Week-end Wrap – Political Economy – September 8, 2019

….It’s only when you think for a bit, and work out the implications, that you realize something that sounds perfectly innocuous actually has horrifying implications. What about child labor laws? Oh, well, that’s just the state stepping in to prevent a beneficial transaction between the child and the employer. We’re “taking away opportunity from children,” as libertarian economist Jeffrey Tucker put it in a Foundation for Economics Education article called “Let The Kids Work.” Oh, what about price gouging? Well, you’ll read in the Wall Street Journal that price gouging is Actually Good, because it’s a Mutually Beneficial Transaction between someone in desperate need of a thing and someone willing to part with it.

One of my favorite books for understanding the real nature of free-market capitalism is Walter Block’s Defending the Undefendable. Block, a right-wing libertarian, goes through various different categories of unpopular people, and shows how they are actually heroes performing a public service. Slumlords? They provide houses! Blackmailers? They’re merely offering the service of not disclosing information—would you rather they just released the damaging information? Drug dealers? It’s a product—you don’t have to buy it! Ebenezer Scrooge? He was investing his money and building the economy! Block concludes that these people “do not violate anyone’s rights, so they do not violate basic morality.”

For Block, “respecting property rights” and “basic morality” are identical, meaning that I can be as nasty to you as I want so long as I don’t steal your furniture, and still be an upstanding person. Employers can mistreat employees—by sexually harassing them, belittling them, working them to exhaustion, and they haven’t done anything wrong, because it’s a Free Market Transaction that the employee could theoretically walk away from….

“Monopolist’s Worst Nightmare: The Elizabeth Warren Interview”
David Dayen [The American Prospect, via Naked Capitalism WC 9-3-19]

Elizabeth Warren: I believe the central question in America today is who government works for. Yeah, it’s got a lot of different directions, but that’s the fundamental one. Is it just going to work for the rich and the powerful, or is it going to work for everyone else? Antitrust cuts right to the heart of that. We’ve had a government that has kissed up to every giant corporation for decades. It has weakened antitrust enforcement, looked the other way on mergers, passed on deals that everyone knew were anti-competitive and would be bad for the economy and bad for competition but good for the bottom line of the companies that wanted it. And no one so much as fluttered an eyelash over it. And that’s started to change. And I think—So here’s my thinking: it’s because we’re focusing more on what’s wrong in this country. It’s not like somebody woke up and just said “antitrust”—we’re not that nerdy—but it’s about what’s wrong in this country. And as people increasingly see that the problem is not an overreaching government, the problem is a government that won’t get in the fight on the side of the people. Antitrust becomes one of the clearest places to see that.

But I want to make two other points. The first is current law gives the Justice Department and the FTC and the banking regulators a lot of power to move now. Even without Congress, a president who put a strong team in place could change antitrust enforcement in this country, without a single change in the laws from Congress.

Dayen: ….the sort of elephant in the room on this is the judiciary, which has a very particular theory and view of antitrust and even if you put in enforcers that want to take that in a different direction, you still have to argue that in court.

[To which Warren responded:] “Remember, it was the academics that got this started in the wrong direction, arguably.”
When we started this conversation, I said that I think the question is who government works for. I think much of the antitrust relaxation over time in the ’60s was confidence the government would handle this. Confidence that we had regulators who knew their stuff and who were technically adept and who had shown that they would be on the side of the American public. And when the big corporations started pushing back, started advancing the academic work that said, “No, let the giant corporations do whatever they want. What could possibly go wrong?”—That it’s taken a long time for people to see the implications of that. Look, for 40 years now, the mantra in Washington and in most of the Republican Party and a big chunk of the Democratic Party has all centered around Ronald Reagan’s “What are the nine worst words in the English language? I’m from the government and I’m here to help.” Ha ha ha. The idea that it’s government that poses the threat to all of the rest of America and must be held at arm’s length, and missing the fact that it’s government that balances out the power of these giant corporations. And without an effective government to enforce antitrust laws—and other laws—we’re all in trouble.

How Robert Bork Fathered the New Gilded Age

(Sandeep Vaheesan is the legal director at the Open Markets Institute. He previously served as a regulations counsel at the Consumer Financial Protection Bureau, where he helped develop and draft the first comprehensive federal rule on payday, vehicle title, and high-cost installment loans.)

Creating an equitable society requires nothing short of wholesale reform of our antitrust law and policy and renouncing the ideology and prescriptions of Robert Bork….

As conservative attacks on the New Deal gained traction starting in the mid-1970s, antitrust was an early target. Corporate executives resented how antitrust law and New Deal regulations in general restricted their freedom of action. For the corporate class seeking to overthrow these public rules, Robert Bork, a law professor at Yale, would be a savior. He had been concocting the theories by which corporations would overthrow the antitrust fetters of the postwar period.

Bork offered a radical reinterpretation of antitrust law. Inventing a legislative history out of whole cloth, he argued that Congress enacted the Sherman Act only to protect “consumer welfare” and not to control the broader economic and political power of corporations. Further, based on hypotheses with little or no empirical support, he asserted that mergers and trade restraints allowed businesses to lower costs and improve services and thereby benefit consumers.

Phoenix: Thumbs Up for LRT, Thumbs Down for Koch
[Railway Age 9-2-19]

Voters in Phoenix, Ariz., delivered a resounding endorsement of their light rail line and a stinging rebuke to a plan that would have halted funding for rail expansion, stopping that idea dead in its tracks. Phonecians (as they call themselves) went to the polls on Tuesday, Aug. 27, in a special election. There were only two public questions on the ballot, and no candidates for office. Proposition 105 called for an end to funding for any expansion of Valley Metro’s LRT, including canceling extensions already approved by the voters, while Proposition 106 called for a cap on city spending until at least 90% of its pension liabilities are funded. The voters rejected both initiatives overwhelmingly….

KJZZ, the NPR (National Public Radio) station in the Arizona capital, ran the headline: “Early Phoenix Results: More Light Rail, Same Pension Funding.” Early reports indicated that the anti-light-rail initiative was losing by 37% to 63%, while the anti-spending proposition was going down by an even-wider margin; 33% to 67%, with about 180,000 votes counted. Many of those were cast through an early-voting process.

“How Slavery Hurt the U.S. Economy”
[Bloomberg, via Naked Capitalism WC 9-3-19]

“One school of thought argues that [1] slavery in general, and cotton in particular, was the driving force behind the development of America’s distinctive brand of capitalism. (The New York Times’s ambitious 1619 Project contains a good encapsulation of this argument.) But not only has this theory come under fire for inaccuracies, its central narrative is incorrect. The reality is that cotton played a relatively small role in the long-term growth of the U.S. economy. [2] The economics of slavery were probably detrimental to the rise of U.S. manufacturing and almost certainly toxic to the economy of the South. In short: The U.S. succeeded in spite of slavery, not because of it.”

Both sides, as presented here, miss the crucial larger fact that USA’s industrialization was the result of first Secretary of the Treasury Alexander Hamilton’s plan for creating an industrial, not agrarian, economy. And, the opposition to Hamilton and his plan for industrializing USA was centered in the southern oligarchy of slaveholders, led by Thomas Jefferson and James Madison. Very few historians of slavery and even fewer economists appear to understand what Hamilton actually accomplished, or the nature of the opposition to what he did. One of the few is Michael Hudson, who has written extensively on Hamilton’s American School of political economy. See, for example, Hudson’s 2010 book America’s Protectionist Takeoff 1815-1914.

Politically, Hamilton is identified by historians as a Federalist. So, it is germane to note here that The Federalist Society, which has been a key agent in promoting the conservative / neoliberal law and economics doctrine, when it was first considering a name, was thinking of calling itself,  far more accurately, The Anti-Federalist Society. 

The Failure of Establishment Neoliberal Economics

RIP Shareholder Primacy

For the past fifty years, virtually all business leaders, many policymakers, and a great deal of voters have accepted Friedman’s argument that shareholder primacy is the “natural” law of the market. Yet shareholder-focused corporations are not laws of nature, nor does that governance model accurately reflect today’s business dealings. This misguided focus is the result of decades of flawed theory in economics and law. It stems from an incorrect analysis of the relationships between shareholders, employees, management, and the corporation itself. And it is based on a flawed theory of the underlying economy: that markets work perfectly, and the heavy hand of government must get out of the way.

This ideology has caused immeasurable harm. The singular focus on stock price means that wealth is extracted by a small number of shareholders while those who work to produce that wealth are squeezed to the bone. Large corporations operating in this way so dominate U.S. political, economic, and social life that it is difficult for most of us to remember that the rules that shape corporate governance are democratically determined—that we, the electorate, can actually change them….

First, as William Lazonick’s Theory of the Innovative Enterprise (2013) explains, shareholder primacy lacks a theory for how corporations actually develop new ideas for products, new marketing strategies, and new means of using resources. Innovation depends on financial resources, but it crucially also involves “strategic control and organizational integration” in social conditions that are “uncertain, collective and cumulative” in character. Put simply, successful corporations are human organizations that depend on the risky, longterm, creative collaboration of different kinds of participants. This is obvious to anyone in the business world but absent from a “nexus of contracts” view of the corporation. Investors buying and selling shares with each other in diversified portfolios are not walking the shop floor. They aren’t surveying customers to iterate successful products or competing with coworkers for the highest sales.

Lazonick’s arguments were far more eloquently stated by Hamilton and his supporters at the beginning of the American experiment in self-government. See, for example, Hamilton’s argument for limiting the total number of votes of any corporate shareholder to only thirty, no matter how many thousands or millions of shares they actually owned. 

CEO Compensation Increased 940% Between 1978 and 2018, Workers’ Only by 12%
Jerri-Lynn Scofield, September 2, 2019 [Naked Capitalism]

“Elite Failure Has Brought Americans to the Edge of an Existential Crisis”

“In 1998, the Wall Street Journal and NBC News asked several hundred young Americans to name their most important values. Work ethic led the way—naturally. After that, large majorities picked patriotism, religion, and having children. Twenty-one years later, the same pollsters asked the same questions of today’s 18-38-year-olds—members of the Millennial and Z Generations. The results, published last week in the Wall Street Journal, showed a major value shift among young adults. Today’s respondents were 10 percentage points less likely to value having children and 20 points less likely to highly prize patriotism or religion…. This blanket distrust of institutions of authority—especially those dominated by the upper class—is reasonable, even rational, considering the economic fortunes of these groups were pinched in the Great Recession and further squeezed in the Not-So-Great Recovery. Pundits may dismiss their anxiety and rage as the byproducts of college-campus coddling, but it flows from a realistic appraisal of their economic impotency. Young people today commit crimes at historically low rates and have attended college at historically high rates. They have done everything right, sprinting at full speed while staying between the white lines, and their reward for historic conscientiousness is this: less ownership, more debt, and an age of existential catastrophe.”

Climate and environmental crises

Mann: “There was an unholy alliance that was reached during the campaign early on where the Koch brothers essentially said to the Trump campaign, “We will not oppose your campaign as long as you appoint our preferred people to all the key cabinet positions. In particular, climate change deniers. Appoint climate change deniers and fossil fuel lobbyists to the Secretary of State position, to the EPA administrator position.” And that’s exactly what they did. The various cabinet members of the Trump administration is a veritable who’s who of Koch Industries and Koch brothers-affiliated lobbyists….. So, we have to understand that as we’re distracted by the clown show that is Donald Trump, the circus act that is Donald Trump and his antics, meanwhile, a little bit more quietly, all of these Koch brothers-connected administration cabinet occupants are dismantling our environmental policies.”

Alaska’s Sea Ice Completely Melted for First Time in Recorded History

[Washington Post, via The Big Picture 9-6-19]US Beekeepers File Suit Against Trump EPA Charging ‘Illegal’ Approval of Insecticide Linked to Mass Die-Off 

[Common Dreams, via Naked Capitalism 9-7-19]

But McKinsey issues its strongest warning when it comes to Germany’s increasingly insecure energy supply due to its heavy reliance on intermittent solar and wind. For three days in June 2019, the electricity grid came close to black-outs.

“Only short-term imports from neighboring countries were able to stabilize the grid,” the consultancy notes.

As a result of Germany’s energy supply shortage, the highest observed cost of short-term “balancing energy” skyrocketed from €64 in 2017 to €37,856 in 2019.
“It can be assumed that security of supply will continue to worsen in the future,” says McKinsey.

Renewables are causing similarly high price shocks in other parts of the world including Texas, Australia, and California.

And Britain and Australia have faced similar energy supply problems in recent years as they have attempted to transition to intermittent renewables

Class I freight heading towards a black hole, and that black hole is coal; Union Pacific cuts overall volume projections
[Railway Age 9-6-19]

Americans are using less coal, and Class I railroads are running down the track toward a wall. According to a report issued by Moody’s, freight railroad companies in North America are looking at $5 billion in lost revenues over the next few years as consumers turn more toward cheaper forms of power like natural gas and solar.

Creating new economic potential – science and technology

One Scientist’s Quest to Bring DNA Sequencing to Every Sick Kid

“The installation of 520 Powerwall batteries, with two going into each base station, is the largest telecommunications project in which Tesla has participated to date, Moyo said. With Econet having about 1,300 base stations in the country and two other mobile-phone companies operating there, Distributed Power intends to install more batteries and could eventually roll the project out to other power-starved countries in Africa, such as Zambia, Lesotho and the Democratic Republic of Congo, he said. Base stations in Zimbabwe often use diesel-fired generators as backup, but fuel is also scarce in the country. The Powerwalls, which cost $6,500 each, will step in when solar panels aren’t generating enough electricity because it’s night or when heavily overcast. The lithium-ion batteries can power a station for as long as 10 hours, according to Econet. They are charged by the sun. Tesla is working with a number of telecommunications companies around the world and sees a combination of solar panels and battery storage as a good opportunity to expand its business in countries and areas where electricity supply is erratic or non-existent.”

Report: Europe could power the entire world with land-based wind

[BBC Focus Magazine online, via American Wind Energy Association 9-5-19]

Europe has enough land area and wind resources to power the entire world with renewables through 2050, if it added 11 million turbines, according to the University of Sussex and Aarhus University. “Obviously, we are not saying that we should install turbines in all the identified sites but the study does show the huge wind power potential right across Europe which needs to be harnessed if we’re to avert a climate catastrophe,” says the University of Sussex’s Benjamin Sovacool.

A Look Inside Amtrak’s Next-Gen Acela Express
[Railway Age 9-5-19]

Amtrak’s Acela Express, which replaced the iconic Metroliner service that helped define the Northeast Corridor for the better part of 30 years, is now approaching age 20 (kind of old for a train). The equipment, popular with customers but sort-of affectionately called “The Fast Pig” in railroading circles, will soon be replaced with new, lighter, sleeker and faster trainsets from Alstom.

UNEP predicts renewable energy investments to hit $2.6T this year
[The Guardian (London), via American Wind Energy Association 9-6-19]

The wind energy Production Tax Credit effectively spurred US wind growth, but new financing options are needed to sustain the industry’s ongoing growth as the mechanisms phases out, says Wells Fargo executive Phil Hopkins. Wells Fargo provided US renewables projects with $1.5 billion in tax equity financing last year and expects to exceed that figure this year, he says.

MD-80: The Retirement of An American Airlines Icon
Lee Ann Shay, September 6, 2019 [Aviation Week and Space Technology]
On Sept. 4, 2019, American Airlines conducted its last McDonnell-Douglas DC-9 MD-80 revenue flight. The airline first began flying the MD-80s in 1983, and by 2001 had 362 in service. American will donate two to museums, use one for deicing training, and store the remainder at Roswell, New Mexico. The MD-80 was affectionately nicknamed Mad Dog.

Why is the “Mad Dog” MD-80 still barking?
[Aerotime News 9-5-19]

American Airlines stated that the MD-80 was 37% more fuel-efficient than the Boeing 727-100, the aircraft it is replacing. In addition, the Super 80 added more capacity, because a typical seating of an American Airlines MD-80 was 142 passengers while the outgoing 727s seated 115. The aircraft became American’s savior….

 

Restoring Balance to the Economy

Sanders previews plan to cancel all past-due medical debt

Amazon is the biggest retailer on the planet — with customers in 180 countries — and in its relentless bid to offer ever-faster delivery at ever-lower costs, it has built a national delivery system from the ground up. In under six years, Amazon has created a sprawling, decentralized network of thousands of vans operating in and around nearly every major metropolitan area in the country, dropping nearly 5 million packages on America’s doorsteps seven days a week.

Amazon drivers say they often have to deliver upward of 250 packages a day — and sometimes far more than that — which works out to a dizzying pace of less than two minutes per package based on an eight-hour shift.

The system sheds costs and liability, even as it grows at lightning speed, by using stand-alone companies such as Inpax to pick up packages directly from Amazon facilities and deliver them to the consumer — covering what’s known in the industry as “the last mile.” Amazon goes further than gig economy companies such as Uber, which insist its drivers are independent contractors with no rights as employees. By contracting instead with third-party companies, which in turn employ drivers, Amazon divorces itself from the people delivering its packages.

That means when things go wrong, as they often do under the intense pressure created by Amazon’s punishing targets — when workers are abused or underpaid, when overstretched delivery companies fall into bankruptcy, or when innocent people are killed or maimed by errant drivers — the system allows Amazon to wash its hands of any responsibility.

Amazon Pushes Fast Shipping but Avoids Responsibility for the Human Cost

Three years ago we reported on President Obama’s press conference of March 7, 2016 where Obama overtly misled the American people about how Wall Street banks were complying with the 2010 Dodd-Frank financial reform legislation that mandated that the banks’ trillions of dollars in dangerous derivatives be centrally cleared rather than traded as opaque private contracts between two counterparties.

President Obama stated during this press conference that “you have clearinghouses that account for the vast majority of trades taking place.” That wasn’t true then and it’s still not true, nine long years after the Dodd-Frank legislation was signed into law.

[The Hill, via Naked Capitalism 9-5-19]