoming the greatest builder in USA history is that he doesn't seem to have a clue about this history.  He should do some homework.  Hiring Ms. Brown to explain this to him would also work.

Slovenian philosopher Slavoj Žižek on the USA election

Slovenian philosopher Slavoj Žižek has taken considerable thought, time, and energy to try to understand the craziness we called an election.  The following clip is truly remarkable.  I cannot recommend it more highly.  It runs about 20 minutes.

This is followed by St. Clair's trenchant observations on the incompetence and hubris it required for the Democrats to lose to a 70-year old reality-TV star with enough scandalous baggage to sink a container ship.  Of course, it can be argued that the Democrats have been losing their way since Jimmy Carter deregulated the airline industry or appointed Paul (21%-prime) Volcker to head the Federal Reserve in the 1970s. Hillary Clinton is just the logical conclusion of this crazed and twisted journey—a peak idiot, if you please.

I probably won't write much more about this election.  I have spent entirely too much of my life trying to help the Democratic Party make better and more informed choices.  Obviously, I have not influenced much as Hillary Clinton represents almost everything I believe foolish, absurd, and criminal. I hold the somewhat naive opinion that the purpose of government is to organize the necessary tasks that are too difficult, expensive, and complex for individuals to accomplish on their own.  Ms. Clinton and her posse apparently believe the purpose of government is to provide them with cushy ego-satisfying jobs and beautiful offices in Washington D.C. There seem to be quite a few of us who utterly despise that type.  But quite honestly, I didn't think there were enough of Hillary's victims to pull themselves off the mat in a final and probably futile gesture of keeping her out of the White House. Worse, the guy who will be heading for 1600 Pennsylvania Ave is not exactly Mr. Deep either.

So back to refining strategies for building a sustainable future.  If I did not have that problem to think about, I would have most certainly lost the will to live by now.  Building is the only truly satisfying activity of my life and thinking about the world that could be created is enough to help me ignore the industrial-strength idiocy that we have just witnessed.

There are people who are justifiably thrilled by a Trump victory

One of the more baleful effects of "American Exceptionalism" it that even some pretty good people really could not care less what happens to the "collateral damage" of the Empire.  They don't care because they don't know.  For example, because I have a strong historical interest in what happened to USSR as the result of the German invasion in 1941, I have read many accounts of the incredibly fierce fighting that happened in the Donbass.  If it weren't for the rich mineral deposits of the region, the area would probably still be depopulated because so many were killed.  In the annals of human struggle, there are few that top the struggles of Donbass.  It was so devastated that many monuments to the defenders weren't built until the 1960s.

I am 67 years old and have met exactly no one who has ever expressed interest in this story.  So when the people of Donbass had to suffer yet one more effort at ethic cleansing, this time at the hands of home-grown Nazis who happened to have power as the result of a USA-sponsored and organized coup in the Ukraine, no one I knew had any idea of the magnitude of the tragedy. Because Victoria Nuland, one of Hillary Clinton's favorites, had her fingerprints all over the coup, there is an understandable outbreak of joy in the Donbass over the election of Donald Trump (see below.) For many, there is now a better possibility that people of the east Ukraine will be able to watch their children grow up. No small matter, that.

Not everyone is as thrilled as the people of Donbass over the election of Trump.  Personally, I will be happy if he is a marginal improvement over Reagan or the Shrub and do not expect even that.  But a victory by Clinton would probably have triggered clinical depression.  The idea that someone so corrupt could have seized the political party my parents and grandparents struggled to build, and sold it to Wall Street crooks, was a reality I could not bear. So even though my expectations for a Trump administration are essentially zero, I am willing to give him a chance because a President Hillary would have been a predictable disaster.

What Progressives Can Learn from the Cubs Winning the World Series

There was a baseball game last [week].

There are three stories to tell about it, and they’re stacked on top of each other, tottering, each bigger than the last and relying on the one below it to make sense. The first story: the Cubs took a 6-3 lead into the eighth inning of Game 7 of the World Series, and Aroldis Chapman blew it. Then he won the game.

That's the beginning of the article by Jonathan Bernhardt of the London Guardian, which I consider far and away the best article on the Chicago Cubs winning the World Series of USA major league baseball after 108 years. It is the only article of the many I've read which captures the cultural iconography of the Chicago Cubs and their century-long absence from the greatest achievement of professional baseball.

Cubs third baseman Kris Bryant smiles while fielding the ball for the final out of the World Series.

This was not supposed to happen: "The Cubs are lovable losers" had become the most powerful cultural myth in American sports, The title of Bernhardt's article is the perfect summary: How the Chicago Cubs faced down history and killed a century-old curse. Yet, Bernhardt does not really discuss how the Cubs did it. He does not discuss how the Ricketts, heirs of the Ameritrade fortune, bought the Cubs from Sam Zell and the Tribune Co., who had treated the team not as a franchise in professional sports, but as an entry on the balance sheet of a corporate conglomerate. He does not discuss how co-owner and Cubs president Tom Ricketts — as diehard a Cubs fan as any: he met his wife in the bleachers at Wrigley Field while he was a student at the University of Chicago — snatched Theo Epstein from the Boston Red Sox and made him President of Baseball Operations for a repeat performance of curse-crushing pennant winning.

Nor does Bernhardt relate how Epstein immediately began to hire people who had been with him on the Red Sox's epic ride to a World Series championship, including Cubs general manager Jed Hoyer. Or how Epstein and Hoyer sorted through 140 players acquired in 37 trades, 80 signings and 5 major draft picks, to assemble the 40 man team roster than finally won it all. So, there are many more than the three stories Bernhardt says there are. And every story offers lessons that progressives in USA can learn to help them break their own curse and begin to win again.

It's the management, stupid

The story of Theo Epstein coming to Chicago to transform the Cubs is an obvious lesson. The people at the top make a huge difference. This is a lesson progressives and Democrats desperately need to learn. First, the reality must be faced that President Obama squandered an epic opportunity to transform the American economy by failing to destroy Wall Street, which is a net drain on the rest of the economy, and the major reason why the United States continues to suffer poor economic performance for the bottom ninety percent of Americans.

Remember the outpouring of public opposition to the Wall Street bailout in 2007, with calls to Congress running a reported 100 to one against? Rather than use this tidal wave of public sentiment to impose structural changes on the financial system and begin eliminating, or at least limiting, its usury, speculation, and rent-seeking, Obama listened to his golf buddy, Robert Wolf of UBS (former Union Bank of Switzerland), and decided the top priority was to save Wall Street from the consequences of its own unbridled greed. Obama even publicly declared that James Dimon of Morgan Chase and Lloyd Blankfein of Goldman Sachs were “savvy businessmen.”

Obama did have the power of his bully pulpit to force changes on Wall Street: Richard Wagoner was forced out as chairman of General Motors simply because of Obama’s disapproval. But that is the lowly auto industry, not the superstar and obscenely rich banking and financial sector. Obama chose not to apply similar pressure to any executives on Wall Street. Ron Suskind does an excellent job of recounting and contrasting these two different approaches in his 2011 book, Confidence Men: Wall Street, Washington and the Education of a President.

Rather than picking top people who would help him bring real change to the system, Obama instead chose to accept the list of people hand-picked for him by Wall Street. And we didn't have to wait until Hillary Clinton's emails were leaked a month ago to know Obama was making a giant mistake: as early as December 2009, people were writing warnings that Obama's personnel picks signaled a capitulation to Wall Street. So, while there was a widespread public expectation that Obama had been given a historic opportunity to do what Franklin Roosevelt had done, and put Wall Street and the banksters back in the box, Obama refused to act. Obama had a mandate, and he ignored it.

By contrast, Epstein was given a mandate to build a championship baseball team, and he threw himself into the task with manic fervor. So, two lessons here:

Lesson 1: The people at the top make a huge difference.
Lesson 2: When you are given a mandate, use it. Ruthlessly.

How Democrats Killed Their Populist Soul

While writing his new book Listen Liberal, Thomas Frank was asked how he would approach the subject of what went wrong with the Democratic Party that led to the nomination of an unrepentant Goldwater Girl. The question was usually some variation of "where do you even start?" Frank decided to start with the soul-searching following the 1968 defeat of Hubert Humphrey. As someone who remembers the political craziness of 1968 like it was yesterday, I think Frank chose an excellent starting point.

My take on the matter is that the Democrats had seriously lost their way by 1968 because they could not let go of their crazy notion that the Vietnam War was a good idea. Opposing a war, no matter how insane, is extremely difficult because those conflicts tend to rope in all sorts of primitive impulses associated with the warlike animus.  And when after the Tet Offensive it became quite obvious that a WWII-style victory was clearly not in the cards, USA started waging a war that was a constant escalation in sheer brutality. Not only did this destroy whatever was left of anything resembling a moral center, it would also destroy the main elements of the economy, along with anything that smacked of a cultural impulse.  By 1974, the most innovative period of musical history had degenerated to disco, the economy was experiencing scary inflation, the USA had become a net importer of oil and had been successfully boycotted by the oil-producing nations.

Because I was attending a major land-grant multi-university from 1967-74, my view of those confusing times centered on the upheaval in education. The most noticeable effect was the destruction of scholarly standards as many professors refused to fail any young man who would then be eligible for the draft. Unfortunately, that would be extent of their moral outrage against a system that would bomb defenseless peasants with B-52s flown from Guam and murder village teachers who were a threat because they had educations. What this meant in practice was our teachers went to great lengths to avoid discussing the war but freely acknowledged that there were serious structural problems with a society that would choose to wage such a war.

Perhaps the best example for me happened in a Political Science class being taught by the first Jewish man to have ever been elected mayor of Minneapolis. Big-city mayors in those days did not have a reputation for idealism, but Arthur Naftalin was one. On the list of assigned reading was the crazy paean to the counter-culture The Greening of America written by a Yale law professor named Charles Reich. Follow the links if you are remotely interested but essentially this book argued that the hippies and the counterculture were the new wave of enlightenment.  Sex drugs, and rock and roll would prove that the USA had more to offer than war crimes.

Sadly, this goofy utopianism would come to define a generation. Lest anyone doubt that a generation was taught that hedonism was the solution to serious matters, think back to the big march to demand an end to climate change held in New York September 21 2014. The climate certainly wasn't helped by 300,000 CO2 producers traveling to the big event but the signs were pretty, the speeches were dripping with moral outrage, and so the organizers declared it a huge success.

Meanwhile, politics completely lost its focus.  The hard work of raising living standards for the people who had to do the community's necessary work now took a back seat to "cultural issues." Also lost in the shuffle was the need to care for and replace the necessary infrastructure, or schools that taught that for many important subjects, there often is a right answer and its not "fascist" to expect people to learn it, etc! The most pernicious lie of the era was that if the moneychangers prospered, the rest of the society would as well. This monster falsehood will lead to a calamity of almost unimaginable proportions but because it is so embedded in the culture, the teachers of economics will keep misleading their students. Charles Reich would no doubt approve so long as he could be reassured that hedge fund managers were still snorting toot off some hooker's ass.

The following essay by Matt Stoller is an excellent tale of how the frivolous people took over the Democratic Party from those who actually understood how the real economy worked.  I am pretty sure he is mostly correct in his account.  It's pretty long but certainly worth reading.

Time to upgrade political "science"

Just the other day, I was discussing the latest Wikileaks dump with a fellow fan of Mr. Assange.  He was marveling at the persistence of someone who knows damn well that he is truly pissing off the woman who could be the next USA president.  Actually, I can sort of understand this sort of behavior having been raised on the stories of men who were willing to risk some painful deaths to do something as civilized as wanting to translate the Bible.  Martin Luther got away with it—William Tyndale was burned. So I mostly get Assange and why he gets such a rush from spreading uncomfortable truths.

What I find so fascinating is that Assange has demonstrated a point about how the Producer Classes survive in a world where there are thousands who want to rip them off and otherwise make their lives miserable.  History is mostly about the various schemes to get someone else to work for free or as close as posible.  These include slavery, serfdom, usury and loansharking, and the latest ugliness—"free trade." Out of desperation, the Producers have tried slave revolts, strikes, political or religious movements in an attempt to retain at least some fraction of the value their work brings to the social order. Most of these have been doomed from the get-go.  But there has been one absolutely fool-proof method for Producers to change the equation—invent a future that empowers them.

There have been a lot of very interesting characters who have lent a hand in the creation of the Internet.  Some are inspirational—some loathsome.  But no matter how you financed / ripped it off, the actual creation of the Internet was a Producer Class project and it has obviously served the needs of it creators.  And the release of the Podesta emails has provided Exhibit A for how this works.

With the complexity that came with industrialization, the question of who held power and why they were important became a subset of social scholarship.  These inquiries were mostly speculative because discovering what was said in private meetings could never be discovered.  Nevertheless, some bright guys tried to figure it out—the best example is C. Wright Mills' The Power Elite published in 1956. But thanks to Wikileaks and all the inventions that produced the Internet, we don't have to guess what the elites are saying to each other while plotting their nefarious schemes, we can read the actual conversations. We will probably still have elites, but their ability to scheme in the dark has taken a major hit.  And since their only real source of power is the ability to get people to believe their lies, the Producers may have finally figured out a way to put this gang of destructive thieves out of business.

Hey, I can hope.  Considering what a wretched affair this election has become, I am searching for a little light in the darkness.  This article and interview features Thomas Frank marveling how much insight has been provided by the Podesta emails.  I think he would probably agree that this information will lead to nothing less than the re-invention of Political Science. Good! It could stand re-inventing.