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Tuesday, September 22, 2015

Cat People, dog people, and the character the choice reveals

by John MacBeath Watkins

"One is permitted to assume an attitude of placid indifference in the matter of elephants,
cockatoos, H.G. Wells, Sweden, roast beef, Puccini, and even Mormonism, but in the matter of cats it seems necessary to take a firm stand....Those who hate the cat hate him with a malignity which, I think, only snakes in the animal kingdom provoke to an equal degree."  
--The Tiger in the House, Carl Van Vechten, 1922

We usually think of dogs as the pets of choice for the macho, huntin' and fishin' type of manly man, but Ernest Hemingway was a huge cat lover, calling them "purr factories and love sponges," according to the Hemingway Museum.

Surveys of dog lovers and cat lovers have shown that cat lovers are more likely to be introverted, and on average are more intelligent than dog lovers. Not bad characteristics for someone like Hemingway, who made his living by sitting alone for long periods of time writing.

A ship captain gave Hemingway a polydactyl cat named Snowball, and soon Hemingway had more than a dozen of Snowball's six-toed descendants around at a time.

Cats, left on their own, tend to live in social groups without a strict hierarchy. There is often an alpha cat, usually female, but the rest of the group isn't ranked one above the other. There's a dog-training trick where you make sure your dog knows it doesn't eat until after you, so it understands that it is lower in the hierarchy. This technique is meaningless to cats. If you try this on a cat, I assume they just think you're a thoughtless jerk who's stuffing your face while the cat waits for you to remember to put some food in pussy's bowl.

People who want to rule the world tend to prefer dogs. Albert Speer reported that Adolf Hitler told him in 1945, "I am surrounded on all sides only by traitors and betrayals. Only my bad luck is loyal to me -- my bad luck and Blondi, my German shepherd."

Blondi met her end a day before Hitler. He used her to test the efficacy of the cyanide pills he used to kill himself.

Not that this reflects badly on dogs or dog people. Surveys show that they tend to be more extroverted than cat people, and more warm and social. It is therefore not surprising that they are more likely to be married and have children in the house. Cat people are more likely to live alone, but are also more open to experience. Cats tend to live longer than dogs, so perhaps they are more inclined to long-term commitments, but the day to day commitment of owning a dog is much more stringent. Dogs need to be walked, and I've seen dogs develop separation anxiety only a few feet from their masters.

Dogs look up to you, and are obsessively dependent on their people. Cats think you are a big, warm member of the pride, neither above nor below them, but useful for providing a warm lap and having a real talent for operating a can opener.

The cat sees you as an equal, the dog sees you as a god.

Both are creatures that have, for most of their relationship with humans, had a choice of staying with humans or living on their own. Most have chosen to live with people, although there are far more colonies of feral cats in this country than feral dogs. This is because cats pursue smaller prey, and are therefore less of a nuisance than feral dogs, who tend to get picked up by the dog catcher.

Wednesday, September 16, 2015

How rising inequality interferes with national greatness

by John MacBeath Watkins

It seems odd to me that we keep hearing about national greatness (this year in the form of Donald Trump's "Make America Great Again" hats) from people who support policies that make America poorer and weaker.

The political movement to create inequality has a lot to answer for. It has prevented the majority of Americans from participating in the increases in wealth driven by their own increasing productivity. It has created economic elites who seem to care more for their class than their country. And it has created an environment where we can't seem to have a good economy without risking asset bubbles.

Dr. Englebert Stockhammer of Kingston University in London, in the inimitable style of an academic, puts it this way in a 2012 paper titled Rising Inequality as a Cause of the Current Crisis:

First, rising inequality creates a downward pressure on aggregate demand, since it is poorer income groups that have high marginal propensities to consume. Second, international financial deregulation has allowed countries to run larger current account deficits and for longer time periods. Thus, in reaction to potentially stagnant demand, two growth models have emerged; a debt led model and an export led model. Third, (in the debt led growth models) higher inequality has led to higher household debt, as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages. Fourth, rising inequality has increased the propensity to speculate as richer households tend hold riskier financial assets than other groups. The ris of hedge funds and of subprime derivatives in particular has been linked to rise of the superrich.

Essentially, this means that people trying to continue as members of the middle class are having to borrow more, and the very rich have plenty of money to throw at risky investments.

In fact, it looks like we have too many investment dollars looking for places to invest in the private sector and make money, and too little money in the hands of consumers to create the needed investment opportunities.

China, which has even worse inequality than the United States, is trying to transition from an export-led economy to a consumption-led economy. It is difficult to see how they can make that transition until they are able to put more money in the hands of consumers rather than investors. With no social insurance worth the name, Chinese workers are well advised to save their income for their old age rather than spend it, and with most of the money going to a small percentage of the people, even the most spendthrift among the wealthy can't consume enough to provide a healthy basis for the transition.

In the U.S., unlike China, public investment has been starved as well, leaving us with a aging bridges, roads, and water systems, while private investment produces a series of asset bubbles.

We have long been told that letting the rich keep more of their money would cause them to invest it, making us all richer. Now we see why that is not true. According to a 2013 report by the American Society of Civil Engineers, "...the average age of the nation’s 607,380 bridges is currently 42 years."

Their report further states:

The Federal Highway Administration (FHWA) estimates that to eliminate the nation’s bridge deficient backlog by 2028, we would need to invest $20.5 billion annually, while only $12.8 billion is being spent currently. The challenge for federal, state, and local governments is to increase bridge investments by $8 billion annually to address the identified $76 billion in needs for deficient bridges across the United States.

Instead, we're keeping taxes low so that investors can keep money they use to chase whatever the most recent fad is and bid up the price of that asset.

This is not a formula for national greatness. Worse, it appears the trend reinforces the inequality that causes it.

Justin Fox,at the time the economics columnist for Time magazine, wrote in an April 15, 2009 column:

The rise in income inequality over the past 30 years has to a significant extent been the product of a series of asset-price bubbles. Whenever the market (be it the market in stocks, junk bonds, real estate, whatever) booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble. It’s not the same people raking it in every time—there’s lots of turnover in the top 400—but skimming the top off of asset bubbles appears to have become the leading way to get rich in these United States in the past three decades.

Fox is, as of this writing, the editorial director of the Harvard Business Review Group.

The consequences of inequality are an unhealthy private investment market, infrastructure starved for investment, and a middle class that isn't participating in the economic gains made by the nation. Inequality produces more financial shocks that slow growth. We are a less wealthy and less stable country because of it.

Thursday, September 10, 2015

Language, freedom, and oppression

by John MacBeath Watkins

One of the most insightful aspects of George Orwell's 1984 was the attempt to control what people could think by changing the language from "oldspeak" -- current English -- to "newspeak," in which the number of words is limited in order to limit what people can think.

One of the key concepts of Newspeak is doublethink, the ability to believe two contradictory things at the same time, which helps with reality control. One does not want to commit crimethought, that is, thinking things that the Party says are not true. It helps if one has mastered blackwhite, that is, the ability to believe black is white and white is black of that is the policy of the party.

Words give us the categories with which we think. They provide a structure of symbols that we can put together in whatever manner suits our needs, We can embellish the structure by inventing new words or new meanings for existing words. In many ways, we experience our freedom of thought through language.

Orwell perceived that control of language was control of thought.

Now, natural language is not like computer language. It is less logical, its meanings are less clear, and those meanings are constantly being renegotiated. We who speak languages are not dictionaries that, once printed, never change. We have, in fact, a dual nature, part animal and physical, part symbolic, and symbolic thought is one of the distinguishing characteristics of human society. Language is essential for the very existence of this part of human nature.

Natural language is a social construct. The meanings are not the sounds we make to communicate the meanings, those sounds or symbols are arbitrary. It does not matter if I use the English word, water, or the French word, eau, as long as both the speaker and the person the speaker wishes to communicate with know that the word signifies stuff we like so well we have it piped right into the house. For both to know what meaning the sound of a word communicates, there must be social agreement on this meaning.

And every act of communication is a social act. One person speaks to another, or a group of others, hoping to influence them in some way. They may use language to enlighten, persuade, or deceive. In so doing, they may use words in new and unfamiliar ways, changing the meaning and connotations of the word. The connotations of a word, that is, the feelings or associated ideas it evokes, are as important sometimes as the literal meaning of the word.

Every generation encounters language anew, every new person finds a place in the strange, symbolic world of human society. We have our place in our animal nature, our mates and offspring, but we are so much more than that. Much of what we are is tied to symbolic thought. Our possessions are ruled by a structure of customs and rules that we call property, our contributions to society are often manipulations of symbols such as our writings, drawings, or made objects. We worry about what we represent. Presidents worry about their legacy, but so do parents and businessmen. Even those who do not physically reproduce live on in their accomplishments, their influence, how they have touched the lives of other people.

Which is why the first item in the Bill of Rights concerns the freedom of speech and of conscience. If we are not free think and speak, and do so in a way that influences other people, we lack the power to shape our lives.

Orwell was writing after a stint at the British Broadcasting System during World War II. In wartime, propaganda is one of the weapons deployed, and he was very aware of this. But even in peacetime, language is used as a political tool.

Consider the issue of political correctness. At its best, it is an attempt to shame those who use language to hurt others. It is now more socially acceptable to say "fuck" than to say "nigger," because our society now is more sensitive to the harm of racism than to any perceived need to conceal the existence of sex.

At its worst, political correctness can seem like annoying nagging about ordinary words. Political correctness is for some reason mainly associated with the left in the United States, but try saying "happy holidays" to a conservative at Christmas and you'll quickly learn that there is political correctness on both sides of the aisle.

Lies, concealment, and shading the truth all happen. There is an entire book titled On Bullshit, (by philosophy professor Harry Frankfort) which explores the political world in which the truth is treated as irrelevant. For example, in a 2004 debate, President George W. Bush was asked for a rational for the Iraq war: He responded, "we had to fight, we were attacked."

He said this as if we had been attacked by Iraq, which was not the case. Every word in that sentence could be true, but the message communicated was false. No true part of that statement justified attacking Iraq.

Truth had been under attack for decades by then, though. Agnotology. the science of creating ignorance, was first perfected by the tobacco companies.

These companies had reason both to affect public policy and to persuade their customers to keep smoking. They deployed polices such as advertising with the healthy, outdoorsy, Marlborough man, hiring scientists to show that substances other than tobacco can cause cancer, and generally sowing doubt about the veracity and the certainty of science.

Further, in the political sphere, language gets tested on focus groups. Political consultant Frank Luntz, using this method, discovered that "death tax" got a far more negative response than "inheritance tax," and the word went out that those wishing to end the inheritance tax should call it the death tax instead.

While acting as a pollster for Newt Gingrich in the mid-1990s, Lutz urged Republicans to refer to their Democratic opponents using words such as "devour," "corrupt," "sick," "greedy," "liberal," and "traitor."

This project succeeded in devaluing the word "liberal" to the point where few people identify themselves with it today. Liberals now routinely call themselves "progressive."

Clearly, the part of human nature that belongs to the world of symbolic thought fights its battles on the ground of speech. So why is the basic theory behind the structure of our society so thoroughly tied up with property?

I think it is because the power was not fully understood in the 17th century when the foundations of liberalism were laid.

Monday, September 7, 2015

The rights and wrongs of the wars on drugs and terror

by John MacBeath Watkins

One of the great disasters of the American experiment was the prohibition of selling alcohol. Making alcohol illegal simply made large numbers of people into criminals, and gave career criminals a steady source of income. Al Capone would have been a criminal without prohibition, but he would not have been as rich or as powerful.

In the Pacific Northwest, rum running was controlled by a former policeman named Roy Olmstead. Unlike Capone, Olmstead never allowed his men to carry guns. It was much better for business to have his rivals arrested by the police on his orders than to have them attract a lot of attention by killing his rivals.

Olmstead had so many politicians and police in his pocket he thought he was untouchable. He was brought down, in the end, by the then-new technology of wiretapping. Olmstead got a four-year sentence and an $8,000 fine, but he spent a substantial portion of his ill-gotten gains fighting for the principle that it was unconstitutional to wiretap without a warrant. In 1928, the supreme court ruled against him. The decision was overturned the year after his 1966 death, so that now, a warrant is required. But this was the beginning of the intrusive enforcement of the drug wars.

Alcohol prohibition ended in 1933, but it was only part of a larger effort to make all recreational drugs illegal. Many states made marijuana and other drugs illegal between 1900 and the end of Prohibition, and the United States led an international effort to make all opium, coco, and cannabis cultivation, production, transport and sale illegal. By 1937, the effort had largely succeeded.

Alcohol was the favorite drug of most Americans at the time. Germans felt particularly oppressed by prohibition, because beer was such an important part of their culture. Cannabis is commonly referred to by its Spanish name, marijuana. It was a drug favored by American Hispanics. Opium and cocaine were favored, for the most part, by lower-class people who found they could become euphoric at a lower cost with these drugs.

The German immigrants thought Prohibition was in some was an effort to make their culture (big on beer) illegal. Prohibition of other drugs that appealed to other subgroups was, to some extent, defining those groups as outsiders. And so, when those drugs were made illegal and the same sort of intrusive policing was applied to these groups, it did not worry most Americans, because they did not apply to them. Only after marijuana became widely used by middle-class whites did we see a movement to make marijuana legal.

From a practical standpoint, the war on drugs has been a disaster. It has been costly, it has ruined lives, and it has enriched criminals. It has also changed the way the nation is policed.

When there is a great deal of money in doing something illegal, people will take that risk. But illegal activities are not policed the way legal commerce is. I once knew a former smuggler who said he dropped out of the trade when everyone started carrying guns. I also met he former skipper, before and after that individual did time for getting caught with 2,500 lb of marijuana on his boat (he was caught before I met him.)

When an illegal trade turns violent, this increases the risk of enforcing the law. The result has been a more militarized police force, more likely to break down doors and throw stun grenades.

It has also led to some bad laws. For example, civil forfeiture, a process where police can seize vehicles or cash on the mere assumption that they were involved in the drug trade, which has resulted in some fairly questionable practices that have enriched police budgets. Funds from the seizures can be used for salaries, retirement funds, overtime, and a variety of other police spending priorities. Because it is a civil proceeding, no criminal conviction is required in most states, nor even a criminal charge against the person the property is seized from. In fact, in civil forfeiture, the agency seizing the property takes action against the inanimate object being seized.

Once they have alleged the inanimate object has taken part in a crime, prosecutors file a claim with a title such as The People vs. $10,000, and institute a civil action that lacks many of the protections of a criminal case. In the case of criminal forfeiture, the prosecutor would have to prove that the property being seized was the fruit of a criminal act or acts. In civil forfeiture, the burden is on the person whose property was seized, and in some cases if they challenge a forfeiture and lose, they must also pay the state's costs for defending the case.

For most of the history of the United States, civil forfeitures were rare, and used primarily when it was impossible to arrest the owner of the property. Use of civil forfeiture exploded during the 1980s as government at all levels ramped up its war on drugs. Even when the owner is present and could easily be prosecuted if there were proof of a crime, civil forfeiture is used to gain funds for police departments.

Seized property was worth $2.5 billion in 2010.

This has effectively become a back door for circumventing the Bill of Rights, in particular the 4th Amendment, which reads.

The right of the people to be secure in their persons, houses, papers, and effects,[a] against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized

There are jurisdictions in this country where people cannot be secure in their effects, because a traffic stop can result in the seizure of their car and their cash. No evidence of criminal behavior need be present, only property that is sufficiently tempting, such as plenty of cash. Stops in many jurisdictions tend to disproportionately target African Americans and Hispanics.

It's pretty obvious that civil forfeiture provides incentives for police to seize property regardless of the likelihood it was the fruit of a crime. But this is only one of the corrupting influences on police departments from the war on drugs. Any quick on-line search will find fairly recent instances of police being indicted for stealing from drug dealers, because who are they going to call to report the crime?

I've seen the damage drugs can do. I'm not an advocate of their use. But we didn't get rid of prohibition because we thought alcohol did no harm, we did so because prohibition did more harm, eroding our liberties, enriching criminals, and corrupting our legal system. Now we deal with much of the harm alcohol does as a public health problem, and some of it in connection with specific harmful behaviors such as drunk driving.

How we are to deal with the problems created by drug use is not the purpose of this essay; I am more concerned here with how the drug war erodes our liberty. And it certainly is not the only threat. The war on terrorism has had a similar effect. And both are tied to cultural outsiders. We made illegal the drugs mainly used by minorities while re-legalizing alcohol, which was the drug of choice for most whites.

Terror again touched the tribal nerve. Conservatives who were in the forefront of advocating a war on terror that would target Muslim militants were outraged in 2009 when the Homeland Security Department issued a report on the threat of domestic terrorism by right-wing militants. The report said the threat was not restricted to hate groups, but said, “It may include groups and individuals that are dedicated to a single-issue, such as opposition to abortion or immigration,”

Nothing shocking there. After all, Eric Rudolph, an anti-abortion activist, confessed to four bombings, including the one at the Atlanta Olympics that killed a bystander and wounded 111 people. But the very notion that people on the right who set off bombs and killed people who were white, Christian, and conservative could be classed with Muslim militants because of the similarity of their acts was offensive to those on the right.

This reveals the tribalist element of their emotional reactions. After all, it is often those who worry most about Shariah law that insist the America is a Christian nation, and that its laws are based on Christianity. For such people, it is not merely the behavior, but the identity as well that matters in defining the enemy.

War, in general, is the enemy of freedom, because it causes frightened people to accept extreme measures. And war, all too often, brings out our tribalism and our prejudice against the groups we fight against. It is therefore terrible policy to have a “war” that cannot be won. Drugs will continue to exist and be abused no matter how we make war on it, because who is going to surrender? The drugs? Terrorism is a tactic, not a person, group, or government. It, too, lacks the capacity to surrender.

Saturday, September 5, 2015

How money is born -- it's time we had The Talk

by John MacBeath Watkins

It has come to my attention that many people don't know where money comes from, so I think it's time we had The Talk.

You see, gentle reader, when a central bank loves a commercial bank very much, it has tender feelings and follows an instinct millions of years old, and slips a loan in that bank's portfolio.

I believe a bird is somehow involved, something that begins with "P", probably a penguin.

So, that loan is new money. It didn't exist before the bank had it, but it exists now. And when that penguin drops the new-born money into the loving arms of J.P. Morgan, he immediately farms it out to work for someone else. Even at a tender age, money can be found working in textile mills, in mines, in steel mills, and on construction sites. The more risky the work, the greater the profit, and who keeps the profit? J.P. Effin' Morgan.

Now, as it happens, only about 3% of money is created by government. Most of it is created by banks, taking deposits and loaning the money from the deposit to someone else. The theory here is that not everyone will want their money back at once, so you can pay the depositor a small interest, and then loan out their money at a higher interest. The money thus gained is one of the ways banks make profits. But in the process, they make money, in the sense that the depositor and the borrower now have an amount of money equal to the amount deposited and the amount loaned. That's nearly twice as much money, or at least it is until everyone wants their money back at once, which is called a bank run.

The life of money can be long, or it can be short. Many people believe in paying back money, but are unaware that when money is paid back, money is destroyed.

This is why depressions are so depressing. A depression tends to happen when everyone tries to pay back their money at once, thereby destroying the money they pay back. Picture a bunch of blips on a computer screen quietly dying into darkness as dollar after dollar is paid back and goes to its rest, being paid back and not loaned out again because everyone is afraid to take on the responsibility of bringing new money into such a world.

And not everyone can pay back their loans. Loans that are not paid back are called non-performing. If there are enough of them, banks develop loan performance anxiety, and this creates a slump. With loan performance anxiety causing a slump, banks cannot provide borrowers with the liquidity they so ardently desire. As a result, less money is born.

And a country depopulated of money is a poorer one. If only there were someone who could have the confidence to bring new money into the economy existed, you might be able to do something about the situation. But that would have to be someone who could create money even in the worst circumstances, when most lenders have lost their ability to insert loans into new borrowers, because they are afraid. They are anxious that their next loan may fail to perform.

The reader will have noticed that the commercial bank is acting in both male and female roles, like an earthworm. The central bank puts loans into it, and it puts loans into borrowers. So even when the commercial bank's performance anxiety about its loans leaves its new loan portfolio flaccid, it can still act as a recipient of loans.

If a country has its own currency, its central bank never runs out of money, because it can create an infinite amount. The central bank, seeing its commercial bank compatriot unhappy, will try to restore its ability to loan by creating more money with it. Ah, you say, but if the bank creates lots of new money, won't there be that overpopulation of money that we call inflation?

Well, no, because the reason the central bank is trying to make lending more attractive (think mood lighting, soft music) is because it sees all the money being destroyed as it is paid back, and wants to make sure the economy is not devastated for want of money.

It's a bit like when our soldiers came back from World War II, having seen terrible destruction and loss of life, and created more than enough people to replace the ones they had kill in what we now call the baby boom.

Now, usually, when we talk about money, we think of bills and coins. But those are used to signify money. Money itself can exist with other kinds of signifiers, such as an entry on a ledger or a memory in a computer.

I'm glad we had this talk. If you have any more questions, don't be afraid to ask, it's better to do that than to create unwanted money or destroy money. I admit I'm not an expert, you can always try and get hold of Dr.. Yellen, who has brought more money into existence than you or I will ever have.

Friday, September 4, 2015

Liberalism and capitalism, freedom and markets

by John MacBeath Watkins

Successful industrialization require capitalism, not democracy. F.A. Hayek said in The Road to Serfdom that “...the system of private property is the most important guarantee of freedom. It is only because the control of the means of production is divided among many people acting independently that we as individuals can decide what to do with ourselves.”

And yet, business interests supported the totalitarian regimes of Adolf Hitler and Benito Mussolini. The German mittelstadt, the medium-sized companies that form the backbone of German industry, continued to flourish in this environment. Capitalism has managed to thrive in a number of nations that have been ruled by dictators. Capitalism no more guarantees liberal freedoms than any other market-oriented economic system has throughout history.
But liberalism has provided a more welcoming environment to the creative energies that can be released by capitalism than dictatorships, and in any case, dictatorships tend to produce rent-seeking by officials whose power cannot be questioned. The resulting corruption interferes with commerce, as those with power siphon off wealth.

Hayek had it backwards. Property is not a guarantor of freedom, but freedom is a guarantor of just property claims, because to have freedom, you must have the rule of law, rather than will. That was the point of social contract theory; you could not exercise your freedom during the war of each against all. After all, as Hobbes observed:

 “ ...wherein men live without other security, than what their own strength, and their own invention shall furnish them withall. In such condition, there is no place for Industry; because the fruit thereof is uncertain; and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving, and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.”
Rousseau defined freedom as being subject to a law of your own making, that is, a socially agreed upon set of rules in which those subject to the law have a say in the law.

Totalitarian states do not consider the state to be serving the individual citizen. They consider themselves, instead, to be serving groups. In the case of Marxist states, the state is meant to represent the victory of the working class, therefore the imposition of a classless society. In the case of fascist states, the individual is considered weak unless a member of the state. Consider the flag of the Partito Nazionale Fascista, Mussolini's national Fascist party. It is a black field with on it a fasci, a bundle of sticks with an ax head sticking out, the metaphor being that the individual rods are weak, but together they are strong.

This represents the unity of the people. Mussolini believed that nationalism had replaced class as the cause that really mattered to the common man. And because the nation was what mattered, individual rights did not. And fascist sates had some support from convention, because their biological determinism caused them to think that people should remain in the status they were born to. If your father was a laborer, you were genetically fit to be a laborer. Some were born to lead, some were born to follow. At each level, the leader demanded complete obedience from those below, and gave complete obedience to those above. The people were at one with the state, which was led by one born to lead. There was no need to consult the individual, because the individual was nothing except as part of the state.

Consider this:
Fascism is for the only liberty which can be a serious thing, the liberty of the state and of the individual in the state. Therefore for the fascist, everything is in the state, and no human or spiritual thing exists, or has any sort of value, outside the state. In this sense fascism is totalitarian, and the fascist state which is the synthesis and unity of every value, interprets, develops and strengthens the entire life of the people.
                                        —Benito Mussolini, Giovanni Gentile, Doctrine of Fascism (1932)
Totalitarian states were not democratic because they did not value democracy. They could accommodate capitalism if, as with the fascists, their ideology did not have a problem with private property and markets.

But the fascists failed for the same reason Napoleon did. They depended for their legitimacy on nationalism, and stirring up the people against the nation's neighbors. This in the end called for war, and if you keep fighting long enough, you will eventually lose.

Marxism, by contrast, claimed to represent the worker against the oppressive capitalist. One problem with Marxism was that Marx himself was rather vague about how the withering away of the state would happen. In fact, once you have removed religion and property as institutions, what remains must take on their functions, and that's what the state did. Another problem was that Marx did not produce a workable system of value. It is all very well to say that labor creates value, but how do we know that a person is doing labor of value? Liberalism's subjective version of value tells us that it is dependent on the need and judgment of another. Marx did not show how society would reward labor on what needed doing in contrast to labor doing something no one cared about or even doing something destructive.

As a result, it produced the Trabant, a car produced in East Germany before the fall of Communism, which was a value-subtracted product. That is, the metal, plastic, rubber, labor, etc. that went into the product was worth more than the product itself.

From Transition, a newsletter  of the World Bank, Number 5-6, May-June 1996, page 15:

"With a view to corporate takeover, Volkswagen AG sent a Herr Heuss to Zwickau to find out how the Trabants (relatively cheap East German cars) were made there. He emerged shocked from the huge plant, babbling “My God. The Trabant operation was value-subtracting: valuable material, labor, and capital inputs went in at one end; shabby Trabies came out at the other, their bodies made from compacted trash. The final output was worth less than the sum of the inputs. What was not fully understood at the time was that East Germany’s whole economy was value-subtracting and cost-unconscious.”

Communism produced somewhat more stable governments than fascism, but worse economic results. And both produced atrocities, from the German Holocaust to the killing fields of Cambodia.

Liberalism, because it is democratic, is more flexible. Leaders who fail can be cast aside without violence. If the system is not producing just outcomes, the system can be changed.

There seems to be confusion on the right as to the difference between social democracy and socialism. Social Democrats are a group of liberals who believe in private property and markets, but want a strong social insurance program to soften the consequences of capitalism. Communism is a kind of socialism that regards it as important that society, usually in the form of the state, should own the means of production. (Marx proposed eliminating property entirely, but since property is the rules, obligations, and rights about how people use objects, this is impossible, as long as people use objects. This basic failure to understand the nature of property is part of the reason for the failure of Marxism.)

Social Democrats, then, are those who wish to preserve capitalism through forms of social insurance that make the system sufficiently just in its outcomes to avoid social unrest. Both fascists and Communists considered them enemies, and suppressed them, in part because they try to achieve their aims by democratic means.

Fabian socialists tried a different approach, trying to institute the social ownership of the means of production by democratic means over a long period of time. When state-owned industries in Britain proved economically unworkable, their project was ended by democratic means.

Some will say that laissez faire capitalism is an alternative, but I doubt this has ever really been tried. We were still in a mercantilist system when the Grange movement started advocating for anti-trust laws, so we went from the state supporting industry under mercantilism to regulated business without a real laissez faire moment between. In fact, industry still depends upon state aid in matters of credit and infrastructure. The closest we came to laissez faire capitalism was the Gilded Age of the 1880 and 1890s, which produced enough unrest to produce the labor movement and the Grange movement.

Laissez faire capitalism is close to the ideal of libertarianism, but there was substantial government interference in contracts between labor and industry, if favor of industry. Like Marxism, the purist ideal of libertarianism would be the withering away of the state, and this is no more practical than than the Marxist ideal of communism without a state. Even most libertarians understand that the state is needed to guarantee property rights.

The problem they face is that markets are as much a human invention as governments, and it's difficult to see why, therefore, markets should be privileged.over other institutions.

Wednesday, September 2, 2015

The industrialization of democracy

by John MacBeath Watkins

For most of human history, we have beer ruled by force, faith, and convention. Enlightenment thinkers thought they could do better, by coming up with a form of society that would be better suited to humanity. One might think that as our way of life has changed, our form of government would need to change, and it has.

At the time when Enlightenment thinkers were inventing liberalism, one of the few examples around of a democratic society was Switzerland.

The Swiss cantons were predominantly occupied by people who owned small farms. During the middle ages, they were famous for producing pikemen who could stand up well to cavalry. Jean-Jacques Rousseau, who was Swiss, considered the Swiss way of life ideal for democracy. There was an equality of means between the farmers, and the technology that they employed in warfare did not require the investment in armor that tended to result in rule by aristocracy elsewhere in Europe.

This is part of the reason the founders of the United States designed a democratic republic, rather than a direct democracy. The economy of the U.S. varied from Maine fishermen who caught lobster from a small boat to planters like George Washington and Thomas Jefferson, who owned large estates worked by slave labor. Everything they read from the great thinkers of their day and the ancient Greek philosophers said that a large and varied country needed to be guided by the wise men.

However, they chose to have those wise men selected by the voters. They left it up to the states to decide who could vote, and in the beginning it was mainly men with property. (Not women, and not men who were property.)

But our country has become more democratic over time. Where the constitution originally said that state legislatures would select U.S. senators, that system was found all to easy to corrupt. In 1899, William A. Clark simply paid Montana state senators to vote him into office as a U.S. senator. The senate refused to seat him after the scandal broke, This resulted in the 17th Amendment, which provided for direct election of U.S. senators.

In 1800, 83% of Americans were engaged in agriculture. Currently, about 2% of the American population are farm families. Capitalism, a term not invented until 1850, has transformed our way of life, yet we still manage under the same old constitution. How is this possible?

The answer is that we have marvelously flexible institutions which have managed to change as society changed.

Not everyone has been happy with that. Andrew Jackson, president from 1829 to 1837, was a great believer in democracy, and the extension of the voting franchise to the common man -- that is, all white men. He envisioned a country of yeoman farmers, provided with land by removing Indians and colonizing their land.

This went with a version of values favored by the physiocrats, claiming all real value came from working the land. He feared moneyed interests would undermine republican values. It's all too easy to connect the term "republican values" with the values of the Republican Party, but that's a very different thing.

Republican values, to a person of Jackson's day, were the values of a virtuous citizen. Such a citizen exemplified civic virtue and patriotism above greed and power. John Adams, the second American president, said the following in a 1776 letter to Mercy Warren:

"The Spirit of Commerce, Madam, which even insinuates itself into Families, and influences holy Matrimony, and thereby corrupts the morals of families as well as destroys their Happiness, it is much to be feared is incompatible with that purity of Heart and Greatness of soul which is necessary for an happy Republic."
Adams ended that letter with the following:

"Every man must seriously set himself to root out his Passions, Prejudices and Attachments, and to get the better of his private Interest. The only reputable Principle and Doctrine must be that all Things must give Way to the public."

Good luck with that, Mr. Adams.

Jackson worried so much about the monied interests that he took some steps, such as not renewing the charter for the Bank of the United States, and requiring that payments made for government land had to be made with silver or gold coins, and eliminating the U.S. government debt, that sent the nation into an economic crisis. We didn't have a proper central bank again until 1913, by which time it was evident that we needed some means of dealing with financial panics.

The fact is, our democratic republic has had to adapt to enormous changes in the way we live, and has also changed the way we think about ourselves. More and more people have had their humanity recognized, if you like, the ownership of their own souls and the equality of all people before the law in such areas as voting, holding property, and marriage.

Groups who once counted toward the distribution of power, but were not allowed to vote, have gained the ability to have a say in who governs them and how.

Representation had to become more democratic, because our ideas about humanity changed. When John Locke was writing, society in general accepted the notion that the head of the household should represent the household. Now our ideas are in accord with the reality that women have strong minds and strong opinions, and wish to speak for themselves. We stopped accepting slavery as an institution, because Locke's philosophy permeated our society with the notion that we each own ourselves.

We quite rightly worry that our current way of life leads to great inequality, but what could be more unequal than slavery? We have had undemocratic representation from the first. What we have now are huge differences in the wealth of voting members of society, and a far more urban way of life than the founders could have envisioned.

The urbanization of society tends to warp the issue of representation, because apportioning districts tends to favor rural populations. Those whose concerns are urban are, by the very nature of cities, concentrated in a smaller space than those with rural concerns.

Another issue is that the vision of a nation of yeoman farmers people like Andrew Jackson wanted is long gone. Most people work for wages, which goes against the old tradition of American individualism.

In the 19th Century, there were radical individualists who believed that working for wages was no better than slavery, and invented the term "wage slave" to make their point. This was the theory of liberty that C.B. McPherson called possessive individualism, the idea that liberty consists of freedom from dependence on the will of other people. We still hear echoes of this in, for example, former President George W. Bush's use of the term "ownership society."

Tom Palmer at the Cato Institute, and advocate of Bush's policies, put it this way:

As the American Founders knew and as generations of serious students of society have long known, an ownership society is a society of responsibility, liberty, and prosperity. A number of policy initiatives - including creation of personal retirement accounts, expansion of medical savings accounts, and school choice - have been proposed recently that seek to strengthen an “ownership society.” Such initiatives build on a long and deep tradition.
Port of what Palmer was referring to was Bush's poorly-received plan to remake Social Security. Social Security Insurance has always acted as insurance -- those who can work pay into the fund from which those who can no longer work are paid. Bush proposed to turn it into sort of a saving program, which would have meant that somehow, we would have to pay Social Security benefits for retirees while working people would be paying into retirement savings plans. As it happened, there already was a program for retirement savings plans called 401(K) accounts, and the plan was financially unworkable in any case.

Palmer attributed the "ownership society" tradition to the founders, but as we've seen from what John Adams wrote, some of them were big believers in personal sacrifice and public service. He was also a big advocate of strong central government. Adams even pushed through the Alien and Sedition Acts, a horrible law which, among other things, resulted in the arrest of 20 newspaper editors who opposed Adams. When Jefferson became president, he pardoned those serving time under the law and made sure their fines were repaid. The law is now considered unconstitutional.

The sort of possessive individualism that Palmer and Bush admired had more to do with the tradition of Adams' opponents, among them Thomas Jefferson. Jefferson, and later Andrew Jackson, advocated a different sort of country with the ownership of property the key to liberty.

This fit with the notion of manifest destiny, in that people could have land by homesteading the land formerly occupied by Indians.

There were a couple of problems with this. The Indians did not willingly give up their land, so the U.S. military had to take it from them by force. Homesteaders may have felt they were building a new life for themselves by the sweat of their brow, but the thing that made that possible was a major government initiative to conquer the land they homesteaded. And the logistics that made the settlement possible started with clipper ships and Conestoga wagons, but getting their crops and cattle to the cities of the East required the construction of railroads.

Some of the more important railways were built with government loans and on land grants given to them by state and federal governments. About 9.5 percent of all federal land was granted to the railroads between 1850 and 1870. The railroads then sold off much of the land to help defray the cost of building the railroads. Once the main lines were in, private capital built the rest of the railroads, so that only about 8% of American railroads were built with government loans and land grants -- but they tended to be the most important ones.

All this was in aid of a vision of America as a country of small farms. And it was such a country. It wasn't until about 1920 that more people lived in and around cities than lived in the countryside. Now, about 80% of American live in urban areas.

One major problem with the 19th century version of radical individualism was that most people working for wages don't feel they are slaves. People often quit their jobs if they don't like them. As a bookseller, some of my best and most loyal employees have been people I hired after they left their previous jobs in disgust. For an employer competing for smart, honest, hard-working people, treating people well turns out to be a competitive advantage.

The other problem with this idea is that it doesn't fit with capitalism. One of the distinguishing features of capitalism is that it produces large enterprises which invest funds in the means of production, and hire people to do the work. Jacksonian democracy would have seen this as inevitably undermining the virtues of the republic and its citizens.

One answer to that was to get the workers representation through organizing unions. And, when unions were strong, they produced a society with greater equality of incomes than America had before or since then.

Part of the reason this could happen was a moral climate that opposed an economic aristocracy. In a reaction to the inequality and abuse of workers seen in the Gilded Age, top tax rates were raised so that a tiny number of very rich people were subject to a 90% tax rate, and inheritance taxes aimed to make it harder for families to accumulate great wealth and power. It didn't take William Clark buying a seat in the U.S. Senate to convince people that wealth equaled power, there were plenty of other examples.

But since 1970, there has been a political movement to increase inequality.