Rethinking the Economy

There’s nothing like owning the mistakes you’ve made to help keep your ego a healthy size. Since it’s almost the end of the year, I thought it be a good time to come clean about the biggest mistakes I made in 2011. Two in particular stand out:

Bill McKibben: near the end of 2009, I wrote a very snarky post called Bill McKibben and The Underpants Gnomes, or Why We Keep Getting Our Asses Kicked. It led to one of the better series I’ve written on political economy strategy. But it also left me with a chip on my shoulder about him. So although this year I wrote an encouraging post about 350.org’s campaign going after the Chamber of Commerce, I was slow to pay attention to the Keystone XL Pipeline fight McKibben orchestrated, which turned into one of the most impressive enviro fights of the last couple years. So dude, I’m sorry — and keep on rockin’!

Occupy Wall Street: as I mentioned in October,

my first reaction was an uncharitable “meh.” Not publicly – I don’t publicly criticize fledgling organizing unless I think it’s actively doing harm. But the whole scene felt like the bad old days, when I was involved in in the dysfunctional, ultimately self-destructive parts of 80s & 90s Bay Area politics.

Boy, was I wrong about that – and a damn good thing too! Even if Occupy Wall Street is no longer physically occupying as much space as it had, it demonstrated an amazing ability to get folks fired up, a real flair for creative tactics, and an energy I haven’t felt in years. It moved the public conversation faster than I thought was possible. And with some of the new offshoots, such as the foreclosure looming, it’s continuing to go in exciting directions. I’m still not a wild fan of anarchist-style approaches to organizing, but from now on I’m going to treat them with a hell of a lot more respect – they definitely earned it.

And so, a little resolution for New Year’s. It’s okay to vigorously disagree and even butt heads with people. But I promise to remember that sometimes the people who get on my nerves today will blow me away with their skill and style tomorrow. Respect, baby, it’s all about respect.

Here in the States, we lefties often pine for the wonderful social democracies Europe has. So one of the most striking things about the Euro Crisis has been the absence of a powerful left response. There have been riots in the streets, marches, protests, mass civil disobedience, and strikes.. But that’s what we are reduced to doing most of the time. This is Europe, baby! Where are the left parties? The German unions who have seats on corporate boards via “codetermination?” The folks who don’t have to go to the street because they’ve already got their butts in positions of power? Where’s the Euro-Solidarity?

In Why Europe Needs a New Deal, Nation writer Andy Robinson gives us some hints.

The issue of sovereignty has also divided the left in the task of challenging the depression economics now in vogue.…
“We can have a European New Deal with existing institutions,” said [Portugal Prof. Stuart. Bracket Holland at the Dublin TASC conference. “We would borrow to invest in everything from transport to urban regeneration.” Meanwhile, “China would jump at the chance to buy euro bonds as an alternative to the US Treasury market,” he said.…

The exasperating thing about the crisis is that, when viewed as a single unit, the European economy meets the conditions for a progressive expansionary drive to create employment with good wages. Selective industrial policy could be used to compensate for the competitiveness gap between periphery and core, the real cause of the crisis. Greek socialist MP Papachristos thinks mechanisms could be introduced, along lines recommended by US economist Thomas Palley, to fine-tune monetary policy to correct eurozone imbalances.

Some variant of a “European New Deal,” as Holland and Greek economist Yanis Varoufakis call it, is supported by the majority of left parties. But it raises hugely difficult issues of sovereignty and democratic control. For the moment, institutions like the European Investment Bank, which Holland believes can be hijacked by the left and turned into vehicles for economic change, are barely accountable. The European Parliament continues to be a sad parody of real democracy.

This is further exacerbated by a related issue:

the crisis of sovereignty, as key decision-making is shifted from the national arena to Brussels, Berlin, Paris and Frankfurt. The extraordinary events in Greece are the most extreme example.… The threat that Troika crisis management poses for democracy and national sovereignty is only beginning to emerge. Opinion polls show that two-thirds of Greeks oppose the Brussels agreement. Yet when Papandreou announced a referendum, the response from Brussels and Berlin was furious intolerance for democratic rights.… German Chancellor Merkel and French President Sarkozy—now known scornfully in Southern Europe as Merkozy—warned that Greece would be expelled from the euro if the people rejected the austerity plan. Aware that after such an aggressive ultimatum very few Greeks would dare to vote no, the Greek left rejected the referendum and blamed Papandreou for blackmailing the people.

“The stance by Merkel and Sarkozy was a blatant violation of European law and of our constitutional right to self-determination,” said George Katrougalos, a leftist law professor at Demokritos University in Athens. “I was amazed that the left did not support the referendum; we can’t support direct democracy only when we know we’ll win.” The split on the referendum was just one example of the difficulty of organizing anything more than mass protest when decision-making power is shifting to unaccountable technocrats.

The other major issue: the European left is divided.

The issue of sovereignty has also divided the left in the task of challenging the depression economics now in vogue. There are two responses to beggar-thy-neighbor internal devaluation. One is a fast track to some kind of Keynesian United States of Europe… The other left plan is to default on the debt and simply leave the monetary union. “This is a neoliberal project, and we have to break with it,” said Galway University economist Terry McDonough at the Croke Park TASC conference. In any case, he added, breakup is already happening, with massive withdrawals from Irish and Greek banks.

And yet, I’m still stuck at, but this is Europe, baby! This isn’t being shoved down people’s throats by the IMF. “Unaccountable technocrats” may be the conductor’s face, but France and Germany are basically driving the train. Where the $@!!&* are their Lefts? Forget Solidarity with Nicaragua, where the hell is their Solidarity with the rest of Europe?

In part the story sounds like the problem was that a big chunk of the European Left went along with a glittery technocratic vision when the EU was created and didn’t win – and didn’t keep fighting hard for – a Democratic EU. But in turn this probably has as much to do with nationalism is anything else – as does the rather tepid response from the French and German left, whose fellow countryfolk are not in the mood to “bailout” other countries without extracting a pound of flesh.

We still have a lot to learn from Europe. But there is also something very fundamentally wrong with our European brothers and sisters if this is the best they can do.

The last framework dump I did was a definite “stumbling towards” – it had a lot of good pieces, but it didn’t add up. I’m having trouble figuring out why, so I’m going to try a different tack. The literature on solving “wicked problems” says that one of the keys to success is getting the definition of the problem right. So, a little “stumbling towards” that in the form of another brain dump.

What Would a New Framework Have To Include?

1) Power at the Center
– More Regulators vs. Movement Perspective
(Institutions –> Build Power, Foster Engagement & Mobilization)
– “Tax the Rich” vs. Reducing Inequality
– EX: Failure of European Social Democracy (Solidarity)
– “Job Killers” vs. “Market Efficiency” of Layoffs

2) New Goals for the Economy: Sustainable Economy, Less Human Suffering, More Room for Everyone’s Creativity & Innovation to Flourish, More “I Am My Brother/Sister’s Keeper”

3) At the Same Time, Financial Sustainability/”Making Payroll” at the Core

4) More Matter-Of-Fact about Fundamental Uncertainty
(”We Aren’t As Smart As We Think We Are”)
–“Market-based” solutions screw up as much as “government bureaucrats”
– With 1000 Eyes, All Bugs Are Shallow (if everyone has a real say)
– Encourage lots of small scale innovations & experiments to learn from
– Harness decentralized, bottom-up — from everyone, not just those who have resources/privilege
– Holding Accountable: does increasing savings –> increased investment –> good jobs? Or just outsourcing, downsizing, and big fat bonuses?
– Fail forward, catch problems early — 1000 eyes instead of canary in coal mine
(dovetails with Everyone Has a Real Say — and are accountable/responsible for that say)
–Stack the Odds in Favor of the Good Guys: allows for flexibility — rather than just specific rules — that helps with uncertainty and at the same time keeps accountable

5) Taking Responsibility – E.G., Not “Corporations Are Evil”
– Spiderman’s Dad: With Great Power Comes Great Responsibility
– To have a Real Say, need to create space for Real Conversations
– Hard to have a real conversation if you’re sure you’ll get stepped on (e.g., climate tax)

6) What’s the Right Balance?
– Market Vs. Nonmarket
– Competition Vs. Cooperation
– Centralized Vs. Decentralized
(theory vs. reality: e.g., South Korea/Japan/etc. Industrial policy)

Economists are slippery bunch. In public fights over policy, many folks claim economic theory proves that markets are paragons of efficiency and that the government should mostly butt out – and economists often aid and abet this line of attack. Exhibit A: the efforts under President Clinton to loosen banking regulations, which made the 2008 financial meltdown a hell of a lot more likely. But when you confront economists about the failures of their profession, aside from a handful like Paul Krugman or Dean Baker most of them will say, that’s a very simplistic view of economics. What about all the behavioral economists whose books get rave reviews? Or economists who talk about how institutions really work? Or the folks who have disapproved the Efficient Market Hypothesis in Finance? That’s all true, and yet somehow that much more complex view of the economy never filters back to the big public debates.

So I was happy when I found this quote from international development economist Dani Rodrik that nicely sums up the verbal dance done by many economists.

Let a journalist call an economics professor for his view on whether free trade with country X or Y is a good idea. We can be fairly certain that the economist, like the vast majority of the profession, will be enthusiastic in his support of free trade.

Now let the reporter go undercover as a student in the professor’s advanced graduate seminar on international trade theory. Let him pose the same question: Is free trade good? I doubt that the answer will come as quickly and be as succinct this time around. In fact, the professor is likely to be stymied by the question. “What do you mean by ‘good?’” he will ask. “And good for whom?”

The professor would then launch into a long and tortured exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s well-being.” If he were in an expansive mood, the professor might add that the effect of free trade on an economy’s growth rate is not clear, either, and depends on an altogether different set of requirements.

A direct, unqualified assertion about the benefits of free trade has now been transformed into a statement adorned by all kinds of ifs and buts. Oddly, the knowledge that the professor willingly imparts with great pride to his advanced students is deemed to be inappropriate (or dangerous) for the general public.

Ditto for the other place many folks encounter economics: intro economics courses.

In our zeal to display the profession’s crown jewels in untarnished form – market efficiency, the invisible hand, comparative advantage – we skip over the real-world complications and nuances, well recognized as they are in the discipline. It is as if introductory physics courses assumed a world without gravity, because everything becomes so much simpler that way.

Part of the reason why economists play this game is because it’s a hell of a lot harder to come up with a coherent framework if you take all of the non-market cheerleading facets of economic theory seriously – especially if you’re not comfortable doing economics without lots & lots of math.

But it’s also part of a larger ideological play. I don’t mean that somewhere there is a small cabal of high priest economists plotting world economic theory domination as they stroke the cat sitting on their lap. But if you’re going to push for a myth about how the economy works that is so obviously not true, you do need some way to accommodate that reality. And treating reality as if it’s too dangerous for lesser mortals is a damn good way to do it.

James Surowiecki has a great piece in the New Yorker on how the media talks about homeowners vs. corporations walking away from their debts.

We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.…

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

When it comes to debt, then, the corporate attitude is do as I say, not as I do.

Surowiecki says this double standard isn’t just wrong, it’s also bad economics.

Of course, many borrowers made bad decisions and acted irresponsibly. But so did lenders—by handing out too much money and not requiring sensible down payments. So far, banks have been partially insulated from the consequences of those bad decisions, because Americans have been so obliging about paying off overinflated mortgages. Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better.

Hmmm, where have we heard that idea before?

In his speech about making poor kids work as janitors, Newt Gingrich also said,

“You’re going to see from me extraordinarily radical proposals to fundamentally change the culture of poverty in America and give people a chance to rise very rapidly.”

If Newt needs another inspiration for “extraordinarily radical proposals” to fix what’s broken in America’s culture, I know just the guy.

And a certain ruler asked him, saying, Good Master, what shall I do to inherit eternal life? And Jesus said to him, Why call you me good? none is good, save one, that is, God. You know the commandments, Do not commit adultery, Do not kill, Do not steal, Do not bear false witness, Honor your father and your mother. And he said, All these have I kept from my youth up. Now when Jesus heard these things, he said to him, Yet lack you one thing: sell all that you have, and distribute to the poor, and you shall have treasure in heaven: and come, follow me. And when he heard this, he was very sorrowful: for he was very rich. And when Jesus saw that he was very sorrowful, he said, How hardly shall they that have riches enter into the kingdom of God! For it is easier for a camel to go through a needle’s eye, than for a rich man to enter into the kingdom of God. (Luke 18)

A few weeks ago, Gingrich made a splash by declaring war on lazy poor kids.

“It is tragic what we do in the poorest neighborhoods, entrapping children in, first of all, child laws, which are truly stupid.

“You say to somebody, you shouldn’t go to work before you’re what, 14, 16 years of age, fine. You’re totally poor. You’re in a school that is failing with a teacher that is failing. I’ve tried for years to have a very simple model,” he said. “Most of these schools ought to get rid of the unionized janitors, have one master janitor and pay local students to take care of the school. The kids would actually do work, they would have cash, they would have pride in the schools, they’d begin the process of rising.”…

“What do we say to poor kids in poor neighborhoods? Don’t do it. Remember all that stuff about don’t get a hamburger flipping job? The worst possible advice you could give to poor children. Get any job that teaches you to show up on Monday. Get any job that teaches you to stay all day even if you are in a fight with your girlfriend. The whole process of making work worthwhile is central.”

Let’s put aside for the moment that, as Corporation for Enterprise Development’s Andrea Levere pointed out, “in many low-income families, not only do their parents work one job, but many of these families work two jobs and three jobs.”

And let’s put aside what message our society sends poor kids when many have parents who have the phenomenal work ethic to work two or three jobs and yet are barely keeping their heads above water.

If you were worried about society’s values, why at a time when everyone but the 1% are struggling to find a job if they’re out of work would you be focusing on poor kids?

Put it another way: is it Harlem’s or Wall Street’s values we should be trying to fix right now?

I think Gingrich has the right general idea. It just needs a little tweaking. Instead of improving poor kids’ values by having them clean toilets, let’s make bankers and hedge fund managers do it.

But we don’t want to take away jobs from janitors. So instead of cleaning school toilets, our morally bankrupt friends could go to the homes of elderly janitors and housekeepers and clean their toilets.

Because right now there are an awful lot of elderly janitors and housekeepers who make places like New York City run smoothly that could really use some help — they can’t afford to retire because of what Wall Streeters and Banksters did.

Think of the moral and spiritual message President Bush could have sent in 2008 when he bailed out the banks. He could’ve told the banks that they wouldn’t be getting a free ride. They would have to earn it by cleaning toilets in the poorest working families’ apartments so they could see firsthand the damage they had done to our communities. Talk about cleaning up your moral hazards.

We could even use it to help revitalize poor neighborhoods. If we are providing all of this valuable moral training, why shouldn’t morally fallen pay for it? For every session hedge fund managers and banksters spent cleaning elderly janitors and housekeepers bathrooms, they could pay these hard-working folks for the privilege. And they could pay clergy in the neighborhood to meet with them after each session to talk about how to rebuild their moral values and live a more righteous life. In doing so they would not only rebuild their moral core, they would also infuse a much-needed stimulus into poor communities and the overall economy. And taxpayers wouldn’t have to pay a cent.

If Newt wants to send a clear-cut moral message to poor kids, I can’t think of a better way to do it.

 
P.S. Newt, if you need more help with fleshing out this idea, including a valuable historical perspective, my rates are very reasonable.

Another try at scratch draft of the framework. A lot of this is in shorthand; after I’ve let this draft sit for a few days, if it feels like a good direction to pursue, I’ll start fleshing out more details.

Most people feel like big corporations and the rich have been doing great while the rest of us are struggling to keep our heads above water. But can we do anything about it?

Establishment framework: this is just the way it is — and if government bureaucrats try to “pick winners and losers” or otherwise meddle, they’ll just screw it up.

Reality: lots & lots & lots of pieces of economy shaped by decisions made by big corporations and the rich — either using the government or direct economic power. But what decisions are being made and who make these decisions are hidden from the public.

Liberal/moderate economic framework: Market basically works, we just need to fix “market failures.” Otherwise we end up with “command and control,” which communist countries have shown doesn’t work.

Reality: Given how much “market failure” & resulting government intervention there is, the idea of “market failure” obscures more than it reveals. Also obscures that someone makes the decisions about what counts as a “market failure” (e.g., is the “market failure” just the 2008 crash, or is it the insane power Wall Street now has, the fact that homeownership became unaffordable for new homeowners & the fact that the housing market was turned into a casino, etc.?), “consent,” etc. — and who benefits from these definitions.

At the same time, Establishment and Liberal frameworks do have a point: although we have and use a lot more influence over the economy than we admit, we can’t control the economy. In the long term, not clear what’s possible. In the shorter term, also not clear what’s possible (e.g., Alta Gracia anti-sweatshop experiment).

The real question: how do we create a more just economy when we’re not sure what’s possible?

My Answer:

1) Change the Balance of Power so Everyone Has a Real Say

a) What is a “Real Say”? Electing the president & the power we have as consumers? Joining a union to build power in the economy? Worker ownership?
When does “Real Say” mean Choosing Together and when should it mean individuals or small groups choosing (centralized versus decentralized)?

b) What is “Changing the Balance of Power”: how to ensure actions build & maintain power
Movement Perspective
Institutions –> Build Power, Foster Engagement & Mobilization
Occupy Wall Street and alternative banking — depending on how you do it, may or may not create more power

c) Spiderman’s Dad: With Great Power Comes Great Responsibility
To have a Real Say, need to create space for Real Conversations — tough trade-offs (not the so-called tough choices of “entitlements” where somebody else’s grandma will be eating cat food)
Hard to have a real conversation if you’re sure you’ll get stepped on (e.g., climate tax)


2) We’re Not As Smart As We Think We Are
Starting point: why do folks get into trouble now?
Market myth obscures reality of how often “market-based” solutions screw it up now

Strategies for Dealing with Uncertainty:

A) Everyone Has a Real Say
All the rest is irrelevant if you don’t focus on building & maintaining power — won’t get to actually try & learn if you don’t have power
Open Source Motto: With 1000 Eyes, All Bugs Are Shallow

B) Prime the Pump
Encourage lots of small scale innovations & experiments to learn from
Harness decentralized, bottom-up — from everyone, not just those who have resources/privilege
(dovetails with Everyone Has a Real Say)

C) Feedback Loops/Accountability
Did you do what you said? Ex: does increasing savings lead to increased investment which lead to good jobs? Or just outsourcing, downsizing, and big fat bonuses?
Fail forward, catch big problems early — 1000 eyes instead of canary in coal mine
(dovetails with Everyone Has a Real Say — and are accountable/responsible for that say)

D) Stack the Odds in Favor of the Good Guys
Pulls together much of the other three strategies
Allows for flexibility — rather than just specific rules — that helps with uncertainty and at the same time keeps accountable
To help catch mistakes: “How Do the Good Guys Make Payroll?”
3 core strategies for stacking the odds:
* Level the Playing Field
* Make It Easy
* Create Markets
Ex: Justice for Janitors & Level the Playing Field. Difference between this & just a rule: thought about what small janitorial services & property managers could afford if all other players can’t compete by cutting wages & benefits

I’ve been playing around with another way of pulling together the pieces of my framework, and I’ve gotten stuck. To help me get unstuck, here’s a brain dump of what I’ve been thinking about:

If our economy isn’t “natural” and wasn’t inevitable, then what is the alternative? How do we create a more just economy that actually works?

3 Pillars:
1) Changing the Balance of Power
2) Tangible Dreams: “Stack the Deck in Favor of the Good Guys”
3) Uncertainty: “We’re Not As Smart As We Think We Are”

1) Changing the Balance of Power
Power is inextricably part of markets
Power sets the agenda — if we don’t have it, others set what’s “inevitable,” what “market failure”
How the economy is structured: strengthens/weakens power
You haven’t really made a change unless it’s politically sustainable
Individual choice versus power together Consumer choice versus organizing together
Making decisions together versus Parklets
Power: necessary, but not enough

2) Tangible Dreams
Don’t Think Small
“All Corporations Are Evil” won’t work — Need a Yes, not just a No
To have real power, Vision needs to have “Good Guys”
Ex: “How Do the Good Guys Make Payroll?”

3) Uncertainty/Humility
Economy: wasn’t “inevitable,” but also isn’t controllable
Bridging the Chasm — Ex: Alta Gracia
“We’re Not As Smart As We Think We Are”

One of the big slams on organic agriculture is that it’s just not productive enough. But now, according to Mother Jones’ Tom Philpott, more solid evidence “from the very heart of Big Ag, rural Iowa” that it ain’t so:

Iowa State University’s Leopold Center for Sustainable Agriculture runs the Long-Term Agroecological Research Experiment (LTAR), which began in 1998, which has just released its latest results.

At the LTAR fields in Adair County, the (LTAR) runs four fields: one managed with the Midwest-standard two-year corn-soy rotation featuring the full range of agrochemicals; and the other ones organically managed with three different crop-rotation systems….

So, in yield terms, both of the organic rotations featuring corn beat the Adair County average and came close to the conventional patch. Two of the three organic rotations featuring soybeans beat both the county average and the conventional patch; and both of the organic rotations featuring oats trounced the county average….

And in terms of economic returns to farmers—market price for crops minus costs—the contest isn’t even close. Organic crops draw a higher price in the market and don’t require expenditures for pricy inputs like synthetic fertilizer and pesticides.

Moreover, organic management improved soil’s ability to retain nutrients. “Total nitrogen increased by 33 percent in the organic system,” Leopold reports, and “researchers measured higher concentrations of carbon, potassium, phosphorous, magnesium and calcium in the organic soils.

So if organic farming is such a good competitor, why aren’t more farmers doing it?

The last line of the Leopold Center’s report offers a clue: “Skilled management is an adequate replacement for synthetic chemicals.” Look at it like this: In the Corn Belt, technology and monocropping have reduced farming to a relatively simple endeavor. You douse your fields in synthetic and mined fertilizers and plant them in in corn one year, soy the next. When the inevitable plague of pests arrives—weeds and bugs love monocrops—you attack them with an arsenal of poisons. Then, you harvest and sell to vast multinational companies—Cargill and ADM—with the built infrastructure on the ground to make the transaction easy.
Farmers are understandably reluctant to switch away from that paint-by-the-numbers style. To make organic farming work, you have to stay ahead of the weeds and bugs by rotating in more crops than just corn and soy. And weed management requires other strategies just driving a chemical tank through the field or hiring a crop-duster: planting cover crops, tilling at just the right time, mulching. And selling, say, oats or alfalfa is trickier, because the infrastructure for marketing them has largely been dismantled over the past 50 years.

But that doesn’t mean that organic farming is impractical, as Borlaug insisted. It just means that we need to move public policy away from blind support for industrial agriculture (no easy trick), and learn to support the hordes of young people seeking careers in high-skilled, eco-minded farming.

So if we stop Stacking the Deck in favor of Big Ag and start stacking it in favor of local organic farmers, more farmers are likely to switch, and more young folks are likely to become farmers — no small thing considering how rapidly the farming population is aging.