Topic: Commentary

I was happy to see a post on Democracy now titled "Why the Free-Market is a Myth", but then upon reading the explanation provided I was disappointed because the explanation provided was so woefully inadequate, so I guess I'll cover the issue here.

In the interview Chang states that there are no "free-markets" because there are actually lots of regulations and no body would want to get rid of all of the regulations, like child-labor laws, because presumably, some regulations are "morally good".

Yes, well this much is obvious, but this has nothing to do with the myth of free-markets. The myth of free-markets is the very notion that there ever could be a "free-market", even from just a technical perspective.

Now, addressing the issue of "free-markets" depends on how you define what a "free-market" is. This is more difficult than one might think because the definition of "free-market" has changed over time, indeed one could argue that the most common definition of a "free-market" today is in some ways the opposite of what it used to be.

If one defines a "free-market" simply as a market without government regulations, then of course Chang's comments make some sense, but defining a "free-market" simply as without regulation is also of little use. If we take the definition that a free-market is simply "Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy," this implies that private "interference, regulation, and subsidy" doesn't exist, and that without government "interference, regulation, and subsidy" either "interference, regulation, and subsidy" will not exist or by definition whatever "interference, regulation, and subsidy" that does exist is still considered "free" simply because it's not government imposed; in other words a market that has "interference, regulation, and subsidy" imposed on it by the mafia would still be a "free market" under this definition. As one can see, such a definition makes little sense.

But let's take another common definition of the term, in this case from Investopedia:

"A market economy based on supply and demand with little or no government control. A completely free-market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation."

The tricky part of this definition is "buyers and sellers are allowed to transact freely". This part of the definition goes directly to the heart of classical definitions of "free-market", whereas the neoclassical definition of "free-market" focuses on "little or no government control".

But these two components of the definition are at odds. It is not necessarily the case that with "little or no government control," "buyers and sellers are allowed to transact freely".

This really gets to the heart of the matter, because what many "free-market" advocates are really advocating is a market in which there are no government controls to prevent private entities from preventing buyers and sellers from "transacting freely" and from imposing their own "interference, regulation, and subsidy". The contradiction of the "free-market", the reason that the idea of a "free-market" is itself a paradox and cannot ever really exist, is that there have to be regulations in order to ensure that "buyers and sellers are allowed to transact freely".

The myth of the "free-market" is that without regulations a "free-market" would exist. This isn't the case, there are no real situations in which a true "free-market" would ever exist on any large scale. If one only defines a "free-market" as a market free from government regulation, then yes of course "free-markets" can exist, but if one defines a "free-market" as a market where buyers and sellers are "allowed to transact freely" and prices are "governed by the laws of supply and demand" then this will never truly exist on any large scale.

Certainly we can acknowledge "degrees of freedom", and we can acknowledge that government imposed price controls are certainly a restriction on markets, but to assume that a market with no government imposed restrictions would be "free" is just another fallacy. It falsely implies that prices cannot be manipulated by non-governmental entities, it is akin to the suggestion that anarchy provides more freedom than a state with police powers, which is to imply that there is more "freedom" in Somalia than in your average American down town. It all depends on how you define freedom. In Somalia you certainly have more freedom to rape someone, but you also necessarily have less freedom from rape. Can police powers be too imposing so that they restrict freedom more than they ensure it? Of course, but it's all a matter of degrees, not absolutes. We can't have a completely free society just like we can't have completely free markets. There will always be restrictions, either by laws and rules or by those who impose their will upon others. We recognize this in society at large, but some people fail to recognize this in economics. Those who argue for "free-markets" are no different from people who would argue that we shouldn't have laws against theft and rape and fraud, etc. Clearly people arguing against those laws we would recognize not as people who support freedom, but as people who want to be free to steal and rape and commit fraud against others.

Classical economists like Adam Smith and David Ricardo did advocate free-markets as opposed to the mercantile system of the feudal period, but they did so only in so far as "free-markets" served the public good.

We can look at specific examples, including one provided by Adam Smith. Below Smith argues against regulation of corn prices, to allow corn traders to determine the price of corn, arguing that even when traders buy low and sell high, thereby driving prices up in the short term, they still provide a benefit by having the effect of "evening out" the price of commodities over time.

"Secondly, it supposes that there is a certain price at which corn is likely to be forestalled, that is, bought up in order to be sold again soon after in the same market, so as to hurt the people. But if a merchant ever buys up corn, either going to a particular market or in a particular market, in order to sell it again soon after in the same market, it must be because he judges that the market cannot be so liberally supplied through the whole season as upon that particular occasion, and that the price, therefore, must soon rise. If he judges wrong in this, and if the price does not rise, he not only loses the whole profit of the stock which he employs in this manner, but a part of the stock itself, by the expense and loss which necessarily attend the storing and keeping of corn. He hurts himself, therefore, much more essentially than he can hurt even the particular people whom he may hinder from supplying themselves upon that particular market day, because they may afterwards supply themselves just as cheap upon any other market day. If he judges right, instead of hurting the great body of the people, he renders them a most important service. By making them feel the inconveniencies of a dearth somewhat earlier than they otherwise might do, he prevents their feeling them afterwards so severely as they certainly would do, if the cheapness of price encouraged them to consume faster than suited the real scarcity of the season. When the scarcity is real, the best thing that can be done for the people is to divide the inconveniencies of it as equally as possible through all the different months, and weeks, and days of the year. The interest of the corn merchant makes him study to do this as exactly as he can: and as no other person can have either the same interest, or the same knowledge, or the same abilities to do it so exactly as he, this most important operation of commerce ought to be trusted entirely to him; or, in other words, the corn trade, so far at least as concerns the supply of the home market, ought to be left perfectly free."
- Adam Smith - Wealth of Nations Book 4 Chapter 5

Smith's argument here, whether ultimately correct or not, is that in this case a "free-market" would serve the public good by evening out the price of corn over the year. He argues that independent corn traders without regulation would serve that interest better than government imposed price controls which attempt the same goal.

However, in a truly unregulated market there would be nothing to prevent a well capitalized trader from coming in and buying all of the corn to monopolize the market, thereby holding prices at ransom and driving up prices astronomically even in the short term. The idea that "free-markets" are good is predicated on the assumption of a large and distributed market place of individual actors, where no actor is able to have a significant singular influence. The idea being that competition between the sellers will drive the market to "fair" prices, and "profits" will actually be low.

This is basically true, but the problem is that without regulation there is no way to ensure that such a situation will exist. Even if a market starts out with a large number of actors, history shows that markets can quickly become consolidated so that a market of many actors can be driven down to only a few or even one actor over a short period of time, and once that happens then sellers can "dictate" the prices. History also shows that even with many actors and compeition, speculation can result in market forces that act against the public good, market bubbles being perfect examples of this.

There are plenty of examples of private interests undermining free-markets in our current economic system. A common example is the practice of suppliers paying fees to retailers for exclusive product rights. Tickemaster is one perfect example of this, but even companies like Coke-a-Cola and Pepsi pay restaurants and retail stores fees to prevent them from carrying competitors products.

It's hard to ague that this constitutes "free-market" practices under any definition of "free-market" other than simply "a market without government regulation". In this case what we have is not government manipulation of prices, but private manipulation of prices.

In the case of Ticketmaster, what they do is they pay venues an up-front fee for exclusive ticket selling rights. By doing this, Tickemaster gains a monopoly on the tickets for a given event. Ticketmaster can then set "transaction fees" without competition.

This is where things get even more complicated philosophically. Certainly there is a difference between a "free-market" and a "perfect market". What many "free-market" advocates do is they support "free-markets" even when a "free-market" deviates more from a theoretical "perfect market" than a regulated market, in other words, even when a "free-market" is objectively contrary to the public good.

A perfect market is a theoretical market where there is infinite competition and each actor is essentially omniscient, i.e. knows everything about every aspect of the market and all products in the market.  Under these conditions we predict that profits will be zero, everything will exchange at cost.

So if we hold that in a perfect market there will be zero profits, i.e. that zero profits is the ultimate efficiency, then the means of generating profits is to steer the market away from perfectness, in other words to intentionality attempt to reduce competition, hinder access, and reduce the information of the other actors in the market. Adam Smith did not advocate allowing private interest to reduce competition, hinder access, and reduce the information of the other actors in the market, indeed quite the opposite.

What we know about market behavior, however, is that this is exactly what we find in the real world in an "unregulated market". In an unregulated market the actors engage in behavior that is intended to reduce competition and restrict information or provide misleading information, both about their specific products and about the market as a whole.

And so this is what many "free-market" advocates are really advocating for, the ability to reduce competition, hinder trade, and mislead others. It's hard to argue that this constitutes a "free-market" under any definition but the strictest definition of a market without any government regulation. It's like arguing that a society where people are free to hold slaves has more freedom than a society that has restrictions against slavery.

Let's finish with a specific example of how the ability of "buyers and sellers to transact freely" can be restricted without government regulation. Suppose that we have an area of unowned land, across which people travel to exchange goods. Now, in an unregulated environment where there is, at a minimum, just private property right enforcement and nothing else by the government, someone could acquire that land and erect a wall thereby disrupting trade. They could then put a passage in the wall and charge a private toll for passage across the barrier. It's hard to argue that this fits the description of allowing "buyers and sellers to transact freely". What has happened here is that in an unregulated environment a private entity has created a barrier to trade and is using that barrier to trade to levy a rent on trade, and this rent itself violates the principle of allowing "buyers and sellers to transact freely". Certainly they could transact more freely prior to the imposition of the rent, and a government which used regulation to prevent this type of rent charging would in fact be protecting the ability of "buyers and sellers to transact freely", but in so defending this aspect of a "free-market" it would violate the principle of barring government regulation.

And this is why there is no such thing as a true "free-market", and can never be. The principles of a free-market are at odds with one another. Allowing "buyers and sellers to transact freely" requires government regulation.

Topic: Commentary

Having just reviewed the debt reduction report put out by Obama's fiscal commission, I must say that it's really not that bad.

I'm only going to address the Social Security portion of it here, since that's getting the most attention, and I may go back and address other portions of it later.

I'll quote from the presentation (which is just a slide show):

• Add a new special minimum benefit to keep full-career minimum wage workers above the poverty threshold.
• Wage-index the minimum benefit to make sure it is effective both now and in the future.
• Provide a benefit boost to older retirees most at risk of outliving other retirement resources.
• Gradually move to a more progressive benefit formula
• Index retirement age to increases in longevity
• Hardship exemption for those unable to work beyond 62
• Switch to a more accurate measure of inflation (chained CPI) for calculating COLAs
• Include newly hired state and local workers in Social Security
• Gradually increase the taxable maximum to capture 90 percent of wages by 2050
• Allow greater flexibility in how benefits are claimed
• Direct SSA to design a way to provide for the early retirement needs of workers in physical labor jobs
• Improve information on retirement choices

They also listed some additional options, one of which was to uncap the disability portion (1.8% of payroll) of the Social Security tax (this funds payments to disabled workers prior to retirement age).

The overall projected impact of these proposals (not including the optional ones) is projected as shown below:


What this graph is saying is that the proposals would slightly increase the payout to those in the lowest quintile over the current promised benefits, but it would significantly increase the payout over the supposed actual "payable" benefits. They are using a very  conservative scenario where the payable benefits fall below the promised benefits as of 2037.

If you ignore the distinctions between what's projected to be payable and what's currently promised, their proposal slightly increases benefits for the poorest people and reduces benefits "progressively" for everyone else.

The first thing to point out is the proposal to increase the taxable maximum to capture 90% of wages by 2050. This is somewhat interesting. According to this report the Social Security payroll tax currently captures 86% of wages, with the remaining 14% being above the cap. It is projected that using the current system and current levels of income disparity growth that by 2050 the Social Security tax would only be capturing 82.5% of payroll, with the rest being above the cap.

Now, the call to change the formula so that 90% of payroll would be captured by 2050 is perhaps better than doing nothing, but its still a far cry from what should really be done, which is to remove the cap completely and to do it much more quickly than by 2050. It's something that should be done perhaps over 5 years, not 40 years.

Overall I would say that some of these benefit ideas are good ones, like creating a new minimum benefit, and developing new ways to insure that people in manual labor jobs can claim early retirement without a penalty, etc. I also think that the outlined reductions in promised benefits are mostly fine the way that they have laid them out as well, though perhaps a little too aggressive. It is true that right now benefits are scheduled to increase too much in my opinion and paying for these benefit increases only hurts workers right now.

However, I'm against increasing the retirement age for anyone, for multiple reasons. For one thing, it obviously would mean that fewer people would see any benefits, because if you die before you collect then you essentially get nothing. For another thing, I think that even with exceptions for people in manual labor jobs, the net effect would be to push more elderly people onto other government assistance programs in their late 60s, which might make Social Security more solvent, but wouldn't help the overall budget.

Here is the other issue when talking about Social Security and "reducing the debt". There is currently $2.5 trillion in the Social Security "trust fund". Now regardless of what you think about the trust fund, the fact is that this represents $2.5 trillion in taxes that were collected from payroll incomes below the taxation cap, primarily over the past 25 years.

Over the past 10 years roughly $150 billion has been put into the trust fund every year, meaning that Social Security has collected an excess of roughly $150 billion every year for the past 10 years.

The money in the "trust fund" has been "borrowed" by the federal government every year, so what this means is that this excess $150+ billion has been used like general revenue to fund the federal government. That $150+ billion has represented roughly 6% of total federal revenue each year and that 6% comes entirely from low and middle wages. What this means is that the Social Security surplus has been acting like an offset to the federal income taxes, and the Social Security tax is a highly regressive tax that only hits low and middle wages, so what's been happening for the past 25 years is that low and middle wage earners have been subsidizing federal revenues. Without that $150+ billion coming in from social Security every year we would either have had to borrow that money from other sources, or raise other taxes, and if we had to raise other taxes, almost certainly it would have come from income taxes, which are more progressive and therefor this has acted as a stealth tax cut for the wealthy this whole time.

We are currently discussing the expiration of the Bush tax cut for the top 2%, which are projected to cost $700 billion over the next 10 years, but consider that the Social Security excess that has been paid over the past 10 years has been in excess of $1.6 trillion. This really amounts to a $1.6 trillion tax cut on the wealthy, or at least around a $1 trillion tax cut on the wealthy, over the past 10 years, paid for  entirely by the poor and middle class, on wages under ~$100,000 a year (as of 1999 the cap was $72,600). Over the past 10 years the wealthy have had their taxes subsidized by the poor and middle class by roughly twice the amount of the Bush tax cut that we are currently debating, and in fact this subsidy has been going on for the past 25 years, not just the past 10.

So, when we talk about changing the Social Security benefits to "reduce the debt", what this really means is defaulting on the $2.5 trillion that's in the "trust fund". It means changing the benefits so that instead of paying back the $2.5 trillion over the next 40 years, less than $2.5 trillion will be paid back. This is advocated as a means of avoiding tax increases on high incomes (since surely where the bulk of the burden would lie), but the fact is that this $2.5 trillion represents a $2.5 trillion tax subsidy to on high incomes over the past 25 years in the first place, so if its not paid back by taxes on high incomes then what's really happened is that we just used a tax on low incomes only as a stealth income tax for all these years, and that's that.

This, among other reasons, is why fully removing the cap on the Social Security taxes is essential. Simply changing the formula so that the cap rises a little faster is not enough, and simply removing the cap on the disability portion of the Social Security tax is not enough.

While Social Security is a good system overall, it is currently a highly regressive system that is putting an undue burden on the poor and middle class. The Social Security payroll tax is the single largest tax that most Americans pay on their income, and it only hits income under ~$100,000.

What really needs to be done to fix Social Security is:

• Remove the cap on the Social Security tax
• Apply the Social Security tax to all forms on income, not just payroll income (capital gains, etc.)
• Modestly reduce the rate of benefit increases, something between the current formula and what this deficit commission has proposed
• Reduce the tax from its current rate of 12.4% down to around 6%

Taking the first three steps is what enables the last step of reducing the tax rate. The biggest funding problem with Social Security all along has been that due to increasing income inequality it has continuously captured a smaller and smaller portion of total national income because less and less of the national income falls below the taxation cap, but just removing the cap on payroll income still won't fix that problem, because there are shifts between the portion of income going to payrolls and going to capital gains as well, and so as a larger portion of national income is realized via capital gains, or "unearned income", this will still cause the same problem unless the tax is applied to all income.

Not only should the tax be applied to all income for that reason, but given that almost a quarter of national income is realized via capital gains, by not taxing this income it forces the tax on payrolls to be higher. If the burden can be spread across more of the national income then the tax can be lower.

So in conclusion, the proposals on Social Security put out by Obama's deficit commission (aka cat food commission) actually are not that bad. In fact I would call them mostly an improvement over the current state of affairs, however I strongly disagree with raising the retirement age and I disagree with making the benefit formula significantly more progressive (weening the middle class off of Social Security). Likewise, the recommendations don't go nearly far enough in expanding the tax base of Social Security, and indeed its recommendations appear to be designed to stave off larger efforts to fully remove the Social Security taxation cap and more broadly expand the tax base.

Topic: Commentary
The policies and positions of Democrats and Republicans, and their portrayal in the media, have created a state of major political confusion in America. Let's face it, the reality is that the two party system defines American politics, and no matter how bad it is, the reality is that the vast majority of the population thinks of politics along the two party lines.

I do believe that the two party system shapes how we even think about politics in America. It's why most issues get boiled down into "liberal" vs "conservative" and "left" vs "right". You don't see this as much in countries with proportional representation and multi-party systems because with more parties and more representation the issues aren't defined in a binary fashion.

But that's not the focus of what I want to talk about. The focus here is how the odd mix of policy positions taken by the Republicans and Democrats for political reason has created much confusion among the electorate, particularly among progressives.

We've had the Democrats pass a "historic" health care reform package... but it's based on a plan drafted by the Republicans and the Heritage Foundation and the Democrats caved in to the demands of opponents of legal abortion, insurance companies, hospitals, and the pharmaceutical industry in order to get it passed.

The Republicans now are, at least out of one side of their mouth, defending Medicare against spending cuts, and just previously under George Bush they expanded it with the Part D prescription drug benefit.

Barack Obama is supporting increased investment in education... but it's largely by strengthening No Child Left Behind, and cannibalizing the public school system in favor of charter schools run by private for-profit corporations, and even allowing money to go to schools run by faith based organizations.

There are more Republican women in the headlines running for political office than Democrats.

Obama and the Democrat passed $787 billion worth of economic stimulus and has extended unemployment benefits in order to deal with the recession... but the stimulus relied heavily on tax cuts and traditional Republican approaches to economic stimulus, and the extended unemployment benefits only highlight the lack of any real programs to put people back to work, including public works programs like those used by FDR.

What I've found, just based on anecdotal observation, is that there are many confused Democrats and progressives. People don't know whether to defend Obama and the Democrats or not. They don't know whether to be supportive of the health care reforms or not. There is a natural reflex to defend Obama and the Democrats when conservatives say absurd things about them, and when they say things that are clearly false.

I think this confusion is reasonable, and that it's really hard for the average person to get a handle on what's going on politically right now. The corporate media certainly doesn't help matters at all. All I know is that there are still a lot of people who call themselves liberals and progressives out there who are supporting Obama and the Democratic party. The biggest impulse I see is to defend the health care reforms. I see this creating constant consternation, with liberals and progressives feeling the need to come to the defense of forcing everyone to buy private insurance, largely from for-profit insurers. Are there some good provisions in the bill? Of course there are a few good things, it's not all horrible, but it's extremely far from a progressive piece of legislation, and I think that it makes the situation worse overall long-term by having given more power to private insurers and more deeply integrating them into the fabric of government. We'd be better off siding with the conservatives on the position that the federal government should not be able to compel individuals to buy products from private corporations, because this would pave the way for single payer. Actually I think that conservatives know this and it's why they will really be all bark and no bite on this issue. They don't really want repeal, they are just saying they do to please the base, but in reality they like the mandate, heck it was their idea in the first place. Defending the mandate just makes progressives look absurd. Why are progressives defending being forced to buy insurance for the same private carriers that were abusing the American people before, and without any meaningful price controls on the system? Instead of flip-flopping and trying to argue with conservatives that the legislation is good, we should just agree with them that it's bad and draw contrast by making the case for a single payer system instead.

The same is the case with the so-called stimulus. Instead of trying to defend Obama's "stimulus spending" we should be agree with conservatives that the stimulus as it was implemented was a bad idea, because it relies too much on tax cuts and didn't do enough direct job creation.

On extending unemployment we should again agree that two years of unemployment isn't reasonable, and instead the government should be creating public works programs to put people to work instead of just extending unemployment, etc., etc.

By constantly defending the actions of the Obama administration, progressives and liberals end up arguing against progressive policies to defend the anti-progressive policies of the Democratic party.

But having said all, it again comes back to confusion. Right now it seems that there are still a lot of "team players" in the Democratic party who will defend the party's actions no matter what they do. It's important for progressives not to get sucked into "team player" mentality and to remain objective and stick to the issues. Take the legislation out of party context and just think about it by itself, as if you didn't know which party was advocating it. Would you still support it then? If not then don't support it now either, and don't support those that backed it. Don't get sucked into the us vs. them game. When conservatives attack Obama and the Democrats or their legislation, don't just reflexively defend them, point out your disagreements as well (if you have any).

As usual it seems that most people are focusing on the wrong issues when it comes to interpreting the results of the November 2nd elections. The most important thing that these elections, and the reaction to them in the mainstream media (I really need to stop using that term, from now on its corporate  media), really tells us is how the corporate media is complicit in once again deceiving the public and  shaping public perceptions.

When I started this website back in 2002 (the precursor to this site was a free site in 2002), it was because of the corporate media's misrepresentation of the facts leading up to the war in Iraq, and the ways in which the corporate media towed the Republican line and was complicit in essentially deceiving the American public and acting as an arm of official state propaganda.

Now, the cause of this has been much analyzed and it seems that the primary reason that the corporate media failed to be objective and to instead just spout the propaganda that it was fed was a mix of pure stupidity and naivete on the part of "reporters", pure laziness and a corporate media that no longer seeks to spend money on investigating facts but would rather just pass on press releases, a willingness to be led, and, importantly, the fact that the corporate media has a vested interest in the economic status quo and thus their "reporting" is colored by a major bias toward presenting information that supports the political and economic status quo and thus provides security for the corporations and the wealthy.

The reality is that the corporate media has only gotten less objective and has become more biased and more controlled as an instrument of propaganda for corporations and the wealthy since 2002, when they clearly played an important role in disseminating Republican propaganda and aiding and abetting the deception of the American public.

Unfortunately I don't have time to dig up all kinds of details and examples right now, but there are some big picture observations to be made.

The obvious place to start is with the so-called "Tea-Party". This "movement" has been coddled and helped along the whole way because of its alignment with the interests of the wealthy and corporations, and the media played a significant role in this. The reality is that a "leftist" movement similar to the Tea Party could never have this type of success in America because a similar type "leftist" movement wouldn't get bank rolled and wouldn't get the media attention that the "Tea Party" got.

But the Tea Party is only a small issue. The bigger issue is just economic reporting in general. Basic economic facts aren't reported in the corporate media. I'm not even talking about analysis here, just plain basic facts, such as the incomes of top hedge fund managers (most people don't know that hedge fund managers that profited from the housing bubble had multi-billion dollar incomes in 2007 and 2008). Reporting on the real level of income and wealth inequality in America today. (Studies show that virtually all Americans vastly underestimate the level of economic inequality in America)

And, most relevant to these recent elections, most Americans think that federal taxes have been increased over the past two years by Barack Obama, when in fact Obama has enacted major tax cuts. Most Americans think that the widely reported on $787 billion stimulus package of Barack Obama was all spending, when in fact almost $300 billion of it was tax cuts, with much of the other $500 billion being used to prevent states from having to raise taxes or raise taxes more than they did.

People believe this because of a combination of #1 being told that it's true and #2 not being given any information to the contrary.

Major prime time media outlets, and not just FOX, all media outlets, including MSNBC, CNN, ABC, NBC, etc. allow blatantly false economic talking points to go unchallenged; they just report what someone says or let a guest on a show say something false, and they never correct it or point out that it is false.

Again, I don't have time to go into details on this, but I watch the nightly news, etc. I remember coverage of the The American Recovery and Reinvestment Act, aka the "stimulus package". 95% of the time that I saw any coverage of this in the corporate media the size of the package, $787 billion was put out as a grave thing like it was just astronomical, they talked about some projects it would fund, like highway construction, and they never mentioned that it contained any tax cuts. If they did then they didn't say what portion of it was tax cuts.

The commentary on the "stimulus" in the corporate media continuously focused on it as a means of trying to "spend our way out of a recession". But it never was that.

And why does this matter? Because the reality is that many Americans still believe that "cutting taxes" is the "best way" to promote "economic growth". Well it's not, and the Obama stimulus proves once again that it's not. But the public hasn't learned that lesson because they aren't even aware that that's what Obama did. And now the reaction to the "election" is to claim that the "leftist policies" of Obama have to be rejected and that we need to "move to the right", since a mass of people who had no idea of what was going on in the first place elected a bunch of people who had been lying to them for years, enabled by the corporate media, after the Democratic president just tried using all of the methods that the people voting for the Republicans claim should be used.

The reality is that before Barack Obama was ever elected the Republicans had already written the script they were going to use against him. When Obama got into office, however, his actions didn't fit the narrative. But instead of changing the script to address Obama's real actions, the conservatives just stuck to the script and railed against the straw-man they had created in their narrative. That much can be expected, but the real crime here is that the corporate media went along with the whole ruse and instead of calling the Republicans out or reporting on real facts, the corporate media just read along with the script and helped to uphold the false narrative. Instead of reporting on the collusion of both the Democrats and the Republicans in the protection of corporate interests and protection of the wealthy, the media assisted in calling a center-right president and Democratic congress "socialist".

The real story of this election is that the corporate media has not reformed its ways, it's only gotten worse since the invasion of Iraq, and they have shown once again that the media narrative is able to trump reality.

You may have been able to guess that the pop-documentary "Waiting For Superman" was largely corporate propaganda by the fact that the film got so much praise and coverage in the mainstream media. While I have not seen the full film I did watch coverage of it on MSNBC and the Today show, and have been reading up on it.

It appears that this film puts the "blame" for a supposed decline in American public school education squarely on teachers and traditional public schools. I'll leave a detailed analysis of the film and argument against its thesis to the excellent article The Myth of Charter Schools, but I want to focus in on one issue.

As stated in The Myth of Charter Schools, only roughly 20% of student achievement is a product of teacher influence, and roughly 60% is a product of factors outside the school. This should be pretty easy to understand. If you take a child that is performing well at one school, and you move them to a different school, that child will typically perform well at that school too. Likewise, children that do poor in any given school typically do poor in any other school as well.

The whole point of many of these charter schools, however, at least in initial concept, is precisely to provide environments where traditionally poor performing students can do better. Certainly schools have some impact, and teaching styles, school facilities, the curriculum and the overall learning environment can be designed in ways that improve the participation and performance of students.

But the real questions are: #1 is American primary education performance getting worse or getting better, #2 are traditional American public schools under-performing charter schools and private schools, #3 if they are then why are they, #4 how does American primary school education rank relative to other countries?

First, is American primary education performance getting worse or getting better? Actually it's still getting better. The reality is that while American education has been improving all along, it's just not improving as quickly as some other foreign countries. More Americans graduate from high school today than at any time in America's past, so we are doing a better job at keeping more students in school longer and seeing that they complete primary school education.

Now, the fact that more people stay in school means that by 12th grade, there are more people still in school today who would previously have dropped in years past, and they are still taking standardized tests. Whereas in 1950 less than 50% of the population had a high school education, and most of the people who didn't have one were less intelligent and poorer performers, today almost 90% of the population has a high school education. This means that more poor performers are staying in longer. The inevitable result of this is that there is a larger and larger drag on "average performance". The more people you keep in school, generally the lower you can expect average test scores to be, all else being equal.

Secondly, are traditional American public schools under-performing charter schools and private schools? Yes and no. Certainly there are individual traditional schools that under-perform individual private and charter schools, but the reverse is also true. Taken in aggregate and, importantly, adjusted for economic background, there are no significant differences between traditional public school performance and private and charter school performance.

And here is the key, which gets to question number 3. If traditional public schools do under-perform then why?

The initial concept of charter schools was that charter schools would be set-up to specialize in meeting the needs of special needs children and poor performers in traditional public schools in order to allow traditional public schools to focus on meeting the needs of the majority of students. The view was that something like 80% of the student population could be well served by traditional schooling, while some 20% of the population would benefit from more a specialized environment. Under this scenario, one would expect charter schools to under-perform traditional schools, because the whole point was for them to deal with the poorer performing students.

But then something happened. Then the federal government began allowing private for-profit corporations to take over and manage "charter schools". The goal of these corporations, obviously, is to make a profit, and you increase profits by expanding your market and you expand your market by demonstrating that you "increase performance".

Now obviously you aren't going to have much appeal by being the school for the 20% of the "dumb kids"; in order to expand your market-share you need to go after that 80% of the mainstream student population. So that's what happened, charter schools began "competing against" the traditional schools, instead of being a means of augmenting and assisting traditional schools.

Now in order to really expand you need to show that your system "out performs" the traditional schools, and even better you need legislation that will force traditional schools to be shut down and have the teachers fired in order to acquire those new "customers".

Well, you start by first rigging the game. The first thing you do is you are more selective in your student population, because after all average test scores are largely a product of who you are testing, not how you are teaching. So the charter schools now, instead of taking on the most problematic students, seek to take on the best students and leave the more problematic ones in the traditional schools. And this is all what is happening now with the help of Bush's "No Child Left Behind" and Barack Obama's doubling down on the same program, with Obama's added enforcement measures and program of shutting down of schools that don't show continuous improvement.

Overall, however, what the data shows is that comparable charter schools aren't out performing traditional public schools,

And when we look at the charter schools that do perform well they typically spend many more dollars per student than comparable traditional schools are allotted, and they are more selective either in who they enroll or in who they retain.

The truth is that America's falling position in international academic performance is a symptom of the same root causes that are at the core of nearly every aspect of American decline, growing economic inequality. Studies show that one of the strongest predictors of academic performance is family income, and that things like unemployment of parents, even among students of traditionally high family incomes, can significantly impact performance. When we look at performance on international standardized tests what we find is a direct correlation between income inequality and student performance.

The graph above is based on select test scores. I was having a problem finding data, so I just grabbed the best set I could find. This is then compared to an inverse relativity of the GINI index for those same countries. The test scores go from highest to lowest and GINI index goes from lowest to highest, which is why I had to use an inverse (in the graph a lower GINI value means higher inequality). Relativities were used to make the values comparable.

Certainly we can all agree that improving public education is an important goal, and we should look at things like merit pay as components of doing that, but the reality is that problems in the American public school system are largely symptoms of the dissolution of the American middle class, and of growing economic inequality in America. We can't fix public education in America without addressing the root causes of the problems. The root causes of the problems aren't found within the schools, the root causes of the problems are external to the schools. There are many valid criticisms of American public education, but charter schools do little to address them.

The solution offered by "Waiting for Superman" is essentially turning the American public school system over to publicly funded private for-profit corporations, who in reality have shown no better performance than traditional public schools. The only result of the "charter school" movement will be to further fragment the curriculum, with different schools teaching different views of the world, to allow further infringement of religion into "public" education, and to enrich a minority of people on the public dime. The movement toward charter schools is once again a nexus of the interests of corporate profits and conservatives who see it as a way of introducing their view of the world into the curriculum, allowing a more conservative view of history and science to be taught.

To be sure there are some good charter schools. The whole point of charter schools is that they can all be very different. There are some that are more science based and do have better curricula than traditional public schools, and not all are run by for-profits, but its a mix and that fragmentation is exactly what is used to appeal to different groups to gain initial support.

Like virtually every problem in the American economy and society today, the problems with public education really all come down to growing economic inequality in America, and nothing is going to significantly improve the system until that root cause is addressed and economic inequality is reduced.

Topic: Commentary

After the stock market collapse of 2000 numerous "investment" firms and brokerages, such as Morgan Stanley and Merrill Lynch, were criminally prosecuted on various grounds for investor fraud. The fines in these cases went into the hundreds of millions of dollars, and a portion of those fines were used to pay restitution to defrauded victims.

I would argue that lenders who provided sub-prime loans were effectively engaging in a form of  market manipulation, which, if it had been in relation to securities that are traditionally regulated by the Securities and Exchange Act, would be deemed illegal.

It's very clear that the prices of homes were being driven by credit, i.e. the over expansion of credit led to rapid price inflation, and the issuers of the credit knew this. The credit issuers were involved in manipulating the housing market to their own short-term gain, which again, would be illegal if houses were stock or bonds.

 

 

What needs to be done is there needs to be some way to prosecute these lenders for market manipulation, and either via fines or class action lawsuits or something, these lenders need to be forced to pay back billions of dollars to people who purchased homes between 2003 and 2007. I'm not exactly sure how the payments would be worked out, either there could be a flat percentage based on the state and year the home was purchased in, or something of that nature. Generally in large settlements things aren't too precise, everyone in the class action suit gets a set amount or something of that nature. Some criteria for eligibility would have to be established as well, something like only people who purchased  home and either sold it for a loss or still own it, or had to foreclose after having made X amount of payments, etc. would be eligible.

Here are the facts: Lenders caused the housing crisis. They absolutely did, because without their expansive and clearly fraudulent leading practices prices could not have gone up the way that they did. They caused it, and then they got bailed out, while home buyers largely have not gotten any relief. Now that the banks have been caught fraudulently going through the foreclosure process, while paying out record bonuses and pay raises, the time has come to take serious action.

Many people have been hurt by this and face long-term economic ruin due to this crisis, and even those that don't face ruin, still face less than desirable impacts. What paying out damages to home buyers would do is it would soften the impact of the housing collapse and it would facilitate the return of housing prices to normal levels (they actually still haven't fallen far enough yet). It would let people pay down their homes to get out from being under water and it would allow people to refinance.

This is what's needed to get the housing market, and thus the overall economy, at least marginally back on track. These lenders caused the problem, and yet they still have not been made to pay, in fact quite the opposite, they have been bailed out and propped up and they are going on with business as usual, clearly not having learned their lesson.

The oil company BP ended up putting up $20 billion (actually they have not yet fulfilled that pledge) for restitution for people affected by the Gulf oil spill, and BP is just one company and has fewer assets than the big banks do. It's quite easy to argue that the economic damage caused by BP's Gulf oil spill is far less than the economic damage caused by the housing bubble and the on-going mortgage crisis, and yet the lenders responsible for this catastrophe have not yet been held accountable.

While the Tea Party crowd is busy called the Obama administration "socialist" for maintaining the status quo, the reality is that America's wealthy are turning on the country like a pack of wolves on an old and weak former pack leader.

We still hear arguments from Republicans and other "conservative" ideologues that "private individuals" can better make use of resources than the government, and thus increased taxation, specifically on the wealthy, and increased government efforts to manage or stimulate the economy are all doomed to fail, etc.

Let's be clear about what's really going on right now.

First of all, huge portions of the wealth accumulated by the wealthiest Americans, especially those in the financial sector, over the past 30 years is effectively stolen wealth that has been redistributed from working class Americans and foreign workers to capital owners.

Secondly, the vast majority of this wealth held by the American wealthy is not being used in ways that are beneficial to the American economy at all, and arguably not even to the world economy. Indeed this wealth is being used in ways that sabotage the American economy, and effectively the world economy as well.

Are "private individuals" better at allocating resources than a government in theory? Depends on the government and depends on the current economic conditions. Right now that answer in America would be a resounding no if we had a government with any will to do anything.

We've had basically two years of very low interest rates now, primarily in America, but also in Europe and Japan. And yet, specifically in America these low interest rates have done little to spur improvements in the economy. Now the theory is that if the American central bank provides "cheap money" to people, then they will borrow now and invest it in businesses and hire more people. Of course there is no reason to do this in America because 90% of the population has no excess money to spend on anything more than what they are currently spending on, so what is the deal with these low interest rates?

Well, what's happening is that large financial institutions and super-rich individuals are borrowing lots of money in America and Japan at near zero interest rates, and they are taking that money to developing countries like Brazil, India, China, Vietnam, Indonesia, Russia, and heck even places like Saudi Arabia, etc. and they are investing it there.

The wealthy are essentially banking on the demise of the US and the rise of these other countries, which makes sense to a degree, but in fact what they are doing is they are accelerating the demise of the US and they are creating new bubbles in these other countries. You see, the low interest rate policies of Greenspan and the entire "free market" gang that has ruled American fiscal and monetary policy for the past 30 years is what created the first big set of bubbles in America, the big bubble that Clinton rode and still tries to pretend today wasn't a bubble but rather a product of his good leadership. In fact, Clinton just oversaw the creation of the problem because he himself bought into the whole "free market" nonsense and much deregulation occurred under his watch.

Right now what has happened is that the imbalance of wealth in America and around thew world has become highly toxic to the entire economic system in and of itself. We have a situation where such a huge portion of wealth is owned and controlled by so few people that they don't really know what to do with it, and the result is an ongoing chain-reaction of bubbles, and each time a bubble bursts the reaction is to implement polices that create new bubbles since that's the only way to try and quickly maintain the status quo; the status quo is a rising tide of bubbly foam.

So we have this relative handful of people with trillions of dollars of wealth at their disposal and of course there is simply no reasonable way for so few people to do anything with this wealth, especially when they are driven by an ideology that whatever wealth isn't be used for personal gratification at the moment needs to be employed in some fashion that will generate more wealth for themselves. So this mass of "capital", which is really just money, goes sloshing around from one thing to the next creating bubble after bubble and leaving wreckage in its wake at every turn.

And as we see revenues going down, but incomes for the super-rich going up, what's happening is that they are trying to grab whatever they can right now as fast as they can. Basically the ship is going down, and they are running around grabbing all the silver and fine china and dumping it in their lifeboats, and filling up additional lifeboats with the treasures on the ship, while they kick the coach passengers in the face to keep them away from the lifeboats so they can load them up with more silver and china. And the Tea Party folks are like complete idiots who are helping to keep everyone else away from the lifeboats so the rich folks and can use them all to take their treasure plus every else's with them, and they're too stupid to understand that in the process they are being robbed and dooming themselves to go down with the ship as well.

What we should be talking about right now is how much wealth we are going to confiscate back from the super-rich, 50% of it or 80% of it, but instead the mainstream media and the politicians are propping up a debate about whether increasing taxes on high end incomes by a couple of percent is justifiable and if it will "just hurt the economy" by reducing the amount of income that the wealthy have to "invest in businesses to grow the economy".

The wealthy aren't investing in the American economy now! There are fewer than 500 people in America right now who could, with their combined wealth, pour trillions of dollars of investment into the economy today, right now, and still have a comfortable cushion left over. They aren't doing it. Allowing them to keep a few percent more of their multi-million to billion plus a year incomes will neither encourage nor discourage them from doing anything different.

These people are taking their money and jumping ship; they are sending their money over seas. They aren't helping America, and they aren't really even helping countries over seas. They are creating bubbles, consolidating property ownership, and buying influence among the next round of banana republic dictators. Even if you take folks like Bill Gate who gives a lot to charity, the rest is still invested in the same manner as I'm describing.

Is it better to reduce taxes and government spending so that individuals can keep that wealth and allocate it themselves? Not necessarily, certainly not when wealth is highly concentrated such that the allocation isn't determined by a majority of the population but rather by a small number of super-powerful individuals, and certainly not in this case right now when the wealthy are essentially scuttling the United States for their own gain.

Topic: Semi-random Thoughts

I've come to the conclusion that the most effective way forward for a "leftist" movement in America is via opposition to the wars in Iraq and Afghanistan, and to the military-industrial complex in general.

Multiple reports, including Bob Woodward's new book, Obama's Wars, and the Rolling Stone article , The Runaway General, have recently painted the picture of a White House run by the military.

Statements from top military leaders, including Secretary of Defense Robert Gates and General David Petraeus have indicated that the military has no intentions of leave Afghanistan any time soon, or possibly ever.

Woodward quotes General Petraeus as having said "This is the kind of fight we're in for the rest of our lives and probably our kids' lives", and Roberts Gates as saying "We're not leaving Afghanistan prematurely. In fact, we're not ever leaving at all."

The case can easily be made that military spending is way, way out of control, and the thing is, the majority of Americans realize this. Not only that, but there are even factions within the Tea Party movement, many of the libertarians, who are opposed to America's military spending as well.

Opposition to the war and to the military-industrial complex in general is a movement that can garner a lot of public support from across the political spectrum and across age groups. There are actually a lot of seniors who are dismayed about the state of the American military engagements. And by going after the military budget that's what frees up the spending to secure domestic spending.

I think that this is the issue that the left needs to coalesce around in 2011. Right now its too close to the current elections to do much on the issue, and then we have the holidays, but starting with the new year there needs to be a real vocal movement of opposition to the war in Afghanistan and to the role of military leadership in general.

It is the reality that America's civil government has been taken over by the Pentagon. It is the case that civilian leadership is not longer driving the ship, the military is. This is the case that we need to be making. The military is driving the country to bankruptcy and ruin. The military is now a threat to America's long-term well being.

We have to dramatically scale back military funding and the military mission and put America's military leaders in their place and make it clear that this is a country still run by elected civilian leaders, not unelected military leaders.

I think that this is a major wedge issue where many in Washington, in both parties, are strongly tied to supporting the military, but there is widespread popular opposition across the spectrum. The leadership of the right is firmly tied to supporting and even growing the military-industrial complex, and that why we need a movement defined by opposition to that agenda.

Not only that, but if there is to be a challenger to Obama from the left, this is going to have to be one of their major positions. I'd really like to see a third party candidate to the left of Obama in 2012. I think it actually makes sense, because the Republicans are going to be running Tea Party candidates, so a third party to the right of the Republican won't happen (unless they run on the Tea Party folks between now and then, but I doubt it).

"The only one we're voting for is the one who'll stop the wars!"

See the following related articles/posts:
Tomgram: Engelhardt, Why the Troops Are Coming Home
The Runaway General
Are we ever leaving Afghanistan?
The war in Afghanistan: Year 10
Robert Gates: 'We're Not Ever Leaving' Afghanistan
Hands off the warfare state!
Conservative think tanks oppose Republican efforts to trim defense budget

Topic: Commentary

A recent study shows that Americans vastly underestimate just how bad economic inequality is in America, and that even with this underestimation, Americans overwhelmingly desire less economic inequality, across all party affiliations and even across income levels. In addition, the study notes that while there is widespread agreement that Americans want less inequality, there are major differences in what people believe are the root causes of inequality in America.

For more on this study see: Study: Most Americans want wealth distribution similar to Sweden

For the actual study see: Building a Better America - One Wealth Quintile at a Time

This basically confirms my fundamental beliefs about American conservatives on economic issues, and is the underpinning of much of my writing on economics here on this website.

My view has long been that America is a fundamentally populist country, and that American conservatism is fundamentally populist. I think that if you got rid of all the labels and just asked people directly about how an economy should work, we would find that the vast majority of Americans are actually Marxists, they just don't know it. In fact, some of the people who sound the most like Marxists are social conservatives. Anyone who believes that individuals should be compensated based on how much value they create is essentially a Marxist. I'd be willing to bet that 98% of Americans believe this. Any time I hear a social conservative talking about problems with the economy this is how they frame the discussion. Anyone who believes that income should be based on ownership of capital, where value created by non-capital owners is redistributed to capital owners who amass huge fortunes through this redistribution is a capitalist. I've never met any actual capitalists. I've met a bunch of people who say that capitalism is great, and the best, etc., and when you ask them why the usual answer is "because its a system where an individual's income is based on how hard they work". Bah! The whole basis of support is based on an intentionally promoted misunderstanding.

The explanation for this situation, a situation where Americans are grossly misinformed about economic disparity and where Americans have such a poor understanding of economic fundamentals and ideology, is that this misinformation is an intentional and systemic part of the American education system and American media.

American teaching of economics, even at the university level, is flat wrong. In grade school, American education on economics can be seen as meaningless at best, and outright propaganda at worst. And of course the "mainstream media" (a term now cliche in itself) just flatly and plainly avoids any meaningful economic reporting and analysis and is essentially a propaganda arm for corporate America. I can only assume that economic reporting within mainstream media is undermined a combination of having economic reports and analysis who truly don't know what they are talking about, and by both implicit and explicit censoring of economic information in the media.

For example, something that would be extremely easy to report, which doesn't even require any real understanding of economics, is simply reporting on what the top incomes are in America. I'd wage a bet that 85%+ of the population doesn't know that there is anyone in this country with incomes over a billion dollars a year, almost no one knows this. The Democrats don't even mention it, which shows where their true agenda lies. All of this talk about raising taxes on those with incomes of $200,000 and over just reinforces American misperceptions. We shouldn't even be debating whether or not people with incomes of $200,000 a year are "wealthy" or not, it's a total distraction. Screw the small fish, go straight for talking about the people with incomes of a billion dollars a year!

It's also noteworthy that all of the books written over the past 50 years that are "defenses of capitalism" are completely propaganda and hogwash, which don't even remotely address any of the real criticisms of capitalism. The works by Friedman and Greenspan, etc. are all complete nonsense, which just intentionality avoid even bringing up any of the topics which they know that they can't possibly win on. These books create a straw-man version of capitalist criticism, and then tear down something that was never real. And these are the types of works that dominate American understanding of economics. In Friedman's and Greenspan's works they don't even address the issue of the relationship between capital ownership, wage labor, and income. In fact they never even mount a real defense of "capitalism", what they do is they make a defense of "market economies" and "free-trade" vs the Soviet style command economies. Free-trade and markets have essentially nothing to do with capitalism, it's pure avoidance.

Yes, as a part of the proposition on how to address the problems of capitalism, the creation of command economies was one of the proposed "solutions", but that's not really the issue, that's taking the focus off of capitalism and putting the focus on the shortcomings of other systems. Capitalism is about who owns the right to newly created value, and by what means those rights are legally defined.

The real issue that Karl Marx was addressing wasn't commodity markets, it was labor markets, and specifically labor markets in an industrialized economy where a small number of individuals own most of the capital and most of the people are wage laborers. This issue isn't even a part of the discussion on economics in America.

The popular assumption, upon which everything else is based, is that income in America is inherently fair, and that by definition whatever an individual's income is, that is the true value of their contribution to society. When you start with that assumption, no meaningful discussion of economics can take place, because it is that foundational assumption which is wrong, and until that assumption is corrected nothing else of meaning can be understood.

In my next article I will do my best to as clearly as possible show the differences between a pre-industrial and an industrial economy, to show the evolution of the American economy over the past 300 years, and to explain as clearly as possible what capitalism really means, what the effects of industrialization are on capital ownership, and to plainly address the mechanisms by which industrialized capitalism disenfranchises the majority of the population and creates a system of not only unfair and unearned income distribution, but why an unregulated capitalist system inevitably leads to its own demise.

I remain convinced that if a  fundamental understanding of economics can be properly communicated to American social conservatives, that American conservatives will demand economic change and will stop supporting organizations like the Republican party, which acts against their economic best interests. I do believe that with a better understanding of economics, there would be broad based support for major economic reform in America across the political spectrum, leading to much more equal distributions of capital ownership.

Topic: Announcements

A Progressive Foundation for America's Economic Future

This piece sets out various policy proposals for reshaping the American economy in ways that are progressive supportive of economic growth. The purpose of this piece is to serve as a contrast to current economic policy and set forth new ideas for how to improve the economy, while simultaneously reducing economic disparity.