Saturday, August 29, 2015

Stock Market Decline Signals End of World

Newsflash: Stock markets sometimes go down. Recessions occasionally happen.

The Militant's Brian Williams ruins an otherwise perfectly good article with breathless predictions of catastrophe. At the end, his soothsaying is completely detached from reality, as even he admits. The article's final words:
Whether the stock market will continue to tumble this week, or take a breather, the capitalists have no answer to the crisis of their system. The crisis will deepen.
Facts be damned--we're doomed no matter what.

For all that, The Militant is the only paper on my regular beat that takes economics seriously. Mr. Williams does a creditable job as their lead reporter on the issue, and this article is no exception. He's got the facts mostly right.

This is both true and important:
World trade in the first half of 2015 has tumbled to the lowest level since 2009. Steel, oil, iron ore, copper, aluminum and nickel are contracting. The Bloomberg Commodity Index, which follows a basket of 22 raw materials, is at its lowest point in 16 years.
In China, where production is mostly geared for export, exports dropped 8 percent in July from a year earlier, and auto sales dropped 7 percent. Manufacturing in August shrank at the fastest pace since 2009.
And finally there's this, though I'd put a different spin on it.
“The trigger was most likely the sudden deterioration of leading economic measures, energy prices, and industrial commodities, both in the U.S. and globally,” investment analyst John Hussman wrote in his weekly column Aug. 24.
I think these facts get to the nub of the issue and the news is not good. I, too, think that the economy is in for a rough patch. I predict a recession, and mostly for the reasons Mr. Williams cites.

So no question that global trade is declining, and when trade declines we're all getting poorer. If international trade is shrinking, then it's hard to imagine that trade within national borders (domestic trade) is growing. So Mr. Williams is right to suggest that the Chinese economy may very well be in recession, government statistics notwithstanding.

Mr. Williams adduces that this conclusion also follows from the fall in commodity prices. But here he is in error, as summarized by Scott Sumner's catchy phrase Never reason from a price change. For prices can change for two reasons: either slack demand means there is a contraction in the amount consumed, or cheaper production has increased supply leading to lower prices that way. The former is an adverse demand shock to the economy, while the latter is a beneficial supply shock.

The decline in oil prices is due to American fracking--that is a supply shock. By making oil cheaper it benefits all users of oil, i.e., all consumers. It makes us richer. That cannot be the cause of recession.

On the other hand, nobody has been fracking for iron ore. While the world's supply has greatly expanded over the years, the current price decline looks to be due to shrinking demand, notably from China. This is an adverse demand-side shock, and will result in a shrinking of the economy, possibly leading to recession.

Mr. Williams conflates these two effects--he's reasoning from a price change. The fall in commodity prices is, in fact, a complicated phenomenon whose effects probably cancel out.

Nevertheless, the hard truth is that China cannot continue to grow at a rate substantially faster than the global economy, which looks to be in the 3-4% range. China has maxed out because it has fully deployed its excess agricultural labor force into the cities, and it is a country in long-term demographic decline. It's growth rate going forward will not be significantly faster than that in the US or Europe.

Also, China can no longer export its way out of recession. It is simply too big--the world is not big enough to consume all of China's output. So China will have to grow domestic consumption to maintain growth. There's a lot of room for that--Chinese are still poor people--but they're going to have to make substantial changes to their political and economic institutions for that to happen.

So the world has to readjust to diminished, long-term growth prospects in China. Another word for that is recession, which is what I think will happen. But contra Mr. Williams it does not auger the end of the world. Why? Because while Mr. Williams correctly cites the overproduction of commodities as a drag, that is only a small bit of the economy. Services make up almost 80% of the American economy, and over 40% of the Chinese economy. Commodities have little effect on the service sector, and hence are a relatively small contributor to growth.

The headline article in the same issue of The Militant is also relevant. It concerns the looming expiration of union contracts with the steel industry: ArcelorMittal, USSteel, and ATI, among others. At the latter, workers have been locked out at a plant near Pittsburgh. The piece--actually a series of articles by multiple authors--reports on labor actions happening around the country.

The issues focus around pensions, healthcare, overtime, and working conditions. Plants near Birmingham and Philadelphia are closing. "The price of steel has dropped sharply in the past year," consistent with Mr. Williams' analysis.

So it is very clear that there will be fewer steel workers in the future than there are today.
  • There is too much global manufacturing capacity. Some plants have to close.
  • Workers will become more productive--jobs will be lost through automation.
  • Competitors from overseas and non-union mini-mills will reduce the competitiveness of closed-shop companies.
Thus the union's battle is already lost. It is only a question of how long they can hold out.

Here is a poignant demand.
Workers now pay no premium and have a total annual deductible of $600 for family coverage, Arabia told the Militant. ATI is demanding a $214 monthly premium with a $6,000 to $8,000 deductible. “It’s a plan designed to keep people from using it,” Arabia said. “Plus new hires will get only a health savings account of $500 per year, and no pension, just a 401(k) plan.”
Organizers clearly hope that capitalists will pay for continued pension and health benefits. But capital never pays operating costs (unless the firm is going bankrupt). Capital is for investment. Operating costs will always be borne by either the customer (higher prices) or by the employee (lower wages). As the size of the workforce shrinks, the existing employees will shoulder an ever growing burden paying pensions for retirees.

Just ask the United Mine Workers how that has worked out.

Further Reading:

Friday, August 21, 2015

Book Review: Walmart

The Retail Revolution: How Wal-Mart Created a Brave New World of Business, by Nelson Lichtenstein, is a marvelous book. Published in 2009, I wish I had read it years ago.

Despite Mr. Lichtenstein's credential as a Leftist college professor unduly critical of Walmart*, this is not a hit piece. Though I have no independent ability to judge the facts, there was little in the book that didn't ring true to me. While Mr. Lichtenstein does not hide his own perspective, he makes a good faith effort to accurately represent the opinions of others, especially the company. Better than that cannot be expected.

The key question, to my mind, is this: Is the world a better place because of Walmart? Mr. Lichtenstein asks that question only indirectly, quoting Hillary Clinton.
"Is Wal-Mart a good thing or bad thing for America?" Hillary Clinton, who had served six years on the Wal-Mart board, answered cautiously. "Well, it's a mixed blessing," she said, noting both the inexpensive goods the company brought to rural America as well as the controversy over the company's health insurance program and its failure to promote women to management ranks.
Well, of course. Nobody can seriously claim that Walmart is an unalloyed good with no demerits. But still, if you add up the balance sheet I think the answer to that question is pretty obvious. The company substantially raised the standard of living for millions of people in rural America by selling quality goods at low prices. It invented a whole new way of doing retail, eliminating wholesalers, middlemen, and jobbers, thereby reducing costs. It provided jobs to hundreds of thousands of low-wage workers in the US. And it started China on a path to becoming the world's second largest economy.

The world is unequivocally better off because of Walmart. I think if you pushed Mr. Lichtenstein to the mat and forced him to answer he'd agree with that.

Mr. Lichtenstein evades the question by taking us on a grand tour of all the demerits--a fascinating and informative read to be sure. But at the end of the day it's something of a red herring. For example, he describes in great detail the unfortunate lives of women workers in Chinese factories. They work very long hours for low pay in tedious jobs under dangerous conditions. Factory fires occasionally kill hundreds. The government imposes apartheid-style rules on them (hukou) preventing them from becoming residents in the cities where they work.

It's terrible, awful, no-good. We should all be happy that circumstances in China are gradually changing for the better. But Mr. Lichtenstein's description, while not inaccurate, is somehow irrelevant.

He misses the mark in two ways. First, he blames almost everything on Walmart. If it weren't for the Bentonville behemoth squeezing suppliers and turning a blind eye toward illegal factories, then none of this would have happened. Instead, Mr. Lichtenstein implies, our Chinese friends would be earning $15/hour working in bright, airy factories, all while smiling and singing songs, just as depicted in those socialist realism posters.

But Walmart is just a link in the chain. Consumers (especially Walmart consumers) can't buy toys unless they're cheap. Walmart operates on very thin margins and has to squeeze its suppliers. Those, in turn, cut corners to maximize the business that comes their way. The subcontractors are under pressure to deliver on time and under budget. The Chinese government--more crooked than most--insists on its cut.

And Chinese workers are all to happy to go work in the factory. Especially considering the alternative: walking very slowly behind a water buffalo in some rice paddy somewhere, with no chance of ever having a better life.

Despite his prejudice, Mr. Lichtenstein does tell the truth:
Factory wages are low--about one hundred dollars a month--but far higher than in agriculture, and they are rising fairly quickly because of the labor shortage generated by the export boom in toys, garments shoes, and electronic devices.
Thank you, Walmart!

The second miss stems from Mr. Lichtenstein's misunderstanding about the role of capital. In 2015 Walmart earned about $16 billion on revenue of $486 billion, or approximately a 3% margin. My understanding (Mr. Lichtenstein doesn't tell us) is that the company has kept margins mostly constant over the years. That means as costs go down, then prices also go down instead of margins going up. The Walton family owns roughly 50% of the company. Therefore in round numbers, 1.5 cents on every dollar of sales at Walmart goes to them.**

So contrary to Leftist (and Mr. Lichtenstein's) imagination, the Waltons are not paying for Walmart employee's health insurance. They don't earn nearly enough money to make that possible. Shareholders never pay operational expenses. So who is paying that bill? There are only two other choices: the employees themselves, or the customers. Both of them are poor.

Progressives are simply delusional if they think health insurance is paid for by the shareholders. I think it is odd that Mr. Lichtenstein, along with most of the Left, is so upset about Walmart employees being subsidized by local governments, e.g., Medicaid or Medicaid-like programs. Surely taxpayers on average are richer than Walmart's customers. By saving their customers' money and pushing their employees onto the government's nickel, Walmart is helping poor people in ways that progressives should applaud.

Likewise, Mr. Lichtenstein happily recounts how local governments stick it to evil corporations:
In effect, these California cities were leveraging their zoning authority to recreate a set of mini-New Deals that ensured a more progressive distribution of the wealth generated by private interest ... But Wal-Mart would not play ball.
And good for Walmart! All of these extra costs that sundry civic corruptocrats thought were good ideas had to be paid for somehow. Those all come out of the hide of either customers or employees. Why does Mr. Lichtenstein want to make Walmart's employees poorer? A tax on Walmart isn't a blow to the wealthy--instead it's just ripping off poor people. And all the more so for Walmart since their customers are as poor as their employees.

Mr. Lichtenstein recognizes as much. In the new normal he envisions, Walmart will have to raise prices to cover the expenses of a "living wage," presumably not just for Americans but also for Chinese. He's never heard of market elasticity, i.e., when prices go up sales volumes go down. If Walmart could raise prices without hurting revenue they would certainly do so. The fact that they haven't means that they can't.

Walmart employees are precarious workers, which I defined as workers whose income depends sensitively on the market. That's true not just for the hourly employees, but also for Walmart's managers. Mr. Sam fired his executives with abandon when they no longer served the company. No loyalty there.

But unlike Mr. Lichtenstein, I think that precarious workers are our most productive citizens. They waste nothing! How different they are from government bureaucrats and professors who are immune from market forces. Those people are parasites.

The true road to wealth is not by government mandate or union featherbedding. No. Instead Mr. Sam got it right with his company's first mission statement: To give common folks the opportunity to buy the same things as rich people.

If you want to criticize Walmart, then the extent of their failure to live up to that aspiration is the place to start.

Down With Poverty!

*Mr. Lichtenstein hyphenates the company's name: Wal-Mart. However the firm no longer uses the hyphen. Except in quotes I use the current spelling: Walmart.

**The web, including Wikipedia, claims the Walton family collectively is worth $143 billion. But total Walmart equity is only $81B of which they own only half. And 50% of $80B does not add up to $143B, so something is wrong. I don't believe the $143B figure.

Further Reading:

Wednesday, August 12, 2015

Jeff Mackler's Greek Post-Mortem

The article by Socialist Action's Jeff Mackler reprises Syriza's humiliating capitulation to the Troika. Mr. Mackler gets some basic facts all wrong.

Here's the big howler:
Greece today, as with all capitalist states, is ruled by an elite ruling class that long ago established the fundamental rules that govern social relations. Its highly profitable shipbuilding industry and related merchant-marine manufacturing stands second or third in the world. Yet these industries are virtually untaxed by the state. The same situation exists with virtually all major Greek private capitalist corporations and financial institutions.
A quick check of the CIA Factbook shows that Greece has no shipbuilding industry at all. The top four shipbuilding nations are China, S. Korea, Japan, and the Philippines, who between them manufacture over 90% of gross tonnage. Greece doesn't even show up in the top ten. Of course Greece has a large merchant marine, essentially a ferry boat service between their myriad islands, analogous to the highway department in most countries.

So it's hardly surprising that shipbuilding is untaxed. Even for the most devout revolutionary taxing a non-existent industry will prove to be a challenge.

But Greece does have a problem collecting taxes--tax evasion is endemic since Ottoman times. By far the biggest export industry is tourism, contributing 18% to GDP. This led to the humorous attempt by the government to ask tourists to rat out restaurants and hotels who didn't provide receipts.

More seriously, Mr. Mackler doesn't understand what "austerity" is. I don't totally blame him since most media reports are similarly unclear. But it's important to get this straight.

The problem Greece has is that it has been living off borrowed money. Germany has been by far the biggest lender, and some blame Germany for causing Greece's problems in the first place. (That's like blaming Budweiser for alcoholism.) Whoever is to blame, Germany is no longer willing to lend money to Greece except under very stringent conditions.

So when you're living off the credit card and the credit card is taken away, then of course your standard of living is going to go down. This accounts for the decline in GDP and living standards in Greece--nothing more.

Now Germany--as I think Mr. Mackler hints at--does not want to lend Greece any more money under any conditions. They prefer that Greece leave the Eurozone, after which Germany and other countries can provide humanitarian assistance--a gift rather than a loan, and money that remains entirely under the control of the donor. Though for a whole bunch of reasons, some of which Mr. Mackler alludes to, Germany didn't get its way. So the Germans are now on the hook for yet another bailout.

The conditions are that Greece run a primary surplus. That means they must meet their daily expenses without having to incur more debt. (If they have a symbolic amount left over to repay the principal, so much the better.) Then the Troika will provide Greeks with enough money to pay the interest on the debt already accrued. That is, it's really a bailout of European banks rather than Greek citizens. The advantage to the Greeks is they don't default, i.e., they remain members in good standing in both the Eurozone and the world economy. That's a huge advantage!

And that's the third thing that Mr. Mackler doesn't comprehend. Giving the world market the middle finger is a really bad idea. North Korea is the country that's gone furthest with that, and they're poor as rats. Cuba and Argentina aren't far behind. Greece is historically a trading nation. You can't be a trading nation if you promise up front that you'll never pay your debts. Welshing on world trade will drive Greece into African levels of poverty.

The Greek people understand that. They overwhelmingly do not want to leave the Euro. Whatever had to be done to avoid defaulting on their debt needed to happen. I think that's why the pushback against the Tsipras surrender has been so modest. Only random Trotskyist grouplets and sundry fascists have opposed it. Everybody else is smarter than that.

Fourth, Mr. Mackler doesn't quite understand Syriza's class character. He describes them as washed-up Stalinists, unrepentant liberals, and fuzzy-minded socialists--all people without the proletarian sensibilities necessary to lead a socialist revolution.

All true as far as it goes. But the key point is that Syriza represents government employees, i.e., the 40% of the workforce employed by the state. Since the government can't collect taxes and relies on borrowed money, they're the folks who are most hurt by cutting up the credit card. They'd also be most hurt by leaving the Euro. So frankly, Mr. Tsipras did as much for them as he could. At the end of the day that constituency wants to stay in the Euro, and that's what has happened.

So what would a true revolutionary leadership have done?
Had Syriza spent its first six months governing Greece looking to the working-class masses as its source of strength and power, the result might well have been inspirational to the workers of the rest of the oppressed European states and beyond.  
But instead of mobilizing its millions to challenge capitalist rule, to take over the major industries, to tax and/or expropriate the rich, to national the banks and major corporations, all under the control of the working masses, Syriza and its sycophants (blind and obedient followers) envisioned social change as a product of clever negotiations with the capitalist elite, employing leading intellectuals to press for modest reforms within the framework of capitalism. Greece’s working-class masses were shunted to the sidelines by the Syriza/ANEL government.
Given that the major industry doesn't even exist, this will not prove easy. The biggest money earner is tourism, which depends crucially on small restaurants and stores, along with foreign expertise and capital to run hotels and cruise ships. You can't nationalize this stuff!

All in all, Mr. Mackler's article is a waste of time.

Further Reading:

Wednesday, July 29, 2015

8 Reasons to Like President Obama

My friends on the Right are fond of dissing President Obama. Sometimes it's taken to ridiculous extremes: he's a traitorous Muslim who wasn't even born in the USA and wants to turn our nation into a Godless, communist state.

I don't much care for Mr. Obama. I think Obamacare is a disaster, I believe he's mismanaged much of our foreign policy, and I think his instincts about the virtues of government are wrong. The Affirmatively Furthering Fair Housing rule recently promulgated by HUD is a travesty.

But for all that he is not the devil incarnate. I do not believe he has single-handedly destroyed the Republic. Indeed, there are some things he's done that I support, and other things for which he has been falsely blamed.

So in the interests of both civility and fairness, here are some of the things I like about President Obama.

1) While there have been political scandals galore, I can't think of any examples where either Mr. Obama himself or any of his closest advisers are implicated in a personal scandal. No major figure in his administration has been caught with his hands in the cookie jar or with his pants down (though a partial exception may apply to Hillary and her e-mail). In this, Mr. Obama is more like the preceding Bush administration, and quite unlike the Clinton administration. Mr. Obama appears to be a man of considerably personal integrity.

2) Though his foreign policy has been incompetently conducted--often grotesquely so--many of his instincts look right.

Walter Russell Mead, for example, has long advised the President to actively support the moderate rebels against Assad, saying back in February, 2013,
President Obama had an opportunity to intervene in Syria before it spiralled so far out of control. Indeed, that was precisely what a number of his top military and political advisors urged the President to do: arm the moderate rebels and work with allies to boot out Assad.
Now it's too late, he'd argue--the moderate rebels have long since been sidelined and our influence has diminished to zero. It surely would've been better if we'd kept those moderates alive and well.

No doubt Mr. Obama's policy of benign neglect has been poorly executed--what drawing red lines and then erasing them. (He should never have drawn them in the first place.) But the strategy itself makes sense. The truth is that America has no dog in that fight. The moderate rebels never were a trustworthy bunch. The only reliable side in the war is the Kurds, and we've been doing what we can to help them out.

3) While I think our precipitous withdrawal from Iraq was a big mistake, given that, our policy is as good as can be expected. Some of my friends on the Right want us to take the fight to ISIS in some big way. That would involve another years-long war in Iraq, with thousands of American casualties, and with no imaginable exit strategy. And for what reason? ISIS is not really engaged against the United States--their enemy is Shi'a Islam. Conflict against us is for propaganda purposes only, involving pinprick, lone wolf attacks like that in Chattanooga. ISIS surely has no interest in provoking us to attack them head-on--they're smarter than that (at least I hope so).

4) And speaking of lone wolves, my Rightist friends want to glamorize them and turn them into Batman-style villains. While I have no doubt that the ISIS crowd warms to their antics, it is unlikely that these atrocities are organized from afar. They really are lone wolf attacks. We need to avoid making those losers look like heroes. The Obama administration is entirely correct in painting them as mentally-ill, cowardly, stupid idiots. The last thing we need is martyrs for a cause.

5) Mr. Obama's instincts on immigration are correct, as I've written before. We do need to find a way to legalize most of the undocumented people now living in the US--there is no other choice. We also need to greatly increase legal immigration while simultaneously restricting the illegal sort. However, I wish he hadn't implemented it as an executive order. Immigration is too important to manage administratively. It has to be worked out through the democratic process, however time-consuming and messy. His failure to do so leads to the rise of politicos like Donald Trump. Similarly, Obama is correct on free trade.

6) The President's policy on Cuba is absolutely the right thing to do. We should have started normalizing relations back in 1991. Though to be fair, our failure to do so is mostly the fault of the Cubans.

7) On the Iran deal I simply don't know enough to judge. If the sanctions regime is stable and can be maintained, then Bibi Netanyahu is correct and the Iran deal is a bummer. On the other hand, sanctions coalitions are intrinsically unstable and will eventually disintegrate (see, e.g., Cuba, where the coalition fell apart decades ago). It may be that sanctions against Iran are already in the process of disintegrating. In that case getting the best deal we can while it's still possible is a good strategy. But I don't know how solid the sanctions really are.

8) Mr. Obama is frequently blamed for making life worse for African-Americans. No doubt their financial and housing circumstances have deteriorated since Obama took office. But I don't think the President is the primary culprit. The problems are much bigger than him, and include structural changes in the economy, including, e.g., the decline in employment at both the post office and the military. While HUD's recent regulations will certainly make things worse for Black people, that hasn't happened yet; that's a landmine for the next president.

This is not an insignificant list, but it pales in comparison to what I dislike about Obama. Needless to say, I didn't vote for him in either 2008 or 2012, nor will I be voting for the Democrats in 2016.

Further Reading:

Saturday, July 25, 2015

Precarious Taxis

This post has two parents: an interview with Charlie Post, reprinted in International Viewpoint, the official publication of the Fourth International. (I have added them, belatedly, the This Blog's Beat.) And also Mayor DeBlasio's fight with Uber, which he has now lost decisively.

Mr. Post takes issue with the word precariat as a useful descriptor of social reality. That's a portmanteau of the words precarious and proletariat, and denotes those who work part-time, and/or without benefits, and without any job security. Mr. Post doesn't dispute the growth of the precariat workforce, but he sees it as in no way distinct from earlier historical patterns.
If you look at the condition of workers before the First World War, say in the 1890s, the vast majority of working people lived an incredibly precarious existence. I was doing some research on skilled workers in Victorian England, the so-called labor aristocracy. Most of these people were working half the year, subject to long bouts of unemployment, and if they were out of work they could lose housing. ... The sense of what most people alive today thought was “the norm,” was actually the historical exception.
Mr. Post attributes the recent rise to "neoliberalism," an ill-defined term that suggests a capitalist offensive to lower workers' standard of living.
When I was much younger, in my late teens and twenties, I was first radicalizing in the 1970s, and I had a lot of friends who’d get jobs at the post office or the Brooklyn Navy Yard. They knew that if they got laid off or fired for political activity, they could collect unemployment, get food stamps, probably get on Medicaid, or they could pick up another job quickly. Since the successful neoliberal offensive, we have seen that it is much harder to get full-time employment that have social benefits, and in general the welfare benefits have degraded or disappeared. 
The consequences of getting laid off or fired today are much more severe today than they were just a few decades ago.
While Mr. Post's friends were working at the Brooklyn Navy Yard, I was a cab driver in Chicago. I began working for Checker Cab Company and had to join the International Seafarers Union. This was a corrupt, mob-run outfit whose only function was to collect dues from the drivers. For the first couple of months they took about a third of my paycheck as an "initiation fee"--the best way to rip off a precariat worker. After that it was a mere 10% fee. With Checker I was paid a commission off the meter, along with tips.

After a year or so at Checker Cab, I moved over to Flash Cab, a non-union, "Jewish" company operating mostly on the city's far north side. They ran a good radio dispatch service. There I rented the cab for a twelve hour shift and paid for my own gas, keeping whatever was left over. That was sometimes over a hundred dollars (a lot of money in the '70s), and occasionally I lost money. Typically I earned about $30 for a ten-hour day.

I drove a cab partly for the money, partly because it gave me proletarian street cred (I was a union member after all, though they were too cheap to send me a card), and mostly because I enjoyed it. Neither company offered me any benefits.

So I'm familiar with the precariat.

An Uber-funded study (which I'm inclined to believe) shows that Uber cars are slightly cheaper than Yellow taxis, and in any event are much faster and more reliable. (See here.) I've been thinking about driving for Uber as a part-time retirement job.

There is much debate over whether Uber drivers earn more or less than cabbies. I don't know. But the Uber folks have many advantages: 1) They're safer. All customers come with a pre-approved credit card. No money changes hands in the car. 2) They can set their own work hours. I had a lot of flexibility working for Flash, but my shift started at 5pm, whether I liked it or not. Uber drivers have no such restrictions. 3) Uber drivers are earning equity in their car. Indeed, that's an important consideration for me. I can work for Uber for a year or two, and at the end I'll have a car for the rest of my life, clear and free.

So Mr. Post will have us believe that this is all an evil plot by neoliberals to screw the working class. I don't think so, though everything comes with trade-offs. But there is one, undisputed beneficiary from all of this change: the consumer. Consumers get better taxi transport at similar or lower prices from drivers with an equity stake in providing good service. They come out a winner no matter what.

And that's what Mr. Post (or any Marxist) does not understand. The beneficiary of a precarious workforce is neither the neoliberal capitalist nor the employee, but rather the consumer. The purpose of a capitalist economy is to sell as much high-quality stuff as possible at the lowest possible price to the most consumers. In that, Uber is indisputably better than the over-regulated Yellow Cab industry.

So here's a more concise definition of the precariat. A precarious worker is somebody whose income is sensitively determined by market signals. Or, put another way, there's no buffer between the worker and the market. The cab driver, the shop keeper and the restaurateur are all members of the precariat, as are their employees, e.g., at McDonald's or Walmart.

Seen this way, it's obvious that precarious workers benefit consumers. And that's why Mr. Post is wrong when he regards the trend as an "offensive" against the working class that will lower their standard of living. To the contrary, it will raise the standard of living of consumers, which also includes all workers. Cheaper cab fares for everyone!

The opposite of a precarious worker is somebody whose income does not depend on market signals at all. This certainly includes most government employees, who get paid whether or not they actually do anything useful. Mr. Post and I, for example, are both employees of public colleges. We're not precarious, but instead we're parasites. Our income derives from scamming eighteen-year-olds and mooching off the taxpayer.

Mr. Post favorably cites a fellow academic, a certain Kevin Doogan. Mr. Doogan is the author of New Capitalism, a book that sounds interesting. It's so good, in fact, that it's a top 1,740,000 best seller on Amazon. You'd think it'd be in the bargain basement by now, but no, even on Kindle it costs nearly $20!

Mr. Post is himself an author of The American Road to Capitalism, followed by a very long subtitle. That's done better, in the top 1,300,000 books sold. It's not available on Kindle, but you can buy a paperback copy of your very own for under $29.

That's how out of touch these guys are. They're not writing for actual readers. Instead they're just sucking up to referees and tenure committees.

Your tax dollars at play.

Further Reading:

Friday, July 17, 2015

Book Review: Grover Cleveland

An Honest President, a biography by H. Paul Jeffers, is sadly out of print. It deserves to be re-issued.

Grover Cleveland is probably the best president you never heard of. His obscurity is due in part to his name. These days, Grover is a Sesame Street character--nobody with that name could possibly do anything important or significant. Today he's known for factoids: as the only president to serve non-consecutive terms, and also to get married in the White House. The newly minted First Lady, 21-year old Frances, proved to be a popular political asset.

It didn't have to be that way. Born Stephen Grover Cleveland, he was the fifth of nine children of a Presbyterian minister. Distant ancestors lent their name to the city in Ohio. The family moved around as the father changed pulpits, but Stephen (as he was known then) mostly grew up outside of Syracuse, NY. Untalented academically (and also lacking money) he didn't go to college, but instead at age 18 moved to Buffalo and apprenticed himself to a law firm.

A tall, gregarious, friendly man, he enjoyed free time playing cards, drinking beer, and eating sausages at the city's many German pubs. And so he came by his trademark girth, earning the nickname "Big Steve." Only when he decided to enter politics--around age 30--did he start using his middle name. Big mistake.

Beyond his native friendliness, two other traits characterized Cleveland: uncompromising integrity, and a formidable work ethic. These together, along with the good fortune that accompanies any political rise, greased his way to the top. He started as an assistant district attorney for Erie County. His first elective office was Erie County Sheriff, where he served for several years. And then in rapid succession he became Mayor of Buffalo, Governor of New York, and finally President of the United States, elected in 1884. While he won the popular vote in 1888, he lost the electoral college to Benjamin Harrison, before famously reclaiming the White House again in 1892.

Cleveland was the first Democrat president since James Buchanan, who lost to Lincoln in 1860. The Republicans, despite having won the Civil War and abolishing slavery, had squandered their reputation through grotesque corruption. Not that the Democrats were any better--they ran urban machines such as Tammany Hall.

Both parties contained reformist elements that opposed the spoils system. Republican reformists were known as the Mugwumps, led by the youthful Teddy Roosevelt. The Democratic reformers included Grover Cleveland, twenty years Roosevelt's senior. And so Roosevelt and Cleveland became unlikely political allies, beginning in New York while Cleveland was governor and Roosevelt a leader in the state Assembly. It's probably an overstatement to say that Cleveland was Roosevelt's mentor, but they maintained a lifelong alliance and mutual respect, if not always friendship.

Among the prominent causes they both supported was a true civil service. When Cleveland took office the federal government employed about 125,000 employees. Almost all of those served at the discretion of the president. The Democrats--out of office since 1860--wanted to fire all the Republicans and replace them with Democrats. Cleveland was besieged with office seekers--it took up most of his time. He vowed to hire the most competent people for the jobs, regardless of party. Since he was not beholden to the Tammany Hall machine, he could get away with that.

Roosevelt was appointed as a commissioner of civil service under the Harrison administration. When Cleveland returned to the White House, he kept Roosevelt on in that position. At the end of his second term he vetoed the Tenure in Office bill--legislation intended to save the jobs of patronage employees when a new president came in office. As he left office, civil service was well established.

Cleveland strongly opposed the free silver movement, supporting instead a strict gold standard. Free silver granted citizens the right to mint silver coins, and required the government to redeem them for gold coins at below market rates. The effect would have been to empty the US Treasury of gold reserves, and create massive inflation. Farmers liked it because it would have given them more money, which they confused with more wealth. Cleveland understood the true economics, leading a newspaper critic to dub him the "elephantine economist."

Cleveland lobbied for lower tariffs and (relatively) free trade. Tariffs in those days were a major revenue source for the federal government, and couldn't be completely eliminated (as they mostly are today). But Cleveland understood that restricting trade hurt American consumers and American exporters. The gains from additional trade more than outweighed the harm to some companies. This is a battle we are still fighting today.

At the end of his second term, he was confronted by Eugene V. Debs and the Pullman strike. Cleveland was supportive of unions, and felt that workers should be paid more. But he was aghast that the Pullman workers were members of the railway workers union, when in fact they weren't really railway workers. When a relatively small and solvable dispute turned into a massive strike that crippled the entire economy, Cleveland had no choice but to call in the army--the first time since the Civil War. It raised economic and constitutional issues, but at the end his move was very popular with the public.

My Trotskyist friends are correct that (in those days) the proletariat had its hand on the throat of the economy. The advantage of industrial unions was precisely that they maximized that leverage. But the counter-argument is that they made it impossible for the government to compromise. The only option left was to break the union. That's what Cleveland did, not necessarily because he wanted to, but because he had to.

On these four issues--civil service, free silver, tariffs, and strikes--Grover Cleveland was on the side of angels. Or at least that's how it looks to my modern eyes. But hidden in that reservoir of pragmatic, common sense loomed a big problem which Cleveland never imagined. Because the advent of good government, midwifed by Cleveland, led gradually but ineluctably toward a demand for big government.

Cleveland's acolyte, TR, began the charge, starting innocuously enough by rigorously enforcing blue laws as a New York City police commissioner. And then the camel's nose gets under the tent with the otherwise laudable National Park Service. But the real villain--the man who turned Grover's good deeds into a monster--was Teddy's cousin, Franklin Delano Roosevelt.

Today's Progressive movement is as much a child of Teddy and Franklin as it is of Karl Marx. Good government has begat big government--something that Mr. Cleveland would never have countenanced. I like Mr. Cleveland, but even for him the law of unintended consequences reigns supreme.

I really enjoyed Mr. Jeffers' book. The salacious details of Cleveland's personal life are alone worth the read. But it has one postmodern quirk that strikes me as strange. For some reason Mr. Jeffers never reports his subject's birthdate. Never mind--Wikipedia to the rescue: March 18th, 1837.

Further Reading:

Tuesday, July 7, 2015

Barry Sheppard & Free Trade

Barry Sheppard--former honcho in the Socialist Workers Party (SWP) and long-time supporter of the Khmer Rouge--peeks out from under his rock with an article opposing free trade, specifically NAFTA and the Trans Pacific Partnership (TPP).

In this he has good company, including pretty much the entire Democratic Party, which he purports to despise. Other allies include such worthies as Donald Trump, Pat Buchanan, and (sadly) many of my Tea Party friends.

I, on the other hand, support free trade because trade creates wealth, and restrictions on trade create poverty. It doesn't surprise me at all that Mr. Sheppard supports increased poverty, what with him being a socialist and all. There are, by my count, only two reason to oppose trade: rent-seeking and xenophobia. The Teamsters union is a good example of the former, while Misters Trump and Sheppard represent the xenophobic opposition, as I'll describe below.

Unlike Mr. Trump, who is at least an honest xenophobe, Mr. Sheppard hides behind myriad other rationalizations. He'll claim he is in favor of trade, but only under narrow circumstances--conditions so onerous and utopian as to be completely impossible. In this he is worse than Pat Buchanan, who at least supports trade between similar countries (i.e., the US can buy Canadian wheat as long as the Canadians buy American wheat).

Mr. Sheppard is most exercised because of what we American "imperialists" have allegedly done to Mexico. He accuses us of selling cheap corn to Mexico, putting semi-subsistence farmers out of business. Of course every other Mexican can buy corn for cheap--how is this a bad thing? (Mr. Sheppard claims that despite cheap corn, tortilla prices have risen. Somehow I doubt that's true, but even if it is I don't see how it's because of NAFTA.)

So we Americans have been selling corn for cheap--what have we gotten in return? Mr. Sheppard oddly doesn't mention it, but surely cheap auto parts is part of the answer. Tens of thousands of Mexicans got jobs in factories making it possible for Americans to buy better cars at cheaper prices. So that's a real trade: cars for corn. Much better than wheat for wheat, which doesn't accomplish much.

Still, Mr. Sheppard claims that Mexico has somehow gotten the short end of the stick. But the facts don't bear that out. The Council on Foreign Relations (a good, short summary of NAFTA's effects) points out that in 1993 the US ran a trade surplus with Mexico totaling $1.7 billion, morphing into a trade deficit of $61.4 billion in 2012. Further, in direct contradiction of what Mr. Sheppard claims, Mexican farm exports to the US have tripled since NAFTA's implementation.

But, wails Mr. Sheppard, "[b]etween 1995 and 2005, 1.1 million peasants lost their land, and another 1.4 million others dependent of the farm sector were driven out of work." Peasant is just a euphemism for a semi-subsistence farmer, scratching out a $1/day living on a piece of land too small to support mechanization. This is the lifestyle that Mr. Sheppard recommends to Mexicans? Rather odd coming from a man who shops in air-conditioned comfort at someplace like Whole Foods.

Of course we shouldn't be all that surprised. Mr. Sheppard did, after all, support the Khmer Rouge, who took the peasant fetish to completely irrational extremes, forcing all city dwellers into the countryside where they could enjoy the benefits of subsistence farming.

Mr. Sheppard blames us Americans for many imaginary evils, but he fails to ding us for our deserved faults. Among NAFTA's terms is the agreement that truck drivers can deliver goods in all three countries without hindrance. For example, Canadian truckers can carry goods from Canada to their destination in the US, and also from the US back to Canada. (They are not allowed, so I understand, to carry goods strictly within the US.) Judging from the number of Canadian trucks on the interstate near my house, this clause is widely exercised.

However because of the staunch opposition of the Teamster's Union and American trucking companies, such privileges have not yet been extended to Mexican truckers. They are only permitted to carry product a few miles into the US, after which it has to be reloaded onto an American truck. These continued regulations are a direct violation of NAFTA, and have resulted in compensatory tariffs being leveled against us by Mexico. They increase prices for American consumers and needlessly impoverish Mexican truckers.

The Teamsters and their corporate allies, refusing to admit to narrow selfishness, instead claim that Mexican truckers are unsafe. And presumably Mr. Sheppard agrees with them, given that he both opposes NAFTA and is pro-union. Apparently Mexicans are congenitally unsafe, because there is no other reason to make this claim.

So, like Donald Trump, the Teamsters' union, and some trucking companies, Mr. Sheppard thinks it is impossible for Mexicans to drive safe trucks safely in the USA. This is nothing but xenophobia, which brings me back to where we started.

About the TPP, Mr. Sheppard writes
The TPP will further the interests of the rich at the expense of workers and peasants. It will codify new regulations to facilitate more neoliberal changes to the economies of these countries. At the same time, it will further the interests of the imperialist countries involved--which include the U.S., Australia, Canada, Japan, and New Zealand--at the expense of the oppressed nations of Brunei, Chile, Malaysia, Mexico, Peru, Singapore, and Vietnam. Capitalists in these latter countries will benefit as junior partners with the imperialists at the expense of their workers and peasants.
Leave aside the odd categorization--where New Zealand is "imperialist" while Singapore is not. The upshot of this is we don't want no Gooks selling crap in the USA. It's a sentiment that Donald Trump certainly agrees with--Mr. Sheppard should give him a call. Beyond this, the principal beneficiaries of free trade are not capitalists, but first consumers (who get cheaper prices), and then workers (who get jobs).

As for me, I'm not a xenophobe. I support free trade.

Down with Poverty!

Further Reading: