Wednesday, October 19, 2011

Time to consider a municipal bank

The Eureka Times-Standard
Richard Salzman

Ten days into the Occupy Wall Street protests, I wrote a letter to the editor complaining about the lack of mainstream media coverage. By the time that letter was printed, they finally got to the story, to their credit.

There are now “Occupy” actions taking place in 1,482 cities across the country (as tracked at, including in my own town of Arcata in Humboldt County, California.

Surprisingly, even as the media has covered the story, many in the mainstream press seem mystified by the motives and/or lack of cohesive message. Does “people's needs, not corporate greed” explain it?

San Francisco Supervisor John Avalos, a mayoral candidate, wants his City Hall to pull its money out of corporate financial institutions and start a municipal bank “so we can control how we are investing in local businesses.” I hope Humboldt County will also consider that option.

Long ago, I pulled my money from a big bank and put it into a local credit union. Then, it was recently publicized that the CEO of my small “nonprofit” credit union was taking home just shy of $1 million a year in compensation (making the $160K that our county administrative officer earns seem pretty reasonable). I'm sure people would love to put their money in a county-owned bank whose CEO doesn't get $1 million (see for more on this subject).

Here are six more excellent ideas taken from Sens. Bernie Sanders and Matt Taibbi, writing in Rolling Stone magazine:

1. Break'em up. If a financial institution is too big to fail, it's too big to exist. Start with repeal of the Gramm-Leach-Bliley Act and mandate the separation of insurance, investment and commercial banks.

2. Pay for bailouts. A Wall Street speculation fee on credit default swaps, derivatives, stock options and futures would both pay for the bailouts and do plenty to fight the deficits.

3. Cap credit card interest rates, end usury. Citigroup, Bank of America, and JP Chase should not be permitted to charge 25 to 30 percent interest when they received over $4 trillion in loans from us.

4. Tax hedge-fund gamblers. Repeal the carried-interest tax break, which taxes hedge-fund titans only 15 percent on their income.

5. The Federal Reserve needs to provide small businesses in America with the same low-interest loans it gave to foreign banks.

6. Stop Wall Street oil speculators from artificially increasing gasoline and heating oil prices.
Richard Salzman, who lives in Arcata, works as an illustrators' rep and political consultant.

Monday, October 17, 2011

Krugman on Wall St.: Losing Their Immunity

Losing Their Immunity

by Paul Krugman
N.Y. Times

As the Occupy Wall Street movement continues to grow, the response
from the movement's targets has gradually changed: contemptuous
dismissal has been replaced by whining. (A reader of my blog suggests
that we start calling our ruling class the "kvetchocracy.") The
modern lords of finance look at the protesters and ask, Don't they
understand what we've done for the U.S. economy?

The answer is: yes, many of the protesters do understand what Wall
Street and more generally the nation's economic elite have done for
us. And that's why they're protesting.

On Saturday The Times reported what people in the financial industry
are saying privately about the protests. My favorite quote came from
an unnamed money manager who declared, "Financial services are one of
the last things we do in this country and do it well. Let's embrace

This is deeply unfair to American workers, who are good at lots of
things, and could be even better if we made adequate investments in
education and infrastructure. But to the extent that America has
lagged in everything except financial services, shouldn't the
question be why, and whether it's a trend we want to continue?

For the financialization of America wasn't dictated by the invisible
hand of the market. What caused the financial industry to grow much
faster than the rest of the economy starting around 1980 was a series
of deliberate policy choices, in particular a process of deregulation
that continued right up to the eve of the 2008 crisis.

Not coincidentally, the era of an ever-growing financial industry was
also an era of ever-growing inequality of income and wealth. Wall
Street made a large direct contribution to economic polarization,
because soaring incomes in finance accounted for a significant
fraction of the rising share of the top 1 percent (and the top 0.1
percent, which accounts for most of the top 1 percent's gains) in the
nation's income. More broadly, the same political forces that
promoted financial deregulation fostered overall inequality in a
variety of ways, undermining organized labor, doing away with the
"outrage constraint" that used to limit executive paychecks, and more.

Oh, and taxes on the wealthy were, of course, sharply reduced.

All of this was supposed to be justified by results: the paychecks of
the wizards of Wall Street were appropriate, we were told, because of
the wonderful things they did. Somehow, however, that wonderfulness
failed to trickle down to the rest of the nation - and that was true
even before the crisis. Median family income, adjusted for inflation,
grew only about a fifth as much between 1980 and 2007 as it did in
the generation following World War II, even though the postwar
economy was marked both by strict financial regulation and by much
higher tax rates on the wealthy than anything currently under
political discussion.

Then came the crisis, which proved that all those claims about how
modern finance had reduced risk and made the system more stable were
utter nonsense. Government bailouts were all that saved us from a
financial meltdown as bad as or worse than the one that caused the
Great Depression.

And what about the current situation? Wall Street pay has rebounded
even as ordinary workers continue to suffer from high unemployment
and falling real wages. Yet it's harder than ever to see what, if
anything, financiers are doing to earn that money.

Why, then, does Wall Street expect anyone to take its whining
seriously? That money manager claiming that finance is the only thing
America does well also complained that New York's two Democratic
senators aren't on his side, declaring that "They need to understand
who their constituency is." Actually, they surely know very well who
their constituency is - and even in New York, 16 out of 17 workers
are employed by nonfinancial industries.

But he wasn't really talking about voters, of course. He was talking
about the one thing Wall Street still has plenty of thanks to those
bailouts, despite its total loss of credibility: money.

Money talks in American politics, and what the financial industry's
money has been saying lately is that it will punish any politician
who dares to criticize that industry's behavior, no matter how gently
- as evidenced by the way Wall Street money has now abandoned
President Obama in favor of Mitt Romney. And this explains the
industry's shock over recent events.

You see, until a few weeks ago it seemed as if Wall Street had
effectively bribed and bullied our political system into forgetting
about that whole drawing lavish paychecks while destroying the world
economy thing. Then, all of a sudden, some people insisted on
bringing the subject up again.

And their outrage has found resonance with millions of Americans. No
wonder Wall Street is whining.

Breakthrough Journal: Liberalism and the New Inequality

From: Michael Shellenberger
Date: October 17, 2011

If Occupy Wall Street protesters have struggled to articulate their demands beyond taxing the rich, part of their challenge is the changed nature of the economy. In a new article for The Breakthrough Journal, NYU sociologist Dalton Conley notes that while the 1929 stock market crash reduced inequality by wiping out fortunes, the 2008 crash provoked measures that sustained it. "But greater equality after the crash came at a very high price: the Great Depression. So while the response to the 2008 crisis sustained the top-heavy structure of the American economy, it also averted the free fall that threw tens of millions of Americans into unemployment and breadlines throughout the 1930s."

Moreover, even as the gap between the "99%" and the richest one percent has grown, "the interests of workers are increasingly yoked to those of their bosses," Conley notes. "Half of Americans today have direct or indirect investments in the stock market, largely thanks to the shift to defined contribution pension plans and the ease of Internet investing... So if the rest of us want to save our 401ks, we have to save the status quo for the robber barons of Wall Street in the process."

Couldn't the problem have been solved by nationalizing the banks and redistributing wealth? Such a strategy "might have distributed the costs and benefits of the bailouts more fairly," writes Conley, and "higher income taxes on the rich, along with more strongly redistributive social programs might succeed in mitigating some degree of inequality. But there are also powerful socioeconomic forces driving inequality." Conley points to growing global demand for elite knowledge workers (such as by the financial sector) and the widening skills gap.

How should liberalism evolve to deal with the new inequality? By shifting its focus from absolute to relative poverty. When Americans were poor, liberalism's priorities were food and shelter. Now most Americans are overweight and own their own homes. At the same time, poor and working-class Americans, living in districts with low-performing schools, are at serious risk of being left behind. Liberalism must thus focus on to new ways to expand opportunity, and Conley lays out several.

We should decouple school funding from local property taxes — and/or allow school choice, so the poor can attend elite schools. "Yes," writes Conley, "fund private school attendance with vouchers, but require participating schools to enroll students from across the income spectrum, thereby increasing opportunity for education and facilitating entrance into the knowledge class."

We should "de-skill" credentialing monopolies in health care and education. "For example, health care could be provided more affordably if everyone was willing to see nurse practitioners or medical assistants in drive-through clinics and forsake the latest high-tech tests and procedures. College could be more affordable if we adopted an open courseware model and de-emphasized the need for face-to-face contact with faculty members."

Finally, we must go beyond the fantasy that America's problems can be fixed simply through higher taxes on the richest one percent. Liberals should embrace reform that could appeal to both reasonable liberals and reasonable conservatives. Tax all income, including capital gains, the same, but also implement a national, value-added (sales) tax, and restrict government revenue to 25 percent of GDP.

While Tea Partiers and Wall St. Occupiers offer ideological slogans to vexing problems, Conley's ground-breaking essay points to a set of pragmatic solutions — solutions with the potential to appeal to Americans divided by ideology but united in their view that expanding opportunity is a core national value. 

— Michael Shellenberger and Ted Nordhaus


October 18, 2011

Liberalism and the New Inequality

by Dalton Conley

Breakthrough Journal

The 2008 financial crisis and Great Recession that followed offered a bracing rebuke to those of us who had reassured ourselves that the increasingly unequal American economy would self-correct once it reached some natural trigger point of unfairness. After the 1929 crash, which was preceded by similarly high levels of inequality, top earners saw their share of national income shrink by one-third, and then continue to shrink until 1969. Many progressives hoped something similar would occur after the collapse of 2008, but no such correction was forthcoming. American inequality is nearly as high today as it was before the crash.

One obvious difference is that, in 1929, government intervention was minimal: there were no bank bailouts, auto rescues, or stimulus efforts. The free market was left to destroy fortunes, ill-gained or not, thereby reducing gross inequalities in wealth. But greater equality after the crash came at a very high price: the Great Depression. So while the response to the 2008 crisis sustained the top-heavy structure of the American economy, it also averted the free fall that threw tens of millions of Americans into unemployment and breadlines throughout the 1930s. Nationalizing the banks, as many critics of the Troubled Asset Relief Program suggest, might have distributed the costs and benefits of the bailouts more fairly. And going forward, higher income taxes on the rich, along with more strongly redistributive social programs might succeed in mitigating some degree of inequality. But there are also powerful socioeconomic forces driving inequality. That is, the high levels of economic inequality we have witnessed over the last decade might be inescapable to some degree.
In our affluent but unequal society, poverty is a relative, not an absolute, condition. High levels of inequality coexist with rising living standards, even for those at the bottom. Meanwhile, due to rising wealth and asset ownership among all Americans, including the poor, the  fortunes of the majority are increasingly tied to those of the elite. The sooner we confront these structural forces, the sooner we can move on to constructing a new social contract befitting this new economic age.


Globalization and the rising value of knowledge-based work mean that those at the top of the knowledge economy are increasingly able to charge a premium for their labor in a global marketplace -- even as that same marketplace de-skills the labor of many occupations. The rich used to derive almost all of their income from capital, rent, and business profits, and little from wages. But today, as economists Thomas Piketty and Emmanuel Saez show, the top one percent of Americans derive a significant (and growing) share of economic resources from wages.1 Meanwhile, global supply chains and new telecommunications technologies are enabling both outsourcing and global economies of scale that exert downward pressure on most workers' wages.

These trends are ominously self-reinforcing. Education -- and the skills, connections, and credentials that come with it -- is the critical determinant of success in the new knowledge economy. Due to greater social and economic inequality and segregation, poor and working-class people must cross an educational gap that is widening at precisely the moment when education has become most critical to their economic prospects.

Yet even as that gap grows, the interests of workers are increasingly yoked to those of their bosses. Half of Americans today have direct or  indirect investments in the stock market, largely thanks to the shift to defined contribution pension plans and the ease of Internet investing.2 But while most of us are in it for a penny, it's still the super wealthy who are in for a pound. A study by the St. Louis Federal Reserve Bank found that the richest 10 percent own upwards of 85 percent of stocks and other financial assets.3 So if the rest of us want to save our 401ks, we have to save the status quo for the robber barons of Wall Street in the process.

The same is true for housing. Home equity makes up an ever-greater share of household wealth the lower your rank on the income ladder. Back in 1930, less than half of Americans lived in a home they owned; by the housing market peak in the 2000s, the rate hit close to 70 percent.4 Now we all have a stake in real estate values. A sluggish housing market used to be good news for many at the bottom of the pyramid thanks to falling rents. But today, when most of us have our life savings in a home or use our house as an ATM through home equity lines of credit, price drops are devastating.

Many policy scholars, myself included, have argued that wider-spread asset ownership increases opportunity, teaches good financial habits,  orients poor children to the future, and ultimately increases the public's stake in capitalism and the rule of law. But we must be honest about the fact that an "ownership society" (to use former President George W. Bush's term) also means a country in which the economic interests of the wealthy and the non-wealthy are increasingly tied to each other. The problem is that while in absolute terms, everyone wants the same things -- rising house and stock prices -- in relative terms, those in the middle (and bottom) fall further and further behind. In an economy in which those at the top already control the lion's share of wealth, economic growth need not be disproportionate itself in order to disproportionately benefit the wealthy.

As such, today's historically high levels of inequality appear likely to remain a long-term structural feature of the American economy. The expansion of assets and ownership down the income distribution has meant that the economic interests of those at the top of the income ladder and those at the bottom are increasingly difficult to disentangle. This development, combined with America's culture of competitive  individualism, makes both class conflict and redistributive social policies increasingly unlikely.


These sobering trends aside, we should not overlook the reality that Americans remain wealthy by any global or historical perspective and are getting wealthier still. Even among the poorest Americans, life expectancy has risen, infant mortality has decreased, homicides are down, and educational attainment is up. While poverty persists and the poor are still disproportionately victims of crime, incarceration, ill health, and higher mortality, their overall wealth and standard of living have risen.

Statistics showing that real wages have stagnated since 1973 are misleading. Wage statistics calculate "real dollars" over time only by adjusting for inflation, which is measured by totaling the cost of a set of common consumer goods in a basket. This makes inflation an accurate short-term measure, but it's a terrible long-term one because the average consumer's actual basket of goods changes a lot more rapidly than the theoretical basket of goods the Bureau of Labor Statistics (BLS) uses to calculate the Consumer Price Index.

Mobile phones are just one example. Though they first hit the consumer market in 1983, the BLS did not factor mobile phones into the inflation rate until 15 years later. Consequently, the BLS missed the massive price declines. Moreover, today's lower cell phone prices do not reflect the value of quality improvements. Just think of the difference between a 1995 cell phone and your iPhone today.

As a result, the focus on wages misses the point. Basic living standards have risen for virtually every American even as real wages have stagnated. Whether we pay less at Wal-Mart while earning less, or pay more while taking in higher wages, the end result is the same.

The idea that greater inequality, as opposed to greater poverty, results in worse social outcomes at a societal level is also highly questionable. Consider poor health outcomes, which have been widely linked to high levels of social inequality. Careful statistical analyses  have shown that the observed correlation between income inequality on the one hand and health outcomes on the other is really an artifact of the non-linear relationship between individual income and health.

In other words, since an additional dollar is worth more to you health-wise if you are poor than if you are rich, merely comparing countries, states, or counties with more unequal income distributions will make it appear as though those places have worse health outcomes than their more equal counterparts. But what's driving the difference is absolute income, not relative income shares. For instance, health outcomes are worse in the United States than many European countries, not because of our higher levels of inequality, but rather because of our higher levels of poverty.


If living standards for those at the bottom of the income distribution have demonstrably improved over the last 40 years and research has not been able to establish a causal link between inequality and life outcomes, should we still concern ourselves with societal inequality?

We should, but not for the reasons typically given. Consider that as society becomes more affluent and basic material needs are increasingly satisfied for even the poorest Americans, more and more of our consumption takes on a relative dimension. The economic shift from absolute to relative goods can be seen in household budgets. As recently as the 1950s, the typical American family spent one-third of its income on food while low-income families spent about half of their incomes on the same.5 Today, food makes up only 17 percent of the average poor family's budget, and almost one-third of that (30 percent) is spent eating out. Meanwhile housing now represents about 40 percent of household budgets for low-income Americans.6

While we all need food and a roof over our heads, what drives the rising cost of housing for the poor are the relative dimensions of the housing market, not the absolute ones. Today even poor Americans live in substantially larger homes than they did three or four decades ago. Competition for housing in better school districts, with increasing square footage, is largely responsible for increasing the share of household budgets allocated to housing among all Americans.

In his 1976 classic, The Social Limits to Growth, Fred Hirsch called these relative goods "positional goods" due to their relative and inherently limited nature.7 While everyone can, at least theoretically, own a home and pursue an education, it is impossible for everyone to own a beachfront home or go to Harvard. And it turns out that these types of positional goods represent the greatest obstacles to economic mobility for those at the bottom of the income distribution.

In my own research into the intergenerational effects of social class on educational and occupational outcomes, I have demonstrated that the most important determinants of those outcomes are parental wealth and education. By contrast, I found that race, parental income, and parental occupation did not matter at all. It is perhaps no coincidence that the key determinants of success and social mobility in America -- education and wealth (which continues to be dominated by home equity for most American families) -- are both positional goods. Moreover, the two are linked: housing values are closely related to school performance.

In addition to the fact that more of the economy may contain this relative status nature, the provision of certain key goods and services is predicated on a need for high-skill workers. Consider three of the biggest costs to families -- education, health care, and housing -- and how they are linked to skill and status. Higher education is expensive because it presents the double whammy of being a relative status good (to the extent that degrees, prestige, and comparative advantage in the labor market matter) that is provided by high-skilled employees. Health care, however, is typically not a status good (we just want to be cured and don't begrudge others for being healthy) but still requires very highly skilled workers. Conversely, housing generally requires less-skilled workers, but has become highly relative for many American families seeking ever-larger McMansions and top-notch school districts.

This simple table (see:  illustrates the interactions between the relative nature of goods and the labor skill level required to produce them. Whereas the New Deal and its offspring policies were meant to insure American households from going without basic material necessities that were absolute in nature (the upper-left quadrant), the major sources of economic anxiety today relate to high-skill services that are often relative (i.e., status) goods (the lower-right quadrant). Relative deprivation is a much trickier problem to solve and will require a fundamentally different approach to social policy.

The challenge is exacerbated by the fact that the most relative and/or high-skill quadrants appear to be linked to each other: housing becomes an intense status good by virtue of the fact that it is linked to the education system (thanks to the financing of education through local property taxes plus the desire of high-income parents to surround their kids with other wealthy peers). Wealth, meanwhile, is largely held in the form of primary residence equity for most American families. And health care expenses are the single biggest cause of bankruptcy in the United States.


In some respects, the age of affluent inequality should facilitate the creation of a new social contract capable of improving social and economic mobility. In theory, high levels of inequality should make it easier to concentrate the tax burden on the shoulders of a small minority. While our national tax debate seems to belie this claim, evidence from local school districts, compiled by economists Sean Corcoran and William Evans, shows that higher inequality leads to greater investment in public schooling through higher taxes.8 Moreover, the enormous private fortunes of our new gilded age have often been invested in a variety of socially beneficial ways. We can thank the benevolent tycoons of generations past, such as Andrew Carnegie and the Rockefeller family, for the New York Public Library and the Green Revolution, respectively. Today, Bill Gates's and Warren Buffett's private funding decisions have greatly advanced the global fight against malaria.

Nonetheless, we are unlikely to return to the 90 percent marginal tax rates of the postwar era. Nor can we reasonably depend upon the benevolence of the super wealthy to make up for the failings of our present social safety net. In the end, progressives would be well served  to focus less on soaking the rich and more on raising sufficient revenues to minimize the consequences of the positional arms race.

A good place to start would be to eliminate incentives for taxpayers to game the system by treating all income equally. We could raise dividend taxes and capital gains taxes to the same level as the top marginal tax bracket on wages, tax health and other benefits as income, and convert the estate tax to an inheritance tax that hits heirs at the same rate. This proposal might even appeal to conservatives if it were tied to provisions that established a flat tax that eliminated deductions and a national sales, or value-added, tax that held federal revenues to one-quarter of the GDP.

Taken together, these measures, combined with a raise on the payroll tax cap above the current $120,000 level, would probably end up being no less progressive than the current tax system. In addition, we might be able to shore up the Social Security trust fund and rein in health care spending, for additional budgetary savings above and beyond those that will be triggered by the Affordable Care Act.

A simpler and fairer tax system will still be hard pressed to address the ways in which social and economic inequality is self-reinforcing. Addressing these dynamics will require us to limit the importance of socioeconomic disparities by reducing the opportunity for distinctions  in the areas of housing, education, and other status goods.

We should start by challenging skill-based credentialing monopolies in areas such as health care and education. For example, health care could be provided more affordably if everyone was willing to see nurse practitioners or medical assistants in drive-through clinics and forsake the latest high-tech tests and procedures. College could be more affordable if we adopted an open courseware model and de-emphasized the need for face-to-face contact with faculty members.

We also need to reduce the relative nature of health care, housing, and education by delinking them from each other. For instance, decoupling school district funding from local property taxes, or allowing public school choice across district or municipality lines, could increase access to higher-quality education for those at the bottom of the income ladder. Health care reform may help sever the tie between health care and the housing sector, resulting in less risk of mortgage default or bankruptcy when twin calamities, job loss and negative health events, occur simultaneously.

Still, the incentives for economic segregation are likely to remain high and the challenges to overcoming them loom large, suggesting the consideration of more radical ideas. One approach would randomly assign every child to a pool of 10,000 people across the United States at birth that she would stay in until her death. Each "pod" of 10,000 people would levy taxes to be distributed among the members to cover things that welfare and education policies typically cover (e.g., K-12 schooling, health care, disability payments, food stamps). Because the  pods are relatively small in number, members could direct spending to try to maximize benefit through online budget negotiations and voting. And while siblings would end up in the same pods, parents would already have been assigned to pods long before they gave birth and would likely not end up in the same pods as their partners or children.

Such a system could re-create the social fabric of the 18th century small town in 21st century cyber-network fashion, thereby reducing segregation and halting widespread withdrawal from the public sphere. Since individuals would not be located in the same geographic area as the rest of the members of their pod, health care, education, and other social programs would need to be provided through mechanisms such as vouchers that relied on free market allocation of the actual service wherever pod members lived. This system would create better incentives for preventative care, educational investments, etc., since individuals would have an interest in keeping the lifetime costs of their risk pool down.

Less radically, if we funded private school vouchers we could sever the link between place of residence and quality of school. This approach would only succeed if we combined this free market approach to education, which should appeal to conservatives, with a commitment to economic diversity, which should appeal to progressives. Yes, fund private school attendance with vouchers, but require participating schools to enroll students from across the income spectrum, thereby increasing opportunity for education and facilitating entrance into the knowledge class.

Liberals may object to this as privatization, but there is nothing inherently egalitarian about public institutions. Unlike its public counterpart (and rival) UC Berkeley, Stanford, a highly endowed, private university, charges no tuition for families with incomes under $100,000. Of course, this is only possible because Stanford has the financial resources to dial down its sticker price to lure less wealthy families. As it stands currently, the University of California system writ large -- largely thanks to its population of community college transfer students -- is one of the success stories when it comes to income diversity. Private institutions may need to be nudged (or even required) to spend their considerable resources on admitting low-income students (such as community college transfers).

Pods? Facebook-style democracy? Harvard online? It sounds bizarre, to be sure. But what should be clear is that the basic structure of the American economy has profoundly changed, as has the nature of poverty and inequality. The old New Deal safety net was created to prevent absolute deprivation, which, thanks to rising, if unequally distributed prosperity, is largely a thing of the past. In this new age of affluent inequality, we need to find ways to turn that safety net on its side and make it into a rope lattice everyone can climb. /

1. Piketty, Thomas & Emmanuel Saez. 2003. "Income Inequality in the United States 1913-1998." The Quarterly Journal of Economics. February. (back)

2. Jacobe, Dennis. 2011. "In U.S., 54% Have Stock Market Investments, Lowest Since 1999." Gallup. April 20th. (back)

3. Guo, Hui. 2001. A Simple Model of Limited Stock Market Participation. Federal Reserve Bank of St. Louis. May/June. (back)

4. United States Census Bureau. Housing Characteristics in the US. (back)

5. US Bureau of Labor Statistics. 2006. "100 Years of Consumer Spending." BLS Report 991; Conley, Dalton. 2005. "Poverty and Life Chances: The Conceptualization and Study of the Poor." Sage Handbook of Sociology, Eds. Craig Calhoun, Chris Rojek and Bryan S. Turner. London: Sage Limited, U.K. (back)

6. US Bureau of Labor Statistics. 2010. Food for Thought. November; Holland, Laurence H. M. and David M. Ewalt. 2006. "How Americans Make and Spend Their Money. Forbes. July 19th. (back)

7. Hirsch, Fred. 1976. The Social Limits to Growth. Cambridge, Mass: Harvard University Press. (back)

8. Corcoran, Sean & William N. Evans. 2010. Income Inequality, the Median Voter, and the Support for Public Education. NBER Working Paper No. 16097. (back)

Sunday, October 16, 2011

Free speech for all or for none

It's great to see so many stories on the Occupy Wall Street movement.  While Tea Party members may not feel much affinity with the Occupy Wall Street members, to quote Zach St. George writing in the North Coast Journal, "...their members might find more in common if they paused to consider."

I was pleased to read in our local media that in Arcata CA., even the Mayor was out in support of the protesters. But I must point out that while many in Arcata support the right of these "occupiers" to hold up their signs with any number of statements and demands, if one of these protesters dares to include a request for donations on one of those signs, they will be in violation of Arcata's Panhandling Ordinance--over which, as covered on The Journal's Blogthing, I am currently suing the city.

If we want to support free speech for Tea Party Members and Wall Street Occupiers alike, we need to also tolerate free speech by panhandlers.

Richard Salzman
Founding member of Humboldt Civil Liberties Defense Fund

The 1930s Sure Sound Familiar

The 1930s Sure Sound Familiar
October 14, 2011

Not long ago, someone suggested that I read “Since Yesterday,” a book by Frederick Lewis Allen, a popular historian of the 1930s and 1940s. Published in 1940, it turned out to be a shrewd, concise, wonderfully written account of America in the ’30s.

It also turned out to be something else: a reminder of why history matters. It is impossible to read “Since Yesterday” without reflecting, again and again, on the parallels between then and now. The Great Depression, of course, dominates the book — and is far worse than anything we’ve been through. Still, when Allen writes about Ivar Kreuger, the industrialist who built an empire that some considered a Ponzi scheme, you instantly think of Bernie Madoff. The country’s fixation with the Lindbergh kidnapping seems strikingly similar to the country’s fixation with Casey Anthony.

And when Allen describes “Hooverville” — a large encampment of war veterans demanding promised bonus payments — Occupy Wall Street springs to mind. The veterans, who had gathered in a park near the Capitol, were treated well at first, but were eventually routed by the Army in a brutal show of force.

In “Since Yesterday,” bankers are vilified; homes are foreclosed on; people desperately search for work — just like today. Businessmen speak of the need for “confidence,” a word that “enters the vocabulary only when confidence is lacking.” Elsewhere Allen writes, “No longer were vital economic decisions made at international conferences of bankers; now they were made only by the political leaders of states.”

Allen makes the surprising point that, while small business suffered terribly during the Great Depression, big corporations did well. When large companies needed to lay off workers to maintain profitability, they did so ruthlessly. Bursts of economic growth, however, were rarely accompanied by an increase in employment. Why? Because new technology allowed companies to increase productivity at the expense of workers. Just like today.

What dominates “Since Yesterday” — as it must dominate any history of the Great Depression — is the government’s responses to the crisis. Herbert Hoover was “leery of any direct governmental offensive against the Depression,” writes Allen. “So he stood aside and waited for the healing process to assert itself, as according to the hallowed principles of laissez-faire economics it should.” Sticking to his convictions, Hoover allowed the country to sink deeper and deeper into Depression, becoming in the process one of its victims — “along with the traditional economic theories of which he was the obstinate and tragic spokesman.”

Then came Roosevelt, untethered to any economic theory and willing to try anything to get people back to work. Allen describes the alphabet soup of agencies he created, the deficits he generated, the regulations he enacted. The economy, which bottomed out in 1932, steadied and then began to grow until, by 1937, it appeared that the Great Depression had ended.

Allen then takes us through the terrible days of late 1937, when the economy collapsed again. “Roosevelt’s Depression,” businessmen called it, blaming it on a business tax they particularly loathed. In fact, Allen makes the convincing case that the real problem was that Roosevelt had tried to do something business wanted: balance the budget. Shrinking government spending dried up demand. And not until the following spring, when he reversed course and decided to “go in for heavy spending again,” did conditions begin to improve.

The tragedy of Washington today, as the supercommittee begins its task of finding $1.2 trillion in cuts, is that nobody seems to remember the lessons of “Since Yesterday” — and most other books about the Great Depression.

Cutting deficits always sounds good. Certainly, nobody wants the inflation that runaway deficits can produce. But in a depressed economy, cutting spending can lead to deflation, which is every bit as ruinous. To read “Since Yesterday” at this particular moment — with the economy hanging in the balance, with President Obama’s jobs program already voted down in the Senate, with fiscal policy so stubbornly focused on the wrong things — is to fear that we are headed for worse times ahead, not better times.

Toward the end of his book, Allen sums up the mood of the country. By 1939, people were weary of hard economic times, but they were also weary of Roosevelt’s endless experiments. Many modern historians believe that Roosevelt’s biggest problem was not that he’d done too much, but that he’d done too little — that the Depression required a response bigger than even Roosevelt’s New Deal. Implicitly, Allen agrees with that.

Still, he writes, “Despite all the miseries of the Depression and the recurrent fears of new economic decline and of war, the bulk of the American people had not yet quite lost their basic asset of hopefulness.”

He concludes: “A nation tried in a long ordeal had not yet lost heart.” When our current long ordeal finally ends, will we be able to say the same?

Monday, October 10, 2011

Support the protesters

Letter to the Editor
Posted: 09/29/2011
Times Standard

If you've not seen coverage of the protests happening on Wall Street for the last two weeks (since Sept. 17th), and you likely have not if your only news comes from mainstream media sources, then you should take a moment to read about (and offer support to) them at the organizers' website OccupyWallSt .org. It's been thousands of people holding rallies day after day to protest the class war that's been waged by Wall Street and the banking industry and corporations against working Americans for the last 30-plus years and finally, people are starting to fight back. I support these protesters and I hope you will too.
Richard Salzman
Sunny Brae

Panic of the Plutocrats

Panic of the Plutocrats

New York Times
October 9, 2011

It remains to be seen whether the Occupy Wall Street protests will change America’s direction. Yet the protests have already elicited a remarkably hysterical reaction from Wall Street, the super-rich in general, and politicians and pundits who reliably serve the interests of the wealthiest hundredth of a percent.

And this reaction tells you something important — namely, that the extremists threatening American values are what F.D.R. called “economic royalists,” not the people camping in Zuccotti Park.
Consider first how Republican politicians have portrayed the modest-sized if growing demonstrations, which have involved some confrontations with the police — confrontations that seem to have involved a lot of police overreaction — but nothing one could call a riot. And there has in fact been nothing so far to match the behavior of Tea Party crowds in the summer of 2009.

Nonetheless, Eric Cantor, the House majority leader, has denounced “mobs” and “the pitting of Americans against Americans.” The G.O.P. presidential candidates have weighed in, with Mitt Romney accusing the protesters of waging “class warfare,” while Herman Cain calls them “anti-American.” My favorite, however, is Senator Rand Paul, who for some reason worries that the protesters will start seizing iPads, because they believe rich people don’t deserve to have them.

Michael Bloomberg, New York’s mayor and a financial-industry titan in his own right, was a bit more moderate, but still accused the protesters of trying to “take the jobs away from people working in this city,” a statement that bears no resemblance to the movement’s actual goals.

And if you were listening to talking heads on CNBC, you learned that the protesters “let their freak flags fly,” and are “aligned with Lenin.”

The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.

Last year, you may recall, a number of financial-industry barons went wild over very mild criticism from President Obama. They denounced Mr. Obama as being almost a socialist for endorsing the so-called Volcker rule, which would simply prohibit banks backed by federal guarantees from engaging in risky speculation. And as for their reaction to proposals to close a loophole that lets some of them pay remarkably low taxes — well, Stephen Schwarzman, chairman of the Blackstone Group, compared it to Hitler’s invasion of Poland.

And then there’s the campaign of character assassination against Elizabeth Warren, the financial reformer now running for the Senate in Massachusetts. Not long ago a YouTube video of Ms. Warren making an eloquent, down-to-earth case for taxes on the rich went viral. Nothing about what she said was radical — it was no more than a modern riff on Oliver Wendell Holmes’s famous dictum that “Taxes are what we pay for civilized society.”

But listening to the reliable defenders of the wealthy, you’d think that Ms. Warren was the second coming of Leon Trotsky. George Will declared that she has a “collectivist agenda,” that she believes that “individualism is a chimera.” And Rush Limbaugh called her “a parasite who hates her host. Willing to destroy the host while she sucks the life out of it.”

What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

This special treatment can’t bear close scrutiny — and therefore, as they see it, there must be no close scrutiny. Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized, hence the frantic sliming of Elizabeth Warren.

So who’s really being un-American here? Not the protesters, who are simply trying to get their voices heard. No, the real extremists here are America’s oligarchs, who want to suppress any criticism of the sources of their wealth.

Occupy Wall Street: The Most Important Thing in the World Now

Occupy Wall Street: The Most Important Thing in the World Now

by Naomi Klein
The Nation
October 6, 2011

I was honored to be invited to speak at Occupy Wall Street on Thursday night. Since amplification is (disgracefully) banned, and everything I say will have to be repeated by hundreds of people so others can hear (a k a “the human microphone”), what I actually say at Liberty Plaza will have to be very short. With that in mind, here is the longer, uncut version of the speech.

I love you.

And I didn’t just say that so that hundreds of you would shout “I love you” back, though that is obviously a bonus feature of the human microphone. Say unto others what you would have them say unto you, only way louder.

Yesterday, one of the speakers at the labor rally said: “We found each other.” That sentiment captures the beauty of what is being created here. A wide-open space (as well as an idea so big it can’t be contained by any space) for all the people who want a better world to find each other. We are so grateful.

If there is one thing I know, it is that the 1 percent loves a crisis. When people are panicked and desperate and no one seems to know what to do, that is the ideal time to push through their wish list of pro-corporate policies: privatizing education and social security, slashing public services, getting rid of the last constraints on corporate power. Amidst the economic crisis, this is happening the world over.

And there is only one thing that can block this tactic, and fortunately, it’s a very big thing: the 99 percent. And that 99 percent is taking to the streets from Madison to Madrid to say “No. We will not pay for your crisis.”

That slogan began in Italy in 2008. It ricocheted to Greece and France and Ireland and finally it has made its way to the square mile where the crisis began.

“Why are they protesting?” ask the baffled pundits on TV. Meanwhile, the rest of the world asks: “What took you so long?” “We’ve been wondering when you were going to show up.” And most of all: “Welcome.”

Many people have drawn parallels between Occupy Wall Street and the so-called anti-globalization protests that came to world attention in Seattle in 1999. That was the last time a global, youth-led, decentralized movement took direct aim at corporate power. And I am proud to have been part of what we called “the movement of movements.”

But there are important differences too. For instance, we chose summits as our targets: the World Trade Organization, the International Monetary Fund, the G8. Summits are transient by their nature, they only last a week. That made us transient too. We’d appear, grab world headlines, then disappear. And in the frenzy of hyper patriotism and militarism that followed the 9/11 attacks, it was easy to sweep us away completely, at least in North America.

Occupy Wall Street, on the other hand, has chosen a fixed target. And you have put no end date on your presence here. This is wise. Only when you stay put can you grow roots. This is crucial. It is a fact of the information age that too many movements spring up like beautiful flowers but quickly die off. It’s because they don’t have roots. And they don’t have long term plans for how they are going to sustain themselves. So when storms come, they get washed away.

Being horizontal and deeply democratic is wonderful. But these principles are compatible with the hard work of building structures and institutions that are sturdy enough to weather the storms ahead. I have great faith that this will happen.

Something else this movement is doing right: You have committed yourselves to non-violence. You have refused to give the media the images of broken windows and street fights it craves so desperately. And that tremendous discipline has meant that, again and again, the story has been the disgraceful and unprovoked police brutality. Which we saw more of just last night. Meanwhile, support for this movement grows and grows. More wisdom.

But the biggest difference a decade makes is that in 1999, we were taking on capitalism at the peak of a frenzied economic boom. Unemployment was low, stock portfolios were bulging. The media was drunk on easy money. Back then it was all about start-ups, not shutdowns.

We pointed out that the deregulation behind the frenzy came at a price. It was damaging to labor standards. It was damaging to environmental standards. Corporations were becoming more powerful than governments and that was damaging to our democracies. But to be honest with you, while the good times rolled, taking on an economic system based on greed was a tough sell, at least in rich countries.

Ten years later, it seems as if there aren’t any more rich countries. Just a whole lot of rich people. People who got rich looting the public wealth and exhausting natural resources around the world.

The point is, today everyone can see that the system is deeply unjust and careening out of control. Unfettered greed has trashed the global economy. And it is trashing the natural world as well. We are overfishing our oceans, polluting our water with fracking and deepwater drilling, turning to the dirtiest forms of energy on the planet, like the Alberta tar sands. And the atmosphere cannot absorb the amount of carbon we are putting into it, creating dangerous warming. The new normal is serial disasters: economic and ecological.

These are the facts on the ground. They are so blatant, so obvious, that it is a lot easier to connect with the public than it was in 1999, and to build the movement quickly.

We all know, or at least sense, that the world is upside down: we act as if there is no end to what is actually finite—fossil fuels and the atmospheric space to absorb their emissions. And we act as if there are strict and immovable limits to what is actually bountiful—the financial resources to build the kind of society we need.

The task of our time is to turn this around: to challenge this false scarcity. To insist that we can afford to build a decent, inclusive society—while at the same time, respect the real limits to what the earth can take.

What climate change means is that we have to do this on a deadline. This time our movement cannot get distracted, divided, burned out or swept away by events. This time we have to succeed. And I’m not talking about regulating the banks and increasing taxes on the rich, though that’s important.

I am talking about changing the underlying values that govern our society. That is hard to fit into a single media-friendly demand, and it’s also hard to figure out how to do it. But it is no less urgent for being difficult.

That is what I see happening in this square. In the way you are feeding each other, keeping each other warm, sharing information freely and proving health care, meditation classes and empowerment training. My favorite sign here says, “I care about you.” In a culture that trains people to avoid each other’s gaze, to say, “Let them die,” that is a deeply radical statement.

A few final thoughts. In this great struggle, here are some things that don’t matter.

§ What we wear.
§ Whether we shake our fists or make peace signs.
§ Whether we can fit our dreams for a better world into a media soundbite.
And here are a few things that do matter.
§ Our courage.
§ Our moral compass.
§ How we treat each other.

We have picked a fight with the most powerful economic and political forces on the planet. That’s frightening. And as this movement grows from strength to strength, it will get more frightening. Always be aware that there will be a temptation to shift to smaller targets—like, say, the person sitting next to you at this meeting. After all, that is a battle that’s easier to win.

Don’t give in to the temptation. I’m not saying don’t call each other on shit. But this time, let’s treat each other as if we plan to work side by side in struggle for many, many years to come. Because the task before will demand nothing less.

Let’s treat this beautiful movement as if it is most important thing in the world. Because it is. It really is.

Wall Street Protests: A Good Place to Start

Wall Street Protests: A Good Place to Start
by Sen. Bernie Sanders
The Boston Globe
07 October 2011
The protest movement called Occupy Wall Street has struck a nerve. The demonstrators’ goals may be vague, but their grievances are very real. If our country is to break out of this horrendous recession and create the millions of jobs we desperately need, if we are going to create a financially-stable future, we must take a hard look at Wall Street and demand fundamental reforms. I hope the protesters provide the spark that ignites that process.
The truth is that millions of Americans lost their jobs, their homes and their life savings because of the greed, recklessness and illegal behavior of Wall Street. Even Federal Reserve Chairman Ben Bernanke agreed when I questioned him this week at a Joint Economic Committee hearing that that there was "excessive risk taking" by Wall Street. Bernanke also said the protesters “with some justification” hold the financial sector responsible for “getting us into this mess” and added, “I can't blame them.”
The demonstrators and millions of sympathetic Americans understand that odds are stacked in Wall Street’s favor because of the extraordinary economic and political clout of the big banks. Believe it or not, the country’s six largest financial institutions (Bank of America, CitiGroup, JP Morgan Chase, Wells Fargo, Morgan Stanley and Goldman Sachs) now have amassed assets equal to more than 60 percent of our gross domestic product. The four largest banks issue two-thirds of all credit cards, half of all mortgages, and hold nearly 40 percent of all bank deposits. Incredibly, after we bailed out the behemoth banks that were “too big to fail,” three out of the four are now even bigger than before the financial crisis.
Not only do these financial institutions have enormous economic clout, their wealth makes them an extremely potent political force. From 1998 through 2008, in order to achieve their goal of repealing Glass-Steagall and other financial regulations, they spent more than $5 billion on lobbying and campaign contributions. They also spent hundreds of millions to water down last year’s Dodd-Frank reform bill. After the law was passed, hundreds of millions more were spent to repeal provisions and weaken regulations. They never give up.
Where do we go from here? How do we convert the protesters’ enthusiasm into concrete results?
For starters, we should break up the giant financial institutions. Left to their own selfish devices, Wall Street bankers will continue to gamble with other people’s money. Sooner or later, when their bets go wrong, they will come back to Congress asking to be bailed out again. Why not nip that in the bud? There also is a sound economic argument against too few owning far too much. The idea that six giant financial institutions can exert such enormous control over the economy should frighten anyone who believes in a competitive free-market system. Good Republican presidents like William Howard Taft and Teddy Roosevelt broke up Standard Oil, the railroad trusts and other huge monopolies a century ago. Now is the time for us to end the financial oligarchy that has been so destructive to our economy. If a bank is too big to fail, it is too big to exist.
Wall Street reform also must address the powerful and secretive Federal Reserve. A Government Accountability Office audit that I requested found that the central bank provided $16 trillion in revolving, low-interest loans to every major financial institution in this country, multi-national corporations, and some of the wealthiest people in the world. The Fed even helped bail out other central banks around the world. When Wall Street was on the verge of collapse, the Fed acted boldly. Today, with the middle class collapsing, the Fed must act with equal vigor.
Real unemployment is more than 16 percent. Median family income has declined by $3,600 over the last decade. A record 46 million Americans live in poverty. The gap between the very rich and everyone else, the widest of any major country, is growing wider.
Under emergency provisions already in law, the Fed has the authority to provide low-interest loans to small businesses that are starving for capital so that they can create the millions of jobs our economy needs. It should do so.
The Fed also has authority to make credit card issuers stop bilking consumers with sky-high fees and interest rates of 30 percent or more. Especially in a recession, working people use credit cards to stretch their paychecks for basic needs. Usury is already regarded as a sin in the eyes of every major religion. It should be a crime. The Fed has the authority to limit interest rates and fees. It should do so.
The Occupy Wall Street demonstrators are shining a light on one of the most serious problems facing the United States: the greed, recklessness and power of Wall Street. Now is the time for the president and Congress to follow that light – and act. The future of our economy is at stake.

Saturday, October 1, 2011

Chris Hedges on Occupy Wall Street!

The Best Among Us

Sept. 29, 2011

by Chris Hedges

There are no excuses left. Either you join the revolt taking place on Wall Street and in the financial districts of other cities across the country or you stand on the wrong side of history. Either you obstruct, in the only form left to us, which is civil disobedience, the plundering by the criminal class on Wall Street and accelerated destruction of the ecosystem that sustains the human species, or become the passive enabler of a monstrous evil. Either you taste, feel and smell the intoxication of freedom and revolt or sink into the miasma of despair and apathy. Either you are a rebel or a slave.

To be declared innocent in a country where the rule of law means nothing, where we have undergone a corporate coup, where the poor and working men and women are reduced to joblessness and hunger, where war, financial speculation and internal surveillance are the only real business of the state, where even habeas corpus no longer exists, where you, as a citizen, are nothing more than a commodity to corporate systems of power, one to be used and discarded, is to be complicit in this radical evil. To stand on the sidelines and say “I am innocent” is to bear the mark of Cain; it is to do nothing to reach out and help the weak, the oppressed and the suffering, to save the planet. To be innocent in times like these is to be a criminal. Ask Tim DeChristopher.

Choose. But choose fast. The state and corporate forces are determined to crush this. They are not going to wait for you. They are terrified this will spread. They have their long phalanxes of police on motorcycles, their rows of white paddy wagons, their foot soldiers hunting for you on the streets with pepper spray and orange plastic nets. They have their metal barricades set up on every single street leading into the New York financial district, where the mandarins in Brooks Brothers suits use your money, money they stole from you, to gamble and speculate and gorge themselves while one in four children outside those barricades depend on food stamps to eat. Speculation in the 17th century was a crime. Speculators were hanged. Today they run the state and the financial markets. They disseminate the lies that pollute our airwaves. They know, even better than you, how pervasive the corruption and theft have become, how gamed the system is against you, how corporations have cemented into place a thin oligarchic class and an obsequious cadre of politicians, judges and journalists who live in their little gated Versailles while 6 million Americans are thrown out of their homes, a number soon to rise to 10 million, where a million people a year go bankrupt because they cannot pay their medical bills and 45,000 die from lack of proper care, where real joblessness is spiraling to over 20 percent, where the citizens, including students, spend lives toiling in debt peonage, working dead-end jobs, when they have jobs, a world devoid of hope, a world of masters and serfs.

The only word these corporations know is more. They are disemboweling every last social service program funded by the taxpayers, from education to Social Security, because they want that money themselves. Let the sick die. Let the poor go hungry. Let families be tossed in the street. Let the unemployed rot. Let children in the inner city or rural wastelands learn nothing and live in misery and fear. Let the students finish school with no jobs and no prospects of jobs. Let the prison system, the largest in the industrial world, expand to swallow up all potential dissenters. Let torture continue. Let teachers, police, firefighters, postal employees and social workers join the ranks of the unemployed. Let the roads, bridges, dams, levees, power grids, rail lines, subways, bus services, schools and libraries crumble or close. Let the rising temperatures of the planet, the freak weather patterns, the hurricanes, the droughts, the flooding, the tornadoes, the melting polar ice caps, the poisoned water systems, the polluted air increase until the species dies.

Who the hell cares? If the stocks of ExxonMobil or the coal industry or Goldman Sachs are high, life is good. Profit. Profit. Profit. That is what they chant behind those metal barricades. They have their fangs deep into your necks. If you do not shake them off very, very soon they will kill you. And they will kill the ecosystem, dooming your children and your children’s children. They are too stupid and too blind to see that they will perish with the rest of us. So either you rise up and supplant them, either you dismantle the corporate state, for a world of sanity, a world where we no longer kneel before the absurd idea that the demands of financial markets should govern human behavior, or we are frog-marched toward self-annihilation.

Those on the streets around Wall Street are the physical embodiment of hope. They know that hope has a cost, that it is not easy or comfortable, that it requires self-sacrifice and discomfort and finally faith. They sleep on concrete every night. Their clothes are soiled. They have eaten more bagels and peanut butter than they ever thought possible. They have tasted fear, been beaten, gone to jail, been blinded by pepper spray, cried, hugged each other, laughed, sung, talked too long in general assemblies, seen their chants drift upward to the office towers above them, wondered if it is worth it, if anyone cares, if they will win. But as long as they remain steadfast they point the way out of the corporate labyrinth. This is what it means to be alive. They are the best among us.