Unions: Institutions as Counterweights to the Power of Big Money

Krugman has a great article over at the NYT that emphasizes the reality that unions are one of the essential institutions that acts as a counterweight to the power of big business and money. I recommend reading.

Krugman--Last week, in the face of protest demonstrations against Wisconsin’s new union-busting governor, Scott Walker — demonstrations that continued through the weekend, with huge crowds on Saturday — Representative Paul Ryan made an unintentionally apt comparison: “It’s like Cairo has moved to Madison.”

It wasn’t the smartest thing for Mr. Ryan to say, since he probably didn’t mean to compare Mr. Walker, a fellow Republican, to Hosni Mubarak. Or maybe he did — after all, quite a few prominent conservatives, including Glenn Beck, Rush Limbaugh and Rick Santorum, denounced the uprising in Egypt and insist that President Obama should have helped the Mubarak regime suppress it.

In any case, however, Mr. Ryan was more right than he knew. For what’s happening in Wisconsin isn’t about the state budget, despite Mr. Walker’s pretense that he’s just trying to be fiscally responsible. It is, instead, about power. What Mr. Walker and his backers are trying to do is to make Wisconsin — and eventually, America — less of a functioning democracy and more of a third-world-style oligarchy. And that’s why anyone who believes that we need some counterweight to the political power of big money should be on the demonstrators’ side.

Some background: Wisconsin is indeed facing a budget crunch, although its difficulties are less severe than those facing many other states. Revenue has fallen in the face of a weak economy, while stimulus funds, which helped close the gap in 2009 and 2010, have faded away.

In this situation, it makes sense to call for shared sacrifice, including monetary concessions from state workers. And union leaders have signaled that they are, in fact, willing to make such concessions.

But Mr. Walker isn’t interested in making a deal. Partly that’s because he doesn’t want to share the sacrifice: even as he proclaims that Wisconsin faces a terrible fiscal crisis, he has been pushing through tax cuts that make the deficit worse. Mainly, however, he has made it clear that rather than bargaining with workers, he wants to end workers’ ability to bargain.

The bill that has inspired the demonstrations would strip away collective bargaining rights for many of the state’s workers, in effect busting public-employee unions. Tellingly, some workers — namely, those who tend to be Republican-leaning — are exempted from the ban; it’s as if Mr. Walker were flaunting the political nature of his actions.

Why bust the unions? As I said, it has nothing to do with helping Wisconsin deal with its current fiscal crisis. Nor is it likely to help the state’s budget prospects even in the long run: contrary to what you may have heard, public-sector workers in Wisconsin and elsewhere are paid somewhat less than private-sector workers with comparable qualifications, so there’s not much room for further pay squeezes.

So it’s not about the budget; it’s about the power.

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions.

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years — which it has — that’s to an important extent due to the decline of private-sector unions. (read more)

Algorithms Take Control of Wall Street

Felix Salmon has an excellent article over at WIRED Magazine on the increasing use of mathematical algorithms on Wall Street and the consequences this has for our broader economic and social system. It adds to my previous movie post (see below) that documents how quantitative analyst--trained in mathematics, physics, computer science--are fundamentally changing what takes place in the research offices of Wall St in the most important financial institutions in the world.

By Felix Salmon--Last spring, Dow Jones launched a new service called Lexicon, which sends real-time financial news to professional investors. This in itself is not surprising. The company behind The Wall Street Journal and Dow Jones Newswires made its name by publishing the kind of news that moves the stock market. But many of the professional investors subscribing to Lexicon aren’t human—they’re algorithms, the lines of code that govern an increasing amount of global trading activity—and they don’t read news the way humans do. They don’t need their information delivered in the form of a story or even in sentences. They just want data—the hard, actionable information that those words represent.

Lexicon packages the news in a way that its robo-clients can understand. It scans every Dow Jones story in real time, looking for textual clues that might indicate how investors should feel about a stock. It then sends that information in machine-readable form to its algorithmic subscribers, which can parse it further, using the resulting data to inform their own investing decisions. Lexicon has helped automate the process of reading the news, drawing insight from it, and using that information to buy or sell a stock. The machines aren’t there just to crunch numbers anymore; they’re now making the decisions.

That increasingly describes the entire financial system. Over the past decade, algorithmic trading has overtaken the industry. From the single desk of a startup hedge fund to the gilded halls of Goldman Sachs, computer code is now responsible for most of the activity on Wall Street. (By some estimates, computer-aided high-frequency trading now accounts for about 70 percent of total trade volume.) Increasingly, the market’s ups and downs are determined not by traders competing to see who has the best information or sharpest business mind but by algorithms feverishly scanning for faint signals of potential profit.

Algorithms have become so ingrained in our financial system that the markets could not operate without them. At the most basic level, computers help prospective buyers and sellers of stocks find one another—without the bother of screaming middlemen or their commissions. High-frequency traders, sometimes called flash traders, buy and sell thousands of shares every second, executing deals so quickly, and on such a massive scale, that they can win or lose a fortune if the price of a stock fluctuates by even a few cents. Other algorithms are slower but more sophisticated, analyzing earning statements, stock performance, and newsfeeds to find attractive investments that others may have missed. The result is a system that is more efficient, faster, and smarter than any human.

It is also harder to understand, predict, and regulate. Algorithms, like most human traders, tend to follow a fairly simple set of rules. But they also respond instantly to ever-shifting market conditions, taking into account thousands or millions of data points every second. And each trade produces new data points, creating a kind of conversation in which machines respond in rapid-fire succession to one another’s actions. At its best, this system represents an efficient and intelligent capital allocation machine, a market ruled by precision and mathematics rather than emotion and fallible judgment.

But at its worst, it is an inscrutable and uncontrollable feedback loop. Individually, these algorithms may be easy to control but when they interact they can create unexpected behaviors—a conversation that can overwhelm the system it was built to navigate. On May 6, 2010, the Dow Jones Industrial Average inexplicably experienced a series of drops that came to be known as the flash crash, at one point shedding some 573 points in five minutes. Less than five months later, Progress Energy, a North Carolina utility, watched helplessly as its share price fell 90 percent. Also in late September, Apple shares dropped nearly 4 percent in just 30 seconds, before recovering a few minutes later. (read more)

Quants: The Alchemists of Wall Street

Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.

What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?

A story about greed, fear and randomness from the insides of Wall Street.

Probing the Depths of the ‘Submerged State’

A welter of tax credits, breaks and incentives help Americans out in ways they don’t understand or appreciate. This ignorance could have real consequences in debates about tax reform and deficit reduction.

By Lee Drutman

In 2009, when President Obama negotiated a stimulus bill that included $288 billion in tax cuts, his advisers decided to structure their “Making Work Pay” tax credits so that workers’ regular paychecks were a little bit bigger, and the money would flow back into circulation gradually, rather than all at once. They believed it would have a greater economic impact that way.

Without running the counterfactual, it’s hard to know whether the tax credits had the desired economic impact. But one thing is clear: It was just about the worst-advertised tax cut ever. One year later, just 12 percent of respondents knew that their taxes had been reduced. Twice as many (24 percent) thought that their taxes had actually increased.

In its subterranean nature, “Making Work Pay” resembles an astonishingly large collection of other tax credits, benefits, breaks and other sundry market-structuring incentives that direct economic activity and redistribute wealth in ways that are quite hidden from most citizens. Collectively they make up a substantial “submerged state” — a term coined by Cornell political scientist Suzanne Mettler and explored in an article in the September issue of Perspectives on Politics. (Mettler is now working on a book on the subject.)

“The average person is quite unaware of them, how they work and what their effects are,” Mettler said in an interview. “They are submerged. Ordinary people look at it and see private organizations and actors doing things.”

Which means many people fail to appreciate the role of government in helping them because that role is frequently oblique. That potentially leads them to an unjustifiably negative attitude toward both the tax code and the federal government, frustrating possibilities for reform.

Submerged state policies exist in many sectors of the economy. For example, mortgage deductions, student loan programs and child tax credits are all government programs that shape individuals’ behaviors through incentives. Yet in Mettler’s survey, 60 percent of individuals claiming the home mortgage interest deduction, 53 percent of people using student loan programs and 52 percent of people claiming the child and dependent care tax credit said that “no, I have not used a government social program.” (read more)

When Irish Eyes Are Crying by Michael Lewis

Vanity Fair has an excellent article by Michael Lewis--the financial journalist and author of "The Big Short"--that looks at the gross misallocation of capital by Irish banks and government, and how the public is left picking up the tab. I highly recommend reading the article in its entirety. First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country—from one another. After which their banks and government really screwed them. So where’s the rage?

By Michael Lewis (Photograph by Jonas Fredwall Karlsson)

When I flew to Dublin in early November, the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers decided to guarantee all the debts of the country’s biggest banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a “liquidity problem,” faced losses of up to 34 billion euros. To get some sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.

The two other big Irish banks, Bank of Ireland and, especially, Allied Irish Banks (A.I.B.), remained Ireland’s dirty little secrets. Both older than Ireland itself (the Bank of Ireland was founded back in 1783; A.I.B. is made up of three banks founded in the 19th century), both were now also obviously bust. The Irish government owned big chunks of the two ancient banks but revealed less about them. As they had lent vast sums not only to Irish property developers but also to Irish homebuyers, their losses were also obviously vast—and similar in spirit to the losses at the upstart Anglo Irish.

Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.” (read more)

Repression and Poverty Underpin the Uprising in Egypt

Recent events in Egypt could be an opportunity for the United States to support the people of Egypt, but no Obama administration official has recommended publicly that President Hosni Mubarak should step down. We speak with Samer Shehata, assistant professor of Arab politics at Georgetown University, about the U.S.-backed Mubarak regime and the record inflation and poverty that underpin the ongoing protests. "In Egypt, from 2004 until the present, the government and its reforms were applauded in Washington by World Bank, the IMF and U.S. officials," Shehata says. "But what all of that masked was what was going on at the level of real people and ordinary lives."

WHY INDEPENDENT MEDIA? For true democracy to work, people need easy access to independent, diverse sources of news and information. But the last two decades have seen unprecedented corporate media consolidation. The U.S. media was already fairly homogeneous in the early 1980s: some fifty media conglomerates dominated all media outlets, including television, radio, newspapers, magazines, music, publishing and film. In the year 2000, just six corporations dominated the U.S. media.

In addition, corporate media outlets in the U.S. are legally responsible to their shareholders to maximize profits. And U.S. "public" media outlets accept funding from major corporations, as well as from the Corporation for Public Broadcasting, which has attempted in the past to exert political and editorial influence on public news producers.

Democracy Now! is funded entirely through contributions from listeners, viewers, and foundations. They do not accept advertisers, corporate underwriting, or government funding. This allows them to maintain their independence.

Calls for "Civil and Honest Public Discourse" by President Obama

More than 26,000 people attended a memorial Wednesday night to remember the victims of Saturday’s shooting in Tucson that left six people dead and 20 wounded, including Democratic Rep. Gabrielle Giffords, who remains in critical condition. In his 33-minute address, President Obama called for civil and honest public discourse and paid tribute to the victims of Saturday’s shooting.

THE PRESIDENT: You see, when a tragedy like this strikes, it is part of our nature to demand explanations –- to try and pose some order on the chaos and make sense out of that which seems senseless. Already we’ve seen a national conversation commence, not only about the motivations behind these killings, but about everything from the merits of gun safety laws to the adequacy of our mental health system. And much of this process, of debating what might be done to prevent such tragedies in the future, is an essential ingredient in our exercise of self-government.

But at a time when our discourse has become so sharply polarized -– at a time when we are far too eager to lay the blame for all that ails the world at the feet of those who happen to think differently than we do -– it’s important for us to pause for a moment and make sure that we’re talking with each other in a way that heals, not in a way that wounds.

Scripture tells us that there is evil in the world, and that terrible things happen for reasons that defy human understanding. In the words of Job, “When I looked for light, then came darkness.” Bad things happen, and we have to guard against simple explanations in the aftermath.

For the truth is none of us can know exactly what triggered this vicious attack. None of us can know with any certainty what might have stopped these shots from being fired, or what thoughts lurked in the inner recesses of a violent man’s mind. Yes, we have to examine all the facts behind this tragedy. We cannot and will not be passive in the face of such violence. We should be willing to challenge old assumptions in order to lessen the prospects of such violence in the future. But what we cannot do is use this tragedy as one more occasion to turn on each other. That we cannot do. That we cannot do.

As we discuss these issues, let each of us do so with a good dose of humility. Rather than pointing fingers or assigning blame, let’s use this occasion to expand our moral imaginations, to listen to each other more carefully, to sharpen our instincts for empathy and remind ourselves of all the ways that our hopes and dreams are bound together.

After all, that’s what most of us do when we lose somebody in our family -– especially if the loss is unexpected. We’re shaken out of our routines. We’re forced to look inward. We reflect on the past: Did we spend enough time with an aging parent, we wonder. Did we express our gratitude for all the sacrifices that they made for us? Did we tell a spouse just how desperately we loved them, not just once in a while but every single day?

So sudden loss causes us to look backward -– but it also forces us to look forward; to reflect on the present and the future, on the manner in which we live our lives and nurture our relationships with those who are still with us. (Read More)

Battle for Haiti

On the night of the earthquake that devastated Haiti last January, something happened in Port au Prince, the capital city, which would threaten the effectiveness of international aid efforts and undermine the country's political stability: 4,500 of the country's most violent criminals escaped from Haiti's overcrowded National Penitentiary.

Now, on the one-year anniversary of the quake -- and in the aftermath of Haitian presidential elections that threatened further crisis -- FRONTLINE presents Battle for Haiti. FRONTLINE producer Dan Reed films with the beleaguered special police units tasked with apprehending the escaped gangsters. At the same time, Reed captures the daily lives of the despairing inhabitants of the slums and tent cities who are often terrorized by these gangsters.

Reed also tracks down some of the escaped prisoners themselves. "When I got out, I tried to go straight, but I couldn't," one of the escapees tells Reed. "The police are after me and all the other guys who escaped from prison."

The escapees include many of the hard-core criminals, kidnappers and gang bosses who had reduced Haiti to anarchy before being subdued by an all-out military onslaught by the police and heavily armed U.N. peacekeepers from 2004-7. Now the gangsters are largely free to regain control of the slums and the tent cities where most Haitians live, using murder and rape to enforce their rule, as Haiti proves more vulnerable and less well policed than ever before.

Helping battle the escaped gangsters is Mario Andresol, Haiti's police chief, who had put many of the gangsters in prison earlier in the decade, surviving two assassination attempts in the process. Now, Andresol has to do it all over again. But his force is rumored to be riddled with corruption, and many of his best officers are without homes and living in tent camps. Andresol admits the situation is bad: "It's chaos out there right now. There is a state of fear because the escapees are murdering, kidnapping, robbing..."

The head of the U.N. mission, Edmond Mulet, tells FRONTLINE that unless the gangsters are controlled and stopped, "all the efforts that the international community is doing on reconstruction, on rebuilding, on development ... will be in vain." Other senior U.N. officials echo this analysis.

CRUDE: The Real Price of Oil

Three years in the making, this cinéma-vérité feature from acclaimed filmmaker Joe Berlinger (Brother’s Keeper, Paradise Lost, Metallica: Some Kind of Monster) is the epic story of one of the largest and most controversial environmental lawsuits on the planet. The inside story of the infamous “Amazon Chernobyl” case, Crude is a real-life high stakes legal drama, set against a backdrop of the environmental movement, global politics, celebrity activism, human rights advocacy, the media, multinational corporate power, and rapidly-disappearing indigenous cultures. Presenting a complex situation from multiple viewpoints, the film subverts the conventions of advocacy filmmaking, exploring a complicated situation from all angles while bringing an important story of environmental peril and human suffering into focus.

The landmark case takes place in the Amazon jungle of Ecuador, pitting 30,000 indigenous and colonial rainforest dwellers against the U.S. oil giant Chevron. The plaintiffs claim that Texaco – which merged with Chevron in 2001 – spent three decades systematically contaminating one of the most biodiverse regions on Earth, poisoning the water, air and land. The plaintiffs allege that the pollution has created a “death zone” in an area the size of the Rhode Island, resulting in increased rates of cancer, leukemia, birth defects, and a multiplicity of other health ailments. They further allege that the oil operations in the region contributed to the destruction of indigenous peoples and irrevocably impacted their traditional way of life. Chevron vociferously fights the claims, charging that the case is a complete fabrication, perpetrated by “environmental con men” who are seeking to line their pockets with the company’s billions.

The case takes place not just in a courtroom, but in a series of field inspections at the alleged contamination sites, with the judge and attorneys for both sides trudging through the jungle to litigate. And the battleground has expanded far beyond the legal process. The cameras rolled as the conflict raged in and out of court, and the case drew attention from an array of celebrities, politicians and journalists, and landed on the cover of Vanity Fair. Some of the film’s subjects sparked further controversy as they won a CNN “Hero” award and the Goldman Award, the environmental equivalent of the Nobel Prize.

Shooting in dozens of locations on three continents and in multiple languages, Berlinger and his crew gained extraordinary access to players on all sides of the legal fight and beyond, capturing the drama as it unfolded while the case grew from a little-known legal story to an international cause célèbre. Crude is a ground-level view of one of the most extraordinary legal dramas of our time, one that has the potential of forever changing the way international business is conducted. While the environmental impact of the consumption of fossil fuels has been increasingly documented in recent years, Crude focuses on the human cost of our addiction to oil and the increasingly difficult task of holding a major corporation accountable for its past deeds. For entire movie, click here.

Alternatives to Austerity by Joseph Stiglitz

The ongoing economic crisis brings an opportunity to focus our priorities and assess the values we hold as a nation. According to Joseph Stiglitz, draconian austerity measures are not necessary and there are many alternatives.

NEW YORK--In the aftermath of the Great Recession, countries have been left with unprecedented peacetime deficits and increasing anxieties about their growing national debts. In many countries, this is leading to a new round of austerity – policies that will almost surely lead to weaker national and global economies and a marked slowdown in the pace of recovery. Those hoping for large deficit reductions will be sorely disappointed, as the economic slowdown will push down tax revenues and increase demands for unemployment insurance and other social benefits.

The attempt to restrain the growth of debt does serve to concentrate the mind – it forces countries to focus on priorities and assess values. The United States is unlikely in the short term to embrace massive budget cuts, à la the United Kingdom. But the long-term prognosis – made especially dire by health-care reform’s inability to make much of a dent in rising medical costs – is sufficiently bleak that there is increasing bipartisan momentum to do something. President Barack Obama has appointed a bipartisan deficit-reduction commission, whose chairmen recently provided a glimpse of what their report might look like.

Technically, reducing a deficit is a straightforward matter: one must either cut expenditures or raise taxes. It is already clear, however, that the deficit-reduction agenda, at least in the US, goes further: it is an attempt to weaken social protections, reduce the progressivity of the tax system, and shrink the role and size of government – all while leaving established interests, like the military-industrial complex, as little affected as possible.

In the US (and some other advanced industrial countries), any deficit-reduction agenda has to be set in the context of what happened over the last decade:

·a massive increase in defense expenditures, fueled by two fruitless wars, but going well beyond that;

·growth in inequality, with the top 1% garnering more than 20% of the country’s income, accompanied by a weakening of the middle class – median US household income has fallen by more than 5% over the past decade, and was in decline even before the recession;

·underinvestment in the public sector, including in infrastructure, evidenced so dramatically by the collapse of New Orleans’ levies; and

·growth in corporate welfare, from bank bailouts to ethanol subsidies to a continuation of agricultural subsidies, even when those subsidies have been ruled illegal by the World Trade Organization.

As a result, it is relatively easy to formulate a deficit-reduction package that boosts efficiency, bolsters growth, and reduces inequality. Five core ingredients are required. First, spending on high-return public investments should be increased. Even if this widens the deficit in the short run, it will reduce the national debt in the long run. What business wouldn’t jump at investment opportunities yielding returns in excess of 10% if it could borrow capital – as the US government can – for less than 3% interest? . . . (read more)

--Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in Economics. His latest book, Freefall: Free Markets and the Sinking of the Global Economy, is now available in French, German, Japanese, and Spanish.