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03/27/2011

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Jack

Observer -- Agreed and probably the worst of right wingers would agree that any society has to insure law and order, though for "some reason" they stop short of insisting on laws and regulations preventing the WS thieves from preying on the "weaker" more vulnerable folks.

I like the "Post progressive" term or any other that opens the imagination to something more suitable to our "service/info" economy than, perhaps the "capitalism" more suited to mfg where the measurement of costs, benefits and productivity were easier than that of identifying the worth and contribution to "service/info" of those doing the work, the "owner class" and those many now outside the whole system. And, especially so if what we are seeing IS structural unemployment, in which less than the full workforce can supply all that is demanded. (ie wanted AND paid for)

With the best of intentions it's a confusing era with the need to redesign much of the system. Ha! kinda like changing a flat tire while driving! Unfortunately all too much of the intentions (of both parties AND their sponsors) are not in the "best of" category.

Xavier L. Simon aka Xavier

Interesting that someone else would also react to the interview of the deputy mayor of New York City on C-Span. I also watched and this morning I was finishing the last of Ian Morris’ sweeping 16,000 year historical narrative “Why the West Rules—for Now” when a thought hit me. At the end Morris makes the point that in each period of large change it was not strong leaders or bungling idiots that made the difference, but larger historical forces that were at work. Having watched the deputy major and how he and others are almost entirely focused on managing New York City, I couldn’t help asking myself who is managing the country.

As I have mentioned before, I have developed a model of change to help explain the process of economic and social development and growth. The model can help explain the major historical forces of which Morris writes. So who is managing the country in the way that New York is being managed? It is then that it hit me that this country has never been managed nor was it meant to be managed, at least by its Founding Fathers. The checks-and-balances built into the Constitution were meant to keep any one person from gaining too much power at the expense of the other powers or the states. So no one really has managed or manages the country since its early days. Instead the states or colonies in the beginning and later the Congress determined what is and is not to be done, what each agency of government will then do, and the structure within which they will do it. Congress determines the structure even of the military. There have always been task mangers but no overall manager.

So what then is wrong today, if anything, from the very large perspective above? I have argued that essentially two things have gone wrong. One is that the country has developed some excessive bignesses or tumors that have too much power and can derail the country if they go wrong. The other, more tentative, is that the country may be developing arthritis or excessive regulation and interest group pressures. I posit that the 2000s were evidence of the latter when too much investment went into the housing sector while others like energy that needed it badly got very little. As to the bignesses there is the example of Fannie and Freddie that the deputy major also mentioned.

He mentioned there had been concern about F&F in the Bush Administration from the beginning, and Brian Lamb added that there has been little transparency about what was actually done and why. I too have had trouble learning about how the issue was addressed but I think it is more that nobody has pieced the information out there rather than that there is little. For sure Bush’s second Treasury Secretary tried very hard to get Congress’ attention; I remember watching some of the hearings. As the deputy major indicated there has always been a tug of war between F&F’s two mandates: to increase access to housing, and to do so in a financially sound manner.

What developed in the 2000s was a tug between Congress pushing for increased house ownership and the Executive’s concern over the financial soundness of F&F. That tension culminated with Congress finally allowing Treasury to take over F&F in the summer before the 2008 crisis but by then it was too late. My model addresses the process for reconciling differences like these. That process of reconciliation, however, may no longer be up to the task of reconciling too many bignesses simultaneously, each with too much power. Historically when that has happened the power of central governments has been further centralized, with the consequence, as Morris clearly shows, that those states have eventually collapsed. Morris calls how the process unfolds, or at least the symptoms, the paradox of development.

In past days and weeks I have noted in this blog other bignesses that together with F&F and bad regulation led to the financial crisis. I have further noted that it is troubling that rather than address some of the bignesses, these have actually grown larger, with the larger banks going from one to two trillion dollars in assets. In theory the additional regulation should help avoid more problems. However, in practice more regulation adds rigidity, and, even more important, because of the increasing size and complexity of the regulated, any new regulation is going to have even larger unintended and unknown consequences. Add to that that nobody is really managing the country as a whole and the prognosis can be scary.

In addition to much larger banks we now also have at least three very large relatively unmanaged welfare programs, Social Security, Medicare and Medicaid, all scheduled to get larger if for no other reason than because of the changing structure and demographics of the country. Those historical forces of which Morris writes are clearly out there threatening the US. The 20th century taught us that we have not learned how to make large centralized powers work. What we need is to go back to an even more decentralized form of government than we have today as a result of the drift away from Federalism, or a new major innovation in organizational technology. It would be nice if we could guarantee that all of our leaders would manage like in New York City but that would only be a throw of the dice, and, as Morris points out, there are those other major forces at work.

Jack

Xavier? Starting off with a "16,000 year history" I thought you might be swinging for the fences or prepping to slay a few sizable dragons. But most of your missive descended into a lengthy attempt to add one more gossamer hanky to the cover-up of the Bush admin's negligence in dealing with the wholesale corruption of the entire financial sector which they in fact made worse by their blind devotion to "deregulation" and "markets cure all" ideology that was further leavened by Bush admin sponsors and heaps of campaign cash from the banksters who'd much rather pay and be regulated or even hew to long tested banking standards.

It's early in the cycle as the damages wrought still ride tsunami sized waves through our and the world's badly damaged economies for a rewrite of history.

One could write a short book about what "happened" to Fannie and Freddy -- which of course is only a small part of what happened to the entire sector after the repeal of G-Steagal and using derivatives as an excuse to "lend" (give?) money to all comers at 30 times underlying assets.

The pages of the book regarding F&F's first half century would largely blank. Then there'd be brief notice of the LBJ admin selling them of in a semi-privatized fashion with more blank pages until 1999 and a last rollicking chapter of unregulated corruption.

As for the "bigs" you mention. SS is fairly simple, largely not endangered (but by ideology driven zealots) of dollars in and dollars out. It has been readjusted for changing times before and all that is needed today are few relatively painless adjustments.

M&M are of course part and parcel of our badly broken H/C system. Instead of zooming in and wallowing in the minutia of those program's problems, one should probably zoom out and look at the whole H/C system.

After deciding that we can and have been allocating 17% of the huge US GDP to H/C delivery I suppose a number of those such as the wonkish Deputy Mayor of NY (who I saw on Cspan) could figure out how to deploy those more than adequate resources more effectively. Perhaps sending them to France and Germany or a few other nations doing a good job in the range of 12% of their smaller per capita GDP's would be a worthy investment.

BTW -- Both the Deputy and B. Lamb seemed shocked at line items for "car washing" of $100 and $263 for a large SUV but those figures are what I've paid for interior and exterior detailing which I'd assume would be done annually for government vehicles or when they were handed off to other users, or prepped for resale. When they zoom in.... I doubt they'll find the pork they appear to anticipate.

Lastly, as for an over concern with bigness itself, I'd point out that had there been thousands of banksters ladling out "loans" to all comers at ridiculous levels of leverage while creaming off any possible profits to pay "performance bonuses" they'd have fallen as far and hard as did those of the meltdown.

What major historical forces do you think Morris sees or might see in our era?

Kate

Where profit goes in an enterprise is most an affect of law, not economics. In a business, employees work on capital to create something that's worth MORE than the worker's wages and the cost of that capital. where does the excess go?

Now, it goes to shareholders via dividends, or to employees (including management) in the form of wages.

But not all parties are on the same playing ground when it comes to negotiating as to how these profits get divided up.

Lower wage workers -- well, they need wages to pay their rent and to eat. They'll accept something lower than what a shareholder might, who's investing for the retirement funds of its own investors or even a hedge fund that's hell bent on exactly the quickest profit on their shares possible. Meanwhile, those same shareholders can elect corporate directors and propose changes to corporate bylaws. I.e., they can pressure management to take care of their interests. Employees - at least the non-union kind -- have no such benefits.

It's no surprise that profits wind up in the upper echelon of management and in the laps of big shareholdres.

This is ENTIRELY an outcome of our legal arrangement. If workers had a say over corporate governance, just as shareholders do, they might get better treatment.

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As I think that Economics has absolutely nothing to do with the distribution of income. Until you understand that you understand nothing about economics.

Alfonso Fanjul

If unions are not allowed to bargain collectively, taxpayers will certainly pay much less for the government machine, but that lower price-tag is an inefficient one – because the taxpayers would under-compensate public employees at a wage level below the competitive equilibrium. In other words, it results in an unfair redistribution of wealth from the public employees to the public at large, which is exactly what has happened in Wisconsin.

Erika

This is very interesting, but what good if people still have problems in finding a job? What good if they still don't afford to take their kids to school? :(

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If unions are not allowed to bargain collectively, taxpayers will certainly pay much less for the government machine, but that lower price-tag is an inefficient one – because the taxpayers would under-compensate public employees at a wage level below the competitive equilibrium.

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I would go as far as agreeing with you that the bargaining power of the unions should be curbed to certain extent (Perhaps Governor Walker should seek an audience with Margret Thatcher at some point.) But I cannot agree with a bill that bans collective bargaining in the public sector all together.

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If unions are not allowed to bargain collectively, taxpayers will certainly pay much less for the government machine, but that lower price-tag is an inefficient one – because the taxpayers would under-compensate public employees at a wage level below the competitive equilibrium.

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I agree with most of the rest but it's TOUGH to organize retail clerks etc. BTW I was once a retailer, and THE reason it was nearly impossible to pay higher wages in my shop was that of the guy down the street not paying higher wages.

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There is no good answer to that question except the raw political power of public employees magnified by their union rights.

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According to some survey, Most of the public is finally waking up to the fact that these Public Employee Unions are some of the biggest contributors to politicians (95% to Democrats) and then once they are voted in, these are the same politicians they then go to , to negotiable the Union benefits and salaries.

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When public employees have no right to strike, the employer is required to bargain over wages and other terms and working conditions with the public employees’ union if there is one, and the employer’s duty to bargain provides some leverage to the unions in extracting favorable terms.

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Some public employees, such as police officers and firefighters, do not have the right to strike, and some states forbid strikes by other public employees as well

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