Saturday, May 31, 2014

The Invisible Hand a Pickpocket?

© Charles D. Hayes

If we are to have a brighter economic future, some prevailing ideological bubbles must be burst, and now we have a very sharp pin to focus on the subject of inequality. French economist Thomas Piketty has pored over a century’s worth of economic data from thirty countries and written Capital in the Twenty-First Century, where he provides compelling details that burst the balloon of supply-side ideology. Specifically, his evidence deflates the claim that the key to the future is laissez faire capitalism, low taxes, and the arcane notion that capitalism is a dependable trickle-down success story.
Piketty’s work has been under unrelenting attack, especially by people who don’t want to believe it and likely won’t believe it, even if it holds up over time as a valid argument. But the manic condemnation has created a bestseller. Critics are desperately searching Piketty’s data in hopes of finding flaws that will enable them to dismiss the whole work. Doing so won’t be easy, though, because, apart from some noted arithmetic errors, his examples are exhausting and his timeline covers decades of trends in the demographics of wealth accumulation.
One glaring fact is undeniable: inequality is escalating globally at an alarming rate. The debate needs to go on until we sort the virtues from the vices of capitalism and get to the bottom of why so many working people remain in poverty.

Those who claim that Piketty is a Marxist obviously have not read the book. He favors capitalism, but he makes it clear that capitalism is an engine so powerful that when it idles, the return on capital outpaces general economic growth. This is why the top one percent is on course to accumulate more and more wealth, at the expense of the rest of the economy.

The imbalance will not stop without serious intervention, namely putting a governor on the carburetor of capitalism, in the form of a progressive tax that’s steep at the high end, to check the excessive growth disparity and bring an equitable balance to the population at large.

In a nutshell, Piketty argues that capitalism is a system whose algorithmic functionality accelerates advantage and then continues to favor that advantage disproportionally. It’s a snowballing effect that, if left unchecked, eventually becomes an avalanche. The gap between the growth of capital and the rest of the economy is small, but the consequences are enormous.

Piketty’s analysis aside, the rise in economic inequality in America during the last thirty years offers prima facie evidence that something in our capitalistic system is fundamentally flawed. Capitalism, it seems, systematically undermines its own success. According to the Wall Street Journal, 95 percent of income gains from 2009 through 2012 went to the top one percent. How much worse does this disparity have to get before the intransigent GOP wakes up and at least admits we have a problem?

The ideological friction between labor and capital is an ancient quarrel. “Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” So said Abraham Lincoln, a prescient Republican president, in 1861.

Where is the higher consideration? Labor today gets scorn, contempt, and derision for even raising the subject. Why is the minimum wage stagnant despite significant growth in productivity? Simply put: although the precise identity of the culprits directly responsible may be subject to argument, the pockets of the working poor have been picked as effectively as if accomplished by a thief.

Adam Smith’s invisible hand is a powerful metaphor, and the self-interest it describes can and does improve lives all over the world. But Smith’s work has been corrupted and championed as a celebration of greed, which is the antithesis of his thinking. At its best, capitalism dramatically improves lives; at its worst, unchecked greed ravages the environment, oppresses individuals, and destroys culture.

Capitalism is analogous to radiation. Used carefully, it can produce miraculous results, while overuse kills. In Smith’s view, economic freedom does not come with the license to oppress because the very idea of doing so is immoral.

The government’s job is to keep the invisible hand from becoming a pickpocket by keeping any and all economic factions from acquiring enough power to be oppressive, whether the aggressor is the government itself, a corporation, or an individual. Whatever happened to the notion that “we the people” are the government?

Adam Smith advocated freedom in a sense of moral ethicality long since forgotten and absent from general public discourse. The ethos of Wall Street is so far out of sync with Smith’s view of ethical economic behavior, it seems almost extraterrestrial. 

The idea that a selfcreating, selfsustaining middle class can exist on nothing but low taxes, ambition, and individual initiative is absurd, and the hundred-year history in Piketty’s book makes this crystal clear. Middle-class societies require significant ongoing investments. Repeating adamant declarations that lowering taxes will always lead to economic growth will not make it so. American economic history well illustrates this point. Higher taxes do not necessarily result in economic downturns. Some of our greatest periods of growth and a thriving middle class have occurred when tax rates were much higher than those we have today.

Remember this: Never on this planet has there existed a civilization with a strong middle class and minimal poverty without an extraordinary government effort behind its creation and a substantial and ongoing investment in both hard and soft infrastructure to keep it viable. Never!

The existence of middle class is a purposeful effort. Don't believe it? Find one that occurred by happenstance or sheer ambition. Offer an example. Please. Look the world over at all of the developed nations with a high quality of life, and you will find no great society arising solely out of the burning desire for individual success. Affluent societies are not accidental occurrences. Even in societies that are resource rich, substantial investments in the public interest have to be made. And yet, in America, Horatio Alger bootstrap nonsense is still touted as if personal drive is the only ingredient necessary for economic triumph.

Make no mistake, individual responsibility and initiative are important for success, but we don't achieve middleclass status without an overt public effort and the investment necessary for both creating and sustaining it. Rural electrification, the interstate highway system, the GI Bill, and the Federal Housing Authority were key ingredients that gave rise to America's middle class, all paid for by much higher tax rates than are currently in effect.

Thomas Piketty describes this period in American history as an aberration, but it didn’t kill capitalism. To the contrary, it kicked the engine into overdrive, putting a governor on capital and providing enough equity that starting wages supported a middle-class lifestyle with only one person in a family working. To avoid taxes at the highest rate, business owners reinvested heavily in their companies, and their wealth increased accordingly.

Executive compensation today has everything to do with the power to loot with legal immunity. These days we hear a lot of talk about takers, but not much is said about those who have already taken far more than the value they create. Wall Street executives fled the 2008 meltdown with multimilliondollar bonuses, while people who were put out of work because of executive greed are routinely referred to as parasites for collecting unemployment.

In reality, the financial services industry is where we have an infestation of parasites. They skim the stock market with supercomputers, and cover their tracks with empty slogans about success, freedom, and the American Dream, having succeeded in getting the legislative license and political support not only to loot openly, but to be celebrated for it.

An ethos of selfreliance is accepted as a core component of American culture. Ralph Waldo Emerson is the grand architect of this way of thinking about ourselves. But today's politicized rhetoric about selfreliance overlooks the fact that Emerson was antimaterialistic to an extreme that few Wall Street cheerleaders can comprehend.
Much of our love affair with rugged individualism is based on mythology. We celebrate a history that never happened, obsessively calling attention to individual initiative, while ignoring the enormous government expenditure that made America possible. Millions of working people today depend upon paychecks in market economies that are subject to the whims of fashion and global recessions. Through no fault of their own, they find themselves out of work for months or years. The idea that without some kind of intervention or assistance, sheer determination will allow them to recover is patently illogical.

There is plenty of need for outrage in America, but it should focus on adjusting the engine of capitalism and the regulations that pose a danger to the public interest. Skyrocketing inequality and a shrinking middle class create a recipe for economic decline. The engine of capitalism is perfectly capable of working for everyone. It’s happened before and it can happen again, but the public will must demand an overhaul.
The profound irony is that the long-term future of our species depends not on economic growth per se, but almost its opposite: the exponential growth of knowledge toward reducing the human imprint on the natural world. Sadly, even to raise the subject that our impact on the earth is more important than our economic system is to invite ridicule and the questioning of one’s sanity.

Piketty’s research suggests that our long-term growth is inevitably likely to slow, but he is reluctant to predict a rate. He offers a brief discussion of the importance of addressing climate change, but says little about population growth and the consequences of finite resources. In his words, “The long-term dynamics of wealth distribution are potentially terrifying, especially when one adds that the return on capital varies directly with the size of the initial stake and that divergence in the wealth distribution is occurring on a global scale. The problem is enormous, and there is no simple solution.”

Put simply, civilization is a very expensive proposition, and if we continue to attempt to achieve progress with ego-driven criteria based on greed, a childish penchant for selfishness, and ethnocentric tribalism, the pursuit is likely to end badly. Nothing save a catastrophe will produce the resolve to do what needs to be done. 

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Sunday, May 4, 2014

Good Business vs. Good People

© Charles D. Hayes

All of my life, I’ve been listening to adamant assertions about how our government should be run like a business. Lots of people still have faith in the notion that “what’s good for General Motors is good for America.” I used to believe it wholeheartedly, but as I enter my eighth decade on the planet, I believe it’s time to rethink the whole premise.

People whose internalization of the business model is such that they believe Capitalism to be the solution to every problem under the sun now make me cringe. Low wages, high unemployment, and low taxes are good for business, but not so much for working people. The business model of efficiency is well suited to business, but not to families when there are not enough jobs that pay a living wage.

We’ve created an economic system that depends upon and, in fact, thrives on high unemployment for corporate profits. Yet the blame falls on the unemployed for being unemployed when, by design, there aren’t enough jobs. This is like putting people in a round room and then accusing them of cutting corners.

Many of us do not accept the notion that Capitalism is our reason for living. Having children, for example, is not efficient. In fact, it’s not a savvy business thing to do at all. But the reason we do things in life that are incompatible with the business model represents a moral truth north of religion.

I don’t want a president or any of my elected officials to base all of their decisions about the future of the country on the business model alone. We don’t sell our children, and neither should we sell them out. I don’t want a president making decisions about sending our young men and women to war based on the business needs of Lockheed Martin or Halliburton. Nor do I want our air and water rights sold to the highest bidder to contaminate as they please.

I don’t want leaders who will opt to sell Nebraska to Texas, or let Bain Capital gut and sell off the state of Michigan. As ridiculous as these examples sound, some government “business decisions” in the past have been nearly on par with that level of stupidity.

The only time Capitalism favors workers with equity over management is when there are not enough workers available and businesses have to compete to keep employees. Otherwise, when unemployment is high, the lack of employment mobility leads to exploitation and oppressive management, often bending the will of employees to do whatever is necessary to keep their jobs, even if it is illegal. History shows this is often the case, and we’re seeing it today.

So what do we do to ensure business is good for both business and workers? How do we balance the power of Capitalism with the needs of citizens?

A half-century ago, economists on both the Left and Right were seriously considering enacting a guaranteed income. Richard Nixon, a Republican president no less, tried to get legislation enacted to make it the law of the land. A negative income tax was also the subject of much discussion. Well, Nixon failed to get the legislation for a guaranteed income passed, largely because the idea of paying people to do nothing was repugnant to most folks, myself included. But after giving the idea a lot of thought, I’ve changed my mind.

My initial reaction was that there is absolutely no reason to pay people to do nothing when there is so much in the world that needs to be done—extremely important things that are not getting done. But then I realized it’s presumptuous and arrogant to assume that if people were truly free to use their time as they wished, without being dependent on an occupation for a sense of identity and social respect, they would not quickly gravitate toward that which needs to be done of their own volition. My reason for believing this is that we already have an enormous volunteer workforce in the nonprofit sector, whose tireless efforts to make the world a better place trump the ethos of financial success.

Indeed, real freedom requires the ability to use one’s time as one wishes. Unless we understand this completely, we are bound to live like actors in a play about independence with our roles, scripts, and narratives written by others. This renders our intrinsic aspirations moot and turns our actual life experience into more of an act than an exercise of genuine freedom.

Over the past three decades, our worker productivity has increased dramatically but wages haven’t. The more high-tech we get, the fewer workers are needed in the workplace. Yet we still have an enormous amount of work that desperately needs to be done in the world to make our lives livable: healthcare, childcare, eldercare, education, public safety, environmental restoration, agriculture, solar energy, science, construction, food service, and a whole host of activities that add meaning to life.

On the topic of work and value, I can think of no other subject surrounded by so much pretentious hype—hype about mythical expertise, arguing that only a select few individuals have the special knowledge and ability to command insane levels of compensation, while people who actually work as hard or harder barely make it from paycheck to paycheck.

No doubt many executives in charge of large organizations work hard, but— economic leverage value of their decisions aside—I’ll wager that, in terms of effort and stress, most people who work the front counter in fast-food franchises work harder than many executives. If you doubt this, give a front-counter job somewhere a try. Moreover, wages are determined less by skill or level of effort required than by political power, or the lack of it. In years past, I’ve known secretaries who actually ran the business where they worked, even though their salary was but a pittance of their bosses.

I’m an ex-Marine and an ex-cop with a big city police department, and I have more than a half-century of work experience, including years with three Fortune 100 companies. I have witnessed scores of employees in the lower echelons of organizations who work harder and clearly add more value than those near the top. The biggest difference between them was a gross disparity in compensation, often based far more on politics than contribution.

More often than I can count, I’ve watched competent employees train incompetent but credentialed people to rise above them in organizational ranks. The trainees’ paper credentials had nothing whatsoever to do with performing the job at hand, but they indentured the bearer in debt to a financial institution for decades and locked them into a lifetime of mediocre performance in an occupation for which they were allegedly qualified but unsuited in aptitude. 

America’s workplace is not a product of Divine meritocracy in which the talented always rise to the top. It is instead an elaborate enterprise of political pretense that depends to a significant degree upon contempt for otherness to sustain the power of hierarchy by cooperative cronyism.
Once and for all, we need to wake up and realize that there are things more important than making it a priority to see that a few greedy people become insanely rich while millions of good people barely get by. We need to replace meaningless jobs lost to technology with meaningful work that helps people be people. Period.

Now, I realize that in today’s political climate, the notion of guaranteed employment sounds insane and that the Far Right will foam at the mouth and convulse at the thought of socialistic-sounding policies. Let them. If they need a job we will find them one.

The world is changing a warp speed; we are entering a digital realm that earlier generations couldn’t imagine. It is perfectly clear to anyone who will face reality that a much more equitable society of the kind we had shortly after World War II is never coming back with business as usual, unless we take extreme measures to make it happen.

In The Second Machine Age, Erik Brynjolfsson and Andrew McAfee point out that in 1968, 1,200 economists signed a letter addressed to Congress in favor of a guaranteed income, with support from people on both sides of the political aisle:  Richard Nixon, Milton Friedman, John Kenneth Galbraith, Paul Samuelson, James Tobin, and Friedrich Hayek.

One week after I finished writing this piece, the PBS News Hour featured present-day advocates from both the Left and the Right who are still arguing for a no-strings guaranteed income. The possibilities are intriguing. We wouldn’t need food stamps, and we could dismantle some social welfare programs that are only marginally effective.

It’s long past time that we figured out how to guarantee a living wage for all working citizens and a stipend for basic human needs simply for the dignity human beings require. The very viability and sustainability of America’s future depends on it. It’s time to stop rearranging the deck chairs on America’s Titanic, our middle-class labor force. It’s time to scuttle the ship and build a new one that floats, not in a rust-belt economy, or a Wall Street winner-take-all swamp of corruption, but rather in a digital sea of American equity, where people are considered more important than machines, where people are valued as ends in themselves and not merely as means to an end, where selflessness and goodwill trump greed, and where Americans can again say we live in a great country and really believe it.

My Books and Essays on Amazon
New Fiction: The Call of Mortality
My Other Blog
Follow me on twitter: @CDHWasilla