The Red Pill

some thoughts on economic collapse

this is not really an organized article on the topic just a collection of thoughts, reflecting on what i have heard and what i am surprised that i have not heard in all that is being said and written about the current economic crisis.  if anyone sends me questions, i will try to respond.

Some Background -
we hear a lot about how complex the debt instruments that caused the problem are (the "toxic" assets).  that is certainly true, but it shouldn't matter.  telling us it is too complicated for us to understand is an excuse to argue that we need to trust experts and not tie their hands in any way as they attempt to extricate us from this enormous mess.  but we don't need to understand the assets that are undermining our various banking institutions, we only need to understand how these institutions got to be "too big to fail."  why do i say that?  because if they weren't too big to fail (ie so huge and interwoven into the fabric of our economy that if they go down they will take the whole economy with them) we could simply let them fail.  that would make sense.  make stupid loans, lose your money.  this is a fundamental tenet of how capitalism is supposed to work (and something i myself have done more times than i can count - lousy capitalist that i am).  specialization.  you have knowledge in a particular area, you understand the risks, you look at the risk / reward ratios and decide which risks to take on.  the nature of high risk situations in finance is that the potential payoff is very high but the chance of actually getting paid is low.  you understand the business and you are in the best position to decide if the risk is "worth it."  if you are right you get rich, if you are wrong you go broke.  that is how capitalism is supposed to work.  that's why americans admire entrepreneurs so much.  they are supposed to be the risk takers at the heart of this economy.  

but what if there is no downside risk?  if you are right you get rich and if you are wrong you get bailed out.  this creates a problem economists call moral hazard.  economists are always concerned about incentives.  moral hazard means essentially that if you are cushioned from paying the "full price" for your "bad" behavior you have less incentive to behave well.  as an undergraduate economics major i was told that seat belts create a situation of moral hazard - a driver wearing a seatbelt will drive less cautiously because the consequences of having an accident are reduced (for the seat belt wearer).  ok, that is a little ridiculous (a lot of what i was taught was a little ridiculous).  once upon a time we used to hear about moral hazard and the ordering of medical tests.  once upon a time when more people had decent health insurance, doctors had an incentive to order "too many" tests.  why?  because the insurance company bore the costs of the test (not doctor or patient) but the price of missing something important would fall on the doctor (possible malpractice) and the patient (possible severe illness or death).  trying to align the doctor's interests with the insurance company's interests led to the creation of the hmo.  less moral hazard but also a lot less security for the patient.  the doctor is no longer trying to do everything possible to save the patient, now the doctor is trying to save the insurance company money.

long tangent.  but the moral hazard implications of the situation we are now in are clear and enormous.  the risk equations are now completely distorted.  imagine that i have $10,000 to "invest" (i put invest in quotes because we are now living in an era when real investment is dwarfed by pure speculation).  i could buy u.s. treasury bonds.  those are (used to be?) considered about the safest investment there is.  i'm not actually checking the current numbers but i imagine that the interest rate on a 10 year treasury note is around 4%.  4% of $10,000 is $400.  so my $10,000 investment will earn me $400 in interest each year.  safe / secure investment, not a big income generator.  now imagine that i take my $10,000 to a casino and "invest" in roulette.  if i choose a single number to put my money on and i guess correctly i'm rewarded with 35 times my initial investment - that's $350,000.  the chance of me guessing correctly is small which is why people still buy treasury bonds instead of "investing" their kids' college money in a trip to the casino, but that is for regular people.  what if i am "too big to fail"?  if i am "too big to fail" when i walk into the casino and put my $10,000 on a single number on the roulette wheel what are the potential outcomes?  if i guess right, i come out with $350,000.  if i guess wrong, hank paulson gives me my $10,000 back.  in the current plan not only do i get my money back, i don't even get told to stay out of the casino.  if i'm "too big to fail" i'm going right back in and do it again.  no reason not to.  and, i might add, no reason to buy treasury bonds or "invest" in the economy.  if my speculation (gambling) has only upside potential and no downside risk than why would i invest when i could speculate?  if i am rational (economists like to imagine that people are rational) i will choose the highest potential reward whatever the odds.  i'll bet the entire u.s. economy on double zero.

to finish the analogy i want to stress that the problem here is not whether or not the taxpayers understand roulette (or mortgage backed securities).  if the taxpayers understood roulette, maybe they would say they are not bailing me out unless i promise not to play anymore roulette.  if that was a condition of the bailout, i wouldn't leave the casino, i would just find another game to "invest" in.  and if i was told i couldn't go to the casino at all, i would go straight to the track.  as long as i get the reward and you absorb the risk, i will always choose to gamble rather than invest.  you don't need to understand the various "games of chance" and micromanage what i can and cannot gamble on.  you need to figure out how i got to be "too big to fail" (because this is what makes the risks i take on your risks) and take corrective action.

What Causes "Too Big To Fail"?
the short answer is de-regulation and most directly, in this particular case, the passage in 1999 of the financial services modernization act which repealed very important depression era legislation known as glass-steagall.  the most important provision of glass-steagall, from the perspective of trying to understand the current mess, is that it required a "fire-wall" between speculative banking operations ("investment" banking) and commercial banking operations (checking and saving accounts for "regular" people).  this "fire-wall" was extremely important because of course the issue now is not the size of these speculative operations (HUGE) but the fact that these speculative losses have the potential to wipe out the savings of "regular" people on "main street" who had no idea they were potentially exposed to this level of risk.  for more than 60 years banks, like the one that offered you a free toaster for opening a checking account, were not allowed to own brokerage firms or "investment" banks.  in 1999 the "fire wall" went bye-bye and a merger & acquisition frenzy gripped the financial services sector of our economy.  of course we've been living in de-regulating times since the reagan revolution so there was bad (regulation loosening) legislation before 1999 and there has been bad stuff since, but if you want to focus on one particularly lousy piece of legislation (and it is always a challenge to pick just one piece of lousy legislation) than for purposes of explaining the current crisis my choice would have to be the 1999 act which repealed glass-steagall.

but wait.  clinton was the president who signed the financial services modernization act into law.  and robert rubin, who was clinton's treasury secretary and may be treasury secretary again in an obama administration, was a major player pushing the legislation.  (and phil gramm who is a possible mccain treasury secretary was the act's main author and primary champion in congress).  you might expect that the bush administration would relish the opportunity to blame yet another one of their crises on the previous administration.  and yet they needed to find a way to blame clinton without blaming deregulation, without blaming greedy corporations run amok.  it took awhile but they managed to find a way to blame clinton and the poor!  (somewhere carl rove is smiling).

are you f---ing kidding me?  the financial meltdown is the fault of the poor?  the only greed we need be concerned about is greedy poor people determined to live beyond their means in houses they can't afford?  are we actually expected to swallow this crap?

to hear bush administration officials explain it, clinton's problem was not that he was a free trade loving, regulation hating menace to society (that describes every president we've had since i was old enough to vote).  clinton's problem was that he wanted to help poor people so much that he refused to see how stupid and greedy they are.  clinton wanted so badly to create his vision of an "ownership" society (yet another vision he shares with his successor) that he ignored the credit unworthiness of the people he wanted to help.  that is the official position of the bush administration.  clinton is responsible because he trusted poor people too much and was too blinded by altruism!  (this is not my explanation, i am paraphrasing the way bush people attributed blame for the crisis - personally, i think this argument is garbage - keep reading).

Misleading People By Abusing Language -

as a radical i care very much about the actual meaning of words.  politicians are masters at using language to create smokescreens.  it is an enormous source of frustration for me.  so in this section i'm going to vent about some the language we've been hearing and what is behind it.  before i get to deregulation i have to talk about the "ownership society" part 1 - what clinton did.  suppose that clinton really did care about poor people and believed in that greatest virtue under capitalism the ownership of private property.  if clinton wanted to get poor people into their own homes he could have facilitated that process.  in 1999 there was a budget surplus (remember those?) so such a project would not have even required new enormous deficits.  frannie mae and freddie mac should have been nationalized (well actually they should have never been privitized) and told to return to the mission for which they were created, helping people get into and stay in their homes.  you don't do that by tricking people into borrowing way more than they can afford to borrow.  you do that by helping people with down-payments and subsidized low interest mortgages.  we know how to do this.  this is part of the mission of the fha (federal housing authority) and part of the mission of fannie & freddie.  it is easy.  back before the era of giving mortgages for 125% of the "value" of a home, it used to be widely accepted that a buyer should have a down-payment equal to at least 20% of the value of the home and get a mortgage for no more than 80%.  most poor people won't have the 20% but if a policy decision has been made that we want to get people into homes the government can pay.  then you figure out how big a monthly mortgage payment the buyer can afford - a FIXED rate.  if that corresponds to a rate of interest that is lower than the going rate the government can make up the difference.  viola.  people are living in homes that they can actually afford with government help (something some people might actually believe government exists for). 

but what did clinton do to help people get into homes?  forget down-payments, we'll get rid of those regulations and let people buy homes with NO MONEY DOWN.  this is not no money down because the government is making up the difference.  this is no money down because you are BORROWING the ENTIRE value of the home.  in fact, as long as bank x is making the loan, why not make it for more than the value and use the excess to pay down some credit card debt or take a well-deserved vacation?  this feeds the housing bubble and as long as the bubble is fed and prices keep going up it won't matter that you've borrowed more than your home is worth.  next year it will be worth more.  constantly rising home values will substitute for actual equity down.  add to this insane (predatory is a better word) mortgage interest schemes.  don't have money for a mortgage payment?  you choose how much you want to (are able to) pay (for the first 2 years).  we'll give you some ridiculously low adjustable rate mortgage that will balloon to something outrageous 2 years from now.  but 2 years from now is the mythical future.  people aren't supposed to think that far ahead.  it is all about instant gratification.  and the joy of a bubble is that 2 years from now the house will be worth so much more than it is right now that the increase in value will create equity where none existed.  magic.  (even with all this magic, banks wouldn't make loans that make no sense if they had to hold them on their own balance sheets and this is where those extremely complex mortgage securitization schemes come in).

the thing that "regular" people need to understand is that clinton didn't create "ownership" he fed the housing bubble and used that to help feed the credit bubble.

THIS IS NOT FINISHED.  MY WORK KEEPS BEING INTERRUPTED BY MY LIFE.  I INTEND TO KEEP WRITING BUT WELCOME QUESTIONS EVEN AS THIS IS A WORK IN PROGRESS.

 

who will make the world better

a friend wrote this short essay.  seems appropriate for those feeling "patriotic" this 4th of july.

Who will make the world better? 

 

According to popular theory, we elect politicians to direct us toward a better society and world.  Widespread corruption at all levels make this popular theory nothing more than a piece of shit floating on an ocean of bloody money. 

 

The capitalist economy is a suicide economy.  To create a better world, it will take a new non-capitalist economy.  In serious electoral debates, the discussion of a new non-capitalist economy is not even remotely on the table.  Real change will come from below, not pandering politicians.

 

If pols can't do it, then who... the working class? 

 

At least since Marx, the theories that the proletariat will rise to make a better world have continued.  However, history shows that, again and again, big capital divides and defeats big numbers of people.  Modern technological developments exacerbate the divide and conquer condition.  Class solidarity is fragile.  Alone, the working class is not strong enough to change the suicide economy.

 

If the working class can't create the necessary change alone, then who?

 

The only people remaining to fight for a better world are independent players... accidents of capitalism.  These are people who, within the capitalist system, have been simultaneously exposed to the fatal flaws of capitalism, motivated to defeat capitalism AND are privileged with enough resources to take direct action against the suicide economy and the complicit governments and institutions which serve to perpetuate the suicide economy. 

 

Can independent players make the world better?

 

Few in number, independent players are not strong enough to change the suicide economy.  However, in conjunction with real resistance from the working class, independent players have the ability to occasionally throw a wrench at a vital cog within the suicide economy.  Together, the working class and independent players can be the catalysts to capitalism's inevitable crash.  And a crashed capitalism can provide the space necessary to create something better.

 

What role for hope?

 

If we give up on making the world a better place, we are left with a hideous concoction of cynicism and survival mentality.  To move toward the direction of making the world better, real hope is essential.  Real hope stems from intelligent organizational work and love in action.  That's what it comes down to.

- by eric

MAP Annual Meeting - Open Letter

[Below is a letter I drafted to the guests at the annual meeting of the Minnesota Alliance of Peacemakers on behalf of the RNC Welcoming Committee, Communities United Against Police Brutality and concerned residents of the Twin Cities.  I am posting it here so people will have a place to go to make comments about the letter if they choose to.]

Dear Guests of the MAP Annual Meeting,

Some of us writing today are long time activists for social justice.  We have struggled side by side with many of you to end war and oppressive violence.  This is why we are so concerned about the choice of St. Paul Police Chief John Harrington as keynote speaker for this meeting.  We recognize that as guests you did not choose the speaker, and we do not wish to judge you.  We want only to encourage you to think about the Republican National Convention, the role the police will play and where you stand.  You will be pushed to "take sides" and we want you to make an informed decision.

As protectors of state power, even the best intentioned police will be on the wrong side of the barricades at the Republican National Convention.  As yourself why.  Are the police "upholding the law" by arresting "lawbreakers", or are they defending those guilty of mass murder and crimes against humanity and nature from being called to account by the people?  Why aren't the police meeting with the people right now to figure out how we will defend our cities from this invasion of dangerous criminals in suits?

The criminal behavior and complicity of RNC attendees will be off the police radar.  Instead they will focus on "good" protesters and "bad" protesters.  Even if we share all the same goals, the police put wedges between us by focusing entirely on the tactics we utilize to advance our common goals.  If we accept the premise that there is such a thing as a "bad" protester, we have already lost.  The myth of the so-called "bad" protester will serve as the justification for all the violence perpetrated by the police during the RNC.  And make no mistake; the police will be perpetrating violence during the RNC.  Believing in "bad" protesters normalizes police violence.  It allows people to believe that protesters get the treatment they deserve, and this belief allows the police to use violence even more indiscriminately.  Believing in "bad" protesters creates an environment in which police violence does not have to be justified.  Police violence - like all state sponsored violence, including war - is presumed to be legitimate.  It is disturbing that "nonviolent" activists are so ready to accept police violence.

Holding such beliefs about the "legitimate" use of violence by agents of state power is a mark of privilege.  Those on the receiving end of U.S. violence around the world recognize the indiscriminate nature of that violence.  As it is around the world, so it is here.  But the "war at home" effects different communities differently.  The wealthy and white can pretend there is no war if they choose to.  That's privilege.

Ask the poor and people of color about the police.  Ask how they feel about police violence.  Of course you would have to leave the talk to ask them, because you won't find them in the audience with you.  Ask yourself why.  Ask yourself if inviting a police chief to speak at a major peace event reveals something about why people from poor communities and communities of color are not more involved in the anti-war movement - even though these communities are deeply impacted by war.  Ask yourself who you are lining up against when you line up behind the police.  Is it possible you are alienating those you would seek as allies?  The barricades are up.  Whose side are you on?

Questioning Capitalism - Column 2

I received two questions after my first column.  I had hoped for more, but perhaps this topic so confuses people that it is hard to even formulate a question (I felt this way in almost every math class I ever took).  Or, admittedly, people may not be interested in the topic (I felt this way in almost every math class I ever took).  Because I am personally so committed to economic literacy I will assume it is the former, at least for now, and keep writing.
With only two questions, I don't have the opportunity to choose the ones I most want to answer (the ones that are easy for me and make me feel smart).  I have to answer the questions you actually took the time to write.  BUMMER.    Here goes:

The first question asked for suggestions for books with good information and basic definitions on economics and globalization.  Confession: since leaving Graduate School I have read few economics books.  I find the frustrating.  I read a bit and then hurl them violently across the room.  I especially stay away from books by Thomas Friedman (e.g., The Lexus and the Olive Tree, The World Is Flate).  Friedman is a journalist (I use the term loosely) who writes, inter alia, on economics for a mass audience.  If you read his writing on a topic you know well and care about, you will soon decide that you can't trust him to teach you anything.  He is an apologist for the status quo. 
Noam Chomsky says that the role of intellectuals in any society is to defend the status quo.  So don't read intellectuals, unless they are dissident intellectuals like Chomsky.  You will learn more economics from a Chomsky book that isn't even about economics than you will learn from anything most economists write.  Books like John Perkins' Confessions of an Economic Hitman and Antonia Juhasz' The Bush Agenda are reasonably easy to read and have good economic underpinnings - they pull back the curtain a bit and explain how things work.
Global Exchange (especially author Kevin Danaher) puts out very good material on globalization and has lots of basic information in its website.  Public Citizen has a publication called "Whose Trade Organization?" that deciphers trade agreements for a lay audience, a very worthwhile project.  The Wikipedia website offers good information on many topics (although you may spend countless hours following endless links and forget why you went to the site in the first place).  Finally, I strongly recommend the publications of the Dollars and Sense collective.  These economists put out Dollars and Sense magazine 6 times a year and produce an alternative textbook series that includes "real World Micro," "Real World Macro," and "Real World Banking."  Check out the publications section of their website. 

The second question is related to the first although it doesn't sound like it:  Doesn't capitalism lift all boats?  And if it doesn't lift all boats doesn't it at least life some boats more than non-capitalism so that what we need is capitalism along with a fair system of taxation to redistribute the proceeds?
I consider these questions related, because they touch underlying assumptions that are the main reason I cannot recommend any "mainstream" economics texts, even for basic definitions.  There is an assumption in capitalist economics that capitalism causes the tide to rise more than any other economic system, and that this rising tide lifts all boats.  Recently there has been recognition that the tide may not lift all boats, but this has come with the assertion that those who benefit are so much better off that they can compensate those who are left behind or harmed and everyone will end up better off.
There are problems with this analysis on many levels.  At the most fundamental level, many question why a rising tide is even a good thing.  We point out that a rising tide drowns those without boats (and it is difficult to design an appropriate compensation package for the dead). 
The notion that "economic growth" is always good is simply and assumption and carries with it certain (unstated) ideas about who / what matters.  In a finite system, growth comes from stealing, killing, and poisoning the planet.  Global warming has just opened the Northwest Passage for the first time in modern history.  From an economic perspective this is a great thing - it will massively increase trade and reduce transportation time and costs.  The species that will soon be extinct thanks to global warming may have a different perspective on the issue, but polar bears have no say.
This brings me to the question of power.  Economists love to talk about what is possible "in theory."  It might be possible in many cases for those who benefit from economic policies to compensate those who are harmed.  It is not alway possible, as I argued above, because it is hard to calculate the cost of losing an entire species, poisoning an entire community, etc.  But even if we could put a price on what is lost, the theoretical compensation doesn't take place in reality.  To create such a system of compensation would require a political system that is willing and able to exercise control over the economic system.  We would need a political system that could represent the interests of the weak against the powerful.  But our political system is increasingly just the democratic facade of our undemocratic economic system.  Political candidates are only "viable" if they advance the interests of the wealthiest people and corporations.
The rest of us still get to vote.  We have the right to choose between the candidate who will shoot us in the head and the candidate who will stab us in the back.  What a great system, you get to choose how you die.

Questioning Capitalism

(Note: this is a column I am writing for the newsletter of the MN Metro Branch of Women's International League for Peace and Freedom.  I thought I would share it more broadly (haha!) by posting it on my blog as well).

Welcome to "Questioning Capitalism."  In this column, I hope to answer readers' questions about the economic system we live under here in the United States and which our country works to impose everywhere across the globe.  Anyone with a question about (capitalist) economics should email me at vegan14ever at riseup.net or post a comment to this entry with your question.

Since I have not received a question yet, I will begin this column with some definitions and how I view their implications.  To understand capitalist economics we need to know what economics is and what capitalism is.

Economics examines how societies choose to use their scarce resources.  Economics asks: What is produced?  How?  For whom?  And how are these decisions made?

Any society has to decide what to make, how to make it, and who gets it once it is made.  The question about how these decisions are made looks to me on the surface like a political question.  Intuition says that in a dictatorship the dictator would probably decide what to make (maybe more palaces), how to make it (forced or slave labor?), and for whom (well, for the dictator, of course).  And we might think that in a democracy, the people themselves or their elected representatives would decide what to make, and how, and for whom.  But this is not necessarily true. 

It seems to me that capitalism (our economic system) trumps democracy (our supposed political system).  To understand why, we need more definitions.  Capitalism is a system in which property is owned and controlled by private persons.  In a capitalist system the word property really means private property and includes not only land and consumption goods but also capital assets - like factories, what Marx called "the means of production."  What might logically be thought of as "public property," those things that don't have individual owners but are held communally (our public parks and lands, schools, fire departments, highways, airwaves, etc.) are referred to as public goods or services.  The very notion of common property is being erased.  Property means private property.

Prices are the signals that run the system.  Prices determine how resources are split between competing potential uses.  (In this system labor is simply one type of resource.  Wages - the price of labor - determine how labor will be used).  A market is any context in which goods or services are bought or sold.

Neo-liberalism is a doctrine which advocates the greatest possible use of markets to coordinate economic activity.  Free Trade ideology is about imposing neo-liberalism on the entire planet.

The spread of neo-liberalism has serious implications.  Under neo-liberalism markets using prices determine what is to be produced, how, and for whom.  Markets, using prices, is the answer to the question: "How are these decisions made?"  And this pseudo-scientific language is masking something pretty horrific.  In this system money really is power.  Money is the dictator.  The goal is for everything to be "owned" (private property) and everything to be "for sale" (on the market).  Where does this leave the poor?  Where does this leave democracy?

In the past, before the proliferation of global "free trade" agreements, people without money survived outside the world of markets.  Entire tribes and communities were "self-sufficient" producing what they needed to live and sharing.  Farmers all around the world grew food for their families and traded surpluses for the things they needed that they could not grow.  This trading might use the market - trading for money to buy what they need, or barter - trading what they have directly with those who have what they need.  This "subsistence" way of living may have been an effective way of surviving (even thriving ) for centuries, even millennia, but people living outside the money economy has a serious shortcoming as far as economists are concerned - none of this activity contributes to growing the GNP!  We live in a world where growth is considered morally good and growth means economic growth.  Moving large numbers of people from subsistence into the market economy may not help the people (many could die) but it does make the world level of economic activity look like it is increasing.  To oppose such action is to be "anti-growth" (disclaimer: I am anti-growth).  To be anti-growth is morally equivalent to hating your mother (I love my mother!), apple pie (yummy!) and baseball (I have no strong feelings either way about baseball). 

Despite the incessant propaganda conflating capitalism and democracy, in reality these notions are distinct and often contradictory.  Whether it is called extreme capitalism here at home or neo-liberalism abroad, the truth is the same.  When everything is owned, and all decisions are market decisions, money decides.  When money decides, only the wealthy have a voice.  There is a word for rule by wealth, and it is not democracy, it is plutocracy.

Is Peace Possible Under Capitalism?

PART 1 - Underlying Concepts

Background

     Economics is the study of scarcity.  Economics examines choices societies make concerning how to use their limited resources by asking four questions: What is to be produced? How? For whom? And how are these decisions made?  Capitalism is a political, social, and economic system in which property, including capital assets, is owned and controlled by private persons.  Capitalism is characterized by: (1) purchasing labor for money wages, and (2) using prices to signal how to allocate resources between uses.  A market is any context in which goods or services are bought or sold.  Economic liberalism, or neo-liberalism, is a doctrine advocating the greatest possible use of markets and the forces of competition to coordinate economic activity.  Free trade ideology is all about imposing neo-liberalism on the entire planet.

     In the United States we are living under what some call extreme capitalism.  Because I believe that we worship the Market as God, I see current American economic ideology as a religion I call “market fundamentalism”.  As the messengers of the Market God, economists are the high-priests of this new religion.  They preach that the Market’s “invisible hand” always provides the best solution.

Market Failure

     Consider me a fallen priest.  I am an economist, but I don’t worship markets.  My expertise is market failure. To even utter “market failure” today is blasphemous. Market failure, market failure, market failure.  Market failure refers to the inability of a system of private markets to provide certain goods, either at all or at the most desirable levels.  As recently as the 1990s, this blasphemy was taught in every economics department in the United States.  Joseph Stiglitz, the author of the textbook for my undergraduate course in Public Finance, won the Nobel Prize in 2001. My Public Finance text lists eight principal sources of market failure: failure of competition; public goods; externalities; incomplete markets; information failures; unemployment and disequilibrium; redistribution; and merit goods.  This article examines the first five of these sources of market failure.

     Economists know that for the “invisible hand” to work there must be competition.  But when economists say “competition” they really mean perfect competition. Perfect competition describes situations in which there are so many buyers and sellers that no one player can affect the price.  Monopoly is the opposite of perfect competition. The spectrum from monopoly to perfect competition reflects the level of power that players have over price.  To the greatest extent possible, a seller will restrict output to increase demand and obtain higher prices.  The more effectively one player can impact price the greater the failure of competition. Unfortunately, failure of competition, that is, the tendency toward monopoly, is increasing.

     Pure public goods have two critical properties.  Public goods are non-excludable, which means it is not feasible to ration their use.  Individuals who have not paid for the good cannot be prevented from enjoying its benefits.  Public goods are also non-rival, which means it is not desirable to ration their use.  Consumption by one person does not preclude enjoyment of the good by anyone else.  Clean air is a public good.  If my neighborhood has clean air, I will get to breathe it whether I pay for it or not.  Because there is no effective way to exclude me, the only way to charge me is through the tax system.  I cannot be charged per unit of consumption.  Clean air is also non-rival, since I don’t use up the clean air by breathing it.  The private market will not supply, or will not supply enough, of a pure public good, providing a rationale for government activity.  In contrast to public goods, private goods are purchased and consumed by individuals.  When I go to a restaurant, I can purchase and consume lunch.  Since there is no such thing as a free lunch, I do not get to consume what I do not pay for.  What I do consume is used up in the process, and is no longer available for someone else to consume.  Private goods are excludable and rival.

     There are some goods which have both private and public good characteristics.  This is the case with externalities.  An automobile looks like a private good.  When I buy an automobile I own it and no one else can use it unless I decide to share.  But even though I choose to drive a very fuel efficient hybrid vehicle I still have to breathe the pollution that gas guzzling vehicles spew into my air.  Gas guzzling vehicles produce negative externalities.  They impose a cost on people who had no say in the purchasing decision.  We breathe polluted air and fight wars for oil because others believe that if they can pay the purchase price they are entitled to the vehicle of their choice.  Corporations impose giant negative externalities on society.  Designed to privatize benefits and socialize costs, corporations are externality producing machines.  The executives at Coca Cola decide how much soda to produce based on how much they can sell. But the cost of a can of soda does not factor in the societal cost of massive pollution and the theft of our precious, irreplaceable fresh water supply – we all pay those costs whether we choose to drink the poison or not.  In the presence of externalities markets fail to produce the optimal level of output.

     Incomplete markets exist whenever private markets fail to provide a good or service even though they could provide it at lower cost than what people are willing to pay.  Even as they claim to worship free markets, politicians create this type of market failure every time they make goods or services illegal.  The market for travel to Cuba is incomplete because I cannot buy a plane ticket to go there, even though I would willingly pay.  Others might feel the same way about illegal drugs.  Such drugs could be regulated, taxed, and supplied by the market.  Prejudices also create incomplete markets.  Some neighborhoods do not have grocery stores or banks, despite the wishes of neighborhood residents.

     In the past, a lot of government activity was motivated by two factors.  The government saw that consumers lacked access to accurate information necessary to make the best decisions.  And the government recognized that the market supplied too little information.  The government created labeling laws and rules against practices like drug companies advertising directly to consumers.  By taking responsibility for correcting information failures, the government provided necessary consumer protection.

     When we look at information we can begin to see how market failures overlap.  Information failures are one type of market failure.  But information is also a public good! Information is non-rival in that giving information to one more individual does not detract from the amount others have.  Because information is non-rival, economic efficiency requires free dissemination.  Free markets are places where INFORMED consumers make RATIONAL choices.  We don’t really have free markets.  We see market failure everywhere we look, but the state corporate system instructs us to shut our eyes, wave our flags, and “keep on shopping!”

     Is peace possible under capitalism?  Although I did not answer the question posed in the title, I hope I have provided a framework which you can use to reach your own conclusions.  I’ll give you time to think about your own answers before sharing my thoughts.

(this article was written for Women Against Military Madness, and appeared in the May issue of their newsletter.  Part 2 appears in their June newsletter, and is posted below). 

PART 2

     The short answer to “is peace possible under capitalism?” is no.  But I don’t imagine that any reader who has been thinking about the concepts presented in Part 1 and waiting patiently for my thoughts on the topic of peace under capitalism will want to settle for the short answer.  Before delving deeper I should warn readers that the ideas presented here are my own, and hence potentially radical. I am drawing conclusions based on what I was taught when I studied Economics, some of which I shared with readers in Part 1 of this article.  But these are conclusions I draw on my own, because in all my years of study, peace was never discussed.  This is especially ironic, since the classic example of a pure public good has always been national defense.  Our government writes blank checks to purchase the tools for making war – powerful armed forces and the weapons systems they utilize to beat our enemies into submission – leaving taxpayers the bill.  Even today, when government services are being slashed across the board and the most basic notion that the government has the responsibility to care for the citizenry is under attack, national defense remains sacrosanct.  Actually, the term national defense is offensive to me. I don’t believe that waging war on the planet and its inhabitants can make us safer.  The whole idea seems to me like military madness, which I am against.

     Part 1 of this article started with several definitions.  I discussed neoliberalism abroad and market fundamentalism at home.  It occurs to me that the market fundamentalism we live under in the United States may just be neoliberalism coming home to roost.  For decades now the United States has acted through institutions like the International Monetary Fund and the World Bank to force debtor countries to privatize national assets, cut social spending, and focus their economic energy on export industries.  All over the world small farmers have been forced off their land, out of a subsistence way of life and into the dreaded market economy.  The same thing is happening here.  Around the world, public services have been cut in the name of saving much needed dollars.  That is also happening here. Rules governing “free trade” punish governments which attempt to promote autonomy by subsidizing certain critical industries.  There is one exception – national defense.  Sound familiar? 

     It is difficult to imagine the market providing peace.  Even if we accept that the market does a good job of providing private consumption goods, we know from Part 1 of this article that lots of things we want and need don’t fit into the private consumption good category.  Peace is not a private consumption good. Peace is not really a public good either; however, peace is closely tied to many public goods.  Peace activists are familiar with the phrase, “if you want peace, work for justice.”  A functioning justice system is a public good.  A functioning education system is a public good.  A functioning health care system is a public good.  A functioning infrastructure capable of providing food and water to everyone is a public good.  A functioning democracy is a public good.  We learned in the first part of this article that private markets don’t produce or, at least, under produce public goods.  We’ve already seen the tradeoffs around the world and we are starting to see them at home as well.  Around the world, Structural Adjustment Programs force market ideology on defenseless populations.  Market ideology says switch your agriculture to cash crops for export.  Governments comply.  Farmers go broke.  People starve.  Market ideology says drug patents are intellectual property and property rights must be respected and protected.  People get sick.  There is no money for medicine.  People die.  All around the world the very means for survival are being sold off for cash.  The cash is being used to service debt and ironically to purchase weapons.  The irony is that weapons are needed to defend against citizens who fight because their means for survival are being stolen by their governments. And their means for survival are being stolen by their governments to get cash for weapons.  Weapons manufacturers get rich.  The prospects for peace diminish.

     Even as the prospects for peace diminish the importance of working for peace grows.  We know from the discussion of externalities in Part 1 that under extreme capitalism not enough peace work will get done.  Why?  Because there are positive externalities associated with peace work which the market cannot take into account.  When I work for peace I am not the only one who benefits.  Everyone benefits whether they express support or contempt for the work that I do.  Future generations benefit even though they have no way to compensate me.  The market fails to compensate me for the full value of my work.  In fact, the market fails to compensate me at all.  Market fundamentalism tells me that the only benefit of working for peace is the pay I receive for doing this work.  If that were true I would do zero peace work because that is how much it pays.  Even if I take intangible compensation into account, market ideology says that I should only work up until the point where personal effort equals personal satisfaction.  Market ideology does not allow me to calculate the full value of my work to myself, my supporters, my detractors, future generations, and our planet.  Fortunately for me, my supporters, my detractors, future generations, and our planet those of us who work for peace don’t care what market ideology tells us.

     Is peace possible under capitalism?  The short answer is no. But the answer doesn’t matter because there is a more important question.  Is survival possible without peace?  For me, the answer to that question is also no.  So I have to keep working for peace.  And to get there I probably also have to work to overthrow capitalism.  Revolution anyone?                                    

(this article was written for Women Against Military Madness.  a slightly edited version - last 2 sentences removed - appears in the June issue of their newsletter.  interesting edit).

What the Women's Press Published

I don't imagine most people will want to sit and read both what I originally submitted to the Women's Press and what they actually printed.  Maybe someday my biggest fans might, because someday I hope to have those.  But anyway, I am including it because it is a big part of my motivation for having this blog.  Over the years I have spoken to several reporters and lamented at the difference between what I said to them and what ended up appearing in their media.  That is part of why I was so excited to get to write something in my own words for publication.  And it was a very big challenge.  In my head the piece was at least 1500 words long and tried to answer all the questions I kept imagining people would have when they read it.  I worked very hard to get it down under 750 words and prayed that it still conveyed everything I hoped it would convey.  Even though I was told I had 750 words, they cut another 100 plus words from the original.  I also think they cut nuance and perhaps the most explicitly confrontational things I said.  It could well be true that what they published was an improvement over what I originally wrote.  Or that it was more appropriate for their audience, which they know and I don't.  But the main thing is that I worked hard to write something that met their criteria and still said what I felt like I needed to say.  And I was very excited at the prospect of my words appearing in their publication.  The edits hurt, and that's a big reason that I have this blog.  So I can say what I want to say.  People might not like what I have to say, but at least no one can change it without my consent.

Women's Press version

Occupation of Iraq piece I wrote for Women's Press

When I think about the occupation of Iraq and all the misguided reasoning we have to overcome to end it, one statement I’ve heard repeatedly from “liberal” commentators deserves particular scorn.  They misinterpret what they mislabel “the Pottery Barn Rule” and claim, “You break it, you own it.”  I would love to expose the myriad flaws in their reasoning, but allow me instead to present another scenario.  If I am successful, the ever-shifting rationalizations for the invasion and ongoing occupation will lose their power and we might even see a way out.

Imagine you are a wealthy, white person living in a gated, suburban community.  You love to drink alcohol and rage about the deteriorating state of the world.  Lately your obsession is a poor, inner-city, immigrant neighborhood which is being terrorized by a horrible bully.  Dogs and cats disappear only to be found horribly mutilated.  Now children are disappearing as well.  This you cannot tolerate.  Everyone you approach says the police need to handle it, but you can’t accept this.  Other people simply are not as compassionate as you are.  A few more drinks give you the courage you need to grab your gun and set off in your SUV to hunt down this bully.

Despite your noble intentions, something bad happens.  You don’t find the bully but you smash into a compact car paralyzing a man and killing his two small children.  You broke a family.  You could try to rationalize your way out but you don’t.  “I broke them, I own them” you say to yourself, thinking this is somehow taking responsibility for what you have done.  You snap into action, deciding the man needs to see specialists.  The couple doesn’t speak much English and none of your chosen doctors can communicate with them.  But that’s no big deal.  The doctors can talk to you, and you’re the decision maker now.  The couple wants to deal with familiar doctors from inside their community.  My God they are primitive!  They have no idea what is best for them.  You start to wonder how they even survived before you came along.  The bills for the specialists are mounting.  You could pay, but you understand how destructive dependency is.  This family needs to learn to take personal responsibility.  The solution to their growing financial problems is obvious.  They need to sell their house.

While you are confident that having you in charge of their lives is a big step up for this family, you also recognize that they have made real sacrifices.  And only one thing can really justify their sacrifice.  The bully must die!  The hunt must continue.  For several more weeks you prowl the neighborhood in your SUV.  You run over dogs and cats and small children.  You shoot at shadows killing grandmothers, maiming grandsons.  You break a lot of families.  But your mission is noble.  Really these people are all better off.  Or they will be, after you kill the bully.

One day, finally, it happens.  You actually capture the bully.  Your heart swells.  Imagine how grateful the entire neighborhood will be!  Yet somehow something incomprehensible has happened.  There are people saying that you are worse than the bully ever was.  Others are glad to be rid of the bully, but won’t shut up about the high price they’ve paid.  Not exactly the gratitude you expected, the gratitude you are entitled to!  Something inside you snaps.  Anyone who doesn’t appreciate what you have done is on the bully’s side, an enemy of the new neighborhood it has become your mission to create.  The neighborhood has descended into chaos.  Yet all you ever wanted was to leave the community better than you found it.  And that would be easy, if agitators from outside the neighborhood and bully-lovers didn’t keep getting in your way.  All these people must die.  Then you can go home.

Of course there is and always was another way.  You’ve destroyed lives and nothing you do will make it better.  You need to say you’re sorry.  You need to pay whatever it costs for your victims to put their lives back together.  You don’t get to decide how they do that.  You need to accept that all of your noble impulses are making things worse, and back away.  And there’s one more thing.  From that first day you got drunk, grabbed your gun, and boarded your SUV everything you have done is totally illegal.  You belong in jail.

By Karen Redleaf, WILPF

Hello

Hello visitor.  This is my new weblog where I will post assorted political rants, once I learn how to use the thing.  Please check back soon.  I really intend to get this thing up and running any day now.  Peace,  Karen