“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Friday, May 16, 2014

assassinating the forbes 400 myth, larry summers edition

Everybody is under suspicion
But you don't wanna hear about that...

It is to two economists with the American EnterpriseInstitute, Steven Kaplan and Joshua Rauh, that we owe the meme that the Forbes 400 represents the fruits of social mobility, the rewards of an essentially meritocratic society..
Kaplan and Rauh have divided the individual who find places in the Forbes 400 from 1982 to 2012 into three categories: that that come from wealthy families, those that come from upper middle class families, and those that come from working or middle class families. The claim to discern a distinct change from 1982 to 2012 – the number of individuals coming from wealthy families declines, while those from upper class families increases. Thus, there is churn at the top, due to the meritocratic structure of American capitalism.
Lets go into the ways Kaplan and Rauh are full of hooey.
A.     Granting, for the moment, that the categorization, although a bit fuzzy, does actually represent three different kinds of individuals, we have to trust Kaplan and Rauh on their judgments as to which class individuals fall. They don’t include the list of all individuals on the list – in Peter Bernstein’s book about the list, All the Money in the World, there were 1302 people on the list from 1982 to 2006, which makes it likely that there might have been fifty to one hundred more in the six years after 2006 – but instead give us representative names – which is how we know that they included Bill Gates in the upper middle class group, because his father was a well known lawyer. This tells us a lot about the laziness and bias of the authors. Even a cursory glance at the numerous profiles of Bill Gates over the years would tell you that he was endowed with a million dollar trust fund by his maternal grandfather, who owned a Seattle bank. A million dollars back in the sixties was a figure to reckon with. If one can’t trust the authors about Gates, one of the five names they mention, how are we to trust them about the rest?
B.     Of course, family money is a tricky subject. Carl Icahn definitely came from a middle class family. On the other hand, when Icahn was 32 and wanted to buy a seat on the NYSE, it was certainly convenient that he had an uncle, Elliot Schnall, who was a Palm Beach millionaire and who could loan him the money without questions.
C.     But even granting that there are meritocrats in the purest sense on the 400, like Jeff Bezos, does this prove Kaplan and Rauh’s point? By no means. Because we want to know that wealth is churning in response to meritocratic pressure from below. One of the symptoms of a vigorous churn would be the fact that few 400 figures remain on the list for long. If they do, we have evidence of wealth stratifying in a hierarchical way – wealth is just going to wealth. Go back to Jeff Bezos. He has been on the list since 1999 – giving him a stretch of 15 years. This is not unusual – as is obvious from Bernstein’s appendix in 2006. This fact should lead us to a deeper contextualization about the 400. As almost all economic histories show, between 1932 and 1979, America experienced a great leveling. It wasn’t that the wealthy went away; however, the labor and white collar wage class enjoyed incredible gains in income and opportunity. When you look at the 1982 list, you are looking at dynasts who made it through the leveling period plus that subgroup that benefited ‘meritocratically’ from oil, building, manufacturing, and real estate. In the years since, the list reflects the baby boomer years – year in which, among other things, higher education was relatively cheap and available for the ambitious. We have now reached the period when that group is going into its sixties, and the wealth is definitely settling into place. Along with the perrenial dynasts, there are the long timers  – people who have been on the list 15 years or more – who need to be broken out.
D.     As well, it is unclear from Kaplan and Rauh’s charts if they double count these perennials. If Bezos is counted, each time, as coming from the wage class in their compilation – rather than once, when he entered the list – they are making an elementary error. I suspect they make it. I suspect they know that they are making it. I suspect that they are working for the American Enterprise institute.
E.      However, the larger criticism concerning how well the 400 represents dynastic wealth. In fact, the very framework seems to occlude it. In 1987, CBS news reported that, curiously, there was not a Dupont on the list, even though the Dupont family was worth an estimated 10 billion dollars. CBS resolved this anomoly by pointing out that if each of the 1500 Dupont relatives got a share of that money it would come to 5 million apiece. However, this is a deeply misleading. The Dupont fortune operates as a unified entity through family trusts. As an entity, it is as unified as the ‘Gates’ entity. In a list of individuals going from 1982, sheer mortality and reproduction would naturally diminish the part of the inheritors, but this would not really give us an idea of how much money is under dynastic control. In 1937, a journalist named Lundberg published a book about America’s wealthy dynasties, and the names in it seem foreign to us, who are used to reading about tech barons and hedgefunders. But those families rarely lose their money. The Pitcairns, for instance, who started PPG, have a private family investment fund in which all the family participates. Individually, they would not be on the list, but as an entity, it is a good bet they would be. The same is true for the Weyhaeusers. There are many many families like this.
Forbes recognizes this in other lists – for instance, they simply amalgamate all the Walton wealth into Walton Family on their world billionaires list. But they are very inconsistent about it in the 400 lists. Sometimes children and spouses appear separately, sometimes they don’t.
For all these reasons, Kaplan and Rauh’s 400 proof is a farce. A farce that, I should say, is easily seen through. One doesn’t have to go through some complicated mathematical proof, one simply has to apply elementary social science reasoning. It is the kind of thing that is dogfood for the dogs, rightwing columnists who can wave the paper about and claim to have refuted the socialists and Stalinists once and for all. Only mooks would fall for it.
This is, of course, why it gets an honored place in LarrySummers’ review of Thomas Piketty’s Capital.  Summers, Obama’s favorite economist, the man who design the Clinton era deregulatory architecture – or should I say, instead,  wrecked regulation of the financial markets and helped midwife the depression?  - inserts the following paragraph in gesturing towards other evidence that American wealth is not becoming so unequal:

“A brief look at the Forbes 400 list also provides only limited support for Piketty’s ideas that fortunes are patiently accumulated through reinvestment. When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year. They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes 400 who inherited their wealth is in sharp decline.
A brief look here can be defined as the look one gives the index card on which one has copied some “happy facts” to share with the assembled plutocrats at one of Summers $50,000  talks. It is the index card that has the orange sauce from the duck on the corner.
I am not shocked that Summers would publish something this stupid. It is not that Summers is a stupid man – he is, mainly, an “insider” – someone who knows how to “play” in DC, as he famously told Elisabeth Warren.  In the economics profession, Summers is widely regarded as a genius. This says less about the elevation of his intellect than the shallowness of his field – a molehill is an Everest to a herd of aphids.

Like the overwhelming majority of economists, Summers isn’t very good in thinking in broad terms, or understanding the economy and what it is for. He is perpetually like a man standing with his nose three inches from a pointillist painting – he can see all the dots in detail, but he can’t see or imagine the picture. This is fortunate for him – economics is the handmaiden of the plutocrats, and those who step back and begin to see the picture are soon quietly sidelined. 

Wednesday, May 14, 2014

the democracy team: how to understand American foreign policy

Philosophers have long argued about what democracy really means. Western politicos don’t have that problem – democracy is a team name, like the Rangers. Nobody expects the Rangers to be rangers, and nobody expects the “democratic forces” supported by the krewe of Clinton, Bush, Obama, Blair, Hollande etc. – whatever figurehead is in power - to be democratic. Blair, in one of the comic highpoints of his miserable reign, toured the Gulf states and touted the democratic alliance (of Saudi Arabia, Bahrain, and Mubarrak’s Egypt) against the enemies of democracy, i.e. Iran. Of course, Iran has at least the trappings of a democracy, much like the U.S. and the U.K., while Saudi Arabia is perhaps the most totalitarian country in the world, and showed what it thought of civil protest by invading Bahrain when the Arab Spring threatened the ruling prince. Not that I am defending a country that routinely condones torture and has the highest prison population in the world – but I would still call the U.S. a quasi-democracy. For instance, elections are held in the U.S. so that people have a chance to make their opinions known and have them betrayed by whoever they elected. And Americans are damn proud of this, and call it operation enduring freedom. Or is that when we invade a country illegally?
I get mixed up.
I’ve been thinking about the democratic team with regards to the astonishing smoke and mirrors show being put on about the Ukraine. The NYT has been outstanding in this respect – liberals like to criticize Fox news, but the NYT reporting on Ukraine makes Fox News look like the successor to Edward Morrow and Walter Cronkite. I thought the nadir had been reached in the article that praised the pro-government paramilitaries in Odessa for their good work in squelching the “pro-Russian” side. This, from a newspaper that is, normally, anti-neo Nazi. However, one must remember that the paramilitaries are on the democratic team and it all works out beautifully. Today, the NYT editorialdissed the referendums in Donetsk with language that was almost pure bungalowBill. Here’s how they started
“If there were questions about the legitimacy of the separatist referendums in eastern Ukraine, the farcical names of the entities on which people were asked to vote — the self-declared People’s Republics of Donetsk or Luhansk — surely answered them. 
‘Surely’ – in the club where the editorialists chuckle about things like those funny Chinese and Negro names – most amusing.  It is a kinda nostalgic, retro opening to a salvo full of the cliches one expects from … well, the NYT.  The funnily named little countries are surely parallel to that standard of the white mostly elite clubs, the funny names Negros give their children. Always a hoot in the cigar room.  But in spite of having lived through the Iraq invasion and knowing how the establishment works, it still made me curiously angry.
Angry enough that I decided to look back at how the talking heads were talking about Russia in the nineties.  In 1993,  Yeltsin’s situation with the parliament was almost  a mirror image of what was happening in Kiev in January of this year. Again, a president seemed to oppose the unanimous opinion of the legislature. In the case of  Yakunovych, the discontent stemmed from his refusal to sign the association agreeement with the EU. In Yeltsin’s case, it occurred because of discontent with Yeltsin’s “shock therapy.” Constitutionally, Yeltsin’s decree power ran out in December 1992. In April, a referendum was scheduled to sort out the deadlock between the executive and the legislature . As Martin Malia tells the story in his article, Soft Coup, for the New Republic (April 19,1993) (all from the standpoint that Yeltsin is the “democracy team), Yeltsin came to believe he would either lose the referendum in April or that the anti-privatization parts of the referendum would go against him. Now, as we all know, the democracy team cannot tolerate democracy if democracy is going to screw up the “liberalization” of the economy. As Malia points out, the opposition actually wanted something like worker’s collectives to take over the major industries. Such poppycock! And then the referendum coming up which might give the wrong, anti-democratic answer to the question, do you want oligarchs to take over your industry and plummet your economic status for the next fifteen years. .So in March Yeltsin sounded out foreign countries, i.e. the US, to see what they would think if he just unconsstitutionally swept aside the power of the legislature and ruled by decree. Amazingly, they were “understanding”. So Yeltsin pretty much did that, and proposed his own referendum.
“While Yeltsin won majorities expressing confidence in his leadership, supporting reform, and calling for new parliamentary elections, opposition to reform remained high—45% voted against it in the referendum. No less important, a majority favored early presidential elections, meaning that Russia’s voters wanted not only a new parliament, but a chance at a new president and a clean political slate to move beyond the confrontation between Yeltsin and conservative legislators.
Russia’s president was not interested in the latter message, however, and pressed ahead in his conflict with the Supreme Soviet and government by diktat—with the full support of the Clinton administration. (And despite private advice from Richard Nixon, who encouraged Yeltsin to seek a compromise with the parliament in March 1993, only to be told by the Russian leader that U.S. officials were counseling the exact opposite.) When Yeltsin eventually dissolved the parliament in frustration in September, President Bill Clinton stated explicitly that “President Yeltsin has made his choice, and I support him fully.” Ambassador-at-Large for the former Soviet Union Strobe Talbott referred to Yeltsin’s dissolution of parliament as a “noisy squabble.” With this support, Yeltsin sent in the tanks two weeks later, on October 4, and swept the Supreme Soviet into the dustbin of history. It was surely noisy, but rather more than a squabble.”
I rather like the farcical intrusion of Richard Nixon into this story – a man from the past who actually advised, oh, democracy democracy instead of team democracy. Poor Nixon, made obsolete by the zeitgeist that had shifted far to the right of him, with Clinton and the neo-liberals in the lead!
The moral of the Yeltsin story is that the curious reporting about Ukraine – for instance, a New Yorker reporter named Jon Lee Anderson writing that the Maidan protestors swept away a “tyrant” – is not curious once you dispense with the idea of democracy as a process and understand it as a team label. Of course, the democracy team does have to do one thing: it has to privatize. It has to respect “private property” – for instance, the assets of multinational corporations. Otherwise it isn’t the democracy team anymore, but tyranny. And it is in this neat machine that the people of East Ukraine are supposed to be milled to death. For who could support the non-democracy team (the one that holds elections) except devilish souls like Putin, who are not at all democracy team like Boris Yeltsin was.