The American Dietitians

[ht:kd]

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Our Lefty Military

The Economist’s visceral reaction is to scoff whenever a non-economist says something about the economy. I’ve seen the attitude time and again that, privileged to economic knowledge, Economists have no economics to learn from the rest of society. Yet I’ve witnessed that much of what economists have to say about the economy is useless at best, and incredibly destructive at worst (such as all the advice about financial deregulation since the 1990s). And at the same time, I’ve been left with no doubt that journalists, social scientists, moral philosophers, bloggers, business people, and even everyday workers can have a great deal of economic insight.

This time, a gem of economic insight from Nicholas Kristof at the New York Times. What Kristof realizes, and many economists apparently do not, is that any plan for economic recovery and prosperity necessarily needs to look seriously at the organization of firms in the United States. Publicly-traded corporations are not the only option; in fact, they seem to be one of the worst. There are various models of different organizational, decision-making, and ownership structures that lead to different economic outcomes. Kristof argues that if we want a model that encourages human development, affords universal access to healthcare, and curbs income inequality, we have a lot to learn from the organization of the US military:

You see, when our armed forces are not firing missiles, they live by an astonishingly liberal ethos — and it works. The military helped lead the way in racial desegregation, and even today it does more to provide equal opportunity to working-class families — especially to blacks — than just about any social program. It has been an escalator of social mobility in American society because it invests in soldiers and gives them skills and opportunities.

The United States armed forces knit together whites, blacks, Asians and Hispanics from diverse backgrounds, invests in their education and training, provides them with excellent health care and child care. And it does all this with minimal income gaps: A senior general earns about 10 times what a private makes, while, by my calculation, C.E.O.’s at major companies earn about 300 times as much as those cleaning their offices. That’s right: the military ethos can sound pretty lefty.

Now this is a model of the economy that I think deserves a Nobel Prize.

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Organized Money Threatens Strike Over Tax Cuts

Perceptive observers will remember that the Tea Party as we know it today was started by an interview from the trading floor, given by CNBC’s Rick Santelli, and only later did the “grassroots”- apologies for the scare quotes, but no better time- come on board. What we had with that movement, which has since been co-opted by a host of interests, was organized money sticking it’s tongue out at Obama’s supposedly progressive agenda.

Fast forward almost 2 years- another election cycle has been completed, and organized money has again gotten its way. Well, kind of. The fruits of there gains, already borne out to a large degree by general lobbying money, will only be truly realized in January when the House switches to the GOP (although I harbor no illusions that much of our policy in the last ten years has not been directed by the same forces). What will they do in the meantime? Well, via Matt Drudge, US News is reporting “Washington Whispers”-sorry, it’s a scare quote kind of night here- that the stock market will plummet if we don’t have certainty on universal tax cuts by December 15th.

“Capital gains tax rate will increase from 15 to 20 percent if the tax cuts are not extended. The last time the capital gains tax rate increased–on Jan. 1, 1987 from 20 to 28 percent–investors realized their gains at the lower tax rate,” said Daniel Clifton at a Washington partner at Strategas Research Partners…

Worse, talk that Congress will simply pass retroactive fixes to the tax system won’t help, since investors will take the sure thing and sell rather than rely on Capitol Hill. “Fixing the issue next year will not negate these negative impacts,” said Clifton.

Now, there is a valid debate to be had over whether any taxes should be raised during a recession. However, it’s likely that the same folks who are demanding continued cuts for high earners and for capital gains also oppose extending benefits to the unworthy unemployed. What’s strikingly dissonant to me is that in American culture, it’s news when organized money threatens to go on strike. However, there’s no coherent mechanism for organized labor or organized people to do the same. Obviously I’m probing at larger questions about the decline of labor and civil society, but it’s undoubtedly true that the power dynamic in the status quo will continue to produce these dissonant stories, and the unjust desserts to which they are attached.

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The 28th Amendment

The Blame Game surrounding the oil spill has BP blaming Transocean, the owner of the drilling rig, who in turn blames Halliburton’s cement work to cap the well. And of course, this is also a failure of the Minerals Management Services to evaluate and regulate the drilling operation, so many are blaming the “revolving door” between the MMS and industry. Without catering to corporate influence, the argument goes, the MMS would have acted more in favor of the public interest.

This “revolving door” reappears as a factor in every crisis, it seems. The financial crisis could have been averted had Washington not been in Wall Street’s pocket.  Close the revolving door. The environmental and health problems surrounding food are due to agribusiness influence on the USDA, FDA, and food policy. Close the revolving door. Why do we fight? Washington is a key player in the military-industrial complex. Some even talk about an academic-industrial complex with is corrupting American higher education.

The Citizen’s United Supreme Court ruling was a step in the wrong direction. One can only hope that these recent tragedies give a renewal of vigor to movements such as the 28th Amendment Movement, which seeks an amendment to the US constitution called the Separation of Corporation and State, or the Move to Amend, which is part of the “Campaign to Legalize Democracy.”

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Profits and Unemployment

Capitalism is doing what it does best- exploitation. Via Ezra Klein, Annie Lowrey has the only two stats you really need to know:

1. Fortune 500 companies tripled their profits to $391 billion in 2009.

2. They also slashed their payrolls by more than 800,000 jobs.

Why? Because they can.

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The Vampire Squid and the Double-Dip

When Matt Taibbi published his Rolling Stone piece about Goldman Sachs, a number of people accused him of being sensationalist and even misleading about Goldman’s influence and malfeasance. The enduring image from that story was the Vampire Squid, a giant and blood-sucking creature that will seek (and succeed at) profitting off of pretty much anything. The continuous flow of news stories about outsized profits from a range of activities have seemed to vindicate Taibbi. Of course, there is some value in more measured academics taking on Goldman and Wall Street in general, so here’s Randy Wray:

Forget the bonuses…And, yes, they are blowing the black hole of financial insolvency bigger day by day even as they thumb their noses at Washington…But what is even more disturbing is that Wall Street is still maniacally creating risk, inventing new ways to bet on the death of “peasants”, economies, and nations…

A Wall Streeter buys the life insurance policies of individuals with terminal illnesses, packages them into securities, and profits when the underlying collateral dies…Now we learn that firms continue to carry life insurance on former employees, hoping they will die untimely deaths so that the firm can collect…Death is the new profit center, packaged and sold by Wall Street insurers…

Second, there is of course Greece. Goldman Sachs sold them financial products to disguise their budget deficits. Of course, Goldman argues that it was doing nothing unusual—it has been creating complex products to hide risk for decades…Goldman gets huge fees, but of course the risks always come back to bite its suckers…We don’t know whether Goldman has placed its own bets on the death of Greece—nor is it clear what role Goldman has played in whipping up hysteria about the likelihood of default, but the bank is almost certainly benefiting by the booming business in default “insurance”…it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt…

Finally, according to a report, Citi is going to launch a new derivative that will allow gamblers to bet directly on financial crises…The CLX products are supposed to hedge the liquidity risk of a spike of funding costs. The problem, of course, is exactly the one faced by those who had bought CDS “insurance” from AIG: counterparty risk…Only the government can cover unlimited losses. Hence, only the chosen few “too big to fail” sellers of this kind of insurance will be able to play the game. That is, folks like Goldman, J.P. Morgan, Citi, and Bank of America. And guess who will get stuck with the bill when the whole scheme crashes? You betcha, it will be the Treasury…

And that is what this whole Wall Street house of cards boils down to: risky bets, private profits, socialized losses. Worse, yet, it misaligns interests so that Wall Street profits are higher if there is economic and social instability…Until Wall Street is constrained and downsized, it will continue on its path of death and destruction.

In spite of all the happy talk about the end of the recession and the successful resolution of the financial crisis, things are much worse today than they were two years ago…Be prepared for another global crisis by summer. And also get ready for another Washington bail-out…

So here’s the best policy. Unwind the $23 trillion committed by the Treasury and the Fed. Let the market operate. It wants to close down all the “too big to fail” institutions. The market is right—these institutions are not necessary, indeed, they represent the biggest problem facing the financial sector…it makes far more sense to allow default to wipe out the bets, and then work to save the productive activity, jobs, and income.

I know that Wall Street’s protectorate, led by Geithner, Rubin, and Summers, will claim that failure of the behemoths will create an economic disaster. But that is not true. All real economic fall-out can be contained and the economy will emerge much healthier. Replace Wall Street’s life support with support for mainstreet…True recovery would begin immediately, and we’d be out of the mess by summer.

Wray’s plan sounds great, but it’s obviously pie-in-the-sky politically. If Wray is right about an impending double-dip, though, then perhaps a second window for real financial reform will be opened. The problem is that with Geithner calling the shots, it seems inevitable that “risk management” will continue to carry the day on Wall Street, while unbounded uncertainty, systemic risk, and overleverage lurk in the shadows. 

Wray’s article is a reminder of the lengths to which banks will go to seek profit, the destruction they will leave in their wake, and how far we are from reining this process in. Capital has gone wild, and unless reform addresses the inner workings and profit motives of the vampire squid, and aligns them with the whole country’s economic interests, we will find ourselves back here not only in six months, but also in six years.

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“The Cleveland Model” and Cooperatives

Gar Alperovitz, Ted Howard, and Thad Williamson, who study and work towards alternative economic models, have an article in The Nation today  a rise of worker-owned cooperatives in Cleveland.

Something important is happening in Cleveland: a new model of large-scale worker- and community-benefiting enterprises is beginning to build serious momentum in one of the cities most dramatically impacted by the nation’s decaying economy. The Evergreen Cooperative Laundry (ECL)–a worker-owned, industrial-size, thoroughly “green” operation–opened its doors late last fall in Glenville, a neighborhood with a median income hovering around $18,000. It’s the first of ten major enterprises in the works in Cleveland, where the poverty rate is more than 30 percent and the population has declined from 900,000 to less than 450,000 since 1950…

These are not your traditional small-scale co-ops. The Evergreen model draws heavily on the experience of the Mondragon Cooperative Corporation in the Basque Country of Spain…

The Evergreen Cooperative Laundry, the flagship of the Cleveland effort, aims to take advantage of the expanding demand for laundry services from the healthcare industry…After a six-month initial “probationary” period, employees begin to buy into the company through payroll deductions of 50 cents an hour over three years…

Thoroughly green in all its operations, ECL will have the smallest carbon footprint of any industrial-scale laundry in northeast Ohio…A second green employee-owned enterprise also opened this fall as part of the Evergreen effort. Ohio Cooperative Solar (OCS) is undertaking large-scale installations of solar panels on the roofs of the city’s largest nonprofit health, education and municipal buildings…Another cooperative in development ($10 million in federal loans and grants already in hand) is Green City Growers, which will build and operate a year-round hydroponic food production greenhouse in the midst of urban Cleveland…

A fourth co-op, the community-based newspaper Neighborhood Voice, is also slated to begin operations this year. Organizers project that an initial complex of ten companies will generate roughly 500 jobs over the next five years. The co-op businesses are focusing on the local market in general and the specific procurement needs of “anchor institutions,” the large hospitals and universities that are well established in the area and provide a partially guaranteed market. Discussions are under way with the “anchors” to identify additional opportunities for the next generation of community-based businesses…

Significant resources are being committed to this effort by the Cleveland Foundation and other local foundations, banks and the municipal government. The Evergreen Cooperative Development Fund, currently capitalized by $5 million in grants, expects to raise another $10-$12 million–which in turn will leverage up to an additional $40 million in investment funds. Indeed, this may well be a conservative estimate…

Strikingly, the project has substantial backing, not only from progressives but from a number of important members of the local business community as well. Co-ops in general, and those in which people work hard for what they get in particular, cut across ideological lines–especially at the local level…

What’s especially promising about the Cleveland model is that it could be applied in hard-hit industries and working-class communities around the nation. The model takes us beyond both traditional capitalism and traditional socialism. The key link is between national sectors of expanding public activity and procurement, on the one hand, and a new local economic entity, on the other, that “democratizes” ownership and is deeply anchored in the community…

Whereas the Cleveland effort is targeted at very low-income, largely minority communities, the same principles could easily be applied in cities like Detroit and aimed at black and white workers displaced by the economic crisis and the massive planning failures of the nation’s main auto companies. Late in October, in fact, the Mondragon Corporation and the million-plus-member United Steelworkers union announced an alliance to develop Mondragon-type manufacturing cooperatives in the United States and Canada…

Since mass transit is a sector that is certain to expand, there is every reason to plan its taxpayer-financed growth and integrate it with new community-stabilizing ownership strategies…

President Obama has endorsed a strategy for making high-speed rail a priority in the United States…

Providing infrastructure and transportation for this expanding population will generate a long list of required equipment and materials that a restructured group of vehicle production companies could help produce–and, at the same time, help create new forms of ownership that anchor the economies of the local communities involved…

the principles implicit in the nascent Cleveland effort point to the possibility of an important new strategic approach. It is one in which economic policy related to activities heavily financed by the public is used to create, and give stability to, enterprises that are more democratically owned, and to target jobs to communities in distress…

The Cleveland experiment is in its infancy, with many miles to go and undoubtedly many mistakes to make, learn from and correct. On the other hand, as New Deal scholars regularly point out, historically the development of models and experiments at the local and state levels provided many of the principles upon which national policy drew when the moment of decision arrived. It is not too early to get serious about the Clevelands of the world and the possible implications they may have for one day moving an economically decaying nation toward a new economic vision.

I’ve been drawn to cooperatives as an economic alternative since I first learned about Mondragon in a Catholic Social Teaching course. Worker-owned enterprises are a fruitful third way in the traditional public-private dichotomy. Promisingly, the Cleveland model shows that they do not require national political support to arise. However, to increase their scale and scope, it’s imperative to get the word out and show how these efforts cut across the spectrum. In the current political morass, it is certainly possible that even these cooperatives could become a political football, especially if they are integrated into mass transit plans. However, I’m hoping that their local success and the current populist outcry for jobs allows cooperatives to become a key part of future job proposals.

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“Corporations are People Too?”

Mark Thoma sums up today’s SCOTUS decision well:

Just what we need, an increase in the ability of corporations to exert political influence…

If a legislator votes for health care reform, to limit greenhouse gases, to impose tough regulations on banks, etc., there is nothing to stop corporations from using their billions in profits to target that individual with a blitzkrieg of negative ads. Legislators from small districts cannot match the resources that corporations have at their disposal, and even legislators from large districts would be quite vulnerable. As Andrew Leonard notes: […]

…now the Supreme Court has handed Wall Street a huge club with which to thwack Obama or any other politician who dares to try to restrain the likes of JPMorgan and Goldman-Sachs. And you can bet they won’t be shy to use it.

If we going to allow corporations to participate in this way, we also need accountability. It’s bad enough to have a tilted playing field in favor of corporations when they are playing fair, but when they are allowed to make false charges against candidates or about issues and not be held accountable, that’s a big problem.

Chris Hayes sums up the political ramifications via Twitter:

I propose a bet: $500 to Partners in Health to any libertarian takers. Tot. corporate IE’s in 2010 cycle for R’s will exceed those for D’s.

And, of course, there’s the  issue that policies favored by Democrats will become even more watered down by corporations. Not a good day for the democratic process…

Update: I enjoy Ezra’s headline about this decision: “Goldman/Exxon 2012”

He also point to a tweet by Brian Beutler:  “appearance of influence or access will not cause the electorate to lose faith in this democracy,” says SCOTUS…b4 bursting into laughter.

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Neocolonialist Quote of the Day

From the NYTimes:

America’s war in Iraq has been good for business in Iraq — but not necessarily for American business. American companies are not seeing much lasting benefit from their country’s investment in Iraq.  (emphasis mine)

Investment?  Or invasion?

Are they saying the war wasn’t a good business strategy?

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Corporate Personhood

The New York Times published an editorial on Tuesday on a case currently before the United States Supreme Court that, on its face is,

a fairly narrow campaign finance case, involving whether Citizens United, a nonprofit corporation, had the right to air a slashing movie about Hillary Rodham Clinton during the Democratic primary season.

In addition to posing a possible threat to the election system, this case highlights the greater question of corporate personhood- in other words, what rights and responsibilities should be given to corporations?  Historically, the United States has been very generous in granting rights and very reserved in demanding responsibilities of corporate entities.  The dangers of this combination are myriad (watch the movie online, read the book, or read a summary for an introduction to critiques of corporations).  As the Times editors write,

To us, as well as many legal scholars, former justices and, indeed, drafters of the Constitution, the answer is that their rights should be quite limited — far less than those of people.

This Supreme Court, the John Roberts court, seems to be having trouble with that.

The structure of the corporation is, arguably, one of the contributing factors to our current economic crisis.  Any discussion of systemic solutions and prevention of similar crisis in the future must consider the role of the corporation.  As a society we tend to assume that our corporate system is identical to that of the rest of the world (not true) and that this structure is an absolute and unchangeable given (not true).

Do we have the will (political and otherwise) to question the role we have given the corporation and the serious consequences of that role?  Probably not.  Let’s do it anyway.

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