In previous posts I described my disappointment with President Obama's shift from a liberal campaign to a moderate presidency. In this post I discuss another moderate: Robert Reich.

In 2000 he published The Future of Success. In it he claimed: "Most of us are more prosperous than ever before. We own more. We're able to get terrific deals." And: "Today we can see the emergence of a vibrant new economy brimming with innovations. ... Jobs will be abundant, many of them exciting and well paid."
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Robert Reich
Reich was wrong. He was the Secretary of Labor for President Clinton from 1993 to 1997. He had a unique opportunity to help the common worker. But he missed it. Vast segments of our population were experiencing employment and income decline. He should have fought for the middle class when he had the chance. Instead he predicted utopia. Oops!

In 2007 he published Supercapitalism. His thesis is summarized here: "The real explanation [for the widespread decline of economic prosperity] involves the way technologies have empowered consumers and investors to get better and better deals–and how these deals, in turn, have sucked relative equality and stability, and well as other social values, out of the system."

Reich does not admit he got it wrong back in 2000. He just accepts the miserable plight of common workers as a fact. Then he blames technology for our woes. He dismisses other explanations as "mostly nonsense." Among the nonsense explanations he specifically sites are: greed, globalization, financial deregulation, tax cuts for the wealthy, etc. Here is an example of how he defends egregious, greedy executive pay practices:
  • "But the super-rich are not at fault. The market is generating these outlandish [high compensation] results. And the market is being driven by us as consumers and investors."
  • "Boards are willing to pay more and more for CEOs and other top executives because their rivals are paying more and more for them. And all are willing to pay more because, in effect, consumers and investors are pressuring them to."
This is typical "moderate-talk." It's like doublespeak. First he liberally denounces income disparity, then conservatively blames technology, not board directors or policymakers, and certainly not economists.

Reich published Aftershock in 2010. Here he defends his 2007 thesis that technology was the culprit, but now adds globalization: "The underlying problem emerged around 1980, when the American middle class started being hit by the double whammy of global competition and labor-replacing technologies." But in 2007 he dismissed globalization as a cause of our woes, and offers no explanation for the change of tune. And he doesn't explain how he missed the demise of the middle class as Labor Secretary, or why he predicted utopia in 2000.

Reich further revises his story: "Instead of implementing a new set of policies that would enable the middle class to flourish under these very different circumstances, political leaders ... embraced deregulation and privatization, attacked and diminished labor unions, cut taxes on the wealthy, and shredded social safety nets." On the one hand, Reich clearly makes a liberal statement here. But on the other hand, in 2007 he thoroughly discredited these types of liberal policies as "mostly nonsense." Will the real Robert Reich please stand up?

My conclusion is that you can't trust a moderate. They say liberal things one day, and conservative things the next. I should be happy that Reich has now embraced the need for liberal policies that directly benefit the middle class. But I can't help but wonder what side of the fence he will be on tomorrow.
 
On the surface, it doesn't make sense. Why do poor white people vote for a party that doesn't care about them?

Poor Republicans want their government to do more, but their leaders refuse. To quote Romney: "I am not concerned with the very poor. We have a safety net there."

Republican leaders send a consistent message: if you don't like being poor, get a job or work harder.
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Mitt Romney
Such rhetoric encourages people to blame the other guy. With so much finger-pointing going on, it takes considerable effort to tune it out, and replace it with a different view of fellow citizens; one that is far more constructive.

Politicians often use blame to access the dark side of our personality. We are drawn to blame others when we are in pain, even though it never does us any good.

I was listening to conservative talk radio yesterday. The host made fun of people who say the economy is not fair. He mocked them. His tone oozed with disgust, disdain, even hatred. It was like anyone who thought the economy should be fair did not deserve an ounce of respect. There was absolutely no possibility in the host's mind that our economy should be fair. It was what it was, so get a job or work harder, you lazy bum!

Surely this is one of those destructive "blame tapes." Essentially it says: "People who complain about economic fairness are the problem. They are freeloaders, taking advantage of those who work hard. They hurt themselves, and our country."

Surely a more constructive tape would be something like: "How can we change our economy so that more people benefit? Or, how can we fix an economic system that consistently favors a few and puts everyone else at a disadvantage?"
 
It's big news: Facebook becomes a publicly traded company today with its Initial Public Offering (IPO). But who wins, we the people, or the wealthy few?

First, let's look at Facebook users. For them, the site is a great way to connect with people. Will the IPO enhance their user experience? Probably not. Facebook users are likely to see more ads, and have less privacy. Why? As a publicly traded company, Facebook's primary obligation is to please shareholders. Customer's are now secondary.

This is not an opinion; it is a fact, a legal reality. Facebook is incorporated in Delaware, as are most other large corporations. This tiny state sends a huge message: shareholders are number one. Delaware's legal code, called Title 8, does not mention customers, employees, local communities, society, or the environment. (For more information on Delaware and corporate law, see Part 2 of Deep Economics.)
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Mark Zuckerberg
So, as a publicly traded company, shareholder interests are now, by law, Facebook's top concern. The projected $16 billion of funds to be collected in the IPO comes at a huge price, and that price is to be paid by Facebook users. They will see more ads, and their privacy will continue to be compromised. It's not what they want, but it's what they will get, because shareholders are now Facebook's top priority.

Who benefits from the Facebook IPO? In short, only a small number of rich people. First, let's take the founders. Before the IPO, Mark Zuckerberg was worth $13.5 billion. Now he'll be worth $17 billion. Co-founder Eduardo Saverin was also a billionaire before the deal, and will be a bigger billionaire afterwards. But Saverin is concerned. He only has a few billion. He needs to be very careful about taxes now. So, he renounced his US citizenship and moved to Singapore. He got rich in the US, but now wants to enjoy his riches somewhere else.

Will loyal Facebook customers benefit by being able to purchase Facebook stock during the IPO? Of course not! The only people who get to buy IPO stock are ultra-rich investors. I wonder: How many of them have a Facebook page?

And last but not least are the banks. They were paid a lot of money to design and launch the IPO. And they will make even more money as people buy and sell Facebook stock.

So, today is a happy day for the wealthy few associated with Facebook, but hardly anyone else. Ask yourself: does the Facebook IPO reflect your highest and loftiest values? Do you support a few people getting rich at the expense of everyone else? To find out how capitalism can benefit a greater number of people, see Part 5 of Deep Economics.
 
Part 1 of this post defined liberal and conservative economists, where liberals advocate for changes that clearly support common citizens, and conservatives don’t. Now the most liberal economists are listed, and the topic of "moderates" is addressed.

The most famous of today's conservative economists is probably Robert Lucas. He was awarded an economics Nobel in 1995, and works at the University of Chicago. Yes, Milton Friedman’s old school.
Other prominent members of the ultra-conservative Chicago economists club are: Eugene Fama, John Cochrane and Raghuran Rajan. This group of four should be awarded a gold medal for doing the greatest good for the least number of people; it does the best job of serving the wealthy few.

One school trying to compete with Chicago’s infamy is Florida State. The Koch brothers have taken over the economics department there, and dictate which professors meet their ultra-conservative standards. Who knows; maybe they can buy Chicago’s top spot?

No list of top conservatives would be complete without Robert Barro. He is the self-appointed Paul Krugman attack-dog. He has gone so far as to claim that Krugman has no business talking about economics. Barro’s viciousness emphasizes the importance of Krugman to common citizens.

Moderate economists are trickier to spot. One day they say things that support common citizens, and the next day they say the opposite. The leading economic moderate is none other than Ben Bernanke, head of the Federal Reserve. (If you want to learn more about the Fed, click here.)

When the Obama transition team was at work in late 2008, Bernanke supported economic stimulus to help common citizens. But rather than support bold, decisive steps in proportion to the tremendous magnitude of the problem, he took a moderate stance. He compromised with conservative economists and bankers. The results speak volumes: we are still in a depression. Moderate economics is just conservative economics in slower motion. It eventually does more harm than good.

Why? Take our current crisis. After Obama’s and Bernanke's moderate steps failed, a conservative backlash was launched, which is creating even more economic suffering.

Even though the only outright beneficiaries of conservative economics are the wealthy few, huge numbers of “wealthy few wannabes” have joined the conservative ranks. They correctly conclude that moderate economics failed, but they wrongly hope that conservative economics will help them.

To summarize, there are two types of economists: liberals and conservatives. The liberals are led by Paul Krugman. The conservatives are led by Robert Lucas and his gang at the University of Chicago. And moderates are nothing more than conservatives disguised in wolf's clothing.
 
Every citizen needs to know there is no such thing as an unbiased economist. Each one has a political bias, and it colors every aspect of their work.

There are only two types of economists: conservative and liberal. Some insist there is a third category of "moderates." I'll address them in Part 2 of this post.

Conservative economists support the wealthy few. Occasionally one of them will show their bias and say something like "greed is good." But for the most part they rarely admit it publicly.
The best way to detect a conservative economist is to ask yourself a simple question: "Are they advocating for something that directly benefits me?" If the answer is no or unclear, then there's a good chance you've spotted a conservative economist. A fallback question would be: "Do you support Keynesian economics, or massive government spending to end recessions and depressions?" If they do, they're liberal. If not, they're conservative.

In fact, it's always safest to assume that an economist is conservative, because most of them are. It's how they are trained ... and how they are paid.

Conservative economists condemn government programs that help common citizens. They attack them with terms like "fiscally irresponsible" or "inflationary." Or they describe progressive taxation, where wealthy people get a higher tax rate than poor people, as "class warfare." They frequently use lofty phrases like "free markets" or "the wisdom of the markets" with religious undertones, as if their economic views are divinely inspired or rooted in universal truths. They falsely assert that the US has the "highest living standard" or the "strongest economy in the world."

Conservative economists insist that everyone benefits when the wealthy few are paid incredible amounts of money. They claim the economy thrives when income and wealth grows faster at the top of the pyramid than for the rest of us. They insist that the wealthy few "earned it" and are "worth every penny" when in fact the vast majority of executive fat cats get their money from their board buddies, who expect the same thing in return from their board buddies, in a self-reinforcing chain of executive compensation favors.

Don't be fooled by Nobel awards. The arch-villain of all modern-day economists was Milton Friedman. He got one back in 1976. This award helped launch a huge wave of conservative deregulation which ultimately created our current depression (See It's a Depression, Stupid!).

And don't be so foolish as to think Democratic presidents only appoint liberal economists! Most of the top appointments made by Clinton and Obama to the Treasury and the Fed were very conservative economists. Republicans were delighted.

The only safe assumption about an economist is that they are conservative. The burden of proof is on them. Either they advocate for programs that directly benefit common citizens, or they don't.

The most famous of liberal economists today is Paul Krugman. Everything he writes is driven by an earnest attempt to advocate for common citizens. He is unafraid to say he supports many aspects of Keynesian economics, which would be an act of professional suicide for almost anyone else. You see, he has a Nobel award, too. So it's hard to summarily dismiss him.

In Part 2 of this post, I list some of the most famous conservative economists, and discuss the tricky category of "moderate."
 
In Part 1 of this entry we reviewed the story of how modern-day money originated with goldsmiths, and how everyone benefited. Now we go to the second part of the story. Be forewarned; it does not have the same happy ending.

One day, a particularly crafty goldsmith noticed that his inventory of depositor gold hardly changed from day to day, or even from month to month. He wondered: "What if I start loaning depositor money? If I work it right, I can earn interest on depositor money, and my depositors will never know the difference!"
So the crafty goldsmith loaned some gold to a few enterprising friends who wanted to expand their businesses. He made a schedule for them to pay back part of the gold loan every month, plus one percent interest on the outstanding balance. After this worked a few times, he realized that there was still a lot of unused depositor gold in his vault. So he started making more loans, and earning more interest. To be safe, he paid the local magistrate to review and approve each loan schedule.

Before long, other goldsmiths heard what the crafty goldsmith was up to, and started to do the same thing. Eventually, many goldsmiths quit their craft and became deposit and loan bankers.

For centuries, this story has been told by economists and other members of the ruling elite as a glorious tribute to industrious enterprise. Some like Milton Friedman and his enthusiasts go so far as to say growth of the banking greatly increased our quality of life and even freedom itself.

But huge ethical issues lurk in the shadows of this tale.
  • Who actually owned the deposited gold: the goldsmith or the depositor?
  • Did the banker ask depositors if it was OK to loan out their gold?
  • Did the banker ask depositors how much of their gold could be loaned out versus held in reserve?
  • Did the banker share any of the loan interest with depositors?
  • Did the relationship between the goldsmith/banker and the magistrate compromise the role the magistrate was supposed to play in protecting the interests of common citizens?
  • What happens to depositors if the banker cannot satisfy their requests to redeem their gold?
  • What happens to borrowers who have trouble paying back the loan?
Each one of these questions call on us to make ethical judgments. The answers unavoidably involve value judgments, or bias. So, the critical issue is: Who's interests are being served by our answers to these big ethical questions?

The sad tale of human history is that these questions are almost always answered with a heavy bias favoring the one percent, or the wealthy few. Deep Economics embraces a different approach: answering big economic questions with a strong bias for the 99 percent. Isn't it about time? Isn't that what protests all around the globe are essentially about?
 
Many economists tell the story of how banking  started, but few question the underlying ethics of what banks do.

First, here's the story of how banking started.

Once upon a time there was a goldsmith who made lots of pretty things for people. He built a  room with very strong walls and locks to protect his gold at night. No one ever stole his gold.
Villagers noticed his success and asked him to keep their gold safe, too. He said "OK, here's what I'll do. I'll charge you rent for the space you use in my vault, and I'll give you a receipt for the ounces of gold I store for you." This experiment worked and the villagers were happy. Eventually other goldsmiths throughout the land started gold storage businesses too, and it became common practice.

One day, a farmer needed to buy a cow right away. His neighbor had the perfect cow for sale, and the farmer had the right amount of gold, but it was stored with the goldsmith, who lived pretty far away. He told his neighbor he had enough gold, and asked if he would take his gold deposit receipt rather than make him travel all the way into town. The neighbor said "OK, but sign the receipt so that the goldsmith knows you gave it to me."

The arrangement worked like magic! A few weeks later the neighbor went into town and showed the goldsmith the signed receipt. The goldsmith trusted the neighbor and the farmer, and gave the neighbor the farmer's gold. He also stopped charging rent for the gold. Villagers heard about this and also started to buy things with their goldsmith deposit notes.

To make things easier, goldsmith deposit notes eventually were written in standard quantities. This way, portions of stored gold could be exchanged in exact proportion to the cost of what was being bought. Eventually standardized goldsmith deposit notes were commonly exchanged instead of gold.

Everyone was happy with this approach. Why? Because everyone knew what was going on. There was nothing secret or underhanded about the use of gold deposit receipts instead of actual gold. Everyone benefited: buying and selling was easier, and the person who ran the gold vault was rewarded with vault rent payments.

But then things started to change. To find out more, read "Is Banking Ethical? Part 2"
 
Have you ever wondered where economic theories come from? Are they earnest scientific attempts to describe truth, or are they better described as public policy propaganda tools?

Well, if an economic theory was truly rooted in the pursuit of scientific truth, then the theory would be revised when actual results contradicted the theory. Right?
Let's take the economic theory of free markets, as espoused by Milton Friedman and his many current-day conservative adherents. The theory says that markets are efficient and will find the best result for the greatest number of people if they are allowed to operate freely.

The last 30 years have seen tremendous financial deregulation, at the urging of free market economists. But, income and wealth inequality has greatly increased. In other words, the results of deregulation have not benefited the greatest number of people. The "invisible hand of the market" has not been kind to the many. Instead, it has served the few quite well, at tremendous cost the the many.

What should an earnest scientist do when faced with mountains of results that contradict their theory? Change the theory, of course! Instead, most economists continue to insist the world is "flat" (i.e., highly free markets ultimately serve the common good), even though the evidence proves the world is "round" (i.e., highly free markets do not serve the common good).

Why is the free market theory still supported, rather than relegated to the trash heap? The answer is painfully obvious: Because it does serve some people quite well. They support free markets because they are happy with the results. In my view, those who benefit from free markets fall into two camps: those who directly benefit from the free market system, and those who wish they did.

The "those who wish they did" group represents a sadly persistent aspect of human nature. The phenomenon of humans doing things that do not serve their long-term best interests have been observed for thousands of years. Many theories for why people behave this way have been posed; which is a subject for another time.

But for now we must conclude that economic theory is primarily driven by the pursuit of personal interests rather than scientific truth. Let's be honest: economics is about who wins, who loses, and by how much.
 
Finally, an economist willing to say it! Paul Krugman, winner of the Nobel price in Economics in 2008, just published a book End This Depression Now! He dares to stand against the minions of other economists who say our economy had a brief recession, which quckly ended.

Most economists define recession as two consecutive quarters of decline in GDP, or gross domestic product, which basically measures the size of the economy.
The official organization tasked with certifying whether or not we are in a recession is the National Bureau of Economic Research, a nonprofit corporation that claims to be nonpartisan. But from a common citizen's perspective, it is better described as an organization run by a bunch of stuffy economists who depend on the wealthy 1% for their livelihoods.

GDP has practically no relevance to common citizens. Decade after decade, GDP consistently rises, with few interruptions. Very few citizens, on the other hand, can describe their income or wealth in the same way. A plot of GDP over the last two or three decades does nothing to describe what our economy is like for common citizens.

Indeed, the original inventor of GDP, Simon Kuznets, sternly and repeatedly warned against using GDP as a measure of how well the economy was serving common citizens. His warnings have been consistently ignored by fellow economists.

The alternative measure of economic health is unemployment. But this measure, provided by our Bureau of Labor Statistics and its economists, is fundamentally flawed as well. It ignores people who are not looking for work because they are disillusioned with the prospects of finding interesting, fulfilling, and meaningful work that pays well. It also ignores people who are underpaid, unsatisfied, underutilized, or unfulfilled with their current work. (See Deep Economics, Part 3, Chapter 16)

Numerous surveys of US citizens make it totally clear: our economy is doing an incredibly poor job of meeting our needs. But the BLS and their economists disregard the true nature of the common citizen's plight in today's economy. Instead, they stick their heads in the sand and deny the full measure of the problem. 

Economists have a moral obligation to listen to the people. We are very unhappy with the economy. There aren't enough jobs, there are even fewer good jobs, and the impact on our nation is extreme and will linger for generations. 

So, economists: Stop being so stupid. Listen to us!