August 2014 Archives

When Economists Become Theologians

| No TrackBacks

      The University of Paris economist Thomas Piketty has marshaled a wealth of impressive data in his book Capital in the 21st Century. From an historical  perspective, the data shows that the market-based economies in the Western World - save for the brief, unique period caused by the economic disruptions of two world wars - have spawned increasing economic inequality.

       Piketty also predicts that, without vigorous public intervention in the marketplace - as the rate of return on investments continues to exceed the rate of economic growth - economic inequality will continue to accelerate. Not surprisingly, Piketty has been denounced on the right as a neo-Marxist or a dangerous social democrat because he has had the audacity to suggest, as a basic proposition of democratic governance, that economic policy should be subordinate to political policy.  

         Simultaneously, Piketty's colleague and collaborator at the London School of Economics, Gabriel Zucman, has reported in one of his many studies, Tax Evasion on Offshore Profits and Wealth, that U.S. corporations now declare 20%  of their profits in tax  havens - a  tenfold increase since the 1980s - and that tax avoidance policies have reduced corporate tax revenues by up to a third.  At the global level, Zucman argues that 8% of the world's personal financial wealth is now being held offshore, costing more than $200 bilion to governments annually and that decisions to shift to tax havens and offshore wealth havens are increasing.

        In the current economic debate, Piketty and Zucman - along with a few other prominent exceptions such as Paul Krugman and Joseph Stiglitz - remain the outliers in a profession that is overwhelmingly dominated by defenders of the status quo and conventional economic wisdom. One such pathetic example of the latter is Tyler Cowan, an economist at George Mason University.

        In an op ed piece in the Sunday edition of the New York Times last month "(All in All, a More Egalitarian World," July 20, 2014). Cowan enthusiastically cited a study which noted that, although economic inequality was rising in countries such as the U.S., "the economic surges of China, India and some other nations have been among the most egalitarian developments in history."


        Cowan piously concluded that "the true egalitarian should follow thee economist's inclination to seek

wealth-maximizing policies, and that means less worrying about inequality within the nation... [C]apitalism and

economic growth are continuing their historic roles as the greatest and most effective equalizers

the world has ever known."        


        In a prior book, Average is Over, Cowan extolled the rise of what he chronicles as the "big earners" in the emerging meritocracy that he foresees. He also argues that, rather than expand the safety net, governments should curtail spending.

        As an alternative and to maintain civic peace, Cowan suggests that local governments might offer engaging distractions to those whom he has identified in his Darwinian dystopia as the "big losers" and the "zero marginal product" workers. These "big losers" and "zero marginal product" workers presumably include the 162,000 U.S. architects and engineers whose jobs were shipped to third-world counties between 2000 and 2009, according to Bureau of Labor Statistics, and the 180,000 computer IT and programming professionals who, according to Yale University's Jacob Hacker, lost their jobs between 2000 and 2004.

        Perhaps taking an unconscious cue from Aldous Huxley's Brave New World, Cowan proposes a palliative that he suggests would enable the 49% mooching class that Mitt Romney decried to live contented lives, albeit with reduced means and with substantially reduced expectations: "What if someone proposed that in a few parts of the United States, in warmer states, some city neighborhoods would be set aside for cheap living? We would build some 'tiny homes' [that]...might be about 400 square feet and cost in the range of $20,000 to $40,000. We would build some very modest dwellings there, as we used to build in the 1920s. We would also build some makeshift structures there, similar to the better dwellings you might find in a Rio de Janeiro favela.  The quality of the water and electrical standards might be low by American standards, but we could supplement the neighborhood with free municipal wireless..."  

        Cowan's paen to globalization and the onward march of capitalism blithely ignores the systematic, well-documented failures of the capitalist system he extols. His apologia offers small solace to the millions of Americans whose jobs have been lost to out-sourcing and the de-industrialization of the U.S.; his soothing entreaty that, in the long run, everything will work out nicely - some fine day - ignores Keynes's sage observation that "In the long run, we will all be dead."  One also suspects that Cowan would be less sanguine about the economic landscape he surveys if he were informed that his tenured  position at George Mason University were about to be converted into an adjunct faculty position.  


        The defenders of the classical market model of unbridled competition still refuse to concede that, left to their own devices, entrepreneurs and corporations inevitably engage in practices that have harmful consequences to the public. Their anti-regulatory biases are not diminished, despite the fact that their business activities are heavily subsidized by taxpayer money - e.g. roads, trains, airports, and intangible infrastructure such as public education, employee training, R&D, favorable tax policies, legal immunity for business entities, and protection for trade secrets and intellectual property.

         These guardians of the economic canon also continue to discount the evidence that shows that entrepreneurs and corporations know that, if they are unable to escape the ultimate consequences of their poor decisions - if all else fails - they will be allowed to screw their creditors, discharge their debts in bankruptcy, and re-emerge with a new corporate persona. The sole goal is to maximize profits to enrich themselves and their shareholders. Given a mind-set that sincerely believes that the pursuit of self-interest is somehow a public good, they and their economist defenders remain oblivious to the adverse effects of poverty, lack of health care, pollution, climate change and to basic principles of social justice.

         Ultimately, the entire process is self-defeating and creates a negative-sum game: As entrepreneurs seek to maximize their profits by paying the lowest possible costs for labor and materials, the middle class is hollowed out. As the income of the middle class contracts, aggregate demand is reduced. As domestic spending contracts, the purchase of goods and services contract. Without the intervention of the government into market economies, the buyers and sellers of goods and services become locked in mutually destructive death throes.

        All of the empirical evidence, Cowan and other apologists notwithstanding, suggests that out-sourcing, deregulation, austerity, the commitment to the myth of "free-trade," -i.e. "laissez-faire" in trade policies - and reduced government regulation have been major contributing factors to the loss of manufacturing, stagnating wages and the growing impoverishment of the former middle class.

        The net effect of current economic policies - sadly endorsed by Democrats as well as Republicans-  has been an extraordinary concentration of wealth and power into the hands of financiers and other moneyed interests who have become the winners in this game of  economic Russian roulette. As a result, the decisions and predilections of fewer and fewer individuals now determine the outcomes in the American economy, while the overwhelming majority of Americans have little ability to influence macro-economic trends or economic and political policies.

         In the 1950s, John Kenneth Galbraith bemoaned the existence of "private affluence and public squalor" in the America. The contrast has only grown worse in the subsequent decades. The disparity between the few who are wealthy and the many who are poor has widened alarmingly in the United States since the advent of the Reagan era and the kind of "trickle-down" economics to which he and his advisers subscribed.

        In his General Theory, Keynes observed that "the ideas of economists and philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the salves of some defunct economist....But, soon or late, it is ideas, not vested interests which are dangerous for good or evil."

        Political and economic philosophies, unlike religious dogmas, are neither true nor false per se, irrespective of their competing attempts to comprehend and to explain the Truth about the human condition. Rather, these philosophies help us to define our understanding of ourselves as political beings - who we think we are, and what we think we can or cannot achieve as participants in the political process.  Paradoxically, through these political and economic philosophies, we simultaneously modify and recreate social reality  - "the shared field of meaning" - in which we participate.

        Equally important, because competing political and economic philosophies inevitably suggest specific policies, they have important, teleological consequences. For that reason, the consequences of any particular policy suggested by a particular political or economic philosophy can be observed, measured, and tracked.

        As such, the political, economic and ethical effects of the policies and programs can be scrutinized and evaluated. Policy makers and informed citizens then become able to determine whether the respective claims and promises of a particular political or economic concept should be implemented as public policy, and whether the effects will be beneficial or inimical to the health and vitality of the civil society.

        There are no easy solutions to the present economic malaise, but it is a serious mistake to confuse the purported "laws of economics"  with the laws of physics as so many do. Economic systems do not operate in a vacuum; and there is nothing inevitable about the continuation of economic trends. Economic systems and political systems are the products of human imagination and ideology as shaped by historical forces. 

        Because there is nothing inevitable about economic trends and developments, they can be countered by intelligent and carefully crafted monetary and fiscal policies as well as intelligent legislation. In extremis, even the "laws of economics" can be suspended by operation of law, as was required during World Wars I and II.  

        The classical liberal paradigm of the market economy has long since ceased to explain present day economic reality, but the intellectual chains of that received wisdom from long since dead economists continue to control the public narrative. Unfettered competition, based upon allegedly free market decisions made by solitary actors in which goods and services are sold to the most willing buyers, is a myth that does not create individual opportunity for most Americans, nor has it maximized business opportunities.

        Rather, the insecurities of the marketplace persuade those who are successful to institutionalize their advantages. Monopolies and plutocracy are the inevitable result and, as the Forbes 400 list shows, economic inequality becomes more pronounced.

        The critical need in today's politics is to restore the proper balance between the pursuit of wealth - as a purely private activity - and the public interest. In a democracy, citizens have the ability and the right to imagine and to demand new political, economic and social structures and arrangements that are rooted in a shared commitment to social justice and that also recognize the mutual obligations that we owe to one another as members of a political community. By law, policies can designed and imposed to protect the rights of workers to join unions, to create an industrial policy, to re-impose protective barriers and selective tariffs (just as China, South Korea and Japan now do), to enact a tax code that punishes out-sourcing and domestic disinvestment and provides incentives for job-creation and domestic reinvestment.

        Market economies are affected by the frailties and the foibles of human actors. Although many of these actors are motivated by selfish, short-sighted concerns, the consequences of their actions harm everyone else. It is for that reason that regulation in the public interest and investment in public goods by the government - as the agent of the people in a democracy - are essential antidotes to the temper the excesses of capitalism and to create the foundations for a truly just society.


The Brouhaha over Immigration and the Border

| No TrackBacks
         The current brouhaha over child refugees from Central America appearing at the U.S. Mexican border has spawned lots of invective and strident commentary but provided little in the way of insight.


           By way of background, shortly before he left office, on Dec. 23, 2008, George W. Bush signed into law the William Wilberforce Trafficking Victims Protection Reauthorization Act. The purpose of this bipartisan measure, named after a 19th century British abolitionist, was to extend and increase efforts to prevent and prosecute human trafficking and protect the victims of trafficking. The legislation contained numerous provisions that regulate the treatment of children, unaccompanied by adults, who present themselves at the U.S. border by the Department of Homeland Security.

             Under the law, the Customs and Border Patrol are required to turn undocumented children from Central America over to the Department of Health and Human Services within 72 hours. Because of the turmoil in Central America, the law mandates that HHS hold the refugees humanely until they can be released to a "suitable family member" in the United States. HHS is also required to ensure "to the greatest extent practicable" that these detained children "have counsel to represent them in legal proceedings " who could then explain to them how to apply for asylum or to find other ways to remain legally in the U.S.

              The complexities and difficulties of enforcing this law need to be viewed in the light of the overall immigration program in the U.S. which all sides concede is broken beyond redemption. Not surprisingly, this country's unwillingness to control its borders through sensible immigration policies - that could include an expanded guest-worker program, preferences for highly skilled foreigners, a mandatory E-Verify system for all employers and national identification cards similar to those issued in almost all of Western European democracies - provides fertile ground for the worst kind of xenophobia and anti-immigrant hysteria. 

            Never one to miss on opportunity to pander to the basest instincts of those people who find her appealing, on July 14, 2014, GOP Congresswoman Michele Bachmann complained to Van Jones on CNN's Crossfire that "since April, we've had an invasion of 300-500 thousand foreign nationals." After Jones pressed her about her use of the word "invasion," Bachmann chose to obfuscate with a classic non sequitur: "My heart is broken for a female college student in Minnesota who was raped, murdered and mutilated by a foreign national who came into our country," Bachmann stated in an effort to somehow link the surge of unaccompanied refugee children to increased crimes. "We had a school bus full of kids in Minnesota - four children were killed on that school bus because an illegal alien driving a van went into that school bus."

             To his credit, Van Jones challenged her. "There are lines that can't be crossed here. I'm sorry, congresswoman. Are you gonna scapegoat children for the crime of this despicable person?"  Bachmann, ever the demagogue, remained unabashed, "Don't scapegoat the American people. Van, don't scapegoat the American people right now who are losing jobs."

            A few weeks later, Rep. Bachmann - much like proverbial Senator John Yerkes Iselin in The Manchurian Candidate who announced, after examining the label on a bottle of Heinz Tomato Ketchup, that there were 57 card-carrying members of the Communist Party in the Department of Defense - conjured up an even more preposterous theory to explain the presence of so many unaccom-panied minors at the southern U.S. border.  On July 30, 2014, she appeared on "WallBuilders Live," a far-right radio program, and now claimed that the reason President Obama hasn't solved the refugee crisis at the U.S. southern border is because he wants to use the child refugees for "medical research." "President Obama is trying to bring all of those foreign nationals, those illegal aliens to the country and he has said that he will put them in the foster care system," Bachmann insisted.

              "[W]e can't imagine doing this, but if you have a hospital and they are going to get millions of dollars in government grants if they can conduct medical research on somebody, and a Ward of the state can't say 'no' - a little kid can't say 'no' if they're a ward of the state so here you could have this institution getting millions of dollars from our government to do medical experimentation and a kid can't even say 'no.' It's sick," Bachmann intoned.

             Rep. Bachmann is not the only politician who appears to have become unhinged by the contretemps over refugees. On July 16, 2014, Leslie Larson, a columnist for the New York Daily News, described an incident that occurred in Arizona. Adam Kwasman, a state legislator and Tea Party candidate for Congress, joined a demonstration of anti-immigrant protestors the day before on the road to Oracle, Arizona.

             The demonstrators were outraged of the prospect of migrant children being sent to a nearby shelter. Kwasman, reportedly disdainful of President Obama's efforts to address the border crisis, saw a yellow school bus approach and tweeted a picture with the caption, "This is not compassion. This is the abrogation of the rule of law." 

              Kwasman claimed that the children who were being bused to the shelter appeared to be sad and fearful.  "I was actually able to see some of the children in the buses. The fear on their faces," he told a local reporter after the incident, according to the Arizona Republic. The reporter then questioned him about what children he was referring to. "I saw a school bus with plenty of children on it, so I'm assuming that was the bus."  After the reporter pointed out the youngsters on the bus he saw were in fact local schoolchildren en route to a YMCA camp, Kwasman said, "They were sad too. I apologize, I didn't know. I was leaving when I saw them. So if that was a school bus - people are not happy down the line."

             A more disturbing incident was chronicled by Kate Taylor and Jeffrey Singer of the New York Times ("In Queens, Immigrants Clash With Residents of New Homeless Shelter," July 25, 2014). They reported that, in early June of this year, the City of New York began to move homeless families into a defunct hotel in Elmhurst, Queens. The city's decision prompted a series of protests, culminating in one on July 22, 2014 that drew approximately 500 people. The crowd was said to comprise, among others, grandmothers, small children, Chinese immigrants and the president of a local Republican club, all of whom complained that Mayor de Blasio had trampled upon their rights.

             The local residents expressed their fears about the presence of the new arrivals and cited rumors of shoplifting from a local supermarket and episodes of public urination and panhandling. These were the kind of antisocial acts that, the residents contended, had been unheard-of in their neighborhood until now. 

            During the protest that night, one of the organizers spoke through a bullhorn in Mandarin, as a few people looked out the windows of the hotel. "Speak in English!" a woman who was leaning out of a window was reported to have shouted, and held up her phone, possibly to videotape the protest. "Homeless with money" was the response of a protester to the woman with phone.

             Pathetically, because many of those opposed the use the hotel as a shelter in Elmhurst were recent Chinese immigrants, the conflict has pitted immigrant families and the mostly black and Latino homeless families against one another. Earlier, in late June, The Times' article reported, a local civic group organized a series of demonstrations in which some of the protesters were reported to have chanted at the shelter residents "Get a job. The homeless families retorted that the protesters should "go back to China."

             How does one explain the current vitriol and the hysteria?  At least part of the explanation can be traced back to the political ideas upon which the "American experiment" was created and the culture of individualism that it apotheosized.

             Historically, the emergence of liberalism as a political theory during the Protestant Reformation engrafted onto this unfolding political paradigm a permanent sense of anxiety and apprehension. Luther's insistence that personal salvation could be gained by one's one receptivity to the Word alone released the self from the bonds of obedience to the universal church and its magisterium, but the penalties for personal emancipation have, to the present, continued to exact a severe psychological toll. As Hobbes observed, the severance of man from nature - the natural order, natural law - estranged man and left him alone and afraid. Fear and a sense of personal isolation, and therefore personal vulnerability, in turn, can lead to panic and hysteria.

             With the gradual demise of the Great Chain of Being came also the demise of the imperium  - the traditional authority of the magistrate to bind his subjects and his power to command. Even the ascension of the Protestant William of Orange to the throne of England in 1689 was effectuated, not by the right of succession, but by an invitation from the Parliament.

            Thereafter, the power to command would depend upon the need to receive formal, legislative consent. While a significant advance for democracy, this political change was not without its downside: since political institutions were, in the view of John Locke and other liberal thinkers, of dubious legitimacy and should be allowed to exercise only limited, arbitral, transitory authority, it instilled within the corpus of the liberal consensus a sense of the fragility of social and public institutions. This has been especially true in the U.S. where many of the thirteen colonies and later the republic itself were explicitly created by acts of covenanting - contracts.

             As one unforeseen and unintended consequence, a toxic brew of fear, anxiety, vulnerability, and concern about the fragility, and hence, stability, of political and social institutions has contributed to the periodic eruptions of extremely ugly incidents in American politics that Louis Hartz in The Liberal Tradition in America described as "irrational Lockianism." The Salem Witch trials and the frequent preemptive forays into Indian territories by colonial settlers who feared Indian insurrections (which, in turn, lead to the extermination of countless numbers of the aborigines) were precursors to the kind of hysteria that gripped the newly-independent United States after the French Revolution. The XYZ and Citizen Genet affairs were the precipitants for the passage of the Alien and Sedition Acts in the administration of John Adams.

             Later, recurrent fears of slave insurrections in the first half of the nineteenth century prompted the enactment of ever-more punitive laws in the slave-holding states to punish "run-aways," abolitionists, and anyone who tried to educate the slaves. In the 1840s, the Native American Party - the Know-Nothings - emerged in the Northeastern United States in response to a climate of intolerance and fear that had been preceded by the burning and sacking of an Ursuline convent in Charlestown, Massachusetts in 1834, and by frequent attacks upon Irish and other Catholic immigrants.

             In the twentieth century, the imprisonment of war critics, such as the socialist Eugene Debbs during World War I, and the aggressive acts of Attorney General Palmer's "Red Raids" after the Bolshevik Revolution exemplified the kind of war frenzy and jingoism to which Americans have so often succumbed. Two decades later, after the isolationism espoused by Father Coughlin and the America First Committee proved to be delusional, the attack on Pearl Harbor made palatable the confinement of thousands of American citizens - citizens of Japanese ancestry on the West Coast of the United States were forced into internment camps, without trial or any evidence of personal guilt, for the duration of World War II.

             Justice Black's infamous decision in Korematsu v. United States, 321 U.S. 760 (1944), which excused this mass imprisonment, is stark evidence that has been confirmed on countless other occasions throughout American history of the refusal of the federal judiciary - as the designated arbiter of constitutional rights within this putatively liberal democracy - to defend the most basic civil liberties whenever the courage to decry public hysteria is required. Instead, the courts have, with few precious exceptions, routinely deferred to the executive branch's claims of a national emergency even after the evidence has shown that the alleged emergency - such as the terrorist attack on September 11, 2001 - did not threaten or imperil the continued existence of the United States.

             In his extremely insightful book, Escape From Freedom, Erich Fromm observed that "The individual became more alone, isolated, became an instrument in the hands of over-whelmingly strong forces outside of himself; he became an 'individual' but a bewildered and insecure individual..... Once the primary bonds which gave security to the individual are severed, once the individual faces the world outside of himself as a completely separate entity, two courses are open to him since he has to overcome the unbearable stage of powerlessness and aloneness. By one course he can progress to 'positive freedom;' he can relate himself spontaneously to the world in love and work...he can thus become one again with man, nature and himself, without giving up the independence and integrity of his individual self. The other course is to fall back, to give up his freedom, to try to overcome his aloneness by trying to eliminate the gap which has arisen between his individual self and the world."

             In his Theory of Moral Sentiments, Adam Smith extolled the importance of what we  today call empathy: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it.... As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation..."

            To experience empathy, as Smith would have it, one must put oneself in another's place. Where fear, insecurity and anger, however, are given free vent, however, empathy itself becomes a casualty.

             There is little doubt that millions of Americans, burdened by the failure of the market economy to improve their standards of living and befuddled by the unwillingness and the inability of this country's political institutions to address their most basic needs, feel extremely insecure and vulnerable. This sense of vulnerability and fear of imminent danger has been continually stoked by politicians since the beginning of the Cold War. Joseph McCarthy, Richard Nixon, Ronald Reagan, and a cabal of professional fear-mongers and political opportunists successfully intensified the worries and concerns of ordinary citizens about the evils of foreign, left-leaning ideas and the purported infiltration of American institutions by individuals by assorted "pointy-headed" intellectuals, and "fellow-travelers" and naive "do-gooders" who relentlessly sought to undermine the "American way of life."

              After the attack the Twin Towers, this lamentable penchant to induce, and then to pander, to the basest fears and anxieties of ordinary Americans for purely partisan political purposes was honed and perfected by the administration of Bush-Cheney and by their Svengali, Karl Rove. Perhaps as appalling was the unsuccessful attempt by Rudolph Guliani to win the 2008 Republican Presidential nomination by running, as then-Delaware-Senator Joseph Biden sagely remarked, "on a noun, a verb, and 9/11."        

            The resulting hysteria - endorsed by a largely compliant elite and its political and media surrogates and at least tacitly supported by a totally clueless population - led directly to the catastrophes of Iraq and Afghanistan. An estimated $14 trillion dollars of that has been squandered to date on these two misbegotten wars. Had $8 trillion of those dollars been invested, instead, in infrastructure, jobs creation and other urgent needs, the money would have substantially addressed almost every pressing domestic need.

            If only a part of the remaining $4 trillion dollars had been invested in programs to aide our county's troubled neighbors to the south - that are suffering from many  problems that the U.S. has exacerbated  - i.e., the spill-over effects of our gun culture, our unquenchable appetite for drugs, and our continued support for repressive, self-serving elites, the spectacles  of thousands of waifs appearing at the Texas border would not by an almost daily phenomenon.

 It would also provide an opportunity for the Rick Perrys and Ted Cruzs of contemporary American politics not to embarrass themselves - and the rest of us - by their brazen displays of demagoguery and insensitivity.  Both Perry and Cruz claim to be God-fearing, Christian believers. What then do they make of the injunctions contained in the Gospel of Matthew, "But Jesus said, Suffer little children, and forbid them not, to come unto me: for of such is the kingdom of heaven," Matthew 19:13, and "Blessed are the merciful, for they shall obtain mercy," Matthew 5:7?  

And what are we to make of them and the rest of the naysayers among us who are habituated to criticism yet are unwilling to participate in the quest for solutions?


Related articles