Rethinking the Economy

Why Smart (Honest) Finance People like Dumb Rules

RethinkEcon — Tue, 15 May 2012 07:48:10 +0000

On Friday, Finance blogger Felix Salmon used J.P. Morgan’s $2 billion fiasco to explain why “dumb rules” are a great way to try to stop bankers from taking too much risk based on really complicated models. I quote a longer section below to give you a better feel for the details – and a lot of it is pretty finance-geeky. But you don’t need to understand the details to get the main point:

Your sophisticated platform needs to be built on a foundation of dumb rules: simple limits on how big any one [financial bet ] can get, on how much exposure you can have to any one counterparty.

There’s enormous resistance to using “dumb rules”:

traders hate dumb rules, because they cap the amount of money they can make.

And that’s a good thing – we are trying to stop people from making lots of money by making giant gambles where we have to bail them out if it blows up. If the traders don’t hate it, it’s because we’re not doing it right. Generally speaking, people who try to stick you with the bill hate it when you stop them.

Here’s Felix’s longer explanation:

JP Morgan’s Bruno Iksil, it seems, managed to find an incredibly profitable way of hedging the bank’s positions. Like any other economically rational actor, when he saw a lot of dollar bills lying on the sidewalk, he decided to pick them up. But in Iksil’s highly-complex world, a dollar bill isn’t really a dollar bill. Instead, it’s the output of a model. And if a trader can’t trust his model, he’s flying blind.

The problem is that pretty much by definition, it’s impossible to model model risk. We now know that Iksil’s model was deeply flawed. And indeed the minute that the rest of the world found out about his positions, they didn’t really pass the smell test: it’s very hard to see how writing an enormous amount of protection on an off-the-run CDX index would hedge anything much.

This is where grown-ups like Jamie Dimon are meant to step in. If they see billions of dollars in super-senior mortgage exposure, or in off-the-run CDX exposure, they’re meant to say “I know that your highfalutin’ models say that these exposures are risk free, but I don’t understand how this isn’t risky, so go unwind this trade”. Dimon has historically been very good at that — very good at refusing to simply trust that superstar traders earning eight-figure bonuses are doing nothing that might blow up in their faces. In this case, however, for some reason, he had blind faith in Iksil — and in Iksil’s models, which proved to be very faulty.

A modern trading desk is a bit like a high-tech airplane: nearly all of the time, you’re better off trusting your instruments than trusting your gut. But at the same time, if your instruments are broken, then trusting them can lead you to fly straight into the ocean.

This is why Basel I turned out to be much more robust than Basel II. Your sophisticated platform needs to be built on a foundation of dumb rules: simple limits on how big any one position can get, on how much exposure you can have to any one counterparty, or in general on any trade which is based on the hypothesis that your desk is smarter than anybody else on Wall Street.

Those kind of rules won’t prevent all blow-ups, of course, but they’ll help. They would have prevented this one, and they would have put an end to Jon Corzine’s disastrous MF Global trades, as well.

The problem is that traders hate dumb rules, because they cap the amount of money they can make. And traders have enormous power at investment banks these days, because they make the lion’s share of the profits. That’s why it’s important that the CEO of an investment bank not be a trader. And certainly it’s crucial that the CEO shouldn’t have his own trading account and buy and sell from his Blackberry during meetings, as Corzine did. That’s just a recipe for disaster.

Getting Traction on Climate Change

RethinkEcon — Mon, 14 May 2012 07:20:29 +0000

A few weeks ago on Up with Chris Hayes, Chris Hayes asked his guests, how do we get traction on climate change? That question’s been burbling in the back of my head ever since, and I’ve got the beginnings of an answer that might help me tease out the framework that’s (I think) underlying how I think about the economy. In this post, I’ll lay out the argument. In a future post, I’ll try to uncover the framework behind it.

Let’s start from the beginning: why don’t we have traction on climate change? Why have so many people either tuned out or decided it might not be real?

Because they’re afraid that the solutions to climate change will hit them like a kick to the head. And after almost two decades of getting kicked in the head they can’t face it. So when the Koch brothers, oil companies, etc. spend buckets of money denying climate change, what they’re selling sure sounds better than the alternative.

So how do we get traction? By connecting to people – by speaking to where they are.

Start by framing climate change as the 1% versus the 99%. The 1% are trying to give us a no-win choice: protect our jobs now by not doing anything about climate change and sacrifice our kids’ future, or try to stop climate change & save our kids’ future by sacrificing our jobs now. It’s the same no-win game the 1% played with the financial crisis.

It’s a false choice. We can save our kids’ future and create a stronger economy now. In fact, it’s our only real choice. The 1% can afford to let tomorrow burn – they have enough money to escape the consequences of their actions. The rest of us don’t have that luxury.

In making this argument, we need to do two things. First, we need to argue that we have more power to shape the economy than we think we do. For example, one of Chris Hayes guests asked, what would you say to the people in a rural region of Texas where there’s been a huge upsurge in shale oil jobs? How do you convince them they should pay attention to trying to stop climate change when they finally have a chance at a little more security? My answer: stopping climate change 99% style is about making damn sure that those folks have jobs. We’ve spent decades massively subsidizing oil and gas jobs. No reason we can’t switch to massively subsidizing clean energy jobs that will safeguard our kids’ future instead of destroying it.

Second, we need to be very, very sensitive to the legitimate concerns folks have that they will get screwed by plans to stop climate change. Because right now there are awful lot of environmental elites and centrist economists who are tone deaf to the struggles most folks face. They talk about creating carbon taxes or jacking up gas taxes and blithely assume that it’ll work out for everyone. But the lesson most folks have learned from the last two decades is that when experts say trust us, run for cover. What happens, for example, to the folks where the only way they can afford to buy a home was to move way out? For them a high gas tax could be devastating. It doesn’t have to play out that way, but most folks are quite rightly afraid that it will. Starting from We’re Not As Smart As We Think We Are – instead of assuming it’ll work out for everyone, make damn sure that it does – is a much, much better way to meet these folks where they are and directly address their understandable fears. That’s likely to get more traction than what too many enviros are doing now.

A few more thoughts on specifics. First, since DC Republicans have choked off any chance of stopping climate change via DC – and since an awful lot of folks think corporations have so much power over government that it’s hopeless – don’t worry about DC. If we want to gain traction, focus on corporations and take on entire industries. Or go after cities and states. And in every campaign, look for ways to concretely show people that the 1% is lying when they say we don’t have the power to build a better, greener economy for all.

Second, when a lot of enviros talk about creating green jobs, they sound like a Whole Foods flyer. They might as well be talking about the wonderful antioxidants in a skin cream. They don’t sound like people do when they are serious about jobs – you can’t hear in their voice the sound of a baseball bat slapping against a palm. What does it sound like when folks are serious about jobs? Just listen to Republicans. A bill they don’t like? It’s a “job killing” bill.

Why does this matter? Because people aren’t stupid. They know what it sounds like when you are talking about something that really matters to you – something where your livelihood or your kids’ future is at stake – and when you aren’t. If more enviros talking about green jobs had the same level of fear & no-bullshit determination as New York City liberals when they’re talking about their kids getting into a good school, we would get a hell of a lot more traction.

This rant was a little more rambling than I had expected. But I think there’s some good stuff here that’s worth mining for nuggets of my framework.

Frederick Douglass’ Full Quote about Power & Struggle

RethinkEcon — Wed, 09 May 2012 07:17:37 +0000

Maybe you’ve heard Frederick Douglass’ line about the importance of struggle, “power concedes nothing without a demand.” Turns out there’s more to the quote – and it’s beautiful and lyrical.

Those who profess to favor freedom and yet depreciate agitation, are people who want crops without ploughing the ground; they want rain without thunder and lightning; they want the ocean without the roar of its many waters. The struggle may be a moral one, or it may be a physical one, or it may be both. But it must be a struggle. Power concedes nothing without a demand. It never did and it never will.

Amen.

Mayor Gray’s Crazily Ambitious Plan to Green DC

RethinkEcon — Tue, 08 May 2012 07:05:28 +0000

Two weeks ago, DC’s Mayor Gray unveiled a plan called, A Vision for a Sustainable DC. Essentially it’s what you would get if you were to take every smart green initiative that any city has done and then wrapped it up with a bunch of benchmarks. In other words, it’s crazy ambitious:

In just one generation—20 years—the District of Columbia will be the healthiest, greenest, and most livable city in the United States. An international destination for people and investment, the District will be a model of innovative policies and practices that improve quality of life and economic opportunity. We will demonstrate how enhancing our natural and built environments, investing in a diverse clean economy, and reducing disparities among residents can create an educated, equitable and prosperous society.

How much of this will actually happen? Who knows. But the fact that he’s going for something so bold is a breath of fresh air.

How ambitious is it? Here are a few of my faves:

JOBS: Increase by 5 times the number of jobs providing green goods and services

HEALTH: Cut citywide obesity rate by 50%

CLIMATE: Cut citywide greenhouse gas emissions by 50%

ENERGY: Cut citywide energy consumption by 50%; Increase use of renewable energy to 50%

FOOD: Bring locally-grown food within a quarter mile of 75% of the population

NATURE: Cover 40% of the District with a healthy tree canopy: Ensure 100% of residents are within a 10-minute walk of a natural space

TRANSPORTATION: Make 75% of all trips by walking, biking, or transit

WASTE: Achieve zero waste by consuming less and reusing everything else

GREEN ECONOMY: Develop 3 times as many small District-based businesses; Cut city-wide unemployment by 50%

What I particularly like about the plan is that it’s trying to focus on the needs of everybody, not just tree huggers. For example:

Ultimately, sustainability means good things for your health, your community, and your wallet. For example:

• Sustainability means spending less on utility bills because it takes less energy to heat and cool your energy efficient home.

• Sustainability means saving up to thousands of dollars a year by walking, biking, and using transit more often, and not needing another car for your family.

And it talks about tackling the terrible job situation for poor folks of color in DC.

Overall, our city has an unemployment rate of just under 10%. However, it ranges from as low as 2% in Ward 3 to as high as 24% in Ward 8. With more than 50,000 unfilled jobs currently available across the city, there is a clear disconnect between the workforce and the skills and training required by these positions.

There is a tremendous opportunity to train and employ workers in the District’s growing green economy. Each component of this vision should help generate and maintain quality jobs for our residents, while simultaneously addressing the training required to succeed in those positions. For each goal or action suggested, there is the opportunity to create new jobs at every rung on the career ladder.

Here and there it’s even got little signs of more radical approaches. For example, as part of its Green Economy strategy, it gives a nod towards the approach that succeeding in Cleveland known as Evergreen Cooperatives:

Universities, hospitality, and healthcare industries will pool their collective purchasing power to buy sustainable goods and services from local, cooperatively-owned businesses.

Is it perfect? Obviously not – not by a long shot. For example, one of the goals is to attract a large number of new residents while retaining existing residence, and it’s not clear if this is a commitment to prevent gentrification from pushing folks out of their neighborhoods or not. And undoubtedly lots of the great intentions will be plowed under or perverted into something other than that what they were intended (welcome to big city politics). But compared to most city plans? It’s pretty amazing.

And with a plan as ambitious as this one, it also creates new opportunities for organizing. That in and of itself can be a pretty big deal.

It’s not often that I get fired up by reading a city plan. I haven’t gotten involved in DC politics, largely because it’s felt like an unending uphill battle where the best you can do is not lose. But a plan like this, even if it turns out to be mostly smoke and mirrors, is enough to make me think maybe it’s worth putting my toes in the water.

Why Occupy Wall Street Matters, Exhibit 254: Why Your Income Is 30-40% Lower Than It Should Have Been

RethinkEcon — Thu, 03 May 2012 21:23:03 +0000

On May 1, Occupy Wall Street said to the world, “We’re baaack!” also known as a general strike/day of festivities. In case you needed a reminder as to why the success of Occupy Wall Street is so crucial, some stats from economist Larry Mishel courtesy of Paul Krugman:

Larry Mishel has a systematic breakdown of the reasons for worker income stagnation since 1973. He starts with the familiar divergence: productivity up 80 percent, the compensation (including benefits) of the median worker up only 11 percent. Where did the productivity go?

The answer is, it’s two-thirds the inequality, stupid. One third of the difference is due to a technical issue involving price indexes. The rest, however, reflects a shift of income from labor to capital and, within that, a shift of labor income to the top and away from the middle.

What this says is that widening inequality makes a huge difference. Income stagnation does not reflect overall economic stagnation; the incomes of typical workers would be 30 or 40 percent higher than they are if inequality hadn’t soared.

That is so stunning it might not have registered the first time. So let me say it again: folks like yourself would be raking in 30-40% more money if the 1% hadn’t gobbled it up. That, ladies and gentlemen, is a hell of a lot of money that was taken from the pocket.

Liberal economists have been talking about this for a long time. And they’ve been completely ignored. A month after Occupy Wall Street? Inequality was back on the agenda. If we’re going to actually do something about the problem, we’re going to need a nice big dose of OWS.

Small Banks Aren’t Beautiful

RethinkEcon — Mon, 23 Apr 2012 07:36:20 +0000

On Friday, the Nation magazine got under Doug Henwood’s skin:

The Nation was out with an email blast this morning touting its branded affinity VISA card issued by UMB Bank in Kansas City. The magazine’s associate publisher, Peggy Randall, helpfully identifies UMB as “a small, regional bank recommended by the Move Your Money project, a project we support,” and therefore in accordance with the goals of the Occupy movement.

What’s the problem with moving your money out of Bank of America, Citi, etc. into small local banks?

So who is UMB Bank, really? It’s yet another iteration of the classic Money Mover’s institution: flush with more money than it can invest locally, it loads up on securities. (Parenthetically, why should a magazine based in New York encourage doing business with a bank 1,200 miles away on localist grounds?) According to its latest annual report, 46% of UMB’s money is invested in securities, and another 6% is on deposit with other banks—which comes to over half. They don’t provide details on the securities, but they’re almost certainly a mix of Treasury bonds, mortgage bonds, and corporate bonds—utterly conventional financial market stuff. Just 37% is out in loans—and 0.8% in small-business loans, beloved of the small bank fanclub. They are big regional players in mutual funds, wealth management, and private banking, all moderately to seriously upscale stuff. And, like the big guys, they’re looking to make more money out of fees, rather than traditional deposit-taking and loan-making.

Henwood made a similar argument back in November, when the Move Your Money campaign got a big push through the Huffington Post.

When Huffington unveiled her scheme, I took advantage of the gadget on her website (the Move Your Money Project) that allowed you to enter your zip code and came back with a suggested list of virtuous, meaning small, banks. I thought I’d look into some of the suggestions that emerged when I entered by home zipcode, 11238. One, the black-owned Carver Federal Savings Bank, is a major financer of the gentrification of predominantly black neighborhoods in Brooklyn and Queens. As those neighborhoods get richer, Carver boasts, it’s partnering with Merrill Lynch (a subsidiary of the Bank of America) to offer wealth management services to the flusher new residents. Another suggestion, Apple Savings Bank, has about three-quarters of its assets in securities like U.S. Treasury bonds, not local loans. They don’t come much bigger than the U.S. Treasury. And a third, New York Community Bank, which even features that precious word in its name, financed a private equity group that bought up a lot of apartment buildings in New York in the hope of squeezing out the rent-regulated tenants and replacing them with more lucrative ones paying market rents. With the real estate bust, the PE firm is having trouble servicing its debts, and the residents of its buildings are suffering as services are cut further.

Why do small banks often end up putting their money in US treasuries or unsavory financial schemes? One major reason:

many small banks have more money than they can profitably invest locally. As Barbara Garson showed in her wonderful book, Money Makes the World Go Around, the portion of her book advance she deposited in tiny upstate New York bank was probably lent via the fed funds market to Chase, where it entered the global circuit of capital. This is not at all uncommon. Money is fungible, protean, and highly mobile even when it looks locally rooted.

Ditto for credit unions, another favorite of the Move Your Money crowd.

Many credit unions are fine little enterprises. But they too have the more money than they know what to do with problem. According to the Federal Reserve’s flow of funds accounts, 58% of their assets are in individual loans, mostly for cars and houses. The balance is invested in bank deposits and bonds. The bonds are Treasury and federal agency securities. Again, anything but small and local. And should they get an influx of money, it’s highly likely that most of it will go to these sorts of bonds. In fact, , more than half the growth in credit union assets over the last three years has gone into Treasury and federal agency securities. Less than a quarter went to mortgage loans, and consumer credit (like credit cards and auto loans) have actually declined. There’s no way they could accommodate even a small fraction of our near-$8 trillion in bank deposits without turning to bigtime securities or Merrill Lynch wealth management services.

In the long run, it’s possible that small banks and credit unions could pump more money into the local economy, but it would require fundamentally changing their culture, processes, and technical skills plus building a bunch of supporting institutions that would make putting significantly more money into the local economy a reasonably safe bet.

The other really big problem with small-is-beautiful banking is that small banks are not, to put it mildly, progressive institutions. Your local small bank may support local kids’ baseball teams. But when it comes to struggles for social justice, they’ve often used their power to drop the hammer on our side (e.g., White Citizens Councils). If Move Your Money was encouraging folks to put their money into small local banks and then organize together to make them a more progressive force, that would be a different story. But just moving our money isn’t going to change that balance of power.

Mind you, a Move Your Money strategy might still make sense as a way of giving folks practical experience that they have more power than they realize. I could certainly see it as one small step along the path to helping people discover their power. But in and of itself? I’ll leave the last words to Doug:

Getting banks under control is a matter of politics, not individual portfolio allocation decisions. Sure, you may get friendlier service and lower fees from a credit union—but you’re not really doing anything politically transformative by moving the money.

The Central Tension of RTE

RethinkEcon — Mon, 16 Apr 2012 07:35:14 +0000

After a few more months of headbanging, I’m circling back to where I was in January:

Question: If our economy isn’t “natural” and wasn’t inevitable, then what? What is the alternative that would actually work?

Answer: we have more power to create a just economy that we think we do – but only if we embrace the limits of the power.

The wording is off – “but only if we embrace the limits of our power” feels cheesy or trite. But the tension it’s trying to capture feels like the right way to go:

1) On the one hand, we greatly underestimate how much we actually intervene in in the economy. One of the central tricks of a “free market” ideology is cloaking or simply refusing to see just how much we intervene. Even the idea that the government should intervene in “market failures” conceals just how massively we have shaped the economy. When you think about the rise of the 20th century credit based economy, which was built in part on a foundation of government interventions – FHA & VA mortgage backed loans, etc. – “market failure” doesn’t really do it justice. And then there’s Ja Hoon Chang’s wonderful work, where for example he disembowels Tom Friedman’s “The Lexus and the Olive Tree” by showing that far from the Lexus being an example of countries embracing the market it was part of the massive sustained effort by the Japanese government to build an auto industry.

We also greatly underestimate how much unions, movements, and other actors aside from the state can shape the economy. Wall Street may be able to run rings around regulators in the US, but in a country like Germany or Canada if they tried to make a fortune by burning down economy, they would get slapped down by unions and progressive parties.

2) On the other hand, Margaret Thatcher’s battle cry, “There Is No Alternative” (TINA), had some real teeth to it because we really don’t know what’s possible – and because unintended consequences of our actions are the rule more than the exception. Although it’s easy to underestimate how much we do know – “free market” ideology is quite skilled at muddling our minds – there’s an awful lot we don’t know. And even if we are pretty sure that a particular alternative would be viable, we often don’t know how we would get there. There’s no reason that textile jobs have to pay pennies in developing countries; there is no reason that over time we couldn’t figure out how to raise those wages to the point where we could stop the vicious race to the bottom. But how do we pull that off? That’s a whole different story.

But just because there are real limits and lots of uncertainty doesn’t mean we need to be paralyzed. Businesses and practitioners face major limits and uncertainty every day. If we can find a straightforward way to deal with it – a.k.a. We’re Not As Smart As We We Are – there’s no reason we can’t create a more just economy. We’ve got to deal with those limits and uncertainty no matter what we do; just watch the crazy contortions free-market cheerleaders go through and the Rube Goldberg-like contraptions have to come up with to make “market-based” solutions that don’t crash and burn (e.g., the ugly mess that is Europe’s Cap and Trade system). In fact, I think there’s a good argument to be made that by straightforwardly dealing with We’re Not As Smart As We Think We Are, we can use it to help create just society – one that combines unleashing bottom-up creativity & innovation with top-down, democratic accountability.

Okay, that’s enough for today. Now I just need to find some issues to help me tease out & clarify this tension.

Neighborland: Facebook Meets Planning, Organizing & Building City Communities

RethinkEcon — Tue, 10 Apr 2012 07:15:54 +0000

Can we harness the power of something like Facebook to build better cities? In New Orleans, a project called Neighborland is trying to find out. According to Grist, Neighborland is

a sort of collective online urban planning platform that grew from a project started by artist Candy Chang in 2010. Chang slapped nametag-style stickers reading “I WISH THIS WAS ___” on abandoned buildings around New Orleans. People answered by filling in the blanks with all sorts of things they’d like to see in their neighborhoods: a grocery store, a row of trees, a bakery — to which someone else responded, “If you can get the financing, I will do the baking!”

“People were trying to talk to each other,” says Alan Williams, Neighborland’s director of community, who met with me on a rainy day in New Orleans two weeks ago to show me some of the group’s work. “What if [the conversation] wasn’t lost to time? What if people could share knowledge and expertise?”
Neighborland allows the kind of organic conversations started by the stickers to happen online, where they can build momentum and facilitate connections.

Neighborland’s handbook explains how it works:

1. Take a look around. Sign up to share your insights, support your neighbors’ ideas, and drop some knowledge.

2. Share an idea. The app begins with a simple fill-in-the-blank form: I want ____ in my neighborhood. Fill out the sentence however you like: What would make your block better? What businesses do you think could thrive in your community? What do you have a personal stake in? Choose a location, describe your idea in detail with text, pictures, and video, and share it with your friends.

3. Find support. Share your idea with your friends and family. Everybody that signs up for Neighborland can support your idea. The top ideas for the month are featured on Current. The most popular ideas all time are on Popular.

4. Drop Knowledge. Keep your supporters updated on your progress along the way. Invite your neighbors to help you, ask questions, integrate their feedback, and don’t be afraid to take the conversation offline.

5. Places. See projects that are in development in New Orleans and onWashington Avenue in Houston.

6. Make Things Happen. Actions speak louder than words. See what we’ve accomplished in New Orleans and how we did it here. We will be working in other cities in the U.S. later this year.

Beyond these guidelines, our only rule is “Be nice or leave.” So have fun, make your neighborhood better, and please let us know how we can improve Neighborland by emailing us at hello[at]neighborland.com.

Projects have ranged from working together to create a night market on a vacant stretch of St. Claude Avenue to helping to mobilize to extend a streetcar line. And some of these projects combine creating alternative spaces with mobilizing to change laws.

After acquiring some lots adjacent to their offices in the freshly-renovated Franz Building, Good Work Network partnered with students from MIT’s Department of Urban Studies and Planning to develop a plan for the property. Their proposal: a food truck lot. But not just any food truck lot–one that will serve as an incubator for aspiring culinary entrepreneurs. Good Work Network will make the investments in landscaping and in trucks and carts for the entrepreneurs to lease, serving as a stepping stone for those that don’t have access to sufficient start-up capital…

Now, Neighborland and the New Orleans Food Truck Coalition will hold a Food Truck Festival not just to build support for our cause, but also to help Barrie and the Good Work Network get some real-life market research. With more data in hand, we hope to make the food truck incubator that much easier to get off the ground. In the meantime, we hope to show everybody in Central City what a food truck lot next to the Franz Building would add to the neighborhood.

In the coming week, we’ll get in touch with neighborhood groups like Oretha Castle Haley Main Street and the Central City Renaissance Alliance and many others to see how our event can best serve nearby residents, businesses and institutions.

And at the same time they are working together to change the rules that restrict food trucks:

As a low-barrier business, food trucks are an important source of economic opportunity in our community. In cities around the country, they’ve also shown the ability to help revitalize and enliven streets. However, with today’s out-dated laws, food trucks in New Orleans remain relatively rare.

Those are just a few of the reasons Neighborland is pleased to introduce The New Orleans Food Truck Coalition, our city’s freshly-minted food truck and mobile vending advocate. Over the past couple of weeks, we’ve helped this diverse and open group of mobile vendors, customers, and community members organize themselves.

Neighborland was the brainchild of folks at the Civic Center, the same kind of mix of artists and city planners who elsewhere created the idea of parklets. There’s an awful lot of creative stuff going on in this niche of the economy, and between it and participatory budgeting, I think we’ve got some really interesting space opening up for thinking about what it means for ordinary folks to have a real say in the economy.

What Participatory Budgeting Could Teach Gov 2.0

RethinkEcon — Fri, 06 Apr 2012 07:13:22 +0000

An interesting post by Matthew Hall, a researcher at Open Plans, on what the Participatory Budgeting movement could teach the folks working on “Gov 2.0.” The basic idea behind Gov 2.0 is that government should make as much of its info available to citizens online in a form that’s easy for other folks to create apps etc to make as useful and easy to access as possible. It’s a great idea, but so far an awful lot of what’s getting created treats people like consumers rather than citizens or activists. PB, Mark argues, has a lot to offer in figuring out a better way forward.

The participatory budgeting (PB) movement is very similar to Gov 2.0 efforts in that they are both designed to improve governance through increased transparency and citizen participation. PB puts into practice, in mostly physical spaces, the principles of open source and online collaboration: radical transparency, voluntary participation and selection of tasks, distributed organizational structures, and so on….

PB is successful when it mixes local, technical, and political knowledge. In the context of PB, gathering local knowledge means reaching out to those with intimate knowledge of the needs and dynamics of the community in order to identify which kinds of projects need to be pursued. The technical knowledge component consists of bringing in those who know the technical requirements of these projects in order to educate citizens on the viability of any given initiative. Political knowledge is also vital in navigating bureaucratic roadblocks and the various needs and desires of the political actors involved in the fiscal process…. Without the guidance of local and political knowledge, Technologists risk wasting a lot of time and effort working on irrelevant problems or implementing impractical solutions….

It is great that we have the capability to create tools to make using the subway easier for smart-phone users but after the sixth or seventh app that basically shows the same information, it is time to move on to more pressing matters…

Another major component of that is building tools that facilitate self-empowerment the way PB puts a powerful “tool in the hands of the poorest communities.” PB improves public service delivery by enabling communities to pull what they need to improve their lives, so the Gov 2.0 movement needs to reflect a commitment to build tools that people can use to pursue goals that are important to them. The true potential of ICT is to facilitate citizen to citizen connection, so that civic improvement can grow from the community level upwards…

One to one dialogue, where individual citizens interact with government, tends to seem self-centered. While in one to one interactions citizens are usually representing their individual needs and desires, multipolar participation, as in PB processes, enables citizens to connect with each other and consider their collective needs when interacting with government…

PB shows that government is not the only avenue for collective action. A mission of Gov 2.0 has to be unlocking the collective resources outside of government. Improving connections between citizens and government is great but that only improves access to the limited resources within government. If civic tech can improve the multipolar connections between citizens and other citizens and government, then an entirely new set of resources outside of government can be reached.

Definitely some geeky food for thought.

Lerner, Piven on where Occupy Wall Street Might Go Next

RethinkEcon — Wed, 21 Mar 2012 06:02:40 +0000

Interesting conversation on Democracy Now with Frances Fox Piven and Stephen Lerner on where Occupy Wall Street might go next. Lerner has a recent Nation article making some of the same points:

What combination of forces has the potential to drive Wall Street and big banks to negotiate with homeowners, students and workers? Can we find the places, moments and issues where the horizontal world of Occupy meets the vertical, more established world of community-based groups and unions?

We get a taste of what this might look like in the work that is already happening in Occupy Our Homes, which works with community groups across the country to nonviolently resist foreclosures. Many of the same groups are also working to win $300 billion from the banks by reducing mortgage principals to fair market value. In the weeks ahead there will be a growing call to divest taxpayer money from big banks, a dramatic increase in home occupations, the beginnings of a real investigation of bank wrongdoing—the combination of which could force real negotiations between homeowners and the banks.

There is growing interest in Occupy and student groups in a student debt strike. The banks can’t foreclose on a brain or a degree. If a critical mass of student debtors—a million or more—pledged to refuse to pay, it would create a collection crisis that could force negotiations about reducing student debt.

Starting with GE on April 25 in Detroit and moving on to Wells Fargo, Bank of America and dozens of other corporations in May and June, tens of thousands of people from Occupy, community organizations, unions and environmental groups will show up at the annual shareholder meetings of major corporations. Some people will be on the inside with proxies, and others will be massed in the streets, all delivering the message that it is no longer acceptable for giant, unaccountable corporations to decide the political and economic fate of the country.

Looks like it could be an interesting spring and summer!