Locke on personal identity 2

So what does? How is the personal life identified? 

This is an agitated question, and it is expressed in an agitated text. Locke, normally so normal-mouthed, makes a pre-Voltarian move in the midst of this chapter by including the story of the rational parrot. Nothing prepares us for this story – the movement of the text has been straightforwardly argumentative until we suddenly receive an anecdote that takes up its own section, concerning a parrot who, according to a high and credible source, apparently spoke with understanding. The purpose of the rational parrot is, in a way, to parody – parroty – Descartes’ vision of the rational difference. Locke hopes to loosen our sense of rationality as the key to personal identity, because he wants something that loops through the conscious and the unconscious. He does not want his waking Socrates to be different from his sleeping Socrates. He faces this problem in a different spirit than Chuang Tzu:

“Once Chuang Chou dreamt he was a butterfly, a butterfly flitting and fluttering around, happy with himself and doing as he pleased. He didn't know he was Chuang Chou. Suddenly he woke up and there he was, solid and unmistakable Chuang Chou. But he didn't know if he was Chuang Chou who had dreamt he was a butterfly, or a butterfly dreaming he was Chuang Chou. Between Chuang Chou and a butterfly there must be some distinction! This is called the Transformation of Things.”
Instead of the transformation of things, Locke is looking for the thread upon which things can be transformed. And yet, like Chuang Tzu and the butterfly, as he does so, he keeps pressing against an infinite regress -  not of butterflies and humans, but within his notion of the human:
“…to find wherein personal identity consists, we must consider what person stands for; -- which, I think, is a thinking intelligent being, that has reason and reflection, and can consider itself as itself, the same thinking thing, in different times and places; which it does only by that consciousness which is inseparable from thinking, and, as it seems to me, essential to it: it being impossible for any one to perceive without perceiving that he does perceive. When we see, hear, smell, taste, feel, meditate, or will anything, we know that we do so. Thus it is always as to our present sensations and perceptions: and by this every one is to himself that which he calls self: -- it not being considered, in this case, whether the same self be continued in the same or divers substances.” 
The game is afoot with the phrase: “it is impossible for any one to perceive without perceiving that he does perceive…” Because that second order perception must, then, be perceived by a third order one, and so on. How long does this infinite series of acts last? How long does Chuang Tzu dream he is a butterfly? It seems, here, that personal identity is threatening our hard won sense of the identity of the body, in as much as the person in the body-person act seems to exist in a time that is not coordinate with the “same time, same place” time of the body – it seems, rather, to exist infinitely and instantly at the same time.
But Locke does not choose to pursue these complications. Rather, he chooses to face the Transformation of Things with a different problem: that of the interruptions of forgetting and sleep. Sleep of course poses some problems for Locke’s notion of consciousness: do we perceive we are asleep when we are asleep? And do we perceive that we perceive it? Certainly we build around our sleep, we fall asleep, we say, I was asleep. But Locke approaches the interruption of consciousness from a different angle than sleep – a more difficult state to claim: that of forgetting. We forget. We don’t, here, even know that we forgot. Until we are reminded, somehow. Unlike sleep, forgetting has less certain rituals associated with it.  Locke wants to circumscribe the question posed by forgetting to personal identity to one having to do with identifying the person with substance, or identifying the person with consciousness. The latter is Locke’s choice. This is how he deals with the problems it poses:
“But it is further inquired, whether it be the same identical substance. This few would think they had reason to doubt of, if these perceptions, with their consciousness, always remained present in the mind, whereby the same thinking thing would be always consciously present, and, as would be thought, evidently the same to itself. But that which seems to make the difficulty is this, that this consciousness being interrupted always by forgetfulness, there being no moment of our lives wherein we have the whole train of all our past actions before our eyes in one view, but even the best memories losing the sight of one part whilst they are viewing another; and we sometimes, and that the greatest part of our lives, not reflecting on our past selves, being intent on our present thoughts, and in sound sleep having no thoughts at all, or at least none with that consciousness which remarks our waking thoughts, -- I say, in all these cases, our consciousness being interrupted, and we losing the sight of our past selves, doubts are raised whether we are the same thinking thing, i.e., the same substance or no.”
That we are always forgetting intrudes a startling psychological fact on the human scene: what are we always forgetting? We are always forgetting most things. The perception of our perception of perception; the knowing of the knowing of our knowing; the past; where the ball rolled under the sofa when we were three; being three; being fifteen; yesterday; what happened half an hour ago. Yet this list of what we are forgetting makes sense only if we are forgetting it. We, in a sense, own this forgetting. It is a fact of our consciousness. What is important to Locke is that the question of whether we are of the same substance is not pertinent to the matter of that thread which winds through our repeated, our perpetual disappearing acts:

“The question being what makes the same person; and not whether it be the same identical substance, which always thinks in the same person, which, in this case, matters not at all: different substances, by the same consciousness (where they do partake in it) being united into one person, as well as different bodies by the same life are united into one animal, whose identity is preserved in that change of substances by the unity of one continued life. For, it being the same consciousness that makes a man be himself to himself, personal identity depends on that only, whether it be annexed solely to one individual substance, or can be continued in a succession of several substances.”

  

Locke on personal identity 1

Locke begins his chapter on identity and diversity by what seems to be a refusal of philosophical and theological speculation – a refusal, that is, to consider either Stoic cyclical time or theological eternity:

“When we see anything to be in any place in any instant of time, we are sure (be it what it will) that it is that very thing, and not another which at that same time exists in another place, how like and undistinguishable soever it may be in all other respects: and in this consists identity, when the ideas it is attributed to vary not at all from what they were that moment wherein we consider their former existence, and to which we compare the present. For we never finding, nor conceiving it possible, that two things of the same kind should exist in the same place at the same time, we rightly conclude, that, whatever exists anywhere at any time, excludes all of the same kind, and is there itself alone.”

Notice the drum beat of the “same”, here, doing the conceptual work – the “same kind”, the “same place”, the “same time” – as though the identity “fix” is in. Locke, in other words, is placing this discussing in a certain locale – very much sub species non-aeternitatis. The neighborhood of sameness reaches out through all time and space, but it at the same time normalizes that time and space for the purpose of identity. Locke did not make this move because he was unaware of other ideas of time and space – in fact, the chapter is full of references to those other ideas, especially those associated with the idea of the pre-existing self of the Cambridge Platonists. And at the same time, Locke is also aware of Newton. In fact, his tremendous whack at all non-respectable metaphysics is made as a sort of  “clearing the ground” for the work of the true magi, of whom the most eminent was Newton. Now, Newton in his scholium had written of various senses of time – which applied to various approximations of reality:

“Absolute, true, and mathematical time, of itself, and from its own nature, flows equably without relation to anything external, and by another name is called duration: relative, apparent, and common time, is some sensible and external (whether accurate or unequable) measure of duration by the means of motion, which is commonly used instead of true time; such as an hour, a day, a month, a year.”
What does Newton meant by “flows equably without relation to anything external”? What after all would be this external thing? Space? Or the observer? Newton explains further that “It may be, that there is no such thing as an equable motion, whereby time may be accurately measured. All motions may be accelerated and retarded, but the flowing of absolute time is not liable to any change. The duration or perseverance of the existence of things remains the same, whether the motions are swift or slow, or none at all.”
Newtonian absolute time became an important reference in the 19^th century after thermodynamics tried to capture an irreversible temporal direction in the universe - which Botzmann provided the equations for. J. Loschmidt criticized the discrepancy between Boltzmann and Newton, the latter of whom clearly allows for equations of motion that are reversible in time. “This means that if a system of hard-sphere particles starts a backward motion due to the particles reversing their direction of motion at some instant of time, it passes through all its preceding states up to the initial one, and this will increase the H-function [entropy] whose variation is originally governed by reversible equations of motion. The essential point to be made here is that the observer cannot prefer one of the situations under study, the forward motion of the system in time, in favor of the second situation, its “backward” motion.” (Alexeev, 3) Notice that this observer is an observer ex machina – for in a sense the observer, being external, cannot penetrate to absolute time, having no footing according to Newton’s scholium. And it is this that may justify Locke, who plants the observer at the very beginning of his chapter with the telling phrase, “we see”.
It is from the position of what we see that Locke wants to proceed. Thus, it is in the observer’s world that we travel, and in which, for Locke, personal identity insists. It will insist fiercely in the rumble between finite spirits and bodies, for Locke quickly throws out the relevance of our idea of God, the third substance in Locke’s system. God is equivalent to the self-evident, an absolute point of view that combines a number of piously ornamental traits (is everywhere, is eternal, etc.) that do not interfere with the real argument about identity.
That argument comes down to what sense we are to make of personal identity when we borrow the terms from our notions of bodies. Locke, beginning with the observer’s notion of the identity of the moment with itself and the place with itself, would seem to have to continue in this vein. In that sense, every passed second and every dissipated ray of light would enforce a change in identity on the living. This is an idea that Locke rejects:

“In like manner, if two or more atoms be joined together into the same mass, every one of those atoms will be the same, by the foregoing rule: and whilst they exist united together, the mass, consisting of the same atoms, must be the same mass, or the same body, let the parts be ever so differently jumbled. But if one of these atoms be taken away, or one new one added, it is no longer the same mass or the same body. In the state of living creatures, their identity depends not on a mass of the same particles, but on something else. For in them the variation of great parcels of matter alters not the identity: an oak growing from a plant to a great tree, and then lopped, is still the same oak; and a colt grown up to a horse, sometimes fat, sometimes lean, is all the while the same horse: though, in both these cases, there may be a manifest change of the parts; so that truly they are not either of them the same masses of matter, though they be truly one of them the same oak, and the other the same horse. The reason whereof is, that, in these two cases -- a mass of matter and a living body -- identity is not applied to the same thing.”

In the observer’s world, we notice that it is a question of the observer himself.

The observer has one characteristic that distinguishes it from ‘parcels of matter’ – it is alive. Plant or animal, it has a living existence. Locke’s vitalist move is even expressed in terms that will later be refined into a vitalist philosophy: unlike the watch, which receives its impetus from without, the organism receives its impetus from within. That impetus will later be the much sought after vital force of romantic science and its aftermath.  

Locke however does not stop with that impulse, which merely gives him a living thing. He moves on to the enigmatic co-determinant of personal identity: consciousness. And it is here that he engages with a set of questions that, while being very  much of the time –metempsychosis, resurrection – are aids to Locke’s picture of consciousness. It is an argument that, I think, has a great influence on the function of character in Anglophone countries.

a little lesson in flat tax propaganda

A little lesson in flat tax economics and propaganda

There is a way of keeping gasoline prices low. It consists in the government price controls. You enforce a top price for gas, say 1.90, and allow noone to sell above it.
Of course, any economist worth his Econ 101 will tell you that won’t work. It interferes with the nature of the price system. Prices are set “naturally” in the market place acc

ording to the laws of supply and demand. Even if one concedes to institutionalists that prices are determined, as well, by the firm, according to a complex system of emulation – government price controls would simply cause either shortages, or black markets, or both.

But these same economists have no problem writing in the NYT – as Richard Thaler recently did – decrying the “complexity” of the tax code and urging flat rates. Even if the flat rates are tiered – say 29 percent for the wealthiest, 15 percent for the 99 percent scum – this, these economists will say, would clean up our tax problems in a jiffy.

Now, formally, what these economists are doing is – urging price controls. To see this, we have to see that political bodies are markets of a particular type - rather like auctions, or futures markets, in which the products consist of positive expenditures and negative ones - the latter being taxes. A tax deduction is, basically, a sneaky way the government can pay for a behavior. When the legislature votes to depreciate the tax on gas production according to a certain schedule, it doesn’t do so because it wants to complicate the tax code – any more than a soup manufacturer wants to complicate the price system by selling soup at 3.99 per can, rather than 3.50 or 4. Taxes, like prices, are the products of negotiation. Lobbyists spend incredible amounts of money, campaign contributers contribute incredible amounts of money, the most cretinous members of a Representative’s family land the most munificent positions, all as part of a system to give tax advantages to one or another party. These tax advantages produce competitive advantages, which is why cutting taxes on this or that product, or to encourage this or that behavior, is routinely advocated by the same economists who will then turn around and maunder about fake flat rates. The House of Representatives and the Senate, when considering taxes and budgets, are not doing anything much different than futures markets.

So what would happen if you set a tax rate for rich people who make a million a year at a flat 19 percent, no deductions? In time a, you would have a flat 19 percent tax, with no deductions. In time b, defined by the second day of the legislative session, you would have forty proposals for deductions, of which any number would pass. And every one of those forty would be attached to some propaganda effort to make it seem necessary – in the same way that advertising is an integral part of the price system. In an auction like system like the modern legislature, this is as “natural” as supply and demand is in the price system. In fact, a rich person would be insane not to bid, in the case of a flat tax, for exceptions. Because rich people exist as rich people by ... making more money. And there is no honeypot so sweet as the government.

Thus, like price controls, flat tax rates would require a few minor structural changes in order to really work. If you have price controls on gasoline, for instance, the best method would be for the state to Sovietize all gas producers and centrally plan supply, perhaps using the military to evict owners of gas fields. See how simple this is? In the case of flat tax rates, we would have to simply abolish the constitutional provision that allows legislators to set tax rates forever from the point at which the flat rate was passed. Again, this is simple. You just need a military coup to overthrow the democratic system.

In other words, when people tell you about flat tax rates and their advantages - see the Republican platform - they are either, a, lying, b, ignorant as dirt, or c, a University of Chicago economist.
Q.E.D.

a peculiar argument: Locke on personal identity

There’s a peculiar form of argumentation that emerges when ethics meets ontology – an encounter is that is comparable to mudwrestling in quicksand. We often derive, from a moral premise, an ontological conclusion. There are, for instance, multiple instances of the derivation, from normative ideas of responsibility and promise keeping, to an ontological fact about the continuity of the person. Locke, in the Personal Identity chapter of the Essay on Human Understanding (Book 2, chapter 27) – which is what I really want to write about - provides us with an instance:

“… if the same Socrates waking and sleeping do not partake of the same consciousness, Socrates waking and sleeping are not the same person. And to punish Socrates waking for what Socrates sleeping that, and waking Socrates was never conscious of, would be no more right, than to punish one twin for what his brother twin did, whereof he knew nothing, because their outsides were so like, that they could not be distinguished, for such twins have been seen.”

Locke implies here what is argued by other philosophers, which is that punishment is about what is right and what is right is about what a person does. Now, Locke was no doubt acquainted with feud and the regulation of kin responsibility which not only figured in early Anglo Saxon law, but in other codes as well. These codes were certainly found to be “right” by those who followed them. The attenuation of such transference of responsibility is even behind the king’s right to punish – he does so as the representative of the community that is wronged, even if the wrong is private. But even if one grants that a system of morality might be based on the responsibility of the person who committed the act, is the system of morality that founds responsibility on kin somehow getting something wrong about personal identity? Do we discover ontological facts about persons, and then reform our notion of right and wrong?

To argue that we do would require having some historical and anthropological evidence. But even before we begin to look for this evidence, we have to ask what type of discovery would make the difference, here.

One tradition in philosophy would reject the idea that the intrusion of ontological fact upon ethical custom changes our idea of right. Instead, just the opposite is the case: because we need persons for a particular ethical system, we find them. Thus, it is ethical custom that produces the ontological vision. We can tell this story as a genealogy of morals, taking it for granted that the play of moral developments takes place above some basic ontological level. However, we can also ask about this assumption. Why shouldn’t we be able to discover, by way of ethics, new and pertinent ontological facts? Or is the discovery of phenomena and its laws wholly the affair of the natural sciences? Of course, perhaps the sciences, too, have an ethical organization.

Another tradition in philosophy would insist that ethics is rooted in universally shared common sense, and that this common sense does deliver certain ontological facts for our edification and entertainment. Thus, for instance, when we show that an argument or conclusion is ridiculous, this is a proof: nature abhors the ridiculous. Nature is, after all, what is natural to men as well as facts about plants, molecules, and mosquitoes. And it is a natural to man to have a self.

A self, in this view, produces social affects – and so, as it is causal, so it is ontologically active.

If, then, we speak of persons as fictional – or, to use Locke’s term, as forensick – fiction should be taken to mean approximate, in the same way that one atom in a gas is handled approximately in the equations of chemistry. Of course, atoms can only be handled in the aggregate, whereas persons are, as it were, bigger. But the same sort of reasoning applies. In this sense, we can say that persons are ‘estimates’.

Zona and the Ponzi scheme

  
-New Masses.                                                                                                              I have a tendency to relapse into simple minded Marxist explanations, a habit that has served me well as the Great Recession mangles on. One of Marx's contentions was that capitalism tends to immiserate the proles. This is an often laughed at contention - what ho, all the prosperity generated in the freemarket West lo these many years! And in fact much prosperity was generated when there was a strong union factor able to swing the government - naturally, the ally of the rich - into using its countervailing power. But as we look at the facts and figures that stream in about the Great Moderation over the last coupla decades, one thing is striking: the average household in America owes as much as it owns. Or in other words - in practical accounting terms, Marx scores! The great moderation is so called because the condition under which the regime in which credit substitutes for wage increases had to be moderate - a matter of slowly, deliberately constructing a system of pinches from the outside, no single one of which hurt that much. Oh, a little more unpaid overtime. Oh, a little higher insurance premium. Oh, a little change in the credit laws to the disadvantage of the borrower. And then of course we got the bump, and our pluto-presidents, Bush and Obama, made sure  that the gigantic capitalists were helped, and basically pissed on the majority of Americans. So we are now on the downslope of the Great Moderation. And if Marx is right, the immiserative machinery is going to get a little more fierce. In spite of having had a bad night debating, really, Obama looks set to be re-elected, barring utter disaster, the GOP will still own the House, the Dems the senate, and we will play this game one more time.
But in the longer view -  Karl has been right on the money. The neo-liberal dream, with its fundamental misunderstanding of the nature of capitalism, has been, on the other hand, absolutely wrong. That is, the sincere third way people - not the Tom Friedmans. The third way - which dominates the Dems and Labour - can be simmered down to this core principle: the guarantor state that arose in the thirties and provided social insurance for the populace can be replaced by a private sector version of the guarantor state, where the work of social  insurance is performed by investment. The wage worker invests in capital and reaps the fruit of capital's growth and profitability. Of course, we overlook the fact that this profitability comes about by freezing the wage worker's wages and eventually shipping his job to someplace where it can be done more cheaply. The idea, here, has a utopian roots in various socialist schemes of the 1830s, which also wanted to put the prole on both sides of the table. The problem is that this ignores the fact that the money that is made on one side of the table - capital's profit - comes from the surplus labor that comes from the other side of the table. What the third way, or neo-liberalism is, is ... a Ponzi scheme. And that Ponzi scheme is the major determinant of our politics at the present time.

On the death of character

On June 18, 1944, a detachment of prisoners from Auschwitz were unloaded at Kaufering, five kilometers from Landsberg  Germany, and collected into a concentration camp there. The prisoners were set to work building large underground bunkers that were intended to protect an airplane parts factory. According to a secret account kept by one of the prisoners, a priest, Jules Jost, about 28,838 Jewish prisoners were kept there, including 4200 women and 850 children.

At the same time, an army doctor named Gottfried Benn was stationed in Landsberg. Benn is of course one of Germany’s most famous twentieth century poets. In 1933, he had sided with Hitler, and written a famous letter addressed to emigrés writers – and really to Klaus Mann – in which he wrote that their complaints were besides the point. When they called Hitlerism “barbaric”, Benn wrote, they were betraying their own intellectual inadequacy and obsolescence: “… this is my counter-question, how do you imagine history moves itself? Do you think it is particularly active in French spa resorts? How do you imagine the 12^th century, the transition from the Romanesque to the Gothic feeling: do you think that this was discussed? Do you think, in the North of the land from the South of which you now write to me, someone dreamed up a new architectural style? That we voted for domes or towers? That one debated over Apsides, round or polygon?”

The emphasized words were all connected to the weak mode of politics that Thomas Mann, in the Observations of a Non-political man, had connected  to the complex made up of civilization and the intellectual (associated with France) as opposed to culture and the bürgerlich (associated with Germany). But Benn had moved on from the conservatism of Mann – like Ernst Junger, he had moved towards a politics of masculine decision, in which things like debate, discussion, dreaming would be crushed. Crushing –this was what history did. It smashed. It crushed. And it shaped the way nature shaped.

Of course, Benn had left his enthusiasm for Hitler behind him by 1944, but he had not entirely left this idea that history and nature were one inhuman thing. And this ideology – with its proximity to the real crushing of human material going on in a concentration camp five kilometers from Landsberg – was part of the sweep of the Novel of the Phenotype he wrote, with its subtitle, Landsberg Fragments. In the first fragment he poses the aesthetic question in terms that resonate with his notion of a sort of anonymous collective history deciding on domes or towers, when he considers the notion of narrative itself: “Why knead together thoughts in someone, in a figure, in shapes, when there are no more shapes? Invent persons, names, relations, when they are simply futile?” In a sense, Benn is writing about the post concentration camp world –the world in which persons, names and relations truly are futile. And still, one has to ask whether we are not simply being asked, once more, to see an aesthetic category crushed by history; and whether “history” hasn’t been given virtues it does not have, causal powers that are, in truth, tautological: whether we aren’t being sold history as, in fact, the scheme of causes, which would mean that it naturally causes events. Cause, in other words, causes events.

Yet if we take a more generous interpretive approach, we see, in Benn’s notes, indications of a way of thinking about character that preceded the concentration camp. This way of thinking began to emerge in the modernism of the 1914 generation as a response to mechanization, to the artificial paradise of chemistry and consumerism, to newspapers and films, as much as to war.  In the post-war period, the same reasoning under different styles – structuralist, post-structuralist, Marxist – came to the same conclusion: that the bourgeois realism of the character was obsolete. Roland Barthes, in the first cool,scientific phase of his career treats the figure, the personage, in the realist tradition as one that is wholly constructed within the text’s discourse, radically dividing it from its off-the-page correlates: from the critical point of view, it is thus as false to suppress the personage as it would be to make it jump off the paper [faire sortir du papier] in order to make it a psychological personage (endowed with possible motives)…” (SZ) The paper that intrudes here and does such decisive ontological work allows us to understand on the personage on the paper functions in that universe – but in the same gesture it invalidates the ethos in which both sides, paper and off-the-paper, are joined in one social whole.

In Barthes second, hedonistic phase there is a retreat from this high modern ascetism. The text becomes, again, an object of pleasure – an off-the-page pleasure that is satisfied somehow on the page. The text becomes porous, readable, fragmentable, and paper becomes a more enigmatic matter altogether. This retreat does not erase the high modern moment but quotes it – delivering it to the maximum ambivalence in which all liminal creatures, zombies, vampires, leaders, characters, reside.  

myths of american capitalism

Myths of American Capitalism

Inspired by Joseph Stiglitz discovery that the American Dream is a “myth” – which would seem tautological to me, but I’m not an economist – I have been thinking about current myths in American capitalism. It seems to me that the top one, at the moment, has to do with upper management. It goes like this: upper management in American companies are paid top dollar because, like athletes, they have certain irreplaceable skills that make them worth it.

This idea is hauled out every time a company has a good couple of years. GE makes fifty billion dollars in profit over four or five years, and Jack Welch is hosannahed as a genius.

There are two parts to this myth. The first part is that upper management and professional athletes are in the same category.

The best answer to this is: nobody ever bought a gadget from Microsoft because they had seen Steve Jobs manage the product from R and D to the market. 

Athletes and movie stars aren’t paid for their skills – they are paid because there is a demand for their skills. These skills are theatrical and visible. If basketball was played in secret, the wages of the players would soon diminish to zero, or around that amount. There is a great deal of marketing that goes into making sure that the players are seen. That is the point. Unfortunately, nobody was bringing up this point in the 1980s, when Harvard Business Journal, among others, was floating the idea that upper management needed to be paid vastly more. The figures are stark – CEOs, who were once paid 20 times the median wage of workers in their companies, were soon taking home one hundred times, two hundred times, four hundred times their median employee. Because athletes and stars are public figures with very public salaries, and because these salaries were going up, the CEO propagandist set – including most mainstream economists – latched onto the easy comparison. In fact, though, the comparison is completely bogus. Salaries in entertainment and salaries in fortune five hundred executive suites are moved for very different reasons.

However, there is a second part of the myth. In this part of the myth, what the firm does is conflated with the upper management. If a clerk at a store processes twenty more people on a good day, we don’t conflate the clerk and the store’s increased revenue. But somehow, we are supposed to conflate the management and the business phenotype.

A good way to get a handle on this is to look at two things: the company’s record in relation to other companies in its sector, and the company’s record over time.

Now, the indexes  for a  company’s record differ. Is it profit, or is it stock prices? In the eighties, there was a definite turn to the company’s stock price as the ultimate index of company merit. Now, this seems, to me, to be reductive and wrong, but even so, it was often trotted out as the alpha and omega of company mightiness. In the stock boom that occurred from 1981 to 2000, this was a very favorable record for the upper management.

Notice, however, that one average, the stocks of Fortune five hundred companies stagnated for ten years – from 2000 to 2010. In fact, they went down enormously from 2008-2010. Notice, too, that this had no effect on the salaries of management. They did not slip down from being 200 times the median wage to, say, 10 times the median wage.

Notice, too, that outliers would, sooner or later, converge with their sector. GE is a great example. Jack Welch pumped up profits at GE by creating a very exaggerated financial unit. In 1997, Fortune magazine published one of those “let’s drool over a CEO” article about the great and transcendent genius of Welch, “scaring  the hell” out of competitors, entitled: GE CAPITAL: JACK WELCH'S SECRET WEAPON. Here’s a graf:

“Capital, as it's known inside GE, is less a business than an energy source, radiating growth through a mature--some might say lackluster--conglomerate. You can see it in GE's third-quarter results, where Capital comfortably outgrew its parent. But not until you break down GE's performance in recent years are you struck by the glow of its nuclear core. Nicholas Heymann, an analyst at Prudential Securities, calculates that from 1991 to 1996, GE's revenues would have increased just 4% a year were it not for Capital, which more than doubled the growth rate to 9.1%. And its 27 businesses, ranging from credit cards to computer programming to satellite leasing, now generate 39% of GE's earnings, up from 29% in 1990. As some analysts see it, Wall Street's confidence in Capital is the main reason GE stock is rising at a rate that makes the overall market advance look modest, up 123% in two years, vs. 63% for the S&P 500.”

 Running the tape forward, we get to 2009. Here’s the Business Insider headline: The Man who destroyed GE

  And here’s a graf:

As GE's stock struggles to hold $7 $6, a level at which it is still arguably expensive (17X cash flow), shareholders are calling for CEO Jeff Immelt's head.
And it's true: Jeff has had 7 years to reduce GE's dependence on the business that is sinking the ship--GE Capital--and he has chosen not to do so.  Until last fall.  When it was too late.
But let's not forget who built GE Capital in the first place: GE's legendary CEO, Jack Welch.”
Incidently, who rescued GE Capital?
I said the Fed/
I kept them from bleeding and bleeding the red/
until they were good and stone cold and dead.
Here’s a story from Bloomberg:

“General Electric Co. sold about $16 billion of commercial paper through a Federal Reserve program to unlock credit markets frozen in September 2008, making up 2 percent of the central bank’s total purchases.

GE, whose GE Capital unit was the biggest U.S. issuer of commercial paper in 2008, said in October of that year that it planned to use the Commercial Paper Funding Facility to support the Fed’s efforts to make credit available at the height of the crisis. The program purchased a total of $738.3 billion, according to documents that the Fed released today.

Under the plan’s rules, GE could have issued as much as $98 billion, according to the company’s regulatory filing for 2008. The $16 billion was repaid as it came due in January and February 2009, the Fairfield, Connecticut-based company said. GE’s finance unit remained profitable throughout the crisis, helped in part by tax credits.”

Notice the words of this announcement are nicely phrased to make one think that GE is simply ‘supporting’  the Fed. This is like a drowning swimmer supporting the lifeguard. Warren Buffett loaned General Electric money at this time on a ten percent interest schedule. Uncle Sam, well, he charged 1 percent or below. However, we pretend that this unfortunate episode didn't happen. We built it, as all the white boys from Bain shout. This, of course, is also part of American Capitalist mythology, but more on that at another time.

So the question is why upper management was so successful in going on a peculative run that tilted the very composition of wealth. This is where myth – also known as economic models – intersects with certain odd facts about the labor market.

As the CEOs were becoming world dominating plutocrats, an odd thing was happening in the world of education: business schools were becoming dominant at universities. What this means is that there was more talent pouring into the management labor pool. But hark! Notice that in this supply and demand story, salaries went up instead of down. Lands sakes, it is as if the labor market is… another myth.

What happened in the 80s was simply good old fashion guilding. Guilds now stretch across thirty percent of the American work force. These are the invisible barriers to entry that prevent, say, myself from setting up a business as a doctor. The state comes down like a ton of bricks to support the doctor’s monopoly, and would put me in jail, thus spitting on free markets and the right of people to decide for themselves. The same thing would happen if I set myself up in many a licenced position. These are, of course, guilds. On the one side, they operate to protect the public. On the other hand, the public pays for that protection. It is the other hand that gets erased, of course, in the stories guilds tell about themselves. Upper management monopolies, however, while having a guild like structure, don’t represent the convergence of the state and private power. This actually makes the actors in the upper management guilds very nervous. What they have, instead, is a rigged up power involving doubledealing by the representatives of the investors. In form, upper management is more like the mafia than like doctors or lawyers. And having the power to shut off the kind of bargaining moves that would send their compensation packages down, they use it.

Imagine, for a moment, a world in which we actually used the technology we have not just to get robots to make parts of cars on assembly lines, but also to manage companies. Impossible? All that tacit knowledge?  If we look at the way companies converge in their sectors over time, we see something that at least theoretically cries out for formalization. And in fact we have the systems: we have expert systems that could, for instance, have pretty much advised GE on how to invest and manage the company as a whole. The top level of management, far from being creative decision makers, are mostly dealers in what computers do best: algorithms. ROI algorithms. If GE had computerized most of its upper management functions back in the 90s, and reduced Jack Welch’s salary to around 150 – that is, 150,000 per year – they would not only have saved the perhaps billion he cost  them over ten years, but they would have ended up pretty much converging with their sector -  which, of course, they did. GE’s common stock price when Welch left in 2000 was 60 dollars and fifty cents, while in 2010 it had declined by almost forty dollars. Was this because Welch was a better CEO than Immelt?

Well, he may have been. On the other hand, he was pretty much the same old same old when compared to his predecessor, Reg Jones.

“John Francis Welch (i.e., Jack) took the reins at GE in 1981, following a long, exhaustive, and competitive succession process overseen by his predecessor, Reg Jones. But, contrary to the notion that Welch inherited a moribund company, things were going pretty well already. Over the course of Jones's stint at the top, which began in 1972, revenue had grown at an average annual rate of 12 percent, and earnings had grown at 16 percent. The spin offered by Robert Slater, author of The New GE: How Jack Welch Revived an American Institution (as well as three other Welch volumes), is that Welch "did not want to wait until General Electric was in trouble.... To keep those figures from declining, Welch knew he had to push the company to become more competitive." Janet Lowe, author of Jack Welch Speaks and the recent biography Welch: An American Icon, echoes this line: "The challenge for Welch was to spot trouble before it occurred, to take preventative measures, and to make the most of GE's tremendous momentum."
Fine. And in fact GE has averaged a solid 12 percent annual earnings growth throughout Welch's time at the top, and about 15 percent over the last eight years. But if no trouble had yet "occurred" when he took over, and GE already boasted "tremendous momentum," why credit Welch with a revival rather than with maintaining a past record of excellence? The truth is that while CEO biographers need a larger-than-life hero, GE did not. Indeed, as James C. Collins and Jerry I. Porras explain in their celebrated and insightful 1994 book Built to Last, the firm has enjoyed success under a series of innovative chief executives stretching back to the early 1900s.” http://www.robwalker.net/contents/mm_welch.html
So, how much did Reg Jones make, as compared to Jack Welch?

“In 1975, the most widely acclaimed CEO in the United States was Reginald Jones, the chief executive at General Electric. Reginald Jones took home $500,000 in 1975, a sum that equaled 36 times the income of that year’s typical American family.

In 2000, the most widely acclaimed CEO in the United States was Jack Welch, who also happened to be the chief executive at General Electric. Welsh took home $144.5 million in the year 2000, a sum that equaled 3,500 times the income of that year’s typical American family.”