Economic System Reflects a Society’s Values

Many economists, Paul Krugman among them, argue that we must separate economics from values and morality.

However, I believe that an economic system is a direct expression of a society’s values.

The Republican Party has been known as the “party of values” for years now because they are obsessed with issues of sexuality: abortion, homosexuality, the “sanctity” of marriage, etc.

At the same time conservatives advocate a hard-line market capitalism which is brutal in its effects on society. Their wildest dream is to eliminate all federal regulations and the New Deal and Great Society social programs, making our economic system even more exploitative and unjust.

Morality doesn’t just mean issues of sex. Morality means ethics, principles, and values. How do our values inform our social interactions? How do we treat our neighbors? How do we care for the poor and the sick and the needy in our midst? Do we care about social justice? Do we care about the impact of our actions on the environment?

Free-market capitalism reflects a society whose values are based completely on greed and short-term self-interest: get all I can for myself and my family with no concern for the consequences to the society I live in and the world at large.

We have been convinced by economists and politicians that greed-driven capitalism is the best system on Earth, but there are new forms of economic interaction emerging that challenge this belief and reveal that people are driven by factors other than greed and self-interest.

Harvard University professor Yochai Benkler has just published a new book describing these new economic systems, “The Penguin and the Leviathan: How Cooperation Triumphs over Self-Interest.”

The publisher’s abstract from Amazon says:

For centuries, we as a society have operated according to a very unflattering view of human nature: that, humans are universally and inherently selfish creatures. As a result, our most deeply entrenched social structures – our top-down business models, our punitive legal systems, our market-based approaches to everything from education reform to environmental regulation - have been built on the premise that humans are driven only by self interest, programmed to respond only to the invisible hand of the free markets or the iron fist of a controlling government. In the last decade, however, this fallacy has finally begun to unravel, as hundreds of studies conducted across dozens of cultures have found that most people will act far more cooperatively than previously believed.

In the October American Prospect there is an article about companies that facilitate sharing of possessions, like cars, bicycles, and houses; “The Commons,” by Monica Potts, which quotes professor Benkler:

Yochai Benkler, a professor at Harvard Law School who has written two books on the subject, calls this type of economic model the social market, because it draws upon the obligations we feel to one another. The incentives to join and share go beyond monetary compensation…For Benkler, the rise and persistence of all of these services just shows that the social market is fundamental to human nature. Its existence is only surprising because economists have done such a good job convincing us that people need top-down control systems, as in state-run communist economies, or market incentives like raises or bonuses, to work for the benefit of a larger group. ‘They said everything could be understood through rational self-interest,’ he says, but it isn’t true. ‘We are more like how we tell our kids to be on the playground than what the economists say.’

Class Warfare? Bring it On!

Sally Kohn has an excellent op-ed in the Washington Post, entitled "President Obama Shouldn't be Afraid of a Little Class Warfare." After giving some dismal statistics on the recent increase in wealth inequality in this country, she surprised me with some exciting ideas about how to mobilize the middle-class to fight back against the wealthy and the corporations, who, as Ms. Kohn rightly says, started this war.

Small-scale demonstrations like what's been happening on Wall Street mean nothing. What we need is something on the order of the university divestment movement in the 1980's, which forced public universities to stop investing in companies that did business in South Africa.  

Ms Kohn suggests:

Imagine millions of Americans withholding mortgage payments to banks that refuse to adjust underwater loans. Imagine divestment campaigns to pressure public pension funds and universities to pull their money from the private sector and put it into government bonds. Imagine students staging sit-ins to protest teacher layoffs. Imagine families who have lost their homes squatting in vacant, bank-owned properties. Imagine a nationwide call to arms, as passionately nonviolent but as violently passionate as the pro-democracy movements sweeping the Arab world. After all, according to the CIA, income inequality in the United States is greater than in Yemen.

Does Social Security Narrow Wealth Inequality in the U.S.?

In the last few months the PBS NewsHour has done some shows about wealth inequality in the United States. This week they aired a segment with an unusual take on the subject: economist Robert Lerman (professor at American University) contends that Social Security and Medicare represent significant wealth for the average American totaling hundreds of thousands of dollars and should be included in any mapping of wealth distribution.

Professor Emmanuel Saez of UC Berkeley has the most widely-used statistics about wealth inequality. Click here to see me discussing these numbers on YouTube, or here to see Professor Saez’s website.

The NewsHour chart showed the bottom 40% of the population owning 5.7% of the total wealth. Professor Lerman revises the figures so that the bottom 60% own 28.5%.
I think Professor Lerman has a point, but the way he delivers this theory is ripe for misinterpretation in our current political climate. Social Security and Medicare are commonly called “entitlement” programs, as if they are pure give-aways to the elderly. In fact, these are forced retirement savings programs; everyone has so-called "payroll" taxes automatically deducted from their paycheck, these taxes go directly into the Social Security and Medicare trust fund accounts. After watching the NewsHour segment online this morning I wondered: what kind of return on investment does the average worker get for her payroll taxes?

With just a little investigation I found that the average person actually receives LESS in Social Security benefits than he or she paid in.

The figures below are from a widely reported study by the Urban Institute, and the total taxes paid into the system are calculated using an investment return of 2%. The average return over decades in the stock market is 8-10%. When helping a person plan for retirement many investment advisers project a conservative estimate of 5-6% to ensure that the actual return is higher. But as this blog shows, many standard retirement planning calculators use 10% return as a calculator. Even in this era of deflated savings rates, 30-year U.S. Treasury bonds yield 2.83%. In other words, if the taxes paid in were calculated at a higher return on investment, these statistics would look even worse for the average person.

Here’s some statistics for a person turning 65 this year; from the Urban Institute, revised June 2011; (interest earned on taxes calculated at 2%). These figures include both Social Security and Medicare:

Single man earning average wage ($43,500)
Total taxes paid  $359,000
Benefits over lifetime $436,000

Single woman earning average wage ($43,500)
Total taxes paid  $359,000
Benefits over lifetime $478,000

Two-earner couple both earning average wage
Total taxes paid $717,000
Benefits over lifetime $913,000

If you subtract out Medicare, the average person loses on Social Security.

These figures are for Social Security tax and benefits only:

Single man earning average wage $43,500
Total taxes paid $305,000
Benefits over lifetime $267,000

Single woman earning average wage $43,500
Total taxes paid $305,000
Benefits over lifetime $294,000

Two-earner couple both earning average wage
Total taxes paid  $611,000
Benefits over lifetime $560,000

Clearly Medicare is the only problem in terms of unfunded benefits, just another aspect of our ongoing national health-care crisis. If we had a sane politics, we would have solved this problem years ago but instead it continues to fester, sapping our nation’s strength.

Tim DeChristopher and Civil Disobedience

In January 2009, as the country struggled to get through the last weeks of the George W. Bush presidency, a young activist named Tim DeChristopher attended a Bureau of Land Management auction of oil and gas leases in Utah. DeChristopher spontaneously began to bid on parcels, and by the end of the auction had “purchased” $1.8 million of leases on 14 parcels near Arches and Canyonlands National Parks. DeChristopher was a 27-year-old economics student; he clearly had learned that money is the only language people in power understand.

The auction was Bush’s end-of-term gift to the oil and gas industry, and DeChristopher’s action not only disrupted the auction itself but brought national attention to the giveaway. The leasing plan was challenged in court and most of the proposed leases were ultimately withdrawn.

I wrote in my journal at the time:

Yesterday heard of young man bidding at BLM auctions in Utah preventing oil and gas leases from being sold and I was so excited because here was someone doing something. I went to the website an hour later and donated money for his legal fund, something I never do. I wrote on the site, “this is the most exciting thing I’ve heard in years, including Obama’s election. Someone taking direct action. That’s what we need to bring change, the people taking action (by implication, a leader can’t do it for us).”

Somehow I believed that with Barack Obama taking office a couple of weeks later, DeChristopher’s actions would not be prosecuted. How naïve of me.

In July DeChristopher was found guilty of interfering with a federal auction and sentenced to two years in federal prison and fined $10,000. He was immediately taken to a prison in California.

After his sentencing, DeChristopher sent an interesting letter to the website Grist.org about the modern plea-bargain system. We have been trained to think that it is a necessary expedient to speed up an overburdened court system, but after his courtroom experience DeChristopher has another take: it’s the eroding of our constitutional right to be judged by our peers. If a defendant doesn’t accept a plea-bargain and demands his right to a trial, but then loses, he’s punished with a worse sentence. In addition, there are all sorts of tricks the prosecutor can employ to keep the jury from hearing the whole story. In DeChristopher’s case, the jury could not hear why he bid on the parcels, which was central to everything he did. By preventing the defense from presenting DeChristopher’s motives, the government made a mockery of justice.

DeChristopher wrote:

If I had ever doubted the power of words, Judge Benson made their importance all too clear at my sentencing last month. When he sentenced me to two years in prison plus three years probation, he admitted my offense "wasn't too bad." The problem, Judge Benson insisted, was my "continuing trail of statements" and my lack of regret. Apparently, all he really wanted was an apology, and for that, two years in prison could have been avoided. In fact, Judge Benson said that had it not been for the political statements I made in public, I would have avoided prosecution entirely. As is generally the case with civil disobedience, it was extremely important to the government that I come before the majesty of the court with my head bowed and express regret. So important, in fact, that an apology with proper genuflection is currently fair trade for a couple years in prison. Perhaps that's why most activist cases end in a plea bargain…

The revolutionaries who founded this country were deeply distrustful of a concentration of power, so among other precautions, they established citizen juries as the most important part of our legal system and insisted upon constitutional right to a jury trial. To avoid this inconvenience, those seeking concentrated power free from revolutionaries have minimized the role of citizens in our legal system. They have accomplished this by restricting what juries can hear, what they can decide upon, and most importantly, by avoiding jury trials all together. It is now accepted as a basic fact of our criminal justice system that a defendant who exercises his or her right to a jury trial will be punished at sentencing for doing so. Transferring power from citizens to government happens when the role of citizens gets eliminated in the process.

With civil disobedience cases, however, the government puts an extra value on an apology. By its very nature, civil disobedience is an act whose message is that the government and its laws are not the sole voice of moral authority. It is a statement that we the citizens recognize a higher moral code to which the law is no longer aligned, and we invite our fellow citizens to recognize the difference. A government truly of the people, for the people, and by the people is not threatened by citizens issuing such a challenge. But government whose authority depends on an ignorant or apathetic citizenry is threatened by every act of open civil disobedience, no matter how small…

But our modern government is dismantling the First Amendment because they understand the very same thing our founding fathers did when they wrote it: What one person can do is to plant the seeds of love and outrage in the hearts of a movement. And if those hearts are fertile ground, those seeds of love and outrage will grow into a revolution.

You can stay connected to what’s happening to Tim DeChristopher on his Facebook page.

Why Do We Treat Capital Better Than Labor?

A question I have been pondering for some time is, “Why does capital get all the rewards? Why do profits flow to the money men and not to the laborers? Why does our system crown money as king?” Is it only because the wealthy make the rules in our plutocracy? Or is there some underlying economic principle at work? I don’t think so. I think this is a reflection of the fact that we are still living in a semi-feudal economy.

Warren Buffett made a splash a month ago by publishing an op-ed in the New York Times, "Stop Coddling the Super-Rich," restating his sense of outrage that his employees pay a higher percentage of their income in tax than he does. The top rate on wages is currently 35%; the investment income rate is capped at 15%. “As a result, anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains,” says a Washington Post article, "Capital Gains Tax Rates Benefiting Wealthy Feed Growing Gap Between Rich and Poor." The abstract for the article claimed that the “job-creating” benefits attributed to a low rate were disputed, but then never really gave a cogent opposing argument (of course). In fact the drop in the capital gains tax (under Clinton and G.W.Bush) encouraged the speculative investments that brought down the world economy in 2008.

Couldn’t you make a case that there is no difference between capital and labor? That capital is in fact, excess labor, and should be treated identically? When humans first began agriculture there was no such thing as capital. There was only human labor. But as our skills increased, we accumulated excess food—this was the first capital. Slowly this excess built on itself until it became abstracted into currency.

Labor is the source of capital and should be what is rewarded by our tax code. Instead of passive investment we should be rewarding active labor. The Washington Post article quotes Marty Sullivan, an economist and a contributing editor to Tax Analysts: "The way you get rich in this world is not by working hard. It's by owning large amounts of assets and having those things appreciate in value."

Unfortunately there’s bipartisan support for low capital gains taxes, because a huge number of members of Congress are rich. Here’s some numbers from an article in The Week magazine "The Congressional Millionaires' Club: By the Numbers":

261: Number of millionaires in the last Congress, out of a total of 535 members

$911,510: Median wealth of all members in the last Congress

$25,149: Median estimated wealth of an American over the age of 18 (2005)

What we have in this country is a plutocracy. The wealthy are rule this country. The trappings of democracy, elections for example, are maintained as a superficial veneer to hide the truth.

And of course since the wealthy are in control, capital will be rewarded and labor penalized. In 2009 I wrote an article for my column in Highlands Newspaper called "Feudal Economics." An excerpt:

What do I mean by “feudalism”? Feudalism is a socio-political system where a very few “lords” own almost everything and everyone else is a “vassal,” or servant of the lord. The vassals work for the lord and are completely dependent upon him. We usually think of the Middle Ages in Europe or the Shogun era in Japan when we think of feudalism, not modern-day America. 

In the United States, wealth is highly concentrated in a relatively few hands. According to G. William Domhoff, a sociology professor at the University of California Santa Cruz (using 2004 numbers), the top 1% of United States households owned 34% of all privately held wealth, and the next 19% owned 50%. In other words, 20% of the people own 85% of everything in this country. That leaves 15% of the wealth for the bottom 80% of the population. 

In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households have an even greater share, 42.2%, and the top 20% owned 95.2%, leaving only 7.5% for the bottom 80%. (To be clear, we’re not talking income here, these figures are for assets.) 

We haven't moved past feudalism; we've just added a new wrinkle or two. Case in point: the rise of the corporation.According to the World Institute for Development Economics Research, the 500 largest corporations in the U.S. “control over two-thirds of the business resources, employ two-thirds of the industrial workers, account for 60 percent of the sales, and collect over 70 percent of the profits.” 

Further, the CEOs of these corporations serve on each other’s boards, creating an even more incestuous relationship, something like the royal families of feudal Europe intermarrying to keep the power in the family. The CEOs grant each other huge pay packages, and you can only imagine the secret favors they do for each other. 

The current concentration of wealth in the hands of a few is very dangerous to our democracy, because wealth is power. Our government is owned by the wealthy and the corporations. The elite run this country and the rest of us—the majority of people in the country—are no better than wage-slaves. 

Karl Marx’s theory of economic development predicted countries would progress from feudalism through capitalism to socialism. No reason to worry about this country going socialist—we haven’t even made it to capitalism yet. Let’s concentrate on throwing off the chains of our feudal lords.

Time-Lapse Map of Nuclear Bomb Tests 1945-1999

Do you have 15 minutes to gain a comprehension of the 2053 nuclear bombs that were exploded between 1945 and 1999? A Japanese artist named Isao Hashimoto created an amazing video that shows every one of those bombs overlaid on a map of Earth, colorcoded to tell which country set it off, and sized to give a sense of the megatonage.

At first the time-lapse seems too slow, but by the time you get to the 1950's you understand the need for the slow but steady beat of each month of each year.

It's frightening how many bombs the United States set off in its own western lands. The Soviet Union and China also used their own land, but being smaller both England and France used their colonies: England exploded many bombs in Australia, and France used both northwest Africa and the southern Pacific (Tahitian island chain) for its tests.

It gets quiet in the late 1980s, then there's a flurry in the late 1990s when Pakistan and India go through an escalation that almost led to nuclear war.

What has been the impact of these tests on the planet?

Labor Day Blues

As usual, Labor Day has brought articles about what is wrong with the job market today. Robert Reich, Labor Secretary under President Clinton, published “The Limping Middle Class” in yesterday’s New York Times.

He starts with this stunning statistic, “The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics.” Our economy has become seriously dysfunctional, with the super-rich earning most of the income and the great bulk of the population barely surviving.

Reich makes it perfectly clear that this dysfunction is the result of political choices, not an inevitability, by comparing the U.S. to Germany:

Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970.

In the U.S. the top one percent earn approximately 24 percent of all income.

Reich suggests that, “the rich are now being bitten by their own success. Those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that’s almost dead in the water.” Wouldn’t it be nice if the rich actually believed that?

Harold Meyerson’s op-ed in today’s Washington Post, “The Fallacy of Post-Industrial Prosperity,” actually evinces some optimism. After beginning with the declaration that, “Of all the lies that the American people have been told the past four decades, the biggest one may be this: We’ll all come out ahead in the shift from an industrial to a post-industrial society,” he ends with the hopeful news that some businesspeople and economists are recognizing the theory’s fallacy:

Since that new economy blew up three years ago, many of those elites have been disabused of the financial fantasies that ordinary Americans long ago ceased to entertain. The fact that Greenstone and Looney’s study [of the decline in men’s wages] emerged from the Hamilton Project — a pillar of new-economy thinking, founded by Clinton Treasury secretary Robert Rubin — is evidence of a paradigm shift in economic vision. From centrist Democratic groups such as the Progressive Policy Institute and Third Way, to economists such as Hoover Institution Nobel laureate Michael Spence, to chief executives and former chief executives such as Dow Chemical’s Andrew Liveris and Intel’s Andy Grove, the new watchword for America’s future — however challenging it may be to get there — is manufacturing.

Reich also ended his article with an optimistic thought:

As the historian James Truslow Adams defined the American Dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for everyone.”

That dream is still within our grasp.

I wish I could share their optimism.

The Secret Army of the United States

The authors of the United States Constitution were very aware of the mischief that kings had made through history with the power to wage war, so in their blueprint for a republic they specifically gave that power to the Congress, to ensure that wars would only be undertaken with the knowledge and consent of the people.

9/11 was the excuse for a lot of trampling of our constitution, and this delegation of war powers to Congress is one of the casualties.

Just recently I found myself wondering, "how many countries is the United States currently bombing? Two Washington Post journalists, Dana Priest and William M. Arkin, have just published a new book, entitled "Top Secret America: The Rise of the New American Security State," which details the rise of a new secret U.S. army. 

An excerpt appeared in today's Washington Post, and it is filled with some scary information:

The U.S. military's Joint Special Operations Command, known by the acronym JSOC...takes its orders directly from the president of the secretary of defense and is managed and overseen by a military-only chain of command. 

Under President George W. Bush, JSOC’s operations were rarely briefed to Congress in advance — and usually not afterward, either — because government lawyers considered them to be “traditional military activities” not requiring such notification. President Obama has taken the same legal view, but he has insisted that JSOC’s sensitive missions be briefed to select congressional leaders.
...
On Sept. 16, 2003, Rumsfeld signed an executive order cementing JSOC as the center of the counterterrorism universe. It listed 15 countries and the activities permitted under various scenarios, and it gave the preapprovals required to carry them out.

In Iraq and Afghanistan, lethal action against al-Qaeda was granted without additional approval. In the other countries — among them Algeria, Iran, Malaysia, Mali, Nigeria, Pakistan, the Philippines, Somalia and Syria — JSOC forces needed the tacit approval from the country involved or at least a sign-off from higher up on the American chain of command.

...

When Obama came into office, he cottoned to the organization immediately. (It didn’t hurt that his CIA director, Leon Panetta, has a son who, as a naval reservist, had deployed with JSOC.) Soon Obama was using JSOC even more than his predecessor. In 2010, for example, he secretly directed JSOC troops to Yemen to kill the leaders of al-Qaeda in the Arabian Peninsula.

The president has also given JSOC the rare authority to select individuals for its kill list — and then to kill, rather than capture, them. Critics charge that this individual man-hunting mission amounts to assassination, a practice prohibited by U.S. law. JSOC’s list is not usually coordinated with the CIA, which maintains a similar, but shorter roster of names.

Created in 1980 but reinvented in recent years, JSOC has grown from 1,800 troops prior to 9/11 to as many as 25,000, a number that fluctuates according to its mission. It has its own intelligence division, its own drones and reconnaissance planes, even its own dedicated satellites. It also has its own cyberwarriors, who, on Sept. 11, 2008, shut down every jihadist Web site they knew.

Obscurity has been one of the unit’s hallmarks. When JSOC officers are working in civilian government agencies or U.S. embassies abroad, which they do often, they dispense with uniforms, unlike their other military comrades. In combat, they wear no name or rank identifiers. They have hidden behind various nicknames: the Secret Army of Northern Virginia, Task Force Green, Task Force 11, Task Force 121. JSOC leaders almost never speak in public. They have no unclassified Web site.