Capitalisn’t

My friend Doug Ross sent me a book out of the blue. (I love when that happens.) He’d been talking about this breezy, fascinating volume by a Cambridge economist, but “Cambridge economist” alone had my eyes glazing over. In mild exasperation he sent it my way, and 23 THINGS THEY DON’T TELL YOU ABOUT CAPITALISM, its listicle title, consigned it to my “maybe one day” pile. For some reason that day arrived, and do I owe Doug a round of applause. This thing is substantial, economically sound, and thoroughly accessible to us civilians (unlike Thomas Piketty’s work). It’s also fun and puckish in the way it gleefully destroys received wisdom on how profit-centered economies really work. “There is no such thing as a free market,“ Ha-Joon Chang begins (that’s Thing 1), and he’s just getting started.

Most politicians who yak about the “free market” actually mean, “free from those pesky regulations.” But as Dr. Chang points out, all developing economies, including that of the United States, have used regulation and protectionism to give domestic wealth a chance to emerge and then to preserve it. Most regulations aren’t apparent to us, he writes: we notice one “when we don’t endorse the moral values behind it.” To the rich world, identical tactics in struggling economies can seem unfair, but that is not how global capitalism works. This conflict between perception (“common knowledge”) and reality powers the entire book, which mainly consists of hole-poking into the fiscal piety of what the author terms “free-market economics,” or simply letting the “invisible hand” of the economy seek its own level. That is not what happens, never has been, and if any state or consortium actually tried to leave its market alone, the result would be disastrous.

Each discussion of the author’s 23 Things begins with a paragraph called “What they tell you.” As I read them, I was struck again and again: jeez, that’s exactly what I was taught! The next paragraph is the truth, “What they don’t tell you.” Finally, Dr. Chang explicates his conclusions with data, logic and common sense, all sourced and cited in notes at the end. Never does he outpace the lay reader, not even when one or another of his Things seems counterintuitive (Thing 4, “The washing machine has changed the world more than the internet has”) and deliberately invites scorn or disbelief until the author patiently proves his point.

The book’s brief 260 pages contain a wealth of upended “wisdom” and provocation. We do not live in a post-industrial age. The U.S. does not have the world’s highest standard of living, though its managers are paid too much, as are most workers in other rich countries. Africa is not doomed to perpetual underdevelopment. Financial markets need to become less efficient, not more. The trickle-down theory is a sham. Even after Communism, we still live under planned economics. People in poor countries are more entrepreneurial than those in rich countries. We are not smart enough to leave things to the market. And much, much more.

You will almost certainly disagree with at least a few of the 23 Things before Dr. Chang gets through with you, maybe even after. His institutional bias is certainly toward the collective and the global, and that’s all a right-wing radio host would need to cut him down. But there is no question that you will be made to think more rationally, and more planet-centrically, about “the things we know that just ain’t so.” What more can you ask of a book you can either ponder bit by bit, or devour in a single sitting?

Cuba, Si! Castro, Meh.

It’s amazing, the things you can do when you no longer have to be concerned about winning elections in Florida. President Obama’s efforts to normalize relations between the United States and Cuba are historic not because they’re so surprising, but because the only guy who can get the ball rolling is a lame duck who will never have to run again.

In most of the country, all but the most virulent knee-jerk Commie-haters (or black-President haters) understand that our fifty-year trade embargo has done nothing to harm the Castro regime — it’s still there, after all — and everything to isolate innocent working-class people by denying them access to the world’s richest market, and, perhaps significantly, vice versa. The overwhelming view is that the embargo is a failed Cold War relic whose time has long past.

That’s most of the country. It’s different in South Florida.

This region is stocked with refugees old enough to vividly remember the brutality of Fidel Castro’s “revolution,” who consider it treasonous even to recognize the regime which split proud families into resentful diaspora, much less do business with it. They are a shrinking minority, but they are vocal and potent beyond their numbers. Younger Cuban-Americans tend to agree that the embargo has outlived its usefulness, but their parents and especially their grandparents are far more fervent and thus far more likely to vote. It is political dynamite for a Florida politician to suggest any relaxation of our rust-covered Cuba policy, which is why Presidential prospects like Marco Rubio and Jeb Bush are leading the outcries against the president (along with usual-suspect Obamaphobes like Lindsey Graham, that Ebola-shrieker who still yells “Benghazi!” whenever he can).

Some right-wing babblers have found themselves twisted into knots, praising the release of detained U.S. aid contractor Alan Gross, then denouncing the President in the same sentence. But the general response to President Obama’s action — he was covertly assisted by Canada and the Pope! — has been sensible and supportive. Talk of withholding funds for creating a U.S. embassy in Havana is just that: talk. Here’s one thing nearly everybody can agree on, like the fact that our gun laws are too lax and our military budget is too bloated. But to actually propose a solution? After you, Senator.

So American tourists will be able to legally bring back some of those ass-kicking Cohibas (Cuban cigars are strong, mate — uh, I mean, that’s what I’ve heard), unless those rumors are true and Fidel’s so mean that he plans to flood the U.S. market with cheap counterfeits once we normalize. (Gang, Raul‘s in charge.) This Cuba deal’s such a no-brainer that it might actually get done. And as a new tourist spot for Caribbean-bound Americans, this beautiful island’s image might finally change. Imagine the marketing possibilities: “Cuba. It’s not just for torture anymore.”

Unfunny Money

The first Keynesian.

Nice cover story by Kevin Drum in the new (Sept-Oct) Mother Jones on austerity and the bad math that folks like Paul Ryan have been spouting to support it. The hinky numbers came from a 2010 paper by Harvard economists Carmen Reinhart and Ken Rogoff that appeared at first glance to prove that too much debt – specifically, debt exceeding 90% of GDP – smothered economic growth. Our national debt was then just at that point, and by some measures even beyond it. So Rep. Ryan and other Reinhart-Rogoff acolytes, including heads of state in Europe, were able to change the debate and snuff out any further talk of stimulus. In 2011, House Republicans held the economy hostage by refusing to raise the government’s debt ceiling – expenditures, mind, that had already been approved by Congress – without budget-cutting concessions. A “supercommittee” failed to come up with a workable compromise, so a poison pill called “sequestration” automatically cut federal budgets across the board on January 2, 2013. (When a shortage of air traffic controllers threatened lawmakers’ trips home in April, they quickly exempted the FAA from the sequester. Frugality’s fine, as long as you’re not stuck in an airport full of proles who might even realize that you’re responsible.)

Just one problem. The Reinhart-Rogoff paper, by now holy writ to debt hawks, was dead wrong.

On April 15, three researchers at the University of Massachusetts reported that they’d looked more closely at Reinhart-Rogoff. It hadn’t taken them long to notice an entry error in the Excel spreadsheet that provided the crucial figures. Not a dealbreaker in and of itself, but it called everything else into question. Other data – enumerated in the MoJo piece, which I commend to you – suggested Reinhart-Rogoff had made a “reverse causality” error. High debt doesn’t cause low growth; in reality, it’s the other way around. (Not to disparage Reinhart and Rogoff, who were presumably trying their best, but retesting to confirm a stated hypothesis is the scientific method.) More researchers piled on, and a consensus began to form: stimulating the economy now – particularly in an era of historically low interest rates – would seed a faster recovery and save us from much greater fiscal pain later. But the austerity train had long since left the talk-show station. The received wisdom from conservatives was that “the stimulus didn’t work,” we still need more jobs. That plays in Peoria because you can’t prove a counterfactual: things would have been a lot worse without federal economic stimulation. You can only infer such a thing, and conservatives refuse to do so, at least in public. You can’t talk about more stimulus these days without having your head bitten off. But it’s exactly what we need, and right this instant. “We can’t just cut our way to prosperity,” said President Obama, and he was exactly right. Here’s why.

It seems so logical: if your family has too much debt, then tighten your belts and pay it down. Make do with less. Duh. So if the government has too much debt, tighten the federal belt and quit spending so much. What could be simpler?

The economist John Maynard Keynes – whose theories are, to be fair, hotly debated today – posited what he called the “paradox of thrift.” If a single family pays down its debt, that’s healthy, laudatory. But if everybody – families, businesses and government – all do that at the same time, the resulting loss of spending makes things worse. If nobody’s buying, nobody’s hiring – in fact, they’re laying off. A sudden dropoff in economic activity, which we experienced in 2008, means more foreclosures, fewer jobs, less tax revenue, lower GDP, extended stagnation. As we’re discovering in Europe, austerity is the exact opposite of what’s needed at this particular time. Cut federal budgets and you cut even more jobs, which sends vicious circles whirring through the economy. By some estimates, recent budget cuts and sequestration have shaved as much as 2% off where GDP growth should be at this point in our recovery from the Great Recession.

Now, only a fool would deny that there’s plenty of waste in government. The Pentagon budget, for example, is so bloated that lawmakers insist on preserving weapons programs the generals don’t need or even want. Why? “Cut the programs and you cut my constituents’ jobs!” Precisely. Precisely. You can’t cut your way to prosperity.

So why not stimulate the economy where it could actually do some good? Our infrastructure – roads, bridges, tunnels, railroads, airports, electrical and gas grids, etc. – is crumbling. People are starving for jobs. Interest rates are at jaw-dropping lows. Why not borrow the money to do the work now that we’ll eventually have to do later at a much higher price? MoJo points out that until recently, real interest rates were actually negative, meaning we could have paid back less than we borrowed. Government should act countercyclically. It’s the job creator of last resort. Without it, the misery goes on.

I suspect that more people appreciate Keynesian principles, as opposed to Ayn Rand’s law-of-the-jungle selfishness, than actually let on. In the real world, debt hawks are mighty selective. (Remember those air traffic controllers?) For instance, House Republicans managed to split the traditional farm bill in half: subsidies for rich “farmers” (including huge corporations and not a few lawmakers) are just dandy and don’t weigh on the national debt at all, but the separate “food stamp” program that keeps impoverished children alive has to be cut because it’s wasteful? A less charitable person might observe that the Pubs are using the excuse of a “debt crisis” simply to gut the programs they don’t like, just as they continue an impotent battle to retroactively deny the Congressionally-passed, Supreme Court-affirmed Affordable Care Law. If true, that would be awful; it would render their sanctimonious debt-based pronouncements cynical and hollow.

An even less charitable person might discern some method in the apparent madness of the past five years. Could some top one-percenters – insulated by their wealth from the effects of the colossal downturn which has ripped the middle class asunder – have concluded that anything which might help the economy would only harm the chances of returning yet another plutocratic Republican to the White House? After all, they’ve taken hostage the full faith and credit of the United States once already, and the craziest of them – too many for poor John Boehner to manage – are threatening to do it again. A sick economy is a great talking point for a challenger – even if you did your level worst to keep it that way.