Corporations

Will Dodd-Frank Prevent New Megabanks?

On August 22, 2011, In Congress, Corporations, Current Leadership, By Donny Shaw

Last year’s Dodd-Frank financial reform bill didn’t directly fix the too-big-to-fail problem that necessitated the 2008 bailouts. Instead, it allowed the big banks to grow even bigger, but gave regulators new authority to require the big banks to report more information to the government and force them to follow stricter rules. It also gave regulators new guidelines to consider when deciding whether or not to allow bank mergers that could create new too-big-to-fail entities. Basically, the bill took a noncommittal approach to addressing issues of bank size and interconnectedness. Congress punted the big decisions off to regulators and made it possible for regulators to take drastic action, but gave them a lot of leeway to maintain the status quo if they so choose.

These provisions of the bill are about to get their first big test. Capital One, currently the ninth largest bank-holding company in the U.S., has reached an agreement with the Ducth ING Groep to purchase their U.S. arm, ING Direct. They are planning to then turn around and leverage assets gained in that deal to purchase HSBC’s subprime credit card division. The acquisitions would make Capital One the fifth largest bank in the U.S., right behind such infamous too-big-to-fail giants as Bank of America, Chase, Citigroup, and Wells Fargo. It would mean that financial assets and power in the U.S. would become even more concentrated in a small group of top corporations.

In Section 163 of Dodd-Frank, the Federal Reserve Board of Governor’s is given new guidelines to consider when deciding whether or not to approve the acquisition of one large bank by another large bank. “The Board of Governors shall consider the extent to which the proposed acquisition would result in greater or more concentrated risks to global or United States financial stability or the United States economy,” the bill states.

This language is typical of the bill. Far from being a dictate from Congress (i.e. no mergers that will create new banks with more than $xxx in assets), it doesn’t even give the Fed a specific directive to reject an acquisition that would result in more concentrated risks. But it clearly does provides them with justification to reject it on those grounds.

In June, Fed Board of Governors member Daneil Tarullo said that regulators should oppose mergers that increase risk in the financial system unless there is a significant public benefit. “The regulatory structure for SIFIs [systemically important financial institutions] should discourage systemically consequential growth or mergers unless the benefits to society are clearly significant.” So far, though, it’s not clear what the public benefit of a bigger Capital One might be. Recent research from the New York Times shows that Capital One has basically eliminated their small business lending in recent years. In 2006, they approved $228 million in small business loans, but by 2010 that lending had been reduced to just $600,000 nationwide. It’s by far the most dramatic drop-off in small business lending by any of the top-25 banks the Times looked at.

The National Community Reinvestment Coalition is running a letter-writing campaign asking the Federal Reserve to extend the public comment period on the acquisition by 60 days and to hold public hearings in at least 5 major cities before the deal is approved or rejected. “If the Capital One acquisition is approved without substantial regulatory review, it will signal a continuation of a regulatory culture that brought us the foreclosure crisis, the financial crisis and financial institutions that were Too-Big-to-Fail and are even bigger today,” they write. They’re asking for letters to be submitted by August 22nd.

Cross-posted from Open Congress.

Revolving Door Makes Lobbying Cheaper and More Effective

On June 15, 2011, In Background and Research, Congress, Corporations, By Donny Shaw

Cross-posted from Open Congress Blog.

The conclusions will probably come as a surprise exactly none of you, but a new study from the International Monetary Fund on the influence of campaign donations and lobbying politics is worth a mention because of the completeness of the research and the authority of its source. Two IMF economists, Deniz Igan and Prachi Mishra, have been examining how the targeted political activities of financial corporations between 1999 and 2006 affected how Congress voted on bills that strengthened or loosened regulation of Wall Street leading up to the 2008 crisis. They found — surprise! — that the more the corporations spent on campaign donations and lobbying, the more likely Congress was to vote in favor of deregulation. Furthermore, they found that the money Wall Street spent on lobbying members of Congress who were connected to Wall Street, either from having worked there in the past or through a former staff member who had gone through the revolving door to K Street, had a much stronger effect on their voting than on those who had no Wall Street connections.

A preliminary version of the economists’ research paper, replete with detailed methodology information, can be found here (happy to see OpenCongress mentioned as a data source). Some of their key findings were summed up recently in an article for the June edition of the IMF’s Finance & Development magazine, here. And Dan Froomkin written it up at HuffPost, here.

The most significant finding is the extent to which the revolving door influences Congress’ voting patterns. According to the study, Wall Street companies that used lobbyists who had worked for the member of Congress they were lobbying made the targeted lawmaker 20% more likely to vote how the firm wanted than the average lawmaker, and about 9% more likely than lawmakers who were lobbied by unconnected lobbyists (column 1 at right). Furthermore, when companies used lobbyists who were connected to the member of Congress they were targeting, they were able to spend less to have the same impact. The amount of money spent by companies with connected lobbyists did not affect voting (column 3). Apparently it’s just the connection that matters, not the number of trips to the Hill.

Coincidentally, Talking Points Memo has just updated their “Shadow Congress” database, tracking former members of Congress who now work for lobbying shops, and the revolving door is definitely trending up. By TPM’s count 195 former lawmakers now work on K Street — up from 172 one year ago — including several very powerful Democrats who were defeated in the 2010 midterms.

Given the influence of the revolving door, there has been very little discussion in Congress on reforming the system. In 2007, as part of a larger ethics overhaul bill, Democrats passed a loophole-laden two-year “cooling off” period before ex-lawmakers and staff members could become registered lobbyists. In the past 6 years, only one bill has been introduced to expand those restrictions. Sen. Michael Bennet’s [D, CO] “Close the Revolving Door Act of 2010” proposed, among other things, to permanently ban members of Congress from ever joining lobbying firms. It attracted one co-sponsor before dying in committee.

Is There A Scam Behnd The Rise In Oil And Food Prices?

On April 19, 2011, In Corporations, free markets, By Danny Schechter

The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices.

Gas at the pump is up, and going higher. Food prices are following.

The consequences are catastrophic for the global poor as their costs go up while their income doesn’t. It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions).

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading.

Why is it happening? Why all the volatility? Is oil getting scarcer, leading to price increases? Is the cost of food, similarly, a reflection of naturally increasing commodity prices?

While it’s true that natural disasters and droughts play some role in this unchecked price inflation, it also seems apparent that something else is attracting increasing attention, even if most of our media fails to explore what is a political time bomb while most political leaders shrug their shoulder and ignore it.

President Obama recently said there is nothing he can do about the hike in oil and food prices.

Critics say the problem is that government and media outlets alike refuse to recognize what’s really going on: unchecked speculation!
Not everyone buys into this suspicion. In fact, it is one of more intense subjects of debate in economics. Princeton University economist Paul Krugman pooh-poohs the impact of speculation counter posing the traditional argument that oil prices are set by supply and demand.
The Economist Magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.”
Others, like oil industry analyst Michael Klare of Hampshire College in the US see demand outdistancing supply:
“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.”

Usually you hear this debate in scholarly circles or read it in political tracts where orthodox views collide with more alarmist projections about the oil supply “peaking.”
But officials in the Third World don’t see the subject as academic. Reserve Bank of India Governor Duvvuri Subbarao charges “Speculative movements in commodity derivative markets are also causing volatility in prices,” he said.

The World Bank is meeting on this issue this week because it is seen as a matter of “utmost urgency.”

“The price of food is a matter of life and death for the very poorest people in the world,” said Tom Arnold, CEO of Concern Worldwide, the international humanitarian agency, ahead of his participation at The Open Forum on Food at World Bank headquarters.

He adds, “…with many families spending up to 80% of their income on basic foods to survive, even the slightest increase in price can have devastating effects and become a crises for the poorest.”

Journalist Josh Clark argues on the website “How Stuff Works” that much of the oil speculation is rooted in the financial crisis, “The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you’ll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much interrelated. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.”

The debate within the industry is more subdued, perhaps to avoid a public fight between suppliers and distributors who don’t want to rock the boat. But some officials like Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out.

He argues, “Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.”

Now, a prominent and popular market analyst is throwing caution to the wind by blowing the whistle on speculators.

Finance expert Phil Davis runs a website and widely read newsletter to monitor stocks and options trades. He’s a professional’s professional, whose grandfather taught him to buy stocks when he was just ten years old.

His website is Phil’s Stock World, and stocks are his world. He’s subtitled the site, “High Finance for Real People.”

He is usually a sober and calm analyst, not known as maverick or dissenter.

When I met Phil the other night, he was on fire, enraged by what he believes is the scam of the century that no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.

He studies the oil/food issue carefully and has concluded, “It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.”
“It’s the top 0.01% robbing the next 39.99% – the bottom 60% can’t afford cars anyway (they just starve quietly to death, as food prices climb on fuel costs). If someone breaks into your car and steals a $500 stereo, you go to the police, but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?”

Phil is just getting started, as he delves into the intricacies of the NYMEX market that handles these trades:

“The great thing about the NYMEX is that the traders don’t have to take delivery on their contracts, they can simply pay to roll them over to the next settlement price, even if no one is actually buying the barrels. That’s how we have developed a massive glut of 677 Million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels “on order” for the front 3 months, unless a lot barrels get dumped at market prices fast.”
“Keep in mind that the entire United States uses ‘just’ 18M barrels of oil a day, so 677M barrels is a 37-day supply of oil. But, we also make 9M barrels of our own oil and import ‘just’ 9M barrels per day, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions. So, ignoring North Sea oil Brazil and Venezuela and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 Million barrels (full) plus 370M barrels of commercial storage in the US (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery. “
These contracts for oil outnumber their actual delivery, a sign of speculation and market manipulation, as oil companies win government authorizations for wells but then don’t open them for exploration or exploitation. It’s all a game of manipulating oil supply to keep prices up. And no one seems to be regulating it.
What Phil sees is a giant but intricate game of market manipulation and rigging by a cartel—not just an industry—that actually has loaded tankers criss-crossing the oceans but only landing when the price is right.
“There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price) but, unfortunately, as I mentioned last week, Cushing, Oklahoma (Where oil is stored) is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered. This did not, however, stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day. “
He asks, “Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any.”
The TV news magazine 60 Minutes spoke with Dan Gilligan who noted that, investors don’t actually take delivery of the oil. “All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery.”
He says they make their fortunes “on the volatility that exists in the market. They make it going up and down.”
Payam Sharifi, at the University of Missouri-Kansas City, notes that even as the rise in oil prices threatens the world economy, there is almost total silence on the danger:

“This issue ought to be discussed again with a renewed interest – but the media and much of the populace at large have simply accepted high food and oil prices as an unavoidable fact of life, without any discussion of the causes of these price rises aside from platitudes.”
What can we do about that?

News Dissector Danny Schechter made the film Plunder The Crime of Our Time (Plunderthecrimeofourtime.com) on the financial crisis as a crime story. He wrote an introduction to the recent reissue of a classic two-volume expose of John D. Rockefeller’s The Standard Oil Company, one of the top ten works of investigative reporting in American history. (Cosimo Books) Comments to dissector@mediachannel.org

Tea Parties: Present and Past

On March 2, 2011, In Background and Research, Congress, Corporations, Current Leadership, freedom, By Joe Costello

Don’t believe illusion
Too much is for real
Stop your cheap comment
We know what we feel
– Pretty Vacant

I’ll start by saying I have little idea of what the Tea Party is. I certainly know the New York Times doesn’t know what it is, or for that matter most of the political class. I know components of it, such as the Koch brothers or the various elements of the Republican and conservative political class who quickly glommed onto it, helping elect a Republican majority to the Congress. But in pieces, I would suggest at one point and maybe only briefly, a legitimate vocalizing and activating of Americans occurred. Citizens concerned about the direction our country was heading.

So, I watched with interest the other day, when CSPAN televised a Tea Party “Town Hall” from DC, which one can already see is problematic. I scratched my head when I saw the participants. Some may legitimately be considered “of” the movement, for example Rand Paul, Mike Lee who took out the Republican incumbent in Utah, and Alan West of Florida. But, there was also five term incumbent Steve King from Iowa, three term incumbent Michele Bachmann from Minnesota, and adding a sublime degree of the incredulous to the whole affair, three decade Utah incumbent Orrin Hatch.

However you want to define the Tea Party, if you do it with Orrin Hatch, you’re saying it has no meaning. No doubt after watching his fellow Utah senator go down in a blaze of defeat, Orrin’s got one thing on his mind. You have to give it to anyone who has the audacity after serving thee and half decades in the US Senate to start his speech stating, “We live in perilous times” and “We’ve run this country into the ground.” And you want to be reelected senator? Phew!

The rest of the Tea Partyers were fairly short on specifics and long on rhetoric. There was a lot of references to America’s founding and its “founding documents”, all said with an overall sense that the federal government has extended the boundaries set for it at the founding. A point difficult to argue with, however, what exactly it means needs extensive discussion.

Mike Lee of Utah tied the movement of today to its historical antecedent stating,

The Tea Party movement started not Feb 2009, it started in 1773 when a group of Americans decided they were overtaxed and over regulated, by a distant government not based in Washington DC, but London, and that government was oppressive to the people, slow to their concerns and people decided to take action.

A simple enough historical description and an accurate expression of how many, if not at times, most Americans feel about Washington DC today. But, Mr. Lee’s tying the present into the past Tea Party made something click. This present Tea Party started and voiced important and legitimate concerns about the bank bailouts and the power of corporations in America. As Dick Armey, another Republican political class member glomming onto the movement told John Stewart, “TARP! TARP! TARP!” was a rallying crying across the country for the nascent movement. Yet, both in the corporate media’s coverage and the rhetoric of the movement’s self-proclaimed representatives, I hear little about the concern of the power of corporations.

That wasn’t the case of our revolutionaries forebearers. The past’s Tea Party understood implicitly the tea they were throwing into the Boston Harbor that night belonged to the East India Company, not the crown. In Nick Robins’ excellent history of the East India Company, The Corporation That Changed the World, he writes how the American colonial press was filled with vitriol against the East India Company, which the English crown had given monopoly control of the tea trade.

Robins writes,

From October onwards, newspapers, and handbills provided the citizens of the 13 colonies with a barrage of analysis and polemic. The Boston Evening Post of 18 October 1773, for example, contained a powerful article from ‘Reclusus’ exposing the folly of Lord North’s plan. “Though the first Teas may be sold at a low rate to make a popular entry” he acknowledged, “yet when this mode of receiving tea is well established, they, as all other Monopolists do, will mediate a greater profit on their goods, and set them at what price they please.”

Lord North’s plan was an attempt by the crown to lesson the unpopular taxes, but was meant with more opposition than the original Stamp Act of eight years before. Robins adds another railing and accurate colonist’s critique against the “Company”,

Writing in The Alarm newsletter, ‘Rusitcus’ underlined how ‘their conduct in Asia for some years past, has given simple proof, how little they regard the laws of nations, the rights, liberties, or lives of men’. ‘They have levied War, for the sake of gain,’ adding: ‘fifteen hundred thousands, it is said, perished by famine in one year, not because the earth denied its fruits, but this company and their servants engulfed all the necessities of life, and set them at so high a rate that the poor could not purchase them.’

As Robins points out, the colonials actions against the Company preceding the Tea Party had been so highly effective that, “Legal imports of the Company’s tea plummeted from a record 869,000 lb in 1768 to just 108,000 lb in 1770.”

It’s an interesting fact that the American colonists’ important and vivid critiques and opposition to the power of East India Company have mostly been lost to history, as in fact has the history of the Company itself. Both are relevant to our age and to anyone concerned with the questions of freedom, liberty, and democracy. The East India Company set the precedent and became the model for the global mega-corporation of our age, in both its productivity and in corruption, and its completely anti-democratic structures and behaviors. The East India Company existed for over two and half centuries. In that time, with and without the help of the English government, the Company gained monopoly control over Asian trade, conquered and impoverished vast chunks of India, causing the largest famine of India’s history, and fought two wars with China to keep the illegal and despicable opium trade open, enslaving millions of Chinese.

The East India Company was so notorious in its day, they gained the opposition of Adam Smith, Edmund Burke, and Karl Marx. Not exactly an historical coalition that would spring quickly to anyone’s mind. Edmund Burke, one of the patron saints of American conservatism would lead the charge in the English parliament for six years in a case to prosecute the head of the Company. Burke and his partner Richard Brinsley Sheridan,

Compared Hastings(the Company’s chairman) to the ‘writhing obliquity of the serpent’ and damned him for a character that was all ‘shuffling, ambiguous, dark, insidious, and little’. And as for the Company, it combined ‘the meanness of a pedlar and the profligacy of pirates… wielding a truncheon with one hand, and picking a pocket with the other.’

While Adam Smith, the tremendously misinterpreted and wrongly deified advocate of “free markets” wrote of the Company,

The result of this anti-competitive behavior was to raise profits above the natural level, amounting to(Smith writes) ‘an absurd tax upon the rest of their fellow citizens.’ Cartels are thus an ever present danger in a market economy and in Smith’s immortal words, ‘people of the same trade seldom meet together, but the conversation ends in conspiracy against the public or in some contrivance to raise prices.’

An absurd tax on the rest of us! What can better describe the control of the American economy by the descendants of the East India Company, our own era’s global mega-corporations. As Robins states about our present economy, “Over 60 percent of international commerce now takes place within corporations rather than in the open marketplace, making it idle to talk of free markets.”

Sounding as relevant today as two centuries ago, Robins adds of the company’s operations,

It was the speculative behavior of corporate insiders and short-term investors that emerged as the most powerful factor in the Company’s spectacular fall from grace in the middle of the 18th century. Financial engineering, flimsy managerial controls and inadequate regulation all played their part… the same passion for aggressive acquisitions, the same obsession with executive perks for corporate insiders, and the same focus on executive self-preservation as ordinary shareholders started to suffer the consequences of excess.

And what did this financial engineering, inadequate regulation, and corporate insiderism lead to? Repeated bailouts by the government, the largest at the end of the 18th century. Robins writes,

To avoid a run on the stock, (Prime Minister)Pitt pushed through legislation extending the Company’s ability to raise debt, and so pay its regular dividend at 8 percent. Of course, this measure made little financial sense as the Company was paying dividends out of debt. But it helped to stabilize the situation.

Sound familiar?

The East India Company, like all corporations following it was chartered by the English government, which was a monarchy, and thus the Company had plenty of monarchical characteristics. Our modern US mega-corporations are all also charted by government, though, with what at this point can only be called a quirk of history, they are all chartered through our state governments. With this chartering through the states, it was hoped corporations might be more functionally democratic.

The birth of the modern corporation and the American republic were roughly contemporaneous. The early republic, outside its dealings with the East India Company, had some understanding of these new entities, but a half-century later understood much more. The grandsons of John Adams, the republic’s second president, wrote:

And yet already our great corporations are fast emancipating themselves from the State, or rather subjecting the State to their own control, while individual capitalists, who long ago abandoned the attempt to compete with them, will next seek to control them. In this dangerous path of centralization Vanderbilt has taken the latest step in advance. He has combined the natural power of the individual with the factitious power of the corporation. The famous “L’Etat, c’est moi” of Louis XIV represents Vanderbilt’s position in regard to his railroads. Unconsciously he has introduced Caesarism into corporate life. He has, however, but pointed out the way which others will tread. The individual will hereafter be engrafted on the corporation, democracy running its course, and resulting in imperialism; and Vanderbilt is but the precursor of a class of men who will wield within the State a power created by the State, but too great for its control. He is the founder of a dynasty.

However, it wasn’t Vanderbilt who introduced Caesarism into corporate life, it was there in the corporate structure from its monarchical inception with the East India Company. We live in a time with not one corporation, and while quite powerful the Company still had a relatively small grip on the overall British economy, but an economy that is completely dominated by several hundred massive corporate structures, that are riddled with corruption, insiderism and speculation, to such a degree that their “absurd tax” on the rest of us dwarfs the taxes of DC.

Yet, there is no American politics against “oppressive” corporate power. Both parties are completely in the pockets of the corporate oligarchy and if there were or are concerns expressed by the present Tea Party, they’ve been completely censored by the corporate media and the more loathsomely decadent Republican political class.

At the beginning of the 21st century, we must, like this republic’s founding generation, step up to talk about and take action concerning our corrupted and dysfunctional political system. It must include all aspects of power, and that includes the enormous power of the modern global mega-corporation. We would do well to follow their example — the America tradition — that the first step to dealing with unaccountable power is to break it up. That is the tradition set by the colonial Tea Party, that is a necessity of self-government. Our present Tea Partyers might find it useful to go back and read more of America’s “founding documents”, all the newspapers, letters, and pamphlets written in the years leading to the revolution. They would find the founders, not just those in the pantheon, but the thousands scattered up and down the eastern seaboard had as much concern about the unaccountable power of the nascent corporation as they did of their ancient King.

Foreclosure Fraud Dam Breaking for Big Banks

On September 30, 2010, In Corporations, Current Leadership, free markets, By Tiffiniy Cheng

JP Morgan, Bank of America, 8 big lenders are also stopping foreclosures because of their possible involvement in foreclosures mills, churning out possibly fraudulent foreclosure letters to quickly foreclose on as many people as possible. Stop Foreclosure Fraud.com is a good site to follow the issue. Geithner is talking about an aid package, buying home mortgages to the tune of $100 billion. They should not go in with aid for the big banks – this would be another grave mistake on Geithner’s/Obama’s part (and fodder for calling for Geithner’s resignation).

“The Obama administration outlined a plan this week that would provide housing relief, help remove illiquid assets clogging banks’ balance sheets and spur lending. Geithner pledged to buy and modify troubled homeowner mortgages, and Senate Banking Committee Chairman Christopher Dodd said the aid could be as much as $100 billion.”

Going in and saving the banks’ balance sheets will not fix our foreclosure issues, it will buy the big banks some time and further concentrate wealth in the CEO class, but the big banks will still have troubled balance sheets beneath the aid. Instead, we should allow the big banks in this fraud to collapse and fail — we can reorganize the good parts, sell them in the private market at a profit, and have a healthier banking system for it.

Please see post on what should happen to GMAC and why GMAC should really just be broken up. A housing market reset and right to rent proposals is necessary policy and much too late, but still especially expedient, effective, justified, and economically stimulative.

Take GMAC out of government focus

On September 23, 2010, In Corporations, free markets, neo-capitalism, By Tiffiniy Cheng

Recent news about GMAC’s halting of foreclosure proceedings in 23 states has put the financial crisis in a helpful perspective.

There have been numerous movies, books, blogs, investigations, and articles about the fraud practiced by many of the nation’s largest financial institutions, including the specific fraud involving GMAC. But, for so long, there was nothing truly tangible that was happening to stop, reprimand, or reveal the rampant and well-documented fraud. There have been no real prosecutions, Obama has not held Wall Street accountable as he promised.

But now, that GMAC is in the process of coming clean, the financial crisis feels that much more real to me. It now feels like part of the other side is in their own way acknowledging that something happened because it did, and there is something tangible happening.

From the Washington Post, this is how much we know so far:

“GMAC, which is owned by Detroit-based Ally Financial Inc., did not identify the specific internal issue that prompted the moratorium in its statement, but it has been linked to lawsuits this year surrounding the alleged falsification of a key foreclosure document.

The Florida attorney general is investigating three law firms for allegedly providing fraudulent affidavits that identify who holds the original mortgage note in foreclosure cases. In Florida and in other states, this document allows lenders to bypass a costly trial and proceed with a foreclosure.

Two of the three firms being investigated – the Law Office of Marshall C. Watson and the Law Offices of David J. Stern PA – have represented GMAC in foreclosure proceedings. And the person who signed many of these allegedly false affidavits was an employee of GMAC.

In a deposition taken in December, GMAC employee Jeffrey Stephan said he signed 10,000 affidavits or similar documents a month without personally verifying who the mortgage holder was. That means many foreclosures could have taken place based on false documentation. Stephan could not be located for comment.”

Many homeowners did expect to flip their houses or refinance their mortgages – they were being sucked into unrealistic claims about the longevity of rising home prices. To be fair though, when our economy is overly financial services, then the best strategy for making money in the 1990′s through 2007 was to play in the housing game. That’s not their fault, that’s the fault of those in charge not seeing that a high services to manufacturing economy will eventually break.

And, what the homeowners didn’t know was that the banks had a separate scheme that compounds the rationalized culture of going into debt and taking on so much housing — the biggest banks were also peddling many unrealistic mortgages to people who could not afford them, packaging them together and selling them off in a Ponzi-like scheme to turn a profit at each turn. As late as 2007, GMAC was compounding our housing problems by pitching people on more refinancing – in a GMAC letter to homeowners, it read “”You’ve probably read about it in the newspaper or seen it on the nightly television news. Many mortgage lenders all across the country are heading for financial trouble because they have made too many questionable loans. Some lenders may even go out of business. And what will become of the people who trusted those lenders if that happens?” Then came the kicker: “Allow us to help you refinance your mortgage with the rate and term that best suits your needs.”

GMAC’s recent disclosures are late, much damage has been done. But, we should look at GMAC as a concrete example of the kind of fraud and business acumen in the home lending markets, especially during a time when our regulatory system was set up to allow big businesses to really push their luck. We’ve written about regulatory exemptions and the hidden subsidies given to the largest financial institutions in this country — the government effectively decides to help cobble a broken market together rather than setting up systems and taking steps to clearing out the parts of it that are dangerous and detrimental to society.

Instead, GMAC should be encouraged to look at how they can break themselves up into reasonable, safe parts. This has happened at Citigroup and they have seen good returns on profits. But GMAC and Citigroup should no longer exist, they will still be structured to fail — they are simply too unwieldy, with a few other banks helped to create a majority of the subprime loans out there, and because of their size will continue to be a focus for the government. That’s not what we want, we want to take them off of our plate and let them take care of themselves. But as long as they’re big, we’re going to have to think about them in particular. Shareholders with or without government help and pressure should get their commercial lending in order, take losses for the bad mortgages they own, and re-enter the market as new and orderly businesses under new management and ownership. GMAC/Ally is the 15th largest financial institution in the country, without truly cleaning them up, we’ll have a good size chunk of our economy still being cobbled together. We’ll still be scheming on the housing market.

A Sustainable Economic Vision

On September 15, 2010, In Congress, Corporations, Current Leadership, free markets, freedom of expression, The Public, By Tiffiniy Cheng

Our Years Ahead

This fall there are lots of candidates without a sustainable economic vision. We need to make sure they get there – they should decide today to support these 5 policy proposals that address our immediate and future needs. Polling shows that there is wide public support for these proposals – there is no good reason they should not become law.

We have five questions we hope you, our best advocates, will ask your local candidates. Call them up, and report back your answers in the comments.

We generally support candidates that will hold the big banks accountable and prevent the reckless behavior that caused the economy to collapse and cost 8 million Americans their jobs. We vote for candidates that have a vision of a stable, growing economy populated by millions of small and medium sized businesses rather than big business speculation, regionally-based industry, healthy competition, rising wages, and one that supports innovation in industry and stability in the workforce. This may sound ambitious during a time of recession, but as history has shown, the only way out of this recession is to dream big and try big projects, in the best American tradition.

1. Full employment: Do you support Rep Conyers’ proposal of a deficit-neutral program that funds jobs with a tax and curbing of Wall Street transactions?

In a healthy economy, everyone who can work and wants to work should be able to find a job. It is highly wasteful, and bad for communities, family, and human dignity to have a 10% unemployment rate. When the economy goes through a recession, rather than spend our tax dollars that go to CEO pay, the government should invest directly in jobs – hire people to fix bridges, teach under-staffed schools, refit homes to make them energy neutral, lay train tracks, and build wind turbines. We support President Obama’s proposal to put people to work building a 21st century roads and rail system. We also support Rep. Conyers’ proposal of a deficit-neutral program that funds jobs with a tax and curbing of Wall Street transactions.

[A February 2010 Lake Research poll showed “solid pluralities, including among independents, prefer the (progressive) Democratic position on job creation and putting Americans back to work to the GOP’s (46% of Democrats)”]

2. Financial Transactions Tax: Do you support legislation sponsored by Tom Harkin and DiFazio for a financial transactions tax?

We support legislation sponsored by Tom Harkin and DiFazio that would make banks pay a tax on the casino culture of Wall Street. This is a sales tax on their sales of complicated financial instruments. To pay for our deficit and social programs, we should make banks pay a sales tax on their sales of exotic financial instruments. Economists think even a tiny such tax (less than 1%) could bring in between $250 billion and $350 billion/year, which would help pay for new teachers, modernize millions of homes to make them more energy efficient, shrink our financial sector, and meet the tax shortfall of our cities and towns since the financial crisis. This would help prevent another crisis by discouraging transactions that have no real value, and will help reduce the deficit. Opponents won’t support the tax because they work for Wall Street, not the people.

[A January 2010 poll showed that 81% of Americans agree with the
following strongly worded statement. “We need to rein in the greedy, reckless behavior of the big banks on Wall Street that cost millions of jobs and led to huge bailouts on our dime. This tax will put a limit on the casino culture of Wall Street that provides no real value and only exists to line the banker’s pockets. This reform will strengthen our financial system to help prevent another crisis and reduce the deficit.” ]

3. Break up the Banks: Do you support legislation that would break up the too big to fail banks?

We support legislation that would make sure no more banks get to be too big to fail and require government bailouts. Opponents want all the “Too Big to Fail” banks to continue to suck huge profits out of innocent people, receive taxpayer handouts for their dangerous risk taking, and destroy our economy. Our small and medium banks tend to serve their customers better and take on less risk. Breaking up our largest financial institutions opens up the industry to greater competition from small and medium banks, leading to better products for consumers and more small business lending. It would also help to limit the financial industry’s corruptive influence over federal policy making.

[ In a January 2010 Lake Research poll, Americans gave a 6.9 out of 10 rating (very to absolutely the most important reform) in a measurement of the importance of different reform proposals to “cap[ping] the size of banks and financial firms to prevent them from becoming so big that taxpayers would need to bail them out in a crisis”. A May 2010 Fox News poll showed that 69% of Americans favor new stricter controls and regulations on Wall Street and financial services industry, 20% oppose. ]

The Mortgage Crisis

4. Housing Market Reset: Do you support legislation sponsored by Jeff Merkley that would make sure that the big banks do not get to make homeowners pay all the cost of the bad and deceptive deals they make. Instead, they should have to renegotiate for fair home prices?

Legislation sponsored by Jeff Merkley would make sure that the big banks do not get to make homeowners pay all the cost of the bad and deceptive deals they make. Instead, they should have to renegotiate for fair home prices. Foreclosures are bad for employment, bad for communities, bad for people, and they leave homes wasting. The banks that got the government to bail them out should have to come to the table.

[In a May 2010 CBS News poll showed that 56% of Americans think the government should help homeowners with mortgage issues. “Americans disapprove of the government bailing out the banks and U.S. automakers, but they support help for ailing homeowners.”]

5. Right to Rent: Do you support the proposal made by economist Dean Baker that people who bought their homes for far more than they were worth should have the right to stay in their homes if they pay fair market rental value for them?

We support the proposal made by economist Dean Baker that people who bought their homes for far more than they were worth should have the right to stay in their homes if they pay fair market rental value for them. Many homeowners are under water at no fault of their own. For every homeowner helped by HAMP to avoid foreclosure, 10 were foreclosed on – this proposal keeps people in their homes but does not cost the taxpayer a dime. This would help save our communities from the blight of foreclosure, and encourage care and investment in homes, while forcing the big banks to negotiate with innocent home owners.

["Homeowners who are simply underwater would likely be able to afford market rents," says Ingrid Gould Ellen, an economist at New York University who helped current Housing and Urban Development secretary Shaun Donovan]

Please tell us what you hear in the comments.

What a Sustainable Economic Vision Looks Like

We are at a historic moment in our history. There are two completely different visions of our future economy.

The unsustainable vision is an economy dominated by a few dozen enormous corporations. Proponents believe that when big business does well, everyone else does well. This vision rewards debt-fueled growth, unproductive speculation, and overly concentrated power. We’ve already seen where that leads us–instability, crisis, unemployment over 10% in much of the country, empty homes, wasted jobs, overpacked schools, uncertainty and unhappiness and severely divided social classes. This is our recent past, and this is our current economy. Republicans and some Democrats openly admit they plan to support loopholes that make it easier for Wall Street and big business to keep doing business as usual. They continue to gamble away our jobs, retirement funds, homes, city and state budgets, and tax dollars – and it is dangerous.

The sustainable vision is one built around fair wages and good jobs, with millions of small and medium sized businesses, regionally-based industry, healthy competition, rising wages, innovation in industry and stability in the workforce. We’ve already seen where this leads us — better, more secure jobs, great schools, creativity, community, stable lives that allow for innovation, and social mobility. This is our post-war America, where we overcame Jim Crow and created industries that spread throughout the world. We plan to take on the big banks that broke the economy and make sure they pay to rebuild our country.

A healthy economy builds on our traditional strengths as a country, where we nourish individual entrepeneurs and local investment. Small and medium businesses tend to care more for their workers, be more attentive to environmental concerns, and don’t get the same tax breaks and poltical muscle of big businesses. While big business is a threat to democracy, small business is its partner. A healthy economy values rising wages over lowering wages, and includes a high degree of local manufacturing, so that foreign prices can’t destabilize the basic market.

We should aim for a less speculative economy than the one we’ve had for 30 years – it leads to maximum employment, better jobs, an increasing living standard, more socially beneficial innovation, and a sound social and economic infrastructure. Less of our economic activity should be tied up in risk, we should be investing in humans and the infrastructure we need to lead healthy lives.

There is no question that people are suffering and looking for something to blame. Foreclosures are destroying communities, but also people’s dignity. Republicans are blaming immigrants, and the qu’aran, and democrats, but the real culprit is big banks and corporate handouts. There is plenty of money that can flow in the economy, it is just in the wrong place. We can decide to take history by the horns, and reward education instead of speculation, and small business instead of corporate takeovers.

More policy demands will be posted shortly.

The Design Economy

On September 15, 2010, In Background and Research, Congress, Corporations, free markets, laborer, neo-capitalism, The Public, workers, By Joe Costello

I.

In contemporary economic discussion, the idea of the Industrial Revolution is frequently presented as something bland, neutral, and inevitable. Instead of conveying a sense of historical turmoil, disruption, and the overthrowing of established cultural, political, and economic institutions dating back millenia, we simply throw-off the term, “Industrial Revolution” with little regard that it represented a fundamental re-ordering of human life. In many ways this is understandable, as the Industrial Revolution triumphed, becoming industrial rule, industrial economy, industrial bureaucracy, and industrial life — the industrial status quo. In large swathes of the world, industrial economy is so dominant, it leaves the sense the world has always been that way and only a fool could imagine it being any different. Most amazingly, this has all been accomplished in less than two-centuries — an historical blink of the eye.

Today, we confront an era of equal historical change. Further understandings of the natural world and resulting new technologies are beginning to impact industrial society to a degree as fantastic as industrial knowledge and technology transformed agrarian society. While, agrarian civilization lasted over ten-thousand years, the reign of industrial society has been relatively brief, nonetheless, it is being usurped. This transformation is rapidly intruding on our lives, yet still not quite recognized beyond a general trepidation that things don’t seem to quite work like they did before. The great collective social anxiety of the Industrial era, never satiated, now confronts a new transition for which the tools, skills, thinking and institutions are little developed, if they exist at all.

Maybe the most essential understanding we can have in such a time is the simple recognition of change. The Industrial era, for many reasons, is transitory. It is inherently unstable, and incapable of truly meeting the challenges and problems it created. For in the end, industrialism tries conforming or forcefully overwhelming life’s great diversity into a few narrow homogenous environments, which are unhealthy and unsustainable for both the individual and the system as a whole.

The Industrial era’s greatest strength, an uncompromising faith in technology, is also one of its greatest weaknesses. The simplistic adoption of any given technology, without an understanding or systemic feedback mechanisms to track its impact on society, is the ethos of a child, an immature civic morality. To paraphrase the technology thinker Marshall McLuhan, first we shape technology then technology shapes us. We still grasp to understand how technology shapes us, yet, we rapidly transform from industrial technologies to a new era, for lack of a better term, of information technologies.

These new, electronic, information technologies are transforming industrial economies. Technology has been the fundamental shaping force of the modern era, developing an understanding of the power of this shaping, will enable us to meet some of challenges we face as new technologies now reshape industrial society. It is the understanding of this shaping process, call it design, that will be a fundamental force and positive potential of the next economic era. We are leaving the era of industry and embarking on great new experiments of design. To succeed, we will need the active participation of each of us helping shape our individual and collective lives. We must all be active participants in creating the thinking, tools, institutions, politics, and culture of the design economy.

- – -

II.

The cycle of the machine is now coming to an end. Man has learned much in the hard discipline and the shrewd, unflinching grasp of practical possibilities that the machine has provided in the last three centuries: but we can no more continue to live in the world of the machine than we could live successfully on the barren surface of the moon. – Lewis Mumford

There are many components of the Industrial era that differentiate it from the Agrarian era. Among the most important were the great developments in the sciences of physics and chemistry. The thinking in these two areas led to the great technological advances that were the foundations of industrialization; the mass forging of iron/steel and the harnessing of energy gained from the burning of fossil fuels – coal, oil, and natural gas.

In just a hundred-fifty years, these industrial forces transformed the United States. In that time, a matter of just five generations, over three-quarters of the population went from working in agriculture to just one percent today. We went from mostly rural living to urban, and mid-way, with the infrastructure of the automobile in place, to extensively suburban. A republic, founded mainly of small farm landowners and merchants at the end of the Agrarian era, was transformed into a population of mostly wage earners. Economic power initially quite diffuse, gradually became ever more concentrated into fewer and fewer mega-corporations – the great institutional inventions of the Industrial era.

Over the entire era, political economy became increasingly centralized. Industrial production, its implementation with the machine and the assembly line enabled mass production and mass consumption, fostering centralization of production and distribution. Local diversity and knowledge was overwhelmed by the homogeneity of industrial technology. The distributed political economy of a small farm agrarian society was transformed into centralized government in Washington DC and centralized control in the industrial mega-corporation. Not only did government power become increasingly centralized, but, with the introduction and eventual domination of broadcast media, the processes of politics did as well. This centralization led to the techniques of mass manipulation as politics and the growth of bureaucracy for mass control in governance.

Over time, the politics, culture, and institutions of the industrial era took on the appearance of the machines and technologies of industry itself, and this machine has become increasingly unsustainable.

- – -

III.

Unfortunately, once an economy is geared to expansion, the means rapidly turn into an end and “the going becomes the goal.” Even more unfortunately, the industries that are favored by such expansion must, to maintain their output, be devoted to goods that are readily consumable either by their nature, or because they are so shoddily fabricated that they must soon be replaced. By fashion and build-in obsolescence the economies of machine production, instead of producing leisure and durable wealth, are duly canceled out by the mandatory consumption on an even larger scale. – Lewis Mumford
As various industrial philosophies and schools of thought were developed, the most important to emerge was the idea of industrial capital and its unquenchable need for growth. Unlimited production and unlimited consumption facilitated infinite growth, becoming the raison d’etre of the entire system. Coupled with the notion of any technology capable of being developed should be utilized, growth and technological innovation became their own necessary ends, dominating any and all others.

The industrial era’s great perpetual machine’s fundamental product was infinite growth. It created a society divided into two components; production and consumption, in which a person needed a job in the production aspect to gain the benefits of consumption. The system is only considered healthy if it produces more every year. It is only considered beneficial if consumption increases each year. It is a system that values quantitatively, and scarcity is confused with qualitative value.

Just as the end of the Agrarian era did not end agriculture, the end of the Industrial era will see neither the end of industry or its fundamental importance, however it will require increasingly less labor and will rapidly be less defining of the economy, politics, and culture of human society. There are two main reasons for this: 1)The knowledge and the technologies of the sciences of quantum physics and biology are adding to, replacing, and surpassing the impact of earlier technologies developed with the understandings of Newtonian physics and chemistry, 2)The doctrine of unlimited growth, necessitating unlimited production and unlimited consumption is meeting natural resource and ecological systems constraints. Fortunately, the first element can provide solutions for the second.

Knowledge of the planet’s material limits, shown in part by growing environmental problems including decreasing biodiversity, collapse of ocean fisheries, and climate change, all instigated by industrial technologies, have in recent years raised important questions on the feasibility of unlimited industrial growth. At the same time, limits are being revealed in supplies of natural resources, particularly oil, the lifeblood of industrial modernity. However, as was recently described in the Financial Times, oil is certainly not the only resource limit,

“The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.”

As technology confronts various environmental constraints, the Newtonian physics and chemistry based paradigm is transforming to one of quantum physics and biology. It is the difference between fossil fuel power and solar energy, broadcast media and the Internet, and chemical farming and bio-knowledgeable sustainability, simply, a greater understanding of natural systems. These sciences and their technologies are rapidly changing industrial society, combined with ever growing environmental challenges, they create the need for a new understanding of political economy. It’s a sensibility that rejects the idea of infinite growth and the tyranny of unlimited production rewarded by unlimited consumption, while embracing the transition from the industrial economy to the design economy.

- – -

IV.

Without constant enticement and inveiglement by advertising, production would slow down and level off to normal replacement demand. Otherwise many products could reach a plateau of efficient design which would call for only minimal changes from year to year. — Lewis Mumford
The steam engine, comprised of steel and coal, both best symbolizes the industrial era and represents what might be considered its quintessential tool for shaping and defining the entire era. With the steam engine, the technology of Newtonian physics fundamentally reshaped the natural landscape in less than two centuries to a greater degree than agrarian technologies allowed humanity to reshape the planet in over ten-thousand years.

In this new era of design, the tool which might both symbolize the era and become its greatest shaping instrument is the networked microprocessor. A technology of quantum physics, and while presently fired by fossil fuels, though soon to be powered by renewable energy sources, the networked microprocessor produces and then communicates the fundamental element of the design economy – information.

The term information is used quite informally, though the most general and widest definition might be the most accurate. The bits, numbers, words, sounds, images, and even touch sensations produced by humanity, our technology, and our systems are all information. We gain value from information using design. That is, information not utilized for some aspect of design, whether it is scientific, economic, political, or entertainment becomes noise, though some people’s noise might be valued in others design, but without design – editing, communication and utilization – information basically remains noise.

The creation of information and its design have been fundamental aspects of civilization since its inception, in fact one could argue it is civilization. Power in civilization has always coincided with the control of the creation, editing, and communication of information, particularly that information essential to the society’s core functioning. For example, the calendar, necessary for proper functioning of agrarian society was controlled by both government and religious ruling classes.

Five hundred years ago, with the dawn of the modern scientific revolution, the printing press was also birthed, revolutionizing the communication of information. In the 20^th century, the invention of electronic broadcast media again saw a revolution in information creation and communication, having very dramatic impacts on society – economically, politically and culturally. The control of creation, editing, communication, that is the design of information is a fundamental aspect of political economic power in any society. The invention of the printing press helped loose control of the Catholic church and the established aristocracy across Europe, while the establishment of broadcast media helped Washington D.C. and the Fortune 500 gain control in the United States.

The networked microprocessor, again both as symbol and practical tool, brings a new information revolution to our society, allowing the creation, editing, and communication of information at rates exponentially higher than anytime in previous human history. Importantly, information plays an increasingly fundamental role in production processes and the product itself. Only several decades old, this information revolution has initially been co-opted by the industrial era as a means to “better” industrial processes. However, the true value of this information revolution will not be gained via industrial valuations, just as agrarian values and definitions could not give industry its true value. Increasingly, industrial constraints are hindering our ability to obtain the true value in utilizing information – the value of design – which is not gained simply quantitatively by increasing production and consumption, but qualitatively through design. The greatest value gained from design will be in using less resources, less labor, and in many cases less consumption, for these things, industrial society has limited value.

An example of this is the process of automation, removing human labor from the industrial machine, allowing less human labor for the production of the same amount of product. However, in taking the line-worker out of the production process, you are also taking away former and would be future workers from the labor that allows them to consume. While the American economy is much larger than it was 50 years ago, we still produce a similar amount of steel, but due to automation, the American steel industry today uses one-third or less of the labor to produce the same amount of steel. This process is going to continue and eventually, in the not too distant future, remove human labor from most industrial processes. Information is cheaper than labor.

Yet, just as designing fully robotic factories of the future will have a transformational impact on production, it will have an even more important, one could say transcendent, impact on consumption. In many ways, industrial economy’s consumption components are primeval. They are based on elemental components of human existence, such as food, shelter, security, and reproduction. These primary elements of existence have deep roots in the human psyche. As the capitalist industrial economy grew, and thus the need for infinite growth, it combined with the 20^th century information broadcast revolution to create a mass consumption economy and culture based on the exploitation of primal urges, creating in many senses a neanderthal economy. One only need watch, listen to, or see a few minutes of most advertising to experience its manipulation of hunger, fear, and sex, most of it having little to do with the product.

It is this playing to primal urges that stokes the growth economy and stokes mass cultural anxiety. For primal urges can never be satisfied so much as only satiated, yet our growth economy disallows even this. In fact, it does just opposite, constantly and incessantly stoking primal urges for the ends of ever more consumption and thus endless growth. It is in fact only the rational mind that can soothe primal urges by understanding them and not allowing them to endlessly dictate behavior.

If we were to borrow from the Ancient Greeks, and separate life into thoughtfulness and primal urges, the American economy would resemble a massive Bacchanalian orgy. We would be wise to remember the Greeks looked at these primal urges as essential and enjoyable aspects of existence, but they also walled-off unmitigated enjoyment into a festival. The idea of the primal as a foundation for society, would be foreign to the Greeks, for civilization by its very definition is thoughtfulness, the smoothing of primal urges with rational thought.

Seventy-percent of the American economy is consumer based and to thrive relies on hundreds of billions of dollars of advertising endlessly triggering deep primal urges – it is literally uncivilized. What we need to do is get more thoughtful about our consumption, that is, to better design our economy on available knowledge using information as a tool. Instead of reward exclusively through consumption, reward will be gained by participating in design. This will lead to less gross consumption, which is not only OK, but essential as we reach the limits of natural resources and the destruction of ecological systems. Paradoxically, the primeval ecological elements which birthed the human species, and on which our survival remains completely reliant, needs to be saved by the uniquely human concept of civilization.

We live in a time where Newtonian physics and industrial technologies need to be transformed by our 19^th and 20^th century knowledge of biology. Most revolutionary is the concept of evolution and natural selection. In nature, life changes continuously through constant reproduction and mutation. It is with natural selection – the choosing process of the greater environment – that new designs move forward or are rejected. We must adopt this thinking for our political economy, with an understanding that each of us our components of the greater human environment known as civilization. We are the selection process in creating the future, both individually and just as importantly collectively. As we continue to reshape our civilization and the planet itself using technologies derived from the processes of rational thought, decisions cannot be left to simply exploiting primal urges. We must use the same thought and deliberation to design the economy, politics, and culture of our civilization. That is the design economy.

The greatest example of how design will become paramount is with energy. The Industrial age was built on the seemingly unlimited supply of cheap fossil fuels, combined with failure to assess the negative costs for the environment. What developed, particularly in the United States, was an economy dependent on massive energy waste. This now immoral waste is apparent in all aspects of energy use, for example lighting, heating, and cooling, however it is most easily exemplified with the U.S. automobile culture. It is the height of inefficiency to take a one-hundred-fifty to two-hundred pound person, encase them in a couple tons of steel powered by a highly inefficient internal-combustion engine, and use that as the main means of transportation, restructuring the entire infrastructure, much of the economy, and the culture itself.

The automobile represents the perfect product for the Industrial era. It is labor intensive, that was before increasing automation, resource intensive in metals and other materials, and requires massive amounts of energy. They also need to be relatively frequently replaced, they are certainly not built to last. Every aspect of the automobile added to the Gross National Product, the industrial era’s ultimate barometer of economic fair weather, while its impacts on the greater ecological systems from extraction of resource material to its pollution of air and water systems were at first ignored and then socialized.

Now in direct contradiction to industrial economy, a design economy would look to design transportation using the least amount labor, resources, and energy. It would look at the uses of transportation, and then design processes which would be more efficient. For example, the centralizing of goods distribution in warehouse size grocery and department stores, requiring people drive two ton automobiles to pick up five pounds of foodstuffs or two pounds of clothing is crazily inefficient. Much better would be to design neighborhoods where people could walk and bike to pick up their day to day necessities, allowing most of the physical goods distribution to occur using larger more efficient vehicles.

Now the same inefficiencies, off-book environmental degradation, and resource exploitation occur throughout the industrial economy, in fact, distressingly, such things in many ways define a healthy and vibrant industrial economy. We need to redefine much of this value, understanding if we concentrate on design first, production and consumption second, instead of an economy based on ever greater growth, simply more and more stuff, we will have an economy of enough, providing a quality of life much more satisfying and substantial than that gained by quantitative value.

- – -
V.

The ordinary person senses the greatness of the odds against him even without thought or analysis, and he adapts his attitudes unconsciously. A huge passivity has settled on industrial society. For people carried about in mechanical vehicles, earning their living by waiting on machines, listening much of the waking day to canned music, watching packaged movie entertainment and capsulated news, for such people it would require an exceptional degree of awareness and an especial heroism of effort to be anything but supine consumers of processed goods. — Marshall McLuhan, The Mechanical Bride: Folklore of Industrial Man

Humanity’s great agrarian era produced agrarian government systems, economies, and cultures. Human life and human identity derived overwhelming from the processes of farming. The much shorter two-centuries old industrial era redefined life. The processes of production and consumption became the overwhelming dual identities of individuals and our institutions that evolved to foster the processes of unlimited industrial growth. As we move into the design economy, increasingly the most imperative questions will be what are the roles, identities, institutions, and processes of design.

Design has been part of human history before the beginning of civilization. It has at times played an instrumental role with the designing of hunting tools, farming implements, and industrial technologies. However today, information, the raw material of design, is becoming not simply ubiquitous but fundamental to every aspect of human life. For example, with our knowledge of DNA comes the ability to manipulate the very information codes of life itself.

Presently, many of the processes of design – the creation of information, its editing communication, and finally decision making for its utilization – are in turns both centralized and insufficient. We need to evolve our institutions, organizations, and individual roles to understand that design is increasingly the primary value of political economy, ultimately creating a value shift from industrialization’s quantitative value of infinite growth based on unlimited production and consumption to design’s more qualitative values of participation, efficiency, elegance, and enough.

If we look at the processes of design today, we see rapid change. Companies, governments, NGOs, and individuals each year produce an exponentially greater amount of information. In the distribution and communication of information, paper is in great decline as electronic media explodes. Creation and communication of news and public affairs, once the exclusive domain of print, was supplanted by electronic broadcast media by the mid-20th century, and is now rapidly being replaced by the networked microprocessor, creating both a plethora of real and potentially valuable information, but also an unprecedented amount of noise, with little or no value. Noise grows as what could be useful information is communicated with no ability for the individual or organization to place it in meaningful context.

Yet, even the gaining of valuable information is hamstrung in utilization as the decision making for political economy remains tremendously centralized. Much of the wealth, and thus the economic decision making of the nation is concentrated in the Fortune 500. At the same time, over the past century as government power became more greatly centralized in DC, political decision making became further and further removed from state, localities and the citizen. As previously noted, information both for consumer purposes and electoral decisions – the only direct role citizens have in political decision making – is overwhelmingly manipulative and based on primal motivations, not the rational decision making necessary for civilized design.

In an information environment overwhelmed with noise, the individual is increasingly at a disadvantage as it becomes ever more difficult to filter or more appropriately edit information so that it might be utilized. Individuals face a tsunami of information provided with little or no context, making it difficult to put any of it to use. In contrast, the industrial organization, be it the Fortune 500 or a federal bureaucracy has advantage in contextualizing much of the information they need to make decisions, not to mention the power to then implement. Thus, they can staff tremendous numbers for simply editing information flows. However, over time, this can also become a disadvantage in large organizations and bureaucracies as information channels become locked-in, leading to stagnation and inability of the organization or bureaucracy to utilize new information. And just as importantly, these large structures play a role in protecting the status-quo, manipulating information flows to suit their self-interests.

We need to begin to evolve our institutions, organizations, and bureaucracies with an understanding that the creation, processing, and utilization of information is not simply an essential component, but the predominant one. This means both changing our institutions and creating new ones. It necessitates reviving the idea of associations, an essential part of the American republic’s democratic history. As Tocqueville wrote of the vibrant agrarian American republic, “Americans of all ages, all stations in life, and all types of dispositions are forever forming associations.” Yet, this necessary distributed formation of associations has been lost or replaced by the centralized order instilled by the Fortune 500 and Washington DC.

A design economy needs to birth millions of design associations. They will be both local and geographically based and distributed electronically across global networks. They will stand alone and be distributively tied. These associations will create, edit, communicate, and utilize information, that is they will design. Most importantly, they will provide the individual, the citizen, the consumer a mean to be an active participant of the design economy.

In the end, the foundation of the design economy is not stuff, it’s people. And for the design economy to transcend industrial life, people are going to need to be freed from industrial structures, most essentially the processes of unlimited production and consumption. People are going to need the time, and just importantly society is going to have to value the processes of design. Which means people as both individuals and collectively as associations are going to be valued as creators, editors, communicators and decision makers, in short we must revalue the citizen.

- – -

VI.

It would be curious… if an idea, the fugitive fermentation of an individual brain, could, of natural right, be claimed in exclusive and stable property. If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody.” – Thomas Jefferson to Isaac McPherson, 1813.
The great transformation from the Industrial era to an era of design will be pushed by the increasing knowledge of science and its technologies, but one of the great changes will be revaluing of political economy, from an overemphasis on product to a greater valuing of process. After all, life is not product, it is process, an understanding enabling us to greater value that which makes us human. Using knowledge from quantum physics and biology will allow us to create more organic systems, with people not technology, and design not product as the greatest mediators of value. Integral to the whole process will be information and how it is created, controlled and communicated, and in so doing we will revalue information.

Industrial markets pay little value to information, value is predominately gained on physical goods. While we can and must evolve markets to place more value on information content, in many ways what must be revived and placed prominent is the value modern democratic politics places on the free flow of information. This is part of the American system little valued in economic dogma, yet essential to not only the health of the American political system, but just as much to the vibrancy of the American economy. We need to add the political back to the economy.

In the American constitution, you will find certain foundational pillars on the control of information necessary to build the design economy. The ideas of free speech and freedom of the press remain just as important today as then. But they must be defined anew in an era of networked microprocessors, where each individual’s speech can be amplified, every person owns a press, while the Fortune 500 and our own government fight to keep ever more information proprietary.

The constitutional questions of copyrights and patents are essential to this new era. As Jefferson pointed out these are not natural rights but societal creations based on fostering innovation. But again, in industrial America, the benefits of copyrights and patents gained through production become more problematic in an era of design, where information in an organic design political economy becomes something like DNA, necessary to build all the physical processes atop it. Limiting the free transference of this information can cause vast mutations in the entire design political economy. Today, the Fortune 500 spends millions on lobbying to strengthen patent and copyright law, not to help innovation, but to stifle and gain further control.

The Internet has given us a few hints on how to evolve design principles. Open distributed networks can create their own order based on an open architecture, that is, allowing all equal access and not discriminating transmission based on content. In the software area, principles such as open source have shown people can create dynamic stable systems where the information is left open to all to freely manipulate and evolve. These are issues of fundamental importance to the design economy, just as questions about labor and control of the railroads and utilities were to the industrial age.

One of the most interesting changes that might occur is to money itself. Money has an information component, a necessary question for much greater probing is if some of this information can be “socialized”, that is, extracted from money and claimed as part of a more robust political culture. An easier way to think about this is how industrial economy in many cases forces information to be turned into product so that it might be valued. However, if we create new associations and evolve our present organizations to understanding the societal value of information, we may gain value from much information without it being monetized. Yet, over years, industrial society and particularly the last few decades has trended in the exact opposite direction, monetizing all aspects of life.

In the end, we must revive and evolve the citizen, our politics, and our government. We need to create value for design, thus valuing the processes of design. Most importantly, we must give value to the citizen, and that means the work of the citizen must be valued. We need to redesign our economy so that production and technology are both second to people.

Cross-posted from Archein:

The Design Economy

Oil is Job 1

On September 3, 2010, In Corporations, By Joe Costello

The IEA announced the world is going to become increasingly reliant on OPEC for oil, more accurately the Persian Gulf, as other members of OPEC will soon enough be formerly petroleum exporting countries. The WSJ writes,

The global dependency on the members of the Organization of Petroleum Exporting Countries for oil will rise in the next five to 10 years as production by non-OPEC nations declines, the chief of the International Energy Agency said Friday.

“We have seen an increase in non-OPEC supplies. But in the mid-term, non-OPEC production will decline,” Nobuo Tanaka, the agency’s executive director, told reporters on the sidelines of a conference. “So, dependency on OPEC oil will increase.”

OPEC’s 12 members, who include Saudi Arabia, the United Arab Emirates and Kuwait, account for about 40% of the global oil (production).

So, I guess a trend that’s been going on for over three decades is news. The increase in non-opec supply is almost entirely due to the global economic contraction. Here’s some better numbers, not that numbers have any relation to economic reality these days, nonetheless, the countries around the Persian Gulf have 60% of known global oil reserves — speaking of unreal numbers — while, the EU, the US, China and Japan, who conveniently enough account for 60% of the world’s economy have only 9% of the world’s remaining oil reserves, and if you cut the US out of that equation it would drop to 3%.

The entire corporate globalization experiment of the past few decades is built on the premise of cheap oil. The entire global “oil market”, increasingly unable to provide cheap oil, is built on the American military, and the American military is built on debt, which each year becomes ever more unsustainable. Now, we could go to the EU, China, and Japan and say you guys need to start kicking-in to pay for our military service, but I doubt that would go over well with anyone, no one’s going to give money without a corresponding increase in say. Or we can begin to realize that the entire corporate globalization experiment, premised on cheap oil, is at best problematic and more accurately a failure. We as a planet need to begin creating a non-oil based economy, that is, we need to truly become post-modern. But when you have an economy, politics, and culture completely addicted to oil, that’s difficult. Instead you get desperation like ethanol and biofuels, which is the equivalent of the addict selling-off the food, furniture, and soon enough the house. Getting off oil is job 1 for any sustained economic revival and that means a complete redesign of our infrastructure.

Cross-posted from Oil is Job 1.

Tagged with: economy • energy • oil

Money, oil, and reform

On August 24, 2010, In Corporations, free markets, By Joe Costello

Money is certainly an interesting phenomenon. It has never had a very good relation to the actual real economy — the production and consumption of physical goods — nonetheless it is essential for the economy to operate. When Jimmy Stewart asks his guardian angel in “It’s a Wonderful Life”, if he has any money, the angel chortles, “We don’t need money in heaven.” Mr. Stewart, just rescued from a suicide attempt instigated by bankruptcy, indignantly replies, “Well, it sure comes in handy down here Bub!” And so it does, but that doesn’t stop money from being a rather queer phenomenon.

I just finished reading an excellent history on Spain in the early 17th century. Spain was in decline, the economy no longer sustainable, but it still had twice a year shipments of silver from New Spain — Mexico and Peru. The Spaniards could rely on the shipments of silver so they could continue their military misadventures and sustain the parasitic lifestyles of the aristocracy, who by this point had pretty much destroyed the Spanish economy. The book, Count-Duke Olivares: The Statesman in an Age of Decline states, “Seventeenth-century Castile was a rentier society, with people at many social levels drawing a substantial portion of their income from rentas, in the form of annuities on state bonds and individual or corporate bonds.” Sound familiar? As the real Spanish economy declined, the annual boatloads of silver from New Spain became increasingly essential to propping-up the rentier economy, even though the silver itself provided no real wealth to the economy. Sort of like our financial system and unfortunately our entire economy, without the Fed dumping boatloads of money into the system at this point, the whole thing would collapse. But, make no mistake, this continued dumping of money distorts the real economy.

An unhealthy financial system becomes increasingly useless as a measure for the real economy. One must increasingly look to real goods, particularly to natural resources, and I’m not referring to the valueless metals gold and silver, to measure the true health of the economy. For modernity, there is one resource far more valuable than all the others — oil. It is not coincidental that you can trace the beginning of the transformation of the American economy from one of physical production to rentier at approximately the time domestic American oil production peaked in 1970, followed closely by the oil shocks of the 1970s. The American economy was irrevocably changed.

Cheap oil, not money, be it the dollar, yuan, yen or euro, is the foundation of modern life. The most astounding fact of recent American life is how for three decades, we’ve done everything we can to avoid the issue, thus increasingly harming the American and the entire global economy. Paul Schwartz of The Council of Foreign Relations has a good post(tx jesse) on the oil numbers and China, simply, they don’t work. For years, I’ve been using the simple fact that if three-quarters of the Chinese used oil on the same per capita basis as Americans, and Americans continued doing the same, there would be no oil for anyone else — no one! The nut of Mr. Schwartz piece is,

If China’s recent economic growth pace continues, it will surpass South Korea’s current per capita GDP shortly after 2020 – meaning that the world may be forced onto alternative energy sources much sooner than it realizes.

No may be about it, though it is for this exact reason Chinese per capita economic growth rate will not be able to continue its pace, call it the Oil Yoke. As soon as global economic growth reaches a certain rate, the price of oil is going to choke it right back down. This gives truth to the biggest lie of corporate globalization, that the world could live like Americans, well not even Americans can live like Americans anymore. But that’s OK, we can live better, but it in the short-run certainly doesn’t help the Chinese, whose centrally controlled economy went full force in building a cheap oil infrastructure, only to belatedly find out cheap oil doesn’t exist anymore.

When we talk about reform, whether it’s financial, political, or industrial, it all starts at one place, with energy. America has reached peak-energy consumption, and no amount of money the Fed pumps in the system is going to change that. We have both the necessity and tremendous opportunity to restructure the American economy based on renewable energy sources and even more imperative, design it to use a lot less energy than we use today. We have both the knowledge and capability, we lack the will. Having reached peak energy consumption, creating an economy based on renewables and design efficiency will not be adding new wealth, but distributing existing wealth, and that is going to require hardheaded political and financial reform. We could do a lot worse than starting by tying money to energy.

Cross-posted from Money, oil, and reform

« Previous Entries

A New Way Forward – Restore the Economy in the Public's Interest

A New Way Forward – A Public, Grassroots Campaign and Structural Reform Thinking Group for Real Structural Reforms of the Economy – Break Up The Big Banks That Distort Politics and the Economy

Will Dodd-Frank Prevent New Megabanks?

Revolving Door Makes Lobbying Cheaper and More Effective

Is There A Scam Behnd The Rise In Oil And Food Prices?

Tea Parties: Present and Past

Foreclosure Fraud Dam Breaking for Big Banks

Take GMAC out of government focus

A Sustainable Economic Vision

The Design Economy

I.

The Design Economy

Oil is Job 1

Money, oil, and reform

Stay informed

Facebook

Recent Posts

A List of Resources

Important Blogs

ANWF Actions and People

LEARN MORE: Our Money and Economy

Join us on Twitter

Recommended Books — Donate by Making Your Purchases Here

Links

A New Way Forward – A Public, Grassroots Campaign and Structural Reform Thinking Group for Real Structural Reforms of the Economy – Break Up The Big Banks That Distort Politics and the Economy

I.

Stay informed

Facebook

Recent Posts

A List of Resources

Important Blogs

Tags

ANWF Actions and People

LEARN MORE: Our Money and Economy

Recommended Books — Donate by Making Your Purchases Here

Links