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Please Excuse Our Dear Uncle Sam

by on January 14, 2013

As we march happily around another Fiscal Cliff and toward threats of another government shutdown, it’s time to look at a different a way of doing things..

There is no alternative to capitalism, argued Margaret Thatcher often.  Are we to believe “that an economic system with endlessly repeated cycles, costly bailouts for financiers and now austerity for most people is the best human beings can do?” asks Richard Wolff.  There are, of course, alternatives: “[e]very society chooses – consciously or not, democratically or not – among alternative ways to organize the production and distribution of the goods and services that make individual and social life possible.”

So how does this system with no alternative work?  We all live in such a system, and it so ingrained in us we hardly think of how it works.  In Capitalism

private owners establish enterprises and select their directors who decide what, how and where to produce and what to do with the net revenues from selling the output. This small handful of people makes all those economic decisions for the majority of people – who do most of the actual productive work. The majority must accept and live with the results of all the directorial decisions made by the major shareholders and the boards of directors they select. This latter also select their own replacements.

Capitalism thus entails and reproduces a highly undemocratic organization of production inside enterprises.  [There is no alternative] believers insist that no alternatives to such capitalist organizations of production exist or could work nearly so well, in terms of outputs, efficiency, and labor processes.

For example, when you walk into a department store, they have a limited amount of merchandise for sale, most of which you have no interest in.  They, however, have decided that this is what the current “style” is, and your options are fairly limited unless you know how to produce your own clothes.  It’s possible you walk  out of the store with exactly what you were looking for; there’s a distinct possibility you walk out of the store frustrated with your inability to find something, or even frustrated with what you have bought.  Either way, you have almost no input into what is produced or what is “in style,” unless you’re willing to organize a massive and prolonged boycott.

There is, in fact, an alternative to capitalism.  Arrasate-Mondragon, a city in the Basque region of Spain, is the headquarters of the Mondragon Corporation, a corporation which is “composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise) collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits).”  Mondragon Corporation “worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs.”  The Corporation “limits top-paid worker/members to earning 6.5 times the lowest-paid workers,” whereas in Capitalist America CEOs can expect to be paid 400 times an average worker’s salary.  Is the Corporation viable?  It has existed since 1956.  The workers choose to be a part of it, as opposed to the government-imposed austerity in Spain, which has created almost 25% unemployment.  The system is not perfect – the managers and workers both agree that “theirs is a co-operative business with all sorts of problems: ‘We are not some paradise, but rather a family of co-operative enterprises struggling to build a different kind of life around a different way of working.'”  Nonetheless, it sounds like a refreshing idea to believe that workers have some input in their work.

At the same, time, though, Capitalism is so widely ingrained in our international economic system that local fixes will not solve a massive problem.  Economic scandals have come and gone with such rapidity in recent times that the recent LIBOR scandal of six months ago is all but forgotten.  The London Interbank Offered Rate [LIBOR] involves a group of bankers who set a daily interest rate affecting trillions of dollars of transactions around the world.  Your home mortgage, your college debt, your credit card fees could be affected by Libor.  Well, when you give a banker a cookie, his instinct is to make two cookies out of it.  There’s nothing wrong with that – except that he wants both cookies for himself.  How does LIBOR work? As a banker

[y]ou were supposed to look at various factors, what your recent transactions were, what other transactions are, what the market conditions are. You can use judgment. You don’t have to tag it exactly to a transaction.

But using judgment, and have a potential bias in judgment is profoundly different from open collusion with other banks to lowball or highball the rates to profit. I mean, these [internal] emails [at banks] quite acknowledge that they were trying to manipulate the rate to benefit their trading position. And what’s ironic is the trading desk of these banks were probably hurting the part of the bank that does the bread and butter lending.

As Sheila Blair, a former head of the FDIC – and a financial conservative – said in July (and it still appears to be true) we don’t know all the facts yet.  “But certainly we do know that from 2005 to 2008 there were documented instances of Barclays according to Barclays traders colluding with other banks to influence the Libor rate.  I think just that by itself shows a culture of greed, of people feeling they’re above the law, above ethical standards, basically justifying anything to make a buck.”  She doesn’t want government setting the interest rates, but she does “want government regulation of how the market sets interest rates. And there were red flags about Libor back in 2008 and then the simple fix would have been to say that if you submit a rate to Libor it has to be based on an actual transaction that you actually borrowed money at that rate not your best guess, you know, today what I’m going to pay.”

There’s nothing terribly surprising about any of this, and it has become far too common and expected, but that should not excuse the lack of moral outrage over simple gaming of our system.  The government, which has the ability to regulate the markets, should be able to prevent – or at least, regulate – a good deal of this behavior.  Perhaps the arc of the economic universe is long but bends toward justice.  In a process that sometimes appears to be ten steps forwards and nine steps back the government alternately passes and repeals laws which regulate the morally outrageous behavior of the financial sector.

The Dodd-Frank Act, in 2010, created the Consumer Financial Protection Bureau (CFPB), the primary goal of which “is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”  In the middle of 2012, a year after it began work, the CFPB brought its first public enforcement case against CapitalOne, the people who want to know what’s in your wallet.  CapitalOne’s “third-party vendors engaged in deceptive tactics to sell ancillary products to the company’s credit cards.”  Customers “were wrongly led to believe they needed to buy the services [offered] to activate their cards or that debt protection or credit monitoring was free, while others were left with the impression that the purchase would improve their credit scores. Some customers were simply not eligible, but got billed anyway.”  As restitution, if you can call it that, CapitalOne paid “between $140 million and $150 million in restitution to 2 million customers and pay an additional $60 million in penalties — $25 million to the CFPB and $35 million to the [Office of the Comptroller of the Currency].”

It’s important to remember why we need a Consumer Financial Protection Bureau.  After the amazingly deregulated period of the 1920’s,  which literature celebrates as “The Roaring ’20’s,” the market crashed in 1929 and America experienced massive and unprecedented unemployment.  In response – a very slow response – The Glass-Steagall Act was passed in 1933.  After about sixty years of doing what it was intended to do, which was to regulated the behavior of the banks, Glass-Steagall was repealed by the somewhat less pleasant Act called the Gramm-Leach-Bliley Act. There is, after all, very little point in having legislation which does what it is designed to do.  I hardly need to remind you what happened next.  We had a widely-hailed but perhaps very accidental period of boom, where the internet and housing markets created a great time of prosperity, followed immediately by a realization that this boom ended as the unregulated market gave out from under itself as consumers were convinced by the markets that all they needed was to spend a little more money the market knew the consumer didn’t have (but the market didn’t care).  In a manner that was only surprising to people with their eyes shut, the market collapsed, and the government decided some regulation might be good.

The housing market needs fixing as desperately as the banking industry.  When last I checked, a plan is still being considered in an area “[d]esperate for a way out of a housing collapse that has crippled the region, officials in San Bernardino County are exploring a drastic option — using eminent domain to buy up mortgages for homes that are underwater (worth less than they are mortgaged for).  Then, the idea goes, the county could cut the mortgages to the current value of the homes and resell the mortgages to a private investment firm, which would allow homeowners to lower their monthly payments and hang onto their property.” (this leads to the NYT. Quotes from the same article can be read at RollingStones.)

As RollingStones reports, a company called Mortgage Resolution Partners would help “raise the capital a town or a county would need to essentially ‘buy’ seized home loans from the banks and the bondholders (to use eminent domain to seize property, governments must give the owners ‘reasonable compensation, often interpreted as fair current market value).”  Once the town or county seizes the loan, it would then be owned by a legal entity set up by the local government – San Bernardino, for instance, has set up a JPA, or Joint Powers Authority, to manage the loans.” The JPA  then owns the loan.  It would then approach the homeowner with a choice.  If the homeowner likes the current situation, he can simply keep making his same inflated payments to the JPA.  This isn’t likely, but the idea here is that nobody would force homeowners to do anything.  This only works – if it works at all – if Mortgage Resolution Partners makes profits off the whole deal, by getting funding from the local government to act on the government’s behalf.  If there’s no profit incentive, this otherwise virtuous system doesn’t work.  While they openly admit many problems to their system, we can only imagine what system, perhaps not based on economic incentives, Spain’s Mondragon Corporation might produce as a solution.

Thus far, it is obvious only that there is something inherently wrong with our system, and seen only that small fixes, either based on profit-induced motives or regional attempts to try something other than Capitalism, can be applied to the system.  Is there anything more that can be done?  Other than Bob Black’s radical, interesting, and ultimately unattainable suggestion that we abolish all forms of work (not ‘production,’ just ‘work’) there appear to be only consuming and difficult efforts that can be made, all of which require (appropriately, but this is what makes it challenging) people-power.  While Mayor Booker has found that it takes more effort to hate than to tolerate it is, in fact, harder to fight for something than against something. It takes more effort to maintain rights than it takes to deny them.

Because rights are granted to a collective group of people — “all men,” “all white men,” “all adults,” etc. — it is easy to stand by and expect that someone else will defend those rights, which have been given to them as well, for you.  There’s no reason for you to put in the effort.  “The Charter of the Forest” once allowed people in England to use for forest, and all the food and fuel in it, for the common good.  But “The Charter of the Forest” was repealed, which meant that “[w]ith the commons no longer protected for cooperative nurturing and use, the rights of the common people were restricted to what could not be privatized.”  The result?  “The rise of capitalist practice and morality brought with it a radical revision of how the commons are treated, and also of how they are conceived.  The prevailing view today is captured by Garrett Hardin’s influential argument that ‘freedom in a commons brings ruin to us all,’ the famous ‘tragedy of the commons’: what is not owned will be destroyed by individual avarice.”  That is certainly one way of looking at it.  If you want to encourage greed, tell people they are greedy.

Massive public relations efforts by those interested in destroying the common, and along with it the common good, tell us that this “New Spirit of the Age” is all the rage.  These efforts are “dedicated to what the great political economist Thorstein Veblen called ‘fabricating wants.’ In the words of business leaders themselves, the task is to direct people to ‘the superficial things’ of life, like ‘fashionable consumption.’  That way people can be atomized, separated from one another, seeking personal gain alone, diverted from dangerous efforts to think for themselves and challenge authority.”  It is worrisome, at the very least, that the ‘progressives’ — who are indeed more progressive than the regressive conservatives — such as Edward Bernays and Walter Lippmann “who praised ‘the manufacture of consent’ as a ‘new art’ in the practice of democracy.”

Is the gateway to autonomy, and the avoidance of becoming one of the masses, available through education?  Hardly, according to Noam Chomsky.  “One particular concern was to introduce better controls over the institutions ‘responsible for the indoctrination of the young’: the schools, the universities, the churches, which were seen as failing that essential task.  I’m quoting reactions from the left-liberal end of the mainstream spectrum, the liberal internationalists who later staffed the Carter administration, and their counterparts in other industrial societies.  The right wing was much harsher.  One of many manifestations of this urge has been the sharp rise in college tuition, not on economic grounds, as is easily shown.  The device does, however, trap and control young people by debt, often for the rest of their lives, thus contributing to more effective indoctrination.”  We are stuck between the Catch-22 of being educated, which costs a great deal, and being uneducated; as the saying goes, though, ‘if you think education is expensive, try ignorance.’  Moreover, Chomsky notes that “we see that the destruction of the Charter of the Forest, and its obliteration from memory, relates rather closely to the continuing efforts to constrain the promise of the Charter of Liberties.”

Clearly there is very little most of us can do about  whether the government avoids the Fiscal Cliff, or whether Republicans will attempt to shutdown the government.  There is, at the moment, very little most of us can do about controlling the market, deciding what the ‘style’ this season should be, or how much a CEO makes compared to the average worker.  There is, at the moment, though, choices we make both collectively and individually that decide whether we should have a government that regulates the financial market, the housing market, and provides for the common good.

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