The best political system that money can buy is doing a great job for its customers and a lousy job for the rest of us.
Most Americans do not realize that they are on the losing end of a 40-year war against them. On August 23, 1971, former Nixon Supreme Court Justice Lewus Powell circulated what came to be known as the Powell memo. It set forth a detailed program for reshaping American institutions and values to favor the interests of corporations over those of ordinary citizens. The success of this initiative has been so complete that it has not only rolled back many of the bulwarks created by the New Deal and the Great Society, but it is also in the process of pauperizing ordinary workers in order to increase record business profits even further. The fact that the campaign has also produced rampant political dysfunction, curtailed civil liberties and helped cement an out-of-control surveillance state is of perilous little concern to powerful elites as long as their plutocratic land-grab continues.
One of the perverse accomplishments of this campaign has been to place all major branches of government in thrall to the capitalist classes rather than the popular will. Both major parties are in broad agreement on policies that are hostile to the public, such as deficit reduction when unemployment is still high, preserving a higher education system that turns increasing numbers of young people into compliant debt slaves, “reforming” as in cutting Social Security and Medicare while preserving a bloated military, and damaging local water supplies via fracking. A “law and economics” movement and aggressive targeting of elected court positions has produced an increasingly pro-business judiciary that has issued rulings that our forefathers would consider absurd, such as treating corporations as having Constitutional rights. Regulators are at best ideologically captured and at worst responsive to what amount to bribes via the “revolving door” of trading on their contacts and knowledge once they leave government service. And a lapdog media for the most part plays the role of Dr. Pangloss, celebrating this march towards neofeudalism as inevitable, even virtuous, and relegating critics to the fringes.
Promoters of this new order reassured the public that regulations were just unnecessary speed bumps that held back commerce, “innovation,” and progress. We’ve seen what self-serving bunk that has turned out to be. Efficient markets produce meager returns. Businesses understood that less regulation would produce higher profits, via lower transparency and more concentration, which means more pricing power. And they’ve increasingly used those profits to extract not just more waivers but also more direct subsidies from government at all levels.
The time has come for ordinary people to demand to be heard. We are hardly alone in calling for radical change; the recent weeks alone have seen robust debate about the need for revolution. Not surprisingly, pundits and spokesmen of the Vichy Left have worked hard to stuff that impulse back into a box. But the irony is that these “revolutionary” views aren’t even radical. They enjoy considerable, often majority, popular support. They just happen to be inconvenient for our incompetent elites and looting plutocrats.
Thus we are not trying to found a political movement as much as galvanize and focus popular views that the policy elites have marginalized and describe concrete solutions. Look at the anger expressed over long-standing, long-ignored grievances when ordinary folks get a platform for expressing their views. The runaway success of “#askJPM” shows how citizens are mad as hell about predatory banking; the humor and vitriol of the questions stands in stark contrast with the media finger wagging at JP Morgan. Yet in the face of overwhelming evidence of well-warranted outrage at corporate and government misconduct, the experts prefer to talk about the PR bungling.
Since humor seems to be the only way to get forbidden topics, like the continued criminality of major banks, into official discourse, we encourage you to become a card-carrying member of the Skunk Party!
Unlike “liberal,” “libertarian,” “progressive,” and pretty much every label used in politics these days, everyone knows what a skunk is
Predators are afraid of skunks and treat them with respect
Skunks could care less what you think about them
Skunks have nice personalities and go about their business unless they are threatened. Even then, they give plenty of warning before they attack. Skunks fight fairly
Skunks have no interest in having private jets, sitting on public company boards, getting seats in the skybox, seeing their name in the newspapers (or buying them), owning lots of houses, or collecting art
Skunks are cute and telegenic, which is important in American politics
Skunks are winners! As Muriel Siebert said, “Never get in a pissing match with a skunk.”
Ezra Klein and Matt Yglesias will not want to be called skunks
What are the Big Problems the Skunk Party Needs to Address?
Um, aside from the fact that our system is rotten to the core, not that much.
Government at all levels is failing. It has met industrial and post-industrial capitalism and lost. Once upon a time, special interest groups and the wealthy merely helped themselves to biggest part of the cake. They’ve now decided to grab it all for themselves, and get ordinary people to do their dishes for them too. For instance, we had a global financial crisis that did so much damage to the economy that Andrew Haldane of the Bank of England prepared an analysis that showed that even nationalizing the big international banks wouldn’t begin to pay for all the damage they do on a regular basis. So what did we get? Dodd-Frank, which was weak tea that is being further watered down in lobbyist-dominated rule-making, plus the continuing bailouts known as ZIRP and QE.
And government isn’t just failing in terms of making a credible pretense of serving its nominal constituents. It is also failing on the level of basic competence. Forty years of demonization, attacks on regulators’ budgets and authority, and letting corporate-funded think tanks do most of what passes for policy study will do that. The Federal government came close to defaulting because a fringe movement decided to use it as a way to grandstand. Obama let health insurance lobbyists write Obamacare. While the media has been agog with fact that it’s hard to build a website that can navigate a Rube Goldberg machine, the bigger failure, which is being revealed as the program rolls out, is how much of a looting opportunity industry incumbents designed it to be.
Anglo-Saxon finance-driven capitalism is failing. Capitalism comes in many forms, but this one is well on its way to being a bungled experiment. Adam Smith would be among the first to disown it, for he was vigorously opposed to monopolists, rentiers, and businessmen who conspired to suppress wage levels.
If you have a system that requires that people sell their labor as a condition of survival, yet fails to provide enough opportunities to sell labor to go around, you have conditions for revolt. In the past, the solution was deficit spending to make up for capitalists’ reluctance to moderate their profit-taking and invest enough to assure sufficient job employment, along with social safety nets to buffer the impact of business cycles. The solution that is now being put in place is authoritarianism and militarized policing so as to make revolt impossible. But we know from the USSR that authoritarian systems are too costly in terms of the amount of resources and effort that go to the surveillance and control apparatus. They eventually collapse. But what passes for our elites are either in denial or have convinced themselves it won’t happen on their watch.
Corruption is the biggest single problem. Until we tackle that, frontally, it will be impossible to get any good solutions or even viable interim measures to the long and growing list of problems we face. Conduct that would have been seen as reprehensible 40 years ago, like foreclosing on people who were current on their mortgages, or selling drugs even when the company knows they increase heart heart attack and stroke risk enough to be fatal for a meaningful percentage of patients, barely stirs a raised eyebrow today.
Solutions need to be commensurate to the size of the problem. It’s insane to treat gunshot wounds with Band-Aids, yet that happens every day in Washington as well as London and Brussels. Timid, incremental fixes to rotten systems won’t save them.
Political parties are not the good conduits for fundamental reform. While we call this effort the Skunk Party out of convenience, this endeavor does not aspire to be a political party.
The US has managed to have a number of major reform efforts that achieved lasting change when they were applying pressure to the two-party system. The Populists, the early 20th century Progressives, the labor movement, the civil rights movement, the Ralph Nader-led consumer product safety effort, and gay activism all achieved significant results. Some of these initiatives (labor and civil rights) were met with considerable violence, more from private parties than the state. But these movements became toothless when they joined a major party. The Populists were defanged after 1896. Labor was much more effective when it was a threat outside the party system than after it joined the Democrats. By contrast, gay rights activists, even though aligned with the Democrats, continue to be effective because they operate a bloc willing to withhold support if its demands aren’t met.
We may be past the point where similar large-scale change can be achieved without more revolutionary methods. Yet the USSR collapsed with so little in the way of protests that the CIA didn’t see it coming. But it is also worth keeping in mind that revolutions, as in the kind that completely tear down the existing governing apparatus, do not have a great track record. If you look at France, it took nearly 100 years, till the Third Republic, for the democratic government form of government to become durable. But the flip side is when you consider the American post-Civil War sharecropper system, which used debt to reduce nominally free white and black farmers to de facto slaves, revolution (had it been possible in a rural setting) might well have been a better alternative than enduring generation-spanning oppression.
The effort to convert Americans from citizens into economic agents has been almost entirely to their detriment. Over time, the media has come more and more to describe Americans as “consumers” rather than “citizens.” That’s no accident. We’ve been reduced to being economic agents, but “consumer” emphasizes the supposedly fun part, shopping, and hides the not-so-nice part, selling your labor. And not only is the “one dollar equals one vote” model of economic power contrary to the “one person has one vote” model of democracy, designing a society first and foremost around economic considerations is detrimental in other respects.
Citizens are most effective when they are part of stable communities, since they then have a vested interest in the long-term consequences of political decisions. Having at least a significant number of residents be well rooted also means the investment of time to participate in civic affairs is not unduly costly relative to the potential benefits. Separately, virtually every study of mental health shows that people with large and diverse social networks (as in they participate in multiple social groups, as opposed to are deeply involved in only one) are happier, more resilient psychologically, and live longer. And bad health effects aren’t limited to middle and lower income people. High levels of income inequality take a toll on the health of all, even the rich.
By contrast, the economists’ ideal of “labor market flexibility” treats humans as corporate cannon fodder. And the results actually haven’t worked out so well in economic terms. Companies see workers as disposable. Despite pundit hand-wringing over the need for a highly-skilled work force, all education can do is confer general skills. Much of the knowledge that employers value comes via on-the-job training. Yet with job tenures short (between four and five years), most corporations simply aren’t willing to train new hires. Short job tenures also means workers can expect to suffer more unemployment over their lifetime. This impedes their ability to save for emergencies and retirement, buy a home (how can you have any confidence of being able to make mortgage payments?), and support a family. And de facto longer work weeks due to the requirement that many employees be on call, plus greater odds of needing to move in search of employment means less civic engagement and shallower social ties generally. But that sort of instability and frequent interruption of work, ironically, also hurts producers themselves, since it reduces consumer incomes and makes them rationally more cautious about making significant economic and personal commitments.
Skunk Party Principles
So far, we’ve focus on what isn’t working. What principles do we need to bear in mind going forward?
Concentrations of power lead to abuse. Lord Acton was right: power corrupts, and absolute power corrupts absolutely. Unfortunately, capitalism tends to produce concentrated economic power, and industrial and post-industrial capitalism, even more so. America’s founding fathers understood that danger and devised a system of checks and balances to limit the power of each branch of government. But those protections have weakened considerably as a result of sustained, 40-year assault.
The fact that wealthy interests can subvert democracy therefore means that:
More egalitarian societies are less corrupt. They also produce better social outcomes: less crime, longer lifespans, lower levels of mental illnesses, higher attainment in mathematical competence and literacy, lower incidence of childhood deaths and teen pregnancies. Highly unequal societies are bad even for the rich. Yet they are perversely attached to them. Even Emperor Napoleon recognized the value of making sure that capable people from modest backgrounds could attend the most elite educational institutions and assume influential positions. Our wealthy, by contrast, are happy to squander talent and waste lives in order to preserve their privileged positions.
Corporations need to be put in their place, and that means well behind natural persons. Corporations are creatures of the legal system. They cannot and should not take priority over humans. The bizarre notion that corporations have free speech rights is a sign of judicial insanity and corruption. Similarly, the preference for prosecuting companies, as opposed to their executives and officers, perpetuates bad conduct by making sure that no one who is influential is held accountable.
It thus follows that effective regulations and anti-trust enforcement are essential. Saying that because regulation is hard and is not often done well and therefore we shouldn’t do it is logically equivalent to saying bringing up children is hard and often not done well and therefore we shouldn’t do it. Feral children are dangers to themselves and society and feral corporations, even more so.
Citizenship creates responsibilities as well as rights. Corporations and the wealthy curiously manage to get the advantages of being “persons” without having corresponding duties, like paying their fair share in taxes.
Initial Skunk Party Policy Ideas
We are past the point where passive resignation or gnashing of teeth will do.
Our motto is “It’s time to clear the room.”
Here are some ideas for how to accomplish that.
Treat corporate welfare queens like government enterprises. Companies whose profits depend significantly or entirely on government subsidies are not private enterprises. They should therefore be held to much higher standards of accountability to society at large than businesses who really do make their own way.
At one extreme are the large financial services companies. The big banks depend on the interbank payments system, Fedwire, which would not be viable without Fed backstopping. FDIC deposit insurance is widely recognized as being underpriced and hence is another subsidy. Over 90% of mortgages originated in the US are government guaranteed (and that’s before considering the huge “get out of jail almost free” card of Federal/49 State mortgage settlement, which got major banks out of chain of title liability that almost certainly exceeded their collective net worth). These corporations need to be regulated like public utilities.
While large financial services companies are an obvious example of firms that could not exist in their current form if government props were removed, many other businesses are also heavy users of the taxpayer drip-feed, such as Big Pharma, by virtue of substantial government funding of research and development, and companies in extraction industries that operate on public lands.
The degree of accountability to the public would be determined by a dependency ratio, which would measure how much of their pre-tax profits resulted from government subsidies (note since this will vary over time, the notion is not to come up with precise measurement but a good approximation)**. For instance, Walmart, McDonalds, and many other national retail businesses pay workers less than than a living wage. This underpayment imposes a cost on taxpayers because those employees make use of food stamps, Medicare and other social safety nets to make up the difference. The difference between wages paid versus living wages, plus other subsidies (like state and local tax breaks for building new stores in particular locations) would then be totaled (for other businesses, these also include government-funded R&D, like the value of National Institutes of Health-funded research to drug companies).
To illustrate how this could work in practice: A company that received more than 20% of its pre-tax profits in these subsidies would have compensation to its employees and board members capped at 50 times the full-time equivalent of lowest-paid worker pay (including contractors), including deferred compensation and stock options. Companies who received more than 10% of their pre-tax profits through subsidies also be required to have labor and community representatives as board members in same ratio. Companies over the 20% subsidy level would be required to cut managerial and executive pay and benefits in the same proportion as any cuts imposed on low-level workers. These companies would also be prohibited from increasing managerial or executive pay in any year during or immediately after a headcount reduction.
Note this approach also has the advantage of providing good incentives. Executives, particularly of large companies, are keen to pay themselves well. Docking their pay because they are unduly on the taxpayer dime will induce them to change their operations so as to reduce reliance on public support.
End looting. Looting takes multiple forms. The best known is when companies that enjoy government support borrow too much money, take a lot of risk, pay executives and insiders too much, and sooner or later go bankrupt. The “treat welfare queens like public enterprises” effort should go a long way in addressing this problem. But looting has also depended on enablers, like compliant accountants and lawyers and weak boards. We need more aggressive prosecution of executives and employees who engage in predatory practices, but we also need to prosecute outside advisors who provide their liability shield.**
Similarly, the legal profession has actively participated in abuse of the legal process in foreclosures. Partners in foreclosure mills across the country have yet to be disbarred. Complaint judges have also played a role here, yet a comparatively simple remedy, that of New York’s courts requiring that attorneys certify the validity of documents submitted to them, has gone a long way in curbing this abuse. But that measure stands in sharp contrast to bank-friendly behavior in the rest of the county, and shows the need for a concerted effort to take back the judiciary from business.
An even more pernicious form of looting is taking place via privatization or reckless use of formerly public resources. This is the modern analogue to the enclosure movement, a key step in the early days of capitalism in which peasants were deprived of the means of producing for themselves. Land that had been commonly held was pasture used for grazing. But when those fields were enclosed and deeded over to well-placed aristocrats, court placeholders, or members of the emerging merchant class, most families could not longer keep their livestock, which were critical to their livelihood. Game laws were passed around the same time restricting their right to hunt. Dispossessed farmers moved in droves to cities.
Today, we see a similar enclosure movement in the field of intellectual property, with laws being used in unheard of ways to pauperize the middle class: efforts to patent genes,*** creative extensions of drug patents through inconsequential changes (like reformulation for 24 hours dosage or clinical trials to validate additional uses), and governments allowing price-gouging on publicly-conferred communications monopolies and oligopolies (American broadband services are as a result both low in quality and high in cost relative to not only advanced but even developing economies). We also see other irresponsible use of scarce resources, such as the destruction of potable water via fracking.
Public resources need to be managed with the public first in mind, not private profit. For instance, net neutrality is both in the interest of the general public and promotes innovation; the folks that are against it, naturally, are oligopolist wannabes. Plant and animal varieties were similarly not privately owned; you could own a particular Thoroughbred or breed a new plant variety and profit from its direct “output” in terms of race winnings and progeny (stud fees, sales of new seeds). But the agriculture privateers want to go well beyond that. The idea that GMO technology can be used by companies privatize what used to be agricultural commons is not simply an aggressive form of rent extraction, but an uncontrolled health experiment on performed on the public at large without its informed consent. GMO labeling should be an uncontroversial means to let individuals opt out. Letting private companies take and hold a choke point on a resource critical to the public as significant as grains and other agricultural staples is guaranteed to lead to extortion. It needs to be restricted for that reason alone.
Pay for clean government. You get what you pay for. The result of undercompensating government employees in critical positions is crappy government. The reason we have corrupt government is we haven’t been willing to pay for better. As we wrote earlier:
If you pay cops terribly, you’ll get cops who take bribes. If you pay members of Congress or regulators way less than first year law school graduates in large New York or DC law firms, you’re going to get members and regulators who take bribes. If you cut health care subsidies for Congressional staff, you’ll get lobbyists writing the laws. It’s not that all poorly paid cops are corrupt, it’s just that it’s more likely for corruption to flourish where the public sector is radically unequal compared to the private sector. That’s just the way it works.
So we need meaningfully higher pay levels for people in key positions in Washington, such as the heads of regulatory agencies, their deputies, enforcement and compliance chiefs, as well as Congressional staffers, and government “worker bees” generally. The people at the very top need to be paid at the level of high caliber private sector professionals, such as law or accounting firm partners. Other staff members in important roles need to be paid at a high enough level that they enjoy a comfortable middle class lifestyle and have it be a viable career. They require that level of compensation so that needed curbs on post-government work can also be imposed, such as a prohibition from taking a job that would have them trading on their government Rolodex in any meaningful manner for a five year period after leaving government service.
The government also needs much tougher internal audit functions. Inspectors General units vary tremendously in vigor across the Executive branch, but even the more aggressive ones are not terribly tough. The Inspector General function either needs to be reformed to make it more bloody-minded or replaced with a better set of overseers.
Have government intercede when the private sector fails. Businesses promised that deregulation would lead to higher incomes and more growth. There’s been growth, for sure, in top executive incomes, in profit share of GDP, and in unemployment.
Capitalists have been abjectly failing to do their duty. Even in the Bush expansion, they were saving rather than investing. In this phony recovery, large companies have borrowed boatloads of cash, and are either sitting on it (which in many cases means speculating in their corporate Treasuries) or buying back stock. Smaller companies are shell shocked and most report no interest in spending.
So until capitalists are willing to do their job, government need to intercede. One approach would be to tax companies aggressively on excessive cash holdings to discourage hoarding and encourage investment. A financial turnover tax would also discourage major corporations to keeping funds stashes for the purpose of speculation (many industrial companies now run their Treasuries as profit centers).
Perversely, our terrible infrastructure makes for a good jobs program. The fastest and most straight-forward way to go about fixing it would be to reinstitute revenue sharing, first implemented by Richard Nixon. The Federal government gave grants to the states, based on the premise that the national government was more efficient at tax collection but state and local governments were the better judge of priorities in their area. State and local governments were also hit very hard by the collapse in tax revenues produced by the financial crisis. Restoring service levels would also provide a boost to employment.
Curb the surveillance state. The NSA has no business hoovering up data on ordinary Americans. It should be defunded entirely in its current form and any new authorization should be on narrowly-defined programs, with far more emphasis on defensive measures (as in protection against foreign hackers, which surveilling citizens does not address) and bona fide foreign threats (versus the current use of “terrorists are in every woodpile and under every bed” claims to justify total surveillance strategies).
Restrict private sector snooping on ordinary Americans. Communications providers and information gatherers like credit bureaus should be subject to a “big data” tax on information they collect and sell. Exchanges directly with content providers, such as cookies, would be exempt, but any transmission of data about an individual to third parties is subject to a levy. This would need to be formulated as a “one vendor” rule so that if Amazon allows another vendor on its site, that vendor would pay a tax on any customer-specific information it obtains from Amazon.****
* * *While the Skunk Party may simply become a Naked Capitalism inside joke, I hope readers see it as having enough merit even in this first approximation to see fit to circulate this post to friends and colleagues. We intend to develop a more streamlined version in upcoming weeks based on reader input. Please note that getting the principles right is the most important focus. I included policy ideas to show that some of the implications go beyond standard “progressive” thinking.
The basic message is simple: We can’t rely on the current political parties to stop corruption. It has become part of their business model. But we also need to remember that they are only a symptom of an overall societal problem, that the old ethic of noblesse oblige and propriety as curbs on elite behavior, has been supplanted by a “might makes right” value system that gives a free pass to looting and the exploitation of vulnerable populations and resources.
One illustration of the rot: Economist Dean Baker had to devote an entire post to tutoring the press as to why having former Treasury Secretary Timothy Geithner become head of private equity firm Warburg Pincus clearly was an example of the revolving door: Geithner lacks both economic and investing acumen, having missed the looming financial crisis, nor does he posses any experience or expertise in private equity. He’s clearly there for his connections. The fact that Baker need to go patiently, step by step, through an explanation of what ought to be obvious is a sign of either willful blindness or deep cynicism among the elites. The examples of questionable behavior that the press gives a free pass are so numerous that it is well nigh impossible to catalogue them, let alone debunk them.
So that duty increasingly needs to be taken up by the public. One encouraging sign was how much a comparatively small group of people involved in Occupy did to focus attention on the underlying issue: that of the concentration of power and wealth in the unaccountable and too often predatory top social stratum. While there may be some members of that cohort who are distressed at the change in values in this country, they have yet to stand up effectively against the decay. The fact that those who felt implicated by the Occupy’s 1% charge rallied so quickly to crush the movement is a sign that they recognize that their dominion is not secure. Given the festering discontent at their failure to act as responsible stewards, that means large-scale change is both warranted and possible.
I hope you’ll help me advance this discussion in future posts.
* EBITDA would be a good “pre-tax profit” figure for most industries; for financial services firm outside the big banks, you’d need a different measure, since interest is typically part of their cost of goods sold.
**As mind-boggling as it might seem, the only party that can sue outside advisors that provided information that misled investors or other parties is the client of those advisors, meaning the probably shady company itself.
*** Genes from natural cells are still exempt from patenting, but synthetic genes are fair game. The question of whether molecules or proteins can be patented remains open.
**** Note that France is studying how to implement an Internet tax to make sure digital-based businesses pay their fair share.