The short version goes like this:
Once upon a time there was a king. He wanted to get richer. He used charters to divide his lands into provinces run by lords.
The charters allowed the king to retain ownership of his lands, and require the lords make regular payments to the king and protect the king's land.
King's College Charter, 1446
They also granted lords broad administrative rights over their provinces and the inhabitants, allowed them to keep excess provincial profits after paying the king, and protected them with the king's court and army.
The charters worked quite well for the king and his lords; they became wealthier. Other kings followed suit, and they became richer, too. But suffering increased for serfs. Before charters, they only had to make kings rich. Now they were forced to make kings and lords rich.
Serfs complained. They sought help from the courts, but found no justice. The first order of business for “equity courts” was to protect kings’ charters. Common citizen’s concerns were secondary.
After centuries of oppression, people revolted and created democratic governments. Kings’ charters were nullified. In the US, authority over charters was given to each state.
Initially, the states took charters seriously. They specified what corporations were allowed to do, and required corporations to serve the general welfare.
But the states did not create new equity codes to enforce their people-centered charters. Instead, they deferred to British equity code, which was heavily biased in favor of the wealthy few. Consequently, state efforts to regulate corporations were consistently undermined by the courts.
Eventually the states gave up. They allowed corporations to create charters that emphasized shareholders and ignored the interests of common citizens.
After more than a century of growth in corporate power, the US was crippled by the Great Depression. A massive effort to reduce corporate power was launched by FDR. Scores of liberal laws were written. More importantly, they were enforced by FDR’s eight Supreme Court appointees. An era of widespread prosperity was launched, and it lasted for thirty years.
But FDR’s Court appointees were gradually replaced by conservatives. Eisenhower had two appointments, and Nixon added four more. The balance of power on the Court radically shifted in favor of corporations. Since Nixon, the Court has consistently ruled in favor of corporations, culminating in recent decisions such as Citizens United and WalMart.
History teaches us that the road to serfdom is ultimately paved in conservative legal code; code that places the interests of the wealthy few above the interests of the general welfare.
There have been scores of people’s revolutions. They have nullified corporate charters, passed sweeping laws governing corporations, and appointed liberal judges. But such measures were never enough.
The essential ingredient is a liberal equity code that consistently places the interests of the many over the interests of the few. Only then can we reverse centuries of legal precedent favoring the wealthy few, and hope to enjoy centuries of prosperity for we the people.
You think public elections are distorted by the Supreme Court's Citizens United decision? Well, corporate law is worse. It's so loosey-goosey that boards of directors can ignore "no" votes.
That's right. Corporate law allows plurality voting, which means top vote-getters win regardless of how many people vote against them. For example, just last month shareholders voted 2-to-1 against a Sirius XM director candidate, but plurality rules let him win anyway.
The chancellor and vice chancellors of Delaware's Court of Chancery
Making matters worse, corporate law does not give shareholders the right to nominate candidates, or call for votes on critical issues. But, it explicitly gives this right to boards of directors. So most of the time, shareholders only vote on candidates listed by the board, or on proposals presented by the board. Lacking legal pressure to do otherwise, board members usually nominate their buddies, and they almost always make proposals they strongly favor. Candidates who might shake things up on the board rarely see the light of day, and the same goes for proposals that might cut CEO pay, increase rank-and-file wages, or help restore the environment.How did it get this bad? It's called the "race to the bottom." Early in the 1900's Delaware started competing for corporate revenue by creating a very biased legal code, called Title 8. It grants generous liability protection to shareholders and
directors, and does not tax out-of-state sales. As frosting on the cake, it totally ignors the rights of employees, local communities, or the environment. Corporations flocked to Delaware, which is now corporate home to almost a million corporations and almost two-thirds of the Fortune 500. Isn't it ironic, that the second smallest state in the Union is number one in corporate law? (For details, see Deep Economics Part 2
, Beware of Delaware.)The real secret to Delaware's success has been favoring directors over shareholders. Why? Because directors make the decision about where to incorporate. If Delaware does not keep them happy, they just leave for a more director-friendly state.
Delaware relies on corporate revenue more than any other state, so director satisfaction is more important in Delaware than any other state. Since corporate law tilts in favor of executives, is it any wonder their pay is so high?
Since corporate law ignores employees, is it any surprise that executives send jobs overseas, or pay non-viable wages? Since corporate law ignores the environment, is it any surprise that corporations do so much environmental damage?The solution starts with federalizing corporate
law. Now conservatives would have you believe this is tantamount to declaring war on freedom and America itself. But in truth, the only risk is that executive pay might decline, and boards might become more accountable to the people. Sounds like a risk worth taking to me.
For an entertaining puppet show on Delaware's Court of Chancery, watch the video below:
I just watched a Niall Ferguson presentation on the "The Six Killer Apps of Prosperity" (TEDTalks, on Netflix). These factors explain "The Great Divergence," or how the West came to dominate the East in terms of wealth, and how the East has now erased the West's advantage by adopting the killer apps themselves.
For context, it is useful to know that Ferguson endorsed Romney for President a year ago. His rationale: we need "a private-equity guy in the White House." Simultaneously, he dismissed the Occupy movement as "Occupopulists." If nothing else, this conservative has a dry wit.
Back to his thesis. Ferguson, and a vast number of conservatives like him, assume it is OK to sum the wealth of everyone living in a country, divide it by the total number of people in the country, and use the resulting average to compare nations, continents, or civilizations with one another. To make things exciting, conservatives then compete with one another to invent stories, called "theories," for why average wealth went up or down over time.
For all his brilliance, Ferguson's work is flawed by an egregious statistical error: you can't use averages to describe skewed numbers! This tenet is taught in every introductory statistics class; it is a very basic principle.
As we all know, wealth is highly concentrated –– or skewed. For example, in 2007 the top 10% owned an incredible 83% of all non-home wealth! (See Part 2
, Disparity for more details.)
Averages would allow Ferguson to proudly proclaim that average wealth has been rising in the US, when, in fact, wealth has been declining for most people. Since wealth has increased dramatically at the top, the average is inflated, and the important story impacting the greatest number of people is concealed.
Numbers can reveal the truth, or they can disguise it. It depends on your values. If you value compassion and the general welfare, then you studiously avoid averages in economics. But if you value greed or winning at any cost, then averages are a great tool for hiding the carnage.
Ferguson's failure to abide by the fundamental rules of statistics means his work is fundamentally flawed. It also means that every economist who uses averages is very likely making the same mistake. And, since there are lots of economists using averages, then ... well, I think I've made my point. The leading killer app in economics is averages.
One month ago Amendment 1 passed, making North Carolina the last Southern state to constitutionally ban gay marriage.
Where is the payoff from bashing gay rights? Perhaps history has a clue. The South's last unanimous campaign against civil rights targeted the black race. Even though most Southern whites had nothing to gain economically, they fought and died to protect slavery. Why?
Perhaps no one gave a better answer than Supreme Court Justice Roger B. Taney in the Dred Scott decision. His words resonated deeply in the South: "[people of the black race are]
beings of an inferior order, and altogether unfit
to associate with the white race,
either in social or
political relations, and
so far unfit
that they had no rights
which the white man
was bound to respect." (For more details, see Part 1
of Deep Economics)
Taney's words succinctly captured Southern hatred of blacks. Southern gentry used it to their advantage: you poor white boys better fight and fight well, otherwise the North will force you to live cheek-to-cheek with those blacks. It was a powerful battle cry. Confederates were three times more effective than Yankees at killing the enemy. Fighting against feared personal degradation was far more motivating than fighting for somebody else's freedom.
And now Southern hatred rises again, but this time against gays. Posters like "God Hates Fags" present the essence of the message sent by Christian fundamentalists across the South. And it worked: 61% of voters supported Amendment 1 in North Carolina, which in politics is a tremendous margin of success. Liberals, fighting for somebody else's rights, were far less effective and took a terrible beating at the polls.
Conservative wealth needs voter support to maintain dominion. It wins that support by aligning with hate campaigns. War is a longstanding favorite. Hate is rallied to rationalize war, which in turn feeds the mammoth arms industry.
Another hate campaign is being tested today in Wisconsin. The campaign is presented by conservative wealth as a cure for our financial woes. But it's just another hate campaign, this time against public workers and their right to a decent wage, pension, and to be unionized. Conservative wealth hopes to win voter support, and thereby protect its dominion.
Hate campaigns restrict our vision, especially when polished by massive infusions of money. Well-financed hate campaigns make it hard to see what is really going on. They delude us into thinking hate brings deliverance. But God will not smile on Southern churches for bashing gay rights. Wisconsin's economy will not heal by cutting public spending and restricting unions. Yet hate campaigns supported by egregious wealth consistently make silk purses out of sow’s ears.
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."
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.
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?"
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."