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Weight of Government’s Hand on Capitalism’s Scale
To advocate a new, robust stimulus package, as in my last column, invites some predictable comments. Government is inefficient, politically motivated in its choice of winners and losers, and out to pad its own wallets.
Of course, those who make these criticisms assume the market economy will do better. I have been told repeatedly that although private business makes mistakes markets are always “self-correcting.” In my critics’ vision, numerous businesses compete. Consumers have a relatively good understanding of the products they are purchasing. All share a willingness to abide by property relations and a commitment to economic growth.
One might call this model farmers market capitalism. This is the world in which Adam Smith’s invisible hand works to allocate resources efficiently. Lazy or inefficient farmers don’t survive and the quest to make more money serves a larger social good.
Whether this model ever worked as advertised is an open question. Some see in Smith’s invisible hand the will of a beneficent and omnipotent God. They regard the model as fundamentalist theism by other means. Even in its own idealized terms, this model, with its insistence on numerous competitors, may forgo some of the large-scale technologies that advance long-term economic growth. Even the idealized model may harbor some tensions of its own.
The larger question today, however, is whether a model that so dominates the American political psyche has anything to do with most economic activity today. Consider recent headline items. Asked by Nancy Pelosi to explain from where the billions to bail out AIG and other financial megastars was coming, Ben Bernanke argued than any attempt to assess where and under what conditions its money was flowing would amount to “a takeover of monetary policy by the Congress.”
Along similar lines, the White House has recently come under fire for assuring the drug industry it will oppose a House proposal to allow the government to negotiate drug prices and extract additional drug company savings. The White House may eventually have to back down, but the mere negotiation of such a secret agreement speaks volumes.
Had a reader arrived from Mars or from a Milton Friedman text, he or she might assume our government was standing up for the principles of the free market. The Fed should regulate interest rates absent any evil political intervention — like cheapening the currency to help debtors. Drug companies should negotiate with individual consumers, just like tomato lovers.
The only problem is the government has already intervened massively in both industries — on the side of corporations. Drugs are already priced well above the cost of production thanks to government patents. Purchase of these overpriced drugs is subsidized through Medicare’s prescription drug program. The resulting corporate windfall is defended as encouraging research on new drugs. Most of the money, however, goes to misleading ads and development of generally superfluous me-too drugs. As several orthodox economists have pointed out, the U.S. would get more for its drug dollars through increased funding of basic research and by offering prizes directly to pioneering research scientists.
Thanks to the Fed’s secrecy, we know less about its largess, but research on Goldman Sachs by Nomi Prins shows that the firm is profitable only by virtue of loan guarantees and other subsidized assets from the Fed. Business Week has also recently exposed the ways many large investment banks are now gambling with taxpayer money to resume the high-risk strategies that landed them — and U.S. taxpayers — in deep trouble.
Both industries in turn recycle some of the vast profits into campaign contributions (hundreds of millions in the last quarter). Key legislators in rural states, where media buys are relatively cheap, are the biggest beneficiaries.
So much for “capitalism” as an alternative to the wasteful government. Most government programs, at least by measure of size, aren’t the child of grass-roots or populist uprisings. They are a collaborative effort of government and the corporate sector. Corporations are the senior partners. The results have been harshly inegalitarian and wasteful.
I value farmers markets, but we should not return to an economy modeled on them. If we want justice and efficiency, our responsibility is not to end government’s role but to embrace the complicated, perpetual tasks of limiting corporate power and renegotiating a more democratic and transparent government.
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Show AllWell obviously when the government is just a front for the executives of large corporations making most of the most important decisions, then the government will repeatedly get unfairly tagged as a failure when corporate executives prove unable to correctly manage an ecnonomy and a country.
Thus the reinforcing cycle of idiocy that has gone on in the United States in recent decades. The large corporation executives have proven to be not up to the task of competently governing, but the average fool in the US has concluded that it was the government responsible for those failures.
And unlike in the reputable countries, in some such as Japan and France more so than others, you can NOT in the US work only in Goverment and make as much money as you can in the private sector. So where is the incentive in the US for the best and brightest to work in government? It's largely nowhere.
Everyone needs to keep reminding themselves that a lot of "government policy" that exists right now is actually "large corporation executives" policy.
The health "reform" that Obama is threatening Americans with is of course another example of this.
Pay isn't what attracts the best and brightest. Was Einstein in it for money? How about Mozart? Martin Luther King? Even a number of 19th-20th century inventors were clearly after something other than getting rich. The idea that talent and motovatin arises from a desire to get rich is a dreadful myth of the corporate capitalists to justify absurd levels of compensation to people who are basically uneducated, and who's only qualification is ruthlessness.
I am a federal employee, and most federal scientific and engineering jobs in science and engineering are pay-and benefit competetive with the private sector - but in cases where they are lower, many scientists and engineers prefer government work because they can pursue advancement of knowlege (where I work, mine safety and health) without the constant pressure of having to show one's worth in a profit making system. Increasingly even academia is subjected to these pressures.
And I can assure you, from the designs I review from private sector engineers every day, our engineers here more current and competent than any of those in the private sector - even when the millionaire principal and owner of the firm did the designing!
As I recall, Jonas Salk wasn't in it for the money, either. And, look what he did for the health and welfare of not only the population of the United States, but of the world!
"pursue advancement of knowlege (where I work, mine safety and health) without the constant pressure of having to show one's worth in a profit making system."
You describe the true meaning of working in the public interest for the public good!
Thank You!
Of course there are exceptons, but in economics you first look at tendencies, patterns, majorities, causes, and effects; you don't look at the exceptions unless you are spending a lot of time on the subject.
The top tiers of the US private sector are grossly overpayed and the US federal government does not even pretend to be able to be competitive with those pay packages anymore. In the US and throughout the world, in some places more so than in other places, pay is often what attracts the best and the brightest. Not always, but often enough so that if government pay is uncompetitive, you have a real problem, which the US clearly does.
Oh, and don't get confused...
At the middle class level, you will actually probably make more over a lifetime working for the government compared to working in the private sector. The reason is that for pay grades below a quarter of a million dollars a year, government pay is still competitive with private pay, and on average you will be layed off much less of the time while working for the government compared with working in the private sector.
My original comment referred to the very highest amounts of pay in the economy.
Please provide me with evidence that remuneration - particularly at these upper levels, coorelates with talent and intelligence. I don't think you will find any. The only thing these upper-level corporate positions reward is a ruthless desire to get rich, combined with certain social skills to get there.
And I was _not_ pointing out exceptions, i was pointing out examples. I can think of NO particularly intelligent individual past or present - from Newton and Liebnitz to Bohr, Einstein, Feinman, Hawking, Higgs, Penrose, who were remunerated at anything like a corporate CEO, and conversely, I know of no corporate CEO's or billionaire, past or present, who have ever been regarded as particularly intelligent by the usual definition. None!
There is no corellation between ascendence in a heararchial organization and high levels of remuneration, and being the best and brightest. None!
You seem to be clinging to one of the usual unquestioned, empirically unproven assumptions that undergirds capitalism.
Well, since at least the 1960's, comparative political scientists (the ones who compare political systems internationally) have noted that government agencies in countries where government pay is fully competitive with the private sector, either across the board or at least, and more commonly, at the very highest levels of pay, are generally more efficient and more productive than are the equivalent agencies in countries where private pay exceeds public pay at the highest pay levels. In other words, only in countries where the pay at the highest levels is equal between public and private is where you find that the public agencies are not constrained, limited, or subject to being captured by the private sector, the way public agencies chronically are in the US.
I remember that clearly from my comparative politics class in University. Since I was an economics major, I never forgot that; I thought it was nice that the political science experts could "do the economics" on ocassion, especially since economists are notoriously bad at politics, laugh out loud.
Many European countries strongly believe in this theory, and in fact this is one of the biggest reasons why the near billion dollar pay packages given to some US executives are unheard of in Europe. Europeans have long since decided to effectively prevent obscene pay packages from appearing by having punative tax rates on salaries above roughly 3 million dollars a year.
Most Western and Northern European countries do not want to end up with a government work force, at any level including the very highest, which may be inferior in any way, shape, or form to the work force of the private sector. The US clearly does not agree that this is a high priority.
I didn't mean to imply that there is a strong correlation between intelligence and pay anywhere, in France, the US, or anywhere else. There is clearly some correlation, but I most definitely agree with you that the correlation is not all that strong at the higher pay levels.
Aside from the wrong impression that was created, my wording was a little too storng for the point I was actually trying to make, which can happen sometimes. I'll change my wording:
Original, too strong and with the wrong impression: "So where is the incentive in the US for the best and brightest to work in government? It's largely nowhere."
Correction: "So where is the incentive in the US for the best and brightest to work in government? It's there to some degree, but it could be a bigger and more reliable incentive if obscene private sector pay packages were phased out.
We inadvertently stumbled upon something very interesting.
While economists and smart people in general are often aware that there is surprisingly low correlation between pay and intelligence, the average young person who is choosing a profession often assumes a much stronger correlation than what exists. There is some propaganda involved there. And there is also the ever present connection in the minds of young people between the need to be smart to get a college degree, and the higher pay that supposedly results from getting a college degree.
Therefore, it is important that obscene private sector pay packages be prevented from appearing in an economy, because if they do, too many people, especially young people, and including intelligent young people, will be fooled into thinking that "less intelligent people" go into Government, which obviously will lead eventually to the Government agencies being, to one extent or another, limited, compromised, and captured by the private sector.
Keep in mind that how "strong" government agencies are is not merely an academic topic. It can be a very crucial factor indeed. For example, almost everyone agrees that the US government regulators of the US financial system were compromised or captured outright by the huge banks and investment companies, and that this was one of the big reasons for the economics emergency and the subsequent and ongoing economics collapse.
Thanks for your clarificaton. I agree that in the US, government service must constantly deal with torrents of negative propaganda from the corporate community, and this is reflected in the difficulty finding talent. We have trouble finding competent experienced engineers in my agency, and have wondered how much it is due to the overall shortage of civil engineers in the US, the mistaken perception that government pay will be lower, or mistaken, negative attitudes about federal government work.
The shortage of civil engineers is itself due to it being viewed as being "unfashionable" compared to IT, law, medicine or finance, particularly among the increasingly affluent student populations that dominate even state U's. Might it be due to the perception that civil enginering is associated with public "socialsitic" infrastructure?
So, I can see where getting talent in the SEC or other financial regulators is probably far more difficult.
Sioux Rose
PDJ: Did you consider that the military recruits many engineers for agendas of its own leaving far less available to solve the problems of domestic infrastructure. Better pay can be found from designing yet more efficient systems of delivering death and dismemberment to the largest numbers of persons. What an investment! Could that explain why there are less available in your more civilized venue?
Not many civil engineers, except for the Army Corps of Engineers - and they mostly deal with purely domestic civil water works - dams, levees, river navigation, flood control- at least that was the case when I worked for them in the Pittsburgh District. But since then, the Corps has become more "militarized" - they started requiring every new hire to commit to a year in Iraq before entering the position they were hired for.
Come to Pittsburgh for the G-20!
"Please provide me with evidence that remuneration - particularly at these upper levels, coorelates with talent and intelligence. I don't think you will find any."
I agree with the above. The price paid for executives is a function of the expectation of results, which before the hire is a matter of perception more than any kind of metrics.
"I can think of NO particularly intelligent individual past or present *snip* who were remunerated at anything like a corporate CEO,"
First off, there are corporations and there are corporations. Many corporate CEOs are small business owners.
Second, no one knew of the profound influence of the ideas of the *geniuses* you listed until way after the fact. It wasn't until the 1990 that Van Gogh's portrait of Dr. Gachet sold for $82.5 million, and that's chump change when you consider the yearly profits *known* to be at stake with a corporation like Exxon-Mobil. In Van Gogh's own time, he was doing well to trade his finished pictures for art supplies, because hardly anyone understood his work at the time.
"Please provide me with evidence that remuneration - particularly at these upper levels, coorelates with talent and intelligence."
It has less to do with intelligence or talent and more to do with drive and persistence. The rules for making money are simple, one merely has to heed them.
Sioux Rose
PJD: Excellent post. One of my spiritual mentors, Edgar Cayce, frequently related the importance of ideals. An ideal is to an individual's life what the ancient sextant was to the seafaring navigator. Without something HIGHER to orient towards, regardless of how much money an individual amasses, their vision remains earthbound and limited.
The ideal of helping to affect "the greater good" is lost on our mundane educational system which as many in this forum have noted, is busily churning out automotons capable of executing menial jobs, but lacking the wit to question authority figures. Minds are being formatted like so much mono-culture, as per the agriculture "factory farm" model. The net loss of imagination and inspiration is incalculable.
I trust those NOT motivated by money far more than the converse.
"The ideal of helping to affect "the greater good" "
Sioux, if you don't mind: How do we define the "greater good" in the first place, let alone affect it in a positive way? It seems to me the definition is a function of each individual pondering the question, and that strong disagreements are inevitable.
Jake, think of it this way and I shall use the factory farm example Sioux Rose mentioned. Yes, being able to do something on one's own can be rewarding and make one feel proud and who wouldn't want that? However, how far can we allow individualism to go to the point of harming more people? That is the root of disaster capitalism. You let one factory farm take over the small farms or worse, wipe them out of the competition and look what happens. The result is factory farms can invent excuses for bad behavior to workers and animals, no regards for public health and food safety, and happily profit their ways hook and crook. Result from that? Mediocre quality food for higher prices. The least that could be done for the greater good is quit subsidizing Big Agri and stop supporting the UN for also doing so. Why the conservative rightwing does not bring this up about the UN which they supposedly rail against is beyond me. Disagreements are bound to exist but finding common ground for the good for all cannot be avoided.
Jennifer: As much as you or I would maybe agree that that organic food from raised beds might be good for the greater whole, we have still the pesky problem around who else would agree to that besides us. Again, how is "common good" properly defined? The problems seem endless.
A well written article which touches on the critical issue facing not only the US but the entire economic world: excessive corporate power.
"If we want justice and efficiency, our responsibility is not to end government’s role but to embrace the complicated, perpetual tasks of limiting corporate power and renegotiating a more democratic and transparent government."
Amen.
q
John - You have the great good luck to live my estimation of heaven, at least in the summer.
With the intertwining of BigCorp and BigGov, wishing for control of BC by BG is wishing for the very unlikely.
Wishing for transperarency from the BG that is tied to BC is pissing up wind.
Remember "O's" promise of transpararency and no lobbyists in the WH? O was our big hope for a big change!
As long as Gov intervenes in markets, those biz's in that market will try to stop Gvt or try to make Gvt work to their advantage in the market.
So let's get Gvt out of the markets (winner/loser picking)
Ps How's Hinckley doing?
We've all seen the results of getting government out of the market. The plan was called Reaganomics and its end result was placing the world economy on the brink of collapse while making a few greedy and unprincipled individuals obscenely rich.
The solution involves relegating the markets to a reasonable position in society rather than worshipping corporate capitalism as our only god. The solution involves having the government stand up for its citizens rather than its corporations. The solution involves placing a value on humanity regardless of ecomonic considerations. The solution involves having the rich pay back to the country a reasonable share of the value they've taken from it. The solution involves taking back our taxes for the military and our empire-building and applying them to education and healthcare for our citizens. The solution involves compassion rather than greed, humanity rather than empire.
The solution is unattainable as long as the marriage of corporations and government maintains the state of Fascism under which we now suffer.
True, for calitalism is unregulated markets producing excessive wealth, whereas democracy is well regulated markets producing equal wealth.
Actually, I prefer Dickens, Sinclair, or Steinbeck, or the colorful but bloody history of organizing in the coal fields for showing the end-result of government stayiing out of "free markets".
But how can we get government out of the markets, when capitalism puts government in the hands of those who control markets?
"Adam Smith’s invisible hand"
Problem with Smith economics is the fake morality that the purpose of this world is improve the good in it. Quite the reverse of what the Bible teaches for, "The whole world is under control of the evil one... The power of death and deadly force, that is the devel." 1 Jo 1:9, Heb 12
CAPITALISM -- FREEDOM TO COMPETE FOR EXCESSIVE WEALTH
Capitalism being the reverse of equality, surely our for-profit healthcare system is the greatest tool for keeping a people vulnerable, insecure, fearful and in submission to authority the world has ever known.
The "problem" with Smith's economics is that hardly anyone who waves him like a flag has read a word that the decent man wrote. I have to suppose the article author is among the non-readers.
Smith strongly disliked the proto-Capitalism and capitalists that he saw. He called them "the masters of mankind" and their greedy principle of "all for ourselves and nothing for other people" their "vile maxim". No, he didn't like them at all.
His "invisible hand" only works in a world undeformed by concentrations of wealth of the kind made possible by feudalism (including the kind we call Capitalism). He said the ideal world is one in which nobody lived on anyone else's labor. Only if nobody had an advantage not due to their *personal* skill and effort could the invisible hand do its job of making the world run smoothly.
You define Capitalism as "the freedom to compete for excessive wealth", and that's about the size of it alright. The moment someone can use their wealth to sit back and wait til other people must give in because they're desperate, the whole thing goes wahoonie-shaped and becomes non-Smithian.
"The "problem" with Smith's economics is that hardly anyone who waves him like a flag has read a word that the decent man wrote."
Agreed, "The Wealth of Nations" is said to be pretty dense, and people tend to read about Smith rather than to read Smith.
Marx has the same problem with his writing - but nonetheless he remains the only genuinely empiricist in economics.
"the only genuinely empiricist in economics."
How is it possible? There are no laboratories in economics, there is only "The Economy". Therefore one cannot be absolutely sure of cause and effect because you can't control for all possible factors.
REPORTED, TODAY, ON DEMOCRACY NOW!
CEO of Government-Run AIG to Earn 17x More than Obama
In economic news, the new head of the bailed-out insurance giant AIG will earn at least $7 million a year, even though AIG is essentially now a taxpayer-owned entity. Robert Benmosche will earn seventeen times more than President Barack Obama’s $400,000 salary. Benmosche will also be eligible for a $3.5 million bonus. The New York Times reports the pay package has received preliminary approval by Kenneth Feinberg, the administration official in charge of overseeing compensation for top executives at seven large firms bailed out by the federal government. Bernmosche is the former head of MetLife. He still owns about $17 million in MetLife stock.
Take note that this excessive salary has been approved by Kenneth Feinberg, who is the "administation official who oversees compensation for top executives at 7 large firms bailed out by the the federal government" -- a.k.a. "WE THE PEOPLE"
The U.S. Government has become the laughing stock of the world!!!
Weight of Government’s Hand on Capitalism’s Scale
_____________________________________
The headline should be the other way around:
Weight of Capitalism’s Hand on Government’s Scale
· Yr Obd't Servant
The weight of the Fed's hand?
The Pentagon wants to repeal The Posse Comitatus Act!
Ya know, that pesky statute that limits the role of the military in law enforcement.
"All share a willingness to abide by property relations and a commitment to economic growth."
Property relations = property Law. As property ownership becomes even more skewed, expect that willingness to abide to subside.
And what exacty is the growth vision? The emphasis of ever-increasing growth is omnipresent, is quantified and institutionalized in the societal structure, encouraging over consumption, over development, and excessive expectations, pushing economic stress to its upper limit of expansion, eventually inciting conflict and spawning War to insure growth.
I suggest folks go to counterpunch.org and read Hudson's item about Iceland's situation, as it's far more revelatory than this.
I read it earlier today. It was very interesting!
Start cleaning up where it counts: Senate and Congress. These people need to have their terms in office limited. Dry-up this cesspool where all the corruption breeds.
I am sure that you live somewhere else than the USA---since you would make such a ridiculous point. 'Terms in Officer' are limited, they are called 'elections', which in actuality means little in the USA.
It might be a better suggestion to eliminate the Plutocratic Oligarchy---so that a Democracy will finally be realized in the USA.
In order to keep the Plutocratic Oligarchy from 'creeping back in' it might be advisable to have 'quarterly fitness reports' and not just 'physical fitness' either.
All federal employees have 'quarterly fitness reports submitted by their managers'---receiving more than two in a row, results in a 'review'--a bad 'review' results in 'action designed to help you keep your job'. What are your elected representatives if not 'public servants'. Servants serve the master--'so be their master'.
If they do not serve the people, find servants that will: before the reelection/election process.
With that measure in place it would much more difficult for an elected public servant to 'stay on track'----and therefore, more difficult for the Plutocratic Oligarchy to take hold.
But, America better make those changes very soon.
The world is reaching a level of tolerance for the USA that is 'highly taxed' (to be kind), and they will eventually tire of 'high taxes' and simply close the Americans down.
Good Luck America, you really need it.
A recent CD article addressed the reason for small pool of CEO talent requiring outrageous compensation.
Went something like this: Limited number of true sociopaths/ psychopaths + Ivy league educations + social connections = elite status and $$$.
It was by Thom Hartman, who is often reasonable but I think he was way off the mark on that one, ignoring other obvious possibilities.