Tuesday, April 09, 2013

America's Innovation by Design, Project Syndicate March 14, 2013


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America’s Innovation by Design

NEW YORK – Born at the dawn of the Industrial Revolution, the United States has creativity and invention written into its DNA. By emphasizing economic freedom and individual achievement, the US has fostered a strong entrepreneurial culture. And, by marketing cutting-edge technologies, financing their development, and purchasing them, Americans consistently transform innovation into economic growth.
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Illustration by Paul Lachine
Indeed, despite the US economy’s troubles in recent years, its educational, marketing, and financing capabilities remain robust. As developing and advanced countries alike clamor to increase their share of innovation-driven economic growth, the US has already established the necessary institutions – and a solid lead.
Before the Industrial Revolution, global economic growth was gradual and intermittent, depending on population growth, the discovery of treasure, and unexpected technological advances. But, as traditional cost structures and production techniques yielded to mechanization and vast economies of scale, consumers gained access to a cornucopia of new (or newly affordable) goods.
When manufacturing and trade replaced agriculture and household labor as the dominant economic activities, technological innovation became commercially and militarily vital. The US, Europe, and Japan established national innovation infrastructures, comprising government research entities, scientific institutes, research and development laboratories, and technologically oriented universities, night schools, and vocational schools.
During World War II, the US pulled ahead, becoming the global leader in innovation. While its predominance has waned since then, owing to heavy investment in technological infrastructure elsewhere, it remains on top.
America’s global reputation for technological prowess draws talent from all over the world. In 2008, foreign nationals accounted for a majority of US Patent and Trademark Office filings. In 2011, US nationals were responsible for 48.4% of filings.
America’s higher-education system has given individuals the ability and drive to innovate. According to one well-known survey, the top 15 universities in engineering, technology, and computer sciences (measured by awards and research output) are in the US. In fact, America boasts 20 of the top 25 technical universities, 52 of the top 100, and 154 of the top 500 universities – almost as many as Japan, Germany, the United Kingdom, France, China, and India combined.
Moreover, the US accounts for 26% of college-educated adults worldwide – as many as China, India, and Russia combined. According to the Center for Measuring University Performance, more than 700 US universities conduct research.
Support for education and research extends beyond universities. The US accounts for nearly one-third of global R&D spending – 2.6 times China’s share – including 37% of global R&D spending in the energy sector, 49.7% in life sciences, 58% in information and communication technologies, and 27.5% in chemicals and materials. In 2012, spending in the US on aerospace and defense R&D was almost 3.5 times higher than in all other countries combined. While the US does not dominate every field, it remains the world’s principal source of technological innovation overall.
Given the opportunities that America’s embrace of innovation implies, more than two-thirds of the foreign science and engineering students who study in the US remain for at least ten years after graduation. And the US has not only translated education into innovation; it has converted innovation into economic growth.
The first step in that process is marketing, which maximizes the commercial viability of innovative technologies by stimulating desire for them. Marketing communicates value and appeal to potential buyers, while reducing barriers to sale.
US business schools – which emphasize marketing in their curricula – dominate international rankings. For example, they filled eight of the top ten positions in theFinancial Times' 2011 rankings. Long the world’s largest marketplace, the US boasts more retailers, advertising agencies, and promotional communications than any other country – evidence that its capacity to stimulate desire for innovation remains strong.
The second step of the process is financing – giving individuals the purchasing power to innovate, and to consume innovative technologies. This occurs largely through credit (purchasing power in exchange for the promise of repayment). Formerly limited to wealthy individuals and established firms, credit has become pervasive – especially in the US, where nearly all consumers have credit cards, venture capital funds vie to sponsor innovation, and robust securities markets allocate savings to new projects.
Given its well-developed financial system, which includes by far the largest number of commercial banks worldwide, America is well positioned to continue to provide the needed purchasing power to support innovation. For example, US-based private equity/venture-capital firms raised $548 billion for investment purposes in 2003-2008 (excluding government funds) – more than double the rest of the world’s combined total of $251 billion.
In addition, the value of stocks and bonds on US securities markets totaled $67 trillion at the end of 2010, compared to $63 trillion in Europe and only $16 trillion in China. Indeed, despite recent excesses, the US financial sector remains among the world’s most accessible sources of purchasing power for both innovative technological ventures and consumer purchases.
By far the world leader in higher education, research and development, marketing, and finance, America maintains a strong capacity to translate technological innovation into economic growth. In an uncertain economic environment, US policymakers must protect and build upon one of their country’s most valuable assets – and its institutional underpinnings.
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    Read more at http://www.project-syndicate.org/online-commentary/america-s-leading-global-role-in-technological-innovation-by-keith-roberts#UHIJs05jCuJIsPsg.99 
    Posted by Keith Roberts at 2:14 PM 0 comments

    Friday, March 15, 2013

    3/14/13 Project Syndicate article: http://www.project-syndicate.org/online-commentary/america-s-leading-global-role-in-technological-innovation-by-keith-roberts

    2/21/12 Kirkus Review of Origins of Business: http://www.kirkusreviews.com/book-reviews/keith-roberts/the-origins-of-business-money-and-markets/


    12/15/11 European Financial Review article: http://www.europeanfinancialreview.com/?p=4274


    Posted by Keith Roberts at 10:12 AM 0 comments

    Wednesday, February 20, 2013

    Legal Education: The Shark Mentality


    On Feb 14, 2013, at 11:53 AM, Joe McCray wrote:
    Keith:  I'm sure you saw this story [“Lawyers Call for Drastic Change in Educating New Lawyers”] in the NYT a couple days ago.  I've seen it every year for as long as I can remember.  I even recall writing to the ABA about suggested changes, naively believing we were on the brink.  But, no. Worse, none of these suggestions hits what I think is a basic need in the profession, i.e. change the shark mentality.  Lawyers have simply got to stop being the problem - not "part of the problem" but THE problem and instead be the solution to unfair contracts that result in legal fleecing of lay ppeople - usually poor.  So,  I thought I'd seize the publication of this years faux alarm and vent on my old partner.
    Joe


    On Thu, Feb 14, 2013 at 9:14 AM, Keith Roberts  ‪<keithofrpi@earthlink.net> wrote:
    Dear Joe,
    As you know, I hate disagreeing with you. But here I must. You are a trial lawyer, and in the domain of trial lawyers the attorneys have a lot of control over what they do and how they proceed. But fewer than 2% of all cases are decided in trial, and a miniscule fraction of all legal work involves litigation. For the vast majority of lawyers, who in the buzzword of the day perform "transactional" work, the goal is to achieve, without violating criminal laws, what the paying client wants. Law, in other words, is a business.

    It was striking to me that in naming a commission to look into election law, Obama named Romney's chief counsel, Ginsburg, as well as his own counsel. As commission members, they may well suggest good reforms aimed at allowing everyone to vote. But as a working lawyer being paid to do his client's bidding, Ginsburg undoubtedly worked to subvert the votes of everyone likely to favor Obama. There, I think, you have the distinction between lawyering as a job, and lawyering as a public service. We can teach attorneys to do both, and we can teach attorneys the appropriate public values. But we cannot expect attorneys, in their jobs, to pursue those values to the detriment of their clients.
    Keith


    On Feb 14, 2013, at 5:56 PM, Joe McCray wrote:
    Keith:  So, a good legal education includes accepting the notion that  you will get a license to lie, cheat and steal - so long as you serve the needs of your client and avoid criminal prosecution ( not the same thing as avoiding criminal behaviour).  We must, therefore, drastically reduce the number of people who have a license to practice law.  Those who would otherwise be lawyers can go be bankers and hedge fund people.  Sort of turns the idea of an honest day's work on its head, doesn't it?
    Joe


    On Fri, Feb 15, 2013 at 6:10 AM, Keith Roberts ‪<keithofrpi@earthlink.net> wrote:
    Joe,
    Helping clients do what they want is hardly ever a matter of lying, cheating, or stealing, at least in the US so far. Most business here is conducted straightforwardly, and legal educations are geared toward learning the rules of operation and how easily matters can be misinterpreted. In Japan and Europe there are many fewer lawyers, but far more notaries and others who do what is in the US considered legal work. Licensing fewer lawyers would be a good thing because it would shift a lot of work to less expensive hands--a move that the guild has always resisted--but not because it would reduce dishonest practices. And maybe then those would-be lawyers would become plumbers or electricians.
    Keith

    On Feb 15, 2013, at 9:58 AM, Joe McCray wrote:
    Keith: Yours is an interesting lesson on the lay of the lawyer land, but, I'm afraid, you've never read a real estate mortgage contract or a liability insurance policy.  Had you ever done that,  you'd see what is clearly evidence of sharp practices, bullying, deception and just plain ignoring the notion of mutual consent.  Such things, of course, are the result of standard, mainline lawyering.  Firms, in particularly large firms, compete for corporate business by demonstrating their deception chops and schemes only barely within the line the criminal law draws. "Helping" clients is not what they are doing;  they're getting and keeping business at the cost of personal integrity - or at least shoving such matters into the dark corner of memory. 
    Joe


    On Fri, Feb 15, 2013 at 7:32 AM, Keith Roberts ‪<keithofrpi@earthlink.net> wrote:
    Dear Joe,
    Abusive contracts? Only now you tell me? Heavens! What you seem to be ignoring is the essence of day to day legal work. It isn't drafting villainous one-sided contracts, or laying out deceptive schemes to prospective clients. It's slogging through the routine minutiae, punctuated by the occasional bright idea that brings a deal together, or saves a client some taxes, or resolves a budding dispute. There are also plenty of really dumb, disorganized, and CYA attorneys who lose papers, misplace them, and try to cover up their errors. Nevertheless, lying, cheating, and stealing are no more the essence of legal work than they were in our office practice. They are shameful behaviors: that's why nobody claims credit for those clauses of adhesion in leases, mortgages, and consumer service agreements.
    Keith
    PS: I might want to post this thread on a blog. Would that be ok with you?


    Keith:  Sure, post it.  But include this anecdote:  I foolishly bought some commercial property financed in part by a securitized mortgage loan. The "contract" was seventy one pages long - seventy one pages of 9pt font and 1/2 spaces. Among the provisions was a requirement that I hire a lawyer in the venue of the property ( Chicago) and that the lawyer for the mortgagee choose the freakin' lawyer. The designated contact for the lender was a law firm in Baltimore - I only remember one of the named partners, "Poe", for obvious reasons.  After surviving a once through on this...paper...I telephoned that firm with a code for the transaction.  When I gave that code, a woman comes and introduces herself as "Victoria".  I ask my first question.  She stops me. "You do understand, Mr. McCray, that you will be paying my fee for this advice?"  Of course, I didn't understand that at all and told her I wasn't seeking advice, only an answer to a question raised by the tome her firm had generated for this deal.  She apologized and wished me a good day.  Eventually that deal blew up after the mortgagee was found to be lacking in standing to sue me.  So much for the skill and integrity of lawyers driven only to "help" their clients.
    Joe



    Posted by Keith Roberts at 3:28 PM 0 comments

    Friday, June 15, 2012

    After November 2012

    The overwhelming financial advantage of the Republicans, their ability to undermine Obama by sabotaging the US recovery, the weak Democratic political campaign, and the grinding problems of Europe ensure a Republican sweep in November. Romney will be the new President, and he will have a majority in the Senate as well as overwhelming control of the House--and they of him. The question, then, is what will happen over the next 3-4 years.

    The Republicans believe that economic recovery requires, first, an unpleasant period during which we get our fiscal house in order by cutting back on entitlements and government spending, and second, government support for private investment. They do not believe in government investment as such, apart from the military and police sectors. Consequently, a dramatic remake of the federal budget will be enacted, as they forthrightly promise. A balanced budget without tax increases on the investor class--that is, corporations and the wealthy--will be the goal, and will include increased defense spending. The Obama healthcare bill will be repealed, and the Republicans will seek to replace Medicaid and Medicare with a voucher system whose levels are geared to reducing federal deficits. Most other social programs, including the EPA, welfare, and industrial regulation will also face drastic financial reductions or total elimination. Farm welfare and tax incentives for carbon-based energy production will survive, however, and probably even increase.

    Although Democrats will protest and use parliamentary maneuvers to block what they can, and the surviving liberal press will likewise fuss and fume, they will be talking only to themselves, and a continuing din of right wing advertising and media favoritism will largely drown out their objections. Nor can Democrats at local, State, or federal levels realistically hope to regain office, because the Republicans have a permanent and overwhelming monetary advantage, which has been demonstrated to be highly effective with the electorate, and they will also continue to benefit from voter eradication strategies in the States, of which they will control many more in the Romney sweep.

    As  economic theory predicts, and the experience of Europe is now demonstrating, the austerity program that Romney promises will not actually restore fiscal order, and it will very clearly increase disparities of wealth. We can expect an increasing number of Americans to become jobless, members of the underground economy, dispirited, disqualified for 21st century jobs, and, in more and more cases, very angry. Although similar trends will grow throughout the world, the highest performing levels of the US economy should be able to sustain their sales and increase profits through their international operations. Similarly, those businesses that cater to the wealthy should thrive, and a flood of people moving down the income ladder might sustain sales and profits at the businesses like Walmart or Dollar Stores that cater to those with low income.

    I say that US corporations should be able to sustain international sales, but that possibility would disappear if Romney pursues the beligerant foreign policy he has suggested. Even if he does not start a shooting war with Iran, however, anything like a return to the W. Bush policies would probably trigger international trade wars that could go far toward dismantling the free trade measures that have prevailed since World War II. Since that would, of course, be very problematic for the corporate world I tend to discount the possibility that a Romney foreign policy would resemble his campaign positions.

    Some writers have posited that Romney's election and a sweeping Republican triumph in November would lead to something like permanent oligopolistic rule, with the only significant disagreements being within the ruling class. That does seem to me a possible endpoint of what must be a devolution that takes several election cycles. Several conceivable scenarios could seriously derail that development, such as warfare, civil chaos, Democratic resurgence, the formation of an effective new political party, plague or other cataclysmic natural disasters, or technological breakthroughs that overturn the existing economic structure.  So there is always hope.
    Posted by Keith Roberts at 6:57 PM 1 comments
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    Tuesday, December 06, 2011

    Raw Contempt

    I don't believe that any group of Americans since the end of Jim Crow has received such raw contempt as Republican primary voters. Those heaping contempt on the Republican primary voters are the Washington insiders, power-maddened billionaires, and media moguls who have chosen the sorry candidates that they now face. With the possible exception of Jon Huntsman, these candidates are inexperienced, idiotic in their policy prescriptions, and either personally dishonorable or palpably dishonest. They shamelessly contradict themselves, denying what they have said and done, and promulgate falsehoods in their advertisements.
    Posted by Keith Roberts at 8:45 AM 0 comments
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    Monday, November 21, 2011

    Congratulations to WSJ, Koch Bros., Scaife, Murdoch, Limbaugh

    Those named above, their genial front men Reagan and W. Bush, and their fellows on Wall St. and in the churches, brought about the current financial mess. Then, with the necessary help of their appointees to the Supreme Court they ensured that they would come to own it, and once Romney defeats Obama, and a majority of the Senate is Republican, it will be their mess to deal with. Congratulations.

    Obama and Geithner came into office facing the worst mess since the Depression, and a far more difficult, chaotic political scene than existed even then. They certainly made mistakes in trying to deal with the mess they inherited. But I think that much of the retrospective advice now pouring forth about what they should have done instead seems to me unreasonable, given what they did not know at the time.

    In the first months of 2009 they could not know that the Republicans would form a solid and virtually treasonous opposition to everything Obama sought to do, or that any such effort would prove wildly successful and publicly popular. Nor could they expect that Republican operatives and billionaires would successfully gin up the Tea Party movement, or foresee the Citizens United Supreme Court decision. That decision led directly to the suicidal debt ceiling impasse last summer, and the super-committee's failure now. It has opened wide the right wing political spending spigot, forced every Republican politician who is not suicidal to toe the radical right's line (however hateful and imbecilic it may be in terms of the general public interest), and thus destroyed our constitutional democracy. Hence, what was right economically proved implausible politically, and vice-versa. The reality is that Obama and Geithner have struggled cleverly and valiantly against these developments, and won some brilliant victories. But the war is lost. The radical right now gets to deal with the problem--if they even think of it as such. Given their cruel and pitiless nature, I fear that great pain lies ahead for us all.
    Posted by Keith Roberts at 12:33 PM 0 comments
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    Thursday, July 14, 2011

    The Public Debate

    Steve Ratner is not a simple man. He has a public record of both angelic and devilish behavior. As an angel, he has taken public positions clearly designed to further a general public interest, rather than his private interests, and was instrumental in saving GM and Chrysler, and hundreds of thousands of jobs at a critical moment during the Great Recession. As a devil, he has been heavily implicated, even if not indicted, in his company’s bribing of the corrupt NY Comptroller Alan Hevesy.

    This morning, the devilish Ratner made a particularly unfortunate presentation on “Morning Joe,” where he is a regular, and normally quite sensible commentator. He presented charts showing that in addition to the $14 trillion (T) US debt, there are unfunded liabilities through social security and health care totaling perhaps $36T more, bringing total unfunded liabilities to about $50T as compared to a current $16T GNP.

    The presentation was unquestionably scary, but in my opinion it was also false, and for reasons I will later provide, irresponsible. What made it false is that (1) it implies a present liability where none actually exists, and (2) vastly overstates the amount.

    (1) The additional $36T is a liability only in the sense that you could count the future expenses of any ongoing concern as a liability if you disregard the concern’s revenues. In other words, if you add up all the future expenses of a going concern, you could call that a liability. Ratner has added up all the future social security and medical payment checks that the actuaries think the government will have to write over the next 50 or so years, and calls that the unfunded liability. Of course it’s unfunded: he doesn’t count any revenues. That’s an absurdity, not information.

    (2) Moreover, since social security and medical expenses become due over a long period of time, the mathematical total of those payments is not a useful number. Imagine that I owe you $1 million, but pay it to you at the rate of $1 per year. Is my liability really a million dollars, or is it actually the $20 or so I would need to put into a savings account to earn that dollar a year so I could pay it? Obviously it’s the $20 that is the liability, what financial and economic literates like Mr. Ratner call the discounted present value of the amounts to be paid. It’s not the mathematical sum of all those $1 a year payments stretching out over centuries.

    Now I come to why I think Ratner’s false presentation was irresponsible. Leave aside my view that any expert who makes a false or seriously flawed presentation of what the expert should know about is being irresponsible, to put it kindly. Here, Ratner has stepped into a volatile public dispute in which one side labors under a tremendous burden of ignorance, and his presentation gives expert confirmation of that ignorance. It’s as if an evolutionary expert gave a presentation appearing to confirm creationism.

    In the dispute over the deficit, a large portion of the Republican Party’s base bears this burden of ignorance. These are people who do not themselves know anything about economic or public affairs. Unless they are directly impacted by government action, as when it shuts down, they have no interest, no independent knowledge, and no way to think about such matters. All they know comes through the coordinated propaganda of Fox News, right wing talk radio, fundamentalist clergy, and Republican politicians. Much of that propaganda is deliberately false or deceptive, but the base cannot distinguish between truths and falsehoods in economic or public affairs, and therefore sincerely believes the propaganda.

    As a result, many Republicans believe economic absurdities, ranging from the notion that the deficit is the cause of high unemployment to the view that moderately raising taxes on the rich would hurt job creation. These are items of faith or ideology, and not changeable through argument or reason. Nevertheless, there are many other people who may be tempted by the Republican position, and the certainty with which it is advanced. And it is to these folk that Ratner’s presentation does the real harm.

    Let me add that the Republican base is not the only one that suffers from great ignorance. Much of the natural Democratic base, like that of the Republicans, lacks knowledge or interest in economic and public affairs, and acts primarily on the basis of personal experience. Since many in the Democrats’ natural base are poor, their personal experience tends to be one of powerlessness. Based on that experience, then, they believe their vote doesn’t matter, and they don’t bother to cast it. In the election of 2010, for instance, the Republican triumphs came about largely because the Republican base voted; the Democratic base did not. As a result, a minority of Republicans nominated the Republican candidates, and a minority of voters elected the winners.
    Posted by Keith Roberts at 10:15 AM 0 comments
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    Thursday, March 24, 2011

    Right Wing Goldbug Rhetoric

    Egon von Greyerz (von G) is a goldbug. His writings at zerohedge.com are laced with scary assertions about impending financial doom, mixed with facts that, on close analysis, have little relevance to his conclusions. I admit to some fascination with his rhetorical approach, which seems quite typical of the goldbugs and conservative doomsayers that I have previously encountered. I think his message is mistaken, but like so many theories emanating these days from conservative ranks, the rhetoric is very persuasive. Let me use von G’s essay “A Hyperinflation Deluge is Imminent, and Why, Therefore, Bernanke’s Motto is ‘Après Nous le Deluge’” to analyze this particular goldbug’s reasoning, and why such rhetoric as his makes it seem persuasive.
    Von G starts by sarcastically stating what he thinks is the opposing point of view—that “Obama and Bernanke are the dream team making the US into the Superpower it once was.” He follows up with invective: “amazing the castles in the air that can be built with paper money and deceitful manipulation of all economic data. And Madame Bernanke de Pompadour will do anything to keep King Louis XV happy…” Note that all these statements are devoid of fact. But the sneering sarcasm serves a purpose, as it does for Rush Limbaugh and Fox News commentators. It expresses contempt for those who do not begin by agreeing with him. In doing so, it appeals to the authoritarian instinct in all of us, implicitly saying “I know what’s true and right, and I only respect those who agree with what I am going to say.” The sneering and sarcastic tone thus becomes a marker, which frequently reappears to remind the reader of the disrespect that he would earn by questioning the author’s thinking.
    The next paragraph is a good example of how the sneering tone signals to the reader how to view the facts that are stated, even before the reader has thought about them for him or herself. While von G truthfully says that Obama and Bernanke pushed a lot of paper currency into the market, he signals his disapproval with the loaded term “flooding the market with paper” (emphasis added), where “flooding” means that the action is destructive. They do this, he says, knowing “they are committing a cardinal sin” to retain power. These additional claims are pulled from thin air, but tell the reader that printing paper is not just a mistaken policy, it’s really an illicit one that only selfish and despicable people would do.
    The claimed consequences are then described in a series of apocalyptic statements and predictions, all without evidence or attribution, and some without relevance. A “deluge of unprecedented magnitude is both inevitable and imminent” and “life will be very different for coming generations.” Next, we learn the sad but unrelated fact that “we have reached a degree of decadence that in many respects equals what happened in the Roman Empire before its fall.” Also sad but irrelevant to the financial problem is that “Children are neither taught ethical or moral values nor discipline” and “Both press and television create totally false values and ideals.” There is more of the same, as well as some overstated demographic data: “More than 50% of children in the Western world grow up in a one parent home” (perhaps in the US, but in Europe too?); “Most families do not have a meal around the dinner table even once a week” (ditto); “Everyone must be young and beautiful often enhanced by surgical or digital means”; “Old people have little value.”
    With the reader now depressed, frightened, and compliant, von G makes his economic argument. Here it is, in its entirety: “Since most of the prosperity that has been achieved in the last 40 years is based on printed money and debt, it is totally false and unsustainable. A major part of the Western world has improved their [sic] living standard, by exchanging services and swapping houses at ever-rising prices financed by printed paper and credit. The perceived wealth that is created out of this is totally illusory and ephemeral. We have created a world economy which is based on debt and thin air.” (original emphasis) Let us consider his points.
    (1) “most of the prosperity that has been achieved in the last 40 years is based on printed money and debt.” There is a name for printed money plus debt: purchasing power. An increase in purchasing power is virtually synonymous with increased prosperity; what von G is saying, therefore, is nothing more than a tautology, or in mathematical terms, an identity. His implication, however, is that while currency and debt have increased, true prosperity has not really grown as well. If his claim were true, there would have been rampant inflation throughout the last 40 years, since adding to purchasing power without increasing real prosperity achieves nothing but a rising level of all prices. Indeed, von G implies that this happened when he attributes this illusory prosperity to “exchanging services and swapping houses at ever-rising prices financed by printed paper and credit.” But that is not true of the last 40 years. The quantity of money and credit has risen without a corresponding rise in inflation. Some prices have, indeed, gone up; many others have fallen. As well over a billion people around the globe, lifted from abject poverty to middle class or better lifestyles, well know, the increase in prosperity has been real.
    (2) The prosperity “is totally false and unsustainable.” It makes no sense to claim that 40 years of prosperity are illusory. They happened, and whatever happens now or in the future, those 40 years cannot be taken away. Of what does prosperity consist? My answer would be that it consists of the means to satisfy desire. The more desire, the more is required to satisfy it. The aggregate level of desire was once closely tied to population growth, but in modern times innovation and marketing have become key drivers of desire and prosperity as well. To claim, as does von G, that modern prosperity is illusory is to assert two ridiculous falsehoods: that during these decades there has been no population growth, and no marketing and innovation.
    (3) “The perceived wealth that is created out of [“exchanging services and swapping houses at ever-rising prices financed by printed paper and credit”] is totally illusory and ephemeral. We have created a world economy which is based on debt and thin air.” (original emphasis) Without question, both currency and credit have grown greatly. But prices for housing and services have not risen at the same rate; what was exchanged for $50,000 in 1971 is not now exchanged for $300,000 in 2011. Many services have not risen, but actually fallen in price, and most housing prices are back to pre-bubble levels despite huge increases in paper money during the last two years. In other words, the simple correlation von G suggests does not hold and does not make any sense.
    As to von G’s claim that “the perceived wealth that is created out of this is totally illusory and ephemeral,” he is not making an argument or providing reasoning; he is simply re-stating an opinion.
    At bottom, then, von G’s views rest on factual errors and illogical reasoning. Nevertheless, his writing can seem persuasive. The reason, I believe, is that in addition to the authoritarian and superior posture that he assumes from the start, there are two more rhetorical devices embedded in the key paragraph discussed above. First is the frequent repetition of the same damning charge: that the current prosperity “is totally false and unsustainable,” “totally illusory and ephemeral,” and “based on debt and thin air.” Repetition illustrates the depth and force of his conviction, and since von G writes authoritatively and coherently, the reader who does not or cannot analyze what he says is swept along, just like the listener to a Rush Limbaugh radio broadcast. The second rhetorical device is to mix truthful claims in with the erroneous and questionable assertions upon which he actually relies; for example, von G points out that levels of printed money and debt have risen, and how much, and so have prices. As I think I showed, these true assertions do not lead to the conclusions that von G draws. They are actually beside his point. But just as advertisers pay famous people for endorsements, even of products they never use, so the presence of true factual claims lends plausibility to the other claims and assertions, however illogical or mistaken they may be.
    In short, von G’s rhetoric is brilliant and highly persuasive, but his actual point of view is badly mistaken.
    Posted by Keith Roberts at 1:20 PM 0 comments

    Thursday, December 23, 2010

    Origins of Business, Markets, and Money website

    For the latest information on my book The Origins of Business, Markets, and Money published by Columbia University Press, check out this link.
    Posted by Keith Roberts at 11:33 AM 0 comments
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    Tuesday, December 14, 2010

    Tax Deal

    I have long argued that Obama’s pr people were failing him, and I speculated that because they plunged into the Presidency without any rest from the campaign, they were simply exhausted. Whatever the actual reason, it’s now clear that Obama and his team never heeded the good advice of people like George Lakoff and Drew Westen, who laid out excellent prescriptions for how to communicate about progressive policies. So we find ourselves today in the following economic position:
    As a whole, the economy is slowly and weakly recovering from the Great Recession.
    Large banks and wealthy investors are doing very well.
    Unemployment rates remain near 10%, with the actual number probably closer to 20% and the hardship much worse for minorities and the young.
    The savings and wealth of the American middle class has been decimated.
    The Tea Party/Republican party will rule the House from January 1, and will use its position to impose fiscal blackmail on all federal programs other than defense spending, not to mention doing their best to foil government activity by holding non-stop hostile hearings.
    The possibility of any further fiscal relief for States or for poor or middle class people during the next two years is nil. As is the possibility of any federal “stimulus” money.
    The goals of the conservative are twofold: first, to defeat Obama in 2012; second, to return the federal government to its pre-civil war role in which virtually the only legitimate activities were considered to be national defense, the collection of geographic information, and the management of public property.

    This is the context of the tax deal. What does the tax deal do? Of the 900 billion cost, three quarters go to direct economic stimulus, which not coincidentally also saves millions of people from desperate misery at a time when they cannot possibly help themselves. The remaining quarter does go to the billionaires, who will not spend any appreciable part of it for the national benefit, and is a dead loss. But it is the ransom they require, and what we get in exchange is really important. Without this deal, Obama’s loss in 2012 would be assured, as would the return of a Depression era like we have not seen in our lifetimes. Nor would any other significant legislation have a chance now, such as the START treaty, the HOPE bill, and the DADT bill. With this reform, some or all of those bills might pass, even though they stand no chance whatsoever in the new Congress.

    My interpretation of Obama, as a result of this deal, is that he has his eye on the practical realities for people. He is completely pragmatic, and like any good negotiator or deal maker will trade off unpleasant concessions for what he really needs and wants.
    Posted by Keith Roberts at 3:59 PM 0 comments

    Friday, December 10, 2010

    Why Democrats Did so Badly

    I have been trying to figure out why the Democratic majority in Congress proved to be such a failure. Here is what I conclude. The fundamental reason for the failure was the Senate's filibuster rule. Without 60 votes, the Democrats were essentially helpless to get anything passed. The result was the mishmash we all saw. So the question becomes, why didn't the Democrats change that rule when they came to power in 2008?

    The answer, I think, is the same reason why people don't keep their kitchen knives under lock and key. The filibuster was a tool that had never received much use, except when a minority of senators was very deeply and strongly opposed to something, as in the case of Southerners opposed to integration. While the Republicans began using it more often after 2006, it remained only an occasional factor since it was very difficult to rally so many senators to an obdurate stance. 2008 brought about an enormous change. So many moderate Republicans lost, and the party became so dependent on a particular segment of wealthy donors, that the remaining Republican senators could be induced or bullied into total unanimity whenever the leadership required it. McConnell began using the filibuster in a totally new way, as a day to day tactic, and this proved remarkably successful since the Democratic majority included a considerable number of rather conservative "blue dogs," and it only took one of them to make the filibuster succeed. By the time this tactic emerged, the time period during which the rules could have been changed had passed, and therefore the Democrats could not prevent the filibusters.

    What remains unclear to me, however, is why Reid did not force the Republicans to actually filibuster, instead of simply winning cloture votes.
    Posted by Keith Roberts at 10:27 AM 0 comments

    Wednesday, December 01, 2010

    The new US constitution

    I think we are ignoring several enormous changes that have transformed the US from the hope of the world into a new form of corporate state: (1) since Eisenhower, if not before, the military has become a huge, wealthy, and independent power with its own rulers, its own priorities, and a lordly presence around the world. It will continue to absorb the lion's share of our wealth regardless of the economic and social consequences. (2) Beginning with Reagan, the rich have become vastly wealthier and more powerful compared to everyone else, while middle class and blue collar community and labor organizations have dwindled. Bottom line: wealth now dominates our politics. (3) The George W. Bush presidency destroyed something like $12 trillion of US wealth, mostly in the form of middle class home investments. This one time destruction of wealth vastly exceeds all the losses of all the European powers outside Russia during World War II, and because of other changes enumerated here it cannot be recovered. (4) The Supreme Court's decision in Citizens United definitively marks the end of democracy in the US. Sure, democratic forms remain, and occasionally a rich candidate loses, but with only occasional exceptions, wealth now determines election outcomes. This may be particularly pernicious at the level of judicial elections. Although the judiciary remains for now what it has long been, largely committed to the rule of law, Citizens United and the efforts of groups like the US Chamber of Commerce guarantee that it will become increasingly partisan and corrupt as honest judges are replaced by those compliant with wealth, power, and ideology. (5) A key feature of "globalization" is that the major political actors--the largest corporations--no longer dependent on the American consumer for their profits. They have a sharply reduced stake in the economic viability of the nation, and are therefore relatively free to pursue public policies that further impoverish most Americans. To put it another way, just because a firm is headquartered in the US doesn't mean that it cares much about US conditions. Its leaders are insulated by their personal wealth, and its economic prospects depend on a far larger base than the US.

    These fundamental changes render impotent and irrelevant liberal objections to the misdeeds of the present system. Unless an extraordinary new leader emerges, the system cannot be changed back to what it was. We thought Obama would be such a leader, but for all his qualities he clearly lacks essential public leadership skills, and there is no better choice on the horizon. The Republicans are now the only viable political party on the national level, and as far as I can see the only hope for amelioration of the depressing prospects is dissension within their triumphant ranks. Improvement will take a long time if it can be done at all.
    Posted by Keith Roberts at 9:53 AM 0 comments

    Thursday, September 16, 2010

    Tea Party

    Who could fail to resonate with the Tea Party desire for less federal spending, a smaller government, and a balanced budget? Who would disagree that many of the elected officials in Washington are crooks, chiselers, beholden to special interests, or otherwise unworthy? Because of the widespread popular agreement with these views, and the strange inability of the Obama administration to present its own relatively sane programs coherently and persuasively, the officials who will be elected or retained in office with Tea Party support will constitute a majority of the House, and perhaps of the Senate as well. And then what will they do?

    People like Kelly O'Donnell and Sharon Angle seem to have no ideas at all; those with ideas, like the "young blood" Republicans who sympathize with the Tea Party, have ideas that either cannot be implemented, or would destroy the country. The leading idea seems to be to repeal the healthcare reforms. Presumably over the dead bodies of the healthcare industry that crafted and supported them, not to mention the liberal Democrats. But for the most part, the "shrink the government" movement has no ideas at all. We all want to shrink the government. But how? There lies the rub.
    Posted by Keith Roberts at 4:33 PM 0 comments

    Tuesday, August 03, 2010

    "Our" Freedom

    Most of those who follow the Wall St. Journal's editorial page, listen to Rush Limbaugh, or regularly watch Fox News seem to share a belief--no, actually a fact so obvious that it requires no proof--that liberals are constantly threatening "our freedoms," the freedoms that people like them--the salt of the earth--hold most dear. Liberals, those unworldly do-gooders, constantly advocate policies that increase the size and responsibility of government, and the required level of taxes. As opposed to people who live and work in the real world, this account believes that liberals generally come from academia, or pursue intellectual activities, and accordingly know nothing about the way the world actually works. Or at least that's what they think until they need someone who actually knows something, such as how the markets work, or how to improve a machine, or what motivates people. At that point, of course, these realistic folks are likely to seek out experts, aka liberals.

    When we examine more closely just which of our freedoms are being attacked by the pointy-headed types, however, it turns out that the circle of "us" is rather small, and the "freedoms" for these few are rather harmful to the rest of us. "Our freedoms" include the freedom to spend what we want on political campaigns, a freedom treasured by more foreign corporations than American citizens, if you examine who will use that freedom. "Our freedoms" include the right of power plants and energy producers to heat the earth without paying the cost, indeed to receive enormous subsidies for doing so; the right of the top 1% of earners to have the lowest tax level since the Great Depression, the right of corporations to injure their workers or their neighbors without significant consequence to themselves, the right of financial firms to lie, cheat, and steal, and the right of people who negligently or deliberately harm the lives or property of others to be free of regulation or payment. To put it in other terms, "our freedoms," as the Republican base would have it, consist of the rights of feudal lords to act without regard to the welfare of the peasants.
    Posted by Keith Roberts at 8:32 AM 0 comments

    Monday, July 26, 2010

    The Afghan Leaks by Wikileaks

    I think this leak and the blogosphere reaction to it highlights a crucial failing of the Obama administration. We need a coherent and honest explanation of some confusing and difficult circumstances here. We are dealing with murky and ambivalent governments in Afpak, and if we stop doing so their resources and people are likely to fall into the hands of Islamic extremists. Imagine the US nuke arsenal in the hands of the militias of Idaho, and American women subject to retrograde sexist strictures. It is also true that our own military has conflicting views on how to handle the guerilla warfare in Afpak, and many of the commanders still think that brute, brutal force is best.

    But except when the President speaks in reaction to something like this leak, we don't get that kind of communication. It is not enough that Obama's intelligence and good will are widely respected. The people in charge of his political operation, such as David Axelrod, need to provide a stream of information about the situation, why we are there, what we are doing, and what the prospects are. Without it, they leave the public to the tender mercies of duplicitous self-aggrandizing groups and Fox News. The Wikileaks information would have a very different impact if the Obama Administration were paying more attention to keeping the public properly informed.
    Posted by Keith Roberts at 11:13 AM 0 comments
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    Wednesday, June 02, 2010

    Prosecute the Scum

    In two succeeding articles, the Wall St. Journal recently reported that the large banks at the heart of the current recession, Citibank, Bank of America, and so forth, all have followed the practice of falsifying their capital to loan ratios in the quarterly reports they are obliged to give to the federal banking authorities. They have done so, apparently, by using off-balance sheet maneuvers, like those that Lehman Brothers employed, to "move" many of their liabilities off their balance sheets. By doing so, they make their equity to debt ratio look healthy when in fact it is not.

    They claim that in doing so they are adhering to the letter of the law, in that on the exact day in question, the last day of the quarter, they do not have the liability. They also claim that despite the uniformly favorable result for them, these maneuvers happen in the ordinary course of business.

    I don't know the details, but on the surface, at least, they are violating criminal prohibitions against filing false reports and conspiring to defraud others (bank examiners, investors). Their technical defense should not hold water; plenty of people have claimed that they adhered to the letter of the law in avoiding taxes, only to have the courts invalidate their action because it had no legitimate business reason other than tax avoidance. I am sure there are many other examples in which the deliberate circumvention of a law and its goals have resulted in criminal prosecutions. As t their second claim, it is so preposterous that it calls out for investigation at the very least. I am waiting for Attorney General Holder to launch a criminal inquiry.
    Posted by Keith Roberts at 4:40 PM 0 comments
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    Monday, May 10, 2010

    Tea Party: the New Black Panthers

    As it happens I have been reading "White Dog," Romain Gary's memoir of 1968, when King and Robert Kennedy were assassinated, the Black Panthers were riding high, and students in Paris and elsewhere were revolting. Then, yesterday, I also read Mark Lilla's diatribe in the NY Review of Books, April 29 edition, against the Tea Party. There is a striking resemblance between the anarchic tendencies of the 1968 Left, and the 2010 Teaparty Right. Both think that nihilism is a productive response to the undeniable troubles they see around them. Both are ignorantly idealistic. The Black Panthers and the students of 1968 carried on for ideals of equality, justice, and an end to oppression; the Teaparty Right does so for individual autonomy, at least in Lilla's credible view. While both have been eye-catching and irresistably newsworthy, neither has ever enunciated a plausible program to achieve what they scream for. Each has seemed dangerous, but ultimately works as part of the ongoing parade of entertaining spectacles.
    Posted by Keith Roberts at 11:44 AM 0 comments

    Friday, April 09, 2010

    Dishonesty Today

    One factor that has rarely been mentioned in the national discussion about the current recession is the rise of dishonesty. There have always been crooks and liars, of course, but for centuries if not longer, lies and thievery have been socially disapproved. In the 21st century United States, however, blatant dishonesty has become commonplace not only by people who are sociopathic, needy, or crazy, but also by society’s leaders—our most important politicians and businessmen, leading corporations, and others whose attainments formerly earned them public respect.

    Although it may not be politically correct, I also observe that this normalization of dishonesty is taking place largely under Republican auspices. Obviously, Democrats have their usual complement of crooks and liars, just as Republicans do. But what we are seeing today is something extraordinary. A political scientist friend, deeply immersed in contemporary politics and a former liberal Republican, says that what has happened is the takeover of the Republican Party by the South, and with it the traditional Southern political style which is rooted in dishonesty. He's usually right about such things, but in any event the national success of dishonesty reflects its one-sided nature. If the Democrats used dishonesty as a normal tool of political competition the way Republicans do, they would not be reduced to ineffectual sputtering whenever the Republicans perpetrate another lie. Yet time and again, that has been their reaction to Republican lies. We have seen this with the Swift Boat ads, with Republican propaganda about the healthcare bill, and with their outlandish claims about President Obama, just to mention a few of the better known examples. The Democrats remain perpetually surprised and shocked by such lies, still taking honesty and honor as the norm.

    The spread of blatant dishonesty to the highest reaches of private society, which traditionally consists largely of Republicans, has occurred in step with the Republican use of dishonesty for political ends. Republican policies have been highly influential in creating the current atmosphere in which dishonesty is accepted as a normal part of the “game.” For example, George W. Bush’s administration refused to pursue illegal offshore entities and practices that allowed corporations to avoid billions of dollars in taxes, and gutted the enforcement capabilities of the SEC as well as of the EPA, OSHA, the Bureau of Mine Safety, the FDA, the FCC, and the Consumer Product Regulatory Commission.

    The current recession traces almost entirely to dishonesty practiced by the largely Republican financial establishment. At its base were the firms that extended mortgage loans to people they knew to be unqualified. They then sold those loans to highly respected financial intermediaries who, with little examination, packaged and sold them to professional investors with unfounded assurances that they were safe, supported by the lies of rating agencies that had examined them only formally, and in some cases hardly understood them. The investors, in turn, falsely assured the pensioners, workmen, and others who depended on their expertise that they were working hard to protect their assets. The investment advisers who got their institutions to buy these securities fought tooth and nail against regulatory requirements designed to provide transparency, and won important victories like preventing the Commodity Futures Trading Corp. from regulating the “shadow” financial structure that had become the largest of these institutions.

    Finally, what prompted this note from me was a Wall St. Journal article of April 9, 2010, stating that according to a NY Federal Reserve Bank study, all the major banks have, for the last 5 quarters, submitted false statements about their loan levels, with the falsehood designed to make their riskiness seem less than it truly was. The article states that the false submissions were not criminal in nature since, at the moment of submission, they were technically true. But when Al Capone “proved” that he was not a crime boss because his tax returns showed only a small income, he was convicted of perjury if not of other crimes. Why, then, should a banker escape prosecution for perjury if he reports in a sworn statement that his hands are clean, simply by virtue of handing off his excessive loans for one or two days?

    It is time that we start severely punishing the liars, cheats and thieves at the upper levels of society. Let’s make it once again socially disgraceful to engage in such behavior.
    Posted by Keith Roberts at 11:25 AM 3 comments
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