Conservative Hypocrisy

The recently hyped Mount Vernon statement continues the farcical attempt by movement conservatism to embrace ‘small government’ and ‘individual liberty’. Jim DeMint (R-SC) wants every Republican to sign on to it. I suggest that what’s needed is a clean sweep out of Washington for any one that does.

Here’s a the most seemingly innocuous but intensely hypocritical portion of the manifesto. As with everything that comes out of the Heritage Foundation or any of its cronies, it’s always about the inference between the lines and not the words themselves. That’s where the true meaning of the manifesto lie.

A constitutional conservatism based on first principles provides the framework for a consistent and meaningful policy agenda.

  • It applies the principle of limited government based on the rule of law to every proposal.
  • It honors the central place of individual liberty in American politics and life.
  • It encourages free enterprise, the individual entrepreneur, and economic reforms grounded in market solutions.
  • It supports America’s national interest in advancing freedom and opposing tyranny in the world and prudently considers what we can and should do to that end.
  • It informs conservatism’s firm defense of family, neighborhood, community, and faith.”

First, small government in the view of movement conservatism never includes shrinking the budget for military adventurism. This is neatly tucked away between the lines of point four which includes “advancing freedom” and “opposing tyranny”. For example, they would never defund or remove support from our occupation of Iraq and Afghanistan or abandon all those unnecessary bases in places like Germany and South Korea left over from previous occupations. They’ve never met a weapons system in which they didn’t want full government investment. They do not recognize their responsibility for that huge part of the federal deficit that was their making during the Reagan defense build-up or the inception of the Dubya Bush wars in the Middle East. They love their military industrial complex and while the word ‘prudently’ is carefully inserted into the ‘we love a good war’ statement, these folks have never found a skirmish from which they cannot profiteer. They’d create an enemy of heaven and command unearthly legends against a god if there wer a buck to make and a flag to wave.

The statement about “the central place of individual liberty” is the most disturbingly hypocritical. You’ll know this is especially true when you look at the list of signers. These are folks who never consider removing those intrusive laws that place the government’s nose between a woman’s legs, inside the minds of those who reject blind faith over reason, or into the lives of those whose genetics didn’t place them firmly into the realm of the conservative’s acceptable definitions of “family, neighborhood, community, or faith” despite the fact that nothing any alternative actually does threatens the lifestyles of the narrowly defined. They just need a ‘them’ so they can further their power agenda and line their pockets. They want a monopoly on the definition of everything and laws to prevent anything else. They decry expanded government only when it threatens to shake their narrow world view and their hold on the rest of us and our own adult behaviors.

As an economist, I know that their notion of “free enterprise, the individual entrepreneur, and economic reforms grounded in market solutions” simply means, again, they can pick and choose which part of capitalism that best profits them and deftly ignore the rest. They would never remove preferential tax treatment from any business even though that’s anathema to a free market system. Indeed, they don’t even seem to realize that any third party payer–be it Medicare or United Health Care–is basically an offshoot of the failure of the market to provide adequate information and service to a buyer. If they really want free enterprise, let’s start getting rid of drug laws, laws against prostitution, all the blue laws on alcohol sales, and see what they say then. For that matter, why have any control on the market for enriched uranium? Certainly, entrepreneurship is a great thing for all markets.

Again, look at the signers. These are the very folks that want monopolies over all the decisions of our lives. Not one of them wants to the free market of ideas, science, economics, or rational thought.

According to the Web site, some of the establishment conservatives who have signed the document are Wendy Wright, the president of Concerned Women for America; Edwin Feulner Jr., president of the Heritage Foundation; Tony Perkins, president of the Family Research Council; Brent Bozell, president of the Media Research Center; and Alfred Regnery, publisher of The American Spectator.

These people have never been and will never be the true defenders of liberty and justice for all. They only like the rule of law when it benefits them. Their manifesto is the basis for which they tell the rest of us to go to hell. I have but one word for their type of conservatism: intrusive.


Rapping Economists?

A History of Violence

Something is very wrong with Amy Bishop, and there has been something wrong with her for a very long time. But just what is her problem, and how did she manage to keep it at least somewhat under control for so long? As a psychologist, I have found this story so fascinating that I have barely been able to focus on anything else for the past few days.

Amy Bishop is a professor at the University of Alabama at Huntsville who shot six of her colleagues at a Biology Department meeting on Friday, February 12. She had taken a 9-millimeter pistol with her to the meeting, loaded with 16 bullets. She did not have a permit for the weapon. She has been charged with one count of capital murder and three counts of attempted murder so far. From The New York Times:

Those killed were Gopi Podila, 52, the chairman of the biology department; Maria Ragland Davis, 50, a professor who studied plant pathogens; and Adriel Johnson, 52, a cell biologist who also taught Boy Scouts about science.

Two of the wounded were Joseph Leahy, 50, a microbiologist, and Stephanie Monticciolo, 62, a staff assistant, both of whom were in critical condition. The third was Luis Cruz-Vera, 40, a molecular biologist, who was released from the hospital on Saturday.

A neuroscientist with a PhD from Harvard University, Bishop was working on a start-up company to market a portable cell incubator that she had invented with her husband. The couple had won the $25,000 seed money in an Alabama business competition. Bishop and Anderson have four children, the oldest of whom is 18.

Bishop had been denied tenure twice by her department, and her appeal had been denied in April of 2009. At the end of the Spring semester she would have had to leave UAH. She felt she had been unfairly treated because of personality issues, and had apparently retained a lawyer to help her fight the decision. However, with her qualifications, Bishop should have been able to find another teaching job easily. On the other hand, why did she end up at UAH in the first place when she had such outstanding qualifications?

According to the Boston Herald, quoting “a family source,” Bishop

was a far-left political extremist who was “obsessed” with President Obama to the point of being off-putting.

In addition, many right-wing blogs are trying to turn this tragic story into a political issue, claiming that Amy Bishop is a radical socialist, and supposedly that should explain her losing control and going on a shooting rampage.

At least one blog is suggesting the shootings were based on race, because most of the people Bishop shot were people of color. I also saw this suggestion made on Twitter several time yesterday.

…Bishop shot almost every non-white faculty member in the department. (She also shot and wounded two white victims, a professor and a staff member.) She killed both African-American professors in the department (one of whom was too junior to have had anything to do with Bishop’s tenure decision). She killed the department chair, who was ethnically South Asian. A Latino faculty member was wounded. There may only be two non-white faculty left in the department. Whether she intended it or not, Amy Bishop effected a racial purge of the Alabama Huntsville biology department.

The following is a summary of what I have learned about Amy Bishop so far. Read the rest of this entry »

Not a Socialist



1. a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
2. procedure or practice in accordance with this theory.
3. (in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

I cringe every time I hear the Right Wing Media machine continue to label Obama a socialist, a liberal, or even progressive. He’s undoubtedly maintained more status quo from the previous administration than not. There have been a few marginal changes in laws impacting GLBT civil rights, women’s reproductive health, and a return to civil rights in general, but creeping back towards the middle after a big lurch right does not earn him an leftish label in my book.

I’ve used the phrase crony capitalism before to describe Obama’s approach to the economy and the power structure within the beltway. Michael Barone, Senior Political Analyst for The Washington Examiner goes into the numbers vs. the rhetoric on lobbyists and lobbying in the New World Order of Obamanomics. The bottom line is that Obama likes his friends rich and works to ensure they get richer. That is not capitalism.  That is not socialism. That is actively creating the formation of monopolies and writing laws to protect monopoly interests. This is the antithesis to both capitalism and socialism

Fast-forward to the present day. Lobbyists, reports the Center for Responsive Politics, had a record 2009 in Barack Obama’s Washington. Despite candidate Obama’s promises to shun them, they raked in $3,470,000,000. Somewhere up there, Tommy Corcoran is chuckling.

Last week, amid Washington’s blizzards, Obama was asked about the $17 million bonus awarded to JPMorgan Chase Chief Executive Officer Jamie Dimon and the $9 million bonus for Goldman Sachs CEO Lloyd Blankfein.

“I know both these guys; they are very savvy businessmen,” he said. “I, like most of the American people, don’t begrudge people success or wealth.” So much for campaign-trail denunciations of “fat cat” bankers and bloated bonuses.

It does not take any savvy to take advantage of government bailouts, near zero loans of capital from the FED, and announcements by the FED of planned buying of you and your buddies toxic assets. It also does not take savvy to be on Timothy Geithner’s best buddy list when things are coming apart at the seams when he can move the market in your direction. Consider this from Baseline Scenario today.

At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company – implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial. Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability. (The blow-by-blow account is in Andrew Ross Sorkin’s Too Big To Fail; this is confirmed in all substantial detail by Hank Paulson’s memoir.)

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.

A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

This is not socialism. This is not the way either perfectly competitive markets nor centrally planned economies work. In both situations, the result should be widespread distribution of goods, services and income. This is simply re-writing the rules of the game to benefit the already rich and powerful. Even rightwing blogs get the picture, but many right wingers find the wrong bottom line. Here’s an example from This part is the correct part. The conclusion is a bit of the mark. Some of the commenters are way off the mark. Screaming Marxism with no real knowledge of what it is does not help a conversation, yet alone lead to a solution of the basic problem.

This is what happens when the government has too much power. Rather than the economy being about who can offer the best goods and services at the most reasonable prices, who can outperform everyone else to provide citizens with what they want at prices they can afford, the economy becomes about who can lobby, bribe and coerce the best deal out of the government.

Grease the right palm and you get government contracts, bailouts and favorable taxation and regulation. Grease the wrong palm and you get demonized by grandstanding politicians and summoned to explain yourself in front of Congress.

Businesses under the vision of a perfectly competitive market–essentially the Invisible Hand concept set up by Adam Smith–are not supposed to be BIG. In the 18th century world of little trade guilds, thousands of small farmers and merchants, and a few monopolies (like the India Tea Company), the original concept of the market did not include megacorporations, huge trade unions, and a democratically elected government that does anything to enable its benefactors. The crony capitalism we see now had its roots in the Civil War, and as Barone points out, most recently the World War 2 period. Remember, Dwight David Eisenhower was the president who termed military industrial complex. A lot of the first lobbyists came from the War Lobby. Lincoln saw the dangers of huge businesses, making money off wars, lobbying congress for the creation of further laws in 1863. Again, all of our monopoly laws are rooted in the Sherman Antitrust Law of 1890. Lenin’s big academic analysis was about J.P. Morgan, interlocking directorates, and huge corporations. The father of modern day socialism/Marxism would have been just updating his old arguments which are pretty much the same thing you see quoted above from the right wing blog. Barone argues that FDR used cronies to win a war, but that Obama is using it for something completely different.

Crony capitalism is now the order of the day in the United States. The government and the United Auto Workers own General Motors and Chrysler, which aren’t likely to pay back their billions in TARP money any time soon, if ever. Meanwhile the government tells Americans to stop driving Toyotas.

The government was going to remake the health care sector, and so Billy Tauzin and other health care industry lobbyists were busy in the White House cutting deals to keep their clients above water. The government was going to remake the energy sector, and utility CEOs and lobbyists have been busy flaunting their green credentials.

As my Washington Examiner colleague Timothy Carney has been documenting, Big Business has been busy lobbying Big Government for “reforms” that serve big companies’ interests. Wal-Mart backs a health care mandate, Philip Morris shapes tobacco regulation, General Electric is setting up a joint venture to trade carbon offsets (wasn’t that Enron’s line of work back in the day?).

The picture is not pretty. Government’s pets or, in the president’s words, “savvy businessmen,” use government to get policies that will give them competitive advantages and stifle smaller competitors. Pleasing their masters in government is now absorbing the psychic energy of CEOs who used to concentrate on meeting consumers’ needs in order to make profits.

This is not capitalism. This is not socialism. This is not Marxism. This is not progressive politics. This is not the policy of some one who is too liberal. This is the policy of a beltway that seeks to stay in power and privilege by enacting laws that provide unfair advantage to their cronies. This is not what many democrats or republicans of past would have found tenable. It’s an unholy alliance between huge business interests and the government of the ‘people’. It can be measured in terms of lobbying dollars and the numbers of Tom Daschles and Billy Tauzins; former elected officials who have joined the ranks of lobbyists.

I’ll give the Financial Times, the bottom line in an article called “Obama fails to turn back lobbying cash tide.”

The lobbying frenzy peaked in the fourth quarter of 2009, which hit a record of $955m spent, just as negotiations over the now stalled healthcare reform supported by the Obama administration were ramped up on Capitol Hill.

“Lobbying appears recession-proof,” said Sheila Krumholz, executive director of the Center. “Even when companies are scaling back other operations, many view lobbying as a critical tool in protecting their future interests.”

The pharmaceutical and health products industry broke all records by spending $267m last year, in what the Center’s analysts said was the “greatest amount ever spent on lobbying efforts by a single industry for one year”.

Not all of those funds were spent rallying against healthcare, however. The pharmaceutical industry’s main lobby group, the Pharmaceutical Research and Manufacturers of America (PhRMA) spent $26m lobbying in favour of healthcare reform after it negotiated an $80bn deal with the Senate and White House last summer that critics said was a gift to the industry.

The chief negotiator of that deal, former congressman Billy Tauzin, yesterday announced his resignation as president of the trade group. Mr Tauzin, who has run the association since 2005, said he would formally step down in June.

This is wrong, wrong, wrong. It doesn’t help to correct the problem by mislabeling it. The right and the left both see problems with this. The name calling has to stop in order for us all to work for the better interests of our country.

mo·nop·o·ly mo·nop·o·lies

1. Exclusive control by one group of the means of producing or selling a commodity or service: “Monopoly frequently … arises from government support or from collusive agreements among individuals” (Milton Friedman).
2. Law A right granted by a government giving exclusive control over a specified commercial activity to a single party.
3. a. A company or group having exclusive control over a commercial activity.
b. A commodity or service so controlled.
4. a. Exclusive possession or control: arrogantly claims to have a monopoly on the truth.
b. Something that is exclusively possessed or controlled: showed that scientific achievement is not a male monopoly.

Job Training ?

One principal says this new job training program will "to be exposed to people from different cultures". I'm **NOT** kidding.

I’m always interested in jobs and the job market. This is because I need a good job like every one else in this country whose last name isn’t part of a multi-conglomerate or law firm or associated with Hollywood or some other national past time. It’s also because I’m a teacher in a business department and that’s frequently the basis of judgment on our programs, funding, and enrollment by others. It’s also because I’m an economist and I know that we live in a country that’s 70% dependent on consumer income for its economy and about 67% percent of those households are dependent on wages and salaries for their shopping sprees. So, here’s a headline for you from the Detroit Free Press that will probably give you the same kind of willies that I got when giving it a read: Walmart offers job training via DPS. Yup, that’s via the Detroit Public Schools. Evidently we’re now preparing students for those jobs of the future.

“The training program was kicked off today at assemblies held at Frederick Douglass Academy for Young Men and at Western International High.

The Detroit Public Schools have teamed up with Walmart Stores to provide job training and entry-level, afterschool jobs to students at four high schools.

Detroit International Academy for Women and Henry Ford High will also participate.

Students will get 11 weeks of job-readiness training during the school day and 10 high school credits for the class and work experience.”

Sean Vann, principal at Douglass, said 30 students at that school will get jobs at Walmart. He said the program will allow students an opportunity to earn money and to be exposed to people from different cultures – since all of the stores are in the suburbs.

The irony of attending a school named Henry Ford High and preparing for a job at Walmart in the once great industrial city of our country is not lost me. I’m also wondering exactly what kind of “culture” the program exposes its students to since my experience in the surburbs with burbies is their strong desire for a distinct lack of culture. Maybe their planning on a course in customer service that includes ways to not intimidate Stepford wives when you do not look exactly like one of them. Your guess has got to be better than mine. Perhaps they need to learn how to recognize one concrete cement block store from another. Maybe an introduction to bland and boring food found a chain restaurants in those ubiquitous shopping centers in every burb?

This is truly depressing if the best we can offer a group of young people in a major urban city is a future at Walmart. I remember the threat at my high school was you’d get stuck pushing papers at Mutual of Omaha if you didn’t go to college. I’d just like to say, this isn’t a joke, but it sure feels like it should be. What ever happened to training nonuniversity-bound kids to repair automobiles or work with computers?

Is this what our economy has come to these days?

Capturing the Regulator

The original vampire squid: Standard Oil.

We continue to experience fallout from the banking crisis and see that many of the problems were caused by captured regulators. Problems with Fannie Mae were ignored by Barney Frank and the House committee appointed to oversea the mortgage giant’s activities. The NY Fed under Timothy Geithner appears to have been closer to Goldman Sachs and other large banks that its regulatory charter demands. We’ve seen this at the SEC also, as investment banks were able to convince the agency and the senators and congressmen who oversee its activities that deregulating risky activity was a good thing that wouldn’t led to market meltdowns as it had in the past.

We’re still seeing the fall out from continued rent-seeking activity by huge megalocorporations and their captured regulatory agencies and politicians. It’s in more industries than just the financial ones. Since the Reagan years, we’ve seen ongoing defunding of agencies and capture of agencies by the regulated who find ways to buy politicians through lobbyist activities. All of this had led to huge messes in nearly every sector. has further examples of this public-welfare destroying behavior in Regulators Hired by Toyota Helped Halt Investigations. We learn in this piece that many lives were lost because Toyota insiders at the National Highway Traffic Safety headed off “at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, court and government records show.”

Christopher Tinto, vice president of regulatory affairs in Toyota’s Washington office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety Administration to end probes including those of 2002-2003 Toyota Camrys and Solaras, court documents show. Both men joined Toyota directly from NHTSA, Tinto in 1994 and Santucci in 2003.

While all automakers have employees who handle NHTSA issues, Toyota may be alone among the major companies in employing former agency staffers to do so. Spokesmen for General Motors Co., Ford Motor Co., Chrysler Group LLC and Honda Motor Co. all say their companies have no ex-NHTSA people who deal with the agency on defects.

Possible links between Toyota and NHTSA may fuel mounting criticism of their handling of defects in Toyota and Lexus models tied to 19 deaths between 2004 and 2009. Three congressional committees have scheduled hearings on the recalls.

“Toyota bamboozled NHTSA or NHTSA was bamboozled by itself,” said Joan Claybrook, an auto safety advocate and former NHTSA administrator in the Jimmy Carter administration. “I think there is going to be a lot of heat on NHTSA over this.”

Another corporate whistle-blower is showing how corporate negligence may cost cities and states millions of dollars to replace exploding and cracking PVC pipes. This is from the NY Times. It’s typical corporate behavior. The certification agency here was not ‘informed’ of the changes used to increase production, decrease costs, and of course, feed the bonus class kitty.

JM Eagle was created in 1982, after the bankruptcy of Johns Manville, the first major corporation to seek protection from asbestos claims by filing for bankruptcy. The elder Mr. Wang bought the pipe division out of bankruptcy that year, renamed it JM Manufacturing and added it to his empire. (The company became JM Eagle after acquiring PW Eagle in 2007.)

PVC pipe had been just a small part of Johns Manville’s business, but Mr. Wang made his acquisition at a time when the plastic was fast catching on among cities replacing their older, decaying water systems. For several years, managers stayed on at the company and participated in the development of new standards for plastic pipes.

Mr. Hendrix said in his complaint that after Walter Wang became chief executive in 1990, many of the longtimers resigned or retired, and people who had minimal backgrounds in engineering or failure analysis replaced them.

JM Eagle also put a premium on cutting costs, Mr. Hendrix said, hiring people like him straight out of college. It even maintained a boarding house near Livingston for Taiwanese employees who could not afford suburban New York housing on their modest salaries.

One of his first jobs was to field customer complaints, which he said came in at the rate of at least one a day. He said he was trained to look for ways to attribute leaks and ruptures to the governments and contractors who installed and maintained the pipes.

Only when he was assigned to oversee certain tests did Mr. Hendrix begin to think the complaints stemmed from the company’s own cost-cutting measures. He said he realized JM Eagle had started buying a lower grade of raw materials from Formosa and had speeded up its production lines without reporting the changes to the certification agencies as required.

Republicans continue to label these instances of corporate malfeasance as pending “junk lawsuits” while lives and taxpayer monies indicate they are anything but nuisance. Who is going to pay for these faulty pipe systems? (These are problems economists study and we find the costs of “externalties” usually go to the taxpayer.) Will it be the same folks that are paying for the financial industry meltdown; the U.S. taxpayer? It most certainly will not be the C.E.O. whose short-sightedness and cost reducing behaviors are firmly rooted in bonuses present and past. They cannot be held legally accountable with either their personal network or their freedom because, the corporation is a legal entity all to itself. The worst we can do is watch them go bankrupt and then re-organize to avoid the financial penalties. You can’t put Toyota in Jail. You can see that JM Eagle was a corporation that formed out of the ashes of an earlier corporation that folded to avoid lawsuits from asbestos deaths. They are not unique at all in that behavior. It’s been going on since the courts decided that corporations get limited liability treatment.

One of the stories that I use for my economics class to illustrate these problems is the Radium Dial painting women whose jobs were basically to paint the luminous paint on watch and clock hands back in the 1920s. The original paint contained incredible levels of radioactivity. I saw the documentary about them and the horrible cancers that killed them in a documentary released in the mid 1980s. Many of them died so full of tumors and so full of radio-activity from licking the tips of the brushes or decorating themselves with the radioactive paint–because they were never told of the dangers–that the government has had to go back to their graves and encase them in led boxes because they emit high levels of radioactivity. The company folded to avoid all the costs of clean-up and the survivor lawsuits. The sites of the old factories continue to be problems in places where the factories were located.  The most famous was located in Ottawa, Il.  Many of our regulatory agencies were formed to avoid situations just like this. There’s a book that you may want to read if this interests you also. Here’s a quote from the link provided above.

It isn’t clear how well known the dangers of radium were in 1917 but no warning was given to the workers. The radium companies denied the dangers of imbibing radium despite the consensus of opinion among most medical experts and government officials that it was dangerous. The dialpainters were such a minority and lacked any financial resources to have any clout in dealing with industry. The battle for recognition of this health hazard to these women went on for many years.

A book titled “Radium Girls: Women and Industrial health reform, 1910-1935” by Claudia Clark was published by The University of North Carolina press, Chapel Hill and London in 1997 (ISBN 0-8078-2331-7 cloth and ISBN 0-8078-4640-6 paperback.) This is an excellent source of information on the subject. It is well documented with many references and an extensive bibliography.

A 1-3/4 hour film titled “Radium City” was made in 1986 about the aftereffects of two radium dial painting companies based in Ottawa, Illinois. The city of Ottawa, IL is about 80 miles southwest of Chicago. The Radium Dial Company (RDC ) moved from the East Coast to Ottawa in 1922. Joseph Kelly was president. The first problems of radiation exposure occurred with the young women who applied the radium paint to the dials. According to the film, RDC went out of business in 1934 after being faced by many lawsuits. Luminous Process Incorporated (LPI) started soon after also headed by Kelly. It operated from 1932 to 1978 when the NRC shut it down. Both factories were demolished, RDC in 1969 and LPI in1984 and much of the material was used as land fill. As a result there are 13 areas today with above normal radiation in Ottawa. The major contaminant is radium-226 and the by-product, radon-222. For more information see the Petitioned Public Health Assessment, Ottawa Radiation Areas, Ottawa, Lasalle County, Illinois

It isn’t known if the radium dials used by Jefferson starting in 1949 were painted by their employees or even done by Jefferson at all. They may have been sent out to be painted. In any case, working conditions were improved by that time but use of the paint was eventually banned.

This is the primary problem with granting corporations their own legal status. Investment bankers used to be mostly be professional partnerships. Recently, they switched to the corporate structure and many are saying that the limited liability (in other words if you screw up they can’t come after your net worth) is one of the reasons they took on so much risk. They no longer have “any skin in the game”.

There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you’re less likely to take the kinds of risks that expose the rest of society to your failures.

A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren’t protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. In other words, don’t nationalize; partnerize.

Even John Gutfreund — the man who kicked off the dramatic change in investment-banking culture and structure when he took Salomon Brothers, a longtime partnership, public in 1981 — confirms our thesis. Michael Lewis wrote in the December issue of Condé Nast Portfolio that Mr. Gutfreund now believes “that the main effect of turning a partnership into a corporation was to transfer financial risk to the shareholders. ‘When things go wrong, it’s their problem,'” said Mr. Gutfreund.

But when the personal wealth of executives is put at risk, as it is in a partnership, their behavior changes. Risk aversion increases. Few partnerships would leverage themselves to the hilt to load up on risky subprime loans.

Not only do these corporations give their management cover for bad decisions, they can raise tons of money in public markets and then use that money to buy political influence and now, after the supreme court decision, to buy ads to further influence elections. These giant corporations whom we give too-big-to-fail status, will in fact place themselves into bankruptcy or collapse to avoid the costs of their externalities. One of the biggest costs is the overproduction of products and services because they don’t reflect the true costs of doing business until it’s usually too late for any one to do something about it. This is exacerbated by neutered or captured regulators. Something that buying the political class achieves.

We need to take a serious look at what many folks are peddling out there as free market capitalism because it’s not free market capitalism. Regulations are there to protect us from bullies just like laws are supposed to do. Third party payers and huge megalocorporations in highly concentrated markets with huge market powers and the ability to influence the market are not what Adam Smith had in mind when he spoke of the invisible hand. Regulation exists to even the playing field when these power players exist,to ensure that markets function under proper conditions, and to hold entities responsible for the costs they create when they make messes.

Since the Reagan years, we’ve gotten one mess after another in one market after another from not realizing and acting on corporate malfeasance. Yes, they create jobs and products but those are by-products of their real purpose which is to maximize profits. They may run ads about loving fuzzy animals, but that is to create an image to help them further their profits. We need major changes in laws that recognize that not all byproducts of economic enterprise by businesses are positive. Most of the good stuff does not come from the huge bully boys. It’s time to evaluate and change the laws surrounding incorporation and to enforce the Sherman Antitrust law again. If we can’t lock them up in jail for doing harmful things to people, then they shouldn’t be granted the same status in the courts as people.

Morphing the Conversation

One of the things that I’ve found profoundly upsetting about the last several decades is how successfully movement conservatism has confused and morphed policy conversation into a mishmash of labels which in no way describe what used to be general understanding of policy. Movement conservatism has reframed many definitions that were used as the basis for policy discourse. In a reaction to this, movement progressivism has reframed the reframe rather than try to shift the conversation back to what used to be common ground and common definitions. The terms “socialism”, “liberal”, and “Keynesian” are now completely divorced from reality–if I can use that word–and from their traditional meanings. Shared definitions and discussion of one’s assumptions are important for civil debate. Civil debate is necessary for successful policy implementation. Our discourse is so inflamed these day that we no longer even share the process by which we have historically entered into dialogue. Screaming ill-defined frames is now de rigueur.

Movement conservatism–its media outlets and thinktanks– has moved the Overton Window so far off the ruler that even former Reagan officials are coming forward to press the reset button. Movement progressivism has borrowed from their play book and is now doing the same. Several TC readers have brought up some really good examples recently.

My personal hypothesis is that both Democrats and Republicans have the same agenda which is to feed the hand of the industries and interests that can keep them in power. They play on different teams with different sponsors but their basic goals are the same. That would be to return money to people that provide money to them. The rhetoric we see in ads and speeches are positioned to keep us on the hook and tagging along. Ever so often they throw us a few things like a study on getting rid of DADT or a law that looks like it may get rid of job place discrimination. These are mostly symbolic and have very little real effect. The right does the same thing. They throw a few restrictions on abortion rights or pull together funds for an government agency that lets churches proselytize through social services. Nothing changes in the big policy realm except the continuation of laws that concentrate media, economic, and political power into the power brokers of each party’s choice. This is something that many of the ‘tea-partiers’ as well as those drawn to the move-on movement share; a sense that government moves when one set of interests that fund politicians asks it to do so. We get wars when the Oil industry needs its interests protected. We get bail outs when the finance industry needs its interests protected. Meanwhile, the rest of us get fed hype that something is happening in our best interests as they reframe discourse with their best Madison Avenue gestalt.

Yesterday, I tried to approach this problem from the sociopolitical concepts. Today, because of some down thread links folks pointed out, I’m going to switch to the socioeconomic. I tag these things with ‘socio’ on the front, because I do believe that most of this comes from differences in class more than differences in anything else. Today’s populists are spewing the words ‘elite’ when I think what they are really sensing is they are far removed from the bonus class of Wall Street, the political class in Washington, and the cultural class in Hollywood. There is nothing elite about them other than their ability to attract money and power through a velvet schmooze and a public platform.

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