Dec 2014

Who Owns America? Part 3

One of the things that that really strikes me as strange is the way free-market enthusiasts always distinguish between business and government. I sort-of get it: if you read the old classics by Henry Hazlitt or Ludwig von Mises or if you read Atlas Shrugged, you get the impression that free enterprise and government bureaucracy are worlds apart. But let's remember, these economists were talking about a world they grew up in, a hundred years ago. And Atlas Shrugged, despite being the book many libertarians (don't want to admit they) got most of their ideas about the ideal economy from, is fiction!

For me it comes down to size. Big corporations are as distant from control by regular people (as workers, as consumers, as neighbors with rights) as big governments. In
Managed By the Markets, Gerald Davis begins his chapter on the golden age of corporations with the observations that:

Exxon Mobil's 2007 revenues of $373 billion matched the GDP of Saudi Arabia, the world's twenty-fourth largest economy. Wal-Mart has more employees than Slovenia has citizens. Blackwater Corporation has a larger reserve army than Australia. The individuals that run such corporations wield more influence over people's lives than many heads of state. In some respects, corporations transcend or even replace the governments that chartered them: states are stuck with more-or-less agreed land borders, but corporations are mobile, able to choose among physical and legal jurisdictions…Moreover, corporations can fulfill many of the functions of states: they can have extensive social welfare benefit programs for employees…Indeed, some American multinationals look more like European welfare states than does the US government.

A couple of observations here. First, as Davis has mentioned repeatedly, it was precisely because the giant corporations that once employed the American middle class offered "social welfare" bundles like lifetime employment, career ladders, job training, old-age pensions, and health insurance, that government didn't have to. America has a much smaller public commitment to social welfare not only because we have a greater commitment to "freedom," but because
we didn't need the state to step in. The problem now is that the giant corporations that provided these benefits have disappeared, and many of the people thinking about this issue are stuck in a "Happy Days" mindset. We're making policy as if the corporations are still there. Many of the names are there. There's still an AT&T, a GE, and a General Motors -- but if you look at them, they're more like brand names than companies. AT&T once employed over a million people in the US. That's down to a quarter million. GE's own website asks, "Did you know that manufacturing jobs were the largest sector of employment in 1960, yet today the category has fallen to 6th place?" Even General Motors has shrunk from employing over 600,000 people in 1960 to fewer than 200,000 today.

But there are new companies like Google and Apple to pick up the slack, right? Not according to Davis:

The combined global workforces of Google (32,467), Apple (63,300), Facebook (4,000), Microsoft (90,000), Cisco (71,825), and Amazon.com (56,200)—317,792 as of the end of 2011—are smaller than the US workforce of Kroger (339,000). Notably, a recent survey of college graduates under 40 found than one in five listed Google as their most preferred employer, followed by Apple and Facebook. They might as well have chosen the NBA as Facebook, given the firm’s miniscule employment, and Apple’s recent surge in net jobs is almost entirely attributable to the roll-out of its retail stores, where most of its current employees work.

So it really is down to Wal-Mart. Davis quotes David Bell, who said the "paradigmatic corporation" of the first third of the 20th century was US Steel, followed by General Motors in the second third and IBM in the final third. Today it's Wal-Mart, a flat organization with thousands of small units, minimal benefits and no career ladder -- but employing 1.4 million people, "more than the dozen largest manufacturers combined." But what about small business? The government, chambers of commerce, political candidates -- everyone seems to always be saying this is where the real story is. Where the American dream still operates. According to
Forbes, there are 28 million small businesses and another 22 million self-employed entrepreneurs. Half the working population they say.

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But the definition they use of small business is anything with fewer than 500 employees. A Wal-Mart store with 300 employees (which is average) thus qualifies. Yeah, the guy who runs the Taco stand in the photo Forbes used definitely counts. But so does the McDonalds franchisee down the street from him. According to the Bureau of Labor Statistics, the percentage of the workforce employed at firms with fewer than 50 employees holds pretty steady at about 28% to 29%. So the question is, do the cheery infographics hide more than they reveal?

Davis concludes his most recent article ("After the Corporation") with a call for localism. He says, "Local solutions for producing, distributing, and sharing can provide functional alternatives to corporations for both production and employment...the technology for locavore production is already here; what is needed is the social organization to match the tools that we have in hand, or will have shortly." I think he's probably right. "The stunning productivity," he says elsewhere, "of the agriculture and manufacturing sectors—the roots of post-industrialism—should be a cause for celebration." This is true -- at least as long as it's sustainable. A lot of that farm productivity and industrial globalization is based heavily on cheap energy. But even if energy remains cheap, important questions remain to be answered. The first is, what do people do to earn a living? People are much less mobile than corporations -- and I suppose that immobility is the key difference between today's global corporations and government. Corporations can leave -- governments by definition stay home with their citizens and pick up the pieces.

Who Owns the Future?

Jaron Lanier is just a little older than me. We were both born at the boundary between the Baby Boom and Gen X, and that probably colors both our thinking. Lanier has worked for decades in the Silicon valley, especially in virtual reality and with the types of big systems that now run the world: web commerce and financial networks he says are hollowing out America’s middle class as they enrich their owners.

You Are Not A Gadget was Lanier’s first exploration of this theme. It was followed in 2013 by Who Owns the Future, which sharpened Lanier’s criticism of the damaging effects of Siren Servers and offered a peek at a possible solution he has just begun working out the details of. I found the first book slightly more compelling than the sequel, although in general I think both books are on the right track.

Lanier’s main technological point in the first book is the idea of “lock-in,” through which choices once made are very hard to unmake. For example, MIDI, Lanier says, was an ad-hoc solution to an immediate problem. Its subsequent status as the central standard for digital music is unfortunate, because MIDI’s flaws and its keyboard-oriented understanding of musical notes have become institutionalized. The losers are both musicians and listeners — and Lanier believes lock-in creates similar outcomes in nearly all other circumstances.

Programmers and the public, Lanier says, romantically imagine that every app is a new opportunity to build something from the ground up. In reality, his experience with big systems showed him the huge amount of legacy baggage all large projects are saddled with, and how much of design and coding revolves around issues like backward compatibility. Based on my own experience in tech businesses, I agree. How many generations of Microsoft operating systems were crippled by the need to support the 16-bit installed base? How many CPU cycles are wasted dealing with software bloat because it’s easier to layer new code on top of old, rather than engage in the new engineering required to tear down and rebuild an app? The result, as Lanier observes, is often that hardware advances at the speed of Moore’s Law while software pretty much stands still.

Sometimes it takes a special perspective to see the obvious. Lanier says the current search engine architectures are based on a technologically primitive command-line interface. Holy shit! They are. He says Linux is a mash-up of the dinosaur OS, UNIX. He took a lot of heat for that one. But I couldn’t help remembering when I read it, that as much as I wanted to be excited by Richard Stallman’s GNU Project when it first hit the web, I found it deadly dull. The radical promise of the early Silicon Valley visionaries failed to materialize. Lanier sort-of apologizes:

This is embarrassing. The whole point of connected media technologies was that we were supposed to come up with new, amazing cultural expression. No, more than that—we were supposed to invent better fundamental types of expression: not just movies, but interactive virtual worlds; not just games, but simulations with moral and aesthetic profundity. That’s why I was criticizing the old way of doing things.

He has a point. Silicon Valley pioneers built on the ideas of the 60s to predict revolutionary ways technology was going to change our lives and save the world. But on the whole they’ve delivered mostly iPhones and supercomputers that can game the financial markets. The biggest project I was involved with at Silicon Graphics put multi-pipe Onxy 2 visualization systems in the new Hayden Planetarium at New York’s Museum of Natural History. It was COOL. But it was a planetarium — an improvement on a working, existing technology. And at the same time, a guy in lower Manhattan was installing similar multi-million dollar equipment into his penthouse condo, so he could crunch financial numbers. That was radical and new — but that led to 2008.

Of course, failing to deliver the revolution isn’t unique to high technology. And perhaps Lanier is overly romantic about the impact of technology, and also about the promise of 60s counterculture. His main cultural point is that we’ve entered a period of stagnation, which he claims is exacerbated (if not created) by the current design of the internet and the enabling of the mash-up.

Computers and the web, Lanier says, make it easier to be derivative and harder to be original. Or at least, they reward mash-ups and fail to provide encouragement for original creative effort. He cites the hollowing-out of the music industry, which he readily admits was top-down, exploitative, and inefficient before Napster and Kazaa killed it. But at least a musician could make a living. Similarly, Lanier says the “old” internet was once the home of countless pockets of expertise where people posted things that excited them. Many of these sites still exist, he observes, but most haven’t been updated since the advent of Wikipedia. As a grad student, I’ve defended Wiki against the criticisms of what I believed to be old-fashioned faculty who preferred the elitist encyclopedias of old. But I have to admit the Wiki design ideal seems to equate sterility with impersonal truth, and I’m no longer sure whether that makes it an improvement over Britannica or the Dictionary of National Biography. I’ve actually started acting on Lanier’s suggestion, and looking first at non-Wikipedia results when I google a topic. (fwiw, I also took his advice from
Who Owns the Future and started buying some printed books again, so the volume I’m quoting from is sitting beside my keyboard, complete with highlights and margin-comments).

“Information,” Lanier says, “is alienated experience.” I think this is one of his oldest insights, probably going back to the days when he was a Neo-Marxist grad student. But he has a point. I don’t have to worry as much about how MIDI has impoverished digital music if I’m picking out the tunes of my favorite new Le Vent du Nord songs on my fiddle. Part of the solution to the cultural problems he describes may be to turn OFF, tune OUT, and drop back IN to actual experience and creativity. And, as in
Who Owns the Future, Lanier’s critique may be overstated because like all Silicon Valley people, he may ascribe slightly too much importance to what happens in our virtual lives. Of course, some of the numbers support him here. Some people are not simply displacing time they used to spend vegging in front of the TV, but are wasting huge amounts of NEW time. We don’t HAVE to be completely determined by our means of consumption OR production. We just have to be conscious — and to that end, Jaron Lanier's critique is a valuable wake-up call.

Teaching Climate Change

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As I've been preparing to teach US Environmental History again, I've been rethinking how I organize each of the lectures. Students are introduced to climate change from the very first lecture which talks about the last ice age, sea level change, and the Beringian route taken by the people who populated the Americas before the Europeans arrived. In the following lecture, I talk about the Little Ice Age, Viking settlements in Greenland and Newfoundland, and the fisheries of the Grand Bank and Georges Bank. Later in the semester, I talk about the Dust Bowl and the irrigation boom that followed it. And finally, as we near the present I talk about global warming and our response to it.

Last semester I laid out the case for global warming in a pretty straightforward manner, in a lecture that also dealt with other environmental impacts and resource scarcities that might present a challenge to further growth (or even to the status quo). I gave only a few paragraphs to the controversy surrounding climate change, noting that the debate was drawn on predictable political lines. I mentioned that 97% of scientists agree that global warming over the past century is due to human actions, and that NASA, the IPCC, the American Geophysical Union, the American Medical Association, the American Physical Society, and the American Meteorological Society all agree that (in the words of the Physical Society) "We must reduce emissions of greenhouse gases beginning now." And I mentioned that although 97% of scientists agree, a recent poll found only 45% of Americans are aware of this fact, and that many believe there is still a much greater degree of doubt and disagreement than there actually is.

In the past couple of weeks I've spent some time on some of the prominent global warming denial websites. These folks generally believe that the science supporting global warming is fraudulent, created by researchers seeking big grants from governments interested in increasing regulation. They prefer to be called "skeptics" rather than deniers, but
actual skeptics object to sharing the name -- claiming that skepticism is something different from simply looking for data that supports a political agenda. And there is a political agenda. A study published in 2013 found that most of the public statements made against climate change from 2003 to 2010 could be traced to 91 organizations that received their funding from sources such as Exxon/Mobil and Koch Industries, and then later in the period (once the Citizens United decision made super-PACs possible) from ultra-free-market sources like the Sarah Scaife Foundation, the Searle Freedom Trust, and the John Templeton Foundation. Science historian Naomi Orestes's 2010 book Merchants of Doubt examines the similarities between the tactics used by climate deniers and those used by scientists who, working for the tobacco industry, for decades claimed smoking was not dangerous.

Some of these climate change denial websites are extremely popular, and they seem to be convincing some people I know who seem sincerely concerned about public issues. These folks also tend to be believers in free markets, and part of their objection to global warming is their belief that government-led actions to mitigate climate change will hurt the economy. I think these friends are wrong, but I'd like to expand this discussion because I think we need to find a way to bridge the gaps between populists on the left and right. So I was curious what these influential "skeptic" websites were up to.

The big issues that the global warming critics seem to come back to regularly seem to be grouped around first, challenging the scientific consensus on global warming and its causes; second, challenging the data on global warming and offering conflicting data; and third, challenging the integrity and motives of their opponents. In the first case, the two main approaches I noticed were attacking the actual article that first announced a 97% consensus, and presenting a petition supposedly signed by 37,000 scientists challenging global warming. The first approach, I think, deliberately misses the point that regardless of your quibbles about the ways that particular article analyzed the data or presented its conclusions, the fact is that an overwhelming majority of scientists
do agree on the general issue of human-caused global warming. And the second approach, the petition, doesn't really contradict this reality. Even if all 37,000 signatures are authentic (there's evidence that many of the are not) and a group of scientists led by nuclear physicist Edward Teller dispute climate change, they are still a minority. Yes, a minority of one may be right, and there may be a Galileo moment here. But Galileo had his moment because he was right, not because he was in the minority. The debate, I think, has got to be about the science and not the scientists.

Most regular people, of course, don't have the inclination, training, or resources (ability to get behind academic paywalls, access to journals, etc.) to review all the science. The ways academics communicate with regular people is one of my main interests, which is one reason I was drawn to this debate. Unfortunately, the gap between the scientists and the people works to the benefit of those who would prefer to leave behind the complexity and tentativeness of real scientific knowledge, and spread simple, certain propaganda.

The second and third challenges made by the critics take advantage of this gap. If climate is a complex system conforming to the principles of what we often call "chaos theory," then the effects of change will be non-linear, dynamic, and emergent. That means that the data will be "bumpy." There won't be simple correlations -- the temperature won't rise everywhere equally. And causes of similar-seeming events in the past cannot be taken for granted as causes of present effects. For example, one of the free-market folks I'm acquainted with argues that because the Holocene Optimum, the Little Ice Age, and other historical periods show variation greater than the current observations, that we've nothing to worry about. I think his argument is that until the variation is greater than other natural variations we know about, we shouldn't suggest something new is happening. I don't think this is how it works in non-linear systems.

The other argument that I think appeals to free-market proponents is that global warming is some type of government plot to increase the size of the public sector and stifle the economy. People are suspicious of big science and critics claim that global warming has been fatally compromised by events such as "
Climate-gate," although third-party reviewers have suggested the facts aren't quite as the critics say. But there's a clear element of conspiracy theory in the bundle of topics that surface on the big denial sites. I was banned for life from one last week after I pointed out that side-discussions had risen in post comments challenging both the danger of second-hand smoke and the existence of HIV/AIDS.

The sheer nastiness of many of the people you come across on the denial websites is probably not an indication one way or the other of the strength of their arguments.
But I think it is an indication of who these sites are marketing their arguments to. There's a difference between trying to bring important but complex social issues into a public forum were we can all talk about them, and pandering. After a couple of weeks digging into the anti-global warming websites, I think the big ones have crossed this line. But that doesn't mean there's no point engaging with people who disagree. It just makes it more difficult -- which I suppose is the whole point.

US Population Density, 1900 to Today

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Here's an interesting map drawn by Business Insider, showing the 146 counties (out of 3,144) where half the US population lives today. For comparison, below is a map of US population density in 1900.

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Does the Future Need Us Now?

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CNN ran an article a couple of days ago titled "Is AI a threat to humanity?" These articles are usually a roundup of other recent articles suggesting we ought to consider the risks of complex autonomous -- or even self-aware -- systems before we go ahead and build them. The articles cited in this piece are interesting in that many of them were by eminent scientists such as Stephen Hawking and Nobel physicist Frank Wilczek (who say "Although we are facing potentially the best or worst thing ever to happen to humanity, little serious research is devoted to these issues") or by academic organizations such as The Cambridge Center for Existential Risk, the Machine Intelligence Research Institute, and the Future of Life Institute.

Another interesting element of this article is that although it mentions highly publicized material such as
Elon Musk's tweets about the danger of artificial intelligence and Ray Kurzweil's hopes of machine-human symbiosis and the Singularity, it also describes some much more prosaic, shorter-term risks. Even semi-autonomous machines could (and already have) put millions of humans out of work, as their increasing capabilities allow them to move from "blue-collar" to "white-collar" work. In Plutocrats, Chrystia Freeland told the story of computerized e-discovery: how a law firm given a week to sift through 570,000 documents used Clearwell software instead of the dozens of associates and law clerks they would have put on the job a decade ago. Although machines taking human jobs is nothing new, we used to be able to tell ourselves that these were just the low-end jobs. Grunt-work that people would be better off not doing. The displaced workers could retrain themselves and enter the information economy. But as Jerry Davis and others have argued, "knowledge-work" can now be outsourced to cheaper markets. Ultimately, software could replace people in call centers, banking, insurance, and a lot of the bureaucracy that we call government.

Similarly, as Hawking and his coauthors point out, a machine doesn't have to be super-intelligent like The Matrix or Skynet to kill you. Our military already has machinery that can be
programed to identify and eliminate human targets. The UN and Human Rights Watch are pushing for treaties to ban the use of such weapons, but what do you think the chances of the US signing on are, if we have a decisive lead in this technology?

What I find most interesting, though, is how unpopular these types of warnings are among the technorati. Folks in the Silicon Valley are happy enough to coexist with the
Singularity University and dream about merging their minds with super-intelligent machines (they generally pass over the question of how few people this technology would be made available to if it ever became real, and what would happen to the rest of us), but Elon Musk took some heat for tweeting his concern. This has been going on for a long time. Fourteen years ago, in April 2000, another über-geek, Bill Joy (Chief Scientist of Sun Microsystems, inventor of Java) wrote a cover article for Wired Magazine called "Why the Future Doesn't Need Us." It's still worth reading.

Is Climate Skepticism Religious?

There's an interesting story on Scientific American. Posted Dec. 22nd, the article is titled "What Have Climate Scientists Learned from the 20-Year Fight with Deniers?" The article tells the story of Benjamin Santer, who was responsible for the original IPCC statement in 1995 that "The balance of evidence suggests a discernable human influence on climate change." Santer has been vilified and hounded by climate change opponents since then, according to the article. Although he's apparently a very private person, Santer decided "Climate scientists don't have the luxury of remaining silent."

The article goes on to discuss the ways climate change has been turned into a political debate. One interesting element is the idea that it's everybody's fault: that "all 7 billion of us" are equally, "collectively responsible for industrial greenhouse gas emissions." The implication, of course, is that we can only change the situation by radically changing our lives -- every single one of us. That's hard.

 
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In reality, a study by the
Union of Concerned Scientists has found that nearly half (48%) of the atmospheric CO2 contribution since 1854 has been made by twenty organizations. The largest contributors have been the former Soviet Union and China (each considered as a whole), followed by Chevron, Exxon/Mobil, Saudi Aramco, BP, and Shell. Another seventy organizations account for 15%, so in all we can trace nearly two thirds (63%) of all the carbon pumped into the atmosphere to 90 organizations.

That's not to say that we aren't all partly responsible. Nearly everybody in the developed world is a customer of one or more of these organizations. We heat our homes and drive our cars with their oil and gas. But it does at least suggest that as a society we may have some leverage on the issue. That we may be able to develop technology that would allow these 90 organizations (or their successors) to provide us with needed energy more cleanly than they have since 1854. There may be efficiency trade-offs involved in this -- which may be why for-profit corporations haven't yet done all they can. At the very least, it's a different problem (calling for a different solution) than the "we're all equally to blame" scenario.

The article continues by observing that climate scientists have learned a lot about their opponents by studying the creationist response to evolution in American politics, and also by understanding the tobacco industry disinformation campaigns of the 1990s, when "tobacco companies ran media campaigns that equated smoking with freedom of choice" and regularly obscured scientific findings showing that smoking and second-hand smoke cause cancer and other serious diseases. It's been well-documented that cigarette manufacturers actually lied about the results of their own research on the issue -- although ironically just this week climate skeptics commenting on Google executive Eric Schmidt's recent remarks about climate got into a side-argument in which they
reiterated the claim that second-hand smoke wasn't really dangerous.

Which brings us to the main issue: core beliefs. If climate skeptics are also arguing for the safety of second-hand smoke and
claiming that HIV/AIDS is not a real disease, what should climate scientists do to get their message through? Is there any hope of a sincere dialog? The article concludes that "people's belief in climate change often correlates with their ideology and their religious and cultural beliefs." The author tries to tie up the article and bridge this gap by suggesting that religion and science are compatible. He concludes (no kidding, in Scientific American) by quoting a Brown biology professor's assertion that "God is not the antithesis of scientific reason but the reason why it works in the first place."

I have trouble not believing the argument about scientific evidence of climate change is already lost if you start with start it with, "I'll give you your religious preconceptions, but…" Because if you really believe, then climate change isn't a problem because:

  1. God made the earth and can fix it if he chooses to,
  2. This isn't really our home. We (those who count, at least) are going somewhere more important.
  3. The Bible says we have dominion and can do what we want with nature.
Of course there are other traditions within the same religions that say we are stewards of nature and have some type of responsibility. Sometimes religions even acknowledge the social responsibility issue and the idea that environmental impacts (climate or otherwise) don't effect everyone equally. Last spring, the new Pope Francis made a Biblical case for addressing climate change, saying "If we destroy creation, creation will destroy us." The problem with religion is, which tradition are you going to subscribe to?

Even with the Pope's statement, though, I'm still concerned by that first step of caving on religion. Seems like it's at least necessary to draw a line and say
this discussion is in the realm of science. Invoke a separation of church and state for what basically amounts to a discussion of public affairs. We could argue that in order for people of all faiths (and none) to have a discussion about this, we have to keep arguments from faith out of it. But if your basic world view is informed by faith and you're told it has no place in the discussion, don't you then just spend your time not believing in the discussion? Maybe even trying to derail it? And using skeptical arguments if the faith argument has been ruled out of bounds?

Who Owns America? Part 2: Funds & Markets

There are several books I'm reading or planning to read, that have tracked the American economy and focused on ownership and control of major corporations. Among them are C. Wright Mills's The Power Elite, Ferdinand Lundberg's The Rich and the Super-Rich, and the Temporary National Economic Committee's Investigation of Concentration of Economic Power. After reading Davis's Managed By the Markets, I'm adding Brandeis's Other People's Money and  Berle and Means's The Modern Corporation and Private Property.

I ran across an interesting passage yesterday in Lundberg's book, in a chapter called "Oligarchy By Default." In a discussion of corporate control, Lundberg says "Big stockholders could, it is true, meddle into the affairs of corporate management and, theoretically, could insist upon strict social-minded policies. They do not do this, usually, not because they are of the despicable temperaments pictured by C. Wright Mills and others but because they are indifferent, diffident or are afraid to disturb a smoothly running profitable operation."

This reminded me a bit of Davis's description of the changes in corporate ownership over recent decades. Davis says that after the phase of early-twentieth century finance capitalism, when bankers like J.P. Morgan "exerted their dominance of industry through networks of directors" on the boards of subject companies, we moved into a more dispersed ownership model. Davis says according to Berle and Means, by the early 1930s "44% of the largest 200 corporations were under effective management control." This was the period of "managerialism" we associate with the golden age of big American industrial corporations.

Even more recently, Davis says, the pendulum has swung back in the other direction and ownership has been concentrated in the hands of about a half-dozen giant mutual fund companies. Although the company shares are technically owned by investors in the funds, in practice buying, selling, and voting these company shares is done not by individual investors but by fund managers. And it's a lot of shares. By 2010, Davis says, "75 percent of the largest 1,000 corporations' shares were held by institutions, not individuals." A single company, BlackRock, "owned at least 5 percent of the shares of more than 1,800 US corporations…with more than $3.5 trillion in assets under management, BlackRock was the
single largest shareholder of one in five corporations in the United States."

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To show how much has changed in recent years, when I was in the mutual fund business we were mainly selling an "Income Fund" based on corporate bonds. We were thrilled when our sales efforts pushed the fund's assets over the $1 billion mark, because at the time only a few funds like Fidelity's Magellan were that big. BlackRock was started in 1988, the year after I got out of the investment industry (and into computers). It now manages $3.5 trillion -- which just for comparison is more than the GDP of any country other than the US, China, Japan, and Germany.

So, partly because millions of guys like me were successful moving people out of savings accounts and CDs and annuities, into funds, and later at building 401k plans and Variable Life policies around funds, there are now five companies (BlackRock, Fidelity, Vanguard, Dimensional Fund Advisors, T. Rowe Price) that own 5% or more of over 3,700 US-listed corporations. This is a concentration of ownership not seen since the days of J.P. Morgan. But according to Davis, it's ownership without control.

Although the fund companies could choose to use their big blocks of voting shares to pack boards of directors and influence company policies, Davis says they don't do this for two important reasons. First, because many of these big corporations are not only investments for the fund companies, but clients. 401k plans and pensions make up a huge percentage of the fund companies' revenues, so they avoid alienating their customers, which they would do it they  supported shareholder activists against management. Second, Davis says that unlike the bankers a century ago, the funds don't generally invest for the long term. Turnover of these shares is very rapid -- which is somewhat ironic, since the funds themselves are sold to their customers as long-term investments.

In any case, mutual fund managers generally vote with corporate management. So they're basically a huge, unbeatable rubber stamp on whatever management wants to do. According to Davis, "Nearly all shareholder proposals [which are usually activist calls to divest from a particular country or industry, to change corporate rules, to support other "stakeholders" or even to appoint independent directors] failed to achieve a majority of votes; and those that did were generally merely advisory." This separation of ownership from control begs the question, who is really running the show? Who is setting the corporations' agendas and making key decisions? Davis answers that at least in the case of many newer companies, founders, venture capitalists, and early investors often hang onto control even when the company launches a public IPO.

"Many companies that have gone public in recent years," Davis says, "violate the most basic ground rules of corporate governance under shareholder capitalism by giving the founders super-voting rights." For example, Google founders Page and Brin enjoy ten votes for every Google share they hold, ensuring that along with their ally Eric Schmidt they control 59% of the votes. Mark Zuckerberg owns about 28% of Facebook, but he also owns a majority of the votes. And Groupon's three founders retained 150 votes per share. The clear message here is that the fortunes of the companies are tied directly to the visions of just a few key people; the rest of the shareholders are only along for the ride.

And actually, Davis says, most of these new corporations didn't go public to raise funds anyway. They had more than enough money to operate. The IPO was about "cashing out" the founders, early investors, and VCs. So basically, the equity markets aren't really a source of corporate finance anymore at all. They're a combination of casino and compensation tool for insiders.

Who Owns America? Part 1

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Gerald F. Davis contributes three game-changing ideas in his 2009 book Managed By the Markets and a pair of articles that followed it. They are:

  1. The structure of corporate ownership has changed. Today, mutual funds hold the majority of corporate shares. Fidelity, Vanguard, and BlackRock are the largest owners of all the biggest companies. But unlike the trusts of old, these mutual funds exercise loose control.
  2. In America, the social safety net (health insurance, old age pensions, workers comp, etc.) was for decades provided by corporations. This meant that unlike many other industrial economies, the government didn't need to do it. But it also means that when corporations stopped, there was no safety net.
  3. Globalization, the OEM model, and the shareholder value movement have caused the collapse of the traditional American corporation, leaving a vacuum that needs to be filled if the US economy is going to recover.

There's a lot of detail in the book and two articles (they are "A new finance capitalism? Mutual funds and ownership re-concentration in the United States," European Management Review, 2008 and "After the Corporation," Politics and Society, 2013). I'm going to take my time ruminating over them. Beginning, I think, with the most recent.

"After the Corporation," as the name implies, argues that "our current problems of higher inequality, lower mobility, and greater economic insecurity are in large part due to the
collapse of the traditional American corporation." This claim might at first seem counterintuitive. After all, many critics of the present scene are accustomed to blaming American corporations for all our ills. Especially those big paternalistic corporations of the "Wonder Years." Davis says this is not accurate.

"Public corporations as we know them are a distinctly twentieth-century phenomenon in the United States," Davis reminds us. He says "there were fewer than a dozen manufacturers listed on major US stock markets in 1890. Most public corporations were railroads, whereas even the largest manufacturers (such as Carnegie Steel) were organized as private partnerships." This is in keeping with the 19th-century understanding of the corporation as an organization chartered by the state to provide a needed public service (railroads, hospitals, universities), not a for-profit business. The change from that 19th-century notion to our present understanding of the corporation as a legal, immortal
person is an important change -- but not one Davis concentrates on. What he does focus on is the fact that "During the subsequent fifteen years [1890-1905], bankers on Wall Street--most prominently J. P. Morgan and his firm--organized mergers of dozens of dispersed regional companies into a relative handful of oligopolistic corporations able to serve markets on a national scale, with their shares traded on stock markets. US Steel, organized in 1901, was the first billion-dollar corporation in the United States, combining nearly every major steel producer (including Carnegie) into a single public corporation."

It's not necessary to suppose that this consolidation into national corporations encompassing entire industries was the only possible outcome. It was the outcome  J. P. Morgan chose, for his own reasons. And if it wasn't inevitable, it's also fair to ask if it was optimal. But that's not where Davis is going, so I'll leave it for another day.

The biggest effect of this corporatization, Davis says, was the concentration of employment. "At the turn of the twentieth century, 42 percent of the US labor force was dispersed among six million farms. By the time of World War II, almost half of the private labor force worked in manufacturing--overwhelmingly in public corporations such as General Motors and General Electric--and by 1970 nearly one in ten workers were employed by the twenty-five largest corporations." Today the percentage of Americans working in manufacturing has shrunk to less than 9%. Millions of jobs have been lost as productivity increases have made it possible to make more with fewer workers and globalization has made it possible to outsource manufacturing to lower-wage regions of the world. The problem is, this has left  manufacturing workers (once the biggest segment of the broad middle class) with nothing to do.

The prevalence of big corporations was less pronounced in Europe. Even today, Davis notes, Germany has fewer than 600 publicly traded companies -- fewer than Pakistan. But because US employment was so concentrated in corporations, they became the providers of health insurance and retirement income for most American families -- services that elsewhere were provided by governments. In other words, it wasn't that Americans had no welfare state. It's just that the benefits weren't provided by the state. They were provided by corporations (although often with the support of the state through tax incentives). "US households," Davis concludes, "and the US economy were uniquely dependent on the public corporations."

And of course, everything changed when we transitioned from a manufacturing economy to an information economy. Even the computer industry itself was not immune, Davis observes. Computer and electronics companies have "shed 750,000 jobs in the United States since 2000, even as Apple's products have become ubiquitous and its stock market value has surpassed one-half trillion dollars. Meanwhile Foxconn, which assembles most of Apple's products, employs more than one million workers in China."

Apple's value-add is perceived to be primarily intellectual property and branding, which is the model of the new economy. In Apple's case, there's truth to this claim. Its products are cooler than others. And it does maintain a proprietary operating system on all its products which claims to offer a superior user interface and experience. Is this equally true for all the other companies such as Nike who have moved to this model? Or is a big part of the new American economy just based on inflated values resulting from advertising?

More on this, and on Davis's arguments, soon…

What's the Point of Climate Change Denial?

The AGW (anthropogenic global warming) opponents at WUWT posted a review of an article on RealClimate this morning. The gist of the post is that the author (who by the tone of comments is well-known and well-hated) was admitting that "modeled absolute global surface temperatures" are bogus. A closer reading of the article, I think, suggests that the modelers are aware of the shortcomings of models but still believe them to be relevant and useful in some situations. And that they're trying to refine the models and trying not to use them inappropriately.

I commented on a quoted passage where the RealClimate author says “no particular absolute global temperature provides a risk to society, it is the change in temperature compared to what we’ve been used to that matters.” This seems like common sense, if a global surface temperature number is an average. It is easy to imagine that plus 5C, for example, might not be as devastating to human society in the Sahara as it would be on the Himalayan glaciers.

 
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Responding to my comment, a "Jeff Alberts" said "Anyone who expects 'the temperature we’ve been used to' to never change, has no common sense. The question is, are changes we’re seeing due primarily, or even measurably, to human industrial activity. We simply don’t know. CO2 went up, but temps went up and down, and even remained static in many places. Therefore we have no evidence of any even minor impact due to CO2. We have no evidence as to whether today’s temps are unprecedented in any way, none."
But I wonder if that
really is the question? If mountain glacier systems at the headwaters of many of the world's most important watersheds are melting at an alarming rate, does it matter whether the cause is AGW or some natural process? Won't the billions of people depending on that water be equally effected either way? And if the natural processes of climate are as variable as AGW skeptics claim (to be the cause of all the observed changes), is there any reason to believe they'll bounce back right away and remain in a range that's comfortable for us?

If you were a nation depending on glacier-fed rivers, wouldn't it be incredibly irresponsible not to consider the possible continuing reduction of glaciers and the concurrent possible challenge to your national water supply? Would you care whether the cause was AGW or nature? Yes, you would, because if it's AGW, there may be ways to mitigate or reverse the effects - not to mention the potential liability involved. But would you wait until the jury was "in" and nobody was arguing on the cause before starting to think about what to do? I hope not!

Does all this suggest that that one of the goals of AGW skeptics is muddying the water in order to prevent action? I don't know. My free-market friend Bob recently said the skeptics are frustrated because so much money as been poured into this -- in his opinion, down a drain. He mentioned "
$165 billion so far (CBO report)." The number I was able to find for 2014 was $21.4 billion, which is definitely a lot of money. But in perspective, the total federal budget is about $3.9 trillion, so we're talking about a half a percent. And that spending is spread across dozens of government agencies including Defense (the DOD believes climate change is a strategic concern). The DOD budget is about $457 million, out of a total package of over $600 billion. So I don't think studying the climate is bankrupting America.

The Pitchforks

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I've heard about the Nick Hanauer TED Talk for a while now. Last night I took 20 minutes and watched it. The Talk is called "Beware, fellow plutocrats, the pitchforks are coming." Although a plutocrat himself, Hanauer claims that wealth inequality is reaching pre-Depression or even pre-French Revolution levels, and that the outcome for his class can't be good. But even more interesting, he makes the case that strengthening the middle class would be good for everybody.

Hanauer is proud of his accomplishments, but he seems to understand that they were enabled by the society he lives in. He says many plutocrats know, even if they don't want to admit it, that "
if we had been born somewhere else, not here in the United States, we might very well be just some dude standing barefoot by the side of a dirt road selling fruit. It's not that they don't have good entrepreneurs in other places, even very, very poor places. It's just that that's all that those entrepreneurs' customers can afford.

Hanauer's identification of the middle class as the necessary market for the goods and services that he and his friends produce is a point frequently overlooked by proponents of trickle-down economics. I think it's especially true in the high-tech sector where Hanauer made his money. A
free-market blogger posted a piece from a Tea Party site today, about the capture of "American" jobs by foreigners using Microsoft's new Skype translation software. Although I think it will take some time for the software to get good enough to actually replace people, it's just another step in a globalization of labor that's clearly already happened.

Business apologists say globalization reduces labor costs to businesses. Others argue that although it's painful for American workers, in the long run a global labor market is more just. Why should auto assembly workers in Indiana make more than their counterparts in China? Isn't that just first-world privilege? Well, yeah, it is a bit. But also, as we've seen in the
Guardian reports that have so offended Apple this week, it's much easier to treat workers poorly at a board-stuffing plant in China poorly than it would be in, say, Cupertino. And also, the cost of living in China is roughly half what it is in America. That means, to put it simply, you can pay a Chinese worker half as much to create the same standard of living.

Now we can all wait the painful generation it will take for the cost of living in America to shrink low enough to make our workers competitive. But let's be clear, that will mean house prices will fall in half, food prices, cars. Is the American economy ready for this? Even high tech companies will feel this pain. How many iPhone 6s with $100 per month family data plans do you think the Chinese are buying?

Hanauer reminds us that when Henry Ford instituted $5 per hour wages (twice the average wage at the time), he was doing it not only to pacify his workforce, but to make it possible for the people working on his assembly lines to
buy the product that rolled off it. Hanauer says, "Let's invest enough in the middle class to make our economy fairer and more inclusive, and by fairer, more truly competitive, and by more truly competitive, more able to generate the solutions to human problems that are the true drivers of growth and prosperity. Capitalism is the greatest social technology ever invented for creating prosperity in human societies, if it is well managed, but capitalism, because of the fundamental multiplicative dynamics of complex systems, tends towards, inexorably, inequality, concentration and collapse. The work of democracies is to maximize the inclusion of the many in order to create prosperity, not to enable the few to accumulate money. Government does create prosperity and growth, by creating the conditions that allow both entrepreneurs and their customers to thrive."

This last bit might be a difficult pill for free market proponents to swallow. There's a pile of literature on their shelves claiming not only that capitalism is a better solution than socialism, but that it's actually, structurally infallible (interestingly, it's usually not the first-generation thinkers such as Böhm-Bawerk and Mises who say this type of thing, but the second generation like Rothbard). Capitalism could still be the best possible option, even if we acknowledge and try to correct for its flaws. I'll have more to say about this when I review
Thomas Piketty's book, since his thesis revolves around what a capitalist economy does in different growth scenarios.

Which brings us back around to economics. What it is and who it's for? Hanauer has a different perspective from mine -- a view from the top. But even he says, "
Many economists would have you believe that their field is an objective science. I disagree, and I think that it is equally a tool that humans use to enforce and encode our social and moral preferences and prejudices about status and power, which is why plutocrats like me have always needed to find persuasive stories to tell everyone else about why our relative positions are morally righteous and good for everyone: like, we are indispensable, the job creators, and you are not; like, tax cuts for us create growth, but investments in you will balloon our debt and bankrupt our great country; that we matter; that you don't. For thousands of years, these stories were called divine right. Today, we have trickle-down economics. How obviously, transparently self-serving all of this is. We plutocrats need to see that the United States of America made us, not the other way around; that a thriving middle class is the source of prosperity in capitalist economies, not a consequence of it."

Ideas v. Chronology Again

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Thomas Cole, The Oxbow (Connecticut River near Northampton), 1836

I'm rereading Leo Marx's 2008 essay, "The Idea of Nature in America," to decide whether I want to use it again as an introductory reading in my EnvHist class. I was thinking I might assign it, but urge the students to try to read it critically. The article brings up some important ideas, but in a way I think is too long, intellectualized, and roundabout.

The essay is a little like a journey. In the first paragraph, Marx states his thesis that the "idea of nature" has been one of the core ideas, along with freedom, democracy, and progress, that have defined what it means to be American. Up until the closing of the frontier in 1890, Marx says, "wilderness -- unaltered nature -- was
the defining American experience" (the article appears in Daedalus, Spring 2008, p.8-18).  As I'm reading this section, I'm thinking I will assign the piece, but with a series of "discussion questions" to point out a few things to the students along the way. For example: How is the idea of nature like and unlike the ideas of freedom, democracy, or progress? (I think we'll find over the course of the semester that it is both vaguer and more subject to change over time than these other ideas) Or: "wilderness -- unaltered nature"? Is this what most Americans have experienced? Even white settlers on the frontier?

But Marx does have a point that by the end of the first quarter of the 20th century, more than half of Americans lived in cities. Of course, that means that up until a hundred years ago, most Americans lived "on the land." why does this lifestyle not count in Marx's mind as a connection with nature?

Marx remarks that in the seventies (when Environmental History became a field of study) the word nature was partly replaced by the "refurbished, matter-of-fact word
environment" -- the implication being that there's something wrong with trying to be a little more specific. Marx then turns to the many meanings of the word Nature, which he observes can also be used to describe the "nature" of something. This usage, he says, is "idealist or essentialist -- hence ahistorical." As if people are unable to distinguish between "human nature" and trees, grass, mountains, and animals; and might be misled into believing the "nature" out their windows is some type of unchanging ideal.

The only people likely to fall into this trap, I think, are people who never go outside. Marx is impressed by Raymond Williams's assertion that "
nature is probably the most complex word in the English language," and he wants to explore the "historical trajectory traced by the idea of nature in American thought." But what is "American thought"? How many Americans have ever really been so completely in their heads that this type of discussion even makes any sense? Is this "historical trajectory" about the way most Americans experienced the natural world? Or about how writers and painters used it in their art? Or about how preachers and politicians used it in their polemics?

The essay moves on to the idea of mankind's loss of a connection with nature. Emerson worried about it in 1836, Marx says. And Darwin defined nature as "all that is
separate from us." Again interesting -- but this is material for either intellectual history or high-cultural history. Is this environmental history? Carolyn Merchant seems to think so, as Marx notes. Her Death of Nature is the story of patriarchy and in-the-head "male-oriented Newtonian-Cartesian philosophy" conquering a more grounded and obviously matriarchal reverence for Earth. But once again, what does this imagined war between Bacon and the Mother Goddess have to do with the environmental history of America?

The point of Marx's essay, I think, is to take the reader on a journey of sorts. We tend to go along with the argument in this type of piece, and Marx uses this tendency to try to give the reader an aha moment of discovery. You get all comfortable in the ideas I challenged at the start, and then at the end he flips them over. The "mythic image of a 'virgin, uninhabited land,'" he says, "was an ideological weapon in the service of the white European conquest of the Americas." But he notes that even William Cronon (whose
Changes in the Land debunked that myth of virgin land) "cannot bring himself to repudiate the idea of wilderness." In the end, Marx proposes a perspective that embraces a "first nature" (the physical world as it existed before humans) and a "second nature" ("the artificial -- material and cultural -- environment that humanity has superimposed upon first nature").

But how much help is this, really? Is second nature the Merrimack River in the 1850s, dammed for the hydropower needs of the Boston Associates' textile mills? Or is it Turner's idea of the closing frontier? In other words, how does it distinguish between the altered physical environment that we actually live in (and that
everyone, including the Indians, has always lived in) and our ideas and cultural constructions? Sure, there's an interaction between the two, and that interaction is central to Environmental History. But I don't think we're any closer to it a the end of this essay.

So I guess that's it. I won't assign this essay. My goal in this class is to tell the story of American Environmental History to regular people. The students in an online class are almost never History majors. Most often they're adults finishing a degree program in another field, filling the Gen Ed requirement they had left to the last minute. But that's great for me, because it's an opportunity to get outside the academic box and try to figure out how and why environmental history is important to regular people (it is, and it should be!) -- and then how to communicate this importance. I'm going to have to keep looking for a way to introduce the dialog between chronology and ideas in Environmental History. Maybe I'll just write it myself.

Climate Trolls

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A couple of days ago a blogger I follow posted an interesting piece about the deep divide between the academy and regular people. This is a topic I'm very interested in, so I read and responded to the post. The post led back to WUWT, which claims to be the world's most-viewed site dealing with the issue of climate change.

WUWT is a "climate skeptic" website. According to the information I was able to glean from its pages, the people who comment on posts have a range of opinions. Their points of view range from mild (some of the science supporting climate change has been misused or inaccurately portrayed in the media) to a more alarmist position ("climategate" demonstrates a widespread corruption of science), to outright paranoia (global warming is all a lie promulgated to make billions of dollars available to government agencies and their grant-seeking lapdogs). But in any case, the post of the day carried a headline "
97 articles refuting the '97% consensus' on Global Warming." I think there actually is a consensus among scientists that people have caused some climate change and that it's a potentially very serious problem. And when I looked at the articles listed, they did not seem to be refuting the science. Only three were journal articles, the majority were blog posts (many from WUWT itself) and news articles. So I commented on the thread.

Within minutes I was denounced as a troll. Other commenters (the site's regulars, it turns out) told me I must be new to the issue, and that I was deflecting the conversation from its real thrust (that the 2013 "97%" article by Cook was flawed) to a wider, irrelevant issue of whether there is or isn't a consensus -- in spite of the fact that the headline, many of the cited articles, and the other comments all strongly implied that the flaws with that particular article were being taken as proof there was no consensus. I defended my points, and the tone of the conversation went downhill quickly. I was called a religious fanatic, my comments were called pollution, I was naïve or a liar, and a couple of people who couldn't come up with any type of rational argument resorted to making fun of my name. Really! Not since middle school has anyone gone there.

A couple of people came to my defense, and a couple of people on the other side of the issue said they regretted the way the thread had devolved into name-calling. The site is apparently very loosely moderated -- only one comment was blocked, and it was directed at me, so given what was allowed to pass I'm glad I didn't get to see what was deemed too extreme! One person basically said (by way of excuse) if you think it's bad here, go look at a pro-climate change site.

I thought that was a lame excuse, but possibly a valid point. So I went and looked at the comment thread of a post I had clipped to OneNote from a pro-climate change site called RealClimate. The post was a
debunking of a graphic used by the WUWT website, so I thought it might be a good one to check. What I found was a pretty civil scientific discussion. So, score one for the scientists.

The difference between the threads may have been related to the qualifications of the commenters. People with legitimate points to make are often less likely to resort to verbal violence. On the other hand, the RealClimate discussion seemed much more actively moderated. That may be a major factor. Also, everybody on the RealClimate thread seemed to be using their real names, which I think goes a long way toward discouraging bad behavior.

I'm not sure I've concluded once and for all that climate change skeptics (they don't like being called deniers, although they have no problem calling their opponents alarmists and "warmunists") can't be reasoned with. They weren't
all jerks. I think it's completely fair to say that WUWT's discussion threads are dominated by nut jobs, and that the site's design and moderation policies encourage this -- possibly as a means of achieving that high rate of site traffic. It's probably a good idea to try to draw "undecideds" into a new forum, however, than to bother talking to "skeptics" on their own turf.

Capitalism Founded on Slavery?

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Harvard business historian Sven Beckert has a new book out called Empire of Cotton: A Global History, and an article in the Journal of Higher Education dated December 12th, called "Slavery and Capitalism." The article is an introduction, I suppose, to the argument of the book, which is in my Kindle queue already. I'm looking forward to getting a more detailed look at the relationship of the cotton industry to the birth of large-scale industrial capitalism and global trade.

At the end of the article, Beckert briefly mentions the new post-Civil War capitalism, which he says was "characterized first and foremost by states with unprecedented bureaucratic, infrastructural, and military capacities, and by wage labor." This image seems quite at odds with the free soil, free labor story we normally tell. And with the story of markets that I think stands at the core of a lot of the libertarian, free-market philosophy.

A free-market thinker whose blog I follow just posted an interesting thought experiment explaining the difference between
capitalism and socialism. His desert island markets are initially free, but gradually fall into a mixed economy and ultimately into socialism. I agree with him that a completely voluntary market in a politically anarchic sort-of Galt's Gulch is an attractive ideal. But it doesn't line up with reality.

We didn't get capitalism the way the desert island story describes. Our current system is not the result of a rise from a state of nature to free exchange and then a subsequent fall into socialism. That's why simply stripping away "socialistic" practices like minimum wages and health insurance won't return us to a state of grace.

The Map is Not the Territory

"The map is not the territory." Although this idea has been picked up by everybody from post-modernists to new-agers, the guy who said it was Alfred Korzybski, a Polish-Russian aristocrat who established the Institute of General Semantics in Chicago in 1938. But what's even more interesting about Korzybski is that most people who recognize the name or the quote learned of it not in school or by reading philosophy, but in the Null-A book series by science fiction author A.E. Van Vogt.

I
did not bring golden age sci-fi or Korzybski's name into my Environmental History class this week. Our topic was the Columbian Exchange, the transfer of biological material between Europe and the Americas that resulted in the deaths of 90% of the natives living here. So there was quite enough drama and suspense already, which I really didn't want to distract people from. But I did talk about maps and how they alter our perception of the environment and our ideas about it.

The world map we're most accustomed to is the Mercator projection, which was developed by a Flemish merchant in 1569. Its purpose was to help travelers get from one place to another, so its point to point accuracy is really good. But there are always trade-offs when you project a sphere onto a flat surface. Mercator got distances from point A to point B right. He got sizes and areas of the continents very wrong.

For example, on the standard Mercator map, Africa and Greenland look about the same size. But you could fit 14 Greenlands in Africa. What does it do to our perception of the relative importance of Africa, when it looks so small? The image below shows the two maps in overlay.

peters-projection-comparison-world-map

I've been using diagrams last week and this week drawn on a Peters Projection map. The Peters map gets relative size and area right; it's not so good if you want to measure distances. But given what we normally use maps for, it's probably a less culturally biased point of view. And unlike many (but not all) Mercator maps, Peters gives equal space to the northern and southern hemispheres.

Now if they would just make one that didn't follow the convention of always putting the Atlantic in the middle and marginalizing the Pacific…

Trophic Cascades & Whales



Everybody saw the Wolves of Yellowstone video earlier this year. Here's one about whales and their influence on both the health of the oceans and on atmospheric carbon levels.

GDP & Government Spending

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Interesting article in The Freeman by Robert P. Murphy, challenging a recent article in Business Insider that claimed government spending -- even war spending -- was good for GDP. Murphy observes that, if the definition of GDP (GDP = C + I + G + NX, where C is private consumption, I private investment, G government spending and NX net exports) includes government spending, then of course increasing government spending increases GDP by definition. He also rightly observes that that's not the point. The point is, in a finite system, how much does government spending take away from the three other types, and what combination of these four types of spending actually leads to efficient and socially optimal production? (socially optimal is my issue, I think Murphy was talking more about efficiency)

I completely agree. I think government spending often diverts money from private spending or investment. I also agree that government spending -- especially on war -- sends the wrong signals to the market and creates a whole industry around a series of perverse rewards. I'm less sure whether in a Depression Keynes is entirely wrong. If the private sector is stalled because people have stuck their money into their mattresses and because the rich can withdraw their investment funds from the game and wait it out, there may be a role for government to relight the pilot light. I think there's data on both sides of that question, so it's not an absurd claim like the
Business Insider article's argument above.

My bigger issue with Murphy's point is the use of the formula GDP = C + I + G + NX, which I think is no longer a useful description of the situation. My thinking on this issue right now is informed by having just read 
Jerry Davis's Managed By the Markets and a pair of journal articles he wrote in 2008 and 2013, describing changes in corporate ownership and governance and positing a post-corporate world (I'm not doing justice to Davis's thesis, it's worth a look). These ideas have led me to the conclusion that it's no longer really relevant to divide the world between G, C, and I.

The fatal flaw of a lot of free-market thinking, in my opinion, is the belief that the only kind of power that exists is the power of guns. Most of my Austrian-leaning friends seem to honestly believe that all we have to worry about is state power, that there is no such thing as economic power, and that every transaction in the market takes place on a level playing field. For example, many people seem to believe that because the corporation is a legal individual, it acts as no more than an individual in the market. I think they're confusing an ideal market with the actual markets we have. That's why they resist collective bargaining, and why "C" and "I" don't distinguish between the spending and investments of actual people and the spending and investments of corporations that are often larger than national governments. I disagree.

I'd like to work toward an economic model that distinguishes between actual individuals and organizations, whether those organizations are governmental or corporate. In my mind, both are social constructs formed by negotiated agreements, so it's legitimate to talk about rights and responsibilities. I think it's a dangerous fiction to pretend a corporation is a person because it leads to the unwarranted conclusion that the corporation possesses
natural rights, when in fact the corporation is a socially chartered organization and as such is (and should be) bound by a social contract defined in its legal charter. Historically this was the case, and there's an interesting history of the evolution of corporate law -- unfortunately most people are unaware of it.

As governments and large corporations -- and the relationship between them -- has developed, I think we've reached a place where it would be very helpful to distinguish between big organizations and people, especially when we're talking about economic issues with people who aren't economists. But I think economists could stand to be reminded, too.

Columbian Exchange or 1491?

It's interesting that "Columbian Exchange" is now shorthand for the series of unintended consequences of the early European voyages of discovery -- especially the diseases that killed something like 90% of the American natives. I had a chance to converse with Alfred Crosby by email a couple years ago, and his most vivid recollections of his career were the difficulty he had finding a published for this book. His manuscript was rejected by a dozen reputable publishers, and finally printed by a small house specializing in short-run antiquarian monographs. Were lucky Crosby was as tenacious as he was -- maybe there's a lesson in this for authors and also for readers.

 
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Last time I taught, rather than assigning a chapter from
The Columbian Exchange, I used the journal article that led up to it. Crosby wrote "Conquistadores y Pestilencia" in 1969, and it covers the gist of his argument in the book, but slightly more economically. Even this, however, is an academic article, and part of my focus this semester is on the interface between Environmental and popular history. So I'm thinking this time I'll find an excerpt in Charles Mann's 1491. This will give me an opportunity to write a short piece about the way Mann has popularized Crosby's ideas, and how he has added to them.
I think when I rework the EnvHist textbook project, the chapters are going to include short essays about the big books of the field. This will fill the hole left open by not being able to include long passages of these texts -- as you can when you're assigning readings in a University class. The "how have our ideas about the environment changed over time" element of the course can be partly illustrated by this, what would you call it? Popular historiography?

My full review of Crosby's book is up at
Goodreads and LibraryThing. Also on my own EnvHist Library, until I decide what I'm doing about that website.

Logic & Inequality

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Say you lived in a make-believe nation with a population of a million people. Everybody worked, produced, and got a basic living wage, let's call it $X. So to feed everybody and keep the lights on, the nation produced and consumed a million times $X, or in other words, a GDP of $X million.

Now let's say the nation was smart and hardworking and productive, so that it actually produced a GDP $500 million greater than the subsistence wage of $X million. That would be great! GDP per capita for each of the million citizens would then be $X plus $500. That's a happy nation, right?

Well, maybe it is, and maybe it isn't. At first glance it might not seem to make a lot of difference from an economic perspective, how that extra money was divided up. If the structure of employment (the industries, goods, and services that made the nation that extra money) allowed each of those citizens to make an extra $500, or if it allowed only ten people to make $50 million each, the result would be the same, right? Either way it adds up to $500 million of extra GDP, above and beyond that basic living wage. And either way, when you divide it across the whole population, it still seems to equal the same amount of extra GDP per capita. So what's the big deal?

The big deal, actually, isn't economic at all. The big deal is moral. But let's skip by that for a moment, and just deal with the economics. Let's imagine that before the "bonus," everybody is earning the basic subsistence wage in this imaginary nation. The extra $500, if it's evenly distributed, allows a million people to move up a little bit from subsistence toward the middle class and eat a little better. Maybe to go on a vacation. To fix their house or buy new clothes. If it happened often enough, they'd be able to think about sending their kids to a good college or trade school. To consider replacing the old beater with a new car. Or start a small business. And to maybe put some money away against a rainy day or for retirement. A million people, improving their lives while plowing that money back into the economy.

On the other hand, let's say ten rich people each got $50 million. What kind of stuff are they going to buy? Well, probably luxury items, right. Not your basic food-shelter-clothing. How much of that stuff does anybody need? At some point, there's going to be money left over, right?

Okay, an argument you hear a lot is that the extra, unspent money is invested, and that's how the rich create new wealth and grow the economy. There's some truth to that. Rich people can decide to use that surplus money to start a business and make something. Or they can endow a library or a symphony orchestra. Or they can buy a big boat. After all, it's their money.

But it's also true that all the money the aspiring middle class people spend also goes back into the economy. It's used to make the stuff the middle class people buy and to build the businesses that make that stuff. And if we believe in the laws of supply and demand that are the basis of economics, the
right stuff is getting made, because it's the stuff a million people are going into the market and buying.

Actually, if the money is split up in $500 chunks for everybody, more of it probably ends up circulating back into the economy. More money flowing in means more goods and services. That's economic growth. This is why it's better to have a big middle class than to have a really rich 1%.

Wait! Before you object, please notice that I haven't said anything about the way the money was made. The issue here isn't whether the rich came by their money honestly through real value-adding effort or dishonestly through cronyism and government favors. Or whether the middle class earned their money by the honest sweat of their brows or by coercive collective bargaining. The question I'm addressing here is simply, is it better to have an economy with incomes more evenly distributed? Or to have a few super-rich people and everyone else living at subsistence?

I think from the perspective of cold economic logic, more equal is better. Can we at least agree on this?

Moyers/MacArthur Interview



This is a great interview. I was talking with someone just yesterday about the Koch Machine and other Super-PACs making the parties irrelevant. This Cromnibus rider on page 1599 allowing for nearly-million-dollar contributions over a campaign cycle is outrageous. But, as MacArthur suggests, it’s got bipartisan support because it’s a last-ditch effort by the parties to shore themselves up against this flood of undisciplined money. I also liked MacArthur’s interest in the Tea Party, which as he says is as suspicious of the plutocrats as the old left. I’m probably going to start reading Harpers.

Chronological or Thematic?

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Last spring I was approached by an editor at a major academic publisher and invited to propose a new American Environmental History textbook. I had been shooting my mouth off a bit about how I didn't think there was a really good undergraduate generalist textbook. There are plenty of books for history majors, and there's a wide "historiography" for grad students. And there are also a number of good popular histories that deal with an particular period or issue. But there really isn't a comprehensive synthesis of American History from an environmental perspective.

The editor apparently got wind of this (I mentioned it to a sales rep at his press who passed it along), and invited me to put my money where my mouth was. Interestingly, he was the editor who had managed (and some say who had commissioned) the book that's most often used in undergraduate courses, which I had criticized. So I worked up a proposal and he critiqued it. Then I revised it a bit and he sent it out to five reviewers.

The reviews came back mixed. A few people said they would definitely use my book, a couple said they wouldn't. All gave detailed criticism which is extremely valuable as I redesign the course for this coming semester and rethink the textbook. And, most interesting, all agreed that a general textbook was badly needed in American Environmental History.

One of the issues the editor and one or two readers challenged me on was whether I was going to go with a chronological or a thematic approach. When I taught the course, it was a little of both. There's definitely a chronological element -- the material begins in prehistory and ends in the present day. But there are also several themes we keep coming back to. So as I redevelop the course material for this semester, I'm going to try to be more explicit about this. Or at least to think about it and try to reconcile it for myself, even if it ends up in the background and isn't in sharp focus for the reader.

My gut feeling is that I should stick with the chronological approach. What do other readers think?

GMO Debate: "Pro Side Wins"?

This is a VERY long debate. The Popular science headline announces that the "Pro" side wins. I'm not so sure. But it is a good venue to hear both sides of the argument. The science argument, at least. The debate seems to have been framed to exclude economic, political, and intellectual property -- for example, the moderator passes on a question about copyright in the Q&A, about 1:08.
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There's a very interesting moment at 1:10, when the Monsanto executive says that GMO regulation is based on generations of experience creating and regulating hybrid plants through selective breeding. In my opinion, this is the big issue. Genetically modified crops are not the same as hybrids. And modifying a crop so that it requires a second product to grow, which you also happen to own, is not the same as breeding a hybrid strain. Suing farmers who did not use your product, because windblown pollen inserts your patented genes into their plants, is not the same as breeding a hybrid. I think if some of these issues had been within the scope of this debate, it would have been a much more interesting conversation.

Cromnibus: We couldn't Help It!

So the Omnibus spending Bill/Continuing Resolution people are calling the Cromnibus has passed the House. The President apparently pushed hard for it, and our representatives "held their noses" and voted for it in order to keep the government running. Leaders like Nancy Pelosi lamented "I was so really heartbroken ... to see the taint that was placed on this valuable appropriations bill from on high," but you know, we've gotta keep the government running.

Bull.

The riders attached to this bill more than tripled the amount individuals can contribute to political campaigns. And most notably, they weaken the half-hearted attempt the government made with the Dodd-Frank Bill a few years ago to prevent another 2008-style financial crisis by (slightly) regulating the activities of the too-big-to-fail banks. The bailout bankers were all too happy to take billions in taxpayer money, but they're insulted by the regulations. So
Citigroup lawyers wrote a bill and our representatives attached it to the thousand-plus page Cromnibus. So it wouldn't get read and bogged down in, you know, debates and votes and all that.

Democracy?

What amazes me is that somehow most people still seem to believe there are two parties and there's some type of
meaningful process going on here. This isn't the first time corrupt legislation that wouldn't stand the light of day has been attached to a "must-pass-to-keep-the-lights-on" bill. It's become a regular ritual -- so much so that a lot of people nowadays just sigh and look the other way. But let's look at it for a minute and call it what it is.

Fraud.

Not in the sense that something has been pulled over on us. Of course it's that too. But in the sense that it allows the people who we've voted in there to represent us
to pretend they had no choice. But looked at another way, it's a win-win for Congress. They get to satisfy their real constituents (the ones who pay for their re-election) while at the same time making noise about how they really don't like this, but forces "from on high" left them no alternative.

Vote them out.

Find an alternative candidate. Register as an independent. Or stay away from the polls (we're doing that already in record numbers). But if nothing else, let's stop pretending that there's a "dime's worth of difference" between the parties anymore. That phrase was coined by a nut-job, George Wallace, decades ago. The irony is, only the nut-jobs on the far left and far right of the parties voted no. The center doesn't hold because it's rotten. But the big secret may be that the regular people that the populist radicals appeal to on the far left and the far right may have
more in common with each other than they have with the 1% being served by both parties in the corrupt middle.

Hug a Tea-partier or an Occupier

 
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The way out is to stop being led around by the machine and its media, which magnifies trivial differences, throws gasoline on racial fires, and does everything possible to keep us focused on fights that don't threaten them. It's "divide and conquer." Sure, those issues are important. But really, don't you think it would be easier to resolve some of them if the economy most poor and middle-class Americans live in wasn't circling the drain? The Titanic didn't sink in this story. The rich just threw all the steerage passengers into the water, and now we're fighting for space in the lifeboats. But the ship is still there, and maybe we can get back on it before it sails away.

Different Laws for Rich & Poor

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I like Matt Taibbi a lot. I love his Rolling Stone articles and I used to love his weekly blog there. I'm glad he's back at RS and publishing articles. I think he was one of the best reporters of the financial crisis, and I especially love his ability to make the details of these issues understandable. I also love the freedom RS gives him to drop the f-bomb on some of these "vampire squid" executives.

That said, I liked
The Divide rather than loving it. I think there's a ton of great information in it, and I agree with Taibbi's thesis: that there's something broken about a society that fails to pursue any of the Wall Street criminals who egregiously broke laws and ruined lives in search of bigger year-end bonuses, especially when that society is simultaneously cracking down on -- and cracking heads of -- poor folks in "bad neighborhoods." My only objection to the book was that I thought the anecdotes went on a bit too long, and I thought they were too exclusively focused on the problems of the urban poor, especially in greater New York City.

The book begins well, with a stark comparison. "At its peak in 1991," Taibbi says, "according to FBI data, there were 758 violent crimes per 100,000 people. By 2010 that number had plunged to 425 crimes per 100,000, a drop of more than 44 percent" (p. 1). The contrast: "In 1991 there were about one million Americans behind bars. By 2012 the number was over 2.2 million, a more than 100 percent increase." Taibbi believes "
We’re creating a dystopia, where the mania of the state isn’t secrecy or censorship but unfairness" (p. 12). The process begins, in Taibbi's story, with a 1999 memo written by an obscure Clinton staffer named Eric Holder. "Bringing Criminal Charges Against Corporations" is an interesting memo, and it had an interesting role in the reinterpretation of the Justice Department's role. For me, it was a little too much of an insider story, though. I was more interested in the connections between Holder (and his associate Lanny Breuer) and the law firm of Covington and Burling (one of whose founders wrote extensively in opposition of the New Deal back in the 1930s). When Holder and Breuer were running Justice, twenty-two other lawyers from that single firm held key positions in the Department. I'd like to hear more about that.

Taibbi has collected a lot of these bizarre, unjust contrasts. "
For instance , in 2011, the state of Ohio —the same state that lost tens of millions in the early 2000s when its pension fund bought severely overpriced mortgage-backed securities from a Lehman Brothers banker named John Kasich, who would later become governor —tried to recoup some of its losses by sending out 22,000 notices to Ohioans seeking 'overpayments' in either welfare or food stamps"(p. 341). In a passage that reminds me of Chrystia Freeland's discussion of cognitive capture, Taibbi describes President Obama's remarks on 60 Minutes in December, 2011, suggesting that a lot of the "least ethical behavior" on Wall street wasn't strictly illegal. "The thing that’s interesting about this claim," Taibbi says, "isn’t that it’s factually wrong, which incidentally it almost always is, often to a humorously enormous degree. What’s interesting is that the people who make this claim usually believe it to be true. Even Barack Obama , despite the fact that he’s almost universally understood to be an outstanding lawyer and should know better, probably believes it to be true. This weird psychological kink is where the Divide lives. Increasingly, the people who make decisions about justice and punishment in this country see a meaningful difference between crime and merely breaking the law" (pp. 397-398). Crime, it turns out, is what poor people are increasingly assumed to be doing, even when they're just standing outside their apartment building having a smoke at 1 AM. Breaking the law is just being "aggressive" with the rules of the game, and it's perceived as victimless -- even when taxpayers have to ante up billions of dollars in bailouts.

And let's not forget to follow the money. While the Financial Crisis Inquiry Committee got $10 million in funding, "
the federal drug enforcement budget leaped from $ 13.275 billion to $ 15.278 billion. That meant that just the increase in the national drug enforcement budget for the year of the biggest financial crisis since the Depression was roughly two hundred times the size of the budget for the sole executive branch effort at formally investigating the causes of financial corruption" (p. 407). Policing and incarceration are big business in America. It's the one thing, after all, we can't outsource overseas.

Moyers: Taibbi & Freeland

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As I was reading Chrystia Freeland's Plutocrats, I frequently wondered what Matt Taibbi would say. I read his book The Divide a couple of weeks ago, and like Freeland, Taibbi is a critic of the oligarchs and has worked in Russia. So I was please to discover Bill Moyers had them on his show together. It's a great episode. Freeland begins the interview by observing that talking about inequality is "is still a taboo in American political life and in American cultural life." Taibbi agrees and says "the shift really began with Clinton and the New Democrats…you don't see it in the debates, because neither party is really an advocate for that kind of left behind class anymore."

Freelander makes a good point, that "Okay, technology revolution, we love it. Globalization, I love that too. And I think it's great people are being raised up in India and China and now Africa. But let's think about how our society and our politics need to change to accommodate this. And no one is doing that." Jerry Davis makes the point in
Managed By Markets (which I'm about halfway through) that what we think of as social welfare (health insurance, old-age pensions) was once provided by America's giant corporations. Ford, GM, GE, and US Steel employed hundreds of thousands of people each and provided a lot of these benefits, ironically, to forestall government from getting into the business like the "socialist" European welfare states. The problem, as Freelander says here and Davis agrees, is that these big monolithic corporations no longer employ hundreds of thousands. The corporate welfare has evaporated, leaving big portions of the population out in the cold.

Taibbi describes the feeling of alienation a 22-year old kid in a bad neighborhood feels after being stopped and frisked over 70 times. Freeland agrees, and blames the intellectuals, saying "I think there is a broader cognitive capture of, you know, you might call it the intellectual class, the public intellectuals, around maybe the inevitability of plutocracy. You know, as Matt was saying, this notion that if you're poor, it's your own fault. You're part of this dependent 47 percent. Unions are very bad. All of that sort of stuff."

Taibbi and Freeland both cut their teeth as journalists living in Russia covering its transition to capitalism. Comparing Russia in the 90s with America today, Taibbi says  "that's the key part that I think people don't understand, is that what happened in Russian was really a merger of state and private power that empowered this one tiny little class." How much less do people understand that when it happens in a nominally "free" market like ours?

Moyers mentions that Freeland writes about the plutocrats with empathy and Taibbi writes about them with "complete irreverence." Taibbi agrees that this limits his access to people at the top, but clearly shares my suspicion that these people aren't the geniuses Freeland portrays. He says "I'm hearing a lot from people sort of from the middle on down on Wall Street. And what they're really upset about is corruption. Is this merging of state and private power, where the losers don't lose anymore. I think the people who get really upset are small hedge funds, small banks. And they see companies like, you know, Citigroup and Goldman Sachs and J.P. Morgan Chase make mistake after mistake. And they get rewarded for it what with bailouts and even greater market share than they had before."
Then the conversation moves on to what Taibbi calls a schism within Wall Street and Freeland calls the battle between the millionaires and the billionaires.

Everybody she talked to, Freeland says, was happy to divide the elite into "good plutocrats and bad plutocrats." Of course, everyone insisted they themselves were the good guys. Freeland says " this very sincere, absolutely, absolutely sincere self-justification, I think, is one of the most dangerous things that's happening…you know, what he thinks about how society should be ordered, we should all listen to because he, after all, is the hero of our time, is the hero of capitalist narrative."

The interview concludes with Freeland observing that part of the problem fighting these changes is that they are real economic changes -- we are never going back to the 50s and recovering those manufacturing jobs. But another part is that no one has really articulated a solution. There's no manifesto to get up on the barricades and wave. So, that's part of the job waiting to be done…

Tesla Batteries

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Bloomberg posted an article today called "Why Elon Musk's Batteries Scare the Hell Out of the Electric Company." The article mentions that Morgan Stanley analysts came to the same conclusion that I did when I was trading emails with the executives at my local electrical coop. "In a July report, Morgan Stanley said Tesla’s home and business energy-storage product could be 'disruptive' in the U.S. and in Europe as customers seek to avoid utility fees by going 'off-grid,'" they said. Why would American households want to go off-grid? It's not so much that we want to, as that our utility providers are doing everything possible to drag their feet on implementing net-metering so that we can deploy solar and wind systems to bring down our dependence on fossil fuels. Some utilities have even gone so far as to jack up the rates of all the neighbors of a solar user, and then tell them it's the solar user's fault. True story.

The article also says “'The mortal threat that ever cheaper on-site renewables pose' comes from systems that include storage, said Amory Lovins, co-founder of the Rocky Mountain Institute, a Snowmass, Colorado-based energy consultant. 'That is an unregulated product you can buy at Home Depot that leaves the old business model with no place to hide.'” Really, it would be better for customers if they were able to partner with their local utilities. It would be better for the utilities too, in the long run. The question is, can we get them to think about the long run?

Freeland TED Talk

You've really got to hand it to Chrystia Freeland. She does a great job putting the rise of the Oligarchs through their fire-sale privatization of Russia's natural resources right next to "what happened with deregulation of the financial services in the U.S. and the U.K.," in a way that doesn't result in the crowd coming after her with pitchforks. This is her great talent, being able to stand in front of a group of Silicon Valley folks and say "the dystopia that worries me is a universe in which a few geniuses invent Google and its ilk and the rest of us are employed giving them massages,"and have them clap at the end.

Plutocrats & Cognitive State Capture (& Cluelessness)

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Okay, a few more thoughts on Chrystia Freeland's book, Plutocrats. The book's subtitle, The Rise of the New Global Super Rich and the Fall of Everyone Else, led me to expect a more critical approach to the topic. Instead, I found that Freeland more often than not praises the plutocrats as self-made geniuses and portrays the "fall of everyone else" as an unavoidable aspect of globalization. There's an imbalance of agency inherent in this approach, but the book is still a valuable glimpse inside the plutocrats' world.

Freeland, of course, is herself a member of the elite she describes. Daughter of two politically active lawyers, she attended Harvard and won a Rhodes scholarship to Oxford. Freeland worked as the Moscow bureau chief for the Financial Times, and currently represents Toronto Centre in the Canadian Parliament. Freeland has an incredible degree of access to politicians, global plutocrats, and even the Russian oligarchs, and Plutocrats is filled with anecdotes of her conversations with these interesting characters. This is really valuable material: many of these people opened up to Freeland in a way they certainly wouldn't have to, let's say, Matt Taibbi (who shares Freeland's background as a reporter of Russia).

Freeland obliquely mentions Taibbi in the concluding pages of
Plutocrats. "The vampire squid theory of the super-elite," she says, "is entertaining and emotionally satisfying. It can be fun to imagine the super-elites who went to Wall Street and their Harvard classmates who became economics professors and those who became U.S. senators participating in a grand conspiracy (hatched ideally, at the Porcellian Club) to rip off the middle class. But the impact of these networks is much less cynical, and much more subtle, though not necessarily of less consequence" (p. 270). The interesting thing about this statement is that although it allows Freeland to continue her kid-gloves treatment of the plutocrats, she's actually agreeing with Matt.

Freeland's argument is that the super elite live in a bubble. The world, she says, has lost its borders for them and become simply a series of "rich places" they can visit, surrounded by poor places they can fly over. They can jet around the world to take a 90-minute meeting, and stay in a five-star hotel room that offers the same amenities on any continent. In a sense, the super-rich have turned the planet into McDonalds. Just like middle-class Americans cruising Route 1 from Maine to Florida or Route 66 across the heartland, the plutocracy is safe in a consistent uniformity that promises no surprises wherever they are. And it's a small community. The elite and their hangers-on see each other regularly at think-fests like Davos, Aspen, and TED, where the organizers very rarely screw up and invite someone like
Sarah Silverman.

The result, Freeland says, is a narrowing of perspective. " 'When Treasury Secretary Henry Paulson went to Congress last fall arguing that the world as we knew it would end if Congress did not approve the $ 700 billion bailout, he was serious and speaking in good faith. And to an extent he was right: His world— the world he lived and worked in— would have ended had there not been a bailout,' ” [University of Chicago professor Luigi] Zingales argues. 'But Henry Paulson’s world is not the world most Americans live in— or even the world in which our economy as a whole exists' ” (p. 272). Freeland calls this cool-aid-drinking phenomenon "cognitive state capture," quoting British economist Willem Buiter. Government regulators and Wall Street executives are often the same people. "Four of the last six secretaries of Treasury…were directly or indirectly connected to one firm: Goldman Sachs." How could they
not share a particular perspective and a particular set of priorities. And, in the absence of any credible countervailing opinions, how surprising is it they are taken (by themselves and society) as geniuses and as the only game in town?

"We wear spectacles shaded not only by our self-interest, but also by that of our friends," Freeland says (p. 274). And if this is just human nature, then the plutocrats aren't an evil cabal scheming to screw the rest of us. But they are also not infallible, and society needs to be built around a dialog that represents differing perspectives. Freeland concludes her book with a historical example of what happens when a society shuts out those other voices. When Venice codified its elite in the "Book of Gold" the society effectively stopped evolving, Freeland says. This was the beginning of the end.

The question is, where are the other perspectives going to come from? Freeland hopes to find them among the plutocrats, in people who although they went to Harvard, started life in a remote public school. Among her examples of this are Mark Zuckerberg "(New York State public school, Harvard), Blackstone cofounder Steve Schwarzman (Pennsylvania public school, Yale undergraduate, Harvard MBA), and Goldman Sachs CEO Lloyd Blankfein (Brooklyn public school, Harvard)" (p. 147). Personally, I think we need to throw the net a bit wider.

But I'll admit, Freeland makes a case for trying to distinguish between plutocrats who were entrepreneurs and others who were simply rent-seekers. She quotes Franklin Roosevelt's observation that "The financiers who pushed the railroads to the Pacific were always ruthless, often wasteful, and frequently corrupt; but they did build railroads, and we have them today. It has been estimated that the American investor paid for the American railway system more than three times over in the process; but despite this fact the net advantage was to the United States" (p. 178). However, I think she underestimates the value of being at the right place at the right time. I think this is best shown in the remarks of billionaire Aditya Mittal, of Mittal Steel, who told her “Change is fantastic. That’s how you create value because you participate in the change that you see. Now, it can be wrong, or it can be right—that is your own judgment call. But change is how you create value. If there is no change, how else do you create value?” (p. 162).

You create value by actually creating value. Not by scooping up Central and Eastern European steel mills at pennies on the dollar. That's just arbitrage, and at some point those opportunities will come to an end. Yes, a class of plutocrats and oligarchs will be formed along the way. And yes, they'll inevitably believe they are self-made geniuses. The question is, will there be anybody left at the table to speak for the rest of us?

Freeland's Plutocrats

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Another of the books I'm reading in parallel right now is Chrystia Freeland's 2012 bestseller, Plutocrats. Freeland is an insider in the global elite, so the book is part expose and part Lifestyles of the Rich and Famous. But there's a lot of good info in it, which I'll be reviewing carefully soon. In the meantime, I thought I'd comment on something that jumped out at me today, while I was listening and hauling firewood from the shed to the house.

As I said, Freeland is critical of the Plutocrats, but at the same time she portrays them as a bunch of really smart, driven guys. Many of them started in the middle class, she says, and got where they are now partly because of their extreme smarts and high levels of education. Many of the guys she describes went to Harvard or its overseas equivalents like Oxford (Freeland herself attended both). And the success of the financial elite is attributed as much to their intelligence and appetite for "revolution" as to being in the right place at the right time.

Many of the free-market advocates I've debated with over the years focus their criticism on the excesses of government bureaucrats , and they sometimes assume that anyone who challenges their position supports state intervention in the economy and our daily lives. But as I was listening to Freeland's story today, I was struck by how that argument is so 70s. In today's revolving-door world of finance and regulation, there's no real difference between government and business (Jerry Davis makes this point from a slightly different direction in
Managed By Markets, which is why reading all these things simultaneously is so interesting). And the way Freeland lays out the events of the 2007-8 financial crisis, it's hard to see how these guys can be taken for smart:

On January 22, 2007, Mike Bloomberg, the mayor of New York, and Chuck Schumer, the senior senator for the state, released a study they had commissioned from McKinsey, the world’s leading management consultants . The report, titled “Sustaining New York’s and the US’ Global Financial Services Leadership,” warned of impending financial crisis and offered detailed guidance on how to avert it…the risk that London, or perhaps Hong Kong or Dubai, might soon eclipse New York as the world’s financial capital. Were that to happen, Schumer and Bloomberg warned in an op-ed published in the Wall Street Journal on November 1, 2006, foreshadowing the full report, “this would be devastating for both our city and nation.”

A specific risk posed by America’s overly strict financial regulators, McKinsey warned, was that their approach was driving the highly desirable derivatives business abroad…Read with the benefit of hindsight, the Bloomberg/ Schumer/ McKinsey report is a parody of hubris .

Among the geniuses who pushed for even more deregulation were "Glenn Hubbard, the dean of Columbia Business School…John Thornton, the active Democratic donor and former president of Goldman Sachs," and "Hank Paulson, the Republican Treasury secretary and former chairman and CEO of Goldman Sachs," who praised the Bloomberg/ Schumer op-ed as being 'right on target.' ”

And as Freeland acknowledges, the push for less controls on derivatives markets was bipartisan. She notes that "Paulson approvingly quoted a Democratic predecessor as secretary of the Treasury, Bob Rubin…" Yeah, a Democrat -- but also a "fellow former Goldman Sachs chairman." Another of the so-called elite experts who fought hard to get the government out of the way of the efficient operation of the free markets was "John Thain , then the CEO of the New York Stock Exchange. Two years later, Thain, by then CEO of Merrill Lynch, was forced to sell the nearly hundred-year-old firm to Bank of America at a fire sale price because of a financial crisis caused in great measure by inadequate regulation."

Source: Freeland, Chrystia.
Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (p. 211-214). Penguin Group US. Kindle Edition.

Engaging the Other Side

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When I was a young undergrad studying economics, I attended a summer seminar at the Foundation for Economic Education (FEE) at their headquarters on the banks of the Hudson River. My views have changed a bit since then, and I was recently reminded of FEE by another blogger and visited their website. There's a Freeman article posted a couple weeks ago called "Adventures in Economic Fairyland." It claims that "practitioners of economics not only use numbers to mislead the public; they use both theory and data to self-deceive." The author (unnamed) admits "no social scientist can operate free of his own values and biases." The assumption of the article, however, seems to be that FEE does a better job than other organizations at keeping these biases in check.

The article asks us to consider a list of statements they say are "accepted as common knowledge." These are:

  • Government spending make-work programs got the United States out of the Great Depression.
  • Scandinavian countries are proof that you can have high taxes and income redistribution without negative economic effects.
  • International trade makes some countries richer and others poorer.
  • Encouraging consumer spending stimulates the economy.
  • Minimum wages have a net positive effect on employment and on the living standards of the poor.

The implication is these are all myths with no basis in reality, used by unscrupulous economists to advance a (socialist) agenda. But where's the evidence that government spending had no effect on the Depression? Why is it illegitimate to ask what elements of the Scandinavian economies (where among other things, the gap between executives and regular employees is much narrower) mean, and why they differ from our own? Why must we assume that international trade lifts all boats? How are we to imagine that consumer spending, which increases the velocity of money if nothing else, doesn't have an effect on the economy? And what do we understand by "net positive effect" and why is the "net" perspective more true and important than the local, individual effect (which may be much different)?

FEE says most economic myths have common features, and they list ten factors they consider hallmarks of these myths. One they don't mention is framing the question in a way that leads inexorably to the desired answer. I think each of the myths they seek to debunk in the list above is an example of this careful framing. Let's take the shortest statement: "Encouraging consumer spending stimulates the economy." There are several assumptions buried in this statement, about who is doing the encouraging, about the time horizon over which we're measuring results, about the alternatives to such spending, and about the desirability of such stimulation. It might be true to say that "consumer spending stimulates the economy." But one might still object to the "encouraging," if for example it's the government that's encouraging spending on credit to boost the year-end numbers, or the mortgage industry of 2007 encouraging homeowners to refinance at 100% of valuation and buy a plasma TV with the proceeds. Although it might not be the same person objecting, in those two examples.

Looking at FEE's list of ten common features as a friendly outsider, I'd suggest to them their estimation that their counternarratives lack these features is a little less true than they suppose. But I also believe feature #4: "They seem motivated by good intentions." And I think it's time for well-intentioned people on both sides of these issues to engage with each other and stop supposing the other side is either stupid or evil. So I'm going to start reading and responding to
The Freeman and other FEE publications. We'll see what comes of it.

Davis: Managed By the Markets

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I'm reading several books simultaneously right now, sort-of manically making up for a summer spent outside building greenhouses, tree-houses, and turkey houses. One of the new ones I've just discovered is called Managed By Markets: How Finance Reshaped America, by Gerald F. Davis (Oxford Univ. Press, 2014). Davis is a professor in the University of Michigan Business School. He recently sent me a couple of journal articles he wrote, in response to a question I posted on the H-Net Business forum.

Davis's perspective on the changes in American business is new to me, and is a really interesting complement to the other stuff I've been reading. I'll have more to say about the book (and the articles) soon. In the meantime, here's a taste:

As competition among states for various kinds of corporate business expanded, governments correspondingly became more like corporations—less a sovereign than a vendor of laws, competing with other vendors to attract corporate customers. This was particularly evident for corporate finance. Securities and other financial instruments are weightless products, and their issuers have great flexibility in where they choose to register them. New Hampshire-based Tyco International re-incorporated in Bermuda in the 1990s, along with Accenture, Cooper Industries, Ingersoll-Rand, and several other firms, to take advantage of a legal system designed by American insurance companies a few decades before. The South Pacific island nation of Nauru created an international banking industry almost overnight that served as an entrepôt for Russian mobsters, who availed themselves of the looting opportunities created in part by Harvard economists. Liberia, whose ship registry was created by American oil companies seeking to avoid US labor laws, diversified into the incorporation business, attracting firms such as Miami-based Royal Caribbean Cruises. As a “foreign” ship operator incorporated in Liberia, it was not obliged to pay US income taxes, an obvious advantage for Royal shareholders such as Fidelity (which owned 9% of Royal’s shares in early 2005). And established ship registries such as Liberia and Panama faced new competition from cut-rate vendors like Bolivia, a land-locked country that nevertheless managed to bring in substantial revenues by registering hundreds of ships, no questions asked. (pp. 23-24)

Localism & Economics



This was a good video. It raised a lot of interesting issues and asked some important questions. I agree with most of it and I think I share the producers' concerns and goals. But I also have some suggestions.

I agree that the world has been culturally "colonized" by a western consumerist ideal that benefits the big corporations paying for the ubiquitous ads and billboards and TV commercials shown in the video. But I also thing there are some benefits of global trade that need to be acknowledged and discussed. For example, I really like being able to get fresh citrus fruit during the northern hemisphere winter. I buy a bag of clementines and a bag of grapefruit just about every time I shop. If I was forced to buy only what was in season in my local farm market, my family would basically eat no fresh fruit or vegetables for about half the year.

A serious dialog about localization needs to address issues like this. Of course, in a "zombie apocalypse" scenario where peak oil or war made long-distance trade impossible, we'd all learn to preserve food like our grandparents did. Farmers would also lose a big part of their markets, if they could only sell to locals. This might be good for small farmers, but it would change not only the food system but population concentration, health, life expectancies in different regions, etc. Up until that point, is there a way to scale back the "free trade globalism" that benefits the big corporations, to something that benefits consumers and producers, without enriching agribusiness?

At about 5:50 in the video, someone says we need to be able to see ourselves as part of a giant, worldwide "No" to agribusiness corporations like Monsanto. I agree, but this is just the first step. We also need to begin to see ourselves as part of a big, global "Yes" to something meaningful. A lot of the "Yes" stuff in this video shows people dancing and hugging. Okay, great. They're regaining a sense of community, feeling empowered. I get that. But I think it's going to be important, if you want to attract people who are not already sold on the idea of localization, to also show some results. Contrasting the cold, calculating corporate machine with happy indigenous people is only a first step. You've also got to show that a localization movement can create results that are viable alternatives to agribusiness and corporate colonization.

One of the claims the plutocrats seem to make a lot (if you believe people like Chrystia Freeland) is that although globalization has hollowed out the middle class in America, it has raised hundreds of millions out of poverty in the developing world. A truly global perspective might welcome the impoverishment of working people in America in the name of global equity. Personally, I think this perspective is also the enemy of localization. I think the cost of living is higher in the middle of North America than it is in the middle of China or India. So reducing American wages and raising Asian wages to some global mean does not make everybody equally well off. Localization would mean that local prices reflect local economies rather than the global economy. Potatoes should cost more in Minnesota than in Cochabamba. While it's cool to show images of cultural diversity in videos like this one, I think we need to acknowledge that localization means a slower ramp toward global equality. If only to prevent panic in the American Midwest, which could be a big source of support for the movement.

Finally, and this might be the hardest to hear, I think you need to downplay the re-spiritualization pitch. You seem to assume, to be perfectly honest, that atheism makes a person a corporate globalist. And that localization will give everybody a spiritual connection with the great mother. I think you're wrong on two fronts.

First, I think it's entirely possible to be a complete materialist and to support localization and even a simpler, back-to-the-land lifestyle. Second, I think you're alienating as many people as you're attracting when you build one of the central pillars of your pitch around the idea that localization is a spiritual movement. Your conclusion talks about reclaiming our diversity, which I agree is important. But then it implies that it's this diversity (and by implication, traditional wisdom including a semi-mystical connectedness) that's going to provide the answers. I think this is true, but only to an extent. When historian James C. Scott criticized "high modernism" and proposed "Metis" wisdom as an alternative, it worked for me. When you name your Facebook page "the economics of happiness," I start to worry that you're going to abandon economic arguments for a type of discourse that in my opinion is only effective with people who are already onboard.

I'm not saying there's no place for beauty and cultural diversity in your message. I'm just suggesting it shouldn't be about one or the other. We need to make an economic case about sustainability. Even about efficient allocation. Local markets filled with myriad small suppliers might better reflect actual supply and demand than big corporations making top-down decisions -- in this sense, corporations are the new states and Scott's critique applies equally to them. Imagine how believers in a free market (many of whom are already suspicious of big corporations as well as government) would react to this line of reasoning. All I'm saying is, don't paint yourself into a corner.

Real Zombie Apocalypse

According to a report published by the Public Religion Research Institute, reported today in The Atlantic, half of Americans think that Climate Change is a sign of the End Times, the Biblical Apocalypse.

There's a moment in the Doctor Who season finale this year, where the Earth is (predictably) teetering on the edge, and the Doctor says "Don't call the Americans! They'll only pray." THAT is how the rest of the world sees us, and it's because of this type of nonsense.
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A 2014 Pew Research poll found "61 percent of Americans agreed that the earth's temperature is rising, and of that group, 40 percent attributed the warming to human activity."

And according to a recent
Harris Interactive poll, 68% of Americans believe in Heaven and 72% believe in miracles. So why clean up your mess here, if a.) it can be fixed by the wave of God's hand or b.) you're going to a better place anyway. In the same poll, of course, fewer than 50% of the respondents believe in Darwinian Evolution.

What are the implications of this stunning display of American opinion, on any efforts we might want to make to dig ourselves out of the ecological, political, and social hole we're in by any sort of
grass roots, bottom up action?

Work in the 21st Century

I’ve recently been reading a lot about who owns American businesses. I found some Depression-Era studies of corporate ownership, and then I went onto the H-Net business History forum and asked if there was anything more recent that showed how ownership had changed. Today I got a couple of answers from Professor Jerry Davis, who teaches at the Ross Business School at the University of Michigan. A couple of articles, which I’m still digesting, and a dataset that is exactly what I was asking for. I’ll have more to say about it soon, but in the meantime here’s some food for thought:

The combined global workforces of Google (32,467), Apple (63,300), Facebook (4,000), Microsoft (90,000), Cisco (71,825), and Amazon.com (56,200)—317,792 as of the end of 2011—are smaller than the US workforce of Kroger [the grocery store chain] (339,000). Notably, a recent survey of college graduates under 40 found that one in five listed Google as their most preferred employer, followed by Apple and Facebook. They might as well have chosen the NBA as Facebook, given the firm’s miniscule employment, and Apple’s recent surge in net jobs is almost entirely attributable to the roll-out of its retail stores, where most of its current employees work.

(Gerald F. Davis, “After the Corporation,”
Politics and Society, May 6, 2013)