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The political right has always been uncomfortable with democracy

Paul Krugman: Plutocrats Against Democracy

Via Mark Thoma

Plutocrats Against Democracy, by Paul Krugman, Commentary, NY Times: The … political right has always been uncomfortable with democracy … there is always an undercurrent of fear that the great unwashed will vote in left-wingers who will tax the rich, hand out largess to the poor, and destroy the economy…

This is a fantasy. … All advanced nations have had substantial welfare states since the 1940s… But you don’t, in fact, see countries descending into tax-and-spend death spirals — and no, that’s not what ails Europe. …

Still, while the “kind of politics and policies” that responds to the bottom half of the income distribution won’t destroy the economy … the top 0.1 percent is paying quite a lot more in taxes right now than it would have if Mr. Romney had won. So what’s a plutocrat to do?

One answer is propaganda: tell voters, often and loudly, that taxing the rich and helping the poor will cause economic disaster, while cutting taxes on “job creators” will create prosperity for all. There’s a reason conservative faith in the magic of tax cuts persists no matter how many times such prophecies fail (as is happening right now in Kansas) …

Another answer, with a long tradition in the United States, is to make the most of racial and ethnic divisions — government aid just goes to Those People, don’t you know. And besides, liberals are snooty elitists who hate America.

A third answer is to make sure government programs fail, or never come into existence, so that voters never learn that things could be different.

But these strategies for protecting plutocrats from the mob are indirect and imperfect. The obvious answer is … Don’t let the bottom half, or maybe even the bottom 90 percent, vote.

And now you understand why there’s so much furor on the right over the alleged but actually almost nonexistent problem of voter fraud, and so much support for voter ID laws that make it hard for the poor and even the working class to cast ballots. American politicians don’t dare say outright that only the wealthy should have political rights — at least not yet. But if you follow the currents of thought now prevalent on the political right to their logical conclusion, that’s where you end up.

The truth is that a lot of what’s going on in American politics is, at root, a fight between democracy and plutocracy. And it’s by no means clear which side will win.

Paul Krugman’s article quotes Leung Chun-ying, the Beijing-backed leader of Hong Kong, who blurted out the real reason pro-democracy demonstrators can’t get what they want: those who are earning below a certain income defined by Leung Chun-ying would end up with, in his words “that kind of politics and policies.”

Krugman compares this attitude to Mitt Romney’s characterization of the “47 percent” of Americans as “irresponsible” (and who he feared would vote against him), and to the 60 percent that Representative Paul Ryan argued pose a danger because they are “takers,” whereas the rich are “makers” and  “job creators,” in the branding terms of the Right. Whatever happened to common expressions like “the idle rich”?

It would be an interesting study to discover how many people across the political spectrum really do not believe in democracy (unconsciously or not) and why and to what extent. It is understandable that one might not “believe” because historically societies are quite programmed hierarchically, and democracy has not been logically deduced, remaining essentially a belief system (unless, ahem, my book, Unicycle: The Ethic of Nature’s Balance Revisited with Asymmetric Math and Fiction, the eBook edition, soon!).

Cynicism at the Supreme Court degrades democracy

Limiting Rights: Imposing Religion on Workers” by the Editorial Board; The New York Times says it clearly like this. Some excerpts:

The Supreme Court’s deeply dismaying decision on Monday in the Hobby Lobby case swept aside accepted principles of corporate law and religious liberty to grant owners of closely held, for-profit companies an unprecedented right to impose their religious views on employees.

It was the first time the court has allowed commercial business owners to deny employees a federal benefit to which they are entitled by law based on the owners’ religious beliefs, and it was a radical departure from the court’s history of resisting claims for religious exemptions from neutral laws of general applicability when the exemptions would hurt other people.

….

As a threshold matter, Justice Samuel Alito Jr., read the act’s religious protections to apply to “the humans who own and control” closely held companies, an interpretation contradicted by the statute’s history, context, and wording. He then found that the contraceptive coverage rules put a “substantial burden” on the religious owners, who objected to some of the items on the F.D.A.’s list based on the incorrect claim they induce abortions.

It’s hard to see that burden. Nothing in the contraceptive coverage rule prevented the companies’ owners from worshiping as they choose or advocating against coverage and use of the contraceptives they don’t like.

….

Mr. Alito’s ruling and a concurrence by Justice Anthony Kennedy portray the decision as a narrow one without broader application, like denying vaccine coverage or job discrimination. But that is not reassuring coming from justices who missed the point that denying women access to full health benefits is discrimination.

Here is an excerpt from Justice Alito’s opinion of the Court (my emphasis):

[W]e must decide whether the challenged HHS regulations substantially burden the exercise of religion, and we hold that they do. The owners of the businesses have religious objections to abortion, and according to their religious beliefs the four contraceptive methods at issue are abortifacients. If the owners comply with the HHS mandate, they believe they will be facilitating abortions … If these consequences do not amount to a substantial burden, it is hard to see what would.

I believe it is worth reading Justice Ginsburg’s dissent in full; Like the NYT editorial, it is clearly and eloquently written and just destroys Mr. Alito’s opinion, point by point. That being said, the above excerpt right from the start of Alito’s opinion shows an extraordinary effrontery in the exercise of raw power in the majority, dispensing with a substantial standard of reason. Are we to believe that this man is sincere in stating that a believer is “substantially burdened” by the actions of others, even when those actions do nothing more than represent some other behavior than the moral dictates of the believer’s religion? If we don’t behave according to the moral code of the belief system supported by Alito et al, then we are imposing a “substantial burden” and should be actively opposed, discriminated against, violated? I think Alito is a very cunning fellow and knows exactly what he is saying, and we are supposed to just live with the burden he and his majority have imposed. Meanwhile cynical court opinions degrade democracy.

“No wonder, then, that nineteenth-century novelists were obsessed with inheritance”

Just (more than) a few excerpts while reading: Why We’re in a New Gilded Age, by Paul Krugman (NYRB), on Capital in the Twenty-First Century, by Thomas Piketty, translated from the French by Arthur Goldhammer, Belknap

It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.The result has been a revolution in our understanding of long-term trends in inequality.. . . .

In America in particular the share of national income going to the top one percent has followed a great U-shaped arc. Before World War I the one percent received around a fifth of total income in both Britain and the United States. By 1950 that share had been cut by more than half. But since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.

Still, today’s economic elite is very different from that of the nineteenth century, isn’t it? Back then, great wealth tended to be inherited; aren’t today’s economic elite people who earned their position? Well, Piketty tells us that this isn’t as true as you think, and that in any case this state of affairs may prove no more durable than the middle-class society that flourished for a generation after World War II. The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to “patrimonial capitalism,” in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.

It’s a remarkable claim—and precisely because it’s so remarkable, it needs to be examined carefully and critically. Before I get into that, however, let me say right away that Piketty has written a truly superb book. It’s a work that melds grand historical sweep—when was the last time you heard an economist invoke Jane Austen and Balzac?—with painstaking data analysis. And even though Piketty mocks the economics profession for its “childish passion for mathematics,” underlying his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics.

. . . .

We now know both that the United States has a much more unequal distribution of income than other advanced countries and that much of this difference in outcomes can be attributed directly to government action. European nations in general have highly unequal incomes from market activity, just like the United States, although possibly not to the same extent. But they do far more redistribution through taxes and transfers than America does, leading to much less inequality in disposable incomes.

Yet for all their usefulness, survey data have important limitations. They tend to undercount or miss entirely the income that accrues to the handful of individuals at the very top of the income scale. They also have limited historical depth. Even US survey data only take us to 1947. Enter Piketty and his colleagues, who have turned to an entirely different source of information: tax records.

. . . .

Capital and wealth have been trending steadily back toward Belle Époque levels. And this accumulation of capital, says Piketty, will eventually recreate Belle Époque–style inequality unless opposed by progressive taxation.

Why? It’s all about r versus g—the rate of return on capital versus the rate of economic growth.

. . . .

If he’s right, one immediate consequence will be a redistribution of income away from labor and toward holders of capital.

. . . .

When the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends toward dominance by inherited wealth.

Consider how this worked in Belle Époque Europe. At the time, owners of capital could expect to earn 4–5 percent on their investments, with minimal taxation; meanwhile economic growth was only around one percent. So wealthy individuals could easily reinvest enough of their income to ensure that their wealth and hence their incomes were growing faster than the economy, reinforcing their economic dominance, even while skimming enough off to live lives of great luxury.

And what happened when these wealthy individuals died? They passed their wealth on—again, with minimal taxation—to their heirs. Money passed on to the next generation accounted for 20 to 25 percent of annual income; the great bulk of wealth, around 90 percent, was inherited rather than saved out of earned income. And this inherited wealth was concentrated in the hands of a very small minority: in 1910 the richest one percent controlled 60 percent of the wealth in France; in Britain, 70 percent.

No wonder, then, that nineteenth-century novelists were obsessed with inheritance. Piketty discusses at length the lecture that the scoundrel Vautrin gives to Rastignac in Balzac’s Père Goriot, whose gist is that a most successful career could not possibly deliver more than a fraction of the wealth Rastignac could acquire at a stroke by marrying a rich man’s daughter. And it turns out that Vautrin was right: being in the top one percent of nineteenth-century heirs and simply living off your inherited wealth gave you around two and a half times the standard of living you could achieve by clawing your way into the top one percent of paid workers.

It’s all here…

Minimum wage from the ground up

All Economics Is Local by Michael Reich and Ken Jacobs:

The record is clear. Employers can afford to pay higher wages that raise families out of poverty and bear a closer relation to local living costs. And there’s a moral value, too. An increase in the local minimum wage restores, on a very personal level, some of our notion of fairness.

Runaway capitalism projected unless preempted

‘s NYT article, A Relentless Widening of Disparity in Wealth, on “Capital in the Twenty-First Century,” by Thomas Piketty:

What if inequality were to continue growing years or decades into the future? Say the richest 1 percent of the population amassed a quarter of the nation’s income, up from about a fifth today. What about half? …

To believe Thomas Piketty of the Paris School of Economics, this future is not just possible. It is likely.

Professor Piketty’s description of inexorably rising inequality probably fits many Americans’ intuitive understanding of how the world works today. But it cuts hard against the grain of economic orthodoxy that prevailed throughout the second half of the 20th century and still holds sway today. It was shaped during the early years of the Cold War by the Belorussian-born American economist Simon Kuznets …

Glancing back across history from the present-day United States, it looks as if Kuznets’s curve swerved way off target …

In “Capital in the Twenty-First Century,” Professor Piketty offers a general theory of capitalism that returns distribution to the center of the analysis. Branko Milanovic, an expert on the global distribution of income at the City University of New York’s Graduate Center, called it “one of the watershed books in economic thinking.

And check out the graphs in Porter’s article, “A Relentless Widening of Disparity in Wealth.” Lets hope the wealth of data we have today continues and can help increasingly re-balance the economy, given the political will of the people, before it’s too late. As the description of the book on Amazon.com says,

The main driver of inequality–the tendency of returns on capital to exceed the rate of economic growth–today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.

Update via Mark Thoma: Wealth over Work by Paul Krugman, on the drift towards oligarchy and Thomas Piketty’s “Capital in the Twentt-First Century.”

Further update, Brad DeLong via Washington Center for Equitable Growth: Dialogue: Eleven (so Far) Worthwhile Reviews of and Reflections on Thomas Piketty’s “Capital in the Twenty-First Century”: Wednesday Focus: March 26, 2014

A lull in 200 years of Americans pillorying the rich

Via Harvard Business Review: America’s Long and Productive History of Class Warfare by Justin Fox, author of The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (Again, read it, please.)

“Six days before the election, the Republican nominee for president attended a fund-raising dinner at a posh New York restaurant. Two-hundred of the country’s richest and most powerful men were on hand. The next day, they were confronted with this atop the front page of one of the city’s leading newspapers:

Belshazzar Blaine and the Money Kings

Belshazzar Blaine and the Money Kings

“This particular scan is from the historical-cartoon site HarpWeek, but the drawing has long been in the public domain — it ran in the now-defunct New York World on Oct. 30, 1884. The candidate was James G. Blaine (the droopy-eyed fellow in the center of the picture who is about to dig in to some Lobby Pudding), and the man who subjected him to this harsh treatment was Joseph Pulitzer, who had bought the World the previous year and was rapidly building it into the most popular and powerful newspaper the nation had ever seen …

“The cartoon that Pulitzer had Walt McDougall and Valerian Gribayedoff draw was just the beginning — although what a beginning it was, featuring the likes of Jay Gould … and William Cornelius Vanderbilt (… with the awesome bifurcated beard) feasting on political spoils at Delmonico’s while a poor family begged for scraps. As James McGrath Morris recounts in his wonderful biography of Pulitzer:

The World revealed every aspect of the dinner, even though the organizers had done their best to bar the press. From the Timbales à la Reine and Soufflés aux Marrons upon which the men feasted to the thousands of dollars pledged to buy votes, no detail was left out. Even more damning, the main story began with a one-paragraph account of men who had been thrown out of work at a mill in Blaine’s home state and were now applying for assistance or emigrating to Canada.

“Some of this was partisan politics: Pulitzer, himself on the ballot as a Democratic candidate for Congress, supported Blaine’s opponent, Grover Cleveland. New York was the most important battleground state, and the World’s assault was widely credited with handing the presidency to Cleveland a few days later.

“It wasn’t just that, though. In an era when America’s first industrial magnates were amassing unheard-of riches and using it to mold the political system to their liking, resentment of that wealth and power was widespread …

“But the ferociousness of his initial assaults, and of many others aimed at the tycoons who dominated the country’s late-19th-century Gilded Age, gives the lie to the complaint voiced these days in some circles that current resentment of the rich is somehow unprecedented or un-American — or even reminiscent of Nazi Germany.

“Have these people never heard about Teddy Roosevelt excoriating the “malefactors of great wealth,” or his cousin Franklin getting Congress to raise the tax rate on top incomes past 90%? Americans have been pillorying the rich on and off for more than 200 years, and our economic system has survived and mostly thrived. In fact, the political and labor-relations compromises occasioned by what you might call class warfare have on balance surely made the country stronger.

“What’s been unique, or at least highly unusual, has been the environment in which entrepreneurs and business executives were able to operate from the late 1970s through the early 2000s. Taxes dropped, high-end incomes exploded, and hardly anybody complained at all. Far from complaining, in fact, the news media for the most part celebrated the recipients of those exploding incomes for their boldness, creativity, and economic importance. It was a pretty stinking awesome time to be a plutocrat …” Read Justin Fox’s succinct historical perspective at HBR.

Also: Continental Liar From the State of Maine: James G. Blaine, by historian Neil Rolde.

More via Mark Thoma’s Economist’s View: Economic Inequality: Why Isn’t There More Outrage by Kathleen Geier at Political Animal, where she discusses Justin Fox’s post and offers this insight.

Back in the days of the Gilded Era, it was another story. Yes, the media has always been owned by the rich. However, back then, reporting was a working class profession, and there was a much more powerful strain within journalism that reflected the point of view of working people. But over the last several decades, mass media became increasingly corporatized and many newspapers disappeared. Journalism (what was left of it, anyway) became a much more elite profession. Entree into good media jobs often came to require unpaid internships and degrees from elite universities. The rise of the class divide in journalism…

When is change worthwhile?

Via Gawker’s Letters from Death Row series (Postcards from the Edge), the Ray Jasper letter has been given more media for its clarity and insight in the face of death and in the eventual aftermath of participating in murder. Without knowing the facts of the case or any rehabilitation of the criminal, the letter itself is an opportunity to learn about the realities connected to academic discussions of ethics and democracy.

What, for example, do we think we are doing with our criminal justice system? Should we kill some who has been fully rehabilitated and is a changed person after committing a terrible crime? What is the objective, the purpose of the system? Is this slavery revisited in the “unacceptable face of capitalism,” to quote Conservative British Prime Minister Edward Heath on a different subject. Many related questions and passions. How much positive change is possible in a person, and should we encourage positive change in every case? This is not only to be taken rhetorically. It’s a matter of life and death and of whether anyone’s life is ultimately worthwhile in the community, regionally as in Texas, or as part of the human race.

Excessive symmetry at the Fed

In that the quest for unanimity rather than democracy is the attempt to close the circle of Platonic symmetry leading to tragedy and bad poetry. But here’s the thing:

The Curse of Unanimity” by Binyamin Appelbaum, NYT:

The transcripts that the Federal Reserve released last week of its policy makers’ 2008 meetings record in painful detail the ignorance of its officials about economic conditions during that crisis year …

What the transcripts do not explain is why the Fed failed at one of its most basic tasks.

I wrote last week that the cause was a combination of bad data, bad models and bad assumptions. But that does not explain why the Fed discounted good data, failed to build better models or persisted in its mistaken assumptions. It does not explain why other people were able to see the cliff.

Neil Fligstein, a sociology professor at the University of California, Berkeley, argues in a recent paper that the broader problem was cultural …

Fed officials like to describe themselves as guided by data, but Professor Fligstein says the transcripts portray a kind of storytelling competition in which Fed officials select data that fits with their broader narratives about the evolution of economic conditions. Thus accounts of mortgage fraud were dismissed as anecdotal because officials believed that markets were operating efficiently. “They had a meeting about whether there was a bubble and it’s a whole meeting about why there wasn’t a bubble,” Professor Fligstein said. “It’s all about, ‘This can’t be true in theory so it can’t be true in reality.’”

Moreover, it is clear in the transcripts that Fed officials strongly prefer to agree with each other. They are not satisfied with making decisions by a majority vote …

Professor Fligstein said the Fed would benefit from a more diverse set of decision-makers.

Janet Yellen was sworn in as Chair of the Board of Governors of the Federal Reserve System on February 3, 2014, making her the first woman to hold the position. A cultural change in itself.

Why the Federal Reserve Failed to See the Financial Crisis of 2008: The Role of “Macroeconomics” as a Sensemaking and Cultural Frame, by Neil Fligstein, Jonah Stuart Brundage, Michael Schultz. Excerpt from the summary:

One of the puzzles about the financial crisis of 2008 is why the regulators were so slow to recognize the impending collapse of the financial system. In this, paper, we propose a novel account of what happened. We analyze the meeting transcripts of the Federal Reserve’s main decision-making body, the Federal Open Market Committee (FOMC) … This lack of awareness was a function of the inability of the FOMC to connect the unfolding events into a narrative reflecting the links between the housing market, the subprime mortgage market, and the financial instruments being used to package the mortgages into securities. We use the idea of sense making to explain how this happened. The Fed’s main analytic framework for making sense of the economy, macroeconomic theory, made it difficult for them to connect the disparate events that comprised the financial crisis into a coherent whole.

The study defines “macroeconomics” in ways to distinguish the “cognitive limits of FOMC members,” who for example did not sufficiently focus on trying to understand connections between what is referred to as the “real economy” and the “financial economy.” The importance of interdisciplinary relationships is evident. Also in this connection, you may have come across Justin Fox‘s The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. If not, ‘nough said!

But then there’s this: The Inflation Obsession by Paul Krugman. I am tempted to further connect, obsession, yet again, with “closing the impossible circle of pure symmetry” that keeps springing open in Unicycle, but I will resist.

Long and the short of macroeconomics

Mark Thoma succinctly answers many questions with one: How Keynes Would Handle an Abnormally Slow Recovery
 
In theory, Keynesian stabilization policy should “shave the peaks and fill the valleys.” That is, when the economy falls into a recession the government should use deficit spending to lift the economy back towards the full employment level. It should then pay for the policy – increase revenues or reduce spending – during boom periods when the economy is overheated and needs to be slowed down. But what if, like now, there is no boom following the bust? How should we pay for the programs that were put into place during the recession in that case?

Quotes by Founders on inequality of opportunity today

Timely quotes by the Founders on inequality, chosen by David Clay Johnston in a Newsweek article on The Citizen’s Share: Putting Ownership Back into Demcracy, by Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse

The founders, despite decades of rancorous disagreements about almost every other aspect of their grand experiment, agreed that America would survive and thrive only if there was widespread ownership of land and businesses.

John Adams: “The capricious will of one or a very few … the rich and the proud … will destroy all the equality and liberty, with the consent and acclamations of the people themselves.

James Madison described inequality as an evil, saying government should prevent “an immoderate, and especially unmerited, accumulation of riches.” He favored “the silent operation of laws which, without violating the rights of property, reduce extreme wealth towards a state of mediocrity, and raise extreme indigents towards a state of comfort.

George Washington: “[The US] will be the most favorable country of any kind in the world for persons of industry and frugality, possessed of moderate capital, to inhabit … it will not be less advantageous to the happiness of the lowest class of people, because of the equal distribution of property.

Alexander Hamilton, Treasury Secretary, champion of manufacturing and banking: “Whenever a discretionary power is lodged in any set of men over the property of their neighbors, they will abuse it.

Late in life, Adams, pessimistic about whether the republic would endure, wrote that the goal of the democratic government was not to help the wealthy and powerful but to achieve “the greatest happiness for the greatest number.

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