Aftershock: The Next Economy and America’s Future
by Robert Reich

–Reviewed by Jake de Grazia

Meet Margaret Jones, your new President. She’s putting a freeze on immigration. She’s increasing tariffs on all imports. She’s withdrawing from the United Nations, defaulting on our debt to China, and abolishing the Federal Reserve. She’s outlawing investment banking, taxing capital gains at a rate of 80 percent, and capping personal income at $500,000 per year. She’s the new populist, the destroyer of both the Democratic and Republican parties, the voice of an overworked, underpaid, absolutely unsatisfied American people.

Margaret Jones, of course, doesn’t exist. Not yet. By the year 2020, however, according to economist Robert Reich, she might. Reich’s book is called Aftershock. It’s a short, accessible plea for sensibly radical economic reform.

Thanks to bank bailouts and stimulus packages, writes Reich, we’ve weathered the “Great Recession” and averted economic collapse. But he argues that we haven’t addressed the fundamental problem that led not only to this crisis but also to the Great Depression: widening economic inequality. If we don’t solve that problem fast, he says, we’re in trouble. The underlying trend of the last thirty years will continue. Median incomes will remain flat or decline, and most families will stay economically insecure. Inequality will continue to widen. Consequently, the middle class will not be able to buy nearly enough to keep the economy going. Neither richer Americans nor foreign consumers will fill the gap. All of this will constitute what Reich fears: the Great Recession’s aftershock.

All of that and someone like Margaret Jones, the political manifestation of a population’s chronic frustration with government, big business, and their collective failure to create security and prosperity for all.

But the aftershock, according to Reich, is something we can avoid. Just as 20th century American history has taught that periods of widening economic inequality lead to economic crises, that history also offers us a counter-example.

Reich calls it The Great Prosperity: the late ‘40s, the ‘50s, the ‘60s, and most of the ‘70s. Unemployment was low. Productivity was high. Business was booming. And the gap between the biggest American incomes and working class incomes was shrinking. Workers were sharing in the fruits of the economy’s growth, and, consequently, by using their growing incomes to purchase more goods and services, they fueled still more growth.

Reich thinks we can bring that prosperity back, and he closes his book by proposing a fascinating set of economic policies, including a reverse income tax, free public transportation for all, and “blind trust” campaign finance reform.

His policy prescriptions are bold, but Reich is convincing, and President Jones is terrifying.

Buy the Book: Skylight, Powell’s, Amazon, Borders

Excerpt: By averting the immediate financial crisis and then claiming that the economy was on the mend, he left us with a diffuse set of ongoing economic problems that seemed unrelated and inexplicable – rather like the citizens of a village whose fire chief succeeds in protecting the biggest office buildings but leaves smaller fires simmering all over town.

Further Reading: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life by Robert Reich and Freefall: America, Free Markets, and the Sinking of the World Economy by Joseph E. Stiglitz

Jake de Grazia is Director of Education for the iMatter Campaign. He blogs here and here.

*Photo courtesy Ben Sutherland.

The post Can We Avoid an Economic Aftershock? appeared first on Zócalo Public Square.

The Company Town: The Industrial Edens and Satanic Mills That Shaped the American Economy
by Hardy Green

–Reviewed by Christine C. Chen

The word “utopia” has the distinction of being a double agent. It can derive from either the ancient Greek word “ou-topia,” meaning “no place,” or from “eu-topia,” meaning “good place.”  Is “utopia,” by its very nature, impossible to achieve?  If so, why have we tried, time and time again, to create utopias that are destined only to fail?

Hardy Green’s The Company Town takes on the question through a history of single-employer communities in America, beginning with the textile mills of the Industrial Revolution and on to the corporate campuses of the present day.

The company town – in which one business dominates the population, sometimes in more than just economic terms – initially arose out of a “paternalistic” recognition that workers needed not only proximate, affordable housing, but also spiritual and educational guidance to accompany their improved economic situations. But by the turn of the century, the predominant model of the company town was one in which workers were largely left alone, except for being forced to shop at the “company store,” where prices were drastically marked-up.

Such towns embodied what Green identifies as two concurrent strains of American capitalism – one socially benign and utopian, believing industrialism to be the source of a better life for all. It was the idealized free market that Adam Smith believed would lead to “universal opulence.” We might better remember Smith for his infamous call for “life, liberty and the pursuit of property.” That’s the other strain of American capitalism – “Exploitationville,” focusing only on profits for management. In charting the sometimes lofty, sometimes breathtakingly brutal motivations of the men who helmed some of America’s biggest and most iconic companies – such as Hershey, Corning and U.S. Steel – Green describes both the best and the worst of which men are capable. Their persistent – and singularly American – faith in self-improvement could lead to either utopian idealism or pure self-interest.

As borne out by certain industries, namely steel and coal, the latter turned out to be the case. The history of coalminers and steelworkers in America is a sad one, marked by regular and often very violent confrontations between organized labor and companies. Or as steel man Henry Clay Frick summed it up before a bloody 1892 shootout and strike: “I can hire half of the working class to shoot the other half.” The comment was indicative of management’s attitude toward the working class, an attitude that did not change much over the next century and that left regions of the rural South in deep poverty even as steel and coal executives reaped huge profits. U.S. Steel, which had adopted a laissez-faire approach toward its company town of Gary, Indiana – all the while forcing its workers to endure twelve-hour shifts – stood by and watched as their home base steadily declined and finally achieved the notorious distinction of being the most dangerous city in America in 1996.

This was a far cry from the view of some of America’s earliest captains of industry, who, in setting up their textile mills, saw it as their responsibility to provide housing, moral and civic education, and opportunity for the benighted workers. As one of the mill founders approvingly noted in the early 19th century, “The contrast in the character of our manufacturing population compared with that of Europe has been the admiration of the most intelligent strangers who have visited us.” And this paternalistic impulse wasn’t just a bygone vestige in the 20th century, even after the Industrial Revolution had swept through the country and capitalism had become America’s raison d’être. Milton Hershey’s town of Hershey, Pennsylvania, offered its resident workers college scholarships, parks, sports venues, a community center, and other amenities, all while the company continued to make sizable profits.

Still, as Green points out, “There can be no such utopias without prosperity.”  Both the utopian and the exploitative companies tended to falter in the same moment, during depressions and industry declines. Once profits started to fall, layoffs and wage cuts inevitably followed, and the accompanying social unrest led to bitter clashes. Management found that its attempts to “socially engineer” more orderly, obedient citizens in company towns were for naught the instant that workers felt that their livelihoods were being threatened, and increasingly, such corporate moral policing was viewed with suspicion. And once the automobile entered the picture, company towns became less necessary and even undesirable.

That the utopian and exploitative strains of capitalism can co-exist – and even rise and fall together – raises probing questions about who we were, who we are and where we want to be. We might be heartened that companies and business schools are starting to educate executives and workers in social entrepreneurship and social responsibilities. And one gleaming example of the recent revival of the “good company town,” the Googleplex, suggests that wooing workers with first-class amenities and a “code of conduct” that proclaims, “Don’t be evil,” can result in record profits and happy employees.

And regardless of whether corporate motivations are more strategic than idealistic, companies now know they’re under the constant glare of the public eye and government agencies. James Madison knew centuries ago that “If men were angels, no government would be necessary.” The history of American capitalism surely suggests that however angelic we might think we are, we strive and fail because we’re all too human.

Buy the book: Skylight, Powell’s, Amazon, Borders.

Further Reading: There is Power in a Union: The Epic Story of Labor in America by Philip Dray and Building the Workingmans Paradise: The Design of American Company Towns by Margaret Crawford.

Christine C. Chen teaches humanities at St. John’s College in Santa Fe, New Mexico and is also a professional violinist.

*Photo of the Googleplex courtesy Maria Ly.

The post How Nice Can Corporations Be? appeared first on Zócalo Public Square.

High Financier: The Life and Times of Siegmund Warburg
by Niall Ferguson

–Reviewed by Adam Fleisher

Following in the footsteps of Ron Chernow’s massive study of the entire Warburg clan, and benefiting from newly available documents, Niall Ferguson tells the story of how Siegmund fled Nazi Germany and established himself – and the City of London – at the apex of post World War II high finance.

If this biography has a theme, it is the foresight of its hero. Warburg, born and raised in a small town in the German south, got his start when his uncle Max hired him to work at the family firm. From the first, Siegmund saw a centralizing tendency in the banking industry – in Berlin, London, and New York – and was disappointed that his uncle did not.

But Warburg’s concerns were overtaken by the collapse of the global economy. As Ferguson puts it, he thought the German economic crisis was a “consequence of the self-indulgence of the older generation.”  The German banks were not simply victims of external pressures such as the Great Depression, but had recklessly over-leveraged in the mistaken belief that they were “too big to fail” and would be bailed out by the Reichsbank in the event of a crisis. Parallels to recent events are not accidental; Ferguson clearly laments the demise of the personal, conservative banking style that Warburg once exemplified.

As the Nazis rose to power, the Warburgs emigrated. Ferguson credits Siegmund with foreseeing in 1934 that the Nazi regime would probably initiate war to extricate itself from the economic crisis its own policies had exacerbated. Warburg was not, however, part of the earlier “prescient anti-Nazi minority” that found ominous the revolution of 1933 and the appointment of Hitler as Chancellor. Ferguson suggests that he never forgave himself this “self-deception about Hitler.”

But evidently Warburg  made up for it. Ferguson lavishes praise: he was a “prophet of globalization” who argued in 1969 that modern industry required “the free flow of goods and services without any artificial barriers.”  He had “grasped sooner than most that the revival of the City of London was not likely to be based . . . on the export of British capital.”  And so Warburg played an integral role in getting financial globalization off the ground.  He helped create the Eurobond market by seeing that the first step to closer union was integrating capital markets, not currencies.

He supported NATO, envisioned what would later become détente, and was even “quick to grasp how easily the apparently monolithic Communist bloc might fracture.” And, since Warburg had seen “with remarkable prescience” that the collapse of France could enable the extension of Russian power, he was a proponent of both a tight relationship between the U.S. and the U.K. and of European integration. He felt the Eurobond market facilitated this integration by using private sector initiative to avoid the inevitable problems of political union.

Ferguson sees Warburg as a different kind of banker who ran a different kind of bank.  But it was a struggle to endure.  The rampant inflation of the 1970s hit the bank hard, and by the end of the decade Warburg admonished his bank for growing for the sake of growth.  He was also hostile to bureaucracy and wanted the firm to be lean.  He envisioned it functioning from London – as the node of global business partnerships.  That vision failed.  Banking houses were becoming bigger so as to take advantage of the economies of scale that could be exploited in the wide-open American economy.  Ferguson concludes that Warburg and his colleagues did not understand that American financial markets were different from Europe’s. The firm could not be a boutique in a land of giants; by trying to grow and yet maintain its original culture, it became large and unwieldy. Ultimately Warburg’s ventures failed, and the bank disappeared into Swiss Bank Corporation for a meager sum.

Warburg’s method of banking was antithetical to the type of over-leveraging that precipitated our current crisis. Warburg was “wary of any strategy, no matter how lucrative, that exposed the firm to liquidity risk.” The mooting of his conceptualization of banking was bad news for him personally, but also for the global economy.  And so High Financier ends with a lament that Warburg’s emphasis on personalized banking and actual relationships was subsumed by the pursuit of leverage and risk-taking. These “innovations” brought about a financial crisis the effects of which are still being felt.

Buy the Book: Skylight, Powell’s, Amazon, Borders.

Further Reading: The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family by Ron Chernow and The Ascent of Money: A Financial History of the World by Niall Ferguson

Adam Fleisher is a law student at the University of Virginia.

*Photo of a bank vault courtesy JasonBechtel.

The post A Kinder, Gentler, More Conservative Way to Bank? appeared first on Zócalo Public Square.

Unions in America aren’t what they used to be. As membership fell dramatically over the last 60 years, labor leaders went from household names to obscure and often negatively stereotyped small players in the national story. But as Philip Dray reveals in There is Power in a Union: The Epic Story of Labor in America, labor has been an integral part of American history. “It’s an incredible campaign that went on for decades, that involved our grandparents and great-grandparents and achieved so many things we take for granted,” Dray said. Below, Dray chats about the farm girls who kicked off the labor movement, why labor lost its steam last century, and whether the recession will help unions pick up again.

Q. Where does the story of unionization in America begin?

A. I start my book with the industrialization of America, which begins in the 1820s up in New England, with the textile mills. It has an interesting back story. The founders of our country were a little divided about whether or not it was a good idea to have industry here. They thought that the U.S., because it was such a large landmass with strong farming traditions, might not need industry. They didn’t like what they had seen of it in England and Europe. But others thought that because we have all these natural resources, we should have industry.

The owners of these New England textile mills sought to create a paternalistic environment that would protect workers. This was appropriate in their minds particularly because many of these workers were young women, farm girls, many of them in their teens. The system actually worked for about a generation. They called it the Lowell miracle. People actually came to see it – Charles Dickens, Andrew Jackson – to see that you could have industry that was profitable, and you could have workers who were treated well. They had boarding houses with den mothers watching over the girls. They had lectures and reading circles.

But the women began to realize their pay was low, and the conditions were harsh. They worked 12 to 14 hours a day. It was a tough way to make a living. That was where unionization began on a large scale, with these women organizing and striking. Their first demand, which became a broad campaign, was for a 10 hour day.

Q. Why did that paternalistic, protective attitude go away? Was it economic circumstances or a philosophical change?

A. Partly it was economic. Eventually, when their profits weren’t as good as they hoped, the mill owners began to cut some of the niceties they extended. They increased production quotas. They lengthened hours, they tried to cut pay a few times. This is a lesson we know well today – the enlightened attitude of management will only carry you so far. Management can give and management can take away. That’s why unions are wary of benign corporate outreach. They know it’s only temporary.

When the workers rebelled, the owners were shocked. They thought the workers were ingrates. That was a basic misunderstanding between labor and capital that would prove enduring. As would the question of who is producing the profits and how much labor is entitled to. The workers felt they were the ones, aside from the raw materials, who were creating the goods. They felt they should be getting paid better. But capital thought, you’re lucky you have this job at all. We’re putting up all the investment and taking all the risk.

Q. How did unionization spread, and did it require militancy to win the gains it did?

A. The 10-hour movement went regional. Just as America was growing and capital was becoming more expensive, railroads were spreading across the country. By the Civil War, you had national markets – shoes made in Massachusetts were being sold in Chicago, that kind of thing. The unions felt they had to catch up, so they also went national. After the Civil War you saw the arrival of a couple of different national labor federations that sought to address these issues on a national scale. They did become more militant because they realized that along with capital getting more widespread, their American dream – that they would work and save and open their own businesses and be prosperous – began to wane. Workers realized that they were cogs in this large industrial mechanism, these steel mills and mines and railroads. There’s no quick exit. The whole mentality of labor began to shift a bit. Once workers began to realize that they were workers and not individuals, they became more militant. They insisted they needed more safety, more income.

Q. What are some of the gains made then that we take for granted?

A. This is another reason I wrote the book. No one ever gave workers anything – they demanded things. Management was very resistant. Government kept a hands-off attitude for many decades. The only thing the government did was to send troops to put down workers, and later, to use court injunctions to suppress workers. The workers would strike for better work conditions, longer meal times, safety measures, rules about hiring and firing, grievance procedures, a five-day work week, and ultimately the very right to bargain with employers. Collective bargaining has been guaranteed since the New Deal, but for years it was not. Unions had to fight for that right – just to be recognized as the union that represented the workers.

Q. How did labor’s reputation start to wane in the 20th century?

A. It’s hard to generalize. Labor unions got a bit soft after the New Deal, when they won a lot of important rights, guaranteed by the government. When the government stepped in, it took some moxie out of the unions themselves.

There were a number of other factors as well – the loss of jobs due to technology, the decentralization of labor away from large industrial capitols like Pittsburgh, Detroit, and Chicago. You had big business unionism, like the AFL-CIO, that took union leadership away from the rank-and-file. Unions also turned on themselves over communism in the 1950s, which was a sad episode. The unions were so frightened by the taint of radicalism that was used so effectively that unions began to police themselves. In doing so they ate out the heart of their own movement. Many powerful active unions were expelled. Members were purged for being left-leaning or suspected communists.

Then you had globalization, which we’re all familiar with. This has undermined American labor because it makes labor global. If you have a job in Toledo, your wages are competing against workers in Indonesia and Thailand and Mexico. Right away, that gives a huge advantage to capital in dealing with workers. All these things ate away at unions.

Q. Why are unions so often regarded as corrupt today?

A. The thing with corruption, and that taint that unions have – I think it’s a little unfair. The reason it sticks to unions so much is that, just like a nonprofit organization, the public looks to unions to be better than the average organization. They think of unions as good organizations that fight for social and economic justice, so when there is corruption, people are very disappointed and angry. They feel cheated. Those headlines tend to stick with people more than when they read about corruption in show business or sports or politics or even the church. There is no sector of American society untainted by corruption. The other thing I’ll say is that for every headline about a corrupt union leader, there are hundreds of local unions functioning legally and responsibly. Unions get tainted, tarred with this one brush.

Unions are still valid, and many operate very conscientiously and do what they were designed to do. They give workers a unified voice in dealing with management. Otherwise, what are you left with? The individual worker facing a company or employer. The odds are not in the worker’s favor necessarily. That’s where we are today, really. Union membership is down from 35 percent in 1955 to 7 percent of the American workforce now. People don’t take unions seriously anymore. I’m old enough to remember when union leaders were on TV or on the radio – today they’re relegated to the sidelines a bit. Our country has seen in the last 15 or 20 years these hugely powerful corporations that no one can really bridle, not even Congress. That’s not a good situation. The idea that we can just trust corporations to work in our interests has proven to be a fallacy. I do think unions were asleep at the wheel for a while. I think they’ve awakened – they’re organizing types of workers that were not organized before, like janitors, hospital workers, in Los Angeles they organized car wash workers. There is a lot of strong unionization.

The other thing that unions have to do is go global – they have to work in concert with laborers abroad. That’s a tall order and labor is behind. Corporations are way out in front. It’s very difficult for labor, which is why a lot of labor’s efforts on the world stage involve human rights groups, environmental groups, anti-sweatshop consumer leagues. It’s a different kind of labor movement.

Q. How successful have unions been in politics, particularly their relationship with the Democratic Party?

A. The writer Mike Davis has called the relationship between labor and the Democratic Party the barren marriage. It has been a disappointment. It has always been a big question in labor history whether unions should affiliate with a political party. In other countries, labor has its own party. That never happened in America. Many of our labor leaders warned against political affiliation. What happened is, starting with Woodrow Wilson, the Democrats showed themselves to be a bit more friendly to labor. The monumental triumph of that relationship was the New Deal. The Roosevelt administration, facing horrendous economic oppression, knew that normalizing relations between industry and labor was critical to getting the economy back on track. The New Deal established workers’ rights as nothing had before – collective bargaining rights, the minimum wage, ending child labor. That tended to bind labor even more firmly to the Democratic Party. But Harry Truman proved unable to defend labor’s New Deal achievements when Republicans attacked them. That was the beginning of the Democratic Party failing to come through for labor. It continued down and on. The party stepped up a bit with John Kennedy and the Manpower Development and Training Act. On the other hand, Jimmy Carter, Bill Clinton, and even Barack Obama have had trouble. They’ve tried and they are not always successful; labor thinks they haven’t tried hard enough. But labor has nowhere else to turn. Republicans are openly hostile to workers. But the relationship with Democrats has been frustrating. It has evolved that way.

Q. Do you think the recession will revitalize unions?

A. When I read the paper today, I think to the early Depression, when the unemployed considered themselves workers. Unions and the unemployed were unified. That created a very powerful block of protesters and people to go to rallies and even strikes. If there was a strike, legions of the unemployed would show up to support. Nowadays you don’t have that alliance anymore. Now we have something like 15 million unemployed Americans, but I don’t believe there is any organization. They’re sort of voiceless in a way.

I’d like to say, and I think you see this with some recent unionization, that economic hard times illuminate to people the fact that they are vulnerable, that the safety net is not what it once was, and they have to be more active about it. Unions are a perfect vehicle for that, as they have been historically, despite their retreat in recent years. I still believe you earn more and have better benefits if you’re a member of a union. That has been upheld statistically. I don’t know how extensive it is, but I do think that the recent organization of very low-wage workers is a reaction to economic hard times.

Buy the Book: Skylight, Powell’s, Amazon, Borders.

*Photo courtesy cliff1066.

The post How Labor Lost and Could Regain its Power appeared first on Zócalo Public Square.

The Rational Optimist: How Prosperity Evolves
by Matt Ridley

–Reviewed by Adam Fleisher

Life is good – very good.  That certainly isn’t profound, but it needs to be said, and Matt Ridley says it well.

In The Rational Optimist, Ridley lays out the case for having faith in human progress and the way we’ve achieved it: free exchange and global interdependence. He argues passionately against the temptation to give up on progress because it has not created a perfect world, and he argues against the “pessimists,” those writers and thinkers who have warned throughout history that, for whatever reason, the world is doomed.

Ridley is not Panglossian. He knows that many around the world face deprivation, poverty and suffering. But many are also richer, taller, healthier, and smarter than previous generations. More of us have “access to more calories, watts, lumen-hours, square feet, gigabytes, megahertz” than at any time in history. On average we live almost twice as long as people did a few hundred years ago, and we live more freely, comfortably, and cheaply. We may be dependent on hydrocarbons, but they have liberated us from dependence on physical exertion. In the early 1800s, life was miserable; just about everybody was starving, bored, exhausted, and living in filth. The lavish existence that so very few enjoyed hundreds of years ago was possible only because of slave labor; today many more people can afford innumerable luxuries and conveniences thanks to energy. To the notion of an idealized pre-industrial existence, Ridley writes, “Oh please!”

Alas, with progress come destruction and change, and that upheaval produces fear of impending doom.  Ridley collects relics of once-conventional wisdom about humanity-destroying crises: overpopulation, underproduction of food, cancer epidemics from chemicals like DDT, peak oil, acid rain, and so on.  But the actual causes of human suffering and death are fairly banal, and constant: lack of food and clean water, indoor smoke and malaria. And they’re best addressed, Ridley says, with economic development.

Ridley takes apart today’s doomsday scenario of choice, global warming. He argues that we should answer this latest crisis just as we answered past crises and ills, real or imagined: with growth, development, and innovation. What makes pessimism so dangerous-and therefore gets Ridley so worked up – is that it can be based on the correct premise that things cannot continue exactly as they are. It’s virtually axiomatic, for example, that wealthy countries can’t indefinitely consume fossil fuels at their current pace. For The Rational Optimist such realities are not an argument for retrenchment. “The continuing imperfection of the world,” Ridley writes, “places a moral duty on humanity to allow economic evolution to continue.”

An emphasis on sustainable development isn’t the solution for Ridley because the movement tends toward stifling the very interdependence and exchange of ideas that has given us a world in which “life is good.”  Though perhaps he presents the movement a bit narrowly, he adamantly rejects the notion that the world can survive only if abandons the goal of economic growth.  The basis of his claim is that “the whole point of human progress” is that the world does not stay as it is.  The human race is a “collective problem solving machine and it solves problems by changing its ways.”  In other words, the threat to the future comes not from more change, but from trying to slow it down.  Or, to put it polemically, “the Dark Ages were a massive experiment in the back-to-the-land hippy lifestyle (without the trust fund).” And so Ridley inevitably criticizes what he sees as the narrow and mistaken focus of some sustainability advocates. Why not obsess, he asks, about laptop miles the way we do about “food miles”? “Fruits and vegetables account for more than 20 percent of all exports from poor countries, whereas most laptops come from rich countries,” he writes. Selective localism effectively places a sanctions regime on poor countries.

Looking back from (very) early improvements in ship building to mutual protection agreements for merchant traders all the way through the discovery of how to transmit electricity to a world in which innovations are part of daily life, Ridley weaves together a story about how  free trade and the integration of ideas over time creates mutual prosperity while protectionism has caused poverty and stagnation.   To him it “seems incredible that anybody ever thinks otherwise.” Of course, it shouldn’t strike him as such: he has just produced 350-plus pages on how common hostility to change has been throughout history. The Rational Optimist is a satisfying book, sort of a Wealth of Nations for our time. Ridley celebrates our world and eloquently argues that denying others the privilege of sharing our wealth is an act of cruelty.

Buy the Book: HarperCollins, Skylight, Powell’s, Amazon, Borders.

Excerpt: “Modern genetic modification, using single genes, was a technology that came worryingly close to being stifled at birth by irrational fears fanned by pressure groups.  First they said the food might be unsafe.  A trillion GM meals later, with not a single case of human illness caused by GM food, that argument has gone.  Then they argued that it was unnatural for genes to cross the species barrier.  Yet wheat, the biggest crop of all, is an unnatural ‘polyploid’ merger of three wild plant species . . . Then they said GM crops were produced and sold for profit, not to help farmers.  So are tractors.”

Further Reading: The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress by Virginia I. Postrel and On The Wealth of Nations by P. J. O’Rourke

Adam Fleisher is a law student at the University of Virginia.

*Photo courtesy Grant Kwok.

The post Why There’s Reason for Optimism appeared first on Zócalo Public Square.

The two-thousand-plus page financial reform bill passed into law this summer aims to prevent crises of the kind that hit the country two years ago by protecting consumers and tightening regulations on everything from private equity firms to credit cards. Before Sebastian Mallaby visits Zócalo to explain where hedge funds fit into the financial world and whether they require more or less control, we asked columnist Matt Miller, former chief economist of the International Monetary Fund Simon Johnson, Boston College’s Juliet Schor, and UCLA’s Lee Ohanian to weigh in on what financial reform remains to be accomplished.

Make a grand tax swap

You don’t read books about reducing deficits on your honeymoon unless you’re a serious fiscal conservative. Trust me, I know.

But for the economy’s sake, I’m putting my budget hawkishness on the back burner. Until jobs rebound, we’re all deficit addicts.

The surest way to boost jobs – whether you ask an economist, a businessman, or politicians on either side of the aisle – is to cut the payroll tax, thereby reducing the cost of employment. The tax, paid by employers and employees, has soared from one percent to 15.3 percent. It now makes up a third of federal revenue and brings in nearly as much as individual income taxes. It’s also unfair, asking low-income earners to pay a proportionately higher amount than CEOs.

Cutting the payroll tax is a political taboo because it implies cutting or at least fiddling with Social Security. Connecting the two was a brilliant idea in Franklin Roosevelt’s day, but no longer. Unfortunately, as Democrats try to cast Republicans as posing a danger to Social Security, they’re reluctant to touch the program – and thus the payroll tax.

The ongoing recession and the boomers’ imminent retirement will force us to figure out the tax equation. Ideally, payroll tax cuts would be part of what I call a “grand tax swap,” in which we cut taxes on payrolls and corporations to boost jobs, raise them on dirty energy and consumption, and combine them, eventually, with a measured approach to reducing the deficit.

–Matt Miller is author of The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity and the host of public radio’s Left, Right, & Center.

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More capital, more growth, more jobs

The financial reform train has left the station. As Paul Volcker laid out forcefully in a brilliant speech last week, our financial system remains badly broken. The Dodd-Frank Act, while including some sensible consumer protection measures, does essentially nothing to reduce system risk as we move into a new credit cycle.

Literally the last chance to avoid another huge financial meltdown is to significantly increase capital in big banks – their buffers against losses. Treasury insists that this is its approach, but the international negotiations (in the Basel III process) will increase required capital to levels below that typically held by U.S. banks over the past two decades. How can this help?

The Financial Stability Oversight Council will meet for the first time next week. It should immediately start the process of increasing tier one capital in megabanks – with the ultimate aim of something close to a 20 percent capital-asset ratio. As the Bank for International Settlements has emphasized, if done properly, such action will boost growth – and help sustain job creation.

–Simon Johnson is co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.

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Count it right

The conversation on financial reform has been dominated by questions of systemic risk, too big to fail, consumer rights and protections, confidence, and compensation excess. These are all important. But there’s another set of issues that are even more pressing, and that’s the relation between finance and ecological sustainability.

Right now, investment proceeds with virtually no concern for the effects of the investment – that is, the activities it supports – on the planet. Both corporate entities and international financial institutions like the World Bank are funneling money to build highly-polluting coal-fired power plants, destroy tropical rain forests, erect McMansions farther out from urban centers, blast off mountaintops for coal mining, and the like. Much of this activity is truly suicidal – finance is flowing to activities that are profitable, but only because we’re using an accounting system that ignores virtually all environmental destruction. (In fact, in the GDP, environmental destruction often shows up as a positive.)

My one reform is full-cost environmental accounting. That means financial institutions would have to make decisions based on a price for carbon that is compatible with keeping global warming to an increase of 1.5 degrees, that the impacts on air and water quality and eco-system services would be a part of what determines where and how money flows.

If we did this, we’d be getting a wealth of beneficial innovation in the financial sector: location-efficient mortgages, protection of valuable bio-diverse forest resources, accelerated investment in clean, renewable energy, and an end to destructive extractive practices that are imperiling the livelihoods of people around the globe.

–Juliet B. Schor is a professor of sociology at Boston College and author of Plenitude: The New Economics of True Wealth.

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Get rid of ‘too big to fail’

There are a number of critical components that are missing from the recent financial overhaul bill. Two key omissions are the failure to effectively deal with the problem of “too big to fail” and the other is the failure to reform Fannie Mae and Freddie Mac.

Too big to fail means that large, systemically important firms were able to take on considerable risk, and when that risk did not pay off, they received government assistance – and in fact anticipated it. The government can promise not to offer bailouts until the cows come home, but big firms know these promises aren’t credible. As long as the government thinks a failed firm would harm the underlying economy, it will offer a bailout.

The Dodd-Frank Wall Street Reform and Consumer Protection Act seems to have a lot to say about too big to fail, but it doesn’t address the issue in a satisfactory way. Addressing too big to fail means taking the consequences of risk off the backs of taxpayers, and putting them on those who take the risks. The Act does include what’s called an “orderly liquidation” process – the Federal Deposit Insurance Corporation can intervene as they see fit in bankruptcy proceedings between large financial firms and their creditors. But this effectively institutionalizes the ad-hoc bailout process used in 2008. The FDIC’s inability to take over a large institution, as they do with smaller ones, is the heart of the problem.

The Act explicitly provides for bailouts for firms that are “participants in any program or facility with broad-based eligibility” that the Fed has established for emergency purposes, and permits the Fed and Treasury exclusivity on the process for emergency lending. This is intended to prevent the Fed from indisciminately bailing out the creditors of an individual institution, as it did with AIG. But in order to eliminate what appears to be favoritism, this language seems to institutionalize the possibility of bailouts for many firms.  Unfortunately, these aspects of Dodd-Frank undo much of the other features of the bill that aim to avoid bailouts and to keep institutions from becoming too big to fail.

The Act also fails to reform Fannie and Freddie, the government sponsored enterprises that indirectly subsidized poor lending practices. Effective financial reform means getting incentives right, and that is impossible in the absence of dealing with the operations of Fannie and Freddie.

–Lee E. Ohanian is a professor of economics at UCLA.

*Photo of Matt Miller by Aaron Salcido. Photos courtesy Juliet Schor and Lee Ohanian. Photo of Barack Obama and Rep. Barney Frank courtesy The White House.

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Democratic Vistas: Reflections on the Life of American Democracy

–Reviewed by Adam Fleisher

The political scientist Adam Przeworski’s minimalist defense of democracy is that it is the best system for changing government without bloodshed – power changes hands by election, and the losers can take solace in knowing they will survive to fight another contest. But for Democratic Vistas, a collection of essays based on the DeVane lectures at Yale University, such narrowness will not do.

Here, as Jedediah Purdy explains in his brilliant introduction, the goal is to “sort out” democracy in America. Purdy starts with the inherent contradiction of the democratic ideal, which Anthony Kronman addresses in detail in his essay on Plato, and which is explored throughout the collection: a deep commitment to both the idea of individuality and to “tearing down distinctions.” Purdy continues with a succinct overview of how this contradiction appears across the diverse themes addressed in the remaining twelve essays, which range from the baseline question of what democratic values are to the roles of family and religion in our democracy to examinations of education, capitalism, inequality, foreign policy, science and technology.

Walt Whitman, from whose work of social criticism comes the title of this collection, identified individuality and “adhesiveness” as essentials of democracy. According to David Bromwich’s essay, Whitman, along with Abraham Lincoln, “enlarged our idea of the discipline and the imagination of democracy.” Making their contributions during the national argument over slavery, they each articulated the moral basis of democracy as grounded in the notion of the supremacy of the individual – over himself, but not over others. Or, as Whitman put it, with kings beneath us, “every man a knight.”

But from there arises the paradox of democracy that Purdy identifies – that individual freedom to achieve can lead to the inequality that democracy promises to eradicate. It’s particularly noticeable in this country’s education system, and particularly in regard to institutions like Yale. As Richard Brodhead, Dean of Yale at the time of his lecture, points out, higher education has expanded access beyond the privileged few to the striving many. Of course, as Brodhead notes, selectivity means there will be discrimination; the real question is what kind. As for Yale, Brodhead says, the school seeks students with “quick, inquiring minds,” which “rewards differences of gift and accomplishment” but provides opportunity “without regard to family background or ability to pay.” Money, however, is the real issue. Merit-based aid distributes more advantages to those who already have much, and yet schools with smaller endowments might feel competitive pressure to offer relatively less need-based aid in order to attract top students. Brodhead does not claim to have a solution, though he thinks figuring out how to resolve them is the key question for the future of democratic education.

While Brodhead embraces the difficulties of the many and the few, Richard Levin and Ian Shapiro, in their essays on markets and democracy, are less sanguine. Levin, president of Yale, starts with a premise implicitly similar to Brodhead’s: competition inevitably leaves some people behind. Markets are liberating and therefore tend to reinforce democratic freedom and create opportunity. But they also engender inequality. Levin invites democratic government to “remedy the deficiencies of market outcomes” and he is optimistic that we can indeed create the right policies to do so.

Shapiro more explicitly looks at distribution of wealth and the struggle to get Americans on board with broadly redistributive policies. He admits that for many Americans, redistribution means from “us to the government” rather than from rich to poor. Shapiro blames this sentiment on “anectodal distractions.” Granted, it isn’t surprising that there was no room in this visionary volume for public choice theory, but there is certainly some substantive basis for the notion that government redistribution is effectively of, by and for the connected.  Shapiro’s wish to “push redistributive politics in the desired direction” seems about as viable as admitting everybody into Yale.

Though the lectures on which these essays are based are not necessarily very new, they address timeless questions about how we govern ourselves. Or, as Purdy eloquently puts it, they are “contributions to a national project – the project of the nation itself.” And yet in a country founded on and still dedicated to forward movement, the national project “cannot be completed unless by an unhappy ending.”  In other words, American democracy is committed to the perpetual promise that tomorrow is another day.

Excerpt: For Whitman, and for us, the belief that diversity has value and that the highest purpose of the state is to promote its exuberant expression and joyful appreciation – beliefs so commonplace in our contemporary culture that we scarcely even recognize them as such – are the secular by-products of that radical revaluation of individuality entailed by the religious doctrine of creation from nothing, a teaching whose implications could never be absorbed within the limits of Greek thought.  For once it is granted that the absolute distinctness of every individual is something real in its own right – a proposition foreign to the whole spirit of Platonic philosophy but required by the doctrine of creation ex nihilo – the way is open to the celebration of diversity as something divine, as the revelation of the Creator in His creatures, and to a view of the state as a union of individuals gathered for the purpose of enjoying their own diversity.

Further Reading: Democracy’s Values by Ian Shapiro and Casiano Hacker-Cordón and Democracy: A History by John Dunn

Adam Fleisher is a law student at the University of Virginia.

*Photo courtesy Adam Solomon.

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Nick Rosen was in New York in 2003 when the lights went out for 50 million people across the northeast. “It got me wondering about the silent, invisible electricity grid – we all depend on it, but we never think about it,” he said. Going off the grid wasn’t an entirely new idea for Rosen, author of Off the Grid: Inside the Movement for More Space, Less Government, and True Independence in Modern America. He’s the owner of “an old shepherd’s hut in a beautiful part of Spain,” he explained. “So I knew you can live very comfortably without the grid.” Below, Rosen chats about who goes off the grid, why it’s an especially American thing to do, and what we can learn from their lives.

Q. What is “the grid” and how difficult is it to get off it?

A. The grid is the whole system of fixed lines that delineate the modern world – electricity, gas, water, sewage.  And it is quite easy to live independently of those. You could go further and add in roads, Internet, supermarket distribution systems, and it is quite difficult to live independently of those.

The grid was organised to suit the industry, not the consumers. And the way GE was organised became the model for corporate America. Now we are being sold the Smart Grid, which will simply cement into place a system that does not make sense any more in the era of renewable energy. The Smart Grid seems plausible at first, but there has been little debate about who controls the technology, who gets the information that the smart meters will send back from people’s homes and who decides on the prices the power companies can charge during spikes in demand.

Going off grid is not some game for urban journalists, it is a real life-choice being made by hundreds of thousands of Americans – the question is not “can I live purely off the grid, forsaking all modern conveniences?” The real issue is “what is the best I can do for myself, my family and my community?” And for people whose homes are being foreclosed, whose jobs are moving off-shore, or who have just had enough of the banker-driven corporate, materialistic side of society – going off the grid is quite an easy choice to make. It beats shaking your fist impotently at the TV.

Q. What type of people did you encounter living this way? How did they conform to or depart from the stereotypes we have of people who choose to live off the grid of far-right paranoiacs or far-left hippies?

A. I did meet representatives of both those categories. But the majority were just ordinary individuals and families – in the book I speak to  teachers, nurses, engineers, plumbers, electricians, stockbrokers, managers, writers to name but a few. They are very disparate, but what unites them was a feeling that there must be a better way to live – and a determination to act – to be the difference, to be part of the solution not part of the problem.

Q. What were the most luxurious (if we can use the word) off-the-grid accommodations you encountered? And the most basic? What was the most surprising thing you encountered while exploring this movement?

A. Almost everyone I met was living comfortably, many of them in typical family houses. Some had large homes but the larger your home the more it costs to heat and cool and maintain. One of the reasons for the sudden growth of the off-grid population is that technology has enabled it – not just solar panels and generators, but energy efficient appliances. Fridges and washing machines can now run on a fraction of the energy they used to need. And there are small, mobile 12-volt versions of things that were developed for truckers and boating – everything from fax machines to slow cookers.

I devoted a chapter to a Boulder resident living in his car, or “living out of my car” as he prefers to put it. He does this out of choice, and plans to switch to a small RV. His story might do something to de-stigmatise car-dwelling. It’s supposed to be a sign of abject failure in today’s society, but why should we all have to live in conventional dwellings? He says he would rather spend the rent money on having fun.

One of the strangest sights on my journey was in an Amish household where they foreswear electricity, but use horses to generate mechanical energy – to turn motors that operate fridges and washing machines. They build treadmills from wood they grow themselves and the horse walks on the treadmill to create the energy.

Q. What are some of the fractures – ethical, political, cultural – among people living off the grid? And is there a sense of community among them?

A. The off-grid movement is so full of iconoclastic individuals that it would be hard to find any areas where they do all agree. One of the main dividing lines is between those who want to be part of an off-grid community and individually self-sufficient households-what Thoreau’s critics at the time he wrote Walden called “cold and selfish isolation.” Most want to be part of a community and to me that is preferable because man is basically social. You can share skills and get other advantages from being part of a community.

Then there are groups like the Amish, or environmentalist communes who disapprove of those who live more conventional lives, but happen to do so off the grid.

On the whole the mainstream environmental movement disapproves of living off the grid – and claims, wrongly, that it is more ecological to live in a dense urban environment. For starters it is quite possible to live off-grid in a city. But more importantly the eco-campaigners are desperate for mainstream acceptance and they fear that supporting the off-grid lifestyle would ally them with weird and fringe elements.

Q. Is living off the grid a uniquely American concept at all?

A. America is so big, and that s one reason why it is easier to live this way in the US than in other western societies which are more crowded. The UK is the size of Kansas but with a population one fifth the size of America. Living off the grid is in tune with key parts of American culture – the tradition of settlers, pioneers, and the permanent quest for freedom which is part of the American Dream.

Q. Is living off the grid a viable form of protest, and do most people living this way consider it as such? Or does it hurt efforts to reform within the grid?

A. For many off-gridders, living off the grid is the ultimate form of protest. It is a simple withdrawal from some key facets of the consumer society, which has taken us down the wrong route in so many ways – constant consumption, the unstated assumption that economic growth must continue forever. And it is also a way of giving yourself more control over your own life and making yourself less dependent on the state and the “system” – saying “not in my name” whether your gripe is with the war in Afghanistan or the vast subsidies handed to overpaid bankers. It is also a way of taking responsibility for your own power, waste, water – and some go further.

Q. What can we learn from people living off the grid, or simply keeping in mind the “off the grid” concept? Is it an important effort to consider given the recession and the environment?

A. The off-grid population is very useful to society for several reasons. It makes society as a whole more energy independent, more diverse and therefore more resilient to shocks like power outages and oil price spikes. It also points the way to a future where we all live more modestly, which may be essential as China and India consume a higher share of the world’s scarce resources. And at the moment with foreclosures and job losses at such a peak, it is a simple practical alternative to sub-standard housing and welfare dependency.

*Photo of Nick Rosen by Dafydd Jones. Photo of tents courtesy irina.

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Einstein’s Watch: Being an Unofficial Record of a Year’s Most Ownable Things
by Jolyon Fenwick & Marcus Husselby

-Reviewed by Noelle Loh

Despite a still reeling economy, a Trump penthouse can still fetch $33.18 million, Bentley is launching its new $349,000 Mulsanne supercar and Chanel is raising prices of its posh pochettes by as much as 30 percent. What exactly determines the value of material goods and, more importantly, what drives a person to want to possess them? According to British authors Jolyon Fenwick and Marcus Husselby, the answers aren’t always easy to come by.

Compiling a list of just over 100 items sold or put on sale between the period of July 2008 and June 2009, the two former advertising executives have tried to put a monocle over the illogic of consumer culture, even in a time of economic crisis. With a nod to Rudyard Kipling, they write, “If ‘stuff’ rather than experience could fill the ‘unforgiving minute’, then we humbly submit the following for your consideration.”

As founders of the nearly three-year-old e-commerce website 20ltd.com, Fenwick and Husselby deal with extremely limited edition, never-to-be-reproduced items ranging from a $89,000 extreme performance motorcycle to a $1,600 fox fur dog bed by a “couture” dog wear label. Exclusivity can be persuasive enough to push up a price, but in their literary debut Fenwick and Husselby aren’t always clear on what makes objects cost so much.

There have and always will be purchases influenced by status and rarity, by historic or artistic cache, such as the Longines timepiece from which the book gets its name. Given to the father of modern physics in 1931, it was sold at an Antiquorum auction for $596,000 – over 17 times its estimated retail value. Or take The Torment of Saint Anthony, allegedly the work of a pre-pubescent Michelangelo, sold to the Kimbell Art Museum for an undisclosed but certainly sky-high sum.

It’s less clear what drives the buying of items that seem completely ordinary, even trivial. There’s a now infamous thumbprint-sized, Crayola-mimicking computer graphic of a seven-legged spider, created by Australian writer David Thorne. Thorne tried to convince the phone company to accept it in lieu of the payment he had due, totaling $233.95. The phone company understandably rejected it. But after a comic email exchange between the two parties went viral, a mystery eBay bidder spent a reported $15,000 on the doodle.

Fenwick and Husselby never provide an answer but instead pose the question: “What really are the world’s most desirable possessions? Are they necessarily expensive or can they cost nothing at all?” The question, at least, reminds us that consumer culture is ultimately driven by emotions. For the consumer, recession or no, the Chanel tote is still something worth buying, or at least desperately wanting.

Excerpt: “In August 2008, Dr Richard Harrington, a scientist and vice-president of the Royal Entomological Society of London, bought a fossilized aphid on eBay for £20. The insect, 3-4mm long and encased in a 40-50 million-year-old piece of amber, was sent to Danish aphid expert Professor Ole Heie, and was then confirmed as a new species, now extinct. Dr Harrington was inclined to call the bug Mindarus ebayi, but this was considered too frivolous by the scientific establishment. The fossil is now housed in the Natural History Museum in London.”

Further reading: The Billionaire’s Vinegar: The Mystery of the World’s Most Expensive Bottle of Wine by Benjamin Wallace and The Thoughtful Dresser: The Art of Adornment, the Pleasures of Shopping, and Why Clothes Matter by Linda Grant.

*Photo courtesy Simone Damiani.

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The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity

–Reviewed by Adam Fleisher

While the business cycle has ordinary ups and downs, structural economic crises like the one we’re in are, Richard Florida would say, characterized by the demise of a particular economy. And with the right mix of policy and strategic investment, such crises can spur new eras of prolonged prosperity.

Florida, the well-known author of Rise of the Creative Class, argues in this new book that the economy is in the midst of just such a change or “reset” – much like what happened after the depressions of 1870 and the 1930s. The Great Reset, which evolved out of an Atlantic article, contends that these resets “take shape around new infrastructure and systems of transportation,” and create new housing patterns that shift the way we live and work.

The first reset came out of the “Long Depression” of 1873, when the rise of factory production drove people from farms into cities. Cities in turn expanded, thanks to trolleys and subways, that let people live and work in somewhat separate worlds for the first time. The second emerged out of the Great Depression as economic efficiency increased and infrastructure – from education systems to highways – improved drastically. Manufacturing and housing, both driven by a need for space, moved out of the dense and dirty city centers into clean and spacious suburbs.

Today, the country is transitioning, Florida says, from a manufacturing economy to one based on knowledge and creativity. Any fixes for our current crisis have to take this into account, rather than trying to prop up the remnants of manufacturing economies. The burst real estate bubble and the end of easy credit have reversed the trend of buying ever larger homes ever farther away from city centers. Poor Detroit is the emblematic Rust Belt city, with unofficial unemployment probably close to 50%, though smaller manufacturing cities in the Midwest have fared even worse.

The future for Florida is in dense, vibrant cities, because that is where we find “the highest velocity of ideas, the highest density of talented and creative people.” Of course, since those clever, creative financial types, in the big cities, played something of a role in the recent economic collapse, Florida is quick to point out that finance got away from supporting the economy to preying on it. Instead of just “moving money around,” finance needs to be about investing in the “real economy.”

And so we are in another reset. Florida sees a future of “vast megaregions” made up of several cities and their suburban rings. These regional economies, such as Boston-New York-Philadelphia-Washington (home to 50 million people and producing $2 trillion in economic activity), Chicago-Pittsburgh (46 million; $1.6 trillion), and 21-million-person greater Los Angeles are what really power the global economy. Meanwhile, traditional suburbs are turning into mini-cities, with more mass transit options and downtowns of their own; northern Virginia is emblematic of “the redevelopment of older suburbs into denser, mixed-use communities.”

The Great Reset suggests we improve education and health care and the social safety net to help with the shift. But Florida is most bullish about high speed rail as the “connective fiber” of the megaregions – just as new transportation infrastructure played a crucial role in previous resets. In this one, high speed rail would not only connect thriving cities like New York and DC, and San Diego and Los Angeles, but it could even link Rust Belt cities to Chicago (75 minutes from Detroit) or even Toronto. People wouldn’t make these commutes every day, thanks to flexible work schedules and telecommuting. But by connecting declining places to thriving ones, economic opportunities would reach residents of cities that have missed out on America’s post-manufacturing economy, and who don’t have the ability or desire to live elsewhere. And in any case, Florida argues it beats sitting in cars for hours. In Los Angeles, that adds up to two weeks a year per commuter. Though Florida insists that “government is not the prime mover in Great Resets,” he also argues that its role is to “enable and accelerate” the shift. For Florida, that means make high speed rail happen. While his passion is admirable, it’s hard not to be skeptical about a mode of transport that may not be used every day, and may not work, as the linchpin of the latest reset.

Excerpt: “The history of economic development has been a history of greater expansion and more intense use of land and space.  The First Reset saw the transition from small cities and an agricultural society to dense industrial cities.  The Second Reset gave us the sprawling suburbs and great metropolitan areas that defined recent times.  The current Reset is premised on the rise of a new and even larger economic landscape defined by megaregions that spread across multiple cities, several states and provinces, and, in some instances, national borders.  Those regions will have a hard time forming without the infrastructure necessary to bring people and ideas together.”

Further Reading: Shop Class as Soulcraft: An Inquiry into the Value of Work by Matthew B. Crawford and The Economy of Cities by Jane Jacobs

Adam Fleisher is a law student at the University of Virginia.

*Photo courtesy Mike_tn.

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