unsettling economics

When a corporate changes its home to Bermuda or the Cayman Islands, does it become a non-person?

I need to come up with a cover for the paperback edition of The Confiscation of American Prosperity. The best image I can imagine would be a 1930s-style cartoon showing bosses and politicians screwing workers. Any suggestions will be appreciated.

Two of the campuses of California State University are striking today. The timing of the strike is unfortunate, coming at the same time as fees are raised once again almost 10%. The union realizes that pay raises are a small part of the overall abuse of higher education in California, but strikes are only permitted in opposition to the contract with University system. Chronic underfunding began during the first term of Jerry Brown, when the passage of proposition 13, frightened him. Not only is the administration grossly overpaid, its management style is arrogant and heavy-handed. Finally, the gutting of public education at all levels means that students come to the University underprepared and, more often than not, lacking the funds to pay for their education. Not only do they fall under a heavy debt burden, they work too many hours after school in order to focus on their education. To add insult to injury, all of us have to listen to public figures telling us how our economic future depends upon educating young people, presumably without any tax burden unless such funds are directed to hedge funds engaging in charter school scams.

I am writing a first draft of my introduction to the paperback edition of my book. Any feedback would be very much appreciated.

The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression first appeared in October 2007, just as the stock market was peaking. Judging by the public pronouncements by economists and the business press, the economy appeared modestly healthy before the breakdown of the subprime mortgage market. In fact, the weakness of subprime mortgage market was a symptom of deeper problems that had been eating away at the economic core.

In addition to a diagnosis of these deeper problems, such as growing inequality and an emphasis on financial activities, rather than more productive economic endeavors, the book offered a historical analysis of the willful gutting of the economy that occurred over the last four decades. The Confiscation of American Prosperity presents this history in the form of a crime story, beginning with an accounting of the economic plunder engineered by a small part of society, with the complicity of both political actors and many, if not most, economists. The second part of the book describes the way that this group was able to carry out the theft of enormous wealth. In the tradition of crime stories, the third part of the book examines the expected retribution. The final section addresses the incompetence of the economists, who should have acted as policeman while the plot was unfolding. Read more »

Americans love reform. Each election is about reform, change, throwing the bums out. And yet, nothing ever changes. We see new faces, but we face the same problems. Why? Because it’s the system which needs to be changed not the current cast of characters running the system. But systems are hard to change. Each year, the congressional high priests offer a sacrifice to the idols of change. They pass reform bills, or change the rules in Congress. Ostensibly, these alterations are done to fix the system, yet nothing seems fixed. Is corruption in Washington really ended by insisting congressmen eat their food with their fingers standing up, rather than seated with forks and spoons? Yet this is the kind of reform which Congress proposes, passes, and then congratulates itself about.

For years, it has been difficult to pass legislation in the changed partisan congressional atmosphere. So a lobbyist trying to enact his client’s wishes needs to get his amendment onto a bill likely to pass both the House and the Senate, to then be signed by the president. No bill is more likely to pass than a reform bill. While there may be hiccups on the way, most reform bills will make it all the way to the president’s desk, so smart lobbyists always keep an eye out for reform bills.

It’s ironic, if not horrific, that this is the case. The very bills designed to limit corruption and improve our system of government sometimes serve as vehicles for special interests. Like fugitives surreptitiously searching for an escape car in the dead of night, too many lobbyists prospect for reform bills in the hope of attaching their amendments. To my great shame, I was part of that group too.

How can the right wing blame unemployment on educational (skill) deficiencies and then shortchange the entire educational system?

A gung ho, new fire marshal has demanded that I reduce the paper load in my office. So far, I have packed 14 boxes of papers and journals, with many to go. Than I have to figure out a way to store them while I sort through them to see what I must save.

The administration is planning to shuffle departments around. One plan has us located in the same school with such unrelated subject as cement technology. The school of business is a more likely location, but they would be likely to eliminate all the interesting classes that I like to teach.

Coming off an 18 hour trip to Shanghai, we were met by an energetic
and intelligent young student, who accompanied us to our hotel. The
cab driver told the student he knew right where the hotel was. Since
we had stayed there several times, Blanche recognized that he was
taking us on a very circuitous route in order to check up his bill.
The student later told us that his accent revealed that he was not in
any of Shanghai. As a result, the driver regarded him as a foreigner
to, someone whom he could legitimately take advantage of.

We arrived at the hotel, only to be told that the room, we had
reserved was not available for us; but that we could spend the night
in an unrenovated room, then move into our room the next day. I
didn’t care about the quality of the room. We were just going to lay
down and go to bed; however, the hotel did the same thing to us the
last time. In addition, I didn’t look forward to unpacking bunch of
stuff and having to repack the next morning.

The young staff explained various motivations for our treatment.
Because management receives bonuses for filling the hotel up to
capacity, overbooking increases their chance of collecting the
bonuses. We were also told that most of the booking is done by the
web and the company does not shut off booking when the reservations
overflow.

After a long argument with the manager, he gave us a more lucid
explanation. He said that many people want to stay at the hotel, and
that we were not important enough to be of any concern for him. He
was right. We aren’t important. And his concern is increasing his
income.

The minor inconveniences and ripoffs that we experience are nothing
compared to what most of the world experiences. They do, however,
illustrate the nastiness embedded in the capitalist mode of
production. As a trained economists, long tutored in the ideology of
capitalism maximizing utils, I am amused by my educational experience.

Here is a snippet from The Confiscation of Economic Prosperity, which seems relevant today.

In Praise of Inequality?

Conservative economists typically attribute the poverty of the poor to natural market forces; the less fortunate do not deserve to earn more than what they can earn in the market.  If the poor want more income, they should just work harder or smarter.  Government policies to reduce income inequality or to help the poor to enjoy a larger portion of society’s wealth and income are confidently denounced as destructive, at least according to this ideology.

Conservative economists conveniently ignore the perverse political and social influences that reinforce inequality.  Questions of race, class, or gender do not enter into their discussion of inequality.  Nor do many economists acknowledge that the forces that maintain inequality limit the potentially valuable contributions of those held back down by inequality.

This ideological predisposition makes economists extremely critical of any thought of redistribution of wealth or income.  Consider the words of Nobel Laureate Robert Lucas.  After noting the differential growth rates among countries, he writes: “Is there some action a government of India could take that would lead the Indian Economy to grow like Indonesia’s or Egypt’s? …  The consequences for human welfare involved in questions like these are simply staggering:  Once one starts to think about them it is hard to think of anything else” (Lucas 1988, p. 5).

Not only was Lucas willing not to think of anything else, he wanted others to do likewise:

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.  In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India.  The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother.  This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken.  But of the vast increase in the well‑being of hundreds of millions of people that has occurred in the 200‑year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor.  The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.  [Lucas 2003]

According to this theory, markets appropriately reward the rich and powerful because of their superior productivity.  Consequently, they deserve every bit of what they earn.  Supposedly, the best cure for poverty is to allow natural economic forces to follow their course.  These economists are unapologetic about their stance.  For example, when Finis Welch, who gave his prestigious Richard T. Ely lecture at the 1999 meeting of the American Economic Association, he provocatively titled his talk, “In Defense of Inequality.”  There, Welch proclaimed:

I believe inequality is an economic “good” that has received too much bad press ….  Wages play many roles in our economy; along with time worked, they determine labor income, but they also signal relative scarcity and abundance, and with malleable skills, wages provide incentives to render the services that are most highly valued ….  Increasing dispersion can offer increased opportunities for specialization and increased opportunities to mesh skills and activities.  [Welch 1999, pp. 1 and 15]

Ludwig von Mises, an Austrian economist and one of the leading icons of libertarian economics, went even further than Welch, proclaiming: “Inequality of wealth and incomes is the cause of the masses’ well‑being, not the cause of anybody’s distress.  Where there is a ‘lower degree of inequality’, there is necessarily a lower standard of living of the masses” (von Mises 1955).

Does inequality really get too much bad press, as Finis Welch suggests?

I have never been a fan of Apple’s business practice, but I have played his Stanford commencement speech to classes as the end of the semester for several years.  I am not sure how much he is shading the truth but it is very inspirational.

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CCQQqQIwAA&url=http%3A%2F%2Fwww.foxnews.com%2Fscitech%2F2011%2F10%2F06%2Fin-2005-speech-steve-jobs-muses-on-death%2F&rct=j&q=jobs%20stanford%20commencement%20speech&ei=uk2OTqL4L_KksQKj6dS3AQ&usg=AFQjCNE1TChtXPtwSPw1yDRR2lOXzGS2JA&sig2=uKvWxInr64vHzyAiW93_dw&cad=rja