Ellen Chesler on Wal-Mart v. Dukes: "The Simple Answer is an Equal Rights Amendment"

Jun 24, 2011Bryce CovertEllen Chesler

ellen-chesler-150In the wake of this week's Wal-Mart ruling on the sex discrimination class action suit, Bryce Covert spoke to Roosevelt Institute Senior Fellow Ellen Chesler.

ellen-chesler-150In the wake of this week's Wal-Mart ruling on the sex discrimination class action suit, Bryce Covert spoke to Roosevelt Institute Senior Fellow Ellen Chesler. Chesler calls for constitutional protection of women's rights, explains why women's success is linked to economic growth, and remembers Eleanor Roosevelt's tireless work to bring human rights to all.

Bryce Covert: Why is this ruling considered by many to be so dangerous?

Ellen Chesler: Women and minorities who think they are underpaid will now find it nearly impossible to band together to sue their employers and claim punitive monetary damages. Class actions have been a significant vehicle to establish discrimination in employment and seek redress during the half-century since the civil rights revolution of the 1960s. But with this ruling, the Supreme Court is now saying that employees can sue collectively only if there is proof of an explicit company policy to discriminate. It's no longer enough to demonstrate a clear statistical pattern of women earning less and winning fewer promotions. This is outrageous. What company announces up front that it discriminates?

The court, of course, did leave the door open to individuals who can still try and vindicate their rights one by one. But without the economies of class actions, protection against discrimination is beyond the reach of most workers, who don't have the resources to sue one person at a time. Management is effectively left with little liability. It can do whatever it wants.

Moreover, the same five justices who prevailed in this decision ruled against Lilly Ledbetter several years ago when she brought an individual action claiming she had been paid less than men doing her same job over many years. That decision rested on a technicality -- that Ledbetter had not taken action within the time limits required for lawsuits under Title VII of the 1964 Civil Rights Act. With Democrats controlling both houses of Congress in 2009, women's rights advocates then passed the Lilly Ledbetter Act, which simply extends the timeframe. President Obama signed the law as his first official act. But we don't have a comparable political situation now, which makes the Wal-Mart ruling even scarier.

Legislative remediation in this situation could be achieved through the Paycheck Fairness Act, which was passed by the House of Representatives in 2009 when Democrats were in control, but was then blocked by Republicans in the Senate. That measure puts more teeth into claims of pay discrimination from women by authorizing their right to demonstrate unfair practices through exactly the kinds of aggregate data that the majority has challenged in this ruling. But with Republicans now controlling the House there is no chance for this bill.

BC: What elements are missing in American law that would better ensure women's rights?

EC: The simple answer is an Equal Rights Amendment to our constitution. Ironically, we are the only major democratic country in the world that does not offer women a constitutional guarantee of equal protection under the law.

Let's remember that the rights of women in the United States have essentially been cobbled together case by case, with no more than the due process clause of the 14th Amendment as an underlying constitutional principle. Even with respect to employment discrimination, women were an afterthought -- actually a kind of joke. We were added into the 1964 Civil Rights Act by a racist Southern member of Congress who thought he could kill the whole thing by specifically including women as a minority class. Ingenious young women lawyers then seized on that provision, among others, and built a vibrant body of jurisprudence to establish equal protection as a foundation for women's rights.

But sadly enough, it's a whole lot easier to unravel a body of law, no matter how clever it may be, when there are no deep constitutional principles framing it beyond due process. And one of the great ironies of history is that Ruth Bader Ginsburg, who was foremost among the pioneers of the women's rights revolution of the 1970s, is now being made to witness the evisceration of her work by her own colleagues on the court.

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Justice Ginsburg, of course, wrote the minority opinion in the Wal-Mart case, citing evidence that gender bias suffuses the company's culture -- that women make up more than 70% of the wage earners but only 33% of the management who have a free hand to make decisions about pay and promotions. She was joined in that opinion by the two other women on the court, Justices Sotomayor and Kagan, and by Stephen Breyer.

I also want to remind readers that international human rights conventions growing out of the landmark work of Eleanor Roosevelt also provide a binding legal framework to prevent sex discrimination. The landmark Convention on the Elimination of All Forms of Discrimination Against Women, commonly known as CEDAW, is quite a visionary document in terms of the obligations it places on countries to protect the civil, political, social, and economic rights of women. But another great irony of history is that the United States is not a party to this treaty. We're one of only four countries in the world that has never ratified it, which places us in the unlikely company of Iran, Sudan, and Yemen. CEDAW was passed by the United Nations in 1979 and signed by Jimmy Carter before he left office. But for years its been held up in the Senate by conservatives opposed to human rights and multilateral engagement as a general matter and to women's rights agreements of just about any stripe. The US Constitution requires a super-majority of 67 Senators to ratify a treaty, and that's been hard to achieve on just about any matter in recent years.

This also reminds me that the Paycheck Fairness Act, which closes some of the loopholes in the Equal Pay Act of 1963, is also part of Eleanor's legacy. The Equal Pay Act was the central piece of legislation recommended by the Kennedy Commission on the Status of Women, which Eleanor chaired until her death in 1962. Eleanor had for many years supported protective labor legislation for women, which took into account their primary obligations as mothers. But through the Kennedy Commission, she came to understand that this approach had created silos for women and closed off opportunity. This change in her thinking was also influenced by her work on global women's rights. It's an important piece of Roosevelt history.

BC: Beyond the individual women who lost in this case, what's the fallout for our country?

EC: Hillary Clinton's iconic status notwithstanding, the historic leadership of the United States in the global women's rights revolution is steadily being eroded.

In comparative gender equality rankings by the World Economic Forum, the United States today stands only 19th among the 144 countries surveyed. We're outranked predictably by the Scandinavian countries, by the UK, France, and Germany, but also by Canada, Australia, and even some of the small democracies of Eastern Europe. Obviously, American women are not disadvantaged in these comparative rankings just by wages, which remain low here for so many women, especially at the bottom of our wage scale. Also considered are measurements of public policies that support women and families, such as subsidized childcare and health care, paid family and medical leave, and flexible work arrangements, where the United States too often falls short.

Conservatives so often claim that women are not victims of discrimination in the workplace -- that they chose easier assignments and less demanding work in order to balance work and family. But this seems to me a rather feeble argument because the absence of family-friendly work policies for both men and women is itself a disadvantage that governments in modern industrial societies ought to redress.

BC: Women's rights have clearly become a hotly partisan issue. Was it always this way?

EC: Quite to the contrary, the Republican Party was actually the party that first supported an equal rights amendment for women. There's been a substantial partisan realignment on these issues. Who today would believe that Richard Nixon was a strong enforcer of affirmative action for women and other minorities?

Everything changed when Ronald Reagan's political handlers recognized that they could finally unravel the New Deal coalition by appealing to social conservatives who had traditionally voted with Democrats on pocketbook issues. They could be lured away because of their growing discomfort on matters like affirmative action and reproductive rights. Conservative Republicans are shamefully guilty of spreading the spurious claim that gains for women always come at the expense of men, when the truth is that expanding opportunity has exactly the opposite effect.

We now have concrete metrics from more than 100 countries around the world to demonstrate the direct correlation between improvements in women's status and overall well-being.

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Creative Capitalism! Nation Writers Imagine an Economy That Works for Us.

Jun 15, 2011Lynn Parramore

What would capitalism look like if it served the interests of the people?

What would capitalism look like if it served the interests of the people?

Like a rush of fresh air into a close room, contributors to The Nation's Reimagining Capitalism series bring vigor and vision to what has too often become a stifling and limited conversation about what's possible for America. The series is an antidote to a chronic ailment that plagues progressives.  Not only must we somehow counter the constant drumbeat of attacks on government and ordinary people from the right, but we also have to contend with those in our own camp who want so desperately to sound 'reasonable' that they can never muster the energy to mount a series challenge to a capitalist system that threatens our democracy and strips us of our freedom, our dignity, and our future.

The magazine's Bill Greider, author of the wise and inspirational Come Home America (discussed on this blog) asked writers to put aside the pussyfooting and think of what they'd do if they could "reach into the guts of capitalism and fix the wiring." They took up the charge, and gamely forged essays outlining policies that would, oh, alter capitalism-as-we-know-it. Their ideas are not wacky. Over and over, they strike a chord of plain common sense. But common sense is unpopular among capitalist titans and their cronies in Washington, who spread financial fairy dust to blind us to solutions that can vastly improve our lives and release us from the stranglehold of monolithic corporate power.

How refreshing to tear off the straitjacket of discussing only what's-feasible-in-the-current-political-climate, where truth is all but toxic! As Greider asks, how will an idea ever become feasible if we don't talk about it? The answer is: it won't. Conservatives figured this out a long time ago. They boldly launched ideas about privatizing Social Security and other schemes that sounded outlandish initially, but took on the ring of truth when they were repeated, revisited, and expounded upon month after month, year after year, in books and journals, on television, in academia, and, finally, in Congress.

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But progressives get terribly nervous when it comes to talking about our own bold ideas, even when history has demonstrated their success. Won't they call us nutbags? Pinkos? Irrelevant hippies? Oh, dear! We mustn't sound crazy. So we clamp down on our souls and produce watered down, overly cautious, technocratic proposals that are as arid as they are useless.

Not so at The Nation. Without apology or embarrassment, 16 visionary thinkers dare to propose, among other things:

  • Corporations that work for democracy, not against it.
  • Corporate cops in boardrooms.
  • Taxes on financial speculation to curb reckless excess.
  • New banks that serve the public interest.
  • A guaranteed job for every American.
  • Breaking up monopolies.
  • Executive compensation tied to performance.

These writers suggest no less than rewriting the rules and operating values of a capitalist system that does not work for the majority of Americans. And they remind us that human beings have been in such a fix before. Many times in our history, we have been confronted with what seemed like an unassailable, monolithic system -- the church, the aristocracy, etc.  -- and we have dared to shake off the shackles of servitude to its falsehoods. We have cried 'Enough!' and dared to think of a different way of living.

If you think we've still got it in us, pick up a copy of The Nation and refresh your sense of possibility.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute fellow, co-founder of Recessionwire, and the author of Reading the Sphinx.

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Wanted: A Manufacturing-Centered Economics, Part 2

Jun 6, 2011Jon Rynn

money-globe-150To build a better economic ecosystem, we must understand the birds and the bees of reproduction machinery.

money-globe-150To build a better economic ecosystem, we must understand the birds and the bees of reproduction machinery.

Underlying most debates about economic policy lurks a single question: what causes economic growth? This question is key when an economy is stagnating or declining. The answer decides the fates of Presidents, political parties, and whole nations.

In my first post in this series I argued that an economy can be usefully viewed as an ecosystem comprised of different chunks or niches. Each niche, like manufacturing, fulfills a critical function. Today I want to explain how this perspective can give us a better understanding of what causes economic growth than what's offered by mainstream neoclassical economics. Armed with a better explanation of the dynamics of growth, we can offer better and more effective policy prescriptions than those driven by the current obsession with austerity and lower taxes.

Surprisingly, neoclassical economists have not had much luck explaining economic growth. Nobel-laureate Robert Solow, who is the most important growth theoretician, calculated in the 1950s that neoclassical economics could only explain about 20% of economic growth; the rest was “technological change," which has been impervious to neoclassical analysis ever since. And yet, according to the economic historian Angus Maddison, between 1913 and 1989 income per person in most developed countries increased almost five times (see chapter 7 of my book, “Manufacturing Green Prosperity," and also here). So how can neoclassical economics call itself a science if it can’t explain its single most important phenomenon in the economic universe? What if physics couldn’t explain why planets revolve around the sun?

The problem is that neoclassical economics relies on a model of reality that is similar to the model use by physicists to understand things like gases and fluids. There is no growth in a gas or fluid. When things change too fast in a gas, for instance, the system explodes –- it's all very unstable and stressful. But neoclassical economics doesn't have the analytical tools to explain growth because it bases its understanding of production on David Ricardo’s concept of “diminishing returns”. You can’t explain how something grows if you are using a concept that explains why something diminishes.

There is, however, a science that is very comfortable with the idea of accelerating growth – biology, and in particular, evolutionary biology and ecology. Organisms reproduce -- bees do it, birds do it, and as I will argue, machinery does it, too. Reproduction leads to exponential growth, that is, steady growth that builds on itself, and that can even accelerate.

But how can we have growth forever and not destroy the planet -- or, to be more precise, the biosphere? Again, ecology is comfortable with this issue, because it is a fundamental aspect of all ecosystems that there must be balanced growth. In other words, no one part of the ecosystem can run out-of-control and reproduce forever. No part of a sustainable ecosystem can produce something -- like greenhouse gases or pollution -- that destroys the ecosystem as a whole.

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Well, then, how can we keep economic growth going and not destroy the ecological foundations of the economy? In both natural and economic ecosystems, there are two main sources of change: technological change, and change in the quantity of the output of the various parts of the system. In a natural ecosystem, technological change takes place in the form of “variations”, as Charles Darwin called them, of the offspring of organisms. We now know that DNA controls these changes. And depending on how these genetic “variations” fit into their environment, their populations may increase or decrease in size, which then feeds changes back into the ecosystem.

In a manufacturing ecosystem, the processes of change are similar. In order to understand this, we have to delve a little deeper into the “natural history” of manufacturing. The most important parts of the manufacturing system are the machinery niches, or industries. These are the ones that provide the equipment for the factories that output the manufactured goods that the society uses. When these technologies change, it becomes possible to create different kinds of goods, or to create more goods with the same resources. But how are these kinds of factory machinery made?

At the center of the economy resides a set of extremely important machinery industries –- let’s call them "reproduction machinery" –- which, if we continue with our ecological metaphor, can be viewed as collectively reproducing themselves. And since they can reproduce themselves, like birds and bees do, they can drive the economic growth of the economy, decade after decade, century after century.

Now you may be more familiar with the organisms that inhabit the volcanic vents in the deep Atlantic than you are with these kinds of machinery, but they are not that difficult to understand. There are machine tools, the machines that make parts (usually steel) that are used to produce most other machines, from cars to new machine tools. So machine tools can make more machine tools. However, they do it with help from other reproduction machinery – for instance, steel-making equipment, the huge pieces of machinery that take molten iron, carbon, and a few other elements and output the various kinds of steel that keep the current civilization running – such as the steel for the machine tools.

So we have machinery that creates the substance. We have material used for other machinery. And we have machinery that forms or shapes this material. Form and substance are two helpful categories of production that are nice to have control of if you want a modern civilization. Of course, we also need energy, and the main energy for making machinery is not oil, but electricity. We hope that machines like windmills can become the dominant way to make this electricity, but currently something called an electricity-generating steam turbine does the trick, formed out of steel, using machine tools. Once we have energy, we certainly want to be able to process information, and so we have semiconductor-making equipment, which makes the semiconductors that make all the other machinery better and better, including other semiconductor-making equipment.

When reproduction machinery gets better, everything else gets qualitatively better. When there is more reproduction machinery, there can be more of everything else – which becomes a problem if we are using everything up and destroying the environment and the climate. So we need to concentrate on making everything qualitatively better, not increasing everything quantitatively. This means living in moderately-sized living spaces, for example, and making them much more comfortable and efficient. It means using the same amount of space in a city to house more people, but making the city more comfortable and efficient. And it means using wind instead of coal, computers instead of paper, and electric vehicles that are more comfortable and efficient instead of oil-based ones. And recycling everything, just like a natural ecosystem.

The machinery industries are critical, both for economic growth in general, and in particular to create the kind of economic growth that is ecologically sustainable. They are more important for the optimal functioning of the economy than, say, the level of taxes or deficits or regulation. And yet, the United States has allowed its machinery industries to decline from 50% of world output to less than China’s 16%. Unfortunately, much of what remains is owned by foreign companies, and they do the high-value engineering outside the US. For the neoclassical economist, this is not a problem, because in the neoclassical world, the economy is global. In my next post, I will explain why economies are actually based on world regions – like the United States. And I will show why and how governments must design these world regional economies instead of relying on a simplistic model of markets based on outdated and faulty economic thinking.

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

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Conversation with Jeff Madrick, Author of Age of Greed (Part Two)

Jun 1, 2011Lynn ParramoreJeff Madrick

jeff-madrick-100In the second part of his interview with ND20 Editor Lynn Parramore, Roosevelt Institute Senior Fellow Jeff Madrick talks about the core message of his new book, 

jeff-madrick-100In the second part of his interview with ND20 Editor Lynn Parramore, Roosevelt Institute Senior Fellow Jeff Madrick talks about the core message of his new book, Age of Greed, and what happens now that our economic myths have been shattered. If you’re in the New York City area and want to learn more, you can catch Jeff's author's talk tomorrow night at Cooper Union. Click here for more information on the event.

LP: If the recent financial crisis disproved the dominant free market/efficient market economic models of the Age of Greed and exposed rampant fraud, deceit, and risky behavior, why are we still so firmly in the grip of faulty economic thinking?

JM: I think we’re still in the grips of it for a couple of reasons. One is the extraordinary power of Wall Street and monied interests and the power of money in campaigns. This is a very serious sphere in the heart of democracy in America. Number two: the reformers, the good guys, are basically only looking to stop the next crisis. In fact, they should be looking to make the financial system work properly again. It didn’t fail only in 2007 and 2008. It failed time and again since the 1970s. Reform has to be directed at that. That’s a much harder issue.

LP: What areas of the financial system are most in need of new policies and practices?

JM: It’s not about Too Big to Fail. It’s about restraining crazy levels of speculation. It’s about seriously restraining compensation that’s based not on productive investments but on shuffling paper. It’s about making individual executives responsible for what they do and subject to losses. Now they are not subject to losses because the shareholders bear the loss. One of the remarkable things about the Age of Greed -- and why I call it that -- is that not only did people make enormous money and were able to pursue their self-interest unchecked, but they reversed the history of American reforms. We learned how to deal with this in the 1930s. We learned the problems. We developed regulations. And not only were some of those regulations reversed in letter, they were basically reversed in spirit.

LP: What lessons of the 1930s did we unlearn in the Age of Greed?

JM: FDIC insurance was the most successful program of the 1930s. But when money-market funds came around, and you and I put our money there without thinking about it. Nobody thought, my God! We better ensure that these money-market funds are okay -- they’re not insured! Well, sure enough, in 2007-8 there was a run on money-market funds. The SEC was created to make sure investment banks, when they raised money through stocks and other relevant securities, disclosed all relevant information. In the 1990s and 2000s, federal regulators stopped forcing disclosure. No one even knew what was in a collaterized debt obligation any longer. In fact, I think you aren’t even allowed to know what was in it unless you were an investor. The SEC was created to make sure that pricing was transparent. Then we had the development of over-the-counter derivative markets where pricing was totally secret, totally subject to the whim of a particular investment bank -- Morgan Stanley, Goldman Sachs, and so forth. Things became obscure, which was the opposite of the spirit of the SEC. So America reversed history in this period.

LP: To get the fundamental restructuring that’s necessary to put us on more sound economic footing, what’s most vitally important for financial regulators do to?

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JM: To concentrate on capital requirements, which is no small thing in a global world. To raise capital requirements significantly in order to restrain speculation. The same with leverage requirements. I believe what would help is a financial transactions tax to diminish over-speculation. But I think what regulators have to begin to come terms with – and it’s not even in the air, certainly not a serious consideration – is to understand that Wall Street is a monopoly. Almost like an electric utility used to be a monopoly. Why is Linked In trading so high? Because Wall Street makes an enormous of money on an Initial Public Offering—5, 6, 7% of that offering. That’s what drove the crazy high-tech fantasies of the late 1990s. Wall Street made absurd levels of compensation. That’s what drove Walter Wriston’s loans to South America. It wasn’t the interest rate spread – you know, “we’ll charge you a certain interest rate and we’re paying a slightly lower interest rate”. It’s that they made 2% of the face amount. 1-2% for every loan they made, which went right to the bottom line. This is monopoly stuff and it violates good economics and it’s justification for the federal government to come in and begin to control the compensation. Now that, in the current environment, is considered radical. And it should not be considered radical.

LP: Some point to the current weak economy and high unemployment rates as evidence that the Keynesian economic model, which favors government intervention, doesn’t work. The argument that things could have been much worse without the stimulus, for example, is easy to dismiss and attack. Are you optimistic about a revival of Keynsianism under these circumstances? Who are its most effective proponents?

JM: The issue is – as is often the case – that the president has not reminded people how effective the stimulus was. Now most economists know this. The right wing denies it. Alan Greenspan continues to do damage by claiming a “lack of confidence” and uncertainty and saying that it’s the budget that has kept people from investing. It is utter nonsense. And it has to be combated at the very top. I've heard Geithner combat it. I don’t think he’s a very effective guy, but at least he tried to combat that and show that those policies work. Unemployment would have gone to 12 and 13% if there had not been these Keynesian policies. The loudest credible voices are obvious. It’s Joe Stiglitz and Paul Krugman. How effective they are, I’m not so sure. But they are right. And right is all you can be, in some senses.

LP: What would you say is the main message of your book?

JM: I hope that the main message of my book is that individuals created this crisis. It was not an act of nature. It was not inevitable. People say, what are you getting so angry about? Just roll with the punches. But this is not just ‘how it is.’ Sure, there’s going to be overspeculation in a free market system occasionally, and some kinds of market contractions, but they don’t have to be catastrophic. There is no inevitability unless government abandons its responsibility.

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Eli Pariser's New Book Tackles the "Filter Bubble"

May 16, 2011

filter-bubble 150We're all familiar by now with Google's attempts to predict what we want to find on the internet before we know it ourselves. You start typing and it instantly starts trying to fill in the rest of your search.

filter-bubble 150We're all familiar by now with Google's attempts to predict what we want to find on the internet before we know it ourselves. You start typing and it instantly starts trying to fill in the rest of your search. What we may be paying less attention to is the way that Google and other sites are filtering the information that we read. Roosevelt Institute Senior Fellow Eli Pariser's new book, "The Filter Bubble," takes a deep look at this phenomenon and what it means for the way we get our information and what kind of information we get.

When he first joined the Roosevelt Institute, Eli took up one of FDR's key beliefs. "In his famous Four Freedoms speech, Franklin Roosevelt made clear that freedom of speech and expression was an essential human freedom," he said. "Protecting that freedom in the connected world we now live in is going to be the focus of my work here at Roosevelt. And specifically, I’m going to look at the way automatic personalization is monumentally changing how we consume information and communicate as a society."

In an interview with ND20 Editor Lynn Parramore, Eli explained the problem further.

Increasingly on the Internet, websites are personalizing themselves to suit our interests... If you have Google doing that, and you have Yahoo doing that, and you have Facebook doing that, and you have all of the top sites on the Web customizing themselves to you, then your information environment starts to look very different from anyone else’s. And that’s what I’m calling the “filter bubble”: that personal ecosystem of information that’s been catered by these algorithms to who they think you are.

But what's really the problem here? He explains that this type of filtering creates a feedback loop where no one has to bump up against ideas or information they don't already know or believe.

We thought that the Internet was going to connect us all together... What it’s looking like increasingly is that the Web is connecting us back to ourselves. There’s a looping going on where if you have an interest, you’re going to learn a lot about that interest. But you’re not going to learn about the very next thing over. And you certainly won’t learn about the opposite view.

For more on this problem and how to solve it, make sure to pick up a copy of "The Filter Bubble." Bill McKibben, author of "Eaarth," has called the book a "masterpiece," and David Kirkpatrick, author of "The Facebook Effect," says it is a "must-read."

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Memo to Libertarians: Hayek's Achilles' Heel

May 9, 2011Joe Costello

spending-money-150When libertarians like Hayek worship the free market, they ignore the way mega-corporations dominate our society.

spending-money-150When libertarians like Hayek worship the free market, they ignore the way mega-corporations dominate our society.

The New York Times has thought it important to do a review of Friedrich Hayek's half-century-old The Constitution of Liberty. It's worth noting for the review's wrongheadedness, and because Hayek's one major insight that the reviewer catches, he doesn't understand he's hit on Hayek's main Achilles' heel.

On Hayek and liberty, as the reviewer writes,

With the passage of time, however, many of the ideas expressed in “The Constitution of Liberty” have become broadly accepted by economists — e.g., that labor unions create a privileged labor sector at the expense of the nonunionized; that rent control reduces the supply of housing; or that agricultural subsidies lower the general welfare and create a bonanza for politicians. His view that ambitious ­government-sponsored programs often produce unintended consequences served as an intellectual underpinning of the Reagan-Thatcher revolution of the 1980s and ’90s. Now that the aspirations of that revolution are being revived by Tea Partiers and other conservatives, it is useful to review some of the intellectual foundations on which it rested.

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By economists! How about by the entire political class, both Democrat and Republican, and the NYT. But the reviewer unknowingly hits on Hayek and the entire Libertarian Achilles' heel:

He argued that most of the knowledge in a modern economy was local in nature, and hence unavailable to central planners. The brilliance of a market economy was that it allocated resources through the decentralized decisions of a myriad of buyers and sellers who interacted on the basis of their own particular knowledge. The market was a form of “spontaneous order" which was far superior to planned societies based on the hubris of Cartesian rationalism.

To argue, with the massive control the mega-corporations exerted over the economy in 1960, that "markets" were "spontaneous order," is, to say the least, incredulous. For anyone to say it in 2011, when the grip of the mega-corporation on the economy and government has tightened to the point of strangulation, is nothing more than propaganda. Yet, that's what we hear from the political class... "markets, markets, markets." Meanwhile, the supposed "socialism" of the Democrats and Obama is nothing else than the ceding of more and more power to the mega-corporations.

Hayek is not wrong about the importance of decentralization and liberty, but he was too much of a European of his era, fighting the last strains of landed aristocracy, the recent horrendous experience of fascism, and the then-present disaster of Stalin's centralization on his eastern border to have any serious democratic experience, which, as Jefferson noted, is inherently decentralized. Instead, it was this semi-mystical thing known as the "market" that would save us all from serfdom. Hayek had nothing to say about corporate serfdom, which doesn't exist in his theory. Nonetheless, there's the reality of 2011.

Joe Costello was communications director for Jerry Brown’s 1992 presidential campaign and was a senior adviser for Howard Dean’s effort in 2004.

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What's Good Enough for GE Is Good Enough for the United States

Apr 20, 2011J. W. Mason

downarrow-money-150If private companies with high debt-to-revenue ratios deserve an AAA rating, the U.S. government should be an even safer investment.

downarrow-money-150If private companies with high debt-to-revenue ratios deserve an AAA rating, the U.S. government should be an even safer investment.

S&P's threat to downgrade the US government's credit rating has been dismissed by economist-bloggers as a political intervention by bondowners and compared to "adorable children wearing their underpants outside their trousers." As far as the chances of the US someday defaulting on its debt go, the announcement has zero informational value.

Still, it's true that federal debt held by the public has reached 60 percent of GDP, while tax revenues remain around 20 percent of GDP. 60 percent of GDP is a lot! And double, nearly triple, tax revenue! What would we call a company with outstanding debt double or even triple its revenues, and expected to keep the highest bond rating?

We would call it General Electric. As recently as 2007, GE had an S&P rating of AAA with outstanding debt at over three time revenues.

Or we could call it the Tennessee Valley Authority; TVA managed outstanding debt of 3.9 times revenue in the late '90s (it's since come down a bit), and S&P never downgraded its bond rating from AAA.

Or, we could call it Hydro Quebec, with debt of over 4.5 times revenues (although, admittedly, its S&P rating is only A+). Or the natural gas and energy supplier TransCanada, with debt equal to 2.2 time revenues and an A rating from S&P. Even Transocean, which operated the Deepwater Horizon rig for BP, managed an A- rating prior to the spill, with a debt-revenue ratio similar to what the federal government has now.

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Now, it's perfectly sensible for a big utility, with its high proportion of long-lived fixed capital and stable revenue streams, to carry a lot of debt. If I ran Hydro Quebec (and converting the company to a worker- and consumer-owned cooperative wasn't an option), I'd take on a lot of debt too. But here's the point. If the question is, what if the government had to fund itself like a private business, the answer isn't necessarily that it would do anything different from what it's doing now.

In the real world, of course, there are lots of differences between the government of the United States and a private business. The federal government issues the currency that its debt is denominated in. It has effectively unlimited authority to increase taxes on the public sector. And its liabilities are the most important store of value and means of payment for the private sector. (When Alan Greenspan said that the financial system would have a real problem without holdings of federal debt, he may have been arguing in bad faith, but he wasn't wrong.) And of course, the US government is responsible for output and employment in the economy as a whole, and not just for its own balance sheet. All these differences mean that it makes sense for the US government to carry more debt than a private business. If GE or Transocean are safe bets for lenders with debt of two or three times revenue, then the federal government must be ultra ultra safe. Which, interestingly enough, is just what the bond market says.

So perhaps we can get away from the "oooh, that's a really big number!" school of analysis of federal borrowing, and instead ask what levels of federal deficit and outstanding debt are most compatible with economic growth and financial stability. For the foreseeable future, I'd suggest the answer has a lot more to do with the role of government spending in aggregate demand, and with government debt as a risk-free asset for the private sector, than with the level of debt that's "sustainable." Because if you think there are more states of the world where TVA or GE make their payments to bondholders than where the US government does, you must be smoking something from S&P's private stash.

J. W. Mason is a graduate student in economics at the University of Massachusetts, Amherst. He blogs at The Slack Wire.

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Oil-Soaked Politics: Secret U.K. Docs on Iraq

Apr 19, 2011Tom Ferguson

This just in: big oil companies and government ministers had discussions one year before invasion.

This just in: big oil companies and government ministers had discussions one year before invasion.

Revolution in the Middle East, nuclear meltdown in Japan, war in Libya, the U.S. budget crisis, the looming problems of the Eurozone -- some days it's all just too much. But today there's something no one can afford to ignore: The Independent, one of Britain's leading newspapers, broke a must-read story. In a nutshell, the story buries forever all claims that the US, the UK, and other governments did not have oil on their minds as they prepared to invade Iraq.

The story reports on a forthcoming book that draws on more than a thousand secret government documents. The excerpts the paper prints detailing meetings between the UK government and British oil companies in the run up to the war are devastating. They demonstrate that all the denials in London and Washington that policymakers were not concerned about oil as they invaded were as false as the famous cover story about weapons of mass destruction.

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The passages quoted in The Independent show that all the governments were negotiating over rights to oil long before the invasion and that they were working closely with their companies. But it is impossible from a single newspaper article to assess the full extent of oil's role in precipitating the invasion of Iraq. The book, obviously, will need a careful review; presumably the author realizes that he will need to make the materials he drew upon available on some website. But enough has already been revealed to make a compelling case for a Congressional committee to demand that all the relevant U.S. government documents now be revealed. Ever since a court ordered the release of some government documents in response to a suit Judicial Watch filed under the Freedom of Information Act, we have known that Dick Cheney's Energy Task Force was reviewing documents on Iraqi oil - well before the attack on 9/11. See here, for example.

It's time the rest of the story came out -- not because it is history, but because it is not. The U.S. is still in Iraq. Major decisions about the continuing presence of U.S. troops there loom just ahead. The major U.S. media have done little or nothing to investigate the story, though journalists working the U.K., notably Greg Palast, produced excellent reports on the subject. The endless chain of books about the Green Zone and corruption has not really gotten to the heart of the matter. As the U.S. deliberates about its next steps in Iraq, it is time somebody does.

Thomas Ferguson is Senior Fellow at the Roosevelt Institute and Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.

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Corporate Greed: Out of the Mouths of (Fictional) Babes

Mar 31, 2011

It's nice when a staple of childhood can take on new meaning later in life. Calvin (of Calvin and Hobbes) explains supply and demand: "There's lots of demand!... I demand monstrous profit in my investment... I demand an exorbitant annual salary." But if consumer demand doesn't show up, blame it on the "anti-business types who ruin the economy." Oh also, he'd like a government subsidy.

It's nice when a staple of childhood can take on new meaning later in life. Calvin (of Calvin and Hobbes) explains supply and demand: "There's lots of demand!... I demand monstrous profit in my investment... I demand an exorbitant annual salary." But if consumer demand doesn't show up, blame it on the "anti-business types who ruin the economy." Oh also, he'd like a government subsidy. (Click for a larger image.)

calvin-and-hobbes

Looks like some of our fat cat bankers may have been reading comic strips lately.

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David Koch's Donations to Medical Research Less Generous Than They First Appear

Mar 24, 2011Frank L. Cocozzelli

health-care-money-150Although he has donated significant sums to cancer facilities, Koch's other actions have meant money denied to other critical research.

health-care-money-150Although he has donated significant sums to cancer facilities, Koch's other actions have meant money denied to other critical research.

The New York Times recently reported David H. Koch has pledged more than $100 million to the newly opened David H. Koch Institute for Integrative Cancer Research at M.I.T. The piece framed the center's benefactor as a magnanimous power broker who draws the political line at denying funding for medical research.

But what on the surface appears to be selfless generosity is dampened by his other donations and actions that have led to drying up critical government funds that help many Americans heal from devastating diseases.

"David Koch has supported MIT generously over many decades," gushed MIT President Susan Hockfield in a press release announcing the opening of the new research center. She added, "and in this project he has been a true partner. I am grateful not only for his generosity, but also for the passion and insight he has brought to this ambitious undertaking." Additionally, the Times article noted that the politically active industrialist had previously donated another $100 million to Memorial Sloan-Kettering Cancer Center in New York and the MD Anderson Cancer Center in Houston. These donations aren't insignificant and will help some people.

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But many Americans rely on help from the National Institutes of Health, which Republicans are targeting for budget cuts. While Koch recently went on record publicly bemoaning Congress's $1.6 billion cut to the NIH budget, the sincerity of such regret must be viewed with skepticism.

NIH's role in medical research cannot be overstated. This one governmental agency provides for more than 28 percent of the nation's basic medical research, including a significant portion dedicated to the cutting edge biomedical field -- stem cell and gene therapy research, for example. Beyond fighting cancer, NIH-funded research seeks cures and treatments to a whole host of diseases and disabilities such as Alzheimer's disease, juvenile diabetes, Parkinson's disease, multiple sclerosis and muscular dystrophy. (I suffer from the limb-girdle variant.)

David Koch's words and generosity must be must be weighed against the proposed cut to the NIH budget. After all, he and his brother Charles promoted support for the very Tea Party theatrics that was so instrumental in creating the present atmosphere of fanatical austerity. Beyond that, they enabled the election of many of the very conservatives who intend on slashing the NIH budget (Wisconsin Republican Rep. Paul Ryan, for example). They espouse many of the same libertarian dogmas of smaller government. And they will do so even if it delays the development of cures for many of our fellow citizens.

Whatever one thinks of David Koch, it cannot be said that he is not a smart man. Both he and his brother parlayed their massive wealth into a machine that effectively created a political climate highly favorable to their business interests. But in the pursuit of their small government utopia, David Koch had to have known the NIH funding would be a ripe target for those in Congress they've empowered. And while Koch can direct part of his private fortune to areas of medical research that will suffer from the blade of the GOP budget ax, most ordinary, less powerful Americans who suffer from a disease different than cancer -- myself included -- do not have the financial wherewithal to make up for lost NIH research investment. Instead, we rely on the government to help us heal.

What David Koch has essentially done is to make medical research far less democratic. If you suffer from cancer as he does, then you too may benefit from the science he privately funds. If you don't, too bad. It is nothing less than trickle-down economics morphing into trickle-down medical research.

Indeed, the direction and largess of David Koch's donations do more to disprove the libertarian mantra that private and social interests always coincide. A truly magnanimous donor would have given these gifts without endangering the chances of others to be treated for their medical afflictions.

Frank L. Cocozzelli writes a weekly column on Roman Catholic neoconservatism at Talk2Action.org and is contributor to Dispatches from the Religious Left: The Future of Faith and Politics in America. A director of the Institute for Progressive Christianity, he is working on a book on American liberalism.

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