Categories
Economics History The Web and Technology

The only sustainable business advantage

On September 5, 1882, the Knights of Labor celebrated the first Labor Day in New York City’s Union Square.

The Knights of Labor

The Knights were an unusual organization for their day, eschewing radicalism and enrolling all segments of labor:

  • from skilled to unskilled workers;
  • from managers to sharecroppers; and
  • including recent immigrants, African Americans, and women.

They only excluded “the unproductive members of society“: bankers, gamblers, lawyers, and liquor manufacturers.

They did not divide management and labor, as later movements did. The Knights deemed the true threat to a well-functioning business to be those that did not value their employees as human beings, the unscrupulous robber barons. They demanded that businesses allow employees their rightful voice at the decision-making table. (As well as for the government to prohibit exploitative and unsafe work conditions and child labor.)

The Knights kept their member list secret to prevent retaliation from the robber barons. For years, the robber barons used every economic and judicial tool to silence the voices of the employees. Within a decade, paramilitary action decimated the Knights of Labor in the aftermath of the Haymarket Affair and the Thibodaux massacre.

As other groups rose up to fill the void, they separated skilled and unskilled workers, management and factory workers. The hard-won rights that were finally enacted into law reflected this splintering. They protected factory-type workers, who represented only one side of the Knights of Labor coalition and excluded groups ranging from sharecroppers to managers.

The destructive short-term mentality of private equity

Today, technical innovation has made these protections obsolete. Everyone is a manager – of contractors and technology. Automation has enabled machines to take on some tasks, from automated teller machines to machine translation. The gig economy has allowed owners to rent out idle resources (their time, language expertise, cars and homes). Every service business is now a tech-enabled service business.

Venture capital firms, using the Giant Pool of Money at the center of the world economy, drove this disruptive, but value-creating innovation. But there is a darker side. Venture capital is only a small portion of the $100 trillion shadow banking system. This shadow system employs thousands to wring profits from this Giant Pool of Money rather than to create value. Endemic corruption (legal and illegal) ensures that this shadow system works hand in hand with the more regulated banking system.

As President Obama said, when the “priority is to maximize profits – that’s not always going to be good for businesses or communities or workers.” This corruption works by maximizing short-term, inflated profits at the expense of long-term profit derived from actual value. And it ensures that there are no losers among the banks and consulting agencies and lawyers. The only losers are among the businesses, communities, and employees who are in it for the long-term.

The key insight came to me when a friend working in finance told me that I kept thinking like an operator, rather than someone in finance. What he meant was that an operator tries to build a business – with products, processes, teams – that creates value and that sustains it.

But for someone in finance their profit is derived not from value created over time, but from proximity to an immediately profitable deal. To the wrong type of financier, people and customer loyalty are expendable things to be used and then discarded in return for a quick profit. (Footnote 1.)

The destructive cycle is inevitable:

Once the buyout is completed, the private equity guys start swinging the meat axe, aggressively cutting costs wherever they can – so that the company can start paying off its new debt – by laying off workers and cutting capital costs…

It takes several years before the impacts of this predatory activity – reduced customer service, inferior products – become fully apparent, but by that time the private equity firm has generally resold the business at a profit and moved on.

I’ve seen this play out in news stories. The leader in my own industry went through a dramatic restruring as it prepared to sell itself to private equity:

  • pushing out many of it’s top innovators and the leaders who built the company’s value and brand; and
  • outsourcing it’s production centers to lower cost centers as it cut costs.

This is the absolute opposite of the Value Investing that Warren Buffett advocates. It’s bad for the economy. It’s bad for most people. But it sure makes a killing for a handful of companies in the short-term.

The only sustainable competitive advantage

Last September in San Francisco, the co-CEO of my company told a group of clients:

In my 24 years as CEO, I have learned one big thing. All competitive advantages – price, quality, even technology – are commoditized over a long-enough time horizon. They only way to have a sustainable competitive advantage is people.

That is the type of company I want to work for; and today, it is the company I am proud to work for. I’m proud of the products my team has created, and the successes, both for clients and internally. I’m proud of the team for coming together again and again in the midst of adversity and distraction.

But our economy is filled with vultures; and it’s hard to turn down a quick profit, no matter the pangs of conscience. With barbarians at the gate, what are we to do? The Hollywood ending calls for Richard Gere to realize that he no longer wants to rip companies apart for short-term profits. Instead, he wants to help them build a better boats.

But in reality, greed outstrips morality most days of the week. But for this one day, in honor of Labor Day:

  • we should all reflect on the company we work for;
  • we should reflect on our position and the value we offer;
  • we should look at whether we have a voice at the decision-making table today and in the future; and
  • we should think about the type of society we want to live in, and whether our actions today are helping to create that society.

For if we don’t, we are destined to be mere cogs in a machine, waiting to be outsourced.

***

 

[Political posts have been…let’s say rarer from me. My professional page is now at JoeCampbell.me]

Footnote 1: A cartoon villain of an attorney once told me and a group of employees that private equity firms “could staff [the company I work for] in a week with people of…equal, if not superior talents.”

 

Categories
Criticism Domestic issues Economics Law Libertarianism Political Philosophy Politics The Web and Technology

Capitalism in Practice

[reddit-me]I’ve started Tim Wu’s The Master Switch, a history of information industries in America; and having read Ayn Rand’s fictional Atlas Shrugged earlier this year — I wonder what Rand would make of this history of industrial warfare.

One of the motifs of Wu’s history is a theme of Rand’s novel — the extreme lengths the rich and powerful will go to in order to quash a disruptive technology. In the novel, it was Rearden steel — a metal stronger, cheaper, and better in every way than ordinary steel; in Wu’s history, it is every technological innovation from the phone to FM radio to television to the internet. In both history and the novel, the established industry used corrupt scientific experts, intimidation of suppliers, government regulation, and the blocking of financing to prevent the disruptive technology from taking off.

Rand’s novel though divides the everyone into two categories: the productive who are proud, competitive, inventive individuals who make everything of worth; and the looters who are unproductive and seek to leach off of the productive using the government, religion, and pity.

Wu’s history reveals a rather different story. There is no figure in history to match the strong, creative, independent, self-made industrial magnate Dagny Taggart. There are few who resemble her brother, the weak, dependent, self-loathing James Taggart who adds nothing of worth to the business except to plead with the government to stop his competitors because their superiority is unfair,

Only rarely do the inventors become rich. More often, they are outmaneuvered by corporate titans who use every means at their disposal to win. When Edwin Armstrong invented FM radio in 1934, he had pioneered a technology that allowed for better sound quality and that could fit more stations in the same radio spectrum with less interference. David Sarnoff, a major figure in the AM radio industry, was able to prevent FM radio from gaining wide acceptance until the 1970s through a combination of public propaganda, lobbying to change obscure rules relating to radio spectrum usage, and control over the manufacturing of radio players. David Sarnoff managed a vast business empire; he was at the cutting edge of innovations in radio and television. He won not because he was weak and unproductive (as Rand’s villains are) — but because he was ruthless.

Rand’s many fans aren’t typically the creative inventors. They are the very businessmen who see moral justification for their wealth in her philosophy. But they, like the businessmen in Wu’s history, are distinguished not for their purity of motive or love of competition, but their willingness to use any means at their disposal to achieve the corporate empire they seek. Unlike the fictional heroes of Rand’s novel, they do not seek competition. They seek a final victory and end to the competition.

In the theories of Rand and many of her acolytes, capitalism is about competition. In practice, capitalism has about brute strength and force used in restraint of competition.

[Image by Ron Schott licensed under Creative Commons.]

Categories
Barack Obama Deficit Domestic issues Economics Energy Independence Environmental Issues Green Energy Health care Political Philosophy Politics The Opinionsphere

Right Wing Mythology

[reddit-me]My normal tack — when seeing a political cartoon like this that is so clearly off-base — is to “Fact-Check” it.

For example, the cartoon might lead you to believe that there was no unemployment compensation in 1950 — but unemployment compensation began in in 1935.

It’s not clear under what program the rich banker is paying for the unhygienic poor man’s mortgage either now or then. Federal housing policy offers tax subsidies to anyone paying a mortgage — which means the man on the right probably receives a bigger subsidy.

The health care point is likewise odd. In the 1950s, there was no Medicaid for the very poor. But everyone who received health insurance from their employer received a tax subsidy [pdf] both then and now.

In terms of subsidizing car ownership — federal and state policies began encouraging car ownership in the 1950s — from zoning laws requiring large amounts of parking to bailouts given to the auto industry to the construction of the federal highway system. The artificially low price of gasoline is another subsidy — as the cost of pollution and of a foreign policy of ensuring stability in the Middle East is borne by the public at large and not factored into the price. As everyone pays for pollution cleanup and foreign policy, this is a redistribution of wealth from those who minimize their use of gas to those who use more than the average. However, the complaint of cartoonist seems to be a tax subsidy given to those who purchase hybrid cars that use less gasoline. Which — though significantly less than the various other subsidies — is apparently the real obscenity.

And of course, the biggest thing the cartoonist is missing between the man on the right in 1950 and the man on the right in 2010: In 1950, the top marginal tax rate was 91%. In 2010, it was 35%. And that 35% doesn’t include all of the tax subsidies that surely would be used to lower the rich man’s tax rate — from tax subsidies for his employer-provided health insurance to any interest on mortgages or student loans or the myriad of other exemptions someone with a good accountant can find. And of course any profits from investments would be taxed at a lower rate– of 15%. Which is why today, the billionaire Warren Buffett pays a lower percentage of his income in taxes than does his secretary.

All of this makes the cartoon all the more revealing — not of the facts, which it does not reflect — but of right-wing mythology. Why does the cartoonist choose 1950 — rather than a time such when his points would have been true such as 1920 or 1890? The answer is simply that no one wants to go back those eras. Those were periods of economic growth, but inherently unstable times — an instability created by the enormous inequality between the top-most and the bottom-most parts of society. Those periods of history are remembered for the top and the bottom. The 1950s though was the era of the great middle class — robust, strong, stable. In the contemporary conservative mythology, the era personifies the American values of family and hard work. Much of the conservative intelligensia’s opposition to the Civil Rights Movement, the anti-war movement, the sexual revolution, the feminist movement, and the gay rights movement of the 1960s and 1970s came because they saw these movements as a threat to the stability of this status quo.

But the right wing was supported by forces equally opposed to the status quo — who sought a change every bit as dramatic as the radicals of the 1960s sought. Rather than free love, they sought free trade and deregulation. Rather than rights for gays and women, they sought favors for the financial industry. Rather than civil rights for people, they sought corporate rights to influence the political process. Rather than the naive dream of destroying bigotry, they sought the more practical dream of destroying the labor unions.

Since these twin political revolutions, the stability and the strong middle class of the 1950s are remembered with fondness — by mythologists of both the left and right. The conservative argument used to be that radicalism of Civil Rights for women, blacks, gays, and other minorities was what caused the unraveling of this mythological utopia. It has now evolved to blaming the government for redistributing too much to the poor and holding back business with taxes and regulation. The only problem with this story is that the past 60 years have seen a government retreat — with regulations being repealed and failing to keep up with changing times, with taxes having been more than halved, with the rich getting more and more of the wealth and power in the country and the poor less and less.

Which is how you can get a political cartoon such as this — harking back to a flatly false view of an era lost that never was.

Categories
Criticism Economics Financial Crisis New York City Politics The Media The Opinionsphere

Must-Reads of the Week: The IRA, Journalism, Unsavory Profits, Bipartisanship, and the Tyranny of New York

1. Double Agents in the IRA. I recently came across an excellent article by Matthew Teague in The Atlantic about the British counterintelligence program and the IRA. It’s from 2006, but still engrossing.

2. Restoring Journalism. Maureen Tkacik talks about her life as a journalist, the nothing-based economy, and the future of journalism:

If journalism’s more vital traditions of investigating corruption and synthesizing complex topics are going to be restored, it will never be at the expense of the personal, the sexual, the venal, or the sensational, but rather through mastering the kind of storytelling that understands that none of those things exists in a vacuum. For instance, perhaps the latest political sex scandal is not simply another installment of the unrelenting narcissism and sense of invincibility of people in power. Most of the journalists writing about it have—as we all do—some understanding of the internal conflicts that lead to personal failure. By humanizing journalism, we maybe can begin to develop a mutual trust between reader and writer that would benefit both.

What I’m talking about is, of course, a lot easier to do with the creative liberties afforded a blog—one’s humanity is inescapable when one commits to blogging all day for a living.

The piece is long, and worth every word. (H/t to John Cantwell.)

3. The Papacy, Blumenthal, and Now Goldman Sachs. The New York Times took on Goldman Sachs earlier this week with a look at the perfectly legal but unsavory practices it uses to make money:

Transactions entered into as the mortgage market fizzled may turn out to have been perfectly legal. Nevertheless, they have raised concerns among investors and analysts about the extent to which a variety of Wall Street firms put their own interests ahead of their clients’.

“Now it’s all about the score. Just make the score, do the deal. Move on to the next one. That’s the trader culture,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University and former counsel to the Federal Reserve Board. “Their business model has completely blurred the difference between executing trades on behalf of customers versus executing trades for themselves. It’s a huge problem.”

4. Erroneous Assumptions. Matt Yglesias concisely summarizes what left-leaning advocates of bipartisanship have found time and again:

Oftentimes people reach the conclusions that conservatives might support this or that by the erroneous method of pretending that conservatives believe in the stated reasons for their policy positions. It seems to me that private views of wonks aside in practice the conservative political movement simply opposes anything that would increase government revenue and/or be bad for rich people.

5. The Tyranny of New York (cont). Continued from last week, many voices around the interwebs weighed in on the conversation started by Conor Friedersdorf on the tyranny of New York in media and culture. There’s a lot of good pieces to read on this — but the 2 I will recommend are this response in the New Yorker by Amy Davidson and this follow-up by Friedersdorf himself.  Davidson, as an aside mentions an E. B. White essay “Here Is New York” that I now need to read:

(Friedersdorf mentions “living vicariously through” E. B. White, who once wrote that there were three New Yorks, that of the native, the commuter, and the newcomer from smaller American places, and that “Of these trembling cities the greatest is the last—the city of final destination, the city that is a goal…Commuters give the city its tidal restlessness, natives give it solidity and continuity, but the settlers give it passion.” But I’ve never really bought that, as matchless as many of White’s descriptions of the city are, maybe because, as a native, I feel no shortage of passion, and don’t much like being called solid. And, again, for many of the most interesting newcomers, this is an entry point to America, not the “final destination.”)

[Image by me.]

Categories
Barack Obama Criticism Economics Financial Crisis National Security New York City Politics The Media The Opinionsphere The War on Terrorism The Web and Technology War on Drugs

Must-Reads of the Week: SWAT, Google’s News Plans, MTA Motto, Peanuts, Tea Party Feminism, Republican Pravda, Fiscal Hangover, New York’s Tyranny, Brooks on the Military, and Facebook Backlash

1. SWAT antics. Radley Balko does some follow-up reporting on the now infamous video of the SWAT team raid in Missouri in which 2 dogs were shot:

[D]espite all the anger the raid has inspired, the only thing unusual thing here is that the raid was captured on video, and that the video was subsequently released to the press. Everything else was routine… Raids just like the one captured in the video happen 100-150 times every day in America.

2. Google’s News Plans. James Fallows discusses how Google is trying to save the news industry.

3. If you see something… Manny Fernandez in the New York Times discusses the impact and coinage of the ubiquitous phrase, “If you see something, say something.”

It has since become a global phenomenon — the homeland security equivalent of the “Just Do It” Nike advertisement — and has appeared in public transportation systems in Oregon, Texas, Florida, Australia and Canada, among others. Locally, the phrase captured, with six simple words and one comma, the security consciousness and dread of the times, the “I ♥ NY” of post-9/11 New York City. [my emphasis]

4. Artful Grief. Bill Waterson — creator of Calvin & Hobbes — reviewed a biography of Charles Schultz for the Wall Street Journal a few years ago — writing on the ‘Grief’ that Made Peanuts Good. It’s several years old but well worth reading.

5. Tea Party Feminism. Hanna Rosin of Slate evaluates the Tea Party as a feminist movement. And her reporting surprised me at least.

6. Republican Pravda. Jonathan Chait collects a few Weekly Standard covers to illustrate the changing right-wing portrayal of Obama over the past year. He identifies the passage of the health care bill as a turning point:

Now that Obama has won his biggest legislative priority and is closing in on at least one other important win, the tone is change. The hapless patsy has become the snarling bully. The lack of Republican support for Obama’s agenda, once a credit to Republican tough-mindedness, is now blamed upon Obama’s stubbornness. Here is a recent cover of Obama–the nefarious, but powerful, overseer…

7. Fiscal Hangover. Gillian Tett of the Financial Times explains the successful approach the Irish are taking to their fiscal crisis: treat it like a hangover.

8. The Tyranny of New York. Conor Friedersdof complains about the tyranny of New York — but I will excerpt his praise:

Even if New York is a peerless American city, an urban triumph that dwarfs every other in scale, density, and possibility; even if our idea of it is the romantic notion that Joan Didion described, “the mysterious nexus of all love and money and power, the shining and perishable dream itself;” even if you’ve reveled in the fact of the city, strutting down Fifth Avenue in a sharp suit or kissing a date with the skyline as backdrop while the yellow cab waits; even if you’ve drunk from the well of its creative springs, gazing at the Flatiron Building, or paging through the New York Review of Books on a Sunday morning, or living vicariously through Joseph Mitchel or E.B. White or Tom Wolfe or any of its countless chroniclers; even if you love New York as much as I do, revering it as the highest physical achievement of Western Civilization, surely you can admit that its singularly prominent role on the national scene is a tremendously unhealthy pathology.

Despite the rent, the cold, the competition, the bedbugs, the absurd requirements for securing even a closet-sized pre-war apartment on an inconvenient street; the distance from friends and family, the starkness of the sexual marketplace, the oppressive stench of sticky subway platforms in the dog days of August; despite the hour long commutes on the Monday morning F Train, when it isn’t quite 8 am, the week hardly underway, and already you feel as though, for the relief of sitting down, you’d just as soon give up, go back to Akron or Allentown or Columbus or Marin County or Long Beach — despite these things, and so many more, lawyers and novelists and artists and fashion designers and playwrights and journalists and bankers and aspiring publishers and models flock to New York City.

I don’t quite get Friedersdof’s complaint to be honest. What would be improved if there were more sitcoms taking place in Houston?

9. Military Flow Chart. David Brooks analyzes the military’s adaptation of counterinsurgency as a case study in the flow of ideas in entrenched organizations.

10. Facebook Backlash. Ryan Singel of Wired has one of many pieces in the past week fomenting the growing Facebook backlash:

Facebook has gone rogue, drunk on founder Mark Zuckerberg’s dreams of world domination. It’s time the rest of the web ecosystem recognizes this and works to replace it with something open and distributed.

[Image by me.]

Categories
Barack Obama Criticism Economics Financial Crisis Foreign Policy Israel Politics The Bush Legacy The Media The Opinionsphere

Must-Reads of the Week: The Obama 20-somethings, Graham’s Cojones, Fannie/Freddie, Naive Conspiracy Theorists, Saban, Obama=Socialism, Political Imitations, Underdogs, Lost!, and Julián Castro

This is a busy season for me — but there should be some more substantive blog posts next week…

1. The Obama 20-somethings. Ashley Parker for the New York Times Magazine profiles “all the Obama 20-somethings” in an interesting profile of the new crowd in D.C. of smart, highly educated, highly motivated, civic-minded, young Obama staffers.

2. Lindsey Graham’s Cojones. You gotta hand it to Lindsey Graham — if nothing else, he’s got guts — from Dana Milbank of the Washington Post:

The lone pro-gun lawmaker to engage in the fight was the fearless Lindsey Graham (R-S.C.), who rolled his eyes and shook his head when Lieberman got the NYPD’s Kelly to agree that the purchase of a gun could suggest that a terrorist “is about to go operational.”

“I’m not so sure this is the right solution,” Graham said, concerned that those on the terrorist watch list might be denied their Second Amendment right to keep and bear arms.

“If society decides that these people are too dangerous to get on an airplane with other people, then it’s probably appropriate to look very hard before you let them buy a gun,” countered Bloomberg.

“But we’re talking about a constitutional right here,” Graham went on. He then changed the subject, pretending the discussion was about a general ban on handguns. “The NRA — ” he began, then rephrased. “Some people believe banning handguns is the right answer to the gun violence problem. I’m not in that camp.”

Graham felt the need to assure the witnesses that he isn’t soft on terrorism: “I am all into national security. . . . Please understand that I feel differently not because I care less about terrorism.”

Jonathan Chait comments:

There’s a pretty hilarious double standard here about the rights of gun owners. Remember, Graham is one of the people who wants the government to be able to take anybody it believes has committed an act of terrorism, citizen or otherwise, and whisk them away to a military detention facility where they’ll have no rights whatsoever. No potential worries for government overreach or bureaucratic error there. But if you’re on the terrorist watch list, your right to own a gun remains inviolate, lest some innocent gun owner be trapped in a hellish star chamber world in which his fun purchase is slowed by legal delays.

3. Why Isn’t Fannie/Freddie Part of FinReg? Ezra Klein explains why regulation of Fannie Mae and Freddie Mac isn’t in the financial regulation bill.

4. Naive Conspiracy Theorists. William Saletan contributes to the whole epistemic closure debate with a guide on how not to be closed-minded politically, including this bit of advice:

Sanchez goes through a list of bogus or overhyped stories that have consumed Fox and the right-wing blogosphere: ACORN, Climategate, Obama’s supposed Muslim allegiance, and whether Bill Ayers wrote Obama’s memoir. Conservatives trapped in this feedback loop, he notes, become “far too willing to entertain all sorts of outlandish new ideas—provided they come from the universe of trusted sources.” When you think you’re being suspicious, you’re at your most gullible.

5. Saban. Connie Bruck in the New Yorker profiles Haim Saban, best known for bringing the Mighty Morphin Power Rangers to the United States — but who made much of his fortune licensing the rights to cartoon music internationally. As a side hobby, he tries to influence American foreign policy towards Israel. He doesn’t come off very well in the piece, but at least this one observation seems trenchant to me at first glance:

Saban pointed out that, in the late nineties, President Clinton had pushed Netanyahu very hard, but behind closed doors. “Bill Clinton somehow managed to be revered and adored by both the Palestinians and the Israelis,” he said. “Obama has managed to be looked at suspiciously by both. It’s not too late to fix that.”

6. The Obama=Socialism Canard. Jonathan Chait rather definitively deflates Jonah Goldberg’s faux-intellectual, Obama=socialism smear:

For almost all Republicans, the point of labeling Obama socialist is not to signal that he’s continuing the philosophical tradition of Roosevelt, Eisenhower, Kennedy, Johnson, Nixon, Carter and Clinton. The point is to signal the opposite: that Obama embodies a philosophy radically out of character with American history. Republicans have labeled Obama’s agenda as “socialism” because the term is widely conflated with Marxism, even though Goldberg concedes they are different things, and because “liberalism” is no longer a sufficiently scary term. Republicans endlessly called Bill Clinton a liberal, Al Gore a liberal — the term has lost some of its punch. So Obama must be something categorically different and vastly more frightening.

Goldberg is defending the tactic by arguing, in essence, that liberalism is a form of socialism, and Obama is a liberal, therefore he can be accurately called a socialist. But his esoteric exercise, intentionally or not, serves little function other than to dress up a smear in respectable intellectual attire. [my emphasis]

7. Imitating the Imitators of the Imitation. This Politico piece by Mike Allen and Kenneth P. Vogel explains how some elite Republicans are trying to set up a right wing equivalent of the left wing attempt to imitate the right wing’s media-think tank-political infrastructure:

Two organizers of the Republican groups even made pilgrimages earlier this year to pick the brain of John Podesta, the former Clinton White House chief of staff who, in 2003, founded the Center for American Progress and was a major proponent of Democrats developing the kind of infrastructure pioneered by Republicans.

And of course, that right wing infrastructure was meant to imitate the left wing policy-media infrastructure of the left — the Brookings-New York Times axis. The whole imitation of imitation of imitation of imitation — spawning more and more organizations — reminds me a bit of those old Mad magazine comic strips:

8. The Underdog. Daniel Engber in Slate explores the underdog effect and various scientific studies of the underdog effect, including how it affects expectations:

The mere act of labeling one side as an underdog made the students think they were more likely to win.

9. Lost! Ed Martin in the Huffington Post is concerned with how the tv show Lost will end:

Not to put too much pressure on Lindelof and Cuse, but the future of broadcast television will to some extent be influenced by what you give us over these next few weeks.

10. Julián Castro. Zev Chafets of the New York Times Magazine profiles Julián Castro, mayor of San Antonio, Texas, and one of the up-and-coming Democrats. The article entirely elided his policy ideas or and barely mentioned his political temperament — but was interesting nevertheless.

[Image by me.]

Categories
Economics Politics The Opinionsphere

Why Can’t Right-Wingers Recognize Democratic Efforts to Tackle the Deficit?

Ezra Klein defined epistemic closure as:

the conditions necessary for a political movement to fool itself into believing whatever’s convenient.

Which makes mine and Jonathan Bernstein‘s continued frustration at the blissful ignorance of the GOP towards Democratic deficit reduction measures quixotic:

Remember the mantra from Brad DeLong that I’m fond of quoting, but which I’ll paraphrase this time: in the short run, what matters is getting the economy moving.  In the middle term, PAYGO to keep things under control.  And in the long run, health care (see also this similar analysis from Ezra Klein).  Well…that sounds like the direction that the Democrats have followed for the last year, no?  Certainly, there are questions about whether they’ve doing the correct things. But it’s just wrong for deficit hawks to completely ignore an enacted plan to take a significant whack at the deficit in the second decade…

At some point though, reason must begin to seep through? Right?

Perhaps not. Opposition to the Democratic plans to reduce the deficit seem universal on the right.

The worst — either through deliberate or authentic ignorance — rail against the unprecedented deficits of Obama which are expanding government! And then easily conflate that with the out-of-control growth of entitlement spending (though they generally refuse to even acknowledge that the driving force behind the out-of-control spending growth is mandated entitlement spending, instead focusing on the ever-amorphous, “waste” — which is spending money on not-them). These people regard the cost-control measures in the health care bill — and the claims that it will reduce the deficit — as pure lies — or perhaps gimmicky accounting in which the plan taxes for 10 years and only provides benefits for 6. (In fact, the plan provides roughly the same amount of benefits as it raises in taxes/cuts each year it is in effect.)

Other more reasonable right wingers have adopted 1 of 2 alternative approaches:

(1) Acknowledging the health care plan reduces costs, but stating that these cost-cutting measures cannot happen and won’t. Given this argument, it’s hard to see why anyone should try to cut costs at all — and this leaves America apparently doomed to never reduce spending, even if it is mandated by law.

(2) Believing that Obama should be using his political capital to push for drastic cuts in spending and large tax increases to head this crisis off — and that by using some of the “low-hanging-fruit” that could easily generate revenue and reduce spending in a revenue-neutral way, Obama is making the solution harder. Donald Marron made this critique in his recent piece. However, this arguments seems mainly ignorant of political realities and doesn’t acknowledge the attempt to bend the cost-curve that health care reform represents.

The point is: Even the most reasonable commentators on the right do not acknowledge that the Democrats have a plan to tackle the deficit. For the most part, they pretend it doesn’t exist.

Why is this? Because challenging this orthodoxy gets you banished from right-wing circles and accepting the Democrats do have a plan means that Republicans need to come up with an alternative — which would undoubtedly be much less popular.

Categories
Barack Obama China Criticism Domestic issues Economics Financial Crisis Foreign Policy Green Energy Immigration Life New York City Politics The Bush Legacy The Opinionsphere The Web and Technology

Must-Reads of the Week: American Power, Inequality, 1 Billion Heartbeats, Hacking Life, Anthora Cups, Structural Deficit, Financial Doomsedays and Crises, China, the Tea Party’s Views on Immigration, and Lady Gaga

There were a lot of good articles and posts I came across this week — so brace yourself…

1. The American Power Act. David Brooks makes the case for progressive reform — specifically the American Power Act regarding climate change:

When you read that history, you’re reminded that large efforts are generally plagued by stupidity, error and corruption. But by the sheer act of stumbling forward, it’s possible, sometimes, to achieve important things…The energy revolution is a material project that arouses moral fervor — exactly the sort of enterprise at which Americans excel.

Matt Yglesias had earlier this week critiqued Brooks (among others) for taking the exact opposite stance of the one he was adopting here:

Oftentimes in the Obama Era the difference between “reasonable” conservatives (David Brooks and Greg Mankiw often leading the charge) and reasonable liberals has been that reasonable liberals look at flawed legislation that would improve on the status quo and support it while “reasonable” conservatives look at flawed legislation that would improve on the status quo and oppose it, while claiming to support alternative flawed proposals that they don’t actually lift a finger to organize support for within their own ideological faction.

2. Inequality, social mobility, and the American Dream. The Economist had a good piece that can serve as a starting point for a post I’ll be writing soon on inequality, social mobility, and the American dream:

The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.

Parental income is a better predictor of a child’s future in America than in much of Europe, implying that social mobility is less powerful.

3. The Science of Life. Jonah Lehrer for Seed magazine has a brilliant piece on how cities are like living organisms. As a side matter, he notes this beautifully poignant data point:

[A]n animal’s lifespan can be roughly calculated by raising its mass to the 1/4 power. Heartbeats scale in the opposite direction, so that bigger animals have a slower pulse. The end result is that every living creature gets about a billion heartbeats worth of life. Small animals just consume their lives faster.

4. Fine-tuning life. Gary Wolf for the New York Times Magazine explains how the accessibility of computers is creating data about every aspect of our lives — and of the efforts of some people to begin to catalog and find insights in their own data. Surprisingly, Lifehacker was never mentioned.

5. The Anthora Cup. Margalit Fox of the New York Times writes the obituary for Leslie Buck, the designer of the Anthora cup:

It was for decades the most enduring piece of ephemera in New York City and is still among the most recognizable. Trim, blue and white, it fits neatly in the hand, sized so its contents can be downed in a New York minute. It is as vivid an emblem of the city as the Statue of Liberty, beloved of property masters who need to evoke Gotham at a glance in films and on television.

6. Unified Theory of the Financial Crisis. Ezra Klein synthesizes various narratives into a unified theory of the financial crisis.

7. The Structural Deficit. Donald B. Marron provides a coherent and reality-based conservative look at America’s structural deficit. Absolutely a Must-Read.

8. The Financial Doomsday Machine. Martin Wolf dedicated his column in the Financial Times last week to describe the “financial doomsday machine“:

[T]he financial sector has become bigger and riskier. The UK case is dramatic, with banking assets jumping from 50 per cent of GDP to more than 550 per cent over the past four decades…The combination of state insurance (which protects creditors) with limited liability (which protects shareholders) creates a financial doomsday machine. What happens is best thought of as “rational carelessness”. Its most dangerous effect comes via the extremes of the credit cycle.

9. Realism on China. Stephen Walt explains his take on China’s strategic ambitions — and its inevitable rivalry with the United States and other regional powers.

10. The Tea Party & Immigration. Radley Balko explains his take on the widespread support among the Tea Party for the massive government power grab that is Arizona’s new immigration law:

It also makes a mockery of the media narrative that these are gathering of anti-government extremists. Seems like in may parts of the country they’re as pro-government as the current administration, just pro-their kind of government.

Coincidentally, I made that exact point about the Tea Party back in September 2009 entitled: These Protests Aren’t Against Big Government, But About Liberals Running the Government.

Andrew Sullivan piles on:

Worse, on the fiscal front, they’re total frauds. They have yet to propose any serious cuts in entitlements and want far more money poured into the military-imperial complex. In rallies, the largely white members in their fifties and older seem determined to get every penny of social security and Medicare. They are a kind of boomer revolt – but on the other side of that civil conflict, and no longer a silent majority. In fact, they’re now the minority that won’t shut up.

More and more, this feels to me like an essentially cultural revolt against what America is becoming: a multi-racial, multi-faith, gay-inclusive, women-friendly, majority-minority country.

11. Sovereign Debt Crisis. Felix Salmon and Paul Krugman are both very pessimistic about how Greece will get out of this crisis — and what it means for the global economy.

12. Lady Gaga’s Ambition. Brendan Sullivan for Esquire chronicles the life and ambitions of Lady Gaga:

“There is a musical government, who decides what we all get to hear and listen to. And I want to be one of those people.” The girl who said that didn’t yet have the number-one hits (although she had already written most of them).

She was not yet the creative director of the Haus of Gaga, which is what she calls the machine of more than a hundred creative people who work for her. She didn’t make that statement in an interview or from the stage. She made it in 2007, when she was a go-go dancer sewing her own outfits and I was her DJ. She wrote it in one of my notebooks…

Lady Gaga is a student of fame, and the fame she studies most is her own — being famous seems to both amuse and fascinate her.

[1st image by me; 2nd image by LarindaME licensed under Creative Commons.]

Categories
Economics Financial Crisis Politics

Volker’s Paradox

[digg-reddit-me]In response to long-time commenter John Rose who asked for a link to some tangible data proving that profits for financial firms have increased markedly since deregulation began:

From the same paper as the above chart, comes the observation which prompted my post on how Wall Street’s enormous profits are evidence of a poorly functioning market:

In 1997, former Federal Reserve Board Chairman Paul Volker posed a question about the commercial banking system he said he could not answer. The industry was under more intense competitive pressure than at any time in living memory, Volcker noted, “yet at the same time, the industry never has been so profitable.” I refer to the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking as Volcker’s Paradox.

Deregulation of the economy in general began in earnest under Jimmy Carter — but it wasn’t until the 1980s that the deregulation of the financial industry began to gain steam under Ronald Reagan. Then of course, in 1999 came the (in)famous Gramm-Leachley Act which seems to precede the sharpest rise in real profits of the financial sector.

[Chart from this paper by James Grotty (pdf) published by PERI.]

Categories
Economics Immigration Politics The Opinionsphere

Arizona’s Illegal Immigrant Problem Is Shrinking Even As The Hysteria Grows

[reddit-me]John P. Judis at The New Republic pointed me to a relevant fact that hasn’t been covered much in looking at illegal immigration into Arizona — the number of unauthorized immigrants has been decreasing in the past 2 years and the rate of illegal immigration was at its lowest point in the past decade nationally. See for example this chart from the Office of Immigration Statistics (pdf) in the Department of the Homeland Security Department:

For the more visual, I charted the data to demonstrate the drop:

And of course, the national data as well:

As the Wall Street Journal explained:

The larger reality is that border crossings track the economy. The recent downturn has meant fewer illegal entries and more immigrants going home. Before the law, Arizona’s illegal population had fallen 18% in the past year.

If the undocumented immigrant population is falling — including in Arizona — how then do you account for the increasing hysteria? For all the talk of the thousands killed by illegal immigrants, virtually all of these are mere car accidents which are no different than the car accidents thousands of Americans get into every day. For all the talk of an “increasingly violent” border — and there is some justification for this given the struggle going on in Mexico as the military is waging war on the drug cartels with corruption, violence, and abuse apparently rampant on both sides  — the violence on the American side has been minimal.

The exploitative use of the rancher Robert Krentz’s murder — like the use of the young boy killed in a car accident, Dustin Inman — is a pure propaganda tactic meant to focus anger. Where is the Marcelo Lucero Society dedicated to the immigrant stabbed to death by a group of high school students who had decided to go, “beaner hopping”? Marcelo Lucero was killed a short drive from where I grew up on Long Island — and his case only came to my attention because the FBI was investigating the Suffolk County Police Department for ignoring hate crimes against Latinos and undocumented immigrants.

But why the surge in anger and hysteria now?

The flip side of the Wall Street Journal‘s point is that even as undocumented immigrants leave during economic hard times, the resentment of them grows. As John P. Judis explains:

During the Great Depression, immigration to the United States from Mexico virtually ceased, but states began arresting and deporting Mexicans, many of whom were in the country legally. The Mexican population of the United States fell by 41 percent during the 1930s. And the same kind of thing is happening again.

Keep these numbers in mind as we hear again and again over the coming months of the “invasion” and of how the problem is getting worse.

[This beautiful image of the Arizona-Mexico border fence by ThreadedThoughts licensed under Creative Commons.]