There is little question of the comparative advantage of free trade. While specific jobs or professions may be lost or gained due to trade, the net advantage is necessarily positive. Were it not so, the trade would not occur. Two centuries ago the classical economists such as Ricardo and Smith showed that relative price differences among countries create opportunities. If every country focuses on the economic activities at which it is best, the world becomes more productive. Over the long term the higher productivity is translated into higher wages and wealth. In contrast, the arguments that oppose trade are nationalistic and emotional.
At the extreme, countries like North Korea or the communist countries of the immediate post-World War II era that have attempted economic self-sufficiency or autarky have become impoverished. Likewise, countries with substantial protectionism such as India experience high levels of starvation. India, with six decades of protectionism and a high level of income equality leads the world in child starvation. Similarly, the British Corn Laws in the 19th century led to mass starvation in Ireland (with over one million dead). The argument against free trade is the argument for public impoverishment.
It is not surprising that Barack Obama and Hillary Clinton, two economic illiterates, compete to proclaim their opposition to free trade. Yahoo! reports that Obama questions Clinton's anti-free trade credentials. With economic illiteracy among the public, shoddy education, an ignorant mass media and a corrupt Congress, our government aims to impoverish the average American:
PITTSBURGH - Democratic Sen. Barack Obama on Monday questioned rival Sen. Hillary Rodham Clinton's opposition to free trade agreements that some voters contend has eliminated thousands of U.S. jobs and mocked her weekend visit to an Indiana bar as pandering to the working class.
Monday, April 14, 2008
Repeal the Federal Income Tax
April 15 is nearly upon us. Those who pay taxes might consider the low quality of government services and the high amount of federal tax that they pay. On balance, the income tax destroys savings and personal independence, while the uses to which Congress has put the money are of scant value. The income tax should be repealed. I have written the follwing letter to my Congressman, Maurice Hinchey:
April 14, 2008
Dear Congressman Hinchey:
I urge Congress to repeal the federal income tax. Congress has not proven itself intellectually or morally fit to take possession of so large a share of the American purse. I urge you to return the money to the American people, except for a small amount that Congress might devote to its own education by taking basic economics and ethics courses.
Sincerely,
Mitchell Langbert, Ph.D.
April 14, 2008
Dear Congressman Hinchey:
I urge Congress to repeal the federal income tax. Congress has not proven itself intellectually or morally fit to take possession of so large a share of the American purse. I urge you to return the money to the American people, except for a small amount that Congress might devote to its own education by taking basic economics and ethics courses.
Sincerely,
Mitchell Langbert, Ph.D.
Saturday, April 12, 2008
Progressivism and Fear Revisited
The dominant mood of the past century's Progressive era has been fear. The movement that was founded on the claim that self-expression is of paramount importance; that democracy is sacred; and that institutions can be re-shaped to suit public ends has generated neither human fulfillment nor democracy. It has generated fear. It has done so by re-directing economic resources and potential growth toward large, established firms; regulating the economy and so foreclosing entrepreneurship; creating inflation and the income tax and so foreclosing independent wealth and saving. It restricts employment by favoring large firms over small by redirecting capital to the large firms through the governmentally-supported banking system. The re-direction of capital from personal savings into large corporations' treasuries resulted in the reduction in the number of jobs but also changed the character of jobs from those that reflect entrepreneurial initiative and creativity, hence human fuilfillment, to those that depend on conformity to a boss; teamwork; and fear of being fired. The dominant mood of the Progressives was teamwork and group behavior, the sacrifice of the individual to the group. This was paradoxically done in the name of encouraging self-fulfillment and self-expression. But the chief mood has been a century of fear. The Progressives created the Great Depression by first creating the Fed under Woodrow Wilson, with the Fed then mismanaging the money supply. This created a generation whose chief fear was unemployment and lack of "social security". The Roosevelt administration, following through with the Progressive program, intensified the Fed's power by abolishing the gold standard. The result has been mismanagement of the nation's credit supply; inflation; a reduction in the number of good (non-corporate) jobs; and fear. Fear of not conforming to the boss's whims. Fear of not being politically correct; fear of not following the Progressive elite's fashion of the moment; fear of unemployment because of non-conformity to the corporate and state's whimsical definitions of compatibility and interpersonal skills; fear of not laughing at Bill Maher's stale jokes; and fear of not getting a job at all.
Fear is not far removed from hate. Progressivism is not far removed from totalitarian rule and economic decline.
Fear is not far removed from hate. Progressivism is not far removed from totalitarian rule and economic decline.
Thursday, April 10, 2008
An Appeal to Heaven
In HBO's John Adams television series there are a number of interesting flags. One is "An Appeal to Heaven" or "Liberty Tree". According to flagline.com , which sells a replica, it was Washington's naval flag. The John Adams series shows people in Boston walking around with the flag in Boston. I'm not sure whether that is accurate or not.
The phrase "an appeal to heaven" is taken from John Locke's Second Treatise on Government. In chapter 3, section 20 Locke writes:
"for wherever violence is used, and injury done, though by hands appointed to administer justice, it is still violence and injury, however coloured with the name, pretences, or forms of law...war is made upon the sufferers, who having no appeal on earth to right them, they are left to the only remedy in such cases, an appeal to heaven."
I wonder if we need to think about re-reading Locke and reviving this flag.
Thursday, April 3, 2008
The Economic Contours of a Buffett-Obama Administration
The Economic Contours of a Buffett-Obama Administration
Much has been made about Barack Obama's association with Pastor Jeremiah Wright, who represents the identity politics fringe of the Democratic Party. Mainstream Americans ought to be concerned because the Democrats have introduced leftists into staff positions in state legislatures and Congress and funded them in universities. For example, Eliot Spitzer's suggestion of granting drivers' licenses to illegal aliens likely did not spring from the mouth of his latest romantic partner, but rather from staffers whom he introduced into Albany. With associations of the Pastor Wright sort, Mr. Obama seems likely to aim to employ staffers with fringe views. If you liked the idea of granting drivers' licenses to aliens, it is certain that you will love an Obama administration.
An even more important question than identity politics, though, is what a President Obama would do to the economy. Thus, a more important association than Obama-Wright is Obama-Buffett. What clues might this relationship offer about the economic direction that an Obama administration would take? One clue is Mr. Obama's recent recommendation, quoting the authority of Mr. Buffett, to increase the capital gains tax. Mr. Buffett's investment philosophy famously involves buying and holding for the long term, and so would not be hurt and would possibly be helped by higher capital gains taxes. In contrast, traders whose investment approach involves more frequent buying and selling would be hurt. Long term holders infrequently pay capital gains taxes, while frequent traders may pay taxes more frequently. Thus, capital gains taxes would hurt Mr. Buffett's competition more than they would hurt him. That which hurts his competition would likely help him.
An increased capital gains tax would provide an incentive for investors to favor investment in Berkshire Hathaway over buying and selling commodities and stocks. The Federal Reserve Bank has increasingly become involved in timing and influencing the financial markets, increasing the returns to short term traders who respond to Fed moves but potentially harming long term holders because of market unpredictability. Mr. Buffett's Berkshire stock has nevertheless performed modestly, but only modestly, well. An increase in the capital gains tax would likely increase the value of Berkshire Hathaway stock because it would provide incentives for long term holding. Hence, Mr. Obama has already been advocating policies that would prove economically beneficial to Berkshire Hathaway, and quoting Mr. Buffett in doing so.
Mr. Buffett's investments span a wide swath of businesses. He favors domestic businesses over foreign ones. Many of the businesses and stocks that Mr. Buffett's Berkshire Hathaway owns are consumer products, media, financial, insurance, food and retail businesses (Coca Cola, See's Candies, Capital Cities ABC, GEICO, Dairy Queen, reinsurance and small retail). Thus, policies that a Buffett-Obama administration would likely favor would involve support to a broad swath of domestic consumer, financial and real estate-related businesses.
A weak dollar/high inflation policy executed in the name of full employment with increased taxes to Mr. Buffett's competitors and protectionism are the most likely outcomes of a Buffett-backed Obama presidency. High inflation serves Berkshire Hathaway's interests for several reasons. First, inflation reduces real wages and so real labor costs for Berkshire's retail and construction businesses. Second, inflation reduces real debt, and the diverse businesses that Mr. Buffett owns, from house construction to consumer products, carry debt and so benefit from inflation. Third, inflation weakens the dollar. Since Mr. Buffett's businesses tend to be domestic, a weak dollar will help Berkshire because it will make American-made goods relatively cheap. Of course, this will occur in tandem with the average American's becoming poorer due to the same inflation, so while it will help Berkshire Hathaway it will harm American workers. Thus, one can expect that an Obama presidency will harm American workers in the name of helping them.
Since Mr. Buffett's businesses are primarily domestic, protectionism would prove beneficial to them as well. We can expect protectionism from an Obama presidency. This too would harm American workers by making goods more expensive but would prove helpful to Berkshire Hathaway.
One of the fundamental principles of progressive-liberalism is that it emphasizes that low wages are conducive to full employment while it de-emphasizes the benefit that low wages, low interest rates and high inflation provide to owners. Mr. Buffett is a student of John Maynard Keynes, and we can expect the Keynesian inflationary policy to be a pillar of an Obama presidency. The Keynsian argument is that increasing the money supply reduces interest rates and real wages. This stimulates employment, but it also makes workers, savers and pension holders poorer while it improves the position of owners, like Mr. Buffett.
At the margin, the stimulative effect of the Fed's printing money will include the creation of low-wage retail jobs, and this will benefit Berkshire Hathaway, which owns retail businesses. As well, Berkshire Hathaway benefits because low interest rates boost the value of its stock price. Low interest rates cause investors to value future earnings at a higher value. If an investor knows that he is going to receive a dollar in a year, if interest rates are reduced from 10% to 1%, the value of that future dollar is considerably raised in the present. Since the stock market is a mechanism to value future earnings, increasing the supply of money (that is, reducing interest rates) boosts stock market values. Since Berkshire Hathaway emphasizes long term holdings, its value will be especially enhanced. Thus, an Obama Presidency will likely prove to be inflationary through encouraging the Federal Reserve Bank to print money.
An Obama presidency will emphasize taxes that harm small investors and traders who compete with Mr. Buffett. These would include inheritance, capital gains and income taxes. It will reduce interest rates which raise the value of Berkshire Hathaway's holdings and subsidize long term holders. It will reduce the value of the dollar, which will stimulate demand for Berkshire Hathaway's domestic businesses. It will increase protectionism and raise tariffs, especially those which reduce competition to Mr. Buffett's businesses. Mr. Obama will reduce real wages, enhance income inequality and all the while will tell Americans how much he is helping them because he has created a few low-wage jobs for employees of Berkshire Hathaway.
Much has been made about Barack Obama's association with Pastor Jeremiah Wright, who represents the identity politics fringe of the Democratic Party. Mainstream Americans ought to be concerned because the Democrats have introduced leftists into staff positions in state legislatures and Congress and funded them in universities. For example, Eliot Spitzer's suggestion of granting drivers' licenses to illegal aliens likely did not spring from the mouth of his latest romantic partner, but rather from staffers whom he introduced into Albany. With associations of the Pastor Wright sort, Mr. Obama seems likely to aim to employ staffers with fringe views. If you liked the idea of granting drivers' licenses to aliens, it is certain that you will love an Obama administration.
An even more important question than identity politics, though, is what a President Obama would do to the economy. Thus, a more important association than Obama-Wright is Obama-Buffett. What clues might this relationship offer about the economic direction that an Obama administration would take? One clue is Mr. Obama's recent recommendation, quoting the authority of Mr. Buffett, to increase the capital gains tax. Mr. Buffett's investment philosophy famously involves buying and holding for the long term, and so would not be hurt and would possibly be helped by higher capital gains taxes. In contrast, traders whose investment approach involves more frequent buying and selling would be hurt. Long term holders infrequently pay capital gains taxes, while frequent traders may pay taxes more frequently. Thus, capital gains taxes would hurt Mr. Buffett's competition more than they would hurt him. That which hurts his competition would likely help him.
An increased capital gains tax would provide an incentive for investors to favor investment in Berkshire Hathaway over buying and selling commodities and stocks. The Federal Reserve Bank has increasingly become involved in timing and influencing the financial markets, increasing the returns to short term traders who respond to Fed moves but potentially harming long term holders because of market unpredictability. Mr. Buffett's Berkshire stock has nevertheless performed modestly, but only modestly, well. An increase in the capital gains tax would likely increase the value of Berkshire Hathaway stock because it would provide incentives for long term holding. Hence, Mr. Obama has already been advocating policies that would prove economically beneficial to Berkshire Hathaway, and quoting Mr. Buffett in doing so.
Mr. Buffett's investments span a wide swath of businesses. He favors domestic businesses over foreign ones. Many of the businesses and stocks that Mr. Buffett's Berkshire Hathaway owns are consumer products, media, financial, insurance, food and retail businesses (Coca Cola, See's Candies, Capital Cities ABC, GEICO, Dairy Queen, reinsurance and small retail). Thus, policies that a Buffett-Obama administration would likely favor would involve support to a broad swath of domestic consumer, financial and real estate-related businesses.
A weak dollar/high inflation policy executed in the name of full employment with increased taxes to Mr. Buffett's competitors and protectionism are the most likely outcomes of a Buffett-backed Obama presidency. High inflation serves Berkshire Hathaway's interests for several reasons. First, inflation reduces real wages and so real labor costs for Berkshire's retail and construction businesses. Second, inflation reduces real debt, and the diverse businesses that Mr. Buffett owns, from house construction to consumer products, carry debt and so benefit from inflation. Third, inflation weakens the dollar. Since Mr. Buffett's businesses tend to be domestic, a weak dollar will help Berkshire because it will make American-made goods relatively cheap. Of course, this will occur in tandem with the average American's becoming poorer due to the same inflation, so while it will help Berkshire Hathaway it will harm American workers. Thus, one can expect that an Obama presidency will harm American workers in the name of helping them.
Since Mr. Buffett's businesses are primarily domestic, protectionism would prove beneficial to them as well. We can expect protectionism from an Obama presidency. This too would harm American workers by making goods more expensive but would prove helpful to Berkshire Hathaway.
One of the fundamental principles of progressive-liberalism is that it emphasizes that low wages are conducive to full employment while it de-emphasizes the benefit that low wages, low interest rates and high inflation provide to owners. Mr. Buffett is a student of John Maynard Keynes, and we can expect the Keynesian inflationary policy to be a pillar of an Obama presidency. The Keynsian argument is that increasing the money supply reduces interest rates and real wages. This stimulates employment, but it also makes workers, savers and pension holders poorer while it improves the position of owners, like Mr. Buffett.
At the margin, the stimulative effect of the Fed's printing money will include the creation of low-wage retail jobs, and this will benefit Berkshire Hathaway, which owns retail businesses. As well, Berkshire Hathaway benefits because low interest rates boost the value of its stock price. Low interest rates cause investors to value future earnings at a higher value. If an investor knows that he is going to receive a dollar in a year, if interest rates are reduced from 10% to 1%, the value of that future dollar is considerably raised in the present. Since the stock market is a mechanism to value future earnings, increasing the supply of money (that is, reducing interest rates) boosts stock market values. Since Berkshire Hathaway emphasizes long term holdings, its value will be especially enhanced. Thus, an Obama Presidency will likely prove to be inflationary through encouraging the Federal Reserve Bank to print money.
An Obama presidency will emphasize taxes that harm small investors and traders who compete with Mr. Buffett. These would include inheritance, capital gains and income taxes. It will reduce interest rates which raise the value of Berkshire Hathaway's holdings and subsidize long term holders. It will reduce the value of the dollar, which will stimulate demand for Berkshire Hathaway's domestic businesses. It will increase protectionism and raise tariffs, especially those which reduce competition to Mr. Buffett's businesses. Mr. Obama will reduce real wages, enhance income inequality and all the while will tell Americans how much he is helping them because he has created a few low-wage jobs for employees of Berkshire Hathaway.
Wednesday, April 2, 2008
Libertarians Rising: The 2007 Annual Report of the Libertarian Party
I received the annual report of the Libertarian Party in the mail a few weeks ago and read it. It is entitled Libertarians Rising: The 2007 Annual Report of the Libertarian Party. The report starts:
"Never before has the mood of the American electorate been so negative to the two-party system..."
As well, it points out that President Bush's approval rating is among the lowest in history, and Congress's is worse.
Interestingly, Bob Barr, the Republican Congressman who was involved in the Clinton impeachment about ten years ago, is now the Region 4 Representative of the Libertarian Party. Barr reports that Privacy International ranks the United States along with China, Russia, Thailand, Taiwan, Malaysia and the UK as "endemic surveillance societies".
I don't really see privacy as a crucial issue. Much of the increase in surveillance is probably targeted at terrorism suspects. The report omits that consideration. The report also omits any plan or coherent strategy for dealing with terrorism. Why bother with reality when you get 2% of the vote? It's more fun to talk about the grave risk due to training firefighters as spies than it is to think carefully about how to fight terrorism.
The report terms the war in Iraq a "disaster". It states:
"There is no doubt that a free and stable Iraq is something from which the world would benefit. However, as Libertarians we believe there are other ways to achieve this goal...So we continue to lose America's finest young men and women in a war that should never have been started..."
I would have preferred to hear a coherent anti-terrorism strategy that is consistent with Libertarian principles. The Libertarians oppose surveillance and oppose the War in Iraq but do not suggest how to eliminate further terrorist attacks, which have not occurred on US soil in seven years. From the 1990s to 2001 there were several terrorist attacks, namely, the World Trade Center I, the Cole, the African Embassy, 9/11. Since 2003 there have been no attacks. The Libertarians not only do not ponder this. They do not discuss any approach to dealing with terrorism.
I do, however, like the LP's position on the national debt. The report notes that:
"2007 saw the national debt reach an all-time record of $9 trillion...it was reached during a time when the Republican Party, the party that used to at least pay lip service to fiscal conservatism, was in power. As William Redpath, National Chairman of the Libertarian Party put it: The fact that the national debt has risen by more than 800 percent in an era dominated by Republican presidents will be the obituary of fiscal conservatism in the Republican Party."
I happen to agree with Mr. Redpath. I think that the Republican Party has repudiated fiscal conservatism. Unless it does a 180 degree turn and reverse the spending it has initiated in the past 27 years, it has to be known as the biggest government party, although when compared to the Democrats they are "biggest" in the same sense as the McDonald's specialr special: the Republicans are the biggest spenders and the Democrats are the supersized biggest spenders.
The report notes that Congress has illegalized the incandescent light bulb by 2014. The replacements, compact flourescent bulbs, cost six times as much. I agree that this is an inappropriate incursion into private decision making.
The LP notes that its membership has increased 28 percent in 2007. Given the Republican Party's abandonment of limited government rhetoric, this is not surprising. However, there is always the prospect of either of the current Democratic candidates' being elected. What a pleasant thought.
The report ponts out that "59 percent of Americans describe themselves as fiscally conservative and socially liberal." The LP might ask itself why, given this percentage, its vote count is usually around 2%. Perhaps an ounce of reality is worth an additional percentage point of the vote, and a pound might put them in the running.
The report is optimistic. They will be on the ballot in 2008 in at least 48 states. In Texas, 210 Libertarian candidates are running. The LP will hold its convention in Denver in May 2008.
But I won't be there. I attended the 1980 LP convention in Los Angeles when I lived there. I support much that the LP has to say, but they lack realistic defense, counter-terrorism and foreign policies. Also, the LP's cliquishness is a turn-off. I have been told that many of the rank and file believe that the US government was responsible for the 9/11 attacks. This sort of fringe, crackpot element has a loud voice in the LP. They need to focus on a few issues and leave group-think to academics and theology to pastors, priests and rabbis.
"Never before has the mood of the American electorate been so negative to the two-party system..."
As well, it points out that President Bush's approval rating is among the lowest in history, and Congress's is worse.
Interestingly, Bob Barr, the Republican Congressman who was involved in the Clinton impeachment about ten years ago, is now the Region 4 Representative of the Libertarian Party. Barr reports that Privacy International ranks the United States along with China, Russia, Thailand, Taiwan, Malaysia and the UK as "endemic surveillance societies".
I don't really see privacy as a crucial issue. Much of the increase in surveillance is probably targeted at terrorism suspects. The report omits that consideration. The report also omits any plan or coherent strategy for dealing with terrorism. Why bother with reality when you get 2% of the vote? It's more fun to talk about the grave risk due to training firefighters as spies than it is to think carefully about how to fight terrorism.
The report terms the war in Iraq a "disaster". It states:
"There is no doubt that a free and stable Iraq is something from which the world would benefit. However, as Libertarians we believe there are other ways to achieve this goal...So we continue to lose America's finest young men and women in a war that should never have been started..."
I would have preferred to hear a coherent anti-terrorism strategy that is consistent with Libertarian principles. The Libertarians oppose surveillance and oppose the War in Iraq but do not suggest how to eliminate further terrorist attacks, which have not occurred on US soil in seven years. From the 1990s to 2001 there were several terrorist attacks, namely, the World Trade Center I, the Cole, the African Embassy, 9/11. Since 2003 there have been no attacks. The Libertarians not only do not ponder this. They do not discuss any approach to dealing with terrorism.
I do, however, like the LP's position on the national debt. The report notes that:
"2007 saw the national debt reach an all-time record of $9 trillion...it was reached during a time when the Republican Party, the party that used to at least pay lip service to fiscal conservatism, was in power. As William Redpath, National Chairman of the Libertarian Party put it: The fact that the national debt has risen by more than 800 percent in an era dominated by Republican presidents will be the obituary of fiscal conservatism in the Republican Party."
I happen to agree with Mr. Redpath. I think that the Republican Party has repudiated fiscal conservatism. Unless it does a 180 degree turn and reverse the spending it has initiated in the past 27 years, it has to be known as the biggest government party, although when compared to the Democrats they are "biggest" in the same sense as the McDonald's specialr special: the Republicans are the biggest spenders and the Democrats are the supersized biggest spenders.
The report notes that Congress has illegalized the incandescent light bulb by 2014. The replacements, compact flourescent bulbs, cost six times as much. I agree that this is an inappropriate incursion into private decision making.
The LP notes that its membership has increased 28 percent in 2007. Given the Republican Party's abandonment of limited government rhetoric, this is not surprising. However, there is always the prospect of either of the current Democratic candidates' being elected. What a pleasant thought.
The report ponts out that "59 percent of Americans describe themselves as fiscally conservative and socially liberal." The LP might ask itself why, given this percentage, its vote count is usually around 2%. Perhaps an ounce of reality is worth an additional percentage point of the vote, and a pound might put them in the running.
The report is optimistic. They will be on the ballot in 2008 in at least 48 states. In Texas, 210 Libertarian candidates are running. The LP will hold its convention in Denver in May 2008.
But I won't be there. I attended the 1980 LP convention in Los Angeles when I lived there. I support much that the LP has to say, but they lack realistic defense, counter-terrorism and foreign policies. Also, the LP's cliquishness is a turn-off. I have been told that many of the rank and file believe that the US government was responsible for the 9/11 attacks. This sort of fringe, crackpot element has a loud voice in the LP. They need to focus on a few issues and leave group-think to academics and theology to pastors, priests and rabbis.
Republicans Should Sell Their Berkshire Hathaway Shares
Newsmax reports that Warren Buffett has advised Barack Obama that an increase in the capital gains tax would not harm investment:
"Citing advice from the sage of Omaha, Warren Buffet, Democratic presidential contender Sen. Barack Obama (Ill.) has called for a massive increase in the capital gains tax...No word from the billionaire investor Buffett in reaction to Obama’s policy proposal — aired first on MSNBC by the Democratic presidential contender in an interview with Maria Bariromo – but many other investors are already responding. Currently, the capital gains tax rate is 15 percent."
On November 21, 2005 Newsmax reported that Mr. Buffett had decided to actively back Obama:
"Financial guru Warren Buffett seldom invests interest in politicians, but he’s making an exception for Sen. Barack Obama. 'I’ve got a conviction about him that I don’t get very often,' Buffett said of the Democratic senator from Illinois. 'He has as much potential as anyone I’ve seen to have an important impact over his lifetime on the course that America takes.'"
In 2007 Mr. Buffett hosted an Obama fundraiser in Omaha, according to the International Herald Tribune:
"Buffett had plenty of company Wednesday night at a fundraiser for Democratic presidential candidate Barack Obama — and local organizers say Obama made a valuable investment.
"'I think his stock in Nebraska goes up from here,' said Omaha businessman Harley Schrager, who co-hosted the event with Buffet and others."
I currently hold four Berkshire Hathaway B shares worth about $17,760. They have done modestly well since I bought the first share seven years ago.
The question for me is not whether the stock will go up or down. One reason is that Howard S. Katz's investment portfolio, in which I have put a large share of my portfolio, went up 30% in the past couple of weeks, more than Berkshire has gone up in the past 7 years. There are lots of investment opportunities. The question is whether I wish to hold stock in a firm led by someone who wishes to raise my taxes, who actively supports a candidate with whom I disagree, and whose political activities are, in my view, harmful to the nation's future.
On balance, I do not think that Berkshire Hathaway's prospects justify further association with Mr. Buffett. The firm's investment returns since 2001 simply do not warrant "sucking in my gut" to be associated with him. I am selling my Berkshire stock.
"Citing advice from the sage of Omaha, Warren Buffet, Democratic presidential contender Sen. Barack Obama (Ill.) has called for a massive increase in the capital gains tax...No word from the billionaire investor Buffett in reaction to Obama’s policy proposal — aired first on MSNBC by the Democratic presidential contender in an interview with Maria Bariromo – but many other investors are already responding. Currently, the capital gains tax rate is 15 percent."
On November 21, 2005 Newsmax reported that Mr. Buffett had decided to actively back Obama:
"Financial guru Warren Buffett seldom invests interest in politicians, but he’s making an exception for Sen. Barack Obama. 'I’ve got a conviction about him that I don’t get very often,' Buffett said of the Democratic senator from Illinois. 'He has as much potential as anyone I’ve seen to have an important impact over his lifetime on the course that America takes.'"
In 2007 Mr. Buffett hosted an Obama fundraiser in Omaha, according to the International Herald Tribune:
"Buffett had plenty of company Wednesday night at a fundraiser for Democratic presidential candidate Barack Obama — and local organizers say Obama made a valuable investment.
"'I think his stock in Nebraska goes up from here,' said Omaha businessman Harley Schrager, who co-hosted the event with Buffet and others."
I currently hold four Berkshire Hathaway B shares worth about $17,760. They have done modestly well since I bought the first share seven years ago.
The question for me is not whether the stock will go up or down. One reason is that Howard S. Katz's investment portfolio, in which I have put a large share of my portfolio, went up 30% in the past couple of weeks, more than Berkshire has gone up in the past 7 years. There are lots of investment opportunities. The question is whether I wish to hold stock in a firm led by someone who wishes to raise my taxes, who actively supports a candidate with whom I disagree, and whose political activities are, in my view, harmful to the nation's future.
On balance, I do not think that Berkshire Hathaway's prospects justify further association with Mr. Buffett. The firm's investment returns since 2001 simply do not warrant "sucking in my gut" to be associated with him. I am selling my Berkshire stock.
Monday, March 31, 2008
My Letter to Ralph Nader
Dear Mr. Nader:
I saw your interview on Bloomberg television a few days ago and was favorably impressed. However, I do not believe that you identify ultimate causes. You attribute corporate influence to the corporations. But corporations, like human beings, will always be greedy. Hence, you campaign against human nature and do not seriously aim for reform.
In order to eliminate corruption, the power of the state to engage in corruption needs to be limited. Human impulses will not change, but human institutions can be made more or less conducive to moral behavior. Limitations on the ability of corporations to influence the state require a limited state.
Your point about the Bernanke Fed is a good one. However, to limit the Fed's subsidy to big banks and Wall Street would require a limitation on the Fed's ability to create money. Such a limitation existed until 1932, when Roosevelt eliminated the gold standard. If you continue to support the current fiat money system, you continue to support Wall Street, the commercial banks and income inequality.
As your argument stands now, you are supporting corporate corruption. Illogical arguments in favor of the impossible are simply arguments for the status quo. One way to limit corruption is to limit the power of the banking system to subsidize the stock market by transferring value from dollar holders to stock holders. Another way is to limit the power of the federal government.
I would urge you to look for a compromise with the libertarian position and to combine forces with or coopt Ron Paul. There is enough common ground that you could retain your anti-corporate posture but also adopt a libertarian posture that would be compatible with both "right" and "left" positions, which could double or triple your vote count.
Please see my blog here.
Sincerely,
Mitchell Langbert
I saw your interview on Bloomberg television a few days ago and was favorably impressed. However, I do not believe that you identify ultimate causes. You attribute corporate influence to the corporations. But corporations, like human beings, will always be greedy. Hence, you campaign against human nature and do not seriously aim for reform.
In order to eliminate corruption, the power of the state to engage in corruption needs to be limited. Human impulses will not change, but human institutions can be made more or less conducive to moral behavior. Limitations on the ability of corporations to influence the state require a limited state.
Your point about the Bernanke Fed is a good one. However, to limit the Fed's subsidy to big banks and Wall Street would require a limitation on the Fed's ability to create money. Such a limitation existed until 1932, when Roosevelt eliminated the gold standard. If you continue to support the current fiat money system, you continue to support Wall Street, the commercial banks and income inequality.
As your argument stands now, you are supporting corporate corruption. Illogical arguments in favor of the impossible are simply arguments for the status quo. One way to limit corruption is to limit the power of the banking system to subsidize the stock market by transferring value from dollar holders to stock holders. Another way is to limit the power of the federal government.
I would urge you to look for a compromise with the libertarian position and to combine forces with or coopt Ron Paul. There is enough common ground that you could retain your anti-corporate posture but also adopt a libertarian posture that would be compatible with both "right" and "left" positions, which could double or triple your vote count.
Please see my blog here.
Sincerely,
Mitchell Langbert
Ben Bernanke Should Resign
The role of chairman of the Federal Reserve Bank ought to involve trust. The public has bestowed control over the nation's money supply to private, profit seeking institutions, the nation's commercial banks, who own the Fed. However, the federal government has retained the power to appoint the Fed officials who control our money supply.
By nature of its ownership structure the Fed poses a threat to the public welfare. The Fed has abused this trust for more than seventy years and should be abolished.
Support to private investment banking interests, such as Bear Stearns, who have performed incompetently, made bad investments and so deserve to be declared bankrupt does not serve the public interest and is evidence of abuse of the public's trust.
Mr. Bernanke has proven that he is morally unfit to serve as the chairman of the nation's most important fiduciary institution. He ought to resign or be removed.
By nature of its ownership structure the Fed poses a threat to the public welfare. The Fed has abused this trust for more than seventy years and should be abolished.
Support to private investment banking interests, such as Bear Stearns, who have performed incompetently, made bad investments and so deserve to be declared bankrupt does not serve the public interest and is evidence of abuse of the public's trust.
Mr. Bernanke has proven that he is morally unfit to serve as the chairman of the nation's most important fiduciary institution. He ought to resign or be removed.
Saturday, March 29, 2008
If Only Ralph Nader Supported the Gold Standard
I just saw Ralph Nader on Bloomberg television. He is critical of the bailout of Bear Stearns. To the extent that the major party candidates defend the bailout Ralph Nader is more serious intellectually than they are.
Looking at the minor parties, the Libertarian Party has a free market, limited government orientation but is dominated by vegetarians, nudists and those who favor animal rights.
Ralph Nader is right about the problem of special interests, but he does not fathom the underlying cause, which is big government. Nader supports the disease but complains about the symptom. He was excellent this evening with respect to the Bernanke Fed, but he lacks the intellectual foundation to consider that the Bernanke Fed does what the Fed does, and if he doesn't like it he needs to advocate reestablishing a fixed monetary standard. Rule by minority whine is ineffective.
Now let's look at the major party candidates. Hillary Clinton believes that the problem is lack of regulation and if there were only more regulation, then the bailout can be forgiven. Barack Obama's position is less clear, but I do not sense that he has a coherent strategy, and it certainly is not a free market one.
That leaves us with John McCain. Although Mr. McCain is beholden to the same special interest groups that inspire the bailout, he is not a vegetarian and he, at least in symbol, represents free market impulses. I suspect that the differences among McCain, Obama and Clinton with respect to subsidies to Wall Street are small. Nevertheless, Mr. McCain represents the most free market orientation. If Mr. Nader decided that our seven decade experiment of unlimited freedom to the banks to print money has failed, then he would have my support. Conversely, if the Libertarians would only grow up and focus on a few adult issues, they would have my support. Alas, I am left with Mr. McCain, who is the most logical candidate. In honor of this inspiration, I have sent Mr. McCain my $500 donation.
Looking at the minor parties, the Libertarian Party has a free market, limited government orientation but is dominated by vegetarians, nudists and those who favor animal rights.
Ralph Nader is right about the problem of special interests, but he does not fathom the underlying cause, which is big government. Nader supports the disease but complains about the symptom. He was excellent this evening with respect to the Bernanke Fed, but he lacks the intellectual foundation to consider that the Bernanke Fed does what the Fed does, and if he doesn't like it he needs to advocate reestablishing a fixed monetary standard. Rule by minority whine is ineffective.
Now let's look at the major party candidates. Hillary Clinton believes that the problem is lack of regulation and if there were only more regulation, then the bailout can be forgiven. Barack Obama's position is less clear, but I do not sense that he has a coherent strategy, and it certainly is not a free market one.
That leaves us with John McCain. Although Mr. McCain is beholden to the same special interest groups that inspire the bailout, he is not a vegetarian and he, at least in symbol, represents free market impulses. I suspect that the differences among McCain, Obama and Clinton with respect to subsidies to Wall Street are small. Nevertheless, Mr. McCain represents the most free market orientation. If Mr. Nader decided that our seven decade experiment of unlimited freedom to the banks to print money has failed, then he would have my support. Conversely, if the Libertarians would only grow up and focus on a few adult issues, they would have my support. Alas, I am left with Mr. McCain, who is the most logical candidate. In honor of this inspiration, I have sent Mr. McCain my $500 donation.
Friday, March 28, 2008
David Horowitz Freedom Center Fundraiser March 27
I attended David Horowitz's Freedom Center fundraiser at the Yale Club in Manhattan last night. I was pleased to meet David for the first time (we have corresponded a few times via e-mail). The speaker, Dennis Prager, is wonderful. I was delighted to learn that Mr. Prager is an alumnus of Brooklyn College and have extended an invitation to him to visit one of my classes. The esteemed Candace de Russy was there and I was privileged to dine with several outstanding students from Fordham, Columbia and NYU who work with David Horowitz. Horowitz originally comes from Sunnyside, which is not far from my neighborhood of Long Island City/Astoria.
Thursday, March 27, 2008
Schnorrers' Day on Wall Street
"Hooray for Chair Bernanke
The economic explorer
'Did someone call him 'schnorrer''?
...
This fact I emphasize with stress,
I never print a dollar unless - Somebody's buying.
---Groucho Marx (Ben Bernanke), Animal Crackers
Groucho Marx was, of course singing about himself, Captain Spaulding, in Animal Crackers, but with a small modification or two the lines sing of Ben Bernanke. In case your Yiddish is rusty, "schnorrer" means beggar or sponger, according to Wikipedia. Is it fair that John Q. Public is subsidizing multi-million dollar Wall Street salaries for guys who can't figure out how to run a business?
Please review the entire song:
(All on Wall Street)
At last we are to meet him,
The famous Ben Bernanke.
From climates hot and cranky,
The Chairman has arrived.
Most heartily we'll greet him,
With plain and fancy cheering.
Until he's hard of hearing.
The Chairman has arrived.
At last - The Chairman has arrived.
(Butler)
Mr. Horatio W. Jamison, Field Secretary to Chair Bernanke.
(Jamison/Zeppo)
I represent the Chairman who insists on my informing you of these conditions under which he camps here. In one thing he is very strict, he wants his women young and picked and as for Wall Street bankers, he won't have any tramps here.
(All on Wall Street)
As for bankers he won't have any tramps here,
There must be no tramps.
(Jamison/Zeppo)
The bankers must all be very old,
The women warm, the champagne cold.
It's under these conditions that he camps here.
(Voice off Screen)
I'm announcing Chairman Ben Bernanke
(All on Wall Street)
He's announcing Ben Bernanke
Oh dear, he is coming,
At last he's here.
(Chair Bernanke)
Hello, I must be going,
I cannot stay, I came to say, I must be printing.
I'm glad I came, but just the same I must be going.
La La.
(Mrs. Rittenhouse/Margaret Dumont)
For my sake you must stay.
If you should go away,
You'd spoil this party I am throwing.
(Chair Bernanke)
I'll stay a week or two,
I'll stay the summer through,
But I am telling you,
I must be printing.
(All on Wall Street)
Before you print,
Will you oblige us,
And tell us of your deeds so glowing?
(Bernanke)
I'll print as much as you say,
In fact I'll even stay!
I'll print dollars far and away!
(All on Wall Street)
Good!
(Bernanke)
But I must be going.
I must be printing.
(Jamison/Zeppo)
There's something that I'd like to say,
That he's too modest to relay.
The Chairman is a moral man.
Sometimes he finds it trying
To be printing and printing.
(Bernanke)
This fact I emphasize with stress,
I never print a buck unless - Somebody's buying.
I never print a buck unless - Somebody's paying.
(All on Wall Street)
The Chairman is a very moral man.
(Jamison/Zeppo)
If he hears of a high interest rate, He'll naturally repel it.
(Bernanke)
I hate a high interest rate I do.
(All on Wall Street)
The Chairman is a very moral man.
Hooray for Chair Bernanke, The economic explorer.
(Chair Bernanke)
Did someone call me Shnorrer?
(All on Wall Street)
Hooray, Hooray, Hooray.
(Jamison/Zeppo)
He went onto Wall Street where all the bankers pocket bucks.
(Chair Bernanke)
If I stay here I'll go nuts.
(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.
(Chair Bernanke)
Hey, hey.
(Mrs. Rittenhouse/Margaret Dumont)
You are the only Chairman to print money over every acre.
(Chair Bernanke)
I think I'll try and make her.
(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.
(Chair Bernanke)
Hey, hey.
(All on Wall Street)
Hooray for Chair Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.
(Chair Bernanke attempts to speak)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........
(All on Wall Street)
Hooray for Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.
(Chair Bernanke)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........
Hooray for Ben Bernanke, Wall Street's hero.....
Well, somebody's got to do it!
Hooray, hooray, hooray.
The economic explorer
'Did someone call him 'schnorrer''?
...
This fact I emphasize with stress,
I never print a dollar unless - Somebody's buying.
---Groucho Marx (Ben Bernanke), Animal Crackers
Groucho Marx was, of course singing about himself, Captain Spaulding, in Animal Crackers, but with a small modification or two the lines sing of Ben Bernanke. In case your Yiddish is rusty, "schnorrer" means beggar or sponger, according to Wikipedia. Is it fair that John Q. Public is subsidizing multi-million dollar Wall Street salaries for guys who can't figure out how to run a business?
Please review the entire song:
(All on Wall Street)
At last we are to meet him,
The famous Ben Bernanke.
From climates hot and cranky,
The Chairman has arrived.
Most heartily we'll greet him,
With plain and fancy cheering.
Until he's hard of hearing.
The Chairman has arrived.
At last - The Chairman has arrived.
(Butler)
Mr. Horatio W. Jamison, Field Secretary to Chair Bernanke.
(Jamison/Zeppo)
I represent the Chairman who insists on my informing you of these conditions under which he camps here. In one thing he is very strict, he wants his women young and picked and as for Wall Street bankers, he won't have any tramps here.
(All on Wall Street)
As for bankers he won't have any tramps here,
There must be no tramps.
(Jamison/Zeppo)
The bankers must all be very old,
The women warm, the champagne cold.
It's under these conditions that he camps here.
(Voice off Screen)
I'm announcing Chairman Ben Bernanke
(All on Wall Street)
He's announcing Ben Bernanke
Oh dear, he is coming,
At last he's here.
(Chair Bernanke)
Hello, I must be going,
I cannot stay, I came to say, I must be printing.
I'm glad I came, but just the same I must be going.
La La.
(Mrs. Rittenhouse/Margaret Dumont)
For my sake you must stay.
If you should go away,
You'd spoil this party I am throwing.
(Chair Bernanke)
I'll stay a week or two,
I'll stay the summer through,
But I am telling you,
I must be printing.
(All on Wall Street)
Before you print,
Will you oblige us,
And tell us of your deeds so glowing?
(Bernanke)
I'll print as much as you say,
In fact I'll even stay!
I'll print dollars far and away!
(All on Wall Street)
Good!
(Bernanke)
But I must be going.
I must be printing.
(Jamison/Zeppo)
There's something that I'd like to say,
That he's too modest to relay.
The Chairman is a moral man.
Sometimes he finds it trying
To be printing and printing.
(Bernanke)
This fact I emphasize with stress,
I never print a buck unless - Somebody's buying.
I never print a buck unless - Somebody's paying.
(All on Wall Street)
The Chairman is a very moral man.
(Jamison/Zeppo)
If he hears of a high interest rate, He'll naturally repel it.
(Bernanke)
I hate a high interest rate I do.
(All on Wall Street)
The Chairman is a very moral man.
Hooray for Chair Bernanke, The economic explorer.
(Chair Bernanke)
Did someone call me Shnorrer?
(All on Wall Street)
Hooray, Hooray, Hooray.
(Jamison/Zeppo)
He went onto Wall Street where all the bankers pocket bucks.
(Chair Bernanke)
If I stay here I'll go nuts.
(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.
(Chair Bernanke)
Hey, hey.
(Mrs. Rittenhouse/Margaret Dumont)
You are the only Chairman to print money over every acre.
(Chair Bernanke)
I think I'll try and make her.
(All on Wall Street)
Hooray, Hooray, Hooray.
He put all his reliance, In courage and defiance,
And risked his life for economic science.
(Chair Bernanke)
Hey, hey.
(All on Wall Street)
Hooray for Chair Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.
(Chair Bernanke attempts to speak)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........
(All on Wall Street)
Hooray for Bernanke, The economic explorer.
He brought his name undying fame
And that is why we say, Hooray, Hooray, Hooray.
(Chair Bernanke)
My friends, I am highly gratified at this magnificent display of effusion and I want
you to know.........
Hooray for Ben Bernanke, Wall Street's hero.....
Well, somebody's got to do it!
Hooray, hooray, hooray.
Progressivism, Bureaucracy and the Limits of Government
In Search for Order 1877-1920 Robert Wiebe* argues that a bureaucratic philosophy emanated from the Populism; late 19th century Utopian visions of Henry George and Edward Bellamy; the social Gospel of Reverend Washington Gladden; the Utopian new order of Henry Demarest Lloyd; and the evolutionary historicism of Lester F. Ward (who argued that economic history followed four stages) and Richard T. Ely (who argued that history followed seven stages). The bureaucratic philosophy was not, in Wiebe's view, well-formulated. It combined elements of scientific management with pragmatism and an early version of Progressivism (Wiebe, p. 145):
"The ideas that filtered through and eventually took the fort were bureaucratic ones particularly suited to the fluidity and impersonality of an urban-industrial world. They pictured a society of ceaselessly interacting members and concentrated upon adjustments from within it...the rules, resembling orientations much more than laws, stressed techniques of constant watchfulness and mechanisms of continuous management...Bureaucratic thought made science practically synonymous with 'scientific method'. Science had become a procedure, or an orientation, rather than a body of results...The new ideas concerned what men were doing and how they did it. As Arthur Bentley said, the individual was meaningless as a unit for investigation: only men's social behavior deserved analysis...
"...The sanguine followers of the bureaucratic way constructed their world on a comfortable set of assumption. While they shaded many of the old moral absolutes, they still thought in terms of normal and abnormal
"...Endless talk of order and efficiency, endless analogies between society and well-oiled machinery, never in themselves supplied an answer. Instead of careful definitions, they offered only tendencies...One explained process through human consent and human welfare. The second construed process in terms of economy: regulate society's movements to produce maximum returns for minimum outlay of time and effort...Touching almost every area, this view appealed particularly to business, labor and agricultural organizations
(p.160)"the new political theory (progressivism) borrowed its most revolutionary qualities from bureaucratic thought, and the heart of these was continuity...Trained professional servants would staff a government broadly and continuously involved in society's operations...Above them stood the public man, a unique and indispensable leader. Although learned enough to comprehend the details of a modern, specialized government, he was much more than an expert among experts. His vision encompassed the entire nation...As the nation's leader the public man would be an educator-extraordinary. He bore the greatest responsibility for raising mass intelligence to the level of true public opinion. That, as Franklin Giddings explained, 'is rational like-mindedness...'
"...(p.161) the theory was immediately and persistently attacked as undemocratic, an accusation that never ceased to sting its defenders...the theory also presupposed an ethereal communion between leaders and citizens. As all citizens became rational they would naturally arrive at the same general answers...national rationality would assure consensus on big issues..."
What a brilliant 20 pages from Professor Wiebe. But here's the rub. The bureaucratic model as Wiebe construes it utterly misconstrues the cognitive limits of rationality. Processes of production require a degree of flexibility that is far greater than governmental processes permit. The degree is greater by orders of magnitude. There is no such thing as a priori rationality in real world produciton processes. Rationality is ONLY derived from continuous application of thought to specific processes. No one could arrive at a solution a priori. This is true with respect to production systems, which according to total quality management and continuous improvement require ever more refined adjustment that is only possible by operators with knowledge on the spot. It is true with respect to retail sales people who must make on-the-spot decisions to accommodate customers. It is true with respect to teachers who see that a given approach to education is not working with their students and need to adjust the approach. It is true with respect to Theodore Dalrymple, who observes that welfare policies established by central authority decimate low-income Britain but is powerless to change them. Bureaucratic thought overestimated the importance of statistical and theoretical, i.e., "scientific", knowledge to production processes, and it vastly underestimated the sensitivity of production processes to on-the-spot information. But on-the-spot information is not conducive to a unitary rational solution; a Volkish meeting of the minds between ruler and ruled; or a solution by bureaucratic experts.
*Robert H. Wiebe, The Search for Order 1877-1920. New York: Hill and Wang, 1967.
"The ideas that filtered through and eventually took the fort were bureaucratic ones particularly suited to the fluidity and impersonality of an urban-industrial world. They pictured a society of ceaselessly interacting members and concentrated upon adjustments from within it...the rules, resembling orientations much more than laws, stressed techniques of constant watchfulness and mechanisms of continuous management...Bureaucratic thought made science practically synonymous with 'scientific method'. Science had become a procedure, or an orientation, rather than a body of results...The new ideas concerned what men were doing and how they did it. As Arthur Bentley said, the individual was meaningless as a unit for investigation: only men's social behavior deserved analysis...
"...The sanguine followers of the bureaucratic way constructed their world on a comfortable set of assumption. While they shaded many of the old moral absolutes, they still thought in terms of normal and abnormal
"...Endless talk of order and efficiency, endless analogies between society and well-oiled machinery, never in themselves supplied an answer. Instead of careful definitions, they offered only tendencies...One explained process through human consent and human welfare. The second construed process in terms of economy: regulate society's movements to produce maximum returns for minimum outlay of time and effort...Touching almost every area, this view appealed particularly to business, labor and agricultural organizations
(p.160)"the new political theory (progressivism) borrowed its most revolutionary qualities from bureaucratic thought, and the heart of these was continuity...Trained professional servants would staff a government broadly and continuously involved in society's operations...Above them stood the public man, a unique and indispensable leader. Although learned enough to comprehend the details of a modern, specialized government, he was much more than an expert among experts. His vision encompassed the entire nation...As the nation's leader the public man would be an educator-extraordinary. He bore the greatest responsibility for raising mass intelligence to the level of true public opinion. That, as Franklin Giddings explained, 'is rational like-mindedness...'
"...(p.161) the theory was immediately and persistently attacked as undemocratic, an accusation that never ceased to sting its defenders...the theory also presupposed an ethereal communion between leaders and citizens. As all citizens became rational they would naturally arrive at the same general answers...national rationality would assure consensus on big issues..."
What a brilliant 20 pages from Professor Wiebe. But here's the rub. The bureaucratic model as Wiebe construes it utterly misconstrues the cognitive limits of rationality. Processes of production require a degree of flexibility that is far greater than governmental processes permit. The degree is greater by orders of magnitude. There is no such thing as a priori rationality in real world produciton processes. Rationality is ONLY derived from continuous application of thought to specific processes. No one could arrive at a solution a priori. This is true with respect to production systems, which according to total quality management and continuous improvement require ever more refined adjustment that is only possible by operators with knowledge on the spot. It is true with respect to retail sales people who must make on-the-spot decisions to accommodate customers. It is true with respect to teachers who see that a given approach to education is not working with their students and need to adjust the approach. It is true with respect to Theodore Dalrymple, who observes that welfare policies established by central authority decimate low-income Britain but is powerless to change them. Bureaucratic thought overestimated the importance of statistical and theoretical, i.e., "scientific", knowledge to production processes, and it vastly underestimated the sensitivity of production processes to on-the-spot information. But on-the-spot information is not conducive to a unitary rational solution; a Volkish meeting of the minds between ruler and ruled; or a solution by bureaucratic experts.
*Robert H. Wiebe, The Search for Order 1877-1920. New York: Hill and Wang, 1967.
Tuesday, March 25, 2008
Identity Politics in the 2008 Democratic Presidential Primary
This presidential year is the Democrats' to lose, and they seem to be losing it. The gleam through the cracked mortar of the Democratic Party's foundation is identity politics. Identity politics is the 1960s' ugly offspring that differs from its older brother racism in style but not substance.
Liberalism and Moral Relativism
The impulse underlying Progressive-liberalism was the late nineteenth century's moral angst at the expanded power of big business, its lack of moral foundation and the disorder and uncertainty that the railroads, the expanding market and the increased homogeneity of the American market had caused. Americans of that time were mostly religious Protestants. Their reaction to the increased power of business and the railroads was in part informed by their religious values. The economy had been a source of moral training and discipline when producers were small and life was local, what Robert H. Wiebe calls "island America" in his book The Search for Order. The late nineteenth century response to expanding markets included Populism, trade unionism, and Mugwumpery. The Progressives arose from the introduction of the ideas of the German historical school to this mix. It held that the state ought to be strengethened in order to manage big business. The underlying impulse was the moral one of correcting the moral abuses of big business and the new mass production.
The moral impulse behind Progressivism carries through to liberalism and its more extreme variants. Progressive-liberalism claims to rectify moral abuses through government or the marshalling of public opinion. Thus, Wal-Mart is evil because its prices are too low; oil companies are evil because their prices are too high; banks are evil because they demand that borrowers repay; and fast food restaurants are evil because they serve too much food. Liberalism is thus a moral movement that derives from late nineteenth angst about business. Liberals believe that the business system requires their moral guidance.
But liberalism pretends to derive from science, not religion. In part because of its scientism liberalism adopts Enlightenment skepticism about morality. But it applies its skepticism only to others', not to its own moral claims. Liberalism holds that the school system ought not to advocate religion. It insists that American values are not superior to those of other cultures. In its more extreme variants it holds that 9/11 victims are "little Eichmanns". It assumes that public morality is a convention and that rules about public morality amount to infringement on freedom of speech. It argues that morals are locally derived, have no logical foundation, and that their chief purpose is to justify power. Philosophy and literature have been written by dead white males; and natural rights have no meaning because morals have no logical meaning.
Given Progressive-liberals' skepticism with respect to American values, natural rights and morals, the liberal position faces an irreconciliable dilemma. No argument about morality is possible if there is no such thing as morality. If there is such a thing as morality, then liberalism has to explain why it is to be preferred over nationalism, religion or other locally derived moral systems.
Progressive-liberals wish to have it both ways. They offer one emotionally charged moral argument after the next: Global warming is wrong; Wal-Mart is evil; America is the Great Satan. But at the same time, liberals deny that there is such a thing as morality.
From whence do liberals' derive their moral sense? If morals have meaning, liberals must be able to show that their causes are morally superior to those whom they attack. If natural rights have meaning, then liberal causes are generally immoral, for liberalism depends on redistribution of property by violence. If economic inequality is wrong, why is it worse than stealing? By what moral system does liberalism justify forcing me to pay taxes? What makes liberal causes more moral than natural rights?
Liberalism has not attempted to answer such questions. It is an ideology, not a philosophical system. It is an ideology whose aim is to justify the assumption of power by educated elites.
The moral impulse behind Progressivism carries through to liberalism and its more extreme variants. Progressive-liberalism claims to rectify moral abuses through government or the marshalling of public opinion. Thus, Wal-Mart is evil because its prices are too low; oil companies are evil because their prices are too high; banks are evil because they demand that borrowers repay; and fast food restaurants are evil because they serve too much food. Liberalism is thus a moral movement that derives from late nineteenth angst about business. Liberals believe that the business system requires their moral guidance.
But liberalism pretends to derive from science, not religion. In part because of its scientism liberalism adopts Enlightenment skepticism about morality. But it applies its skepticism only to others', not to its own moral claims. Liberalism holds that the school system ought not to advocate religion. It insists that American values are not superior to those of other cultures. In its more extreme variants it holds that 9/11 victims are "little Eichmanns". It assumes that public morality is a convention and that rules about public morality amount to infringement on freedom of speech. It argues that morals are locally derived, have no logical foundation, and that their chief purpose is to justify power. Philosophy and literature have been written by dead white males; and natural rights have no meaning because morals have no logical meaning.
Given Progressive-liberals' skepticism with respect to American values, natural rights and morals, the liberal position faces an irreconciliable dilemma. No argument about morality is possible if there is no such thing as morality. If there is such a thing as morality, then liberalism has to explain why it is to be preferred over nationalism, religion or other locally derived moral systems.
Progressive-liberals wish to have it both ways. They offer one emotionally charged moral argument after the next: Global warming is wrong; Wal-Mart is evil; America is the Great Satan. But at the same time, liberals deny that there is such a thing as morality.
From whence do liberals' derive their moral sense? If morals have meaning, liberals must be able to show that their causes are morally superior to those whom they attack. If natural rights have meaning, then liberal causes are generally immoral, for liberalism depends on redistribution of property by violence. If economic inequality is wrong, why is it worse than stealing? By what moral system does liberalism justify forcing me to pay taxes? What makes liberal causes more moral than natural rights?
Liberalism has not attempted to answer such questions. It is an ideology, not a philosophical system. It is an ideology whose aim is to justify the assumption of power by educated elites.
Monday, March 24, 2008
Howard S. Katz and Market Psychology
I had the opportunity to observe market psychology first hand during the past couple of weeks. My friend, Howard S. Katz, had called a market top in gold this past Monday when gold was about $950. He also called a bottom in stocks and shifted from gold stocks into construction stocks. The first few days after Howard's call, gold continued to go up. It hit $1002 toward the end of the week. The stock market had become very volatile as bulls and bears battled in response to Fed easing. Subscribers to Howard's newsletter contacted Howard to argue that he had called the top too early. I mentioned Howard's call to a few MBA students and they too argued that he had been too early.
It is very difficult to call a turn precisely, but to make it more so, social pressure opposes a correct call. The gold market indeed topped at about $1000 and the construction stocks are up about 50% since Howard's call. I'm not sure how he does it (he uses technical analysis which is Greek to me), and I don't believe that contra-opinion is necessarily right. Delusional markets can continue for several years or more. Look at politics.
One thing is certain. If you are right about a change in market patterns there is going to be alot of argument against your position and not too much social support. It takes confidence in addition to the rare insight. The insight alone is rare enough. The combination of courage wtih insight is difficult to sustain.
The same is likely true of ideas. It takes guts to tell the truth.
It is very difficult to call a turn precisely, but to make it more so, social pressure opposes a correct call. The gold market indeed topped at about $1000 and the construction stocks are up about 50% since Howard's call. I'm not sure how he does it (he uses technical analysis which is Greek to me), and I don't believe that contra-opinion is necessarily right. Delusional markets can continue for several years or more. Look at politics.
One thing is certain. If you are right about a change in market patterns there is going to be alot of argument against your position and not too much social support. It takes confidence in addition to the rare insight. The insight alone is rare enough. The combination of courage wtih insight is difficult to sustain.
The same is likely true of ideas. It takes guts to tell the truth.
Organizational Learning and the Progressive Model
The natural evolution of organizational learning should over time shift the relationship between business and government from more to less. Early in their history, capitalist firms lacked the ability to think and plan strategically; to research markets; to assess competition. Over time, the professionalization of management, the development of tools and learning processes, new methods of management and new planning processes and models not only provide businesses with tools that were not available to them in the 19th century, but also are less accessible to government because the personnel are not available. In David Ames Wells's time, Wells did not believe that firms could strategically plan investment; could perform market research; could persuade workers to purchase consumer goods; or could assess the long run profitability of a plant or business unit. By the 1960s, John Kenneth Galbraith overstating the case argued that firms plan and manage demand. Clearly the role of the state must change in response to the evolution of managerial knowledge. But the state's role can change only if it develops sophistication about the same processes that the firms learn about. But of course such learning is beyond the budget, the ability and the organizational flexibility of government agencies. Hence, the role of government will quickly become outdated.
The problem facing government is not just a matter of organizational learning. It is a matter of being able to anticipate the insights, deviations and failures of ever-evolving organizations. Such learning is so far beyond the ability of government, that government will inevitably prove to be disruptive to firms' learning processes.
An example is the case of Enron. Enron's failure was in large part due to its accounting emphasis on mark to market accounting. But mark to market accounting was the very policy that the SEC approved in response to Jeff Skilling's application. Another example is the California degregulation of the power market. The state adopted a regulatory system that facilitated Enron's and other power firms' manipulation of the power grid that caused massive power outages.
The results of the relationship between a state which aims to guide organizations that learn at a faster rate than the state does is one of four things. One, the state becomes irrelevant and adopts a de facto laissez faire approach. Two, the state enforces its prerogatives to control or influence industry and limits organizational learning and economic progress. Three the state attempts to ritually mimic firms' organizational learning and its supposed role of providing support to industry, squandering resources while in fact adopting a laissez faire approach. Four, the state becomes captive or subject to the influence of the industry and competing interest groups, resulting in policies that reflect political power and economic resources rather than rationality.
Government has adopted all three approaches. In human resource regulation such as OSHA and ERISA, the federal government has adopted costly regulation that has done little to improve safety or security, reducing economic opportunity. With respect to education, education schools continue to advocate progressive education approaches that reduce educational outcomes. In finance, the state has gradually backed off various regulations but continues to maintain regulation that makes it difficult for entrepreneurial financial firms to compete. In most fields the fourth likelihood has occurred. The brokerage of special interests has become a key characteristic of the American economy.
The problem facing government is not just a matter of organizational learning. It is a matter of being able to anticipate the insights, deviations and failures of ever-evolving organizations. Such learning is so far beyond the ability of government, that government will inevitably prove to be disruptive to firms' learning processes.
An example is the case of Enron. Enron's failure was in large part due to its accounting emphasis on mark to market accounting. But mark to market accounting was the very policy that the SEC approved in response to Jeff Skilling's application. Another example is the California degregulation of the power market. The state adopted a regulatory system that facilitated Enron's and other power firms' manipulation of the power grid that caused massive power outages.
The results of the relationship between a state which aims to guide organizations that learn at a faster rate than the state does is one of four things. One, the state becomes irrelevant and adopts a de facto laissez faire approach. Two, the state enforces its prerogatives to control or influence industry and limits organizational learning and economic progress. Three the state attempts to ritually mimic firms' organizational learning and its supposed role of providing support to industry, squandering resources while in fact adopting a laissez faire approach. Four, the state becomes captive or subject to the influence of the industry and competing interest groups, resulting in policies that reflect political power and economic resources rather than rationality.
Government has adopted all three approaches. In human resource regulation such as OSHA and ERISA, the federal government has adopted costly regulation that has done little to improve safety or security, reducing economic opportunity. With respect to education, education schools continue to advocate progressive education approaches that reduce educational outcomes. In finance, the state has gradually backed off various regulations but continues to maintain regulation that makes it difficult for entrepreneurial financial firms to compete. In most fields the fourth likelihood has occurred. The brokerage of special interests has become a key characteristic of the American economy.
Saturday, March 22, 2008
Howard S. Katz's Portfolio Returns 20% in Two Weeks
I have been subscribing to Howard S. Katz's newsletter The One Handed Economist for about 3 years. Howard tracks what a "conservative" portfolio. He bases his analysis on Austrian economics as well as technical analysis. The portfolio tracks from 1999. During this period the major stock indexes have gone up and down but now are not much higher than in 1999. In contrast, by the first week of March 2008 Howard's conservative portfolio was up about 115% over the nine-year period. Howard's latest edition came out a few minutes ago. In the past two weeks his portfolio went up better than 20%. It was about 215 in early March when he called a top in precious metals. He moved into several construction stocks which brought the portfolio up to 260. Wow! This was the kind of thing that until now I had read about but not directly experienced. Yay Howard!
Firms' Goals and Pricing
Walter Nicholson. Intermediate Microeconomics and Its Application Third Edition. Dryden Press, 1983.
I have decided to treat myself to review some basic economics this evening. It's been 20 years since I looked at my last economics textbook. What better way to brush up than my 1983 copy of Walter Nicholson's Intermediate Microeconomics and Its Application textbook? In this blog I will briefly review his thoughts on costs.
Costs (chapter 9)
Economists view historical costs as sunk costs. The implicit cost of a machine is what someone else would pay for it, i.e., its "rental rate". To minimize production costs firms choose inputs such that the rate of technical substitution is equal to the ratio of input costs. Thus if wages are w and machinery rental rates are v then:
Rate of Technical Substitution = wage rate/rental rate = w / v
That is, the rate of technical substitution is the rate at which one input may be traded off against another in the production process while holding output constant and that rate is the same rate at which they are traded in the open market.
In other words, the rate of technical substitution of labor for capital is the ratio of the
marginal product (labor)/ marginal product (capital)
so that each input should provide the same additional output per dollar spent and if they don't, firms will trade some of the less productive input for the more productive.
Short versus Long Run
In the short run production capacity is fixed. In the long run production can be curtailed. Fixed costs are fixed in the short run.
Short run average total costs = (total costs) / (total output)
while
Short run marginal costs = (change in total costs) / (change in output)
In the very short run price purely rations demand. This is because supply cannot be increased. But generally in the longer run there is a supply response to changing demand. In the short run (longer than very short run) the number of firms is fixed but firms can adjust the amount they are producing.
Theoretically, marginal and average costs ought to increase in response to increases in output but most studies fail to show increasing average or marginal costs but rather find that marginal and average costs are constant over large ranges of output.
Long Run
In the long run all productive inputs are variable. Nicholson makes the point that some factors may be difficult to alter even in the long run. The rate of technical substitution must equal the ratio of the input prices.
The long run total cost curve is found by considering all short run total cost curves and choosing the lowest one for each possible output level. "The locus of all these cost minimizing choices is called the long-run total cost curve..."
Under the assumption of constant returns to scale, the long term total cost curve is a straight line and average and marginal costs are constant and equal (equal because of the assumption of constant returns to scale which means that the marginal cost equals the average cost).
If there is a fixed input, average costs fall as variable inputs are added, but then rise again as the fixed input causes diminishing marginal productivity.
At the minimum piont of the Long Run Average Total Cost Curve the Long Run Marginal Cost Curve = Long Run Average Total Cost Curve = Short Run Average Total Cost Curve = Short Run Marginal Cost Curve
In reality, many empirical studies find declining long run average costs for smaller size with a flattening minimum average cost beyond a threshhold.
Changes in input prices will tilt the total cost lines. Changing input prices will change the isoquants on which the total cost curves are based and change the ratios of inputs.
I have decided to treat myself to review some basic economics this evening. It's been 20 years since I looked at my last economics textbook. What better way to brush up than my 1983 copy of Walter Nicholson's Intermediate Microeconomics and Its Application textbook? In this blog I will briefly review his thoughts on costs.
Costs (chapter 9)
Economists view historical costs as sunk costs. The implicit cost of a machine is what someone else would pay for it, i.e., its "rental rate". To minimize production costs firms choose inputs such that the rate of technical substitution is equal to the ratio of input costs. Thus if wages are w and machinery rental rates are v then:
Rate of Technical Substitution = wage rate/rental rate = w / v
That is, the rate of technical substitution is the rate at which one input may be traded off against another in the production process while holding output constant and that rate is the same rate at which they are traded in the open market.
In other words, the rate of technical substitution of labor for capital is the ratio of the
marginal product (labor)/ marginal product (capital)
so that each input should provide the same additional output per dollar spent and if they don't, firms will trade some of the less productive input for the more productive.
Short versus Long Run
In the short run production capacity is fixed. In the long run production can be curtailed. Fixed costs are fixed in the short run.
Short run average total costs = (total costs) / (total output)
while
Short run marginal costs = (change in total costs) / (change in output)
In the very short run price purely rations demand. This is because supply cannot be increased. But generally in the longer run there is a supply response to changing demand. In the short run (longer than very short run) the number of firms is fixed but firms can adjust the amount they are producing.
Theoretically, marginal and average costs ought to increase in response to increases in output but most studies fail to show increasing average or marginal costs but rather find that marginal and average costs are constant over large ranges of output.
Long Run
In the long run all productive inputs are variable. Nicholson makes the point that some factors may be difficult to alter even in the long run. The rate of technical substitution must equal the ratio of the input prices.
The long run total cost curve is found by considering all short run total cost curves and choosing the lowest one for each possible output level. "The locus of all these cost minimizing choices is called the long-run total cost curve..."
Under the assumption of constant returns to scale, the long term total cost curve is a straight line and average and marginal costs are constant and equal (equal because of the assumption of constant returns to scale which means that the marginal cost equals the average cost).
If there is a fixed input, average costs fall as variable inputs are added, but then rise again as the fixed input causes diminishing marginal productivity.
At the minimum piont of the Long Run Average Total Cost Curve the Long Run Marginal Cost Curve = Long Run Average Total Cost Curve = Short Run Average Total Cost Curve = Short Run Marginal Cost Curve
In reality, many empirical studies find declining long run average costs for smaller size with a flattening minimum average cost beyond a threshhold.
Changes in input prices will tilt the total cost lines. Changing input prices will change the isoquants on which the total cost curves are based and change the ratios of inputs.
From Progressivism to Conservatism
Having just read a few books on mugwumps, the evolution of political thinking from mugwumpery to progressivism, the legal reconstruction of American capitalism and the philosophy of progressivism, I have admittedly just begun to scratch the surface of the source of the generic failure of American politics to produce responsive and flexible solutions. Today, on the right, the promise of limited government has been betrayed and given the Republican Party's progressive history, which followed through Rockefeller Republicanism to President Bush's mangling of conservatism, the Republicans had traditionally had a big government impulse and so they are unreliable representatives of the small government view. However, the question needs to be traced through Warren G. Harding and Calvin Coolidge. Coolidge was a teenager when the Mugwumps bolted to vote for Grover Cleveland in 1884, so he was not a Mugwump, but he was very much in the Mugwump tradition. On first glance it seems there is more EL Godkin than Herbert Croly in Coolidge, but I need to learn how that played out in Coolidge's thinking--did he outright reject Progressivism and return to the late 19th century view (and if so why did he not repeal at least some of the Progressive legislation). In general there is a question as to why the Mugwump tradition in American politics has been able to reassert itself vocally but not practically. Reagan adopted free market rhetoric but behaved like a Progressive. Did Calvin Coolidge establish the pattern of twentieth century Mugwump timidity? Or is the timidity simply a reflection of the American public's commitment to the Progressive model? Perhaps special interest theories such as Mancur Olson's can explain the clash between Republican rhetoric and action as simply a reflection of economic self interest on politicians' part. They believe in free markets but know that if they betray special interests they will lose elections. The special interests believe in free markets for everyone else, but inevitably see themselves as an exception. Thus, American politics has become a tragedy of the town commons, where everyone believes in freedom but aims to repeal it for a special favor for themselves.
Hometown Pictures III March 6-8, 2008
Our Cabin
Emerson Hotel
Our Cabin (Freda Navigating Slippery Ice)
Freda at Emerson Hotel
American General Store is closed but not forgotten.
Hometown Pictures II March 6-8, 2008
Ashokan Reservoir I
Ashokan Reservoir II
Ashokan Reservoir III
View From Davis Park, West Shokan
View From Davis Park, West Shokan II
Hometown Pictures March 6-8 2008
Bushkill Creek, West Shokan, Our backyard I
Bushkill Creek, West Shokan, Our backyard II
Bushkill Creek, West Shokan, Our backyard III
Bushkill Creek, West Shokan, Our backyard IV
The "Mayor" of West Shokan
Thursday, March 20, 2008
HBO's "John Adams"
I just watched the first and second episodes of HBO's John Adams and have renewed faith in the liberal media. HBO has produced something very good about American history with a relatively small amount (for HBO) of political correctness and a lot of respect for the nation's heroic founders.
The miniseries makes clear the Continental Congress's great courage. The acting is beautiful, the historical narrative familiar but with enough that is new to the non-historian to make it interesting; and the sets, to include the flags, are superb, in the tradition of HBO's Deadwood series.
Laura Linney plays a fine and inspiring Abigail Adams. David Morse plays a dignified Washington but is more modest than I would have envisioned. Tom Wilkinson is convincing as Benjamin Franklin. But I seem to recall from college that Franklin and Adams spent a couple of days editing the Declaration, not just a few minutes. I'll have to refer to that old Becker book that I read in college on the writing of the Declaration (I still remember after 33 years!).
This has got to be Paul Giamatti's breakthrough to superstardom. According to IMDB he's been in alot of first rate TV shows and movies in character roles (Donnie Brasco, Saving Private Ryan) but in recent years has had several major award nominations. Giamatti is a rare talent. His performance as Harvey Pekar in American Splendor and as Miles in Sideways were both remarkable. His is the kind of talent you get only once in a while, kind of like Lionel Barrymore or William H. Macy. Despite the criticisms of the pretentious-mashed-potatoes-a-la-mode critic set, Giametti is wonderful as John Adams and HBO has done us a service.
For an example of a pretentious-mashed-potatoes-a-la-mode critic, Slate's Troy Patterson writes:
"Sometimes the show feels like an eighth-grade field trip to Independence Hall or maybe a citizenship test..."
Likewise Robert Bianco in USA Today writes:
"sadly, in this elaborately produced, incredibly well-intentioned seven-part HBO miniseries adaptation of the book, Adams recedes once again, outshone not just by his more famous peers but also by just about every minor character. And the blame for that rests on Paul Giamatti, an odd and seemingly uncomfortable casting choice."
I disagree. Giametti is a brilliant casting choice and he does an excellent job. I wonder if critics concentrated on entertainment value and quality rather than on self-important quests for trendy conformity, Hollywood would be in better shape. As well, is it possible that critics like Bianco and Patterson are simply irritated at a positive depiction of the founding fathers that doesn't resort to the liberal media's air-headed ideology?
Martin J. Sklar's Corporate Reconstruction of American Capitalism 1890-1916
Martin J. Sklar. The Corporate Reconstruction of American Capitalism: 1890-1916: The Market, the Law and Politics. Cambridge: Cambridge University Press. 1988. 484 pages.
One of the joys of being an academic is that I can read great books, and Martin J. Sklar's Corporate Reconstruction is one of them. Sklar targets academics as his primary audience. The book is brilliant, thorough, deep and penetrating. I would argue that all business Ph.D. students should be required to read this book. It explains the American business system in a way that is much more accurate, convincing, and forthright than almost any other.
Sklar begins by reviewing the intellectual foundations of Progressivism, then moves into a detailed analysis of anti-trust law and the two key Supreme Court interpretations of the Sherman Anti-trust Act that led to the Standard Oil and American Tobacco Decisions in 1911. Sklar shows how the courts' interpretation of the Sherman Act as applying to all combinations rather than just unreasonable ones led to increasing demand for a Progressive political transformation. The Standard Oil and American Tobacco decisions led to a Progressive consensus. In President Taft's interpretation, aggressive enforcement of the Sherman Act was sufficient to eliminate unreasonable or unfair restraints of trade. In Wilson's interpretation, a degree of regulation as reflected in the Clayton and Federal Trade Commission Acts were integrated with judicial enforcement. Sklar goes into various political and regulatory reform movements that were associated with Progressivism and that led to passage in 1914 of the Clayton and Federal Trade Commission Acts. He finishes this carefully written, detailed book with a discussion of the leading politicians of the era, Roosevelt, Taft and Wilson.
Sklar argues (p. 20) that the Progressive era resulted from a conflict between the proprietary-competitive stage and the corporate-administered stage of market capitalism. A key part of Sklar's argument is that (p. 22) corporate capitalism could integrate interests of small business, the working class and professions. Perhaps he overstates the importance of corporate capitalism, for the professionalization of medicine, for example, was proceeding in tandem with other aspects of Progressivism and it may not have been affected either way by corporate capitalism. Nancy Cohen argues that the Mugwumps were already establishing professional interests in the late 19th century and this likely was independent of corporate capitalism.
Sklar argues (p.22):
"In its very centralizing and standardizing characteristics, corporate capitalism was inclusive of social diversity in a way that proprietary capitalism-competitive capitalism could not be. Its partisans, accordingly, called corporate capitalism progressive."
Thus, in Sklar's view, (p. 30) capitalists had made a transition from debtor to investor and there was a "consensus" in favor of a regulated market and central banking.
The antitrust debates and the antitrust law (p. 33) were critical to the debate about progressivism because many argued that all corporations ought to be illegal under the Sherman Anti-trust Act. Corporations did not assume their final modern form until circa 1890, and the debate about Progressivism was intimately connected to the 25-year-long debate (1889-1914) about the degree to which corporations should be permitted to exist and the degree to which they should be regulated. Sklar argues that the debate was ultimately decided in favor of the idea that society should have "supremacy over the state", but this question was up in the air. There were serious quesions (p. 34) whether anything besides small producer capitalism was compatible with American society and whether big business ought to be permitted. Corporate capitalism favored administered markets and regulation but rejected socialism. I would add that I have yet to find any evidence in the historical literature that a laissez faire corporate capitalism could not have succeeded. There is certainly plenty of evidence that contemporary businessmen disliked laissez faire which leads me to question how the advocates of statism managed to depict laissez faire as a business ideology. It was in fact a profoundly anti-business ideology but one which left more savings in the hands of the average American.
It is certain that big business executives and their friends in the Republican Party disliked the idea of laissez faire because it meant lower profits and fewer advantages and supports to big business. Sklar (p. 35) argues that corporate capitalism was a "cross class" ideology. This may be true in terms of the public debate, which like any deliberation is based on imperfect information. However, the results of corporate capitalism as opposed to laissez faire was in the interest of corporate managers. Sklar argues that because labor unions supported corporate capitalism, corporate capitalism must have served the interests of labor (as opposed to union leadership) as well. Professor Sklar does note (in a footnote on p. 44) that savings rates were much higher in the 1880s and 1890s, the era of supposed unemployment, overproduction and vicious competition, then they were in the "Progressive" era.
The three major schools of thought concerning corporate capitalism reflected the ideas of the three Progressive presidents, Roosevelt, Taft and Wilson. Roosevelt's was the most statist; Wilson's was a "center left" approach and Taft's was a "minimalist-regulatory corporate liberalism on the center right" that sounds most like today's Republicans. Sklar doesn't trace the relationship between Taft and later conservative movements in America, but it seems to me that Barry Goldwater's laissez faire ideology had to represent a minority current in the Republican Party for the 58 years between 1908 and 1964.
Theodore Roosevelt (p. 38) would view the entire large corporate sector of the economy as monopolistic and would have subjected all of big business to direct, socialistic state control. Today's Republican advocates who speak of "Republican principles" and "traditions" would do well to study the history of their own party. The most socialist president in American history was a Republican, although much of Theodore Roosevelt's socialism came when he ran as the Bull Moose candidate. Wilson was less statist than Roosevelt because he and his followers "distinguished more finely between positive government and statism."
Between the 1880s 1904 (p. 46) "there were roughly 300 industrial combinations with an aggregate capitalization" and about three fourths with a capitalization of about $6 billion occurred in 1898-1904.
Sklar points out that the corporate view of the period "conceived" that (p. 55) "overproduction" was "chronic tendency inherent in modern industrial capitalist development. Concentration...was the inevitable concomitant of modern industrial methods..."
Economic necessity required either alliances, contracts to restrict price, corporate mergers and consolidations. Thus, firms felt impelled to merge, but the Sherman Anti-Trust Act posed a problem.
In the Progressive era, the leading advocates of the overproduction thesis that justified mergers included Arthur Twining Hadley, Jeremiah Whipple Jenks and Charles Arthur Conant. These Progressive writers had a theory of business strategy that emphasized the importance of economies of scale and fixed investment, a situation that the Progressive era assumed would carry forward indefinitely (p. 58):
"Large fixed investment put a premium on economies of scale, and, as Andrew Carnegie explained in what came to be known as 'Carnegie's law of surplus,' every manufacturer preferred to lose one dollar by running full and holding markets through selling at lower prices than to lose two dollars by running less than full or close down and incur the risk of losing markets, defaulting on interest payments and falling into bankruptcy. Four years before Carnegie made this piont in print, Hadley had already noted...that the idea of competition in which prices tended to be proportional to the cost of production approximated reality in Ricardo's time but not in an era of growing fixed investment. 'It very often involves worse loss to stop producing than to produce below cost.'"
Like David Ames Wells, Hadley believed that large fixed investment changed the relationship between marginal costs and marginal revenues for profit maximizing firms. He believed the long term equation of marginal costs and revenues to have been eliminated by fixed investment. From the standpoint of today's microeconomics, this is a peculiar argument, and it suggests a reason for Progressivism's fixation on statism. The equilibration of marginal costs and benefits is a condition for rational behavior. The Progressives thus believed that firms behaved irrationally. The existence of fixed costs does not alter the rationality of the equation of long term costs and benefits. For firms to behave otherwise would suggest an inability to develop coherent business strategy. Firms will continue producing until the present value of expected margainal costs of production equal expected the present value of expected marginal revenues. If fixed cost investment causes irrational, sub-optimizing behavior in some firms, more rational firms would leave the market, leaving it to the sub-optimizing firms. In turn, supply would be reduced. Although such adjustment would take time and be painful to owners, it would certainly occur. Moreover, the Progressive model diametrically opposes basic thinking about business strategy. Progressives like Hadley argued that firms were incapable of strategic thinking and were unable to change direction. The idea that a firm would continue producing ad infinitum because it is cheaper to produce than to close shop, an argument found in David Ames Wells's work as well as Hadley's, ignores valuation based on future earnngs. Firms are valued not only on the basis of cash flow and current earnings but on the present value of future earnings. Publicly traded firms that are willing to take losses ad infinitum will have share prices that reflect infinite losses and will therefore be valued at close to zero. Short term gains due to closing may be less than short closing costs, but short term closing costs cannot be greater than ad inifinitum production losses. Although cash flow might be hurt by closing, the argument that existence of fixed costs repeals the principle that firms will produce to the point where their expected costs of production just equal the expected revenues because is false.
In his section on the anti-trust law Sklar emphasizes that the British American common law (p. 93)prohibited restraints of trade. Under the case of Horner v. Graves price fixing and contracts to restrain trade were totally legal unless (p. 95) "they directly and unduly or unreasonably restrained competition and were therefore detrimental to the public interest." Contracts "restraining trade completely" were against public policy. Thus, (p. 100) "Invalid restraints of trade at common law were those contracts, agreements or combinations that were unreasonable and therefore void..." Unreasonable restraints of trade attempted to control an entire industry, restrict entry by new businesses. Reasonable restraints of trade were consistent with freedom of contract and property. "The common law, then, was not intended to protect weaker or inefficient competitors from stronger or more efficient competitors nor even to compel competition" (p. 104)
When the Sherman Act was passed, the courts first interpreted it merely as a restatement of the common law that added treble damages and made unreasonable restraints of trade federal crimes (p. 105). Sklar goes into the Sherman Act's legislative history and shows that Sherman's original draft did not satisfy a common law interpretation, although that was Sherman's intent, and more expert Senators such as James Z. George and John T. Morgan redrafted the bill to ensure its common law implication (p. 115). Between 1890 and 1897 the federal courts interpreted the Sherman Act consistent with the reasonable/unreasonable distinction.
In 1897, led by Justice Harlan, the Supreme Court reversed itself (p. 127) in the case United States v. Trans-Missouri Freight Association. In Trans Missouri the Supreme Court held that all combinations, reasonable and unreasonable, hence potentially all corporations, were illegal restraints of trade. The Supreme Court reached a similar decision in United States v. Joint Traffic Association and Addyston Pipe, in which Judge William Howard Taft ruled that reasonable and unreasonable restraints of trade must be declared illegal even though that interpretation disagreed with his analysis of the common law. The aggressive interpretation of the Sherman Anti-trust Act lasted from 1897 to 1911.
In 1911 the Supreme Court returned to the common law interpretation because of judicial and public criticism (p. 146). The Standard Oil and American Tobacco cases involved the break ups of those two firms, but the Supreme Courts did so in such a way to say that the corporate economy was safe, in other words that it was returning to the common law interpretation of the Sherman Act as illegalizing unreasonable but not reasonable restraints of trade. The United States had been unique in the world in prohibiting all restraints of trade (p. 154) so the return to the unreasonable standard was a return to the global norm.
I think this material sheds a lot of light on William Howard Taft's labor law decisions when he became Chief Justice after losing to Wilson. The labor history has tended to overlook the importance of anti-trust law to Taft's career, and his anti-union interpretation of the Sherman Act during his nine years on the Supreme Court, which led to the Norris La Guardia Act in 1932, needs to be viewed in light of his broader anti-trust ideas.
The two interpretations of the Sherman Anti-trust Act respectively reflected the interests of rural, single proprietor firms versus large corporations. It was not realistic to attempt to impede the growth of large corporations in this way.
In his section on the politics of antitrust law Sklar traces the history of the Bureau of Corporations, which Congress created in February 1903. The commission originally advocated publicity about corporate affairs and federal licensing of corporations (p. 185). The supporters of the Bureau of Corporations included George W. Perkins of JP Morgan. Sklar traces considerable detail about legislative proposals of Jeremiah Jenks and Herbert Knox Smith. Herbert Knox Smith didn't agree with Roosevelt's extreme statism. Roosevelt favored federal incorporation or licensing of corporations and Knox worked on this to please Roosevelt, but he disagreed (p. 201). He also traces in considerable detail the reform efforts of the National Civic Federation led by Mugwump and Progressive Seth Low.
The case of Loewe v. Lawlor also known as the Danbury Hatters' case, had important implications. As Theodore Roosevelt was cajoling (p. 230) Seth Low on behalf of the Civic Federation to propose a generalization of the Hepburn Act that would have radically increased federal authority over corporations. (The Hepburn Act applied centralized economic planning principles, rate setting and the like to railroads.) Under a proposed bill that was kicked around, all corporations engaged in interstate commerce could register with the federal government. All combinations and contracts of the corporation would be filed with the federal government. If a corporation chose to file it would not be proscecuted for past Sherman Act violations. The bill provided for favorable treatment of labor unions. This was Roosevelt's bill, but Roosevelt refrained from aggressively supporting it because it was so radical. Sklar notes (p. 245) that had it passed it would have done a few things: (1) it legalized large corporations; (2) it subjected them to federal regulation; and (3) it established administrtive executive supervision rather than judicial review. The Bureau of Corporations would have become a central planning agency and American big business would have been state directed. The bill would have mandated a degree of direct government control (p. 248) over big business that the business executives did not expect. The bill did not catch on and died.
Herbert Knox Smith, who was an official of the Bureau of Corporations, although a Roosevelt follower, did not agree with the bill. He was (p. 300) troubled by the "centralizing tendency and implications of a government-directed economy. He was no less concerned, at the same time, with the economically and socially deleterious effects of concentrated market power represented by big corporations." Smith favored a publicity function of the Bureau of Corporations and that this could be accomplished by requiring registration of corporations with the federal government without too much additional regulation (p. 305): "Most important, in Smith's mind, the registration system he favored would avoid the state direction of market transactions implied in (other) proposals." Senator Newlands introduced an interstate trade commission bill in July 1911 (p. 310) which was a "tough license-registration measure." However, the bill stalled because of labor issues and Smith convinced Newlands to moderate the bill. Smith argued that a system of regulation would be smoother than a system of court enforcement.
Sklar traces through the evolution of the Federal Trade Commission and Clayton Acts of 1914, the rather minimal regulatory outcomes of the debates about whether to regulate corporations. Although Progressivism was mostly Republican, it reached its climax with Woodrow Wilson, who pushed for the Federal Reserve, which had been a Mugwump idea. It is important to understand that the Federal Reserve adopted in 1913 was very different from today because there was a gold standard and so the central bank's power to create money was limited. However, it was the first of three steps that led to unlimited money creation power.
In the final sections of the book, Sklar gives a really fine review of the ideas of Roosevelt, Taft and Wilson.
Overall, I found Martin J. Sklar's book to be energizing and informing. It took me a long time to read, but it was worth it.
One of the joys of being an academic is that I can read great books, and Martin J. Sklar's Corporate Reconstruction is one of them. Sklar targets academics as his primary audience. The book is brilliant, thorough, deep and penetrating. I would argue that all business Ph.D. students should be required to read this book. It explains the American business system in a way that is much more accurate, convincing, and forthright than almost any other.
Sklar begins by reviewing the intellectual foundations of Progressivism, then moves into a detailed analysis of anti-trust law and the two key Supreme Court interpretations of the Sherman Anti-trust Act that led to the Standard Oil and American Tobacco Decisions in 1911. Sklar shows how the courts' interpretation of the Sherman Act as applying to all combinations rather than just unreasonable ones led to increasing demand for a Progressive political transformation. The Standard Oil and American Tobacco decisions led to a Progressive consensus. In President Taft's interpretation, aggressive enforcement of the Sherman Act was sufficient to eliminate unreasonable or unfair restraints of trade. In Wilson's interpretation, a degree of regulation as reflected in the Clayton and Federal Trade Commission Acts were integrated with judicial enforcement. Sklar goes into various political and regulatory reform movements that were associated with Progressivism and that led to passage in 1914 of the Clayton and Federal Trade Commission Acts. He finishes this carefully written, detailed book with a discussion of the leading politicians of the era, Roosevelt, Taft and Wilson.
Sklar argues (p. 20) that the Progressive era resulted from a conflict between the proprietary-competitive stage and the corporate-administered stage of market capitalism. A key part of Sklar's argument is that (p. 22) corporate capitalism could integrate interests of small business, the working class and professions. Perhaps he overstates the importance of corporate capitalism, for the professionalization of medicine, for example, was proceeding in tandem with other aspects of Progressivism and it may not have been affected either way by corporate capitalism. Nancy Cohen argues that the Mugwumps were already establishing professional interests in the late 19th century and this likely was independent of corporate capitalism.
Sklar argues (p.22):
"In its very centralizing and standardizing characteristics, corporate capitalism was inclusive of social diversity in a way that proprietary capitalism-competitive capitalism could not be. Its partisans, accordingly, called corporate capitalism progressive."
Thus, in Sklar's view, (p. 30) capitalists had made a transition from debtor to investor and there was a "consensus" in favor of a regulated market and central banking.
The antitrust debates and the antitrust law (p. 33) were critical to the debate about progressivism because many argued that all corporations ought to be illegal under the Sherman Anti-trust Act. Corporations did not assume their final modern form until circa 1890, and the debate about Progressivism was intimately connected to the 25-year-long debate (1889-1914) about the degree to which corporations should be permitted to exist and the degree to which they should be regulated. Sklar argues that the debate was ultimately decided in favor of the idea that society should have "supremacy over the state", but this question was up in the air. There were serious quesions (p. 34) whether anything besides small producer capitalism was compatible with American society and whether big business ought to be permitted. Corporate capitalism favored administered markets and regulation but rejected socialism. I would add that I have yet to find any evidence in the historical literature that a laissez faire corporate capitalism could not have succeeded. There is certainly plenty of evidence that contemporary businessmen disliked laissez faire which leads me to question how the advocates of statism managed to depict laissez faire as a business ideology. It was in fact a profoundly anti-business ideology but one which left more savings in the hands of the average American.
It is certain that big business executives and their friends in the Republican Party disliked the idea of laissez faire because it meant lower profits and fewer advantages and supports to big business. Sklar (p. 35) argues that corporate capitalism was a "cross class" ideology. This may be true in terms of the public debate, which like any deliberation is based on imperfect information. However, the results of corporate capitalism as opposed to laissez faire was in the interest of corporate managers. Sklar argues that because labor unions supported corporate capitalism, corporate capitalism must have served the interests of labor (as opposed to union leadership) as well. Professor Sklar does note (in a footnote on p. 44) that savings rates were much higher in the 1880s and 1890s, the era of supposed unemployment, overproduction and vicious competition, then they were in the "Progressive" era.
The three major schools of thought concerning corporate capitalism reflected the ideas of the three Progressive presidents, Roosevelt, Taft and Wilson. Roosevelt's was the most statist; Wilson's was a "center left" approach and Taft's was a "minimalist-regulatory corporate liberalism on the center right" that sounds most like today's Republicans. Sklar doesn't trace the relationship between Taft and later conservative movements in America, but it seems to me that Barry Goldwater's laissez faire ideology had to represent a minority current in the Republican Party for the 58 years between 1908 and 1964.
Theodore Roosevelt (p. 38) would view the entire large corporate sector of the economy as monopolistic and would have subjected all of big business to direct, socialistic state control. Today's Republican advocates who speak of "Republican principles" and "traditions" would do well to study the history of their own party. The most socialist president in American history was a Republican, although much of Theodore Roosevelt's socialism came when he ran as the Bull Moose candidate. Wilson was less statist than Roosevelt because he and his followers "distinguished more finely between positive government and statism."
Between the 1880s 1904 (p. 46) "there were roughly 300 industrial combinations with an aggregate capitalization" and about three fourths with a capitalization of about $6 billion occurred in 1898-1904.
Sklar points out that the corporate view of the period "conceived" that (p. 55) "overproduction" was "chronic tendency inherent in modern industrial capitalist development. Concentration...was the inevitable concomitant of modern industrial methods..."
Economic necessity required either alliances, contracts to restrict price, corporate mergers and consolidations. Thus, firms felt impelled to merge, but the Sherman Anti-Trust Act posed a problem.
In the Progressive era, the leading advocates of the overproduction thesis that justified mergers included Arthur Twining Hadley, Jeremiah Whipple Jenks and Charles Arthur Conant. These Progressive writers had a theory of business strategy that emphasized the importance of economies of scale and fixed investment, a situation that the Progressive era assumed would carry forward indefinitely (p. 58):
"Large fixed investment put a premium on economies of scale, and, as Andrew Carnegie explained in what came to be known as 'Carnegie's law of surplus,' every manufacturer preferred to lose one dollar by running full and holding markets through selling at lower prices than to lose two dollars by running less than full or close down and incur the risk of losing markets, defaulting on interest payments and falling into bankruptcy. Four years before Carnegie made this piont in print, Hadley had already noted...that the idea of competition in which prices tended to be proportional to the cost of production approximated reality in Ricardo's time but not in an era of growing fixed investment. 'It very often involves worse loss to stop producing than to produce below cost.'"
Like David Ames Wells, Hadley believed that large fixed investment changed the relationship between marginal costs and marginal revenues for profit maximizing firms. He believed the long term equation of marginal costs and revenues to have been eliminated by fixed investment. From the standpoint of today's microeconomics, this is a peculiar argument, and it suggests a reason for Progressivism's fixation on statism. The equilibration of marginal costs and benefits is a condition for rational behavior. The Progressives thus believed that firms behaved irrationally. The existence of fixed costs does not alter the rationality of the equation of long term costs and benefits. For firms to behave otherwise would suggest an inability to develop coherent business strategy. Firms will continue producing until the present value of expected margainal costs of production equal expected the present value of expected marginal revenues. If fixed cost investment causes irrational, sub-optimizing behavior in some firms, more rational firms would leave the market, leaving it to the sub-optimizing firms. In turn, supply would be reduced. Although such adjustment would take time and be painful to owners, it would certainly occur. Moreover, the Progressive model diametrically opposes basic thinking about business strategy. Progressives like Hadley argued that firms were incapable of strategic thinking and were unable to change direction. The idea that a firm would continue producing ad infinitum because it is cheaper to produce than to close shop, an argument found in David Ames Wells's work as well as Hadley's, ignores valuation based on future earnngs. Firms are valued not only on the basis of cash flow and current earnings but on the present value of future earnings. Publicly traded firms that are willing to take losses ad infinitum will have share prices that reflect infinite losses and will therefore be valued at close to zero. Short term gains due to closing may be less than short closing costs, but short term closing costs cannot be greater than ad inifinitum production losses. Although cash flow might be hurt by closing, the argument that existence of fixed costs repeals the principle that firms will produce to the point where their expected costs of production just equal the expected revenues because is false.
In his section on the anti-trust law Sklar emphasizes that the British American common law (p. 93)prohibited restraints of trade. Under the case of Horner v. Graves price fixing and contracts to restrain trade were totally legal unless (p. 95) "they directly and unduly or unreasonably restrained competition and were therefore detrimental to the public interest." Contracts "restraining trade completely" were against public policy. Thus, (p. 100) "Invalid restraints of trade at common law were those contracts, agreements or combinations that were unreasonable and therefore void..." Unreasonable restraints of trade attempted to control an entire industry, restrict entry by new businesses. Reasonable restraints of trade were consistent with freedom of contract and property. "The common law, then, was not intended to protect weaker or inefficient competitors from stronger or more efficient competitors nor even to compel competition" (p. 104)
When the Sherman Act was passed, the courts first interpreted it merely as a restatement of the common law that added treble damages and made unreasonable restraints of trade federal crimes (p. 105). Sklar goes into the Sherman Act's legislative history and shows that Sherman's original draft did not satisfy a common law interpretation, although that was Sherman's intent, and more expert Senators such as James Z. George and John T. Morgan redrafted the bill to ensure its common law implication (p. 115). Between 1890 and 1897 the federal courts interpreted the Sherman Act consistent with the reasonable/unreasonable distinction.
In 1897, led by Justice Harlan, the Supreme Court reversed itself (p. 127) in the case United States v. Trans-Missouri Freight Association. In Trans Missouri the Supreme Court held that all combinations, reasonable and unreasonable, hence potentially all corporations, were illegal restraints of trade. The Supreme Court reached a similar decision in United States v. Joint Traffic Association and Addyston Pipe, in which Judge William Howard Taft ruled that reasonable and unreasonable restraints of trade must be declared illegal even though that interpretation disagreed with his analysis of the common law. The aggressive interpretation of the Sherman Anti-trust Act lasted from 1897 to 1911.
In 1911 the Supreme Court returned to the common law interpretation because of judicial and public criticism (p. 146). The Standard Oil and American Tobacco cases involved the break ups of those two firms, but the Supreme Courts did so in such a way to say that the corporate economy was safe, in other words that it was returning to the common law interpretation of the Sherman Act as illegalizing unreasonable but not reasonable restraints of trade. The United States had been unique in the world in prohibiting all restraints of trade (p. 154) so the return to the unreasonable standard was a return to the global norm.
I think this material sheds a lot of light on William Howard Taft's labor law decisions when he became Chief Justice after losing to Wilson. The labor history has tended to overlook the importance of anti-trust law to Taft's career, and his anti-union interpretation of the Sherman Act during his nine years on the Supreme Court, which led to the Norris La Guardia Act in 1932, needs to be viewed in light of his broader anti-trust ideas.
The two interpretations of the Sherman Anti-trust Act respectively reflected the interests of rural, single proprietor firms versus large corporations. It was not realistic to attempt to impede the growth of large corporations in this way.
In his section on the politics of antitrust law Sklar traces the history of the Bureau of Corporations, which Congress created in February 1903. The commission originally advocated publicity about corporate affairs and federal licensing of corporations (p. 185). The supporters of the Bureau of Corporations included George W. Perkins of JP Morgan. Sklar traces considerable detail about legislative proposals of Jeremiah Jenks and Herbert Knox Smith. Herbert Knox Smith didn't agree with Roosevelt's extreme statism. Roosevelt favored federal incorporation or licensing of corporations and Knox worked on this to please Roosevelt, but he disagreed (p. 201). He also traces in considerable detail the reform efforts of the National Civic Federation led by Mugwump and Progressive Seth Low.
The case of Loewe v. Lawlor also known as the Danbury Hatters' case, had important implications. As Theodore Roosevelt was cajoling (p. 230) Seth Low on behalf of the Civic Federation to propose a generalization of the Hepburn Act that would have radically increased federal authority over corporations. (The Hepburn Act applied centralized economic planning principles, rate setting and the like to railroads.) Under a proposed bill that was kicked around, all corporations engaged in interstate commerce could register with the federal government. All combinations and contracts of the corporation would be filed with the federal government. If a corporation chose to file it would not be proscecuted for past Sherman Act violations. The bill provided for favorable treatment of labor unions. This was Roosevelt's bill, but Roosevelt refrained from aggressively supporting it because it was so radical. Sklar notes (p. 245) that had it passed it would have done a few things: (1) it legalized large corporations; (2) it subjected them to federal regulation; and (3) it established administrtive executive supervision rather than judicial review. The Bureau of Corporations would have become a central planning agency and American big business would have been state directed. The bill would have mandated a degree of direct government control (p. 248) over big business that the business executives did not expect. The bill did not catch on and died.
Herbert Knox Smith, who was an official of the Bureau of Corporations, although a Roosevelt follower, did not agree with the bill. He was (p. 300) troubled by the "centralizing tendency and implications of a government-directed economy. He was no less concerned, at the same time, with the economically and socially deleterious effects of concentrated market power represented by big corporations." Smith favored a publicity function of the Bureau of Corporations and that this could be accomplished by requiring registration of corporations with the federal government without too much additional regulation (p. 305): "Most important, in Smith's mind, the registration system he favored would avoid the state direction of market transactions implied in (other) proposals." Senator Newlands introduced an interstate trade commission bill in July 1911 (p. 310) which was a "tough license-registration measure." However, the bill stalled because of labor issues and Smith convinced Newlands to moderate the bill. Smith argued that a system of regulation would be smoother than a system of court enforcement.
Sklar traces through the evolution of the Federal Trade Commission and Clayton Acts of 1914, the rather minimal regulatory outcomes of the debates about whether to regulate corporations. Although Progressivism was mostly Republican, it reached its climax with Woodrow Wilson, who pushed for the Federal Reserve, which had been a Mugwump idea. It is important to understand that the Federal Reserve adopted in 1913 was very different from today because there was a gold standard and so the central bank's power to create money was limited. However, it was the first of three steps that led to unlimited money creation power.
In the final sections of the book, Sklar gives a really fine review of the ideas of Roosevelt, Taft and Wilson.
Overall, I found Martin J. Sklar's book to be energizing and informing. It took me a long time to read, but it was worth it.
Groupthink and Rigidity of the Statist-Liberal Consensus
Progressivism led to a consensus that the state is necessary to manage the economy. Republicans like William Howard Taft emphasized the free market to a greater degree than did Democrats like Woodrow Wilson, but both political parties have been committed to a state managed big business system. Unfortunately, the system has not performed well. The subsidies that the state has provided the financial sector have been squandered on excessive salaries and incompetent management. When the financial firms prove to have been ineptly run so that they near bankruptcy, the public bails them out further despite years of mismanagement, poor decision making and excessive salaries. Income transfers from the public to state-supported managers, to include CEOs in the corporate manufacturing and service as well as in the financial sector, have resulted in increasing income inequality even as firms are not managed competitively by global standards. Despite the failures of the Progressive model, few observers question its merits. In particular, the peculiar argument that society should evolve, so that the adoption of the Progressive model was appropriate in 1910 and is also appropriate today begs the question: why is the Progressive model appropriate today if society evolves? And why are academics, politicians and businessmen so defensive about the Progressive model given its repeated failure, its tired history and its antiquated assumptions about the importance of scale, mass production and stability?
Part of the obsessive commitment to the Progressive model results from the liberal groupthink that was necessary to its foundation. Progressivism was first and foremost a mode of transfer of wealth from the general public to corporate interests. It accomplished this by reducing competition and establishing preferred access to credit by large business. Smaller business may have been accomodated to a degree, but the most important source of business innovation, entrepreneurial start-ups, are missing from the Progressive model. The result was a decline in American competitiveness during the twentieth century. The major business innovations after 1940 were Japanese, not American.
Liberal groupthink plays a key role in defending progressivism. Liberalism establishes a hierarchy of media that is imitative, much as in many mid-century industries firms followed a price leader or followed pattern collective bargaining in their industries, in media there is a unitary point of view that reflects the opinions of liberal leadership. Such opinions are costly to believe if you are an investor. They are costly for society to follow. They have destroyed New York City. They have caused the loss of competitiveness in American industry. But the comfort that liberal groupthink provides to its acolytes provides a critical bond, much as religious belief does.
Part of the obsessive commitment to the Progressive model results from the liberal groupthink that was necessary to its foundation. Progressivism was first and foremost a mode of transfer of wealth from the general public to corporate interests. It accomplished this by reducing competition and establishing preferred access to credit by large business. Smaller business may have been accomodated to a degree, but the most important source of business innovation, entrepreneurial start-ups, are missing from the Progressive model. The result was a decline in American competitiveness during the twentieth century. The major business innovations after 1940 were Japanese, not American.
Liberal groupthink plays a key role in defending progressivism. Liberalism establishes a hierarchy of media that is imitative, much as in many mid-century industries firms followed a price leader or followed pattern collective bargaining in their industries, in media there is a unitary point of view that reflects the opinions of liberal leadership. Such opinions are costly to believe if you are an investor. They are costly for society to follow. They have destroyed New York City. They have caused the loss of competitiveness in American industry. But the comfort that liberal groupthink provides to its acolytes provides a critical bond, much as religious belief does.
Progessivism's Ossification
The current political, economic and social system in the United States was formed in the Progressive era. There were some additional changes in the Depression era, notably introduction of some pro-labor legislation and the abolition of the gold standard, but Roosevelt, Taft and Wilson established the basic outline of today's political economy. The argument for reforming the 19th century approach to American government, which was not laissez faire because of the spoils system and involvement of local government in the economy, was that economic evolution leads to the need for new approaches to government. In particular, it was believed that the rise of big business changed the relationship between the state and business enterprise because big business was capable of abuses that needed to be regulated. In addition, there were arguments that the federal government needed to provide guidance and expertise to big business. As well, the Progressives believed that credit markets needed to be managed.
Without treating the claims that Progressives made, the question is, why do we still have, 90-100 years on, the same economic system that the Progressives developed? Have business processes not changed? Have labor relations not changed? Do the supposed threats that Standard Oil and US Steel posed in 1911 remain the same today? Have economic processes and technology not changed? If so, then why do we have the same system of regulation today that Woodrow Wilson considered to have been evolutionary in 1914?
The model of business regulation has proceeded as follows:
government support for business (19th century) ---> regulation and selective support(Progressive era) ----> attack and hyper-support (New Deal era) ----> ossification and increasing special interest power; inability of corporate/government system to increase net living standards ---->de-modernization, increasing income inequality and social stratification.
The problem is that Progressivism failed to anticipate evolution, despite its claim to be founded on evolutionary economics. The Progressives did not understand that government policies did not necessarily lead to rational decision making, and even if they did were going to become outdated. When they do become outdated, they are far more difficult to change. Thus, the Progressives' mainstream, statist model (and I include all three presidents, Taft, Wilson and Roosevelt) led to inflexibility and inability to evolve. This has led American society to become less imaginative, innovative, progressive and equal than it could have been. Mainstream academics, who see their role as supporting the liberal-big business consensus via Marxist and state liberal ideologies, have appeared increasing retrogressive and out of touch with developments in world business. For instance, no academic of importance advocated quality management before it became a critical competitive issue in the 1970s and no academic of importance has offered a coherent explanation for declining real wages since the 1970s.
Without treating the claims that Progressives made, the question is, why do we still have, 90-100 years on, the same economic system that the Progressives developed? Have business processes not changed? Have labor relations not changed? Do the supposed threats that Standard Oil and US Steel posed in 1911 remain the same today? Have economic processes and technology not changed? If so, then why do we have the same system of regulation today that Woodrow Wilson considered to have been evolutionary in 1914?
The model of business regulation has proceeded as follows:
government support for business (19th century) ---> regulation and selective support(Progressive era) ----> attack and hyper-support (New Deal era) ----> ossification and increasing special interest power; inability of corporate/government system to increase net living standards ---->de-modernization, increasing income inequality and social stratification.
The problem is that Progressivism failed to anticipate evolution, despite its claim to be founded on evolutionary economics. The Progressives did not understand that government policies did not necessarily lead to rational decision making, and even if they did were going to become outdated. When they do become outdated, they are far more difficult to change. Thus, the Progressives' mainstream, statist model (and I include all three presidents, Taft, Wilson and Roosevelt) led to inflexibility and inability to evolve. This has led American society to become less imaginative, innovative, progressive and equal than it could have been. Mainstream academics, who see their role as supporting the liberal-big business consensus via Marxist and state liberal ideologies, have appeared increasing retrogressive and out of touch with developments in world business. For instance, no academic of importance advocated quality management before it became a critical competitive issue in the 1970s and no academic of importance has offered a coherent explanation for declining real wages since the 1970s.
This Week's Triumph of Howard S. Katz
Last week Howard S. Katz pulled out of gold and commodities and went long on stocks. The next day his stock picks went up 15%. They fluctuated since but are now significantly up. Many who heard of this move last week were puzzled. Mayer Rothschild once said, leave the last 10% to someone else. Howard seems to have left the last 5%, for although gold went up to $1002, it is now in the $920s, and Howard sold at 950. In place, Howard bought certain specific stocks that have aggressively outperformed the indexes. Howard's "conservative" portfolio is now at an all time high. Yay Howard!
Tuesday, March 18, 2008
Progressivism Contradicts progressivism
Progressivism was the ideology of early twentieth century American government. Its argument was based on the idea that big business had developed to a point where it was too powerful not to be regulated and that in order to counteract big business's power the limited federal government of the 19th century needed to be expanded. Progressivism was mainly concerned with how to best manage big business in the public interest. The Progressives were pro-large business. They did not think, as many business executives did not think, that private ownership of monopolies was necessarily appropriate. In many respects Progressivism was similar to Marxism in that it argued that big business was a natural historical development and that an increase in state power was necessary to manage the big business. The Progressives wanted to make certain that the efficiency potential of big business would be actualized and that efficiencies from big business would be managed in ways that weer conducive to the public interest.
The pro-big business attitude of the Progressives changed during the New Deal. Part of the reason was that the New Deal did not focus on the efficiency goal. This was viewed as having been achieved. As well, the New Deal emphasized the importance of finance as opposed to manufacturng, and its policies primarily reflected the interest of large financial firms. In order to accomplish this, the New Deal had to cloak its positive supports for finance with imagery related to social democracy. The New Deal is thus associated in the minds of historians and the public with Social Security, the Fair Labor Standards Act, the National Labor Relations Act, the Securities and Exchange Act and unemployment insurance. However, the chief and most far reaching reform of the New Deal was the abolition of the gold standard and the granting to the financial community the power to create fiat currency in its own interest unimpeded by the gold standard.
In order to justify this profoundly redistributive policy that served the interests of large corporations, real estate holders and stockholders as well as the commercial banks and Wall Street the New Deal needed to seem anti-business. This was accomplished by insisting on unionization of large manufacturing, which created short term political resistance from Alfred Sloan and other business leaders but in the long run (seven decades) provided little or no benefit to the working class. At first, the division between manufacturers and the Roosevelt administration made Roosevelt seem a traitor to his class. However, this is not the case. The financial arrangements Roosevelt created resulted in the largest gains and the longest gains that have accrued to capitalists in the history of the world. There is no other time in recorded history when the asset markets have risen so consistently and to the degree that they have since the New Deal, and there is no other time in American history when real wages have progressed so little.
The progressives lack the perspective of the Progressives because Progressivism held that economic growth depended on a set of social relations, to include big business, stabilized markets and efficiently run companies, and that social justice would flow if big business was managed appropriately. It recognized that efficiency and productivity necessarily preceded social justice. In contrast, the New Deal did not focus on efficiency and concerns. It saw its goals as primarily redistributive. In rhetoric, business executives were reactionaries who fought its redistributional goals and big business was therefore its enemy. The New Deal assumed that the problem of production had been solved. Its followers were not able to grasp the profoundly redistributive policy that the New Deal established of redistributing from the poor to the rich because they naively assumed that the regulatory sops that were thrown to the poor constituted a major redistributional program. But the New Deal gave $100 to the rich for every $1 it gave to the poor, and in public image broadcast the $1 while cloaking the $100 in arcane Keynesian lingo that served as a cloak to 19th century Populist ideas, namely Greenbackism and free silver.
Academics were only too happy to lend credence to Keynesian rhetoric and to serve the rich. Marxism and Keynesian were two ideologies which ultimately serve to cloak the interests of the financial community and alternatively serve to so cloak the academic community's true intersest in providing succor to the wealthy.
Second, progressive rhetoric depicted big business as the enemy rather than a necessary development. Without claiming to foster business progress, progressivism becomes a form of attack on the nation's source of wealth. Small p progressives do not articulate a theory of economic growth and advocate ideas, to include protectionism, income taxation, regulation and expansion of the state that can easily be shown to harm innovation and economic development. The progressives are not troubled by their assault on progress because of their quaint insistence that the problem of production despite the development of innovative production concepts in Japan that American firms have been unable to replicate and have been protected from replicated by the progressives' inflationist and government support policies for big business.
In fact, the progressives reserve their worst venom for the few innovative businesses, such as Wal-Mart, which have contributed to economic growth. Those that have not, from Wall Street to Detroit, are viewed with favor by the progressive movement.
The pro-big business attitude of the Progressives changed during the New Deal. Part of the reason was that the New Deal did not focus on the efficiency goal. This was viewed as having been achieved. As well, the New Deal emphasized the importance of finance as opposed to manufacturng, and its policies primarily reflected the interest of large financial firms. In order to accomplish this, the New Deal had to cloak its positive supports for finance with imagery related to social democracy. The New Deal is thus associated in the minds of historians and the public with Social Security, the Fair Labor Standards Act, the National Labor Relations Act, the Securities and Exchange Act and unemployment insurance. However, the chief and most far reaching reform of the New Deal was the abolition of the gold standard and the granting to the financial community the power to create fiat currency in its own interest unimpeded by the gold standard.
In order to justify this profoundly redistributive policy that served the interests of large corporations, real estate holders and stockholders as well as the commercial banks and Wall Street the New Deal needed to seem anti-business. This was accomplished by insisting on unionization of large manufacturing, which created short term political resistance from Alfred Sloan and other business leaders but in the long run (seven decades) provided little or no benefit to the working class. At first, the division between manufacturers and the Roosevelt administration made Roosevelt seem a traitor to his class. However, this is not the case. The financial arrangements Roosevelt created resulted in the largest gains and the longest gains that have accrued to capitalists in the history of the world. There is no other time in recorded history when the asset markets have risen so consistently and to the degree that they have since the New Deal, and there is no other time in American history when real wages have progressed so little.
The progressives lack the perspective of the Progressives because Progressivism held that economic growth depended on a set of social relations, to include big business, stabilized markets and efficiently run companies, and that social justice would flow if big business was managed appropriately. It recognized that efficiency and productivity necessarily preceded social justice. In contrast, the New Deal did not focus on efficiency and concerns. It saw its goals as primarily redistributive. In rhetoric, business executives were reactionaries who fought its redistributional goals and big business was therefore its enemy. The New Deal assumed that the problem of production had been solved. Its followers were not able to grasp the profoundly redistributive policy that the New Deal established of redistributing from the poor to the rich because they naively assumed that the regulatory sops that were thrown to the poor constituted a major redistributional program. But the New Deal gave $100 to the rich for every $1 it gave to the poor, and in public image broadcast the $1 while cloaking the $100 in arcane Keynesian lingo that served as a cloak to 19th century Populist ideas, namely Greenbackism and free silver.
Academics were only too happy to lend credence to Keynesian rhetoric and to serve the rich. Marxism and Keynesian were two ideologies which ultimately serve to cloak the interests of the financial community and alternatively serve to so cloak the academic community's true intersest in providing succor to the wealthy.
Second, progressive rhetoric depicted big business as the enemy rather than a necessary development. Without claiming to foster business progress, progressivism becomes a form of attack on the nation's source of wealth. Small p progressives do not articulate a theory of economic growth and advocate ideas, to include protectionism, income taxation, regulation and expansion of the state that can easily be shown to harm innovation and economic development. The progressives are not troubled by their assault on progress because of their quaint insistence that the problem of production despite the development of innovative production concepts in Japan that American firms have been unable to replicate and have been protected from replicated by the progressives' inflationist and government support policies for big business.
In fact, the progressives reserve their worst venom for the few innovative businesses, such as Wal-Mart, which have contributed to economic growth. Those that have not, from Wall Street to Detroit, are viewed with favor by the progressive movement.
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