OWS: Let’s Amend the Bankruptcy Laws

I recognize that the Occupy movement so far has eschewed participatory politics in favor of blanket protest and raising awareness in the public mind of severe societal problems like income and wealth inequality, the corporate control over our political system, and the crippling student debt so many have been saddled with over the past decade or so.

But if there is one specific piece of affirmative legislation it seems to me the movement could and should get behind, it would be amending the law to make student loans dischargeable in bankruptcy once more.  Indeed, this should be a no-brainer.  The elimination of this substantial debt overhang would benefit the individuals themselves, it would benefit the country by helping free up income to be spent in the actual economy, and it would be the moral thing to do.  I also think it would do a great deal to rein in the skyrocketing cost of higher education, but I’ll admit to a bit of speculation on that last point.

Marx: GOD and Credit

 At the moment, Marxism seems better prepared to interpret the world than to change it.

                                    --Benjamin Kunkel

That quote is from the closing sentences of an article in the February 2011 London Review of Books.  The article itself – “How Much is Too Much?” – ostensibly reviews David Harvey’s effort in his 2010 work The Enigma of Capital: and the Crises of Capitalism [no, I don’t know why there is a colon in that title] to consider the world’s current economic situation through the lens of Marxian crisis theory.  However, most of its length is devoted to explaining what “Marxian crisis theory” actually is and to describing the gloss that Harvey put on this theory in his earlier work from the 1980s, The Limits to Capital.

I came across the LRB article about a month ago, read it, was highly intrigued by it, but realized that I didn’t actually understand it.  So I printed it out, put it aside, and waited until this weekend to re-read it.  I think I have a better handle on it now, but reading the thing does underscore how woefully little I know about Karl Marx’s critique of capitalism.  It doesn’t help – judging solely from Kunkel’s review and some of the passages he quotes – that the critique does not seem to be easily penetrable. 

In any event, while there is a great deal in the article to pique one’s interest, I cannot claim to really be on any kind of sure footing when I discuss (as I do below) some of the ideas I found particularly interesting.  I suspect that what I really need is a very dumbed-down introduction to this stuff, something like Marxian Economic Theory for Dummies.  (I looked for it; it doesn’t seem to be in print.)

Anyway . . . here goes.

Of Lubricants and Epiphytes

Over at Digby’s, in a post titled Killing Credibility, David Atkins writes:

In the absence of any sort of political and economic reporting that actually makes sense, voters are left to trust pre-defined political narratives. . .  [T]he biggest problem with the narratives on both sides is that economics is treated as a religion in which hidden priests serving as economic doctors must be placated by appropriate policies to “gain confidence” and “heal the economy.”  There is a massive air of mystery and clandestine actors at whose mercy sovereign nations tremble.

Reality is far simpler:  the economy is like an engine.  Demand fuels it.  A strong middle class is the best way to ensure that the fuel level stays high.  Credit via lending is a lubricant, sort of like motor oil.  In exchange for providing the lubricant, financiers are allowed to skim off the top and make out like bandits even in times of relative equality.  Lately, however, the financiers have been playing radical games to suck economy-killing amounts out of the tank, while the economy sputters to a stop due to lack of demand.  In this situation, it would seem that government would be best suited to shunt the vampire financiers off to the side, provide a fuel injection of demand and oil up the engine itself on behalf of the people.  The only problem is that the vampire financiers have too tight a control on government policy through corruption, and aren’t about to be pushed aside. (emphasis added)

I’ve long described the relationship of the financial industry to the actual economy using the same metaphor:  the financial industry helps the engine of the economy run smoothly (by allocating surplus capital to where it is needed) but it isn’t the engine itself.  It is more like what Atkins describes – motor oil.

The Stock Market is Bad for America

One of my pet peeves about financial and political reporting is that the stock market is often looked to as an economic indicator.  If the stock market is up, then this is claimed as evidence the economy is doing well.  Indeed, I remember listening just a few years ago to a radio interview with W.’s labor secretary, Mrs. Mitch McConnell Elaine Chao, who said the stock market’s performance is the only economic indicator anyone should ever be concerned with.  And this was the Secretary of Labor, forgawdsake!

Now I’ll admit that there may once have been a reason the stock market could legitimately be thought of as a valid indicator for how well the national economy was doing.  Basically, the idea was that stock prices reflect the market’s estimation of companies’ future profitability.  So if the market believed the economy was doing well or (more accurately) was going to do well in the future, then companies were expected to realize greater future profits.  Greater profit meant the companies would be worth more, and this would be reflected in their stock prices.  So if market investors were bullish on the American economy, then they were bullish on the stock market as well.

But there are two important things to note about this model.  First, the performance of the stock market doesn’t actually predict the nation’s economic future so much as it reflects what investors already think that future looks like.  Second – and more importantly – looking to the stock market to tell you how the United States economy is doing only makes sense if the value of the companies traded in that market does in fact depend on the U.S.’s national economy.

It is becoming increasingly clear that not only is Wall Street not dependent on the nation’s economy, its goals run directly contrary to the nation as a whole.  It has gotten to the point that when I see the Dow Jones has ticked up a notch I immediately think to myself, “I guess we’re all about to get screwed just a little harder.”

The Insidiousness of the "Job Creator" Meme

Something that has gained a lot of traction over on the Right is the idea that the Rich are the ones who create jobs. Apparently just as a byproduct of being rich, jobs are thrown off by them like some kind of magical aura. And this is why, we are told, the Rich cannot be asked to pay any more in taxes: because then they might get mad and take their ball and go home and deprive us of the jobs that spring up miraculously from their blessed footprints.

This is a truly stupid idea. Jobs don't instantly spring up out of wealth, jobs are created whenever there is a demand for some good or service that is not yet being met. Demand creates jobs -- talking about any other factor is just fussing about details.

But there is something else at work here, something more subtle and insidious: the idea that hiring someone is a gift, like alms. If you look for it, you see this idea popping up everywhere.

You Lose the Right to Your Treasure When You Lock it Away

I came across this amazing story last night in the Asia Times Online about the discovery of $22 billion worth of treasure in an Indian temple -- and what should be done with it.  As Raja Murthy puts it, the question presented is:  "Who owns this ancient wealth of the gods:  priests or the people?"

As I understand it, a legal dispute arose a year or so ago about whether the priests currently charged with caring for the 9th century Sree Padmanabhaswamy temple in Trivandarum, the capital of the south Indian state of Kerala, were doing so properly.  In an effort to resolve the dispute, the Supreme Court ordered that an inventory of the temple's holdings be taken.  This involved -- among other things -- opening up temple vaults that had been sealed for over 130 years.  Although temple records indicated that some treasure was contained in the vaults, nobody knew how much treasure was there or of what it consisted.  I can only imagine what went through the mind of the guy who turned the key to find:

over a ton of gold, sacks of diamonds and precious stones; gold necklaces over three meters long and weighing over 2.5 kilograms, gold crowns, thousands of pieces of antique jewelry, idols, and artifacts studded with diamonds and emeralds.

* * *

It easily displaces the Vatican, estimated to own about $15 billion in wealth, and the Tirupati temple, in the south Indian state of Andhra Pradesh, with about $11 billion of worldly properties.

Antique collectors' valuation of the find, to be confirmed by the Supreme Court, could be over $100 billion.

(emphasis added)

Of course, the temple priests are insisting that the treasure belongs to them, or at least should remain in their keeping -- after all, all of this wealth was donated to the temple for the gods so, y'know, who else would it belong to?

But as Murthy goes on to note "[t]he increasing clamor is for the treasure to be used similarly for welfare of the many.  The Mubai-based Times of India edition of July 5 calculated that the Padmanabhaswamy temple treasure would meet India's entire education budget for the next two-and-a-half years.

Count me firmly on the side of those who would take this windfall and put it to use for the Indian people.

* * *

Look, I get that this stuff was donated to the temple and -- notwithstanding that I do not regard myself as a religious person -- I would certainly not denigrate the important aesthetic benefit provided by places of sanctity and holiness.  Had this stuff actually been put to use by the temple to exalt their gods, then I would never be among those arguing that it should be stripped and slagged down and put to more mundane purposes.

But the priests did not do that.  Entrusted with the care of a great fortune, donated for the greater glory of the gods and indirectly (as Murthy also points out) for the benefit of the people, the priests of this temple locked the loot up in some vaults and forgot they even had it.

I'm sorry, but that abdication of responsibility for this treasure means to me that the priests don't get to keep it. Money is the life blood of an economy, but it only works if it circulates. Spending this fortune on education, or infrastructure, or any of an infinite number of other uses for India itself, for its citizens, should outstrip whatever claim the priests might make on what really can only be described as a windfall -- a windfall for which the priests did not look and to which they should not be entitled.

Also, Too

UPDATED BELOW

Following up a bit on yesterday's deconstruction of David Brooks and his disingenuous attempt to frame the Democratic and Republican approach to Medicare as a philosophical choice between "bottom-up" engineering and "top-down" central planning . . .

It occurred to me that the right wing in this county has a sort of schizophrenic take on how to address economic problems. On the one hand, they are filled with rhetoric about how "small businesses" and "entrepreneurs" are the heart and soul of our economy, and that if we only unleash the forces of the Free Market then those forces will solve any problem we might have cleanly and efficiently, without involving the government or any kind of central planning.

On the other hand, despite this rhetoric it seems pretty clear that they don't really believe in bottom-up solutions to anything when it comes to the economy. No matter the economic situation, whether boom or bust, whether the government runs a surplus or a deficit, their prescription is always the same: more and more tax cuts for the wealthy, large corporations and financiers, less and less corporate and financial regulation. And the justification is always the same too: these are the people and entities who create jobs and drive the economy. Not the people at the bottom, not the working class or the hard-working middle class -- nope, true wealth is generated by the wealthy at the top. Especially the banksters.

Sadly, the Democratic party leadership has bought into this idea nearly as much as the Repubicans have. Matt Taibbi warned us long ago to keep in mind that Wall Street financiers provided the largest part of Obama's presidential campaign donations, and despite Wall Street's public wailing whenever Obama says something that hurts their delicate feelings, Wall Street has made out pretty well under Obama. After nearly crashing the global financial system the banksters received what amounted to a strings-free bailout, and profits are now higher than ever on Wall Street, as are salaries and bonuses -- all at the same time the rest of America is still suffering through the worst economy since the Great Depression. And it doesn't strike me that this is entirely the result of political payback for campaign contributions. I get the sense that Obama really has bought into the idea -- as has pretty much everybody in the leadership of both parties -- that it is the Titans of Wall Street who are the fundamental drivers of our economy.

I think this is exactly wrong. America's FIRE (finance, insurance and real estate) economy is now the largest sector of our national GDP, but that doesn't mean it produces any actual wealth. Money is shifted around and interest is paid on debt, but no actual goods or services get produced by the FIRE economy. Nor does it employ a lot of people. Back when GM was the largest company in America that meant a lot of actual people were employed, both because automobile manufacturing was a (relatively) labor-intensive industry -- someone had to work the assembly lines -- and because all the suppliers to GM were also labor-intensive. But you don't need a 40,000 member workforce to shift money between electronic accounts. So while the vast amount of money that GM generated back in the 50's and 60's necessarily was spread out among many employees, all of whom then spent it themselves and thereby kept tons of other people employed, we don't have that with the FIRE economy. Now vast amounts of money are concentrated in the hands of relatively few people.

But the real wealth of any society resides in its natural resources and the goods and services that society can produce; while this wealth may end up concentrated in a few hands at the top level of society, actual wealth always -- always -- is created from the bottom up.

Whenever I think about this subject I am always reminded of feudal Japan. The Samurai class may have had all the wealth and the power in that society, but it didn't generate that wealth. The wealth was generated by the rice farmers at the bottom of society -- a circumstance recognized in Japan by the fact that up until the mid-19th century taxes were paid, not in money, but in actual bushels of rice. That -- the basic ability to feed its people -- was recognized as the nation's real wealth.

But I watch the fiscal and monetary decisions being made by our government today, and I don't get the feeling that anyone in charge really believes any longer that it is the great mass of people, toiling day in and day out, that actually created the wealth our society now has.

When the Fed is less concerned about doing something to bring down unemployment than it is about making sure inflation doesn't hurt the creditor class, when Republicans insist on shifting taxes away from the already wealthy because "they create the jobs" (a patent lie), when the salvation of the bond market is obviously more important to both parties than is our educational system, our infrastructure, our health care or -- as near as I can tell -- pretty much anything at all . . . .

Well, I get the sense that the people we put in charge really think that their job consists in making sure that the other elites in our society are basically free to do what they please because they are the only ones who "really matter." The rest of us -- the non-wealthy -- seem to be regarded more or less as livestock that can be herded, occasionally put to use (when the "real people" need consumers, debtors, or cannon fodder) but can also generally be safely ignored. The reasoning seems to be that if the richest of us are taken care of, then the rest of us will somehow naturally be taken care too.

How do they think that works? I dunno, but they seem to believe it. Maybe they think it's magic, or just a natural law of some sort. In any event, it is the epitome of a top-down approach to the economy and it seems to have infected everyone with a grip on any of the levers of power in this country.

UPDATE: In his column today Krugman hits on many of the same points I made here, albeit in a more erudite and slightly less despairing way. Representative quote: "Consciously or not, policy makers are catering almost exclusively to the interests of rentiers -- those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone's expense." But do click over and read the rest of what he has to say about how policy makers are protecting the creditor class by, i.e. choosing to curb (nonexistent) inflation over doing something to end unemployment, etc.

A Brief History of American Class Warfare

“They only call it ‘class warfare’ when we fight back.”

                                                             --Anon.

“There is class warfare in America, and my class is winning.”

                                                            --Warren Buffett

America likes to think of itself as a “classless society.”  One of our founding myths was that America was created so that all men would be free and equal before the law.  (Women, of course, were a different matter.  As were the slaves, Native Americans and those still working as indentured servants.)  The way the story is told today, our country started out as and continues to be a place of unbounded opportunity where any person, by sheer grit and talent and hard work, can pull himself up by his own bootstraps and amass a fortune.  For very similar reasons, we still tell our children that – in this country – “anybody can grow up to be President.”

It is a comforting story, but it is also a lot of nonsense.  It is also a fairly recent invention, one that I think was created for the express purpose of papering over the real economic differences between U.S. citizens.

Indeed, while it may be one of our “founding myths” it is not a myth that has been around since our founding.  Throughout the 18^th and 19^th centuries every American citizen would have been keenly aware that one’s status – and legal rights – turned largely on how much wealth one had.  In many – perhaps all – of the original states, even the right to vote, the most fundamental right in a democracy, was limited to those men who owned a certain minimum amount of land or had a certain minimum annual income.  The poor were explicitly and literally disenfranchised.

And this state of affairs, the rights that welled up not from innate ability or merit but instead from sheer wealth, continued well into the 20^th century.  Nevertheless, the early part of the last century saw great strides made by those who fought passionately on behalf of American laborers, and who recognized that the interests of laborers and employers did not coincide.  This progress was made despite the fact that class conflicts often turned bloody and violent, as employers (very often with the help of the public authorities) took action to force laborers to work under terrible conditions for little pay.  But the story of this progress is mostly swept under the rug and, less than 100 years later, is largely forgotten.