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Kipling

The Voodoo We Do

voodoo_economics_by_moeromaru

“Voodoo Economics” by Moeromaru

 

By Judge Steve Russell

How about some macroeconomics for breakfast?

We should have increased taxes a long time ago to pay for those wars. Obama, at least, put the Afghanistan and Iraq wars back on the books.

The US has never had a war before in which we did not make any effort to pay as we fought. Even WWII, in which budget balancing was simply not possible, so we ran up the tab. Even then we made every reasonable effort to pay.

One way macroeconomics differs from micro is that, while you and I have to balance our budgets by at least the year and more prudently by the month, balancing the budget of a nation is not a goal worth much sacrifice to reach. In any given year, it simply does not matter. The number that tells us whether we are better or worse is the relationship of the increase in the national debt to the GDP. Even that is not an absolute cap when there’s an emergency.

Let’s say we go with the Obama method, which makes the deficit look way worse than the Bush method Obama inherited. Regardless of the political optics, it’s a more honest way to keep score.

We only talk about cutting the discretionary part of the budget. Foreign aid, food stamps, medical research.

Look at the numbers for yourself. Cutting the ENTIRE discretionary part of the budget would not make it balance. It would also cut off most of our access to “soft power,” leaving only the military option on the table.

If you want to balance the budget, you have to:

1. Raise taxes because we put two wars on the cuff.

2. Cut the “defense” budget substantially OR cut the entitlement programs.

I want to cut defense and I know exactly where to cut. We are building weapons systems our own generals don’t want and can’t use.

I do not think cutting the entitlement programs is necessary or desirable.

Medicare and Medicaid can cost less simply by repealing the Stupid Tax, imposed on us for letting the private insurance hogs in the creek and failing to negotiate with Big Pharma or allow Canadian drugs to compete.

Social Security is a big deal in more ways than one. Both candidates for POTUS promise not to cut benefits and there’s not only no need to cut benefits, the benefits need to be raised and expanded.

As an aside, the only reason the SS trust fund looks pretty safe right now is that those undocumented workers Mr. Trump wants to deport are putting in enough money they will never get back. You do realize, I hope, that if Social Security would share the fake numbers and the dead people that appear to be working with ICE, it would be really easy to go pick up those people who are paying for our benefits? There’s a big incentive for SS not to do that.

Anyway, the benefits need to be raised and expanded because:

1. A shocking percentage of Americans have no 401K, no IRA, no Roth. I have seen to it that all four of my kids do, but it was not easy to get them on the bus and most people’s kids are not doing it.

2. The rise of the gig economy means the fixed retirement benefit is a thing of the past.

3. You don’t deal with the problem of systemic unemployment by claiming it’s temporary or by making workers stay full time longer.

So, I say you lower the retirement age for partial benefits. Here in Sun City lots of people are still earning (and therefore paying into Social Security) while getting SS retirement. I have even had a couple of years when my earnings exceeded the lowest years of my SS earnings (when I was in school for seven years) and as a result my retirement benefit was raised!

How do you pay for it? Uncap the payroll tax. The first year I exceeded my cap was the year the Texas Legislature hitched the pay of County Court at Law judges to the pay of District Judges and allowed us to start hearing District Court cases. It was a big raise at the first of the year. Then, around September, I suddenly got another raise that really surprised me. I called human resources to ask where the money came from and was informed that I had exceeded the payroll tax cap and so there was no deduction for Social Security/Medicare. I was gobsmacked. I had not known there was a cap because I had never made enough money to hit it. (I hit the cap again in my second career when I moved from a third tier university to a first tier university and got a big raise.)

I’ve had plenty of time to think about the cap, and I understand the logic of it. It represents the limit on Social Security retirement benefits. If the cap were higher, guys like me would be paying in money that the actuarial odds say we would never get back out. You know what? That’s fine with me. The whole point of the SS program was that during the Depression there were people who had worked all their lives homeless and hungry. Avoiding that is a big value and having the benefits high enough to encourage geezers like me to go part time and make way for younger folks to be tenured is also a big value. (Not very many people get tenured at the level I was tenured. I was the only one in my hiring cohort who made tenure. That is because there are fewer positions as universities rely on more adjuncts and graduate students.)

Nobody who busts out the top of the cap right now is a likely candidate for living under the bridge but in return for having the top end of their income taxed these folks get the maximum benefit on retirement and—as important if not more so—they are protected by Social Security disability insurance.

This is not a poor country, but our infrastructure has begun to look like we are a poor country.

The economic downturn under Carter combined with the Iran hostage crisis brought us the Reagan Revolution and since then we’ve been going farther and farther in the hole. It’s a choice to have wars without paying for them. It’s a choice to allow private insurance to skim a profit off health care—a choice made by only one other industrialized country in the world, Switzerland, under greatly different circumstances.

Our debt problem is entirely self-inflicted by our disastrous experiment with what the first President Bush correctly called “voodoo economics.” The discredited dogma of supply side economics remains in the GOP platform and every budget their alleged policy wonk, Paul Ryan, has produced.

Ronald Reagan:
Took office January 1981. Total debt: $848 billion
Left office January 1989. Total debt: $2,698 billion
Percent change in total debt: +218%
GDP:
1981 +9.69%
1982 +3.79%
1983 +11.39%
1984 +9.26%
1985 +7.37%
1986 +4.86%
1987 +7.57%
1988 +7.76%

George H.W. Bush:
Took office January 1989. Total debt: $2,698 billion
Left office 20 January 1993. Total debt: $4,188 billion
Percent change in total debt: +55%
GDP:
1989 +6.48%
1990 +4.51%
1991 +4.25%
1992 +6.66%

Bill Clinton:
Took office 20 January 1993. Total debt: $4,188 billion
Left office 20 January 2001. Total debt: $5,728 billion
Percent change in total debt: +37%
GDP:
1993 +5%
1994 +6.31%
1995 +4.32%
1996 +6.25%
1997 +6.05%
1998 +6.11%
1999 +6.44%
2000 +5.50%

George W. Bush:
Took office 20 January 2001. Total debt: $5,728 billion
Left office 20 January 2009. Total debt: $10,627 billion
Percent change in total debt: +86%
2001 +2.19 %
2002 +3.76%
2003 +6.42%
2004 +6.31%
2005 +6.52%
2006 +5.12%
2007 +4.40%
2008 -0.92%

Barack Obama:
Took office 20 January 2009. Total debt: $10,627 billion
Total debt (as of the end of April 2011): $14,288 billion
Percent change in total debt: +34%
2009 +0.11%
2010 +4.56%
2011 +3.64%
This is as far as the debt figures go, but I’ll continue with GDP just so we’ll have a clue:
2012 +3.24
2013 +4.05%
2014 +3.88%
2015 +3.12%
to May 2016=+3.29

I’m aware that for apples to apples I should break out the debt by year but there are time limitations.

Note the anemic recovery and understand those numbers could be very robust if Congress could see fit to fix our roads and bridges and electrical grid. We would be borrowing money from ourselves to do it, but at a time when interest rates are at historic lows.

As it is, we still have to fix that stuff and the economy is not likely to have a major power up because the Great Recession was worldwide and our recovery has been much more robust than the rest of the world because we have the reserve currency and it’s a money magnet. We are doing better than the rest of the world, so there’s no basis to think there’s a turbocharger coming.

By fixing our infrastructure, we turbocharge ourselves. Those GDP numbers go up along with the debt numbers, but the with a tax increase it would be easy to keep the debt rise under the GDP rise.

THEN, the next time we have a budget surplus and the choices are a tax cut (Bush) or pay down the debt (Gore) THAT’S when we pay down the debt.

A Raw Deal

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1935 Vanity Fair cover

By Judge Steve Russell

I do wish the election were today, but it’s not, and two months is an eternity in a national election. So Ms. Clinton would be foolish to be making decorating decisions about the White House just yet. Anyway, she should let Bill do that.

But let’s suppose, just suppose, that nobody can persuade Mr. Trump to pull out of his death spiral. Suppose an outcome of LBJ-AU H2O or Reagan-Mondale proportions.

The first problem is that Trump is laying the groundwork to claim the result is illegitimate and revolution would be a rational response. Trump is no Al Gore, tamping down ego for the sake of the country.

There are several ways that could play out. None are good for the country but none are good for the GOP either.

Which leaves me wondering….at what point do we have a historic realignment? Do the center-right voters get a new home or do they become Democrats and try to jerk that party to the right?

I’m no fan of the two party system but I can’t see a path to a parliamentary system and I am a fan of having elections.

The country is split, and always has been in my lifetime. If there must be two parties with some relation to reality, then one will occupy the center-right like Eisenhower and the other will occupy the center-left like Obama.

Outliers on both sides would duke it out with the party mainstream in primaries and some issues would be mainstreamed because of those primary fights.

The problem with that scenario is there is such a gulf between the GOP elite, the “donor class,” and the bulk of the voters.

Here’s what I think happened and is happening. We are still fighting over the New Deal.

Before the New Deal, class distinctions in the US were clear and both parties were unabashed about the class interests they primarily represented. On the GOP side, the Taft faction vanquished the Roosevelt faction and the progressives decamped for the Democratic Party.

The dominance of the working class party, the Democrats, was never a given. There was too much Horatio Alger in American drinking water. Too many people conflated social mobility with necessity to care for and feed big business.

The Republicans went on a long and lucrative roll and the stock market blew a bubble of monumental proportions that did not just go “pop” in 1929. It went “boom!”

The middle class and the working class plunged into poverty together and even the wolves of Wall Street ended up skinny. As Will Rogers famously said, “they had to wait in line to rent a window to jump out of.”

Tens of thousands of people just disappeared in the Great Depression, leaving on on rumors of jobs–often by rail–and never returning. Pauper’s cemeteries sprang up around the well known places for hopping on freight trains. Boarding a moving train is dangerous business. Those lucky enough to have jobs with the railroad would find bodies in empty boxcars, frozen to death or starved.

In those days, nobody carried picture ID.

In those days, if your bank went belly up, your money was gone. 4,000 banks failed in 1933 alone, of at least 10,000 over the decade. $140 billion evaporated. Mortgage foreclosures happened every day, putting people out of their homes and farmers off their land.

This is why public opinion seriously differed over whether robbing a bank was a real crime, and many who took on bank robbery as a profession became folk heroes.

The Depression was world wide. In Europe, it stoked the rise of fascism.

In Russia, Lenin kicked off the Comintern in 1919. There really was a Communist conspiracy to seek world domination, but there was nothing secret about it. One of the primary goals of the Third International (Comintern) was to deny leadership to socialists.

After Stalin cut a deal with Hitler, Leon Trotsky founded the Fourth International.

None of these movements–Nazism, Italian Fascism, the Comintern, the Fourth International–meant any goodwill for capitalism of the US variety. The working class in the US was in no mood to play defense for the greedheads who blew the economy up.

Herbert Hoover, a man of good personal qualities but elected on the canard that sustains Donald Trump–that “government should run like a business”—could feel the country’s pain but was clueless what to do about it.

The shantytowns erected by homeless Americans were called, uncharitably, Hoovervilles. My own grandparents squatted in a condemned building with no utilities.

If you look up “change election” in a political science text, it probably should take you to 1932.

The New Deal consisted of many, many laws we take for granted today. The US went into the Great Depression as a capitalist country and came out as a mixed economy. Republicans saw each one of those laws as a razor at the throat of capitalism.

The GOP line on recovery from the Depression is that WWII made it happen. If that were so, it would be a substantial upside to an awful calamity, but most sane economists could parse the aggregate demand curve before war spending hit and see that the New Deal was getting us out of the ditch, save for the brief period when FDR was persuaded to take the pedal off the metal in the interest of balancing the budget.

The one sense in which WWII rescued the economy was that it made the budget balancers STFU because it was an existential emergency.

FDR cleaned Hoover’s plow so completely that we didn’t see another Republican POTUS until the war hero Dwight Eisenhower was persuaded to run as a Republican rather than as a Democrat. It was necessary for Eisenhower, with his “middle way,” to wrest control from the Taft conservatives.

Ike refused to dismantle the New Deal. He did nibble around the edges with reforms that tacked to the right like Taft-Hartley. Ike’s conservative brother Edgar wrote him a letter accusing the POTUS of selling out to the New Deal. Ike famously replied:

“Should any political party attempt to abolish social security, unemployment in­surance, and eliminate labor laws and farm programs, you would not hear of that par­ty again in our political history. There is a tiny splinter group, of course, that believes you can do these things. . . . [But] their number is negligible and they are stupid.”

These sorts of remarks led to the John Birch Society–right wing crazies funded by the father of our contemporary Koch Brothers–insisting that Eisenhower was a Communist.

William F. Buckley, who founded National Review as the organ of American conservatism, read the Birchers out of the GOP because of their attempts to Red-bait Eisenhower.

The New Deal remained safe until the Reagan Revolution. The New Deal had engineered the greatest redistribution of wealth from the haves to the have nots in the history of the nation.

EVERY ACT OF GOVERNMENT REDISTRIBUTES WEALTH. It matters not how limited you think government ought to be, it can’t pave a road or hire a firefighter or deliver the mail without taxing and spending. Taxing and spending is everything governments do and every time they do it, wealth is moved from A to B.

By convincing the working class that they live in a classless society of limitless opportunity and government should never redistribute wealth or pick winners and losers, Reagan engineered the second largest redistribution of wealth in US history–from the bottom to the top.

The Reagan Revolution was such a political force of nature that it begat Bill Clinton’s political vehicle, the Democratic Leadership Council. Clinton signed the bill that tore down the Glass-Steagall Act, the firewall between investment banking and commercial banking that had worked so well since the New Deal.

The New Deal gave us the Federal Deposit Insurance Corporation, funded not by taxpayer money but by assessments on commercial banks. Thanks to the FDIC, when banks started failing during the Great Recession, the government auditors typically moved in at quitting time on a Friday and the failed bank was reopened under a new name by Monday and no depositors lost a dime.

Investment banks did not have to pay the FDIC assessments but they were free to gamble with other people’s money…but the gamblers were uninsured, and investment operations were separated from commercial operations and both were separated from insurance.

Gambling? Yes, with collateralized debt obligations (CDOs) and a de facto insurance called Credit Default Swaps. They were trading in CDOs backed by subprime mortgages leveraged 30-1 and hedged with Credit Default Swaps. Unfortunately, they were also gambling with depositor money from the commercial operations, dragging the whole banking system down.

Some of the smartest graduates of the best business schools devoted themselves to designing and then buying and selling leveraged debt instruments so complex auditors had trouble understanding them.

Because the investment banks had been allowed to get their hooks into commercial banking, we the taxpayers had to bail them out. Remember TARP? Troubled Assets Relief Program. The assets were troubled because their true value was concealed and they were leveraged and hedged with Credit Default Swaps written by banks that also were connected to the real economy.

The perpetrators of this nonsense called themselves “masters of the universe.” I am not making that up.

TARP wound up compensating the suckers…er, buyers..of the Credit Default Swaps at 100 cents on the dollar.

And the people who signed those predatory mortgages?

They got foreclosed. If they were not kicked out of their homes, it would cause “moral hazard,” doncha know?

The US is still politically divided over the New Deal.

The Democrats favor New Deal programs.

The Republicans oppose the New Deal. They oppose it with numbers they gained by taking in three waves of homeless Democrats.

1. The Dixiecrats turned to the GOP in last ditch defense of Jim Crow laws.

2. Evangelical Christians alarmed by birth control, abortion, and gay rights became Republicans.

3. Finally, neoconservatives seduced by the idea of extending our time as the only superpower with the principal tactic of making war on countries easily beaten for the purpose of demonstrating our willingness to protect our hegemony by force.

So…if it’s time for a realignment on the level of Whigs to Republicans, how does it happen? Who goes where and why?

Or do the Republicans satisfy themselves with all the state governments they control?

I realize I’ve run my mouth for so long people may have forgotten the question, but it was what will a realignment look like? Are we going to continue fighting over what’s left of the New Deal? Or can there be a modern vision of conservatism that means more than lower taxes and smaller government and privatize everything: pensions, prisons, drinking water. Take government out of the business of governing. Then it will be off your back.

If that’s all conservatism has to offer, I’m not sure what conservatives can do but continue to stand for small government as long as it’s big enough to make sure every woman is forced to carry every pregnancy to term and watch Social Security be destroyed by refusing to adjust to the gig economy.

Then we’ll be free like we were when Hoover was POTUS.

The top 1/10th of 1 percent will finally have enough money to make America great again.

Naked Capitalism on the Government Money Has Bought

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Stark New Evidence on How Money Shapes America’s Elections

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

Outrage over how big money influences American politics has been boiling over this political season, energizing the campaigns of GOP nominee Donald Trump and former Democratic candidate Sen. Bernie Sanders alike. Citizens have long suspected that “We the People” increasingly means “We the Rich” at election time.

Yet surprisingly, two generations of social scientists have insisted that wallets don’t matter that much in American politics. Elections are really about giving the people what they want. Money, they claim, has negligible impact on elections.

That was a good line for Cold War propaganda, and good for tenure, too. Corporate titans seized upon it to argue that their money should be freer to flow into political campaigns. Not only billionaires, but academics, too, argued that more money in elections meant more democracy.

Even today, many academics and pundits still insist that money matters less to political outcomes than ordinary citizens think, even as business executives throw down mind-boggling sums to dine with politicians and Super Pacs spring up like mushrooms. The few dissenters from this consensus, like Noam Chomsky, are ignored in the U.S. as “unpersons,” though they are enormously respected abroad.

This is a scandal. It has stymied efforts at campaign finance reform and weakened American democracy.

Political scientist Thomas Ferguson, Director of Research at the Institute for New Economic Thinking (INET), has spent a career setting the record straight with clear empirical evidence in a field where such research has been shockingly rare. Ever since his 1995 book Golden Rule: The Investment Theory of Party Competition blasted through received academic wisdom by showing how wealthy individuals and businesses strategically invest in political parties for the biggest pay off, Ferguson has been the man to seek when you really wanted to know how elections work and who controls them.

White collar criminologist William K. Black and others still recall Ferguson’s famous warning, issued long before the nominating convention in 2008, that the contributions from big finance piling up in Barack Obama’s campaign war chest meant that his promises of sweeping reforms of finance were not to be believed. In 2014, he foresaw the unraveling of America’s two major political parties and predicted that voters feeling betrayed would increasingly abandon both.

“Want a happy ending?” he quips. “See a Disney movie.”

In recent years, Ferguson has often worked with two other talented researchers, Paul Jorgensen and Jie Chen. The three have tracked the generous funding of Obama by high tech businesses engaged in spying on the American public and the waves of money from polluters into the Republican Party.

Spend Money, Win Votes

Now the researchers have turned their attention on political money in Congressional elections in a new paper for (INET).

They begin with a simple question: What are the facts about total campaign spending and election outcomes? As they write: “We can pool all spending by and on behalf of candidates and then examine whether relative, not absolute, differences in total outlays are related” to the differences in votes received by the major political parties.

Their answer is stunning: there is strong, direct link between what the major political parties spend and the percentage of votes they win – far stronger than all the airy dismissals of the role of money in elections would ever lead you to think, and certainly stronger than anything you read in your poli sci class.

They show the strength of this relationship through a simple graph. The line going out to the right in the graph shows the Democratic percentage of the total money flowing into the race for the major parties and runs from 0 to 100 percent. The vertical line shows the percentage of the major party vote that the Democrats won. Dots represent individual House races in 2012.

As Ferguson, Jorgensen, and Chen sum up:

At the bottom left Democrats spend almost no money and get virtually no votes; at the top right, they spend nearly all the money and garner virtually all the ballots, calculated as proportions of totals for the major parties.

Ferguson-2012-Election-Housing

If money and voting outcomes were unrelated, then the dots representing individual House races in 2012 would be scattered all over the square. If they were perfectly related, the dots would all cluster tightly on a line.

Not only in 2012, but in every election for which the data exists (from 1980 to 2012), Ferguson, Jorgensen, and Chen found that the graphs came out with neat, straight lines, with minimal scattering of dots. The link is clear: when the Democrats spend more than Republicans, their candidates win. When Republicans spend more than Democrats, they win.

There was but one exception, the Senate races of 1982, when Senator William Proxmire, whose disdain for fundraising was legendary but who still won elections, brought down the average. Otherwise, with alarming regularity, Democrats and Republicans candidates’ share of the vote was correlated, to an astonishing degree, with the amount money spent in the campaign.

Nothing like this graph has ever made its way into a political science textbook. That it now exists sure should change what Ferguson, Jorgensen, and Chen call the “optics” of the campaign finance discussion. But will it?

Does Money Just Follow Popular Candidates?

Political scientists have long had way out of admitting the implications for democracy of such a direct a relationship between politics and money: the idea that the wealthy tend to spend on the most popular Congressional candidates. Their “influence,” the thinking goes, is thus nothing more than a reflection the will of the people. They don’t force any outcome other than the one that voters would choose. Political scientists call this idea “reciprocal causality.”

Ferguson, Jorgensen, and Chen tackle this issue head on. They use a cutting-edge method invented by Dutch statistician Peter Ebbes and recently studied by Irene Hueter in another new INET paper. The researchers find that while reciprocal causation happens, its extent is not large: money’s effect is direct and powerful.

They confirm their conclusion by using another method now widely employed in finance and economics: they look at published gambling odds on the chances of a Republican takeover of the House in 1994. These are relevant because a huge wave of money swept the Republicans to victory in that election, but the odds never moved very much. The relative lack of change rules out the idea that soaring expectations of victory drove the wave. But the wave, when it came, nevertheless produced a big change in the electoral outcome, just as a money-driven “investment theory” of political parties would predict.

Eccentric Gazillionaires or Big Corporations Driving Elections?

Their paper closes by examining the notion that right wing politics in America has been driven by donations piling up from eccentric entrepreneurs like investor and conservative mega-donor Foster Friess — the sort of people who are widely imagined to populate the Forbes 400 list of wealthiest Americans – rather than mainline big business corporations, such as those on the Fortune 500 list.

On the contrary, the researchers find that “a simple count of firms and investors on Forbes show that the largest American corporations support Tea Party Congressional candidates and organizations supporting the movement, such as Freedom Works, at much higher rates than Forbes 400 members. Even making due allowances for Dark Money, the difference is substantial.”

Evidently American big business firms are not centrist, as many pundits would have it. As Ferguson and his colleagues put it:

Stories that the steady rightward drift of the American political universe is somehow the work of exceptionally ideological individual entrepreneurs are huge over-simplifications. If the center is not holding in American society – and it rather plainly is not – America’s largest companies are as implicated as anyone else; indeed, perhaps more so.

This state of affairs explains why economic inequality has grown into a crisis, with social unrest amplified by economic distress. Because of this money-driven system — which has been getting worse since 1970s up to the current dysfunctional mess — when the rich don’t feel like paying taxes, we all suffer. Infrastructure collapses, schoolchildren and sick people suffer, and hard-working citizens are robbed of their fair share of the country’s prosperity and end their lives struggling keep body and soul together.

Ferguson, Jorgensen, and Chen conclude:

It goes without saying that this news is not reassuring; particularly in elections below the federal level – in states and local elections, we suspect, money has come to dominate outcomes to a frightening degree, not least because it is unlikely that the Republican advantage is offset there to the degree that it has been in recent federal elections. If it turns out that the U.S. has entered a Post-Democratic age, the situation will not be improved by social scientists behaving like ostriches. It is time economics, political science, and history recognize the reality of industrial and financial blocs within parties and acknowledge money’s powerful effects on elections.

If mainstream social scientists are not pursuing the truth, what exactly are they pursuing? Whatever it is, it does not appear to be good for democracy.

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Trump

Humor: The Borowitz Report

Borowitz Report

D.N.C. Headquarters Mobbed by Republican Refugees Seeking Asylum

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Photograph by B Christopher / Alamy

WASHINGTON, D.C. (The Borowitz Report)—A humanitarian crisis has been unfolding over the past week as Republican refugees seeking asylum have overrun the Democratic National Committee headquarters, in Washington, D.C.

D.N.C. staffers have confirmed that they were woefully unprepared for the masses of desperate Republicans who have shown up at the D.N.C.’s door, looking for safe harbor.

“These people have been brutalized for months and have decided to risk everything to save themselves and their families,” D.N.C. staffer Tracy Klugian said. “When they tell you their stories, they are absolutely heartbreaking.”

Meg Whitman, who is sixty, said she left her entire life as a Republican behind after witnessing unspeakable horrors under the new G.O.P. regime.

Taking comfort from a blanket and a cup of coffee provided by D.N.C. staffers, Whitman appeared to be in a state of shock about where life under a failed state had brought her.

“I never thought I’d find myself in a place like this,” she said as she took in the unfamiliar surroundings of the D.N.C. headquarters. “Still, anything has to be better than where I came from.”

When asked if she had any regrets about her decision to flee, Whitman choked back tears before responding. “I had no choice,” she said. “There is no respect for human life there.”


The Powell Memo, August 23, 1971

Confidential Memorandum: Attack of American Free Enterprise System

DATE: August 23, 1971
TO: Mr. Eugene B. Sydnor, Jr., Chairman, Education Committee, U.S. Chamber of Commerce
FROM: Lewis F. Powell, Jr.

This memorandum is submitted at your request as a basis for the discussion on August 24 with Mr. Booth (executive vice president) and others at the U.S. Chamber of Commerce. The purpose is to identify the problem, and suggest possible avenues of action for further consideration.

Dimensions of the Attack

No thoughtful person can question that the American economic system is under broad attack. This varies in scope, intensity, in the techniques employed, and in the level of visibility.

There always have been some who opposed the American system, and preferred socialism or some form of statism (communism or fascism). Also, there always have been critics of the system, whose criticism has been wholesome and constructive so long as the objective was to improve rather than to subvert or destroy.

But what now concerns us is quite new in the history of America. We are not dealing with sporadic or isolated attacks from a relatively few extremists or even from the minority socialist cadre. Rather, the assault on the enterprise system is broadly based and consistently pursued. It is gaining momentum and converts.

Sources of the Attack

The sources are varied and diffused. They include, not unexpectedly, the Communists, New Leftists and other revolutionaries who would destroy the entire system, both political and economic. These extremists of the left are far more numerous, better financed, and increasingly are more welcomed and encouraged by other elements of society, than ever before in our history. But they remain a small minority, and are not yet the principal cause for concern.

The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking.

Moreover, much of the media-for varying motives and in varying degrees-either voluntarily accords unique publicity to these “attackers,” or at least allows them to exploit the media for their purposes. This is especially true of television, which now plays such a predominant role in shaping the thinking, attitudes and emotions of our people.

One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.

The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.

Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.

Tone of the Attack

This memorandum is not the place to document in detail the tone, character, or intensity of the attack. The following quotations will suffice to give one a general idea:

William Kunstler, warmly welcomed on campuses and listed in a recent student poll as the “American lawyer most admired,” incites audiences as follows:

“You must learn to fight in the streets, to revolt, to shoot guns. We will learn to do all of the things that property owners fear.”2 The New Leftists who heed Kunstler’s advice increasingly are beginning to act — not just against military recruiting offices and manufacturers of munitions, but against a variety of businesses: “Since February, 1970, branches (of Bank of America) have been attacked 39 times, 22 times with explosive devices and 17 times with fire bombs or by arsonists.”3 Although New Leftist spokesmen are succeeding in radicalizing thousands of the young, the greater cause for concern is the hostility of respectable liberals and social reformers. It is the sum total of their views and influence which could indeed fatally weaken or destroy the system.

A chilling description of what is being taught on many of our campuses was written by Stewart Alsop:

“Yale, like every other major college, is graduating scores of bright young men who are practitioners of ‘the politics of despair.’ These young men despise the American political and economic system . . . (their) minds seem to be wholly closed. They live, not by rational discussion, but by mindless slogans.”4 A recent poll of students on 12 representative campuses reported that: “Almost half the students favored socialization of basic U.S. industries.”5

A visiting professor from England at Rockford College gave a series of lectures entitled “The Ideological War Against Western Society,” in which he documents the extent to which members of the intellectual community are waging ideological warfare against the enterprise system and the values of western society. In a foreword to these lectures, famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.”6

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”7

A frontal assault was made on our government, our system of justice, and the free enterprise system by Yale Professor Charles Reich in his widely publicized book: “The Greening of America,” published last winter.

The foregoing references illustrate the broad, shotgun attack on the system itself. There are countless examples of rifle shots which undermine confidence and confuse the public. Favorite current targets are proposals for tax incentives through changes in depreciation rates and investment credits. These are usually described in the media as “tax breaks,” “loop holes” or “tax benefits” for the benefit of business. As viewed by a columnist in the Post, such tax measures would benefit “only the rich, the owners of big companies.”8

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

The Apathy and Default of Business

What has been the response of business to this massive assault upon its fundamental economics, upon its philosophy, upon its right to continue to manage its own affairs, and indeed upon its integrity?

The painfully sad truth is that business, including the boards of directors’ and the top executives of corporations great and small and business organizations at all levels, often have responded — if at all — by appeasement, ineptitude and ignoring the problem. There are, of course, many exceptions to this sweeping generalization. But the net effect of such response as has been made is scarcely visible.

In all fairness, it must be recognized that businessmen have not been trained or equipped to conduct guerrilla warfare with those who propagandize against the system, seeking insidiously and constantly to sabotage it. The traditional role of business executives has been to manage, to produce, to sell, to create jobs, to make profits, to improve the standard of living, to be community leaders, to serve on charitable and educational boards, and generally to be good citizens. They have performed these tasks very well indeed.

But they have shown little stomach for hard-nose contest with their critics, and little skill in effective intellectual and philosophical debate.

A column recently carried by the Wall Street Journal was entitled: “Memo to GM: Why Not Fight Back?”9 Although addressed to GM by name, the article was a warning to all American business. Columnist St. John said:

“General Motors, like American business in general, is ‘plainly in trouble’ because intellectual bromides have been substituted for a sound intellectual exposition of its point of view.” Mr. St. John then commented on the tendency of business leaders to compromise with and appease critics. He cited the concessions which Nader wins from management, and spoke of “the fallacious view many businessmen take toward their critics.” He drew a parallel to the mistaken tactics of many college administrators: “College administrators learned too late that such appeasement serves to destroy free speech, academic freedom and genuine scholarship. One campus radical demand was conceded by university heads only to be followed by a fresh crop which soon escalated to what amounted to a demand for outright surrender.”

One need not agree entirely with Mr. St. John’s analysis. But most observers of the American scene will agree that the essence of his message is sound. American business “plainly in trouble”; the response to the wide range of critics has been ineffective, and has included appeasement; the time has come — indeed, it is long overdue — for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it.

Responsibility of Business Executives

What specifically should be done? The first essential — a prerequisite to any effective action — is for businessmen to confront this problem as a primary responsibility of corporate management.

The overriding first need is for businessmen to recognize that the ultimate issue may be survival — survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself. This involves far more than an increased emphasis on “public relations” or “governmental affairs” — two areas in which corporations long have invested substantial sums.

A significant first step by individual corporations could well be the designation of an executive vice president (ranking with other executive VP’s) whose responsibility is to counter-on the broadest front-the attack on the enterprise system. The public relations department could be one of the foundations assigned to this executive, but his responsibilities should encompass some of the types of activities referred to subsequently in this memorandum. His budget and staff should be adequate to the task.

Possible Role of the Chamber of Commerce

But independent and uncoordinated activity by individual corporations, as important as this is, will not be sufficient. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.

Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

The role of the National Chamber of Commerce is therefore vital. Other national organizations (especially those of various industrial and commercial groups) should join in the effort, but no other organizations appear to be as well situated as the Chamber. It enjoys a strategic position, with a fine reputation and a broad base of support. Also — and this is of immeasurable merit — there are hundreds of local Chambers of Commerce which can play a vital supportive role.

It hardly need be said that before embarking upon any program, the Chamber should study and analyze possible courses of action and activities, weighing risks against probable effectiveness and feasibility of each. Considerations of cost, the assurance of financial and other support from members, adequacy of staffing and similar problems will all require the most thoughtful consideration.

The Campus

The assault on the enterprise system was not mounted in a few months. It has gradually evolved over the past two decades, barely perceptible in its origins and benefiting (sic) from a gradualism that provoked little awareness much less any real reaction.

Although origins, sources and causes are complex and interrelated, and obviously difficult to identify without careful qualification, there is reason to believe that the campus is the single most dynamic source. The social science faculties usually include members who are unsympathetic to the enterprise system. They may range from a Herbert Marcuse, Marxist faculty member at the University of California at San Diego, and convinced socialists, to the ambivalent liberal critic who finds more to condemn than to commend. Such faculty members need not be in a majority. They are often personally attractive and magnetic; they are stimulating teachers, and their controversy attracts student following; they are prolific writers and lecturers; they author many of the textbooks, and they exert enormous influence — far out of proportion to their numbers — on their colleagues and in the academic world.

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues.

This situation extending back many years and with the imbalance gradually worsening, has had an enormous impact on millions of young American students. In an article in Barron’s Weekly, seeking an answer to why so many young people are disaffected even to the point of being revolutionaries, it was said: “Because they were taught that way.”10 Or, as noted by columnist Stewart Alsop, writing about his alma mater: “Yale, like every other major college, is graduating scores’ of bright young men … who despise the American political and economic system.”

As these “bright young men,” from campuses across the country, seek opportunities to change a system which they have been taught to distrust — if not, indeed “despise” — they seek employment in the centers of the real power and influence in our country, namely: (i) with the news media, especially television; (ii) in government, as “staffers” and consultants at various levels; (iii) in elective politics; (iv) as lecturers and writers, and (v) on the faculties at various levels of education.

Many do enter the enterprise system — in business and the professions — and for the most part they quickly discover the fallacies of what they have been taught. But those who eschew the mainstream of the system often remain in key positions of influence where they mold public opinion and often shape governmental action. In many instances, these “intellectuals” end up in regulatory agencies or governmental departments with large authority over the business system they do not believe in.

If the foregoing analysis is approximately sound, a priority task of business — and organizations such as the Chamber — is to address the campus origin of this hostility. Few things are more sanctified in American life than academic freedom. It would be fatal to attack this as a principle. But if academic freedom is to retain the qualities of “openness,” “fairness” and “balance” — which are essential to its intellectual significance — there is a great opportunity for constructive action. The thrust of such action must be to restore the qualities just mentioned to the academic communities.

What Can Be Done About the Campus

The ultimate responsibility for intellectual integrity on the campus must remain on the administrations and faculties of our colleges and universities. But organizations such as the Chamber can assist and activate constructive change in many ways, including the following:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom. This would include assurance of fair and factual treatment of our system of government and our enterprise system, its accomplishments, its basic relationship to individual rights and freedoms, and comparisons with the systems of socialism, fascism and communism. Most of the existing textbooks have some sort of comparisons, but many are superficial, biased and unfair.

We have seen the civil rights movement insist on re-writing many of the textbooks in our universities and schools. The labor unions likewise insist that textbooks be fair to the viewpoints of organized labor. Other interested citizens groups have not hesitated to review, analyze and criticize textbooks and teaching materials. In a democratic society, this can be a constructive process and should be regarded as an aid to genuine academic freedom and not as an intrusion upon it.

If the authors, publishers and users of textbooks know that they will be subjected — honestly, fairly and thoroughly — to review and critique by eminent scholars who believe in the American system, a return to a more rational balance can be expected.

Equal Time on the Campus

The Chamber should insist upon equal time on the college speaking circuit. The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Every campus has its formal and informal groups which invite speakers. Each law school does the same thing. Many universities and colleges officially sponsor lecture and speaking programs. We all know the inadequacy of the representation of business in the programs.

It will be said that few invitations would be extended to Chamber speakers.11 This undoubtedly would be true unless the Chamber aggressively insisted upon the right to be heard — in effect, insisted upon “equal time.” University administrators and the great majority of student groups and committees would not welcome being put in the position publicly of refusing a forum to diverse views, indeed, this is the classic excuse for allowing Communists to speak.

The two essential ingredients are (i) to have attractive, articulate and well-informed speakers; and (ii) to exert whatever degree of pressure — publicly and privately — may be necessary to assure opportunities to speak. The objective always must be to inform and enlighten, and not merely to propagandize.

Balancing of Faculties

Perhaps the most fundamental problem is the imbalance of many faculties. Correcting this is indeed a long-range and difficult project. Yet, it should be undertaken as a part of an overall program. This would mean the urging of the need for faculty balance upon university administrators and boards of trustees.

The methods to be employed require careful thought, and the obvious pitfalls must be avoided. Improper pressure would be counterproductive. But the basic concepts of balance, fairness and truth are difficult to resist, if properly presented to boards of trustees, by writing and speaking, and by appeals to alumni associations and groups.

This is a long road and not one for the fainthearted. But if pursued with integrity and conviction it could lead to a strengthening of both academic freedom on the campus and of the values which have made America the most productive of all societies.

Graduate Schools of Business

The Chamber should enjoy a particular rapport with the increasingly influential graduate schools of business. Much that has been suggested above applies to such schools.

Should not the Chamber also request specific courses in such schools dealing with the entire scope of the problem addressed by this memorandum? This is now essential training for the executives of the future.

Secondary Education

While the first priority should be at the college level, the trends mentioned above are increasingly evidenced in the high schools. Action programs, tailored to the high schools and similar to those mentioned, should be considered. The implementation thereof could become a major program for local chambers of commerce, although the control and direction — especially the quality control — should be retained by the National Chamber.

What Can Be Done About the Public?

Reaching the campus and the secondary schools is vital for the long-term. Reaching the public generally may be more important for the shorter term. The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and how most effectively to communicate with the public. Among the more obvious means are the following:

Television

The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. This applies not merely to so-called educational programs (such as “Selling of the Pentagon”), but to the daily “news analysis” which so often includes the most insidious type of criticism of the enterprise system.12 Whether this criticism results from hostility or economic ignorance, the result is the gradual erosion of confidence in “business” and free enterprise.

This monitoring, to be effective, would require constant examination of the texts of adequate samples of programs. Complaints — to the media and to the Federal Communications Commission — should be made promptly and strongly when programs are unfair or inaccurate.

Equal time should be demanded when appropriate. Effort should be made to see that the forum-type programs (the Today Show, Meet the Press, etc.) afford at least as much opportunity for supporters of the American system to participate as these programs do for those who attack it.

Other Media

Radio and the press are also important, and every available means should be employed to challenge and refute unfair attacks, as well as to present the affirmative case through these media.

The Scholarly Journals

It is especially important for the Chamber’s “faculty of scholars” to publish. One of the keys to the success of the liberal and leftist faculty members has been their passion for “publication” and “lecturing.” A similar passion must exist among the Chamber’s scholars.

Incentives might be devised to induce more “publishing” by independent scholars who do believe in the system.

There should be a fairly steady flow of scholarly articles presented to a broad spectrum of magazines and periodicals — ranging from the popular magazines (Life, Look, Reader’s Digest, etc.) to the more intellectual ones (Atlantic, Harper’s, Saturday Review, New York, etc.)13 and to the various professional journals.

Books, Paperbacks and Pamphlets

The news stands — at airports, drugstores, and elsewhere — are filled with paperbacks and pamphlets advocating everything from revolution to erotic free love. One finds almost no attractive, well-written paperbacks or pamphlets on “our side.” It will be difficult to compete with an Eldridge Cleaver or even a Charles Reich for reader attention, but unless the effort is made — on a large enough scale and with appropriate imagination to assure some success — this opportunity for educating the public will be irretrievably lost.

Paid Advertisements

Business pays hundreds of millions of dollars to the media for advertisements. Most of this supports specific products; much of it supports institutional image making; and some fraction of it does support the system. But the latter has been more or less tangential, and rarely part of a sustained, major effort to inform and enlighten the American people.

If American business devoted only 10% of its total annual advertising budget to this overall purpose, it would be a statesman-like expenditure.

The Neglected Political Arena

In the final analysis, the payoff — short-of revolution — is what government does. Business has been the favorite whipping-boy of many politicians for many years. But the measure of how far this has gone is perhaps best found in the anti-business views now being expressed by several leading candidates for President of the United States.

It is still Marxist doctrine that the “capitalist” countries are controlled by big business. This doctrine, consistently a part of leftist propaganda all over the world, has a wide public following among Americans.

Yet, as every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of “lobbyist” for the business point of view before Congressional committees. The same situation obtains in the legislative halls of most states and major cities. One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the “forgotten man.”

Current examples of the impotency of business, and of the near-contempt with which businessmen’s views are held, are the stampedes by politicians to support almost any legislation related to “consumerism” or to the “environment.”

Politicians reflect what they believe to be majority views of their constituents. It is thus evident that most politicians are making the judgment that the public has little sympathy for the businessman or his viewpoint.

The educational programs suggested above would be designed to enlighten public thinking — not so much about the businessman and his individual role as about the system which he administers, and which provides the goods, services and jobs on which our country depends.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assidously (sic) cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.

As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Neglected Opportunity in the Courts

American business and the enterprise system have been affected as much by the courts as by the executive and legislative branches of government. Under our constitutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.

Other organizations and groups, recognizing this, have been far more astute in exploiting judicial action than American business. Perhaps the most active exploiters of the judicial system have been groups ranging in political orientation from “liberal” to the far left.

The American Civil Liberties Union is one example. It initiates or intervenes in scores of cases each year, and it files briefs amicus curiae in the Supreme Court in a number of cases during each term of that court. Labor unions, civil rights groups and now the public interest law firms are extremely active in the judicial arena. Their success, often at business’ expense, has not been inconsequential.

This is a vast area of opportunity for the Chamber, if it is willing to undertake the role of spokesman for American business and if, in turn, business is willing to provide the funds.

As with respect to scholars and speakers, the Chamber would need a highly competent staff of lawyers. In special situations it should be authorized to engage, to appear as counsel amicus in the Supreme Court, lawyers of national standing and reputation. The greatest care should be exercised in selecting the cases in which to participate, or the suits to institute. But the opportunity merits the necessary effort.

Neglected Stockholder Power

The average member of the public thinks of “business” as an impersonal corporate entity, owned by the very rich and managed by over-paid executives. There is an almost total failure to appreciate that “business” actually embraces — in one way or another — most Americans. Those for whom business provides jobs, constitute a fairly obvious class. But the 20 million stockholders — most of whom are of modest means — are the real owners, the real entrepreneurs, the real capitalists under our system. They provide the capital which fuels the economic system which has produced the highest standard of living in all history. Yet, stockholders have been as ineffectual as business executives in promoting a genuine understanding of our system or in exercising political influence.

The question which merits the most thorough examination is how can the weight and influence of stockholders — 20 million voters — be mobilized to support (i) an educational program and (ii) a political action program.

Individual corporations are now required to make numerous reports to shareholders. Many corporations also have expensive “news” magazines which go to employees and stockholders. These opportunities to communicate can be used far more effectively as educational media.

The corporation itself must exercise restraint in undertaking political action and must, of course, comply with applicable laws. But is it not feasible — through an affiliate of the Chamber or otherwise — to establish a national organization of American stockholders and give it enough muscle to be influential?

A More Aggressive Attitude

Business interests — especially big business and their national trade organizations — have tried to maintain low profiles, especially with respect to political action.

As suggested in the Wall Street Journal article, it has been fairly characteristic of the average business executive to be tolerant — at least in public — of those who attack his corporation and the system. Very few businessmen or business organizations respond in kind. There has been a disposition to appease; to regard the opposition as willing to compromise, or as likely to fade away in due time.

Business has shunted confrontation politics. Business, quite understandably, has been repelled by the multiplicity of non-negotiable “demands” made constantly by self-interest groups of all kinds.

While neither responsible business interests, nor the United States Chamber of Commerce, would engage in the irresponsible tactics of some pressure groups, it is essential that spokesmen for the enterprise system — at all levels and at every opportunity — be far more aggressive than in the past.

There should be no hesitation to attack the Naders, the Marcuses and others who openly seek destruction of the system. There should not be the slightest hesitation to press vigorously in all political arenas for support of the enterprise system. Nor should there be reluctance to penalize politically those who oppose it.

Lessons can be learned from organized labor in this respect. The head of the AFL-CIO may not appeal to businessmen as the most endearing or public-minded of citizens. Yet, over many years the heads of national labor organizations have done what they were paid to do very effectively. They may not have been beloved, but they have been respected — where it counts the most — by politicians, on the campus, and among the media.

It is time for American business — which has demonstrated the greatest capacity in all history to produce and to influence consumer decisions — to apply their great talents vigorously to the preservation of the system itself.

The Cost

The type of program described above (which includes a broadly based combination of education and political action), if undertaken long term and adequately staffed, would require far more generous financial support from American corporations than the Chamber has ever received in the past. High level management participation in Chamber affairs also would be required.

The staff of the Chamber would have to be significantly increased, with the highest quality established and maintained. Salaries would have to be at levels fully comparable to those paid key business executives and the most prestigious faculty members. Professionals of the great skill in advertising and in working with the media, speakers, lawyers and other specialists would have to be recruited.

It is possible that the organization of the Chamber itself would benefit from restructuring. For example, as suggested by union experience, the office of President of the Chamber might well be a full-time career position. To assure maximum effectiveness and continuity, the chief executive officer of the Chamber should not be changed each year. The functions now largely performed by the President could be transferred to a Chairman of the Board, annually elected by the membership. The Board, of course, would continue to exercise policy control.

Quality Control is Essential

Essential ingredients of the entire program must be responsibility and “quality control.” The publications, the articles, the speeches, the media programs, the advertising, the briefs filed in courts, and the appearances before legislative committees — all must meet the most exacting standards of accuracy and professional excellence. They must merit respect for their level of public responsibility and scholarship, whether one agrees with the viewpoints expressed or not.

Relationship to Freedom

The threat to the enterprise system is not merely a matter of economics. It also is a threat to individual freedom.

It is this great truth — now so submerged by the rhetoric of the New Left and of many liberals — that must be re-affirmed if this program is to be meaningful.

There seems to be little awareness that the only alternatives to free enterprise are varying degrees of bureaucratic regulation of individual freedom — ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.

We in America already have moved very far indeed toward some aspects of state socialism, as the needs and complexities of a vast urban society require types of regulation and control that were quite unnecessary in earlier times. In some areas, such regulation and control already have seriously impaired the freedom of both business and labor, and indeed of the public generally. But most of the essential freedoms remain: private ownership, private profit, labor unions, collective bargaining, consumer choice, and a market economy in which competition largely determines price, quality and variety of the goods and services provided the consumer.

In addition to the ideological attack on the system itself (discussed in this memorandum), its essentials also are threatened by inequitable taxation, and — more recently — by an inflation which has seemed uncontrollable.14 But whatever the causes of diminishing economic freedom may be, the truth is that freedom as a concept is indivisible. As the experience of the socialist and totalitarian states demonstrates, the contraction and denial of economic freedom is followed inevitably by governmental restrictions on other cherished rights. It is this message, above all others, that must be carried home to the American people.

Conclusion

It hardly need be said that the views expressed above are tentative and suggestive. The first step should be a thorough study. But this would be an exercise in futility unless the Board of Directors of the Chamber accepts the fundamental premise of this paper, namely, that business and the enterprise system are in deep trouble, and the hour is late.

Footnotes (Powell’s)
  1. Variously called: the “free enterprise system,” “capitalism,” and the “profit system.” The American political system of democracy under the rule of law is also under attack, often by the same individuals and organizations who seek to undermine the enterprise system.
  2. Richmond News Leader, June 8, 1970. Column of William F. Buckley, Jr.
  3. N.Y. Times Service article, reprinted Richmond Times-Dispatch, May 17, 1971.
  4. Stewart Alsop, Yale and the Deadly Danger, Newsweek, May 18. 1970.
  5. Editorial, Richmond Times-Dispatch, July 7, 1971.
  6. Dr. Milton Friedman, Prof. of Economics, U. of Chicago, writing a foreword to Dr. Arthur A. Shenfield’s Rockford College lectures entitled “The Ideological War Against Western Society,” copyrighted 1970 by Rockford College.
  7. Fortune. May, 1971, p. 145. This Fortune analysis of the Nader influence includes a reference to Nader’s visit to a college where he was paid a lecture fee of $2,500 for “denouncing America’s big corporations in venomous language . . . bringing (rousing and spontaneous) bursts of applause” when he was asked when he planned to run for President.
  8. The Washington Post, Column of William Raspberry, June 28, 1971.
  9. Jeffrey St. John, The Wall Street Journal, May 21, 1971.
  10. Barron’s National Business and Financial Weekly, “The Total Break with America, The Fifth Annual Conference of Socialist Scholars,” Sept. 15, 1969.
  11. On many campuses freedom of speech has been denied to all who express moderate or conservative viewpoints.
  12. It has been estimated that the evening half-hour news programs of the networks reach daily some 50,000,000 Americans.
  13. One illustration of the type of article which should not go unanswered appeared in the popular “The New York” of July 19, 1971. This was entitled “A Populist Manifesto” by ultra liberal Jack Newfield — who argued that “the root need in our country is ‘to redistribute wealth’.”
  14. The recent “freeze” of prices and wages may well be justified by the current inflationary crisis. But if imposed as a permanent measure the enterprise system will have sustained a near fatal blow.

Naked Capitalism: Gangster Bankers

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Congress Exposes That DoJ Overruled Recommendation to Indict Money Launderer HSBC Over Too Big to Fail Worries

The House of Representatives released a bombshell today out of its three-year investigation as to why the UK-based bank HSBC got off lightly for money laundering, both for with states subject to economic sanctions like Iran and Sudan, as well as narcotics traffickers. The report found that Attorney General Eric Holder “misled” Congress about the evidence against the bank, and that staff prosecutors had recommended indictment but were overruled by Holder. In addition UK regulators interfered in the case, and argued that criminal sanctions would lead to a financial nuclear winter. That was demonstrated to be false in 2014, when BNP Paribas, which apparently had fewer friends in court, pled guilty to criminal money laundering charges and paid $8.9 billion in fines.

Or was it that the New York Department of Financial Services, which was then headed by Benjamin Lawsky, was going to embarrass the crowd in DC into doing more than it wanted to? Recall that Laswky had run rings around the Fed, Treasury, and UK financial services regulators over money laundering at another UK bank, Standard Chartered. This led to a firestorm of financial media outrage as Lawsky ordered Standard Chartered executives to appear and explain why he should not revoke their New York banking license. That would mean they could no longer clear dollar-based transactions, which would be extremely damaging to any international bank.

But even the debate over whether or not to charge a bank criminally again reveals how the regulators and prosecutors protect the looting professionals. Corporations do not commit crimes. Individuals employed by those firms commit crimes. In the case of HSBC, the misconduct was institutionalized. Multiple units of the bank were involved. Either top management was well aware of what was going on or there was a major breakdown in controls. The latter would be a criminal violation under Sarbanes Oxley, the law passed after the Enron bankruptcy and designed to end the “I’m the CEO and I know nothing” defense.

And let us not kid ourselves as to how well orchestrated the HSBC money-laundering machine was. As Matt Taibbi wrote:

[“Longtime Bill Clinton pal Lanny”] Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

If you remember the Frontline series on the crisis, it was Lanny Breuer who said he lay awake at night worrying if his actions might hurt banks. Oh, the horror! And at the time, the $1.9 billion was widely depicted as a slap on the wrist.

Mind you, Bill Clinton also received a large speaking fee from HSBC while the bank was being investigated. From a 2015 Associated Press story:

State Department ethics officials also gave quick approval to Bill Clinton’s $200,000 appearance in Florida for British-based HSBC in 2011 despite a 2012 money-laundering settlement with federal prosecutors.

Since the settlement was announced in December 2012, and the House investigation makes clear it was rushed so as to keep ahead of the intrepid Benjamin Lawsky, the fee was clearly paid well before anything had been concluded.

And a query for well-connected British readers: AIG, by virtue of its very large network in Asia, is widely believed to have curried favor with the US government by providing cover for CIA agents. HSBC has a similarly extensive presence in that part of the world. Could HSBC have been playing a similar role for MI6? That would give it even deeper connections with the Government, making it easier to enlist official support.

The House Financial Services Committee provided a crisp, damning overview of its findings:

The House Financial Services Committee on Monday released a staff report of its investigation into the U.S. Department of Justice’s decision not to prosecute HSBC or any of its executives or employees for serious violations of U.S. anti-money laundering laws and related offenses.

The Committee initiated its investigation in March 2013.  The Department of Justice (DOJ) and the Department of the Treasury failed to comply with the Committee’s requests to obtain relevant documents, necessitating the issuance of subpoenas to both agencies.

Approximately three years after its initial inquiries, the Committee finally obtained copies of internal Treasury records showing that DOJ has not been forthright with Congress or the American people concerning its decision to decline to prosecute HSBC.

These documents show that:

  • Senior DOJ leadership, including then-Attorney General Eric Holder, overruled an internal recommendation by DOJ’s Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership’s concern that prosecuting the bank would have serious adverse consequences on the financial system.
  • Notwithstanding Attorney General Holder’s personal demand that HSBC agree to DOJ’s “take-it-or-leave-it” deferred prosecution agreement deal by November 14, 2012, HSBC appears to have successfully negotiated with DOJ for significant alterations to the deferred prosecution agreement’s terms in the weeks following the Attorney General’s deadline.
  • DOJ and federal financial regulators were rushing at what one Treasury official described as “alarming speed” to complete their investigations and enforcement actions involving HSBC in order to beat the New York Department of Financial Services.
  • In its haste to complete its enforcement action against HSBC, DOJ transmitted settlement numbers to HSBC before consulting with Treasury’s Office of Foreign Asset Control to ensure that the settlement amount accurately reflected the full degree of HSBC’s sanctions violations.
  • The involvement of the United Kingdom’s Financial Services Authority in the U.S. government’s investigations and enforcement actions relating to HSBC, a British-domiciled institution, appears to have hampered the U.S. government’s investigations and influenced DOJ’s decision not to prosecute HSBC.
  • Attorney General Holder misled Congress concerning DOJ’s reasons for not bringing a criminal prosecution against HSBC.
  • DOJ to date has failed to produce any records pertaining to its prosecutorial decision making with respect to HSBC or any large financial institution, notwithstanding the Committee’s multiple requests for this information and a congressional subpoena requiring Attorney General Lynch to timely produce these records to the Committee.
  • Attorney General Lynch and Secretary Lew remain in default on their legal obligation to produce the subpoenaed records to the Committee.
  • DOJ’s and Treasury’s longstanding efforts to impede the Committee’s investigation may constitute contempt and obstruction of Congress.

The Committee is releasing this report to shed light on whether DOJ is making prosecutorial decisions based on the size of financial institutions and DOJ’s belief that such prosecutions could negatively impact the economy.

This investigation proves what critics have long argued, that Obama Administration has consistently give priority to protecting banks over meaningful enforcement. But until the perps pay a career price, this sort of corruption is guaranteed to continue.

HSBC-drug-money-laundering-430x410

Garrison Keillor on Trump

020985-donald-trump-050916

The Punk Who Would Be President

By Garrison Keillor, Madison.com

18 June 16

t is the most famous ducktail in America today, the hairdo of wayward youth of a bygone era, and it’s astonishing to imagine it under the spotlight in Cleveland, being cheered by Republican dignitaries. The class hood, the bully and braggart, the guy revving his pink Chevy to make the pipes rumble, presiding over the student council. This is the C-minus guy who sat behind you in history and poked you with his pencil and smirked when you asked him to stop. That smirk is now on every front page in America. It is not what anybody — left, right or center — looks for in a president. There’s no philosophy here, just an attitude.

He is a little old for a ducktail. By the age of 70, most ducks have moved on, but not Donald. He is apparently still fond of the sidewalls and the duck’s ass in back and he is proud as can be of his great feat, the first punk candidate to get this close to the White House. He says that the country is run by a bunch of clowns and that he is going to make things great again and beat up on the outsiders who are coming into our neighborhood. His followers don’t necessarily believe that — what they love about him is what kids loved about Johnny Rotten and Sid Vicious, the fact that he horrifies the powers that be and when you are pro-duck you are giving the finger to Congress, the press, clergy, lawyers, teachers, cake-eaters, big muckety-mucks, VIPs, all those people who think they’re better than you — you have the power to scare the pants off them, and that’s what this candidate does better than anybody else.

After the worst mass shooting in American history on Sunday, 50 persons dead in Orlando, the bodies still being carted from the building, the faces of horror-stricken cops and EMTs on TV, the gentleman issued a statement on Twitter thanking his followers for their congratulations, that the tragedy showed that he had been “right” in calling for America to get “tough.”

Anyone else would have expressed sorrow. The gentleman expressed what was in his heart, which was personal pride.

We had a dozen or so ducktails in my high school class and they were all about looks. The hooded eyes, the sculpted swoop of the hair, the curled lip. They emulated Elvis but only the look, not the talent. Their sole ambition was to make an impression, to slouch gracefully and exhale in an artful manner. In the natural course of things, they struggled after graduation, some tried law enforcement for the prestige of it, others became barflies. If they were drafted, the Army got them shaped up in a month or two. Eventually, they all calmed down, got hitched up to a mortgage, worried about their blood pressure, lost the chippiness, let their hair down. But if your dad was rich and if he was born before you were, then the ducktail could inherit enough wealth to be practically impervious to public opinion. This has happened in New York City. A man who could never be elected city comptroller is running for president.

The dreamers in the Republican Party imagine that success will steady him and he will accept wise counsel and come into the gravitational field of reality but it isn’t happening. The Orlando tweets show it: The man does not have a heart. How, in a few weeks, should Mr. Ryan and Mr. McConnell teach him basic humanity? The bigot and braggart they see today is the same man that New Yorkers have been observing for 40 years. A man obsessed with marble walls and gold-plated doorknobs, who has the sensibility of a giant sea tortoise.

His response to the Orlando tragedy is one more clue that this election is different from any other. If Mitt Romney or John McCain had been elected president, you might be disappointed but you wouldn’t fear for the fate of the Republic. This time, the Republican Party is nominating a man who resides in the dark depths. He is a thug and he doesn’t bother to hide it. The only greatness he knows about is himself.

So the country is put to a historic test. If the man is not defeated, then we are not the country we imagine we are. All of the trillions spent on education was a waste. The churches should close up shop. The nation that elects this man president is not a civilized society. The gentleman is not airing out his fingernail polish, he is not showing off his wedding ring; he is making an obscene gesture. Ignore it at your peril.

Humor: The Borowitz Report

Borowitz Report

Trump: Mexicans Swarming Across Border, Enrolling in Law School, and Becoming Biased Judges

By


Credit PHOTOGRAPH BY SIPA USA VIA AP

SAN JOSE, CALIFORNIA (The Borowitz Report)—Unless the United States builds a wall, Mexicans will swarm across the border, enroll in law school en masse, and eventually become biased judges, Donald J. Trump warned supporters on Monday.

At a rally in San Jose, the presumptive Republican nominee said that “making America great again” meant preventing the nation from becoming “overrun by Mexican judges.”

“We don’t win anymore,” he told the crowd. “We don’t win at judges.”

While Trump offered no specific facts to support his latest allegations, he said that he had heard about the threat of incoming Mexican judges firsthand from border-patrol agents.

“They see hundreds of these Mexicans, and they’re coming across the border with LSAT-prep books,” he said. “It’s a disgrace.”

In a line that drew a rousing ovation from supporters, Trump blasted Mexican leaders for their role in the crisis, claiming, “They’re sending us their worst people: lawyers.”