Archive for the ‘Capitalism’ Category

The Power of Money

Written by Rebecca Zietlow on September 17th, 2009

Last week, the Supreme Court heard the oral argument Citizens United v. FEC, which could become a landmark First Amendment case. At issue is the constitutionality of the FEC’s ban of anti-Hillary documentary sponsored by corporate funds. The Court could decide the issue narrowly, on the tmpphpvMlalIgrounds that this particular commercial speech was clearly political and thus warrants the highest level of First Amendment scrutiny. However, comments by several justices at the oral argument hint that the Court may use this case as a vehicle for establishing a new rule – that commercial speech merits the same strict scrutiny as does political speech. Until now, the Court has applied a lower level of scrutiny to commercial speech. The reason for this practice is that because commercial speech is for profit, there is less of a danger of chilling that speech than there is for political speech. If the Court does use Citizens United v. FEC as a vehicle for establishing a new level of review for commercial speech, thousands of statutes that currently regulate business and commercial speech will fall under attack, and may be struck down. Monied interests, which are already far too powerful in our political system, would become even more powerful.

If the Court issues a broad ruling in Citizens United v. FEC, that would be consistent with a trend on the Court to protect the interests of property owners and businesses. The Court has established a new regulatory takings doctrine which makes it considerably more difficult for the government to regulate property in the public interest (though the Court’s ruling in Kelo was a step backwards in this line of cases). The Court has established new limits on punitive damages in tort cases brought against multi-national corporations like Exxon. If the Court, as expected, issues a broad ruling in favor of corporate commercial speech in Citizens United v. FEC, it will be just another Supreme Court ruling in favor of the “haves” at the expense of the “have nots.”

Thomas Jefferson Got the Health Care Crisis Right

Written by Robert Justin Lipkin on August 14th, 2009

Ultimately, Wall Street is at the bottom of our health care reform problems. Insurance companies are corporations that must nurture the bottom line at any cost to American citizens who as patients must rely of the good will of insurantmpphpmz0YNh[1]ce companies.  These companies have little, if any, of that particular commodity. Since the bottom line is shareholder profits, not patient care, insurance companies must deny a variety of claims in order to secure the appropriate–the sky’s the limit of appropriateness–level of profits.  Some insurance practices, regarding individual policies, for example, will surreptitiously renew policies every six months in order to maximize the chances that they will be in a position to deny a claim due to “pre-existing conditions.” Other practices include refusing to insure patients, fine print qualification that can be deadly, caps on lifetime support for patients, discriminating on the basis of gender, and a host of other devices that benefit corporations not patients.  Thomas Jefferson predicted as much.  Consider his words: “I hope we shall crush in its birth the aristocracy of our moneyed corporations [including health care insurance companies I hope] which dare already to challenge our government to a trial of strength and bid defiance the laws our country.”   –Thomas Jefferson, November 12, 1816. Prescient, as if our third president were writing today. What will we do it about this most egegious injustice?

What’s Wrong with “Big” Government?

Written by Robert Justin Lipkin on August 10th, 2009

Americans have been wary of too much government from the Republic’s inception. We fought a revolutionary war against tyranny, twice within the first fifty years of our great nation’s existence, and several times thereafter. And government, our government, was a lot smaller then. But is anyone else getting tired with the inbred American aversion to progressive governmental efficiencies which can bring about the goods and services Americans want and need and which justice requires? After all, we, the people are, in the final analysis, the government. Accordingly, the government should be as capacious as we, the people want it to be. If we want government to be involved in health care, the economy, the financial system, the environment, education, well, then it should be.  That’s what a republican democracy is for, to wit: within the confines of constitutional constraints, here the people rule. Unfortunately, this inbred American aversion goes back as far as our first great President and perhaps made special sense then. ctmpphpgsEIRqConsider the following statement of the debate over whether we should have a bicameral legislature. “[A] bicameral legislature slowed down the legislative process. That was a good thing to many of the framers, who worried about excessive government power.  When Thomas Jefferson questioned the role of the Senate in the 1790s, George Washington allegedly asked:  ‘Why did you pour that coffee into your saucer?’ ‘to cool it,’ said Jefferson.  ‘Even so,’ replied Washington ‘we pour legislating into the senatorial saucer to cool it.'” Linda R. Monk, The Words We Live By: Your Annotated Guide to the Constitution (2003).  But in cooling it, we risk seeding the ground for killing it. Sure sometimes that’s good.  But it’s also good to have a lean self-governing process to which the majority–consistent with preserving minority rights–can have access.  Absent such a viable process, well-funded special interests control the destiny of the American Republic. In these circumstances, the corporations rule, not the people.  That can’t be good for the majority of Americans, can it? I know, I know, the founders created a Republic, not a Democracy. But is this distinction quite as useful as perhaps it once was, if it ever was?.  Most Americans want to live in a self-governing polity where the right to self-government–collective-self-direction–permits us to achieve the benefits of our labor–everyone’s labor–and also the benefits of civilization. Several times in American society the private sector has been given its chance and each time the results were problematic at best at least for most Americans.  I know, I know. American capitalism produced more economic growth than any other nation or system and is currently the envy of and the model for the world. But what has it done for us lately. And what do we call “economic growth without fair distribution”? Perhaps, pre-2007 capitalization has huffed and puffed it’s way out.  Moreover, privatization only occurs in the context of law and law means government. So the private sector is just one of several forms of government. Those ideologically committed to the government of privatization usually are indifferent to the needs and aspirations of the highly variegated forms of American life. Big government is not the problem. Oppressive government is.  And laws protecting the private sector and corporate power while preventing the little guys from effecting change can be as tyrannical as any despotic regime.  As Paul Krugman puts it: “[S]ometimes the private sector is the problem, and government is the solution.”

Can’t we try dropping the jejune dichotomy between government and the good guys and see if we can solve our problems fairly and with the common good in mind? Let’s switch to what should have been our ethos all along–democratic capitalism–where the reflective majority will prevails over those whose self-interest prevents them from seeing beyond the narrow corridors of their own insulated hermitages.

Can the Democrats be Liberated “from the cult of neoliberalism”?

Written by Robert Justin Lipkin on August 4th, 2009

Check out Michael Lind’s piece in If I understand him correctly, this is what he means by neoliberalism, a political perspective opposed to progressivism: “New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred year disasters, the market economy is basically a sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods [environment, healthcare, and education], which, thanks to ‘market failures, the private sector will not provide.” Cick here to read the full piece.

Countdown to Health Care (Insurance?) Reform

Written by Robert Justin Lipkin on August 3rd, 2009

Will Americans sign off on a substantial health care (insurance?) reform or any reform at all? Or will the some institutional forces that prevent progressive reform in any area of American society prevail once atmpphp0zEOqv[1]gain? The “deliberative” debate in August should be the determining actor. I have no idea why anyone-except the insurance companies and other profit mongers parasitically defending the status quo–would want to prevent a significant health care reform bill, especially when in our present circumstances health costs are likely to bankrupt the American economy. However, I am aware that people who should know better will throw the terms “socialism” and “socialized medicine” around blatantly and subteley in different contexts to scare the American people into dreading a government takeover of health care just as the government as police, firefighters, and so forth have taken over public safety. Heaven forbid!(Yes, I know there are those who want these public goods “privatized” also.)  But there is no such animal as “privatization” if that means people and industries being able to operate outside the shadow of government. One doesn’t enter civil society without government. Privatization means enlisting government to skew the playing field in favor of a privileged few and let millions of others suffer unjustified inequality. When will Americans learn, as other western nations, have that health care is too important to leave it in the hands of those who revere greed?  Just one moment, there’s a governmental official at the door waiting to explain to me when I must die.

President Obama versus the Hedge Funds

Written by Henry L. Chambers, Jr. on May 6th, 2009

In the wake of the failure to put together a plan to help Chrysler avoid bankruptcy, the recriminations have been flying.  President Obama has suggested that the hedge funds that own senior Chrysler debt killed the deal with greed.  He suggested that they should have taken the deal offered by the government that would have paid them approximately 30 cents on the dollar.  Instead, he suggested, they were looking for a government bailout.  After President Obama’s statements, Clifford Asness of AQR Capital, a hedge fund not involved in the Chrysler deal, responded with an open opinion letter arguing that President Obama had bullied and scapegoated hedge funds.  He argued that a hedge fund’s obligation to its shareholders is to get the largest return possible and that the hedge funds involved in the Chrysler deal had every right to try to recover more than 30 cents on the dollar through an uncertain bankruptcy process that might yield a greater return.  In addition, he claimed that Obama’s suggestion that hedge funds were looking for a government bailout was “the big lie writ large.”

The reasonableness of President Obama’s position depends in part on the likelihood that the hedge funds would recover more than 30 cents on the dollar through a bankruptcy.  If Obama is correct and there is almost no likelihood that the hedge funds will recover what they would have gotten from the government’s deal, Obama has a point.  His assumption is that the only way the hedge funds would get a larger return would be if Chrysler were bailed out by the government.  That is the bailout the hedge funds supposedly were looking for, rather than a direct bailout that Asness claimed.  On the other hand, if the hedge funds might recover through bankruptcy more than the government plan would have provided, the hedge funds would be within their rights and might even be obligated to push Chrysler through bankruptcy.

However, there is another issue that both sides may have avoided or ignored.  The issue is the long-term implication of rejiggering the capital structures of struggling companies as a way to save them.  Asness ignores the possibility that tmpphpu1gj941.jpgthe behavior of the hedge funds has less to do with making money from the Chrysler deal itself and has more to do with suggesting that senior debt holders must be treated better than junior debt holders and unsecured creditors.  That is, if it becomes clear that senior debt holders will drive a company into bankruptcy to make a point rather than take a better deal that provides a similar recovery for those whose position is subordinate to the senior debt holders, the next offer in a Chrysler-like situation may yield a much sweeter deal than the one President Obama offered with respect to Chrysler.  If the hedge funds believe that the long-term strategy will yield more money for their shareholders, the strategy is reasonable.  However, it may be fraught with peril because it suggests both that the hedge funds left some of their shareholders’ money on the table and that they did so knowing that driving a large American company into bankruptcy was going to result.  That would suggest that some of President Obama’s complaints that the hedge funds were not working in the immediate interests of their shareholders or the country are legitimate. If that is conceded, the hedge funds will likely lose the public relations battle.

Specter’s Defection & the Separation of Powers

Written by Robert Justin Lipkin on May 1st, 2009

There’s a conventional understanding of why Arlen Specter defected. Basically, he defected because the Republican Party is on the cusp of imploding. There different versions of this story, one in which Specter is a cowardly villain the other which blames the contraction of the Republican Party.  But suppose there’s another reason.  Suppose Specter believed some of the damage the former administration did to American constitutionalism needs to be reversed, and only a President with the constitutional acumen and moral sensibilities of Obama would conceivably be sympathetic to this rectification. Here’s the tease line:

In the seven and a half years since September 11, the United States has witnessed one of the greatest expansions of executive authority in its history, at the expense of the constitutionally mandated separation of powers. President Obama, as only the third sitting senator to be elected president in American history, and the first since John F. Kennedy, may be more likely to respect the separation of powers than President Bush was. But rather than put my faith in any president to restrain the executive branch, I intend to take several concrete steps, which I hope the new president will support.

What follows is a description of some of the more blatant assaults by the previous administration of the constitutional principle of “checks and balances.” (Though Specter’s fulsome emphasis on how important his own role in these matters was raises legitimate skepticism about his motives.) Here’s specter’s plan for the future.

These experiences have crystallized for me the need for Congress and the courts to reassert themselves in our system of checks and balances. The bills I have outlined are important steps in that process. Equally important is vigorous congressional oversight of the executive branch. This oversight must extend well beyond the problems of national security, especially as we cede more and more authority over our economy to government officials.

As for curbing executive branch excesses from within, I hope President Obama lives up to his campaign promise of change. His recent signing statements have not been encouraging. Adding to the feeling of déjà vu is TheWashington Post ‘s report that the new administration has reasserted the “state secrets” privilege to block lawsuits challenging controversial policies like warrantless wiretapping: “Obama has not only maintained the Bush administration approach, but [in one such case] the dispute has intensified.” Government lawyers are now asserting that the US Circuit Court in San Francisco, which is hearing the case, lacks authority to compel disclosure of secret documents, and are “warning” that the government might “spirit away” the material before the court can release it to the litigants. I doubt that the Democratic majority, which was so eager to decry expansions of executive authority under President Bush, will still be as interested in the problem with a Democratic president in office. I will continue the fight whatever happens.

I think (I hope) that Specter’s last remark misses the mark. Few Democrats, indeed, few Republicans, are as politically psychopathic as Bush-Cheney. They were egregiously insensitive about essential constitutional values and had no appreciation for the fundamental values rendering America, in aspiration if not always in practice, a progressive beacon for the twenty-first century.

The real action lies with how the Republican Party, without Specter, will reconstruct itself, as it surely will, to meet the challenges they face with the death of traditional and woefully ineffective laissez-faire economics along with their commitment to tyrannical social policies.

For a mournful account of the Republican Party’s turn to the exclusive ultra Right click here.

It’s not entirely clear why President Obama so gleefully welcomed Senator Specter to the Democratic Party. Wouldn’t it have been preferable for the Democrats to nominate an outstanding, young Democratic man or woman who could beat Specter, but more importantly, someone who could beat Toomey because Toomey surely would have beaten Specter? How does Specter’s defection to the Democratic Party benefit Democrats?

Solow on Posner & the Market Failure Crisis

Written by Robert Justin Lipkin on April 27th, 2009

Throughout the course of systemic controversies, individuals line up on different sides of a controversy and typically remain there permanently.  Sometimes there are defections, but usually not of major figures on either side. It is rarely that a major intellectual figure representing the gold standard on one side of the controversy switches sides.  But that’s what has happened now. Richard Posner, the law and economics guru and federal appellate judge, has written a book on our economic woes. This book contains a passage that will surely shock anyone familiar with Posner’s work over the past thirty years, and will surely delight his perennial critics. Here’s the passage:

Some conservatives believe that the depression is the result of unwise government policies. I believe it is a market failure. The government’s myopia, passivity, and blunders played a critical role in allowing the recession to balloon into a depression, and so have several fortuitous factors. But without any government regulation of the financial industry, the economy would still, in all likelihood, be in a depression; what we have learned from the depression has shown that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails. The movement to deregulate the financial industry went too far by exaggerating the resilience—the self-healing powers—of laissez-faire capitalism.

Richard A. Posner, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression (2009) quoted in Robert M. Solow, “How to Understand the Disaster,” 56 NY Rev. of Bks. No. 8,  May 14, 2009.

In concluding his review, he quotes Posner as asserting: “As far as I know, no one has a clear sense of the social value of our deregulated financial industry, with its free-wheeling banks and hedge funds and private equity funds and all the rest.”  According to Solow:

That is already a hint that he thinks its social value is limited. As Posner sees it, talk about greed and foolhardiness is comforting but not useful. Greed and foolhardiness were not invented just recently. The problem is rather that Panglossian ideas about “free markets” encouraged, on one hand, lax regulation, or no regulation, of a potentially unstable financial apparatus and, on the other, the elaboration of compensation mechanisms that positively encouraged risk-taking and short-term opportunism. When the environment was right, as it eventually would be, the disaster hit.

With any luck Posner’s defection might suggest to those who thoughtlessly invoke the mantras of “free markets” and “deregulation,” for once to stop and consider the empirical evidence why markets–the financial and banking markets especially–need to be effectively and  intelligently regulated.

AIG Bonuses and Treating the Public Like Grown-ups

Written by Henry L. Chambers, Jr. on March 25th, 2009

The furor revolving around the AIG bonuses continues.  Mention was made of the situation yesterday in President Obama’s second nighttime press conference.  Though the press has continued to fan the flames and the Obama Administration has not done all it could to put the controversy to rest, blame for the continuing storytmpphpoqqwn91.jpg should be laid directly at AIG’s feet.  AIG has failed to end the story by failing to treat the public like grown-ups.  Rather than search for whatever tack it thought could allow it to weather the storm, AIG should have explained for what purpose the bonus money was paid and stood by the rationale.  By treating the public like it could not possibly understand a supposedly complex issue like compensation at AIG’s Financial Products Division (AIG-FP) and declining to explain why the bonuses were acceptable, AIG allowed the press and public to continue to paint the story as one more example of corporate greed and stupidity financed by the taxpayers.  Consequently, a number of extraordinary actions have occurred.  The House of Representatives voted to tax the bonuses at 90%.  The head of AIG has suggested that the executives who received bonuses return them.  Government officials have expressed outrage that particular individuals were paid particular amounts of money based on contracts signed between the individuals and their employer.  If only AIG had explained for what purpose the bonus money was paid, the public might have accepted the explanation.  The public can digest the fact that people who work for faililng entities may yet be paid significant amounts of money.  However, the why has to be explained.

The AIG bonuses can likely be explained in one of four ways, each of which a sentient grown-up ought to understand.  First, the bonuses may be for a job well done.  If AIG explained the relevant job as being the winding up of the business that caused the company to crater and explains that the quality of the job done really was extraordinary given the circumstances, the public might have been unhappy with the size of the bonuses, but might not be so unhappy with the existence of the bonuses.  At least, the press and Congress might not have been willing to fan the flames.  Nonetheless, the bonus as bonus is likely the least palatable explanation, though getting it out might have been a single-news-cycle event.  Second, the bonuses might have been retention payments.  Put differently, the promise of a bonus at the end of the year may have been what got people to stay and wrap up AIG-FP.  Of course, the public would still ask, “Who was going to hire these people?”  However, the ready response would be that the point of retaining the people is to get them to work for AIG-FP, not to stop them from working for someone else.  Again, there may have been some grumbling about the size of the “bonuses”, but not much legitimate complaint about the existence of the “bonus pool.”  Third, the bonuses could be thought of as deferred salary.  Even though AIG lost incredible amounts of money, no one would expect its workers to work for free or even for below market rate.   If the bonuses were really deferred salary, structured to be paid later so that AIG could alter the amount up or down tmpphpshbuk41.jpgbased on final receipts, the public’s problems would again likely be with the size of the pool rather than its existence.   Of course, such an explanation would make the claims in the New York Times letter to the editor written by a resigning AIG executive that he worked for a $1 a year salary ring hollow.  Working for a $1 a year while expecting a seven-figure bonus does not really qualify as working for $1 a year.  Fourth, the bonuses might be thought to be deferred commissions.  If AIG could make the argument that its workers were winding up trades that would bring lots of money into the firm and that those workers were being paid a standard Wall Street commission on the money they recouped.  Of course, the money would be paid at the end of the year.  Public outrage may have been nonexistent if this really is the reason the bonus pool existed and was paid as it was.  Presumably, one of these explanations or a combination of all four explains some, if not all, of the bonuses paid.  Had AIG just explained for what purpose the money was paid, rather than merely claiming that the money had to be paid pursuant to contracts, the firestorm might be over.

The American public can deal with automobile company executives who make more than $10 million annually while their companies collapse.  It can deal with coaches at public universities who resign after a string of bad years receiving seven-figure contract buyouts.  It can deal with the real estate agent who make 6% on the sale of a home that has lost significant value.  The American public can understand that compensation may come in many forms and may be justified in many ways.   However, the American public will not understand justifications that are never put forth or that appear to be conveniently fabricated.  That lack of understanding will be supplanted with the kind of outrage that AIG is still seeing.  For that, AIG has no one but itself to blame.

Changing our Economic Priorities

Written by Rebecca Zietlow on March 5th, 2009

President Obama’s speech last week was hailed by some as a declaration that the era of Ronald Reagan is over.  I hope that is true, Reaganat least with regard to our country’s economic priorities.  Prior to Reagan’s presidency, our country had gone through a long period of relative prosperity that began after the end of World War II.  Sure, there were some downturns during that period, including a deadly combination of inflation and unemployment under President Carter that contributed to his loss to Reagan.  However, what was most notable about that long period was the steady increase in real wages of middle class people.  There was at least an implicit understanding that the goal of our economy was to provide decent, well paying jobs for people so that they could achieve the “American dream” of a comfortable middle class lifestyle.  An indication of this consensus is the fact that even Republican president Richard Nixon supported the right to a minimum income.

After Reagan became president, our national economic priorities shifted to overall economic growth regardless of who benefited.  Under the “trickle down” economic policies of Reagan and his allies, as long as the rich got richer, we would all eventually benefit.  Our country began to focus more on the stock market as an indicator of wealth – as long as the market was rising and GDP was growing, then the country was doing OK.  The problem with that theory was that the wealth did not trickle down.  Rich people got richer – a lot richer, but for the rest of us real wages began to decline, and are still far behind those of the mid 1970s when inflation is taken into account.

The decline of real wages since Reagan became president was no accident.  It is the result of government policies that favored rich people and large corporations, including tax cuts for the rich and de-regulation of business, accompanied by policies that hurt low and middle class people, including the end of welfare as we know it and strident anti-unionism symbolized by Reagan’s firing of the striking air traffic controllers.  The weakening of unions has placed a downward pressure on the wages of all of us because it reduces the bargaining power of workers as a whole.

My mention of “the end of welfare” deserves more explanation, and illustrates the fact that not only Republicans, but also Democrats, bought into these harmful economic policies.  Under Bill Clinton, a Democratic Congress voted to end the entitlement to welfare of the New Deal era Aid to Families with Dependent Children (“AFDC”) program and replace it with Temporary Assistance for Needy Families (“TANF”), a program that has a five year lifetime limit and requires recipients (with a few exceptions) to work in order to receive their benefits.   While AFDC was not ended under Reagan, he began the process with his campaign rhetoric that included lies about Cadillac driving welfare mothers.  The end of AFDC places downward pressure on wages, since most people now have no alternative but to accept low wage part time service employment, providing fiercely anti-union companies like Walmart with a ready supply of cheap and exploitable labor.

For the sake of all of us, I really hope that Obama’s speech signals an end to Reaganomics, and a real change to our national economic priorities.  We simply can’t afford the old ones anymore.