Rethinking the Economy

Two interesting clips from Rachel Maddow’s show last week on talking about government.

From an attack ad by Republican Sue Lowden, who’s trying to unseat Harry Reid:

Harry Reid‘s big government health care plan will raise taxes, put a bureaucrat between you and your doctor, weaken Medicare, kill jobs, push us further into debt. I‘m Sue Lowden and I approved this message, because government-run health care is wrong.

Plenty of politicians contradict themselves. And Republicans have been able to get away with attacking “big government” in one speech while accusing the Democrats of trying to cut Medicare in another speech. But when you get to the point where your rhetoric is contradicting itself in the same ad, you’re headed for trouble — if the Democrats force the issue.

Meanwhile, when Arkansas Lieutenant Governor Bill Halter, who’s challenging corporating-luvin’, union-hatin’, public-option-flip-floppin’ Blanche Lincoln, was asked by Rachel Maddow how he’s different from Blanche Lincoln, he showed how smart Dems talk about government:

I’m running for United States Senate to put Washington back on the side of middle-class Arkansas families.

Instead of getting stuck arguing is he for or against more government, Halter puts it back on his opponents — who do you think government should be for or against?

This is pretty mind-blowing.

In 2008, the American National Election Study asked folks if Uncle Sam spent too much, too little, or about right in 12 areas.

The
results:

the respondents who identified themselves as “conservative” or “extremely conservative” had little appetite for specific spending cuts.

Very few conservatives said they favored reducing (or cutting out altogether) spending on any program. The least popular program proved to be childcare — with a grand total of 20 percent of conservatives saying they’d slash it. The most popular is highways; only 6 percent want to cut spending there. Even bugaboos like welfare and foreign aid fare well, attracting the ire of only 15 percent of conservatives. Amazingly, the survey found that, on average, 54 percent of them actually wanted to increase spending.

As John Sides points out, if you polled activists you might get different results. But for the conservative base? Keep your government hands off my Medicare!

Exhibit 42,517 of how deeply government is embedded in the “free market”: Apple just sicced its lawyers on HTC, an Android phone manufacturer, charging that it violated a gazillion Apple patents. Why HTC and not Google, which came up with Android?

[Harvard Law Prof. Jonathan Zittrain] believes Apple is simply going after a less powerful company first, one with much smaller pockets than Google.

“It clearly involves some form of litigation strategy of picking off the weaker members of the herd first,” Mr Zittrain said. “They can always add Google to the suit later on.”

Here’s the problem. It’s one thing if you’re talking about property like, say, a bicycle. The government’s involved — cops & courts — but at least it’s pretty straight forward to decide if your bike’s been stolen from you. But once you start treating ideas as if they are property? Let the games begin! Now companies can try to beat competitors with lawyers instead of engineers.

After decades of players tweaking the economy’s rules around patents to stack the deck in their favor, MIT Prof. Eric Von Hippel sums up the end result:

“It’s a bad scene right now. The social value of patents was supposed to be to encourage innovation — that’s what society gets out of it,” he said. “The net effect is that they decrease innovation, and in the end, the public loses out.”

I’m sure the government-hating Republicans will get right on it…

What’s particularly galling about Apple playing these bullshit games is that a lot of the core ideas of Apple’s first operating system came from another company — Xerox. If Xerox had protected its intellectual property many years ago the way Apple is doing it now, Apple wouldn’t exist. Or as Bill Gates supposedly said to Steve Jobs when Jobs accused him of stealing from Apple when Microsoft developed Windows:

Well, Steve, I think there’s more than one way of looking at it. I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it.

If Adam Smith’s “Invisible Hand” obscures how much the market is actively shaped by players, what’s a better metaphor?

How about the Visible Toes?

Visible — we actively shape the market…

Toes — but only somewhat. You can close — or nudge — a door with your toes. But drawing an accurate plan of a Green house or orchestrating a plot? Not so much.

Am I serious? No. Could this goofing around help to find a better metaphor? Stay tuned…

Some thoughts on my latest stab at a framework — “the economy is like a game where players set some of the rules.”

What works: it pulls together several points that I really like, although they still feel like they’re duct taped together.

What doesn’t: it doesn’t pull in the nitty-gritty details about how the economy actually works and therefore the different types of rules we’ll need to use — stacking the deck, make it easy, make it visible.

I feel like I keep banging my head against variations on the same 3 problems:

1) I’m not sure what I want to emphasize. One minute it’s the importance of players in power, the next it’s the nitty-gritty details of how people & organizations actually make decisions.

2) The framework still doesn’t chunk things properly. When I imagine an ideal framework, I think about a table. A table lets you do things like say, “that solution takes care of Type A problems, but it also needs to address Type B and C problems.” It lets you classify/tag and bag issues.

3) The Big Problem: extra dry white bread. I want to get into the nitty-gritty — make it easy, make it visible, stack the deck, checks and balances, sustainable success. But the minute I do, the minute it feels like I’ve pulled the pieces together, the end result feels dry and mechanical — I don’t feel the connection back to the issues folks really care about. And when I try to connect it back, the result forced, not fluid or authentic.

My Latest shot at a framework:

The economy is like a game where players get to set some of the rules.

Let’s break it down.

Rules: either through the government or through other forms of power, players can set/change some of the rules of the game. Some of these rules benefit small sets of players, like when Wall Street got rid of rules preventing insanely risky financial moves but kept the “Too Big to Fail” rule. Some of the rule changes benefit lots of folks. These rules can be narrowly focused, like banning lead from children’s toys. Or they can be broad, like the rules in the 40s and 50s — FHA/VA mortgages, college loans, massive government spending on highways, etc., and promoting unions — that helped create the white middle class.

Players: the biggest difference between this framework and a lot of others is that it focuses on the role of players in power. If we tried to prevent another Wall Street meltdown by creating rules that bar risky behavior, the minute the world stops paying attention, Wall Street will start chipping away at those rules. That’s how we got into this mess in the first place. To stop Wall Street from doing it again, we need rules that change the balance of power among players — e.g., Checks and Balances.

Game: if we want to win, we need to play to win — to think strategically. That means figuring out, for example, what board/boards do we want to play on? How do we build our power? Do we have a plan that adds up, or are we acting like the Underpants Gnomes?

Some: Players can set/change some of the rules, but not all — or even most — of them. We can’t control the game, we can just increase the odds of certain outcomes. That also means we have to be willing to make trade-offs — lots of us may want big houses with big yards without the traffic gridlock that comes with it, but wishing doesn’t make it so.

Up next: what works, what doesn’t

In bad times and increasingly even in good times, layoffs have become a way of life in the US, and until the Wall Street meltdown, Europe’s been under increasing pressure to follow our lead. But according to a Newsweek article by Stanford professors Jeffrey Pfeffer and Robert Sutton,

there is a growing body of academic research suggesting that firms incur big costs when they cut workers.

It’s difficult to study the causal effect of layoffs—you can’t do double-blind, placebo-controlled studies as you can for drugs by randomly assigning some companies to shed workers and others not, with people unaware of what “treatment” they are receiving…. But you can attempt to control for differences in industry, size, financial condition, and past performance, and then look at a large number of studies to see if they reach the same conclusion. That research paints a fairly consistent picture: layoffs don’t work.

Don’t layoffs push stock prices and profits up?

contrary to popular belief, companies that announce layoffs do not enjoy higher stock prices than peers—either immediately or over time. A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs, with larger and permanent layoffs leading to greater negative effects. An examination of 1,445 downsizing announcements between 1990 and 1998 also reported that downsizing had a negative effect on stock-market returns, and the negative effects were larger the greater the extent of the downsizing. Yet another study comparing 300 layoff announcements in the United States and 73 in Japan found that in both countries, there were negative abnormal shareholder returns following the announcement.

How about productivity?

A study of productivity changes between 1977 and 1987 in more than 140,000 U.S. companies using Census of Manufacturers data found that companies that enjoyed the greatest increases in productivity were just as likely to have added workers as they were to have downsized.

And profits?

Even after statistically controlling for prior profitability, a study of 122 companies found that downsizing reduced subsequent profitability and that the negative consequences of downsizing were particularly evident in R&D-intensive industries and in companies that experienced growth in sales. Cascio’s study of firms in the S&P 500 found that companies that downsized remained less profitable than those that did not.

I wonder what you’d find if you dig into the details. [Read more →]

When two feet of snow slowed DC life to a crawl last week, I started catching up on old New Yorker’s. In an interesting December article on China’s “crash program for clean energy,” one paragraph caught my eye:

[a] message is gaining currency in Congress; it frames American leadership as manifesting not so much the courage to seize the initiative as the determination to prevent others from doing so. Senator Charles Schumer, one of several lawmakers who have begun to cast China’s role in environmental technology as a threat to American jobs, has warned the Obama Administration not to provide stimulus funds to a wind farm in Texas, because many of the turbines would be made in China. (“We should not be giving China a head start in this race at our own country’s expense,” Schumer said in a statement.) Senators John Kerry and Lindsey Graham, in an Op-Ed in the Times, vowed not to “surrender our marketplace to countries that do not accept environmental standards,” and suggested a “border tax” on clean-energy technology.

Obviously we want to create more good jobs, especially good green jobs, for folks in the US. But if you’re a progressive, jingoistic nationalism is a nonstarter. So how do we deal with this tension?

If the economy is like a game where players get to set some of the rules, then when choosing these rules we should go back to our core values. As a Christian, I’d put it this way:

Thou shalt love thy neighbour as thyself. There is none other commandment greater than this. (Mark 12:28-31)

Or as Rabbi Hillel said:

If I am not for myself, who will be for me? If I am not for others, what am I?

What does this mean in practice?

• For Americans, it means that we have to create good jobs in the US in such a way that our brothers and sisters in China can also end up with good jobs
• For policy wonks and op-ed writers who aren’t worried about having their lives destroyed by outsourcing, just saying “free trade will create good jobs for everybody” or saying the environment comes first — in short, treating working-class families like widgets instead of their brothers and sisters — doesn’t cut it

So where does this leave us? [Read more →]

Snow isn’t the only thing in DC causing a little chaos. Rep. Paul Ryan, ranking member on the Committee on that Budget, has produced a Roadmap to eliminate the budget deficit. To do it, he turns Medicare and Social Security into voucher programs and cuts benefit increases. From the Executive Summary:

* Preserves the existing Medicare program for those 55 or older.

* For those currently under 55 – as they become Medicare-eligible – creates a Medicare payment averaging $11,000 per year when fully phased in. Adjusts the payment for inflation, and pegs it to income, with low-income individuals receiving greater support. Provides risk adjustment, so those with greater medical needs receive a higher payment….

* Preserves the existing Social Security program for those 55 or older.

* Offers workers under 55 the option of investing over one third of their current Social Security taxes into personal retirement accounts, similar to the Thrift Savings Plan available to Federal employees. Includes a property right so they can pass on these assets to their heirs, and a guarantee that individuals will not lose a dollar they contribute to their accounts, even after inflation.

* Makes the program permanently solvent, according to the CBO, by combining a more realistic measure of growth in Social Security’s initial benefits, with a gradual, modest increase in the retirement age, consistent with Americans’ improving lifespans.

For some strange reason, the Free Market Cheerleader Club, a.k.a. the Republican Party, haven’t embraced Ryan’s plan. And as of last night — over a week after the plan was debuted and scored by the CBO — according to Talking Points Memo, only nine Republicans have signed on as cosponsors.

What’s the Republican leadership’s problem with this attempt to curb the creeping socialism of Social Security and Medicare? TPM explains:

when asked [on February 4] at a press conference what about Ryan’s budget he disagreed with, Minority Leader John Boehner couldn’t name anything.

“Off the top of my head, I couldn’t tell you,” Boehner said.

Despite the apparent lack of substantive disagreement, though, Boehner wants to keep the Ryan plan from sticking to the GOP.

“Paul Ryan, who’s the ranking member on our budget committee, has done an awful lot of work in putting together his roadmap,” Boehner said. “But it’s his. And I know the Democrats are trying to say that it’s the Republican leadership. But they know that’s not the case.”

Will the government keep its hands off Medicare? Stay tuned….

Now that the Supremes have said the corporations can run wild with political spending, what’s our next move? Back in November, the Brennan Center’s Ciara Torres-Spelliscy made an interesting suggestion in Business Week — do what the Brits do and put more power into shareholders’ hands:

A law passed in 2000 requires British companies to get shareholders’ permission to make political expenditures and must report the spending in their annual reports.

Here’s how it works: Corporations annually disclose every political expenditure of at least $3,000, naming the recipients. They must obtain prior shareholder approval, usually at the annual meeting, to spend more than $8,000 on political campaigns in the following year or so (no recipient names required). If the resolution fails, no dice. Any directors who make unapproved corporate donations are personally liable for the amount spent.

The official rationale behind it can be pretty conservative:

Shareholders need to be protected because they don’t necessarily profit from a corporation’s political donations. Indeed, a recent study of more than 12,000 companies, led by University of Minnesota professors Rajesh Aggarwal, Felix Meschke, and Tracy Wang, found that corporate political expenditures were typically linked with lower shareholder value. The survey suggested that donations were based in part on managers’ political preferences, not on what might benefit their businesses.

What I like about this approach is that it moves our play to a board where we’ve got more leverage.

Although the new rules are worse, under the old rules corporations could easily buy a Super-sized order of political influence. Every few years a group of reformers would try to “take the money out of politics.” And every time, corporations figured a way around the new reforms. Big surprise there — changing the rules of the game pays off big time, so they’d be idiots not to.

Rather than keep playing a game where the odds are stacked completely against us, I’d rather put the same energy into putting more power into shareholders’ hands and then taking advantage of it. It puts corporate bigwigs on the rhetorical defensive — if shareholders “own” the company, why shouldn’t they have a say? And unions and other activists have already been able to get a fair amount of influence out of the extremely limited shareholder power we have right now. Why not see what we can do if we can crank the dial up a little?