Category - Class

How’s about $18 million? That’s what John J. Noffo Kahn, of Palm Beach, Florida, paid for a farm in Barnard, Vermont, to be used as a vacation home, and in the process shattering the previous record price for the sale of a residential property in the state (a mere $8 million).

Reports the Valley News (full article not online*):

The buyer […] said in an email that privacy and security were two reasons he purchased the property through [a limited liability company].

“One of the attractions, for me, to the area was that I thought (naively!) that I would be coming to a place where MONEY is not of the foremost importance to the members of the community. I was looking forward to a low-profile existence in which my wealth would not be what defined me to my neighbors,” wrote […] Noffo Kahn, who said he was not interested in having a story written about his new vacation home.

“Thanks for bursting my bubble on Vermont!” he added.

I hate to break it to you, John, but the traditional route to a low-profile existence is to spend less than $18 million for your vacation home.

There are a few things worth noting. First, in support of the friendly rivalry we Vermonters have going with our Granite State neighbors, Noffo Kahn’s complaint about his bubble being burst regarding his conception of Vermont, the Valley News is located in Lebanon, New Hampshire, so there’s some chance that his bubble might still be intact. Noffo Kahn’s new neighbors in Barnard probably will treat him with neighborly respect, though they have good reason to distrust multi-millionaire vacationers. That’s because the sellers of the farm, whose main domicile is in Texas, sued 14 fellow Barnard residents who were opposing the fact that they (the Texan owners) had closed off a trail through the property that had long been open to the community. Now, that wasn’t Noffo Kahn, and maybe he’s the kind of swell guy who doesn’t let his wealth define him, and instead defines himself as a good neighbor who respects something more in his fellow men and women than their own lack of wealth.

As for Noffo Kahn’s preference that the Valley News not write a story on the property sale:

After a reporter e-mailed back, making clear that the record-setting sale was a news-worthy event and asking for a chance to discuss the matter, Noffo Kahn, who had already expressed his “already dismal appraisal of today’s media,” wrote back.

“So typical!” he wrote. “You haven’t even the sensitivity to realize that writing a story about an $18 million property–when so many are suffering this Christmas–is a salt on their wounds!”

Let’s debate the question of news-worthiness for a moment. Con: Noffo Kahn is a person who buys things, just like everyone buys things, so why should he be made into a celebrity of sorts against his will when none of the rest of us have newspaper articles written about our purchases? I mean, would I want the whole world to know that I recently purchased not one but three copies of the amazingly cool book The Human-Powered Home, so that I can give the extras away as gifts to as-yet-unidentified friends? Oh the embarrassment! When will that darned media stop noticing that extreme economic inequality is damaging to the individual well-being of the vast majority of people, community and social cohesion, democratic governance, and the future habitability of the biosphere? (Ditto.) (Or more like, when will the media actually start noticing it and taking it seriously on a more than one-off basis?)

Pro: The habit of really, really rich people to pay extraordinary sums for the things they buy has a real effect on the lives of others, and just like it is news worthy to report on a leaking manure lagoon that threatens the health of downstream neighbors, it is news worthy to report on events that impact the economic lives of of “downstream” neighbors as well. Given the timing of the sale, this particular transaction probably won’t have the same effect on property values of neighbors as it would have if it had taken place a couple of years ago, but the principle remains the same. When you throw money around, it matters; there are unintended consequences, and while the Valley News story doesn’t attempt to perform a systems analysis on what all those consequences might be, at least they have alerted readers to the fact that something with reasonable potential to have broader consequences has happened.

And as for that “salt on their wounds” that Noffo Kahn is so worried about, perhaps at this Christmas time a better use of Noffo Kahn’s time would be turn that sensitivity question around and first remove the plank from his own eye.

[* Come on, Valley News, get with the program!]

Robert Kuttner notes an interesting tidbit from, wouldn’t you know it, the Wall Street Journal: since 2001, wages in Europe have been keeping up with inflation and the employment rate has also been rising. Yet in the US, wages have been falling behind the inflation rate and the employment rate has also been sagging. This flies in the face of the conventional economic “wisdom,” which assumes that businesses will hire more workers when the (real, i.e., adjusted-for-inflation) wage is lower. Oh that wacky reality!

[Conflict of interest alert: Kuttner’s post is on his blog promoting his new book, Obama’s Challenge. I work for the publisher of the book.]

[The following is a guest post emailed in to the Center for Popular Economics by a reader of CPE’s newsletter]

by Ben Leet

I am a retired school teacher who has done research on the U.S. economy partly for personal reasons and also because I had been teaching at a school in a poverty neighborhood in Oakland. There were many murders, crimes and depressing events in the neighborhood where I taught. Children brought in bullets that had passed through their walls, or one described a murder that happened in his back yard. Those were the worst examples, but violence was not uncommon. Bad economics, I concluded, contributed to poor student performance, poor behavior, and stunted emotional development. Here are the salient facts I’ve uncovered that point to a society mired in inequality.

Here are the problems we face:

Bruce E. Levine has an interesting article over at Alternet on the use of psychiatric medication to tame defiant youth. Some tantalizing excerpts:

For a generation now, disruptive young Americans who rebel against authority figures have been increasingly diagnosed with mental illnesses and medicated with psychiatric (psychotropic) drugs.

Disruptive young people who are medicated with Ritalin, Adderall and other amphetamines routinely report that these drugs make them “care less” about their boredom, resentments and other negative emotions, thus making them more compliant and manageable. And so-called atypical antipsychotics such as Risperdal and Zyprexa — powerful tranquilizing drugs — are increasingly prescribed to disruptive young Americans, even though in most cases they are not displaying any psychotic symptoms.

Many talk show hosts think I’m kidding when I mention oppositional defiant disorder (ODD). After I assure them that ODD is in fact an official mental illness — an increasingly popular diagnosis for children and teenagers — they often guess that ODD is simply a new term for juvenile delinquency. But that is not the case.

Young people diagnosed with ODD, by definition, are doing nothing illegal (illegal behaviors are a symptom of another mental illness called conduct disorder). In 1980, the American Psychiatric Association (APA) created oppositional defiant disorder, defining it as “a pattern of negativistic, hostile and defiant behavior.” The official symptoms of ODD include “often actively defies or refuses to comply with adult requests or rules” and “often argues with adults.” While ODD-diagnosed young people are obnoxious with adults they don’t respect, these kids can be a delight with adults they do respect; yet many of them are medicated with psychotropic drugs.

…

Throughout American history, both direct and indirect resistance to authority has been diseased. In an 1851 article in the New Orleans Medical and Surgical Journal, Louisiana physician Samuel Cartwright reported his discovery of “drapetomania,” the disease that caused slaves to flee captivity. Cartwright also reported his discovery of “dysaesthesia aethiopis,” the disease that caused slaves to pay insufficient attention to the master’s needs. Early versions of ODD and ADHD?

In Rush’s lifetime, few Americans took anarchia seriously, nor was drapetomania or dysaesthesia aethiopis taken seriously in Cartwright’s lifetime. But these were eras before the diseasing of defiance had a powerful financial ally in Big Pharma.

…

It would certainly be a dream of Big Pharma and those who favor an authoritarian society if every would-be Tom Paine — or Crazy Horse, Tecumseh, Emma Goldman or Malcolm X — were diagnosed as a youngster with mental illness and quieted with a lifelong regimen of chill pills. The question is: Has this dream become reality?

Conflict of interest alert: I work for Chelsea Green Publishing, publishers of Levine’s recent book, Surviving America’s Depression Epidemic.

A friend just sent this to me. It’s an English folk poem, circa 1764, so he says.

They hang the man and flog the woman
That steal the goose from off the common,
But let the greater villain loose
That steals the common from the goose.

The Law demands that we atone
When we take things we do not own
But leaves the lords and ladies fine
Who take things that are yours and mine.

The poor and wretched don’t escape
If they conspire the law to break;
This must be so but they endure
Those who conspire to make the law.

The law locks up the man or woman
Who steals the goose from off the common’
And geese will still a common lack
Till they go and steal it back.

Is the New Supply Side Better Than the Old? by Austan Goolsbee is getting a lot of play in the econoblogosphere today. It’s an interesting article that points out some of the weaknesses in the supply-side argument for cutting income tax rates on the highest income people. One small point of correction, however: when referencing the fact that top incomes soared after the tax cuts of the 1980s and 2001, but also soared after tax hikes in other periods, Goolsbee says:

Seeing the same pattern when taxes rose as when they fell indicates that tax cuts weren’t responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces.

One might note the impact of the policy climate in various periods, as well. Since the 1980s, it hasn’t just been tax policy that has favored high-income earners over their less fortunate fellows, but deregulation and lax enforcement on a broad range of policies including labor and the environment, as well as overt war-on-the-poor measures such as welfare reform.

Hat tip to Mark Thoma.

Kudos to the folks at the Center for Constitutional Rights and their allies in the struggle to end exploitative telephone contracts in New York state prisons. The problem is not restricted to New York, but that’s where the Telephone Justice coalition has been focusing its efforts.

Typically, states receive kickback commissions from the phone companies who receive the contract, creating a situation in which there is no incentive to seek competitive bids. Unsurprisingly rates for such calls are well above market rates, as much as $6 per minute. The phone companies and prison officials justify the high prices by saying there is a need for added security measures. There is little evidence to justify this claim, especially since calls from all Federal prisons cost just 7¢ a minute.

In any case, the records show that companies and states often make millions of dollars in profits from surcharges and inflated per-minute rates. In New York State, 57.5 percent of the profits - over $200 million since 1996 - were kicked back to the state in the form of commissions.

So it turns out that crime does pay, only it’s the state and telephone companies that are getting paid, not the perpetrator or victim of the crime. The joys of being the middleman. Is it possible that schemes like this contribute to state legislatures’ ongoing practice of finding new ways to put and keep people in jail, from “three strikes” laws to mandatory minimums for victimless crimes? State governments like to find ways to generate revenue without imposing general taxes, and ripping money off from the families of inmates is probably a good way to do so without incurring the wrath of most voters. That’s just one of the arguments made by lawyers at the CCR who helped to end this practice.

The contracts are also unjustifiable as a matter of public policy. The profits returned to the states are treated as income - in New York, they are said to pay for basic prisoner services such as health care and release clothes - and this system is analogous to an unlegislated, regressive, and highly selective tax, under which specific individuals are asked to bear the financial burdens that are the proper responsibility of the state. By imposing such burdens on families of prisoners, the practice resembles a form of collective punishment.

Given the class divide in who goes to jail, and the divide in who tends to vote, relatively few voters are from families with someone in jail. So the people who are being squeezed have no clout with the lawmakers. Well, in New York they’ve managed to earn some clout through the efforts of the Telephone Justice coalition, which was launched by the CCR.

Since 1999, the Center for Constitutional Rights (CCR) has been fighting on the ground and in the courts to end the exploitative telephone contract between New York State and MCI/Verizon which charged family members 630% more for collect phone calls from their loved ones in prison than the average consumer. Single-carrier collect call systems are the norm for telephone service in prisons across the United States. Prisoners may only call collect, and loved ones who accept the calls must accept the terms dictated by the chosen phone company. At a time when prisoners are increasingly housed in facilities hundreds of miles away from their home communities, telephones become for many the only way to stay in touch.

This year, after three years of tireless work, we won. [cont’d]

Next step: take the campaign to all the other states. (See the campaign’s endorsers page for links to some other telephone justice efforts around the country.

I’ll be writing more later, but for now, just a couple of things I thought make up a good contrast. Not many people would be surprised by the assertion that economic classes receive different treatment before the law in the U.S., but the following two items are certainly remarkable. First, take a look at this story, about a group arrested for feeding the homeless in Orlando. Yes, apparently charity begins and ends at home: “mass feeding in one area” is banned by a city ordinance. Don’t worry though, not everybody suffers from such casual and needless oppression. Gazillionaire hedge fund managers will get to keep their huge tax break: their income is considered capital gains and so is subject to the 15% capital gains tax, not to the regular income tax or to the payroll tax that funds social security benefits. Mark Shields explains why. Thanks to MoJoBlog for the tip on the lack of legislation.

Oh and by the way, Keith Knight tells it like it is.

Not that the news shouldn’t be reported again, or again and again for that matter. Increasing inequality is serious business (pun acknowledged though not planned ahead of time) but not, unfortunately, the kind of issue that gets real traction. Thanks to Pizzigati for keeping track and to AlterNet for helping spread the word.

Trickle-Up Economics: New Report Reveals Staggering Global Wealth Concentration

A new business study on global household wealth documents how the world’s wealth is continuing to concentrate in the pockets of the awesomely affluent.

The world’s non-wealthy households haven’t done so well over the last half-dozen years, says a new report released last week by a major global business consulting company.

From 2001 through 2006, reports the Boston Consulting Group, the non-wealthy of the world — those households holding less than $100,000 in financial assets — saw the total value of their assets slightly decline.

Over those same years, the consulting group’s new Global Wealth 2007 documents, total world wealth actually increased, up a brisk 7.5 percent just last year alone

So where did all that new wealth end up? At the top. So far this century, the 16.5 percent of global households with at least $100,000 to invest have seen their assets soar 64 percent in value, to $84.5 trillion.

[cont’d]

Jonathan Rowe at On the Commons is writing about clotheslines, and the “tragedy of the private” market that has made them illegal for millions of people. A useful reminder that–while no view is strictly objective–some absurdities are pretty easy to identify, and these are just as likely (more likely?) to derive from the unfettered association of individuals through the marketplace as from any other source, particularly when profit maximization is the mantra. (Because, in this case, it’s the hope that property values will rise as fast as possible that leads snobs to ban clotheslines from a neighborhood.)

Given that the Supreme Court has ruled that carbon dioxide should rightly be treated as a pollutant, but the EPA continues to fail to act, clotheslines in restricted neighborhoods might make a great form of civil disobedience. If you live in such a neighborhood, set up a clothesline and wait for the order to take it down. It’d make for a great story in the local paper, which would help to spread the word about this absurdity and, hopefully, lead to laws that overrule the we-prefer-to-pollute-the-atmosphere snob factor.

*Ha ha!

I’ve tried, oh I’ve tried, but good ole Katha Pollitt has said it better than I’ve ever managed. A tidy summary to why, indeed, poverty is bad for your health–IF you live in an economy like the U.S.’s where access to health care is largely dependent on your financial standing. Poverty, I’m sure, isn’t particularly good for your health if you live in an economy with a sensible, universal health system; but it sure won’t be nearly as outright dangerous to be poor.

Heterodox Economist reminds us of a useful point: Wall Street types might deserve to eat a bear market in some sense of getting their just deserts, but the connections between the financial world and the rest of the economy (including millions of working stiff jobs, etc) mean that the bear is likely to be shared around with plenty of people who don’t deserve the downside. The system as we know it is rigged in favor of the owners. Because they own, they cannot be allowed to suffer for their suffering trickles down much faster than any of their advantages. He also talks about Rosa Luxemburg, which is cool.

I try to follow the rule that blog posts should be more than just a “hey, check this out,” and a link. But I guess some rules are made to be broken. I don’t have much to say about this, but it is definitely worth listening to.

NPR.org, August 8, 2007 · The first morning of my visit to Scenic Trails, I was walking the path between some trailers when I bumped into a man named Tim Szepek. He was young, tall, and solidly good-looking. I asked if I could speak to him for a moment and he agreed. We found a spot of shade beneath a tree, and I started with what I considered a casual warm-up.

“What’s it like to live around here?” I asked.

“Well,” he replied, “I’ll be honest.”

“Ain’t a day goes by when I don’t think about killing myself.”

And so began my time in Scenic Trails, a FEMA trailer park deep in the Mississippi woods where 100 families have lived in near isolation for close to two years.

[cont’d and audio versions]

The main finding of Peter Lindert’s intriguing 2003 paper, “Why the welfare state looks like a free lunch” (a warm-up for his 2004 book Growing Public: Social Spending and Economic Growth since the Eighteenth Century is that generous social democratic welfare states, with a variety of universalist and means-tested safety net and family support programs, grow just as robustly as stingy laissez-faire states. Here’s the key summary from the abstract:

There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large.

The finding should obviously be plastered on bumper stickers, refrigerator magnets, and dorm-room walls and played continuously on a loudspeaker outside the Chamber of Commerce, Club for Growth, Council on Competitiveness, etc. The welfare state doesn’t just look like a free lunch, it is a free lunch, at least from the standpoint of national aggregates.

Class conflict may mean that it’s hard for us to order that free lunch in the U.S. anytime soon, but the barrier between us and the free lunch doesn’t come in the obvious way.

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)

Two weeks ago, after complaining to my daughter about how much I would dislike it, I bought Bill McKibben’s Deep Economy (New York, Henry Holt: 2007) from my local Amherst book store. Already familiar with his ideas from his various other writings (including The End of Nature; Staying Human in an Engineered Age; and various New Yorker articles), I suspected that his new book would be well written, an effective attack on much that ails us as a society, and would miss the point. It is this last that led me to threaten to throw the book against the wall in frustration. And that frustration led me to write this note. (Actually, it was my wife who wanted me to write this so that I would stop ranting to her.)

What could be wrong with a book that criticizes the Bush Administration, big oil, Cargill, Monsanto, and the Economics profession (among many many other villains)? Especially when the author has such good heroes: including farmers’ markets, urban gardens, organic farmers, Heifer International, and the Indian state of Kerala. Among economists, environmentalists like Herman Daly and Bob Costanza get most of the Kudos but a few, like Amartya Sen, make friendly cameo appearances. Individualism is bad; society is productive; and I agree that would all be better off, and the world a lot better off, if we listened to Bill McKibben.

The problem I have is that McKibben not only reads orthodox economists but believes them. For him, the economy is a social system that efficiently translates individual wishes into products; changing economic outcomes, therefore, requires two things: first we must change the technology we use; and, second, we must change individual wishes rather than reorganize the economy. For McKibben, both of these problems go back to the origins of modern economic growth in the British Industrial Revolution of the 18th century. Industrialization, and the economic growth that came after, is, first of all, the product of engineering and better technology: “[I]n 1712, something new finally happened. A British inventor named Thomas Newcomen developed the first practical steam engine” (p. 5). As a result of this technology, “Every action of a modern life burns fossil fuel” (p. 15) and “[t]he link between environmental destruction and wealth is deep and long-standing. Clearly, getting rich means getting dirty” (p. 21). In a nutshell, here is McKibben’s take on the world: we have the wrong technology, we use a technology that relies too heavily on fossil fuels, and this links economic growth with environmental degradation in a way that insures that economic growth will hurt the world.

Thus far, McKibben’s critique would be familiar to readers of Amory Lovins (cited in the book) and others. This argument may be simply stated as follows: “We’re in trouble because we, accidentally, chose the wrong technology and now we need to step back and change.” But McKibben makes a broader social critique than this by adding a second element to our social malady, also dating back to the beginning of the modern era, and also an accident. Until 500 years ago, McKibben argues, individuals were embedded in communities “as a small part of the Great Chain of Being” (p. 95). “The story of the last five hundred years,” he adds, “is the story of continual emancipation” (p. 95). He recognizes that many factors dissolved this ordered world, but, a good Weberian, he highlights one: Protestantism. Like fossil fuel-powered economic growth, individualism was at first a good thing; emancipatory, it gave space for individual expression and initiative. But it has gone too far and now “we’ve been overliberated” (p. 128).

There is so much here that is familiar, and so much that rings true and even comfortable, that I expect McKibben’s book will sell well. But, I fear that he is telling us what we want to hear rather than what we need. For starters, he is wrong about the British Industrial Revolution. Rather than steam engines, the signal change there was the creation of factories, almost always operating without steam power, where employers, “capitalists,” were able to regulate the work hours of their workers. Rather than an engineering problem, the Industrial Revolution was a solution to a social problem, the problem that people, workers, did not want to work as long or as hard as their bosses wanted. Factory production allowed capitalists to increase their profits by forcing their wage workers to labor harder or else be fired (and denied access to the means of production).

Instead of seeing the economy as a system that uses technology to transmute individual wishes into economic outputs, it is a system of profit creation, producing surplus value rather than use value. This explains many of the accidents and mysteries McKibben identifies, the odd mistakes and errors in judgement, that have led to our current malaise. We subsidize the burning of fossil fuels because of the political influence of fuel and automobile companies looking to profit. Our agricultural research emphasizes large-scale, oil-intensive technologies because these favor agribusiness profits. State policy promotes extensive housing development because these projects favor corporate profits in real-estate, construction, furniture, and transportation. State policy favors private consumption of marketable commodities rather than communal use of public goods not just to raise the Gross Domestic Product but because corporations profit from private consumption. By contrast, state policy neglects, even discourages, much that enhances welfare and makes life better for people because corporations have not figured out a way to squeeze a profit from them. Home production, community building, and the development of social capital are all shunned not only because they do not enrich any section of corporate America, but because the strengthening of communities risks promoting democratic forces who would restrict corporate profit-making in the name of popular welfare.

Yes, McKibben is absolutely right that we use the wrong technologies and we value individual action over communal interests. But the problem is not in the technology, nor in any excessive desire for liberty and personal autonomy. Nor is it in our desire for economic growth where we provide the opportunity for a better life for everyone. The problem is that we grow in the wrong way because that is more profitable for the corporations who dominate our social policy.

So what is to be done? Blaming technology and individualism, McKibben urges us to change our thoughts and revise our expectations of the world with the promise that this will save the planet and even may eventually make us better off. Like the Garrisonian abolitionists of the 19th century, he would rely on “moral suasion”; after we change our behavior and rebuild our communities “then our politics will start to change as well” (p. 175). If we see capitalism and capitalist control of state policy as the root of our environmental and social maladies then we should reverse this ordering. Instead of personal change opening the door to political action, we need political action that will end the subsidization of environmental and community destruction so that we can save our planet and rebuild our communities.

Gerald Friedman
Professor of Economics
University of Massachusetts at Amherst
gfriedma@econs.umass.edu

Scientific American is reporting on a an article in the journal Neuron that describes brain scanning experiments intended to see if poorer people react differently than richer people to opportunities to gain a little extra money.

The microeconomic law of diminishing marginal utility states that while accumulating a good—pretzels, pencils, nickels, whatever—each successive unit of that good will be less satisfying to acquire than the one before it. Finding a shiny quarter on the street is a real thrill. But, if you are carrying around a bag of coins, acquiring another one does not seem nearly as exciting. In fact, would you even bother to pick it up?

That hesitation is what researchers at the University of Cambridge in England were banking on when they designed a study to see if the haves catch on more slowly than the have-nots when it comes to reward-based learning. Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.

Ex-chair of the Fed, Alan Greenspan, was frequently criticized for throwing his weight around in favor of those whose economic position is based on owning financial capital, at the expense of the vast majority of the public. Congress loved everything about Greenspan and would have made him chair-for-life if they could, so it shouldn’t be terribly surprising that his replacement, Ben Bernanke, tends towards the same bias. Dean Baker paints a “hypothetical” scenario that would lead to just that conclusion. How else to explain why Bernanke would be so eager to smooth the rough waters of the financial markets? Aren’t they just natural expressions of the rational free-market system? To paraphrase Marilynne Robinson from one of her essays in Mother Country, if the markets are natural systems, like rivers, what obligation is there to flatten out the waterfalls and smooth over the rapids? The answer seems to be the obligations of class.

By Helen Scharber, CPE Staff Economist

The new national bankruptcy laws that went into effect in late 2005 prompted a big stir, not to mention a record-setting level of bankruptcy filings just before the laws changed. What is it about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that caused so much controversy? Like its Orwellian cousins the Clear Skies and Healthy Forest Initiatives, this act—whose very title suggests it will enhance consumer protections—does anything but. Indeed, the problems with this new law have much to do with what it does not include.

By Suresh Naidu, CPE Staff Economist

Piotr Kropotkin is famous within two groups that one never sees at the same party. The biologists and evolutionary anthropologists who derive inspiration from Kropotkin’s research into the evolution of human sociality rarely intersect with the anarchists and political theorists who respect Kropotkin’s views on revolutionary change and the abolition of the state and private property. However, there was no disparity for Kropotkin, who derived many of his political beliefs from his studies of human and animal evolution.

Kropotkin had a long and interesting life. Born in 1842 to Russian nobility, he began his career as an exemplar of his class, serving in the military during the Crimean War, but eventually wound up working with the revolutionary Jura Federation. His politicization followed lengthy and difficult travels, during which he developed a deep affinity for the Russian peasants and workers he encountered. Later cut off from any political influence by Lenin, Kropotkin’s last writings were notable predictions of the tyranny that would result from the Bolshevik retention of wage labor and reliance on state coercion.

A large portion of contemporary social and biological science follows in the footsteps of Kropotkin’s academic work. Responding to the social Darwinism of his day, he wrote his primary scientific work, Mutual Aid: A Factor of Evolution, arguing that a major factor in the evolutionary success of humans was a predisposition to cooperate and share, without the need for institutions such as the market or the state.

Modern day research has provided overwhelming evidence to corroborate Kropotkin’s thesis. Anthropologists and archaeologists have found widespread decentralized cooperation within many non-industrial societies. Experimental economists have definitively shown that people are not classically selfish, with people often giving away substantial amounts of money and actively cooperating in laboratory settings, even against their narrow self-interest. This is not merely “enlightened self-interest,” rather a deeply seated desire for fairness as an end in itself (this desire may or may not have roots in biology). Biologists have acknowledged that competition among early human groups could have contributed to the evolution of cooperative behavior on the part of individuals.

Much of this literature has paralleled Kropotkin in refuting a naive socio-biological theory of human behavior. Rather than concocting stories that rationalize the current order in terms of fitness, it points to potential ways of organizing human interactions that can replace the dominant institutions of our day with something more democratic and egalitarian. Kropotkin built his belief in anarchism on the knowledge that people can organize their lives without self-interest or governmental coercion as prerequisites for large-scale cooperation.

There are many current examples of such cooperation. Elinor Ostrom and colleagues are documenting community management of scarce resources and public goods provision without the aid of governments or market pricing systems. Steve Lansing examines how Balinese rice farmers coordinate their complex ecological interactions with a few simple rules. Yochai Benkler identifies Open-Source Software as an example of large-scale non-market, non-state coordination. Erik Olin Wright and others study how participatory directly democratic institutions function to solve practical problems from Kerala to Chicago. Human institutions that harness the natural propensity to cooperate (and sometimes punish those who do not) are quite pervasive.

The political implications Kropotkin drew from his work are not the ravings of a lunatic egghead. Anarchism is commonly caricatured as naive, or worse, a haven for would-be terrorists. Instead, the politics advocated by Kropotkin are best interpreted as general principles. First is an ethical imperative, that there is no policy substitute for social norms and ideals of behavior - a belief that one’s personal behavior can either reinforce or undermine the status quo. The second is a deep suspicion of facile state or market fixes to social problems. Together, these imply respecting and considering people’s abilities to develop community solutions and autonomously self-organize before suggesting “policy” or “market” solutions. Kropotkin’s mix of science and politics are not vestiges of a bygone age, but very relevant ideas deserving greater intellectual and political engagement.

References:

Stephen Jay Gould, “Kropotkin Was No Crackpot,” Natural History, July 1997.

For experimental fairness, see Ernst Fehr et. al., “Fairness and Retaliation: The Economics of Reciprocity,” Journal of Economic Perspectives, Summer 2000.

For group selection giving rise to cooperation, see Elliott Sober and David Sloan Wilson, Unto Others, Harvard University Press, 1998.

For egalitarian cooperation in hunter-gatherers, see Christopher Boehm, Hierarchy in the Forest, Harvard University Press, 1999.

The remarkable case of Balinese rice farming is found in Steven Lansing and John Miller, “Cooperation in Balinese Rice Farming.”

For community solutions to public goods problems, see Elinor Ostrom’s classic Governing the Commons, Cambridge University Press, 1990 and Trust and Reciprocity, Russell Sage Foundation, 2003.

For Open-Source Software, see Yochai Benkler, “Coase’s Penguin, or Linux and the Nature of the Firm,” 112 Yale Law Journal 369 (2002).

For the efficacy of direct democracy, see Erik Olin Wright and Archon Fung, Deepening Democracy, Verso, 2003.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Noah Enelow

You would think the discovery of massive natural gas deposits in the heart of a developing country would present itself as an enormous windfall. All this country would have to do is find a source of financing, extract and refine the gas, sell part of it on the world market, and keep the rest, along with the profits, for domestic development.

Unfortunately, in Bolivia it hasn’t worked out quite so rosily. The battle over natural gas has exacerbated the country’s class and ethnic tensions to the point of warfare. Dozens of people have been killed in massive street protests; the president has resigned; the country is in chaos. What happened?

Upon first glance at the problem, there appear to be two root causes. The first issue was that the gas would have had to be exported through Chile, a longtime rival of Bolivia, which usurped Bolivia’s only seaport over a hundred years ago. The deal would thus enrich Chilean export companies at the expense of the Bolivians. The second issue was that the extraction and refining of the gas were to be undertaken entirely by a multinational company, Repsol-YPF. Their contract, signed long before the latest and largest gas deposits were discovered, was to provide the Bolivian public sector with 18% of the profits from sales. The rest would leave the country - a typical pattern for extractive industries in underdeveloped countries.

But those two issues are the just the tip of the iceberg. The peasants who make up the bulk of the protesters have good reason to believe they’d never see a dime of even those meager profits. Over the last two centuries, numerous raw materials have been extracted from Bolivia: silver, rubber, guano, and tin. The result? Underdevelopment, poverty, and disease. The leading cash crop of Bolivia, coca leaf, has been targeted for eradication by both the domestic government and the United States, as part of the “War on Drugs”.

Furthermore, as Bolivia has become increasingly beholden to the IMF’s structural adjustment program, life has steadily grown worse for the poor. In the last 3 years, the poorest 10% of the people have seen their incomes decline 15%, as the wealthiest 10% have seen their incomes increase 16%. Social services have been slashed while taxes have increased, to pay off the country’s high debt. How far can one expect a country to tighten its belt when its poverty rate is 70%?

Finally, the entire conflict is rife with ethnic and class tensions. The Bolivian elites are overwhelmingly of Spanish descent, while the poor are overwhelmingly indigenous. As a group, the former have proven untrustworthy, unaccountable, and corrupt; the latter grow more irate by the day.

The resignation of the U.S.-endorsed president, Gonzalo Sanchez de Lozada, who supported the gas plan, thus represents a victory for the poor. But the struggle is not over. The primary representative of the indigenous people, the self-described socialist and coca grower Evo Morales, in a recent speech declared the West a “culture of death”; meanwhile, in Sanchez’s resignation speech, he referred to Morales as a “narco-syndicalist” and warned of the power of the coca growers.

Is an agreement possible? A broad, highly organized coalition of labor and indigenous groups, the National Coalition in Defense of our Gas, has drawn up a list of demands. These include the formation of a constituent assembly to ensure greater popular participation in government, and the re-nationalization of Bolivia’s gas resources. The coalition has given the new president, Carlos Mesa, a 90-day truce to allow him to implement their demands. Will the two sides of Bolivia forge a new social contract, or will the country’s exports continue to enrich the few while leaving the many impoverished? Stay tuned.

References:

The Americas.org website contains a fantastic wealth of information about Bolivia. Numerous alternative sources and viewpoints are present alongside updates from the BBC and mainstream media.

Laura Carlsen. “Resources War: Lessons From Bolivia.”

Newton Garver, “Bolivia in Turmoil“, Counterpunch 10/17/03.

Keith Slack, “Poor Vs. Profit in Bolivian Revolt.”

(c) 2003 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(6/25/03)
By Anita Dancs, Staff Economist for the Center for Popular Economics and Research Director of the National Priorities Project

With great fanfare, President Bush signed the ‘No Child Left Behind Act’ in 2001. Contrary to Administration claims, this Act will leave many children behind. The Act sets out requirements on public schools in an effort to raise student achievement, but it also promises additional funding. Despite these promises, the Bush Administration’s proposed budget for the coming year would underfund the Act by $7 billion. State and local governments mired in fiscal crises in recent years, will have to find ways of meeting the Act’s requirements while also dealing with rising Medicaid costs, underfunded homeland security mandates, and neglected roads.

The House of Representatives decided to follow George W. Bush’s advice and vote to abolish the estate tax, thus making life easier and more fun for the wealthiest 2% of the population–the only segment of the population to which this tax applies.

The cost to the rest of us: about $30 billion a year. That’s far more than the federal government spends on cash welfare programs (Temporary Assistance to Needy Families) every year.

Even Jane Bryant Quinn, the Newsweek columnist who is best known for her investment advice, editorialized against the cut. She systematically rebuts claims that estate taxes are breaking up family farms or destroying small business. As she puts it: “If the estate tax isn’t fair, I don’t know what is.” (Newsweek, July 31, 2000).

For more technical details, and some good arguments in FAVOR of the estate tax, check out what Citizens for Tax Justice have to say, at http://ctj.org/html/estbob.htm

Here’s an excerpt:

“The parent who leaves his son enormous wealth,” wrote steel magnate Andrew Carnegie a century ago, “generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would.” You’d think that Republicans, if anyone, would sympathize with Carnegie’s point. After all, if giving a single mother $10,000 a year in welfare stifles her incentive to work, just think how much worse it must be for someone who gets a windfall of 100 or 1,000 times that much.

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.