Sunday, January 22, 2017

Rex Tugwell of FDR's Brain Trust: The New Deal in Retrospect

Rexford Guy Tugwell (1891-1979) was an economist and one of the most important and innovative members of President Franklin D. Roosevelt's first Brain-Trust. Tugwell studied economics at the Wharton School of the University of Pennsylvania under Simon Patten, at the time one of the leading economists in the USA and one of the last great economists to emphasize the difference between productive economic activity, and economic rent seeking. Patten was a founder of the American Economics Association.

This was decades before Wharton was infested by neoliberalism and became an MBA mill.

This account by Tugwell provides an excellent short history of the pre-war Roosevelt administration. I greatly wish I had been aware of it nine years ago, in time to have posted it during Obama's first campaign. It would have served as a signpost to an alternative to neoliberalism, which Obama unfortunately followed steadily as he moved from one accommodation with Wall Street to the next. In addition to my reading of countless articles these past 8 years, I have read Obama’s two autobiographies, Plouffe’s book, and the biographies by Halperin and Heilemann, Remnick, and Alter, and the excellent book detailing the influence of Wall Street by Suskind, Confidence Men: Wall Street, Washington, and the Education of a President. One thing that strikes me is that neither Obama, nor Plouffe, nor anyone else close to Obama, ever spoke of Franklin Roosevelt and the New Deal as if they were actually familiar with them or wished to emulate FDR. I suspect they have never studied Roosevelt and the New Deal, at least not with the goal of learning how to govern as well and as dynamically as FDR did. Obama and his team certainly never discussed the heroic measures Roosevelt and Harry Hopkins took to get millions of people a paying job so they wouldn’t starve in the winter of 1933-34.

Suskind’s book is excellent for seeing Obama and his advisors in relation to the financial crash. They were complete dolts: never saw it coming, and had no idea why it had happened. (And it is an outright lie to argue no one saw it coming; there were many economists, including Dean Baker, Gerald Epstein, Michael Hudson, Thomas Palley, and Nouriel Roubini, who rejected the neoliberal infatuation with big banks and finance and were fully aware of reality.) According to Suskind's account, Obama knew far more than the people around him, but only because he had become friends with Robert Wolf of UBS, and Wolf was giving Obama detailed accounts of what was happening in the financial markets. Otherwise, Obama would have been as surprised and lost as everyone else.

And I would also point to the stark contrast between Roosevelt's Brain-Trustcomprised of men such as Hopkins, Tugwell, and Marriner Eccles, who truly were able to "think outside the box"and the sly but slack-minded devotees of neoliberalism Obama surrounded himself with. Who did Obama select as his advisers? "Getting Timothy Geithner and former Treasury secretary Larry Summers working in harness is Obama's single biggest post-election victory," E.J. Dionne wrote in the Washington Post three weeks after the November 2008 election. It does not even require the perspective of a few years to see that the difference was neoliberalism and the acceptance of it by Obama's team; all the people who warned—as early as the first half of 2008that Obama was picking an economics team philosophically and intellectually incapable of steering the nation to safety away from the status quo, based their warnings on the Obamians' devotion to neoliberalism. Naomi Klein began her June 2008 warning with this telling quote from Obama himself: "Look. I am a pro-growth, free-market guy. I love the market."

In contrast to Obama's complete devotion to the status quo of neoliberal economics, Tugwell links Roosevelt directly to the progressive economic populism of "Ignatius Donnelley, Pitchfork Ben Tillman, Tom Watson, Sockless Jerry Simpson and Mary Elizabeth Lease Farmers’ Alliance, the Grangers, and the Populists in the Midwest and the South." Tugwell also identifies the key difference between Roosevelt and the preceding Republicans who had steered the country into the Depression: the belief that the "federal government had a direct responsibility to the people for their welfare." The rejection of this belief is why political rule by Republicans always results in financial crashes and  economic disaster.


The Western Political Quarterly
December, 1948, Vol. 1, No. 4

It may seem strangeincongruousto speak of President Roosevelt as in direct descent, politically, from Ignatius Donnelley, Pitchfork Ben Tillman, Tom Watson, Sockless Jerry Simpson and Mary Elizabeth Lease, that wild-eyed agrarian female radical who shouted up and down America in 1890 that farmers ought to raise less corn and more hell. It is nevertheless true that President Roosevelt owed his election largelynot, of course, whollyto the movement, long gathering force, long frustrated, which was headed by Donnelley and others of the Farmers’ Alliance, the Grangers, and the Populists in the Midwest and the South of the last century. It would be more accurate to say that President Roosevelt was in direct descent from Bryan, and that Bryan had been the inheritor of all the agrarian unrest. That he won, as Bryan could not, was because the depression of 1929 was worse than that of 1893, and because the number of those who were shaken in their Republicanism was greater in proportion to the whole.

It is possible that this overemphasizes the agricultural influence on the election of 1932. But on the whole I do not think so. There never has been a time, since the opening and settlement of the West, when a union of the West with the Souththe traditional marriage of corn with cottonwas not an irresistible political combination. Since the Civil War, because Republican reconstruction alienated the defeated States, a combination had been available only to the Democrats. The Republicans had had to depend on the somewhat less solid Northeast for a combination with the West. And usually the Republican alliance with big business had been difficult, to say the least, to sell to the farmers. During the Harrison and McKinley days, and even during the Roosevelt and Taft administrations, to say nothing of the Harding-Coolidge-Hoover era, the Republicans were the party of respectability and responsibility; they were conservative, sound, devoted to the interests of business, in favor of high tariffs, suspicious of labor, and against currency manipulation. They were the party of the creditors. They were, also, all the time, a majority party, notwithstanding the Wilsonian interlude from 1912 to 1920. Wilson was a minority President for at least four years; and possibly, in one sense, eight, since issues were so greatly confused by war as hardly to be separable, and he may have squeezed through in 1916 for other than domestic reasons.

Bryan, of course, in 1896, and afterward in 1900 and 1908, was the first of the national political leaders to represent in a formidable way the interests of the agrarian West against the East. The campaign of 1896 was one of the most thrilling in all American history. Almost half a century of agrarian unrest and resentment found its embodiment in the silver-tongued boy-orator of the Platte. But Hanna, with the impeccably respectable McKinley as his candidate, managed to defeat him. That was the high tide. Never again would the Populist movement have so much support. For America was on the make. Farmers might feel ill-used and exploited; labor might be more resentful as the attempt was made to unionize and bargain collectively for the alleviation of long hours, low wages and execrable working conditions, and as courts and legislatures hampered progress; but that part of America which was on the make was still a majorityor could be made to seem so. But in 1932, the great bubble of prosperity had burst, and a decade-long depression in agriculture was registering at last in appropriate political terms.

On the whole, with minor setbacks, the increase in productivity in America, together with the exploitation of a continent still largely unexhausted by soil erosion and the depletion of other resources, had kept the challenging critics of things-as-they-are from becoming a majority until 1932. The situation which existed after World War I was one in which complacency, conservatism, loyal mutual support between government and business, together with isolation, seemed to a majority of the electorate to be a sufficient policy for the times. People wanted normalcy after their adventure abroad. Mr. Hoover, however, inheriting what had now become a tradition fixed by Harding and Coolidge, found himself unable to overcome a fast-developing crisis in economic life which began in the late ’20’s. And he was, of course, humiliatingly defeated by President Roosevelt in 1932, after serving for one term. He had won, it will be remembered, from Smith in 1928. But that campaign had been less dramatic than the concurrent phenomena of the bull market. The economic issue was not yet ready for political exploitation. There was still prosperity for almost everyone but the farmers.

What was the economic crisis? And how far had it gone by 1932? It had begunand here is the connection with the agrarians and the long western disaffection which had been so brilliantly personified by Bryanby a disastrous fall of farm prices in 1920-21. There had begun, then, one of those unbalanced deflationary movements which so often have occurred in American economic life as a result of the unplanned and uncontrolled actions of economic groups in pursuit of private interests. The world had wanted farm products in great quantity during the war; after it was over, an expanded agriculture found its markets failing and its prices going down. But prices of manufactured goods (which the farmer must buy) stayed high. It took more unprocessed wheat, hogs, cotton, or corn to buy farm machinery, or even processed food and fibre, than ever before. Presently it took almost twice as much, and farmers felt that not only natural causes were at fault. They were certain that the deflation was the result of policies originated in Washington by those who were unfriendly.

Farmers can always withstand a certain amount of this kind of thing by refusing to buy, and by becoming temporarily more self-sufficient. But there is a limit to the time the old tractor or harvester, the barn roof, or the milking machine will last without replacement. And when farmers do not buy, moreover, industry feels the loss of customers. Ultimately workers lose their jobs. The inescapable mutuality of economic groups in the American economy is thus demonstrated.

Moreover, farms have mortgages which represent what the farmer borrowed to pay for them. If the farm was bought at a time of high prices for farm-products, a high price was probably paid for the landand with a high interest rate on the mortgages. When prices fall, it becomes harder to meet the interest and practically impossible to meet payments of principal.This in turn has an effect on all the financial institutions which loan to farmers, or deal in mortgages or other farm credits. And eventually the effect is felt in other institutions with which they deal. This mayand did by 1929go all the way back to Wall Street itself.

The farm price decline had begun in 1920. City peopleindustrialists, bankers, and even workersare not much inclined to be concerned with farmers’ woesat least they had not been in the ’20’s. And otherwhere than in agriculture a great boom had been going on. It had been a peculiarity of this boom that prices had not gone up. In fact, non-farm commodity prices had been remarkably stable from 1920 to 1928. The publicity men of the industrialists had exploited this fact by talking about "profitless prosperity." But, of course, it had not actually been profitless. What had been happening as a result of the many technical advances during the war could now be understood; efficiency was greater and costs were coming down. Profits, in spite of stable prices, were going up and up.

It is one of the unalterable conditions for the successful continuation of large-scale industry that purchasing power among consumers must be sufficient to carry off the volume produced. In order to maintain purchasing power in volume, consumers’ incomes and the total of prices attached to goods and services for sale must be roughly equal. They cannot be equal unless prices come down as costs come down; otherwise, the increasing profits go into more factories and increased production. In the long run warehouses fill with goods for which there is no demand. This is a very short and, because short, inaccurate account of the basic trouble in 1929. It leaves out, for instance, the effect of the vast pools of sterile savings, and also those which financed the wild speculation after 1927. But it does emphasize the fact that, by 1929, productive power had far outrun purchasing power. The farmers had first been priced out of the market; then other consumers had followed; and all the time vast increases in plant were being made. Also vast speculations were taking place with the ever-growing surpluses of business. Suddenly it was seen that the huge debts contracted at the inflated levels of speculation could not be paid. All creditors tried to force payment of debts to them at once. There was panic.

The Republican answer to the spreading depression after 1928 had been, first to deny its seriousness, and then to encourage the raising of private relief funds. Mr. Hoover was reluctant to admit that the government had any responsibility at all. But he did consent to the setting up of the Reconstruction Finance Corporation for business relief, and this was one phase of the famous "trickle" theory which was afterward emphasized by the Democrats. The R.F.C. was finally authorized, also, to loan $300,000,000 to the states for relief; and a farm aid program, which offered more succor for processors than for farmers, was begun. But that was Mr. Hoover’s limit. He would not admit, any more than Coolidge had, that the federal government had a direct responsibility to the people for their welfare.

The campaign of 1932 came after almost four years of grinding deflation, succeeding almost a decade of agricultural depression. There were idle factories, unemployment, hungerall the phenomena of industrial paralysis. During this time Mr. Roosevelt was governor of New York where the miseries of depression were felt to their utmost. Toward the end of Mr. Hoover’s administration it became quite obvious that the time was coming for a new man and a new program; he had lost practically all his popular support. What could be more logical than that the Governor of the Empire State, a life-long liberal, an experienced and popular public figure, should succeed to the Presidency.

It was one of those times, which come occasionally in the life of the nation, when the nomination for the Presidency is especially valuable, because, unless mistakes are made, winning is a foregone conclusion. Mr. Roosevelt was a professional politician. He was well aware of the possibilities. There had been, in fact, two most astute agents at work for yearsLouis McHenry Howe and James A. Farleyrounding up delegates: or rather, preparing to round them up when the time should arrive. There was opposition to be expected. The conservative wing of the party had the choice of Byrd of Virginia and Ritchie of Maryland; and Smith naturally felt himself entitled to another chance since he had sacrificed himself in 1928. Developing events, however, favored President Roosevelt rather than an outright conservative. The depression deepened. Disillusionment with Republicanism extended itself to the normally Republican middle classes; and the Republican farmers were awaiting the word of hope to abandon their political leaders if not their party.

There was drama in the nomination of 1932 in Chicago. Not until President Roosevelt’s own forces had worked out a modus operandi with a substantial section of the Southern Democracy could the business be concluded. In this it was arranged for Mr. Garner of Texas to be Vice-President. This, it might be said, added to the fact that some seventeen chairmanships of committees in the new Congress were to be held by Southerners, would present President Roosevelt with a sectional problem which would torment him throughout his more than twelve years in the Presidency. For the West, the South, and the big city machines would make a difficult team to handle. And often compromises and trades would be necessary which would emasculate what it was proposed to do. Nevertheless, it was a condition of nomination that such a compromise should take place. And President Roosevelt, an Easterner, did join the South and the West more successfully than any politician had been able to do since the Civil War. This was where his happiest faculties had their fullest scope.

The election was less dramatic. The campaign, because its outcome became so favorable in prospect, turned into a cautious statement of progressive hopes and beliefs, the items of which had been familiar since the times of Bryan, T. R. Roosevelt, and Wilson. Nevertheless, it was a statement, however tame, of progressive intentions. Perhaps the fact that a progressive was to succeed Hoover, after Harding and Coolidge, intensified the fears of Wall Street. When a Roosevelt administration became a certainty, it became equally certain that new forces would come into control. Perhaps this may have caused the deflation to run deeper than it otherwise might. Everyone was trying to become liquidfree of debtat once. And everyone distrusted the shaky institutions of finance, which were suspected of having made vast loans abroad and to industrialists at home, with depositors’ funds, which would never be repaid. Their struggles to collect, and the unwillingness of depositors to trust them further, brought President Roosevelt to his inauguration day in the midst of complete economic paralysis, with banks closing, Governors declaring bank holidaysthat is, moratoriaunemployment at twelve or thirteen millions, hardship and misery everywhere. The great new post-war factories were now closed, transportation systems were bankrupt and idle. Only soup kitchens and what were called "Hoovervilles"shack villages on dump heapswere busy.

To a nation thus paralyzed and sunk in despair, a golden voice proclaimed in the First Inaugural that Americans had nothing to fear but fear itself. It seemed as though a great sleeper awoke at that call and found that, after all, he had a useful strength. He stretched and looked for ways to use it. No less than 460,000 citizens wrote personally to their President as a result of this one speech. It swamped the White House facilities, but it showed what a welcome change Roosevelt was after Hoover. The people had a man.

The first measures had to be emergency ones: to assuage fears, to relieve suffering, and to set up more equal exchange among those who made various kinds of goods and provided various kinds of services. Measures looking to longer-run social security could await a measure of recovery. So, in fact, could the reforms still holding over, remaining to be done, from older progressive regimesnotably the Wilsonian, though some of that program had been achieved then. [1] Theoretically the Wilsonian measures should have prevented what had happened in 1929 and subsequently. And Democrats really had the choice of saying that their reforms had been sabotaged by Republican administrations or admitting frankly what they had done had not been enough. In the Roosevelt campaign the candidate practically admitted the deficiency by way of redefining progressivism. He called it the New Deal.

The A.A.A. [Agricultural Adjustment Act] was devised to restore agriculture to "parity" [2] in the national community and bring farmers again into the concert of economic interests. And the N.R.A. [National Recovery Act] was provided to encourage the immediate resumption of industrial activitythe President’s re-employment agreement, of which the well-remembered symbol was the Blue Eagle. And along with this, the financial system was bolstered by emergency loans to banks by the R.F.C. which amounted to a guarantee of deposits, [3] gold was made a government monopoly, and the dollar devalued so that debts could be paid in cheaper money. This was inflation. In an instant, people’s savings, insurance policies, bank deposits, etc., lost about one third of their value. But hardly anyone even noticed this; they were worth very little anyway in a national debacle. But the American competitive situation in foreign markets was improved.

This fiscal program disrupted the London Economic Conference of that spring because the President would not give other nations the advantage of currencies cheaper than ours. And international agreement on economic matters would make no progress for years to come. But Americans could sell again because foreigners could buy, and domestic debtors felt better because they could resume paying their debtsso, it is to be presumed, did the creditors, except that what was owing to them was being paid in dollars with diminished value. Also the whole international scene was overshadowed by negotiations about the payment of the debts holding over from World War I. It was so widely believed that these ought to be collected that the impossibility of collecting them made a real political problem for President Roosevelt.

The administration of the new measures was necessarily ragged. For relief, for instance, there was no organization at all and one had to be devised offhand by Hopkins and his helpersWilliams, Gill, Hunter, Baker and othersand long chances had to be taken "in getting the money out." The same was true of the A.A.A. Scores of thousands of employees had to be engaged and trained on the job to do things which were just the reverse of all accepted bureaucratic rules and practices. And as for the N.R.A.-under General Johnson its administration immediately became a caricature of decent procedure.[4]

Impromptu organization and freehand administration brought criticism even from those who were benefiting most; the sharpest dissent came from the business community, which was smarting from its own failure and from the humiliating need to be bailed out and set on its feet again. During the subsequent period, when it came to putting through certain reforms, business, again fairly prosperous, was about as vigorous in its opposition as though it had not been prostrate a year or two before. Nevertheless, a Securities and Exchange Act was passed and the Anti-Trust Division of the Department of Justice was given new life under Mr. Thurman Arnold. These will be recognized as theretofore unfinished business on the progressive agenda.

It can be imagined, even by those who belong to a generation which has no recollection of the incidents of those years, what life was like in the United States during the Great Depression following 1929 and also during the years of recovery, beginning in 1933. The years between the crash and the Roosevelt inauguration, when the nation was finally told that recovery was not hopeless but waited only for effort of the people themselves, were drab and miserable. There was shame, lost pride and broken initiative as well as hunger, cold and sickness. Perhaps the deflation had run its course by March of ’33. It was said afterward by the President’s enemies that this was so and that his measures had rather retarded than assisted. But no one thought so then. His voice came to them over the radio in the cultivated accents of Groton and Harvard; but it was warm and reassuring. What he said to do was done, even by the Congress. For the moment the Southern reactionaries were willing to give their support; and the business community which might have objected was hopelessly discredited.

There will always be question, I suppose, whether, when the policies of reaction were bankrupt and even the most pushing private interests were frightened for once into considering the state of the nation, more might not have been done. For the genuinely constructive part of the New Deal would consist, not in relieving the miseries and anxieties of depression, and not even in reforms which had been long delayed, but in taking at least the minimum measures to insure that depression might not recur. It is often said, for instanceand as often deniedthat in that spring of 1933 a genuine national banking, credit, and currency issuing system might have been set up. The sanctity of banking and bankers of the old sort had certainly evaporated. Merely to belong to a profession which had taken people’s funds for safekeeping and failed to keep them safe at all was to be under suspicion. And to this there were added the doubtful investment of depositors’ funds, and speculations in the money market and in brokers’ loans, to say nothing of proved participation in the orgiastic bull-market itself. And perhaps the public in general was the more severe for feeling guilty itself. For participation in stock gambling had been incredibly widespread. Perhaps no one would have objected much to any suggestion for change which would have made such activities impossible in the future. And the Federal Reserve Systemwhich had itself been devised in the liberal times of Wilson, although those who had studied its history knew it to be a compromisehad utterly failed to do what its authors and defenders had claimed for it: control speculation, prevent misuse of funds, and decentralize the money power. It seemed rather to have contributed to than to have checked the fatal succession of events which had led to the crash.

Mr. Laski, a shrewd observer of the American scene, in his The American Presidency, says flatly that President Roosevelt went as far as he could have gone, and he mentions specifically the criticism that the situation in 1933 was not seized on to nationalize the financial system. People who hold such views, he says, do not understand the American system. A President cannot seize occasions to establish institutions which outrun people’s understanding of what is appropriate. He must wait for opinion to precede any such action.

The answer might be made to this, that opinion was ready enough, but that President Roosevelt was not-that there was no one who knew how to set up a better system, and, especially, no one available to President Roosevelt. As a matter of fact, Wall Streetpeople like Thomas Lamont, Russel Leffingwell, Walter W. Stewart, and othershad, together with such orthodox university authorities as H. Parker Willis, B. M. Anderson, E. W. Kemmerer, et al., a monopoly of knowledge and competence in the field of money and banking. And they, all of them, had vested interests in the Federal Reserve System. There was no one in the United States, like Keynes in Britain, who represented a genuinely alternative opinion and who could have carried out a reform.

At any rate, what President Roosevelt chose to do was to take such measures as would relieve stresssegregation of gold, devaluation of the dollar, reopening of the banks with reassurance to depositors, extension of more liberal credits to farmers and home owners, expansion of loans to banks and other businesses by the already existing R.F.C. All these were intended to renew confidence in old institutions as an alternative to creating new ones.

As to Mr. Laski’s dictum that American Presidents may not get ahead of established opinion, it may be ventured that the great ones among them always have-which is one characteristic of their greatness. Jefferson made the Louisiana purchase, Monroe issued a famous hands-off warning to other powers, Lincoln appointed Grant and freed the slaves, Theodore Roosevelt created a Panama to contain the Canal, Wilson committed us to the League of Nations (it was only an error in method which prevented ratification), and President Roosevelt himself certainly took chances of the same sort, some successful, some not. Passamaquoddy, the Florida ship canal, and the subsistence homestead programs were not successes; nor was the N.R.A. But the T.V.A., the Civilian Conservation Corps, the A.A.A. and several others, were. It is too much to say that our President cannot assume a position of leadership. That there are limits no one would deny. The real question here is whether President Roosevelt did not miss a great opportunity which a Wilson, for instance, would have exploited to the limit.

Certainly the Federal Reserve System had failed; and certainly we still have itwith, of course, some added features, such as the F.D.I.C. A new system might have been mismanaged by the old hands; but that is always a risk.

What is involved here is the Roosevelt method. He did seek not only relief from the crisis of those years, but the means of preventing new ones. He chose to do it, however, by political finesse rather than by coups of the sort by which Jefferson took Louisiana or even by the bolder kind of leadership which he showed later with respect to the coming war. He preferred to manipulate interests against one another until the weight was on the side he wanted it to be on and was sufficient for the purpose. In this, his method is reminiscent of that of Lincoln, who also was a great improviser and knew the uses of compromise. He encouraged this group, discouraged or ignored that one, meted out discreet punishment, gave rewardsand, because he had a long time in which to do it, came out with something. It was not usually something new and neatly shaped to its purpose; but rather something misshaped by compromise and reluctant agreement, awkward, hard to operate, completely satisfactory to no one. But it did get a measure of the necessary result.

He utilized the potential strength of the farm lobby and its Congressional bloc, together with the temporary weakness of the industrial lobbies and their representatives, to establish agriculture in a new and very much improved bargaining position. It is true that, in administration, it would turn out to be about as favorable to the processors of farm products, to financial institutions dependent on agriculture and to the vast bureaucracy of the Farm Bureau and the state colleges as to the farmers themselves, and that it would pretty much exclude from its benefits sharecroppers and farm labor. But it was, undoubtedly, something. And it would probably offer enormous resistance to any such deflation as had happened in 1920-21.

A similar attempt to establish good businesses in a strong competitive position in the economy vis-a-vis those which were not goodthat is, businesses which would be fair to labor, would bargain collectively, and would adhere to fair standards of competition against those which would notcompletely broke down from maladministration amid the wholesale welter of sharp practice, selfishness and greed which characterized the N.R.A. in its later stages. But by then business was on its feet anyway; and business, good or bad, was not likely to suffer generally in the American economy.

Aside from this, a succession of laws, and continuing favoritism in their administration, established labor in such a bargaining position as it had never occupied before. It is sometimes said that the New Deal ended in 1936 with the Wagner-Steagall Housing Act; but the consolidation of labor’s position as a favored claimant for a share in the national income continued at least until 1938, when the Fair Labor Standards Act was passed. This more or less completed a system, rather incoherent and rickety, which had begun with the 7A clauses in the N.R.A. Act, the labor provisions, and had continued through the National Labor Relations Act in 1935.

Certain other measures provided limits to future deflations. After the Social Security System was set up, however awkward and insufficient it may have been, the kind of ultimate, squalid misery which had been so prevalent from 1929 to 1933 would not be possible again so long as we had any national income to distribute. There was nothing bold about this and other similar measures; they had been commonplace in Germany, the United Kingdom and elsewhere for two generations; but American businessmen seemed to think-or at least saidthat they led straight to Communism. And they required characteristic Roosevelt maneuvering to achieve.

What could save and justify the Roosevelt New Deal was not, however, its minima, its bulwarks against renewed deflations and unbalance. These were good for what they were. But what was needed much more was an increase in the national income through renewed and intensified production. President Roosevelt had to cure a paralysis of the social organism brought about by the coiling constrictions of a laissez faire in the last stages of its logical development from individual enterprise to price controlling and production-reducing monopoly. One way to attack this was through government spending, which was desirable for other reasons as well-relief of poverty, the building up of resources such as water power and reclamation projects, and the rehabilitation of farms, neglected forests and parks, and blighted urban areas. The difficulty with this was that it had to precede the collection of taxes on the income it might generate, and that an annual and balanced budget was a fetish which had survived even the depression. People with savings and insurance and people on salary knew well enough what happened when the budget was unbalanced. It made their dollars less valuable. And they were against it, along with the larger financiers. President Roosevelt always had trouble with this. And he was always reluctant to do as much as was necessary to get the result of a productivity which would have buried the investment in spending in an avalanche of goods. Not until he learned to trust Keynes did he understand what had to be done, in realistic magnitudes, if the result was to be got in that way. Perhaps he did not actually learn it until the magnificent outpouring of goods for war began after the New Deal days were over.

There was another way, of course, than that of public spending, devaluation of the dollar and inflation. That was the way of control and, indeed, of strict public management of the price structure, of production programs, and of the whole system of distribution, together with severe taxation to achieve a balanced budget. This would have required a discipline which would perhaps have been regarded as overheroic for Americans, although it was used in a limited way when they went to war a few years later; at any rate, the President studied and rejected it. He was a reluctant and inconsistent Keynesian in this matter until the program was several years old and was no longer so urgently necessary.The first $3,300 million in 1933 did something, together with successive appropriations of similar magnitude, but never enough. A national income of 75 or 80 billions achieved within a few years seemed magnificent after the 37 billions of Mr. Hoover’s last year. But what could have been done at any time only became apparent when war preparations began and the national income really rose, passing 150 billions, with no signs of strain whatever.

To the backward look, President Roosevelt and his New Deal have a pattern and a meaning which, in the midst of the maneuverings and compromises of the time, was often lost sight ofby everyone but President Roosevelt himself. Inconsistency did not bother him greatly, provided there was an advantage-even if only a slight one-for the policy he wanted. It did not worry him overmuch to live in turmoil. And the constant attacks to which he was subjected by the press, even if unpleasant, were rather favorable than otherwise for what he expected to accomplish. It did not decrease the confidence common folk had in him to have constantly on view the hatred borne their champion by those whom they mistrusted.

There were few who ever saw him with the mask of confidence removed. The gaiety of his laughter in time of fear echoed not only through the unaccustomed rooms of the White House, but symbolically in every home in the land. And if he was often uncertain, that was, as he said, because he was the quarterback of a team which had to be directed on the field, and it was not a fundamental uncertainty, only a tentativeness about tactic. There was necessarily improvisation, because there had been no planning. There would be failures. But the team would ultimately win. Its members might seem ill-assorted. They might be zealous to carry the ball over often; and they might even indulge in some sabotage, if they thought they could get away with it, in favor of friends or in their own political interest. But he was the captain as well as the quarterback. It was his game; and on the whole it was his victory. Looking back from the fourth year of life in America since his death, men know how much poorer they are without him. Perhaps one test of the New Deal’s worth was the great grief of common folk everywhere when the news of his death came to them so suddenly in April of 1945. They knew, even if more analytical critics did not, that they had lost a champion, even a friend. Their judgment must always temper that of objective historians.

The New Deal may have been a progressive interlude in an America predominantly reactionary. That still remains to be seen. The personality of Roosevelt, like that of Lincoln, who, in spite of superficial difference, he so much resembles, confuses the judgment. His maneuverings, his continual trading of what he thought were small advantages for what he thought were large ones, his ability to make the most incongruous assistants work together as a team, the fact that he had a scheme in mind (as can be seen by rereading the Campaign Speeches of 1932), and that he saw most of it carried outall this must be taken into account. He spent all his days in office working not only, as during the war, for his nation’s survival, but for the strengthening in it of those groups and forces which he judged to be needful, creative, democratic, tolerant and kindly. Whether and to what extent he succeeded will become clearer as time passes. It seems to me that we have gained some parity or balance among economic groups, that we approach clearer designs of what we must do, and that we have clearly established the minima of social security-and this was what Roosevelt meant by "New Deal." The critical judgment as to all these matters and as to others will no doubt become sharper and more rational; but those who have the advantage of distance and reflection will not have the memorial treasure of his presence. That, to those who knew him, will always be among the most precious of their possessions and the most illuminating of their guides.

[1] A Federal Trade Commission for fair trade practices; the Underwood Tariff Act, which reduced duties some ten per cent; an income tax to provide revenues lost by tariff reduction-a constitutional
amendment having now made the tax possible; and the Federal Reserve Act to decentralize the
"money power."

[2] That is, to bring the prices of farm products into such relationship with industrial goods that they
would buy as much as they had before the agricultural depression.

[3] Made permanent later in the Federal Deposit Insurance Corporation.

[4] There were businessmen running that show. The others were being managed by professors, editors, bureaucrats and social workers.

Monday, January 16, 2017

The new economics of solar power

My partner in life likes to watch the British costume dramas that are so popular on PBS. Not that long ago, she started watching a 6-part mini-series called Wolf Hall. This is another retelling of the rise of Henry VIII, only this time through the eyes of Thomas Cromwell—who is usually cast as a petty schemer in this sordid tale. I am not certain why the Brits are so fascinated by the story of the founder of the Church of England who was in fact, a serial killer. But they are. So this vile little tale has been made into so many films and television specials that to make another version, they needed a new angle. So Cromwell as a good guy was their gimmick of choice.

In this market, the over-the-air high-definition broadcasts by PBS have easily the best pictures available—just short of blu-ray in fact. So when partner began to rave about the picture quality of Wolf Hall, I became curious enough to watch a couple of episodes. The great advantage of the latest video gear is its ability to capture high-quality shots in low light—something that was being employed to full advantage. And the makers of Wolf Hall have not missed a trick and they do it so well, it looks effortless instead of the product of years of perfecting highly sensitive light capture. The interior shots look realistically dark and foreboding without any noticeable noise or loss of detail.

After drooling over the amazing photography for awhile, I soon snapped back to the reality that I was watching, once again, the ugly story of Henry VIII and Cromwell. The photographic reality only enhanced the shallow, vain, arrogant, and violent stupidity of the British upper classes. But while I was fuming about wasting some more of my remaining life on earth on the story of these truly vile creatures, I noticed something that almost inspired hope. The high video quality also showed some seriously fine details of that era's buildings.

So the lesson of the evening was that even though politicians and the members of the upper classes may be relentlessly stupid and boring people, the Producers of Henry VIII's day could make things that can still take your breath away. And the reason this gives me hope is that even though we elected a climate-change denier as President this late in the game, it probably won't matter. And the reason it won't matter is because solving climate change is a Producer Class assignment and as we can see, the Producers are still making miracles happen. Elon Musk has now demonstrated that electric cars can be objectively better than any fossil-fueled IC vehicle, and soon it will be obvious that solar is the low-cost energy option. Turns out you don't have to be concerned for mother earth, or lobby for new carbon taxes, or have your awareness raised. All you need to be is cheap. And that most of us can master. What follows is a Bloomberg account of the new economics of solar power.

Monday, January 9, 2017

On the cultural aspects of religious practice

Last Monday, I finally got to see the Martin Luther / Reformation exhibit that is currently on display at the Minneapolis Institute of Art.  We had tickets a few weeks back but we rescheduled due to weather concerns—something that just happens in Minnesota. In the meantime, the book describing the importance of the collection had arrived and I made a stab at reading it. There were few surprises as I have been seriously pursuing the question, since the 1980s, of how the various state (Lutheran) churches of the Nordic countries influenced their uniquely progressive political and social development. The motor for this passion is self-discovery—as the son of a Lutheran clergyman who was also an agrarian progressive, I was taking on two targets simultaneously. Besides, the question IS interesting—how and why did the Nordic nations become models of enlightened social and political organization? This question is especially interesting since the starting cultural / religious position was Viking.

The short answer is that for the most part, the state churches stayed out of the way. Lutherans never persecuted science—in fact, the reason Descartes died in Sweden is because he was offered shelter from religious persecution. When Sweden decided to get out of the war-making business in 1814, the Church of Sweden quite quickly fell into line. The Church was a supporter when Sweden decided to create their welfare state—although by the 1930s, the influence of the church was mainly confined to rural areas where the clergy taught the principles of petty piety.

But there were parts of Dr. Martin's cultural uprising that provided a solid base for social expansion. The most notable was his insistence that believers should be able to read and understand their sacred documents. In honor of the 500 anniversary of Protestantism, the Germans have recently published a new edition of Luther's translation of the Bible. Apparently, the "improvement" of the latest version is the inclusion of more 16th-century text. (Fans of the King James Bible will understand.) It is almost impossible to overstate the social transformation that came to a culture when reading became an act of the new faith and debating the finer theological points a demonstration of one's serious intent. The highlight of the show at MIA was the Luther Bible with Cranach woodcut illustrations. This Bible first appeared in 1534 but the one on display is from 1541—87 years after the publication of the Gutenberg Bible (1454).  Not surprisingly, the Luther Bible is absolutely gorgeous viewed simply as a printing project—by Luther's time printing was pretty well understood.

The MIA show is something of an odd duck.  Lutherans have not normally junked up their churches with paintings and statuary. That sort of art was put aside from the very beginning. Trust me, Cranach the Elder may have made clever woodcuts for printing, but no one will ever confuse him with Michelangelo (who was working at the same time.) Lutheran Churches can be stunningly innovative, very modern, and often beautiful. (Some favorites include the Rock Church in Helsinki, the Gruntvig Church in Copenhagen, the Christ Chapel at Gustavus Adolphus College in St. Peter MN, and the Saarinen church in south Minneapolis.) If you follow the links, you will notice that most of these churches brag about their acoustics. Which leads to the subject of "Lutheran" art.

When the big churches of Northern Europe switched from Catholic to Protestant, the remodeling job followed a standard procedure. 1) Remove the painting and statuary, the stained glass windows, and bejeweled relics, 2) Paint the interiors white (mostly) because the new faithful would have to read during devout observances so bright interiors were important; 3) Build a fancy new pulpit because the sermon was now the centerpiece of the service; and 4) Install a gigantic pipe organ because music was now a highly approved practice of the faith. Luther himself wrote music. Besides, it's great fun to sing along to a big organ shaking the rafters.

The economic role of the pipe organ industry that sprouted in the wake of the Protestant Reformation cannot be overstated. The precision necessary to make those things work was phenomenal. Not surprisingly, any region that made pipe organs could easily understand the important parts of industrial technology. Other regions had other technological precursors of course, and the pipe organ shared the limelight with printing, but if the goal is precision manufacture, it's hard to beat pipe organs for a starting point.

If music and singing was Lutheran art form #1, printing was certainly #1A. Without printing, the Reformation was roughly as possible as without the internet. Printing runs second only to music because calling printing an art form is a bigger definition stretch. That said, most of the books on display at MIA were stunningly beautiful.

The third manifestation of Lutheran art didn't really surface until the 20th century. Scandinavian Modern was largely a social democratic movement that claimed everyone was entitled to have beautiful things. And that the best way to accomplish this goal was factories that mass-produced goods would hire artists to ensure that these goods were as beautiful as possible while still being inexpensive due to mass production. Beautiful things for everyday use. Luther would have so approved—he was very democratic. Industrial design may not have been a Lutheran invention, but Lutes seem to be especially good at it.

And of course, the highest flowering of Lutheran "art" are the successful societies. Any movement that starts with the sentence, "Out of love for the truth and the desire to bring it to light" should logically end with societies where corruption is almost unheard of. The top three countries in the Transparency International's corruption index are Denmark, Finland, and Sweden—countries that have been constitutionally Lutheran for centuries. Technological sophistication is utterly dependent on honesty measured in Ångstroms. Turns out honesty has measurable economic value. And the best form of honesty comes not from people who feel forced to be honest, it comes from people who have fallen in love with the truth—and the methods for finding truth.

I am happy I got to see the collection of early Lutheran artifacts at MIA. I am not sure an art museum is an appropriate venue for these items because of the frosty relationship Protestants had with art in general, but whatever. I still believe if you really want to see Lutheran art in all its glory, watch a Christmas concert from St. Olaf College (or Luther, or Concordia.) These things are run every year on PBS.

Of course, the real reason why any of this is still important is that the same value set (universal literacy, honesty, precision, and a love of beauty) that made the Lutheran nations so successful will be necessary to create the sustainable future. Not surprisingly, those nations already lead the way in implementing a Green agenda.

Saturday, January 7, 2017

Trump and the Art of the Strongman

The elites who run the Democratic Party in USA are making two grievous errors. 1) They are seizing on any number of external reasons for why they were routed in the November 2016 elections. Not just for the White House, but in the Senate, Congress, and at the state level. 2) They are constructing a false image of Donald Trump that insists Trump is an narcissistic bigot and is therefore incompetent. It is dangerous to suppose that narcissism and bigotry necessarily result in incompetence. So far, I would say that Trump has been brilliant and ruthless in telling people want they want to hear and appealing to the worst demons of their nature, in order to achieve his political goals. Ian Welsh has been attracting much criticism for his honest appraisal of Trump, and his warning to take Trump very, very seriously.

Democrats are especially going to find it difficult to respond to Trump effectively as Trump demonstrates the fallacy of many neo-liberal economic assumptions and policies, such as free trade.

Trump and the Art of the Strongman

by Ian Welsh
January 6, 2017

Sunday, January 1, 2017

HAWB – Creating America’s Amber Waves of Grain - How America Was Built

It wasn’t really the “captains of industry” like Henry Ford or Harvey Firestone or Bill Gates or Steve Jobs. And it certainly wasn’t the filthy rich financiers of Wall Street like J.P. Morgan or Walter Wriston or Jimmie Dimon. If you want to know the story of how America was built, look at the scientists and the engineers. Like the virtually unknown and forgotten researchers and agronomists of the United States Department of Agriculture. America’s amber waves of grain from sea to shining sea is the story of these government employees as much as anyone else’s.

From the 1840s to the 1930, US production of wheat more than tripled in productivity. This remarkable progress is usually attributed to the replacement of animal power by mechanized agricultural equipment: the thresher, the binder, steam and then gas tractors, and the combine.

But this is actually only half the story. The other half involves the patient and methodical search and breeding of wheat strains to meet two goals. First, to find cultivars of wheat more resistant to diseases and pests. Second, to expand the areas in which wheat could be grown by finding varieties better suited to the harsher climates and conditions of the Great Plains and Pacific Coast states.

This work was largely accomplished by scientists, agronomists, and breeders working in the laboratories and experimental farms of the United States Department of Agriculture and the various state universities which had been established by federal land grants. According to economists Alan L. Olmstead and Paul W. Rhode, “biological innovations roughly equal[ed] the importance of mechanical advances.” [1]

This history contradicts  the conservative mythology of brave private entrepreneurs triumphing over the deadening hand of government interference in the economy. The discussion and debates in the Constitutional Convention of May 1787 show that “the Founders fully intended to create a national government with broad and far-reaching powers to ensure that all economic activity was channeled and directed to national development and the promotion of the general welfare.”

The history of agriculture in America shows how mundane, practical politics is steered to achieve the explicit Constitutional mandate to promote the General Welfare:

May 1862: An Act of Congress creates the Department of Agriculture:
There shall be at the seat of government a Department of Agriculture, the general design and duties of which shall be to acquire and to diffuse among the people of the United States useful information on subjects connected with agriculture, rural development, aquaculture, and human nutrition, in the most general and comprehensive sense of those terms, and to procure, propagate, and distribute among the people new and valuable seeds and plants.
July 1862: The Morrill Land-Grant Act grants 30,000 acres of federal land to each state to fund the construction and  “endowment, support, and maintenance of at least one college where the leading object shall be, without excluding other scientific and classical studies and including military tactics, to teach such branches of learning as are related to agriculture and the mechanic arts….”

March 1887: The Hatch Act provides funding for the states to create and operate agricultural experiment stations for scientific agricultural research.

May 1914: The Smith–Lever Act of 1914 provides federal funding for each state to create a cooperative extension service, sending agents of the land-grant universities to every county of every state to disseminate and help apply the latest advances in agricultural science.

Sunday, December 25, 2016

Good tidings of great joy, which shall be to ALL people

Christmas as the divine reminder of the value of equality:

Luke 2:
[8] And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. [9] And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid.
[10] And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people.
[11] For unto you is born this day in the city of David a Saviour, which is Christ the Lord.
[12] And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger.
[13] And suddenly there was with the angel a multitude of the heavenly host praising God, and saying,
[14] Glory to God in the highest, and on earth peace, good will toward men.

So, when the Lord finally decides to make the big PR announcement, She doesn’t pitch it, like a Lexus or Mercedes commercial, to the people who can afford a big celebratory binge. She doesn’t announce it first to the three wise men who had been sent by rich kings able to give some of the most expensive gifts in the world. She has Her angels go and talk to the people on the lowest rung of the socio-economic ladder, some poor guys working outside at night.

This foundation story means that Christianity, no matter how much it would be corrupted (see, for example, Kevin M. Kruse, One Nation Under God: How Corporate America Invented Christian America, Basic Books, 2015) would be a religion that affirmed the value of all people, not just the leaders and elites. In fact, Christianity was first the religion of slaves in the Roman Empire. Two millennia later, when the world finally began to seriously attempt to eliminate slavery entirely, it was radical Christians who led the Abolitionist movements around the world.

Saturday, December 24, 2016

Revenge of the electric car

This documentary on the resurgence of the electric car is fascinating and extremely well done. The highlight of this doc is that it demonstrates the sort of person it takes to push a new idea into production.  It follows Robert Lutz at GM as he green-lights the Volt, Carlos Ghosn at Nissan as he bets significant company resources on the Leaf, and of course, Musk at Tesla.  The videographers are there at critical times such as when GM declares bankruptcy and Musk is down to his last $3 million (which is essentially zero in the car business.) It is must watching for anyone remotely interested in the complexities facing anyone interested in electrifying the transportation fleet. Spoiler alert—it will be a BIG job. And yes, it will only succeed if real Producers win the day.  In Detroit, Producers are called "car guys" and the Predators are called "bean counters." Lutz should know—he wrote the book.

It also covers the fallout of the financial meltdown of 2007-8—a pointed reminder that no matter how clever, car companies are in the economic hands of people who do nothing but manipulate money. Whether these manipulators are are honest or fraudulent is pretty much irrelevant because when they screw up, they can take some brilliant projects down with them.

A direct link to the Youtube page. This thing runs 90 minutes but yes, I have watched the whole thing.

Monday, December 19, 2016

Elon Musk rediscovers vertical integration

The 1980s introduced the era of "greenmail" and other forms of financial piracy.  It wasn't just the resulting destruction of essential national wealth that was so disturbing, it was the bizarre rationalizations for why this destruction did not matter. Those of us who argued for example, the economic value of tight manufacturing integration, were hopelessly overmatched. We were up against the simple argument that it was better to move production from somewhere it cost $60 / hour to a location where labor could be had for $10 a day. Against that reality, we could only offer intangibles. Unfortunately, these "intangibles" included the values and practices that that allowed our great-grandparents to build in extremely hostile environments (like Minnesota—it was -22°F / -30°C yesterday morning) while turning them into warm and comfortable habitats with lighting, abundant food, transportation systems, educational institutes, medicine, and the other requirements of life.

The pioneers who ventured out onto this bleak landscape were not exactly building something from nothing. Around here, they started out with excellent soils, abundant water supplies, trees that yielded superb lumber, and a large supply of rocks—most especially limestone. Even so, there were no instructions on how to turn these resources into the farms and villages of settled life. The tools needed to build and the skills to operate them were especially scarce.  And yet, the resulting artifacts of civilization were figured out—in many cases with unusual sophistication. All of this happened so recently that the evidence that some mighty builders had roamed this land can still be found by anyone remotely interested.  My childhood and youth was spent marveling at these accomplishments—my favorite question seemed to be, "Now how do you suppose they built that?"

What fascinated me most was the realization that almost everything I could see and touch had been created by people who had no "qualifications" to build them. There were no schools or books that taught aeronautical engineering to the Wright brothers or Glenn Curtiss, no instructions to guide Ford into making automobiles or Firestone into tires. These folks were self-taught simply because there were no other teachers available. The greatest inventions of human history were brought to us by unqualified amateurs. Because this was so nearly miraculous, the practices and work habits that allowed the utterly "unqualified" to pull off feats that most observes still consider magic became extremely important. These were the factors of production that the financial pirates so happily destroyed in their get-rich-quick schemes of the 1980s.

The act of producing electric cars in a world designed to produce internal-combustion vehicles powered by liquid fossil fuels is similar to the acts of pioneering and invention practiced by the those early industrial giants. The most charming proof of this now comes from Elon Musk who has recently discovered the same virtues of vertical integration that Henry Ford so massively demonstrated when he built his famous River Rouge factory in Dearborn Michigan. It turns out that many of the old ideas still work.

Monday, December 12, 2016

Institutional Inertia and electric cars

In theory, Institutional Inertia is completely understandable. Companies that have been in business for a few decades have developed a bunch of lovingly-held procedures and practices.  When you find something that reliably works, you tend to stick with it and use it in other applications. After all, there usually are other matters that don't work so well that can use the institutional inventiveness. Because it is the collection of reliable methods that form the core of Producer Class success, it isn't at all surprising that such ventures become technologically conservative over time. Institutional Inertia grows out of the same impulse that produces excellent goods.

Unfortunately, sometimes Institutional Inertia just gets in the way. Today we learn some more about the reluctance of the German automobile industry to get serious about building electric cars. The list of institutional reasons are as long as your arm. At the head of the pack is the mostly-admirable trait of the serious manufacturers that they know best as in "Why should we involve our customers in design decisions—after all, they pay us to know more about cars than they do. If we make the best product we can, they will buy it." These are people who are corporately trained to ignore outside influences.

So even though the German government wants the auto giants to change their ways and have offered to assist the project, and the Chinese have threatened to seriously alter their biggest market, the biggies are still in a "mom, do I hafta" mode when it comes to electric cars. It doesn't have to be that way, of course. After all, all the Germans already excel at the hard parts of automaking. In fact, this is a main element of their Institutional Inertia. In a chart below, we discover that on average, 12, 770 Euros go into providing the internal combustion drivetrain of every car—all parts made unnecessary in an electric car. These are parts that form the soul of the corporate identity—if you ever get a chance, ask a Mercedes engineer about their engines and transmissions.

Elon Musk knows that the important part of an electric car isn't the engine and transmission, it's the batteries.  That is why he is betting the ranch on his battery gigafactory in Nevada. But even though he is trying to produce 500 thousand cars a year, that number is still is tiny compared to the 80+ million internal combustion vehicles sold last year.

See also my report of DW's coverage of Germany and electric cars.

Thursday, December 8, 2016

Where to go—Frank on the Democrats

Tony noted a few posts back that we have not been especially enthusiastic about covering the election of 2016.  To which I plead guilty.
  • One of the things that most impressed / saddened me about this Presidential election is how amazingly trivial and irrelevant these things are. The old saying that "if elections actually changed anything, they would be illegal" seemed especially appropriate this time around. My favorite subject is climate change. Ms. Clinton promised some scolding and few dimes tossed at the problem while Trump actually claims to believe this is all a hoax. Good Lord—What a terrible choice.
  • I find the fact that the Clintons and their gang of thieves managed to steal the party of those who sacrificed a LOT to make it the Party of the People—and then sold it to Wall Street—to be utterly depressing.  My contempt for these crooks is absolutely total.
  • Trump probably did not really believe he was going to win. He had no party infrastructure or book of principles around which to organize.  So we really have no idea what kind of government he will form. He has 4000 policy jobs to fill and it is highly unlikely that he even knows 4000 people that interested in politics. Some appointments look pretty damn awful.  On the other hand, his appointment of Terry Branstad as ambassador to China looks inspired (Mike Mansfield or Walter Mondale as ambassadors to Japan, anyone?) It is probably good to wait and see what sort of government the man actually forms before passing judgement.
  • The Democratic Party I once knew was a party of ideas. Now we see that the party elites—the same people who managed to blow an easily winnable election—are now advising that we become a party of disruption and civil disobedience. Well screw that! We should be getting up every morning thinking about the agenda we would advance if we were in power. And if our ideas aren't a whole lot better than neoliberalism and neocolonialism, we should shut up and work hard until they are!

Sunday, December 4, 2016

The Republican Gospel of Enforced Virtue

One of the most disfiguring and crippling faults of modern American political economy is the result of American Christianity having been corrupted by prosperity generally and specific business interests in particular. Put simply: most so-called Christian denominations in the United States have turned their backs on the social gospel, and go to great lengths to avoid discomfiting queries into members' livelihoods as usurers, speculators, money exchangers, and other economic predators. It has gotten so bad, I dislike using the words "Christian" to refer to these people, and use "christianist" instead.

The most disturbing example of this is House Speaker Paul Ryan's devotion to the cruel economic thinking of Ayn Rand, which actually once caused Ryan to literally flee a young Catholic trying to give him a Bible while exhorting Ryan to pay more attention to the Gospel of Luke. Ryan claims he is a Catholic, so I harbor a fervent wish that the Pope will send him a message or two trying to instruct Ryan in the ways of actual Christian economic policies. And then threaten to excommunicate Ryan if Ryan persists in trying to shred what remains of the USA safety net in the forms of Social Security and Medicare.

Whatever legislation Ryan and Republicans try to pass, I hope Democrats in Congress try to tack on amendments requiring serious estimates of how many people will die as a result, and creating some means of imposing criminal liability on the authors and proponents of the legislation. After all, some of the Republicans' favorite mantra is that "you have to assume responsibility for your actions," and "there must be consequences."

I want to point out another dimension to the problem posed by the way Ryan and Republicans think. We have reached a point in human history where economic scarcity is not really a problem.  As early as the 1920s, Thorstein Veblen pointed out that businessmen regularly sabotage and limit industrial production to create artificial scarcity and maintain price and profit levels. Any standard economics textbook today defines economics as society deciding how to allocate scarce resources. So standard economics starts off on a wrong foot from the get go.

But our technology today allows us to produce everything we need to support and sustain human life with a fifth or less of our workforce. Now, further advances in robotics and automation are estimated to be displacing another half of the already employed workforce over the next couple decades. What are we going to do with all those unemployed and marginally employed people? I don't see how the beliefs of Paul Ryan and today's Republicans help us to even begin to address this problem.

And there are problems on the Democratic side, also. Big problems. But that's a post for another today. I will leave you with this link, if you want to read about how what Democrats think cripples them also: Poverty Doesn't Need Technology. It Needs Politics.

Thursday, December 1, 2016

The Cycle of Civilization And The Twilight of Neoliberalism

Jon and I don't have much to write about the election of Trump. (Though, I will pass on what I think is one of the funnier slaps at the President-elect: "Der Furor.") Basically, both Jon and I were disgusted and demoralized that the Democratic Party nominated Hillary Clinton, despite the clear evidence that she was a thorough-going neo-liberal in economic policies, and a closet neo-conservative in foreign and military policies. (Leading neo-conservatives, such as Robert Kagan, even came out openly endorsing Clinton rather than their party's nominee.)

Unlike Jon and I, Ian Welsh has been putting up a stream of excellent posts since the election. Welsh was one of the few voices on the left before the election trying to warn people to take Trump seriously. Unfortunately, a lot of people were so unhinged that they mistook Welsh's warnings about Trump, as Welsh actually supporting Trump. I hope this is not symptomatic of how the left and the Democratic Party are going to respond to the Trump regime over the coming years, but it is a slight hope without much real basis other than wishful thinking. So far, it seems that most of those who got steamrolled by Trump are going to cling to their ineffective Marxism, or identity politics, or deconstructionism, or whatever.

Monday, November 28, 2016

William Black on Krugman

The economists from UMKC are on a tear.  As well they should be.  They have been beavering away in almost total obscurity keeping the light of Institutionalism alive.  It's kind of a lonely pursuit but it has one overwhelming advantage—you are correct so much more often than the convention-wisdom economists (who are almost always wrong.) And the folks who got it so disasterously wrong in 2008 haven't altered their worldviews one iota so they are still disasterously wrong.

Today, we see Bill Black give Paul Krugman a royal smackdown. Krugman has a lot of fans so taking him on entails some risk.  But the fact remains that while Krugman is easily the most enlightened economist who is allowed to write for the New York Times, he is a thoroughly conventional thinker. And in his recent role as defender of Clintonism, he was forced to sound even more like a shill for Wall Street than normal. So Black is facing a high hanging curve ball here because Institutionalists live to take on anyone willing to embarrass themselves by spouting the neoliberal idiocies.

Even so, I am pretty sure that folks like Black and Hudson are NOT getting ahead of themselves. The neoliberals are shameless.  They do not change their POV just because they are wrong.  So I must assume that most of the time, the heterodox economists at UMKC must content themselves with celebrating their small victories at their small parties.

Friday, November 25, 2016

A Short Crash Course in American Political Economy

What is our system of government supposed to be? A republic. But a republic is so ill defined that even John Adams famously wrote "the word republic, as it is used, may signify anything, everything, or nothing."

According to historian Gordon Wood,
The sacrifice of individual interests to the greater good of the whole formed the essence of republicanism and comprehended for Americans the idealistic goal of their Revolution…. To eighteenth-century American and European radicals alike, living in a world of monarchies, it seemed only too obvious that the great deficiency of existing governments was precisely their sacrificing of the public good to the private greed of small ruling groups. [1]
Just as important: are there principles and policies of political economy that are supposed to distinguish a republic from other forms of government: monarchies, oligarchies, plutocracies, dictatorships, etc.?

Since it became clear that President Obama was unwilling to directly confront the power of Wall Street, I have read deeply trying to answer these questions for myself.

Contrary to what many on the left believe, the US Constitution is NOT solely designed to protect the rich. Our system of government definitely has been twisted to that end, but I do not believe that was the intent of Hamilton, the one Founder most responsible for laying the foundation of the USA economy. (And remember, Washington used Treasury Secretary Hamilton basically as a prime minister, and agreed with or acceded to literally all of Hamilton’s economic beliefs and policies. This was in no small part a function of their shared experience at the pinnacle of American military command during the Revolutionary War, when they both identified Britain’s major strategic advantage to be Britain’s ability to raise funds and float debt through its financial system.)

Culturally, the most important aspect of a republic is supposed to be equality, especially economic equality. This is of course contrary to the view that the government was set up solely to protect property and the accumulation thereof. It was not – at least, not by Hamilton.

Economic equality is basic to a republic because, the idea was, no person can be fully independent and be a good citizen if their livelihood depends to some extent or other on another person’s largess, benevolence, or tolerance. This was the basis of the fight between the Hamiltonians and the Jeffersonians. Jefferson believed that only farmers who owned their own land were independent enough to honestly exercise the duties of citizenship. Jefferson wanted to delay the advent of industrialization and subservient factory labor as long as possible. This is why Jefferson acceded to the Louisiana Purchase, which he would otherwise have opposed on the grounds that the federal government has no express power to acquire so vast territory. [2] With the Louisiana Purchase, yeoman squeezed out of the established eastern seaboard would be able to cross the mountains, and buy, steal, or somehow take the land of the native Americans and set themselves up as independent farmers, thus extending in both space and time Jefferson’s ideal agrarian republic.

Hamilton, by contrast, understood that the economy could not be frozen in time and remain entirely agrarian. Industrialization HAD to not only proceed, but be encouraged [3], for the USA to have any chance of resisting the intrigues and hostility of the European powers – which remained committed to eradicating the American experiment in self-government until the US Civil War. (France and Spain landed troops in Mexico and Caribbean at the beginning of the war; the Mexican republic was eliminated and Maximilian, younger brother of Austrian emperor Francis Joseph I, was installed as puppet emperor. The British government of Lord Palmerston was preparing to land troops in Canada in 1862, but was deterred by the pro-USA street fighting in London and elsewhere which was led by the British allies of Italian revolutionary Giuseppe Garibaldi.)

Hamilton’s great insight was that economic development depended entirely on improving the productive powers of labor. This meant the development of science and technology, and the spread of machinery to replace muscle power, both animal and human. The correct view of Hamilton must be precise: it was not that Hamilton sought to encourage and protect wealth, but to encourage and protect the CREATION of wealth. (Read Section II, Subsection 2, “As to an extension of the use of Machinery...” in Hamilton’s December 1791 Report to Congress on the Subject of Manufactures, if you want something to read today.)

This is where Marxist analysis fails catastrophically. Yes, much of economic history is that of elites accumulating wealth through exploitation, fraud, and violence. BUT: how was that wealth which is stolen created in the first place? Thorstein Veblen, and his discussions of industrial organization versus business organization, are far more useful in understanding the COMPLETE economic story, not just the exploitation side of it. I believe that once you understand this, you can understand why Elon Musk is much more useful to society than Peter Thiel. Musk and Thiel are both rich: should we therefore oppose and denigrate both because they are rich, and we dislike our system of government which has been mutated, diminished, and twisted so that it serves and protects the rich almost exclusively? No. I admire Musk because he has used his PayPal lode to create new wealth (which takes the corporate forms of Tesla, SpaceX, and Solar City), while Thiel has used his PayPal lode to fund libertarian ideas which are fundamentally hostile to what America is supposed to be. In Veblen’s analysis, Musk is an industrialist, while Thiel is merely a businessman.

In the nineteenth century, it was generally understood that the system established by Hamilton was in opposition to the “classical economics” of Adam Smith, David Ricardo, Thomas Malthus, and the other apologists for the death and destruction wrought on entire countries by the British East India Co. and the British empire. In the 1820s, Henry Clay coined the term “American system” to distinguish it from the British system. Michael Hudson has pointed out that in addition to these two systems of political economy, a third was developed in the nineteenth century: Marxism. [4]

It is easy to be confused by American history, because at the same time that the American System was being built and practiced, the British system was competing with it for control of the domestic economy and polity. To the extent that people today mistakenly believe that the American economy was founded on the ideas of Adam Smith (it most emphatically was not: Hamilton explicitly rejected the ideas of Smith) the British system is winning.  Michael Hudson has written at least two excellent overviews of this fight within the USA between the American and British systems. [5] For now, the simplified version is that the British system was dominant in the slave South, and fought for free trade in opposition to the American System’s protective tariffs.

After the Civil War, American railroads and industries were reorganized a number of times, placing them under ever greater control by bankers and financiers located in Boston, New York, and other large cities. This period of economic consolidation is typified by the creation of the "trusts.” In response, a number of populist political movements and parties arose in opposition: the Greenback Party, the Grange, the Farmers Alliances, the People’s Party, the Non-Partisan League, and the Democratic Farmer Labor Party of Minnesota. Note that the policies they fought for in the half century after the Civil War became the economic basis of Franklin Roosevelt’s New Deal. the Greenback Party, the Grange, the Farmers Alliances, the People’s Party, the Non-Partisan League, and the Democratic Farmer Labor Party of Minnesota. Because those were all populist—and the policies they fought for in the half century after the Civil War became the economic basis of Franklin Roosevelt’s New Deal.

Here’s a 4-minute video on the Greenback Party’s 1876 presidential candidate Peter Cooper (who founded Cooper Union in New York City), and the policies of the Greenbackers. Along the lines of the issue posed by Musk versus Thiel, note that Cooper was among the richest men in USA.

Monday, November 21, 2016

Rethinking the economy with Hudson and Brown

Micheal Hudson is on a roll.  In this video, he explains that mainstream economics is not nearly so sub-moronic as it looks.  Rather these folks are doing their fine work to provide an intellectual gloss to activities that actually harm the economy by claiming that the pirates are really earning their crazy paychecks.  Economics once called these financial extractions "unearned income."  (I remember those lectures...sigh)  He also does a fine job of explaining what happens to any economist who dares challenge the dominant narrative.

Published on Nov 2, 2016

With every major financial recovery since the second World War beginning in a place of greater debt than the one before it, how could we not have foreseen the financial crisis of 2008? In this episode of Meet the Renegades, economics professor and author, Michael Hudson argues we did.

How could an economy that created so much debt also save the banks rather than the economy itself, following the 2008 financial crisis? Michael discusses the phenomenon of debt inflation and how the economic curriculum should change.

"If you're teaching economics, you should begin with the relationship between finance and the economy, between the build up of debt and the ability to pay."

Michael discusses the 'Great Moderation', a common misrepresentation of a healthy economy in which job productivity was increasing, labor complacency was at an all-time low was a complete myth. Michael argues that 'traumatized' workers were too in debt to fight for better working conditions leading up to the 2008 financial crisis and how this reflects neo-classical ideas.

Michael offers solutions - urging the importance of writing down the debt and keeping basic services in the public sector, ridding the economy of financial tumors through a proper tax policy based upon the this public sector model.
Here Ms. Brown explains how Trump, if he actually knew the history of monetary practice, could make good on his promise to rebuild the nation's infrastructure.  In addition, he gets to appoint at least five new Fed Governors so all of this is well within the realm of the possible.  The only thing stopping Trump from becoming the greatest builder in USA history is that he doesn't seem to have a clue about this history.  He should do some homework.  Hiring Ms. Brown to explain this to him would also work.

Sunday, November 20, 2016

Slovenian philosopher Slavoj Žižek on the USA election

Slovenian philosopher Slavoj Žižek has taken considerable thought, time, and energy to try to understand the craziness we called an election.  The following clip is truly remarkable.  I cannot recommend it more highly.  It runs about 20 minutes.

This is followed by St. Clair's trenchant observations on the incompetence and hubris it required for the Democrats to lose to a 70-year old reality-TV star with enough scandalous baggage to sink a container ship.  Of course, it can be argued that the Democrats have been losing their way since Jimmy Carter deregulated the airline industry or appointed Paul (21%-prime) Volcker to head the Federal Reserve in the 1970s. Hillary Clinton is just the logical conclusion of this crazed and twisted journey—a peak idiot, if you please.

I probably won't write much more about this election.  I have spent entirely too much of my life trying to help the Democratic Party make better and more informed choices.  Obviously, I have not influenced much as Hillary Clinton represents almost everything I believe foolish, absurd, and criminal. I hold the somewhat naive opinion that the purpose of government is to organize the necessary tasks that are too difficult, expensive, and complex for individuals to accomplish on their own.  Ms. Clinton and her posse apparently believe the purpose of government is to provide them with cushy ego-satisfying jobs and beautiful offices in Washington D.C. There seem to be quite a few of us who utterly despise that type.  But quite honestly, I didn't think there were enough of Hillary's victims to pull themselves off the mat in a final and probably futile gesture of keeping her out of the White House. Worse, the guy who will be heading for 1600 Pennsylvania Ave is not exactly Mr. Deep either.

So back to refining strategies for building a sustainable future.  If I did not have that problem to think about, I would have most certainly lost the will to live by now.  Building is the only truly satisfying activity of my life and thinking about the world that could be created is enough to help me ignore the industrial-strength idiocy that we have just witnessed.

Monday, November 14, 2016

There are people who are justifiably thrilled by a Trump victory

One of the more baleful effects of "American Exceptionalism" it that even some pretty good people really could not care less what happens to the "collateral damage" of the Empire.  They don't care because they don't know.  For example, because I have a strong historical interest in what happened to USSR as the result of the German invasion in 1941, I have read many accounts of the incredibly fierce fighting that happened in the Donbass.  If it weren't for the rich mineral deposits of the region, the area would probably still be depopulated because so many were killed.  In the annals of human struggle, there are few that top the struggles of Donbass.  It was so devastated that many monuments to the defenders weren't built until the 1960s.

I am 67 years old and have met exactly no one who has ever expressed interest in this story.  So when the people of Donbass had to suffer yet one more effort at ethic cleansing, this time at the hands of home-grown Nazis who happened to have power as the result of a USA-sponsored and organized coup in the Ukraine, no one I knew had any idea of the magnitude of the tragedy. Because Victoria Nuland, one of Hillary Clinton's favorites, had her fingerprints all over the coup, there is an understandable outbreak of joy in the Donbass over the election of Donald Trump (see below.) For many, there is now a better possibility that people of the east Ukraine will be able to watch their children grow up. No small matter, that.

Not everyone is as thrilled as the people of Donbass over the election of Trump.  Personally, I will be happy if he is a marginal improvement over Reagan or the Shrub and do not expect even that.  But a victory by Clinton would probably have triggered clinical depression.  The idea that someone so corrupt could have seized the political party my parents and grandparents struggled to build, and sold it to Wall Street crooks, was a reality I could not bear. So even though my expectations for a Trump administration are essentially zero, I am willing to give him a chance because a President Hillary would have been a predictable disaster.

Tuesday, November 8, 2016

What Progressives Can Learn from the Cubs Winning the World Series

There was a baseball game last [week].

There are three stories to tell about it, and they’re stacked on top of each other, tottering, each bigger than the last and relying on the one below it to make sense. The first story: the Cubs took a 6-3 lead into the eighth inning of Game 7 of the World Series, and Aroldis Chapman blew it. Then he won the game.

That's the beginning of the article by Jonathan Bernhardt of the London Guardian, which I consider far and away the best article on the Chicago Cubs winning the World Series of USA major league baseball after 108 years. It is the only article of the many I've read which captures the cultural iconography of the Chicago Cubs and their century-long absence from the greatest achievement of professional baseball.

Cubs third baseman Kris Bryant smiles while fielding the ball for the final out of the World Series.

This was not supposed to happen: "The Cubs are lovable losers" had become the most powerful cultural myth in American sports, The title of Bernhardt's article is the perfect summary: How the Chicago Cubs faced down history and killed a century-old curse. Yet, Bernhardt does not really discuss how the Cubs did it. He does not discuss how the Ricketts, heirs of the Ameritrade fortune, bought the Cubs from Sam Zell and the Tribune Co., who had treated the team not as a franchise in professional sports, but as an entry on the balance sheet of a corporate conglomerate. He does not discuss how co-owner and Cubs president Tom Ricketts — as diehard a Cubs fan as any: he met his wife in the bleachers at Wrigley Field while he was a student at the University of Chicago — snatched Theo Epstein from the Boston Red Sox and made him President of Baseball Operations for a repeat performance of curse-crushing pennant winning.

Nor does Bernhardt relate how Epstein immediately began to hire people who had been with him on the Red Sox's epic ride to a World Series championship, including Cubs general manager Jed Hoyer. Or how Epstein and Hoyer sorted through 140 players acquired in 37 trades, 80 signings and 5 major draft picks, to assemble the 40 man team roster than finally won it all. So, there are many more than the three stories Bernhardt says there are. And every story offers lessons that progressives in USA can learn to help them break their own curse and begin to win again.

It's the management, stupid

The story of Theo Epstein coming to Chicago to transform the Cubs is an obvious lesson. The people at the top make a huge difference. This is a lesson progressives and Democrats desperately need to learn. First, the reality must be faced that President Obama squandered an epic opportunity to transform the American economy by failing to destroy Wall Street, which is a net drain on the rest of the economy, and the major reason why the United States continues to suffer poor economic performance for the bottom ninety percent of Americans.

Remember the outpouring of public opposition to the Wall Street bailout in 2007, with calls to Congress running a reported 100 to one against? Rather than use this tidal wave of public sentiment to impose structural changes on the financial system and begin eliminating, or at least limiting, its usury, speculation, and rent-seeking, Obama listened to his golf buddy, Robert Wolf of UBS (former Union Bank of Switzerland), and decided the top priority was to save Wall Street from the consequences of its own unbridled greed. Obama even publicly declared that James Dimon of Morgan Chase and Lloyd Blankfein of Goldman Sachs were “savvy businessmen.”

Obama did have the power of his bully pulpit to force changes on Wall Street: Richard Wagoner was forced out as chairman of General Motors simply because of Obama’s disapproval. But that is the lowly auto industry, not the superstar and obscenely rich banking and financial sector. Obama chose not to apply similar pressure to any executives on Wall Street. Ron Suskind does an excellent job of recounting and contrasting these two different approaches in his 2011 book, Confidence Men: Wall Street, Washington and the Education of a President.

Rather than picking top people who would help him bring real change to the system, Obama instead chose to accept the list of people hand-picked for him by Wall Street. And we didn't have to wait until Hillary Clinton's emails were leaked a month ago to know Obama was making a giant mistake: as early as December 2009, people were writing warnings that Obama's personnel picks signaled a capitulation to Wall Street. So, while there was a widespread public expectation that Obama had been given a historic opportunity to do what Franklin Roosevelt had done, and put Wall Street and the banksters back in the box, Obama refused to act. Obama had a mandate, and he ignored it.

By contrast, Epstein was given a mandate to build a championship baseball team, and he threw himself into the task with manic fervor. So, two lessons here:

Lesson 1: The people at the top make a huge difference.
Lesson 2: When you are given a mandate, use it. Ruthlessly.