Capitalism in the Matrix
Given that the presidential primary season is off and running, let's start with this very interesting TED talk from "libertarian Marxist" Yanis Varoufakis, former finance minister for Greece, as he discusses the way in which we might merge capitalism and democracy, lest the former eat the latter:
[A]llow me to point out an interesting paradox that is threatening our economies as we speak. I call it the twin peaks paradox. One peak you understand—you know it, you recognize it—is the mountain of debts that has been casting a long shadow over the United States, Europe, the whole world. We all recognize the mountain of debts. But few people discern its twin. A mountain of idle cashbelonging to rich savers and to corporations, too terrified to invest it into the productive activities that can generate the incomes from which you can extinguish the mountain of debts and which can produce all those things that humanity desperately needs, like green energy...
So a mountain of debt and a mountain of idle cash form twin peaks, failing to cancel each other out through the normal operation of the markets.
The result is stagnant wages, more than a quarter of 25- to 54-year-olds in America, in Japan and in Europe out of work. And consequently, low aggregate demand, which in a never-ending cycle, reinforces the pessimism of the investors, who, fearing low demand, reproduce it by not investing—exactly like Oedipus' father, who, terrified by the prophecy of the oracle that his son would grow up to kill him, unwittingly engineered the conditions that ensured that Oedipus, his son, would kill him.
He goes on to say that the question is "whether capitalism will be succeeded by something resembling a Matrix dystopia or something much closer to a Star Trek-like society, where machines serve the humans and the humans expend their energies exploring the universe." He reimagines a market that looks something like this:
At the level of the enterprise, imagine a capital market, where you earn capital as you work, and where your capital follows you from one job to another, from one company to another, and the company—whichever one you happen to work at at that time—is solely owned by those who happen to work in it at that moment. Then all income stems from capital, from profits, and the very concept of wage labor becomes obsolete. No more separation between those who own but do not work in the company and those who work but do not own the company; no more tug-of-war between capital and labor; no great gap between investment and saving; indeed, no towering twin peaks.
Similarly, this Forbes contributor says that unless capitalism is reformed significantly to stop destroying the planet, we could all starve. But on the bright side—new socially-minded companies, fresh models...etc.
Meanwhile, people may have some heart-Bern following Hillary Clinton's significant loss in New Hampshire this week to a politician not afraid to call himself a socialist. Over at the National Review, the Cato Institute's Michael Tanner asks if socialism is making a comeback:
A self-professed “democratic socialist” is running for the Democratic presidential nomination, and he is running neck and neck with a party icon. Polls show that more than a quarter of Americans have a favorable opinion of socialism, which might not sound so bad until you learn that that includes 43 percent of those under age 30, and 42 percent of Democrats. Meanwhile, barely half of Americans have a favorable view of capitalism. Democrats, in fact, are as likely to view socialism positively as they are capitalism...
Perhaps people can be forgiven for having come to the belief that capitalism is synonymous with Wall Street shenanigans or bank bailouts. That’s what politicians, academics, and the media have pounded into us for years. When was the last time you saw a movie where businessmen weren’t greedy and evil, if not outright murderers. Perhaps we need to be reminded of what free-market capitalism really is, and how much better it has made our lives.
So yes, better lives, but capitalism is definitely undergoing major challenges. Just this week, in the Telegraph, Alistair Heath warned the economic system could not withstand another major crash because people are already in a burn-the-house-down mood:
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences...
That is why we must all hope that the turmoil of recent days in the financial markets, and the increasingly worrying economic news, will turn out to be a false alarm. It would certainly be ridiculously premature, at this stage, to call a recession, let alone a financial crisis. But at the very least we are seeing a major dose of the “dangerous cocktail of new threats.”
And now a cartoon from the Economist:
You also may be interested in this TED talk from risk economist Dider Cornette who says he was able to plot the last economic bubble pop and says we may be headed for another. And America, why does Wall Street get so angry when whistleblowers are just trying to actually save it? Check out this piece in the New York Times chronicling the plight of the Wall Street whistleblower, who is likely never to work in the industry again—and the new actions being taken:
[F]our former whistle-blowers who have suffered fates similar to Ms. Fleischmann’s—all fired and blackballed after reporting wrongdoing—have banded together to form Bank Whistleblowers United, an advocacy group that aims to improve the status of Wall Street whistle-blowers and change the way Wall Street is regulated. Among its goals is to try to force the presidential candidates to agree that they will not take donations from any financial firm (or more than than $250 from any of its officers) that has been charged with committing “legal elements of fraud,” in other words, virtually all of them.
We also have this New York Times piece on the lengths companies will go beyond inversions to avoid paying taxes by using debt in U.S. operations to offset their tax bills.
The California pension fund CalSTRS joined a growing number of institutions to begin divestment from coal and other fossil fuels. And more generally, the debate over divestment continues to heat up in institutions around the country, with many still saying, no way. In the LA Times, Michael Hiltzik had this to say:
[T]he fossil fuels divestment movement raises broad questions about divestment in general and the fossil fuels campaign itself. Does divestment work? And if it does, can the lessons learned from the fossil fuel campaign be applied to other industries targeted by California activists, such as firearms and private corrections companies?
Many targets of divestment campaigns present easy choices: they're small industries with insignificant weights in portfolios, or may be losing their investment allure anyway. Big industries with long-term prospective value — such as oil and gas — are a harder call for investment managers.
But students continue to push the notion that potential loss of revenue in the short-term does not outweigh the long-term impacts of climate change, as this Harvard Crimson article from Belfer fellow Benjamin Franta shows:
On climate, universities have a problem with blurred lines. They want to fight climate change, but at the same time they want to stay in the good graces of donors who don’t care about the issue; they want to be friends with the fossil fuel industry (which gives them money); they want to avoid the need to formulate ethical positions. What’s a university that wants to have it all to do?
We could, of course, keep having blurred lines. Blurred lines let us feel like we can have it all. The problem is that we need to have clear lines to deal with climate change. Our children would like us to have clear lines. The rest of the world and countless species on Earth need us to have clear lines. In the face of the climate problem, it is our responsibility to draw those lines in good faith and to be bold in our lives...
The article argues that universities should follow a University of Toronto report that suggests not financing companies whose "actions blatantly disregard the international effort to limit the rise in average global temperatures to not more than one and a half degrees Celsius above pre-industrial averages by 2050."
Check out this cartoon from Andrew David Cox of the Camel City Dispatch:
In the Chronicle of Higher Education, author Jane Mayer takes a look at the history of the Olin Foundation, which funded much of the conservative scholarship we are familiar with today, including on the legal and social framework for capitalism:
The Olin foundation’s most significant beachheads, however, were established in America’s law schools, where it bankrolled a new approach to jurisprudence known as Law and Economics. Lewis Powell, in an influential 1971 memo, had argued that "the judiciary may be the most important instrument for social, economic and political change." The Olin foundation agreed. As the courts expanded consumer, labor, and environmental rights and demanded racial and sexual equality and greater workplace safety, conservatives in business were desperate to find more legal leverage. Law and Economics became their tool.
As a discipline, Law and Economics was seen at first as a fringe theory embraced largely by libertarian mavericks until the Olin foundation spent $68 million underwriting its growth...
Following Piereson’s cautious playbook, the program’s title conveyed no ideology. Law and Economics stresses the need to analyze laws, including government regulations, not just for their fairness but also for their economic impact. Its proponents describe it in apolitical terms as bringing "efficiency" and "clarity" to the law, rather than relying on fuzzy, hard-to-quantify concepts like social justice.
You also might be interested in this story about Nancy Zimmerman, who runs a hedge fund responsible for turning a Yale Univerisity investment of $50 million in 1994 into $1 billion today.
In this case of intentionality gone wrong: Mount St. Mary's Univeristy made headlines this week after the president fired tenured professors following their disagreement over his "student retention plan" covered in the campus newspaper. President Simon Newman is a former private equity guy who decided private equity only makes money for the few and he wanted to have greater social impact and joined higher ed, reported BizJournal last year. And more recently he penned a piece in the Washington Post, on what he says is his moral obligation to help student students graduate.
But those fired were among dissenters who said that an invasive survey he gave to freshmen that would help him identify who should be encouraged to leave school before rententions rates were reported to the federal government was unethical. There is also his confirmed comment that poor-performing students were like bunnies in need of drowning. [I know, this is a weird news week.]
Over at Pacific Standard, Tom Jacobs looks at studies on obesity and poverty. This Root article looks at why turning over welfare to states could significantly impact black children using Mississippi as an example:
According to the report, 47 percent of black children in Mississippi are living at or below the poverty line, compared with 15 percent of non-Hispanic white children. Yet the state rates black child care providers more harshly than white child care providers, leading to reduced state funding to that community. The report found that resources for early child care and development are disproportionately funneled into white communities.
Overall, Mississippi has reduced the number of children served by 53 percent over the past eight years. Only 15 percent of the state’s eligible children are served, and the state has been reluctant to shift TANF funds into the child care subsidy program, instead leaving that money unspent.
Also in the Pacific Standard is this piece on California's working poor, a demographic that is growing and getting poorer.
And finally, Nerd Wallet's Liz Weston looks at how you can tell if you are middle class.