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The CEO as a Hero

The glorification of the businessman is a cult as old as social darwinism and the modern corporation. From the time of the robber barons, those predisposed to view society on the most superficial basis possible have sang the praises of those noble souls who built empires of commerce and reaped the overwhelming financial rewards. Embracing the status quo myth of the free market and uninhibited entrepenuerial competition, they built whole systems based on the superiority of economies of scale and big business.

Since it is always necessarily in mythologies to have a character to represent the forces of righteousness, the CEO was often singled out as a hero. By using his own superior intellect, charm, and intuitive capabilities to direct a massively sprawling and complex corporate organization through the waters of competition, marketing, and morale building, the CEO deserved all the credit and pay he got. He is also typically praised for being the one driving force behind a corporate hierarchy and a larger market that creates jobs and wealth for society at large. Even amid the crises of confidence in the modern corporate capitalist economy such as the Chrysler bailout, the S&L scandal, Enron, and WorldCom, the CEO is almost always lauded as the personality behind the successes and failures of businesses - and often whole economic sectors.

In a world of neverending corporate consolidation and market hegemony, it’s important to have a human face to what is otherwise a cold, impersonal, and inhuman conglomerate. When we project the qualities of entrepeneurialism onto such giant, mechansitic entities, it’s important to have a person to whom we can assign credit or blame. As humans dealing in a complex environment, we just need it somehow. We’re unable to really grasp the accumulation of capital that these corporations control, and knowing that a human is still calling the shots gives us some relief, I suppose. Indeed, the charisma of the CEO’s cult of personality is that he can, in fact, juggle these economies of scale in his head, and deliver an efficient market through some inner strength or gift he possesses.

I’ve met some capitalism advocates in my time - hell, I even went through an Ayn Rand phase of viewing big business as “America’s most persecuted minority” - but rarely have I encountered such a touching ode to the death of a CEO, let alone a failed one, as that penned by Right Thinking Girl in Ken Lay’s honor:

To me, it was a Shakespearean tragedy. A humble man who spent his entire life trying to build a life - wealth, yes, but more than that. A company. A legacy. And he succeeded. Oh did he succeed. He seemed to have a magnet inside him that attracted power and wealth and people. He had a wife. A good wife, a proper wife, who loved her husband and was faithful and strong. She had good humor; in interviews she would laugh over her husband’s relationships with Presidents and kings. She had a lovely smile and she used it often, blushing and sweetly smiling and rolling her eyes to show how absurd, how unexpected, how lovely but fleeting it all was.

RTG is exceptional only in her investment of dramatic license in the Enron scandal, not in her passion for all things big business. There are many conservatives (and liberals) who see corporate captialism as an unmitigated good and can’t help but evangelize this truth far and wide. What makes her unique is the single-handed charge she led to vindicate the people ostensibly responsible for one of the worst business failures in history. Her motivation: the romantic exaultation of the executive businessman to God-like status. Is the CEO deserving of this reputation, though?

Designing a Market Through Political Means

Ken Lay and Enron, far from being shrewd entrepeneurs, were instead experts at the game of lobbying governments to change rules in their favor. This was the whole impetus behind the “energy deregulation” movement in the late nineties: by altering - but by no means abolishing - the regulations on an otherwise monpolistic energy industry (the term “deregulation” is a misnomer; see this article at the Mises Institute for a good analysis), certain areas of the nation sought to “design” a market in energy.

From the get-go this should have raised alarm bells: markets are an example of a distributed information network resulting from human action but not human design. That is the core reason markets can moderate the complex and diverse activities and interests inherent in society - and why communism and central planning fails. But just because markets are spontaneous phenomena doesn’t mean they can’t be manipulated. Indeed, state capitalism is built around setting the scope of how markets can allocate capital, prohibiting certain activities and encouraging others. The outcomes are still market-driven: they’re just less efficient and fair than they would otherwise be if free of forcible intervention.

Deregulation and privatization schemes are often concerned with redefining the bounds of acceptable activity to promote some limited form of market economics. Since energy deregulation, such as that which occurred in California, was not really about discovering market mechanisms in practice by encouraging innovation and efficiency, but rather about imposing them from above through rules guaranteeing profits and moderating risks, the situation was ripe for regulatory capture. Indeed, lobbyists and industry big-wigs worked hard to make sure that the system favored corporate interests over those of consumers. This political situation regulated into existence a complicated scheme that would allow great profits to be made by energy companies while limiting the amount of costs they would have to cover, allowing them to pass the costs of rampant speculation onto consumers who had extremely little say in the plan (for another detailed analysis of the evolution of the California deregulation debacle, see Severin Borenstein’s painstaking treatment).

The result of deregulation was a scenario where consumer choice - always limited by the essential monopoly of the energy grid - was virtually nil, with all the market power in the hands of generators and speculative traders such as Enron. This should surprise nobody - Enron and Lay were among those who set the rules and stood to profit. Enron’s whole ethic of “creating markets” was bogus: economic actors don’t “create” markets, they serve them. True markets moderate special interests; they don’t exist to serve them unless they’ve been engineered to. But then, an engineered market is an oxymoron (I looked at market rationalization via government intervention in another post). Jerry Taylor of the CATO Insitute points out the how regulations ensured these profits:

Enron, you see, was worried that the incumbent utilities would either under-price the non-utility competitors that Enron wanted on their trading floors or, alternatively, would charge such high prices for access to their transmission systems that non-utility gas and electricity providers would be unable to effectively compete for business.

So Enron insisted that electric utilities be forced by law to get out of the generation business, that strict price controls be set for the rates charged for access to the various transmission grids, and that the day-to-day operation of the electricity distribution systems be handed over to state officials who were directed to govern those systems at the behest of the system’s “stakeholders” (read: Enron and friends). So Reaganite competition, according to Enron, required new micromanagerial rules about industrial organization and the de-facto nationalization of the transmission systems by officials who’d have to answer to Enron.

Now factor in subsidies and tax breaks. This article by Ron Paul lays it out:

Enron provides a perfect example of the dangers of corporate subsidies. The company was (and is) one of the biggest beneficiaries of Export-Import Bank subsidies. The Ex-Im bank, a program that Congress continues to fund with your tax dollars, essentially makes risky loans to foreign governments and businesses for projects involving American companies. The Bank, which purports to help developing nations, really acts as a naked subsidy for certain politically-favored American corporations- especially corporations like Enron that lobbied hard and gave huge amounts of cash to both political parties. Its reward was more that $600 million in cash via six different Ex-Im financed projects.

One such project, a power plant in India, played a big part in Enron’s demise. The company had trouble selling the power to local officials, adding to its huge $618 million loss for the third quarter of 2001. Former president Clinton worked hard to secure the India deal for Enron in the mid-90s; not surprisingly, his 1996 campaign received $100,000 from the company. Yet the media makes no mention of this favoritism. Clinton may claim he was “protecting” tax dollars, but those tax dollars should never have been sent to India in the first place.

Enron similarly benefitted from another federal boondoggle, the Overseas Private Investment Corporation. OPIC operates much like the Ex-Im Bank, providing taxpayer-funded loan guarantees for overseas projects, often in countries with shaky governments and economies. An OPIC spokesman claims the organization paid more than one billion dollars for 12 projects involving Enron, dollars that now may never be repaid. Once again, corporate welfare benefits certain interests at the expense of taxpayers.

Now let’s be clear: Enron didn’t do anything that most other corporations wouldn’t do. But to say Ken Lay was some sort of genius for simply steering government largesse his way is ridiculous. It would take a mastermind to create the kind of markets they were claiming to create - a mastermind, in fact, such as has never existed in the history of the human race.

This is what makes RTG’s praise for Lay so ridiculous: he didn’t really do anything. It’s especially absurd that in the face of all this risk offloading onto the public sector, Enron still had couldn’t juggle their credit needs sufficiently to avoid bankruptcy. Clearly, they were playing a very dangerous game with investors’ money.

Management, “Magic”, and Exploitation

In telling her side of the Enron story, RTG goes into detail about the nature of the legal entities Enron created to make the books look good. Skilling created shell companies to hide risks from investors and lenders:

Enron’s idea was to pay a third party to assume the risk that Rhythms’ price would fall. If Enron could find an investment firm to sell it a put option, then its profits would be locked in. Unfortunately, that was impossible. It would violate the agreement with Rhythms, and more worrisome, no investment bank would sell a put option on a volatile, new, thinly traded stock like Rhythms.

Andrew Fastow, the CFO of Enron, thought and thought and thought about the problem. And then he solved it.

LJM (named by Fastow after his wife, Lea and his two sons, Jeffrey and Matthew) would act as an off-balance-sheet fund (in other words, completely separate from Enron; it would be a partner to Enron, not an asset of Enron). Enron would contribute its own stock (about $250 million) to some outside fund, which would then sell a put option on Rhythms stock to Enron.

That outside fund, of course, was LJM.

This was the kind of stuff these executives were doing to create productive value for the market: creating entities to hide huge risks in order to “lock in profits”.

And then there’s the total farce of mark-to-market accounting, which RTG details lovingly:

Using M2M, Enron could acquire an asset yet report the amount of their expected future value as revenue for that year. For example, Enron could buy a pipeline contract for $100 million. The value of the contract (let’s say it was for 20 years) could amount to $20 Billion. Therefore, even if technically Enron was out of $100 million in cash, it could report that it earned $20 Billion in that year. Interesting, isn’t it? As I like to call it, pure legal magic.

I wonder if the shareholders in Enron would call it that. Real, productive business doesn’t need stupid tricks like this, dreamt up by overpaid executives to pull the wool over people’s eyes. But corporatism is all about locking in profits, making things look great, and making lots of money off of appearances - while offsetting costs to others.

What should be clear about all this is that the risks Skilling and Lay were taking were not being divulged to shareholders. All we have now to account for their good intentions was a hindsight admission from Skilling that the partnerships he created were “a horrible idea”. One wonders if they were a horrible idea back when they were thinking of ways to tangle them up in webs of accounting.

One of the major problems with the corporate model is that of “agents” and “principals”. Investors - the principals - hire management - the agents - to run the corporation that they own. But in practice, management accrues far too much power in the organization and can manipulate it to its ends. It’s a culture that, while CEOs aren’t necessarily responsible for it, they certainly thrive off of it.

Regardless of protestations by Lay and Skilling, executives don’t have the same interests in mind when they take risks on behalf of the investors. Too often their pay is not connected to performance. Lay took $300 million in compensation from Enron for his management skills. To argue that he has the same interests in mind as a pension investor is ridiculous. This conflict of interests problem is built into many corporate situations, and Dean Baker highlights many in the third chapter of his book, The Conservative Nanny State.

The Con Job of Big Businessmen

All too often, this exactly what corporations and their leaders do: find ways to make others pay for their profits, hide information to gain advantage, and generally act like horribly overpaid confidence men. This isn’t some new, novel analysis I’m making - no keener or wittier a mind than H.L. Mencken made this observation almost a century ago, when he described the class of man RTG idolizes:

The whole bag of tricks of the average business man, or even of the average professional man, is inordinately childish. It takes no more actual sagacity to carry on the everyday hawking and haggling of the world, or to ladle out its normal doses of bad medicine and worse law, than it takes to operate a taxicab or fry a pan of fish. No observant person, indeed, can come into close contact with the general run of business and professional men–I confine myself to those who seem to get on in the world, and exclude the admitted failures–without marvelling at their intellectual lethargy, their incurable ingenuousness, their appalling lack of ordinary sense. The late Charles Francis Adams, a grandson of one American President and a great-grandson of another, after a long lifetime in intimate association with some of the chief business “geniuses” of that paradise of traders and usurers, the United States, reported in his old age that he had never heard a single one of them say anything worth hearing. These were vigorous and masculine men, and in a man’s world they were successful men, but intellectually they were all blank cartridges.

…

The notion is certainly supported by the familiar incompetency of first rate men for what are called practical concerns. One could not think of Aristotle or Beethoven multiplying 3,472,701 by 99,999 without making a mistake, nor could one think of him remembering the range of this or that railway share for two years, or the number of ten-penny nails in a hundred weight, or the freight on lard from Galveston to Rotterdam. And by the same token one could not imagine him expert at billiards, or at grouse-shooting, or at golf, or at any other of the idiotic games at which what are called successful men commonly divert themselves. In his great study of British genius, Havelock Ellis found that an incapacity for such petty expertness was visible in almost all first rate men. They are bad at tying cravats. They do not understand the fashionable card games. They are puzzled by book-keeping. They know nothing of party politics. In brief, they are inert and impotent in the very fields of endeavour that see the average men’s highest performances, and are easily surpassed by men who, in actual intelligence, are about as far below them as the Simidae.

And that’s all there is to it. We have a system, propped up by the state for the benefit of the connected class. They use outright fraud and employ (admittedly bad) legal rules to trick investors, creditors, and other outside interests into looking bigger than they are (these are the same types of people who tell stories about the huge fish or awesome golf plays they made over the weekend). And in the end, they are really just overbearing figureheads for giant insitutions who appear to bumble along, getting profits handed to them on a silver spoon, in spite of their bad character and pithy intelligence.

With conservatives worshipping figures like this, is it any wonder they put the man they did in the White House?

Tags: ceo, business, corporation, h l mencken, enron

I’ve read this essay several times, and you should make sure you read it at least once. As horrifying and infuriating as Gatto’s entirely spot-on description of our public education system is, the last few sentences never fail to choke me up:

After a long life, and thirty years in the public school trenches, I’ve concluded that genius is as common as dirt. We suppress our genius only because we haven’t yet figured out how to manage a population of educated men and women. The solution, I think, is simple and glorious. Let them manage themselves.

Amen. It’s all about central management: by states, by corporations, by established interests and their institutions. Check out this interview with Gatto where he ties public education philosophy to social darwinism. He also contends - to my amazement - that the term “social darwinism” refers directly to Charles Darwin himself! He was a Calvinist who extended beliefs on predestination to the mandate for the “chosen” to protect the evolutionary breeding stock of humanity. I’m going to have to look into that more.

Tags: education, john taylor gatto, social darwinism, darwin, evolution, calvinism

Sam, a knowledgable and obviously adept Austrian economist, and I compare and contrast mutualism and the Austrian school on some key points in a recent posts’ comment thread. We discuss the Labor Theory of Value vs. the subjectivists in the context of Kevin Carson’s seminal work on mutualist political economy. And Kevin shows up to comment on our discussion! Good reading if you’re wondering why I’m so ga-ga over mutualism.

INTRODUCTORY NOTE: This essay was originally written for the now defunct blog “Wrong Thinking Girl”.

It seems appropriate somehow to christen this blog with a broad analysis of RightThinkingGirl’s philosophy. This should set the tone for the blog, and give a good insight into why we started it. RTG has gotten people thinking, and that’s a good thing - what we want to do here is highlight that thinking, or at least that which occurs on the other end of the spectrum.

To the extent that RTG delves into politics, we need to start with her primary biases and assumptions. Politics, even at its worst, results from a particular understanding of sociology, psychology, and the general attitudes one holds towards the human animal. Defining the scope of acceptable behavior and deincentivizing antisocial behavior takes place within the context of what one should expect from one’s fellow man. To the extent that people are motivated to realize their vision of society via politics, this axiomatic understanding of human nature is primary. After all, if you’re going to engineer people, you gotta have an ideal towards which to aspire.

So, let’s propose that an understanding of “human nature” is the essential foundation of politics, and that the Right and the Left come down on their respective sides because of a core difference in approach. What does this mean for the debate occuring across the no-man’s-land of the status quo establishment? What are these two different sides (if they’re even reducable to two sides)? And, most importantly, where does RTG’s position wind up in the end? If we’re going to get to the root of the Right/Left dichotomy, let’s be sure we’ve given each side a chance.

The death penalty debate, as it turns out, is the great proving ground for one’s views on human nature. True to form, RTG lays out her position taking a no-apologies stance on state executions. Her thesis:

Death penalty opponents will focus on systematic concerns. They will claim we might execute an innocent man (though we never have.) They will claim that they can be good parents while still in prison. They will make all kinds of claims that are basically static to avoid the real issue: that people who commit these kinds of awful crimes are not just like you and me - they are, quite simply, subhuman.

I can’t speak for the other liberals here, but my beef with the death penalty is independent of whether or not the state gets it wrong from time to time (it would be silly to suggest it doesn’t). Rather, I think it’s dangerous whenever somebody invokes the language of classifying people’s entitlement to life according to their essential, intangible “humanity”. The state simply doesn’t have a good record in this regard, from the history of slavery to the Holocaust to historical attitudes towards mental illness. All of these horrors were visited upon mankind by the state - backed up by a belief that some people are not human. It’s easy to see why this occurs - sheer convenience in the case of tough, complex situations in society. Yet, in each case, we eventually discovered that those judgments were unwarranted.

Now, I understand that somebody who has committed a horrendous crime deserves sanction. And I’m not arguing that a person who has done something monsterous is on the same level with the innocent vicitms of slavery or eugenics. I’m talking about how we as a society deal with the people whom, for whatever reason, we find unacceptable. Because how we respond to these problems says a lot about ourselves and our progress as a species, it’s very important that we not force the blood to boil in typical conservative form.

Of course, invoking emotions is the entire conservative modus operandi, as RTG goes to copious length to describe the crimes. As she tells us the story of these actions, it’s clear that she’s affected by them. I appreciate even the half hearted attempt to put oneself in what is clearly a sick person’s shoes, but keep in mind that RTG is an accomplished fiction writer and fiction is all about the emotional point:

Imagine for a moment, the decision to do such a thing. Imagine going through the house to find duct tape. You storm into the kitchen, shake open the drawers. You have tape in your hand. You make the decision to walk into the room where the baby is crying or sleeping, or gurgling at a mobile. Then you grab him. You pick him up. He’s tiny, barely seven pounds, and he wears a white diaper. You lay him down on the bed. You grab that tiny arm and place it over his chest. And you tape his arm down. By now, that four day old baby would have been crying. He would not have liked having his arm bound to his body. Sticky tape on that sweet, tender, velvety soft skin. More tape wrapped tightly around his tiny rib cage. Then the tape covers his sweet little mouth. Covers his nose. He can’t breathe. His mom wraps the tape over his eyes, getting his eyelashes stuck to the tape. Imagine yourself doing that to a four day old baby. Your own baby.

…

And that story, sadly, isn’t so very unique. On that same Death Row is Darlie Routier who stabbed her two boys to death. One was six, one was seven. Stabbed them. Then said she slept through it all - even though they were literally less than two feet from her. No, what this woman did was this: she got up from the sofa, went into the kitchen and got a large kitchen knife, and then went back into the living room. Her boys were sleeping. Imagine how peaceful they looked. Little boys asleep after a long day of playing outside. Cute little boys. Her own boys. And she stood over her youngest one first, and plunged that knife into his little back. She hacked into his six year old body so hard that the knife went all the way through his body and stuck in the carpet.

Cathy Henderson is another one. She killed a three-month old baby. This one wasn’t her own child. She claims she was just going to sell him - but she ended up dropping him on his head, then burried him in a shallow grave and fled the state. She actually admitted that she was going to sell this child.

I share the digust you must be feeling after reading these stories. They leave you feeling totally empty, the sacredness of life strewn about your mind. It’s incomprehensible.

I expect people to be scared, confused, and horrified by those narratives. But scared, confused, horrified people can act in incredibly self-defeating and overblown ways. Unfortunately, when we call upon the state to use its immense force, we are invoking the single most destructive force in history - far more destructive or horrifying than anything these women could have done. Indeed, the whole reason we ask the state to moderate justice is because it claims to act dispassionately and with utmost regard for the most just remedy. Is it so wrong to insist on some deep thinking before we use it out of anger and revulsion? Or is blind anger without reflection the only way we’re going to get the gumption to commit same types of acts these people have been accused of committing?

Because as much as RTG and others want to cast these people out society, out of life, and out of their own minds, the fact remains that they are people. They are human beings - yes, like you and me. They had mothers and fathers. They were babies once. They had hopes and dreams. Isn’t that sad - isn’t that a tragedy too? Isn’t that part of the story?

Apologists for the death penalty want us to only consider the victim’s families. When in the course of officially prosecuting state duties is it ever wise to serve one group of people over others? Isn’t there a society to think about here?

Don’t just put yourself in the shoes of these murderers as they are offending nature and humanity. Follow them through their whole life. Don’t just ask how they could do such a horrible thing - look at the path that led them there. They are showing us something that lurks in our hearts, a potential that we have within us as well. Now THAT’s something painful to think about. Because there’s a very good reason we can’t imagine doing those things: we don’t want to. Yet, in the name of our impatience with the dark side of ourselves, we are calling on perhaps the biggest, most heartless, most bloody killer of all time!

Conservatives have a long history of not wanting to consider the complexity of human beings, seeing whatever lot the masses happen to find themselves in as the way God intended it. While the Left - from its very beginnings in the French Revolution - have campaigned for the equality of mankind, seeking to cast down the caste-like social distinctions of the feudal and post-feudal capitalist systems, the Right have consistently questioned the need for such bothersome philosophizing and speculation. Seeking the comfort and familiarity of caste-like social systems where people knew their place, they saw the Left as mere rabble-rousers. As a friend of mine once said, “some things just aren’t deep”. This is often the implicit rallying cry of an ideology which seeks to preserve the old order, with a healthy side order of ignorant bliss. Delving too deep is dangerous! Better to just pay your taxes, keep your head down, and rally around the latest execution.

Humans are complex. They are deep. They haven’t always been understood, and I have a hard time accepting that we understand them now. That’s why I’m on the Left: I believe we have a lot to learn, and that we should try to learn as a society. It’s too easy to dispense of elements that we find inconvenient - to put them in a category separate from us. It’s not a truth; it’s a defense mechanism to hide a facet of human nature from us. Leftists are interested in the full scope of human nature: society should serve the humans that actually exist, not force humans into a mold that doesn’t fit or eradicate them like a cancer. Hopefully over the course of this blog you will see other opinions on what it means to be on the Left - especially those who, unlike me, support the state’s monopoly over force.

Here’s the point: society will always have frontiers of fear and misunderstanding, and the deepest abyss of the human heart may always be unknowable. But extinguishing life doesn’t remedy anything - it only continues the pointless violence. It does this, furthermore, by empowering the biggest killer by far in human history. Death is not a currency with which to pay back a debt, nor is it a mechanism for teaching a lesson. By promoting the death penalty, RTG is simply showing that matters of human interest are simply too complex to be dealt with in a thoughtful manner and must therefore be swept from the healthy mind. We’d do better to ponder our own weaknesses and savagery - especially with regards to the state - than to simply isolate cases where human nature has failed us and purge these symptoms of a deeper collective problem.

The Left, to her chagrin, will continue to fight for a deeper understanding of human nature, rather than the current established order thrown into some sort of arbitrarily sharper relief. It’s easy to play rear guard to human intellectual and philosophical progress - you never have to admit any fallability. But as a society, we are as a deep as we want to be - and this is where the Left and the Right really part ways. The Left sees the individual in the context of a complex, constantly puzzling world. The Right fights for an easy calculation of the human experience. Both stances are no more or less valid, true, but when dealing with matters of war and peace, life and death, and human dignity, one should make no mistake which side is open to the evidence of the mind and which rules from the gut.

Tags: death penalty, human nature, right thinking girl

To her credit, RTG makes a great case for going easier on people who make mistakes in their personal lives:

What really bothers me is the fact that hypocrisy has become the primary device to discredit the other side. When Rush Limbaugh admitted on the air that he was battling drug addiction, Liberals nearly fainted with pleasure. It was a great a-ha moment but it was lacking in real substance - just like Pelosi’s relationship with unions. Rush’s problem with prescribed medication for back pain was, in my view, different than a heroin addict knocking over a Stop N Go for cash, and in any case - his drug addiction doesn’t make his views wrong or illegal or in any way suspect. It was character assasination.

It makes me hope that, finally, RTG is getting it: humans are fallable, they make mistakes, and we should have compassion for them instead of expecting them to conform to some social straightjacket at gunpoint.

The point, I think, is to continue to strive for perfection. If you fail - and you might - then your moral authority might be compromised but there is more to life than moral authority. There is objective Right and Wrong.

Exactly: there IS more to life than moral authority. Why that is has nothing to do with whether morality is objective or subjective, though. Rather it has to do with the nature of authority itself: it, too, is human, subject to the same indiscretions, mistakes, and personal failing that it seeks out in others.

But people like RTG and Rush Limbaugh can’t give up on the myth. In order for people to act in the way they believe is objectively right and moral, they need a State that is poking into people’s personal lives, making sure they’re not committing offenses towards God or whatever this moral authority actually is. And so, people like Rush - who are suffering - get dragged through the system. It’s not so much hipocritical as tragic when people continue to worship an “authority” even as it’s bludgeoning them. Like battered housewives, moral absolutists keep returning to the abuser, subjecting the entire society to more violence and suffering in the name of “objective right”.

If the Right was consistent in being compassionate towards ALL for their indiscretions - even those “objectively wrong”, that would be one thing. But many of the vices conservatives try to tackle they do with “zero tolerance” mentalities, criminalizing the population you claim to now want to be kinder and gentler towards. That’s what happens when you break into people’s personal lives to tell them what to do - no wonder it happens to right wing blowhards just like the rest of us.

The problem is precisely the one I set out in another essay: conservatives’ absolute demands on human perfection are fine except that they want to use the state to realize them. While God may have absolute knowledge of who’s deserving of compassion and who deserves the book thrown at a person, the State or Rush or RTG have very little ability to make objective judgments where the level of harm is not demonstrable - even when starting from an objective morality.

This is why victimless crimes are so wrong: because they rely on fallable bureaucrats to enforce, instead of actually resonding to injured parties. There is no compaint to which the State can respond, because there is nobody that is really hurt in any legally consistent sense. So the government has to seek out the “crimes”, and yes, they often expose secrets (though more often they aren’t those of the well connected like Rush, but rather average joes who don’t have a big soapbox). How ironic: the very problems RTG has with hipocrisy arise from the hipocrisy inherent in vice laws. Vice laws short circuit the entire mechanism of traditional Anglo-American common law in order to penalize us for activities that, at most, are hurting only ourselves.

Finally, one commenter on RTG.com tries to advance the argument that the hipocrisy of the Right is somehow better than the Left because it doesn’t impose the large social costs that the Left does. Of course, this is patently false. The U.S. has the largest prison population of any country in the world, and over half of our prisoners are victims of the drug war policies Rush has taken pains to endorse. In this area alone the social costs of prohibition are far too large to be ignored.

But, as I set out in a post on my blog, conservatives have a tendency to ignore costs they find undesirable to factor into the balance sheet of “progress”. These costs don’t disappear - they’re simply offloaded to an innocent third party (see inner cities for copious examples). In the case of the War on Drugs, as in other cases of state intervention, it is usually left to the socially conscious in society - typically, the bleeding heart types - to identify and speak up about the intangible effects of these policies. However, the only reason they are so hard to recognize is because the damage was never factored into the original policy decisions - making conservatives at least as irresponsible and socially freeloading as liberals. Hipocrisy is all about framing the debate to ignore the full, honest picture - and in conservative politics we cannot ignore its obvious utility in moving forward a moral agenda.

Tags: hipocrisy, rush limbaugh, right thinking girl

In a recent post, RTG endorses the Republican dismissal of any hope to raise the national minimum wage:

The fact is: Americans who make $5.15 an hour are in high school and college. These are not 30 year old people who can only make minimum wage.

This is the kind of anti-factual polemic that caused me to establish this blog. Say what you will about the minimum wage, but back it up. Here’s the facts I’ve found - and I’m open to questioning them, but at least it’s somewhere to start:

• Almost half (47%) were married or had children.• Eighty-seven percent were 20 years of age or older.

• Forty-five percent of the low-wage workers living above the low-income line were married or had children, and for many of them their earnings were essential to their families’ economic well-being. On average, these workers’ earnings contributed 37% of their families’ incomes in 2002. Thirty-five percent of these workers would have been in families with incomes below the low-income line without their earnings.

• Thirty percent of low-wage workers living above the low-income line are un-married adults without children living with their families or relatives.³ They are predominantly young adults living at home. In some cases the income of these workers was important to their families. 16% of them would have had family incomes below the low-income line if it weren’t for their earnings, and, on average, they provided about one of every six dollars of their family’s income in 2002. Another indicator that these workers are struggling to meet their basic needs, even though they are not living in poverty, is that about one-third did not have health insurance during the entire year of 2002. Also, a large group of these workers (42%) were enrolled in college. Thus, this appears to be a group dealing with the expense of education or unable to afford to move out of the family home because of low personal income.

• Fourteen percent of those with low wages and incomes of more than twice-poverty were adults living alone. These adults had average annual earnings in 2002 of just over $26,000. About a third of these workers did not have health insurance.⁴

• Eleven percent of those with low wages and incomes of more than twice-poverty were children.

So now that we have to look at the statistics and not simply make blind assumptions and draw sweeping conclusions, it looks like it’s more than just high school kids who are affected by the minimum wage (not that I don’t think young people are entitled to fair wages). It does make one wonder how many of these policy positions RTG writes about are actually based on any empirical evidence. If I didn’t know better, I’d say this is a case of outright social darwinist class warfare, but then isn’t class warfare the domain of the eeevil Left? As I intend to show, Republicans are very agreeable to manipulating markets in much more effective ways than minimum wage laws - in order to serve their class interests.

Monetary policy is a key area where government intervention favors capital over labor. The Fed has a long running policy in place to keep unemployment at a certain level - typically 5 percent - as a check on inflation (see NAIRU). When unemployment gets too high, the Fed often raising the interest rate, thereby cooling down the economy artificially and putting jobs with the least demand at risk. While I’m not suggesting that there’s anything to be gained from inflation (another consequence of a centrally managed money supply), Dean Baker makes the argument in his book, Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, that the financial sector benefits from inflation control disproportionately:

…bankers may be very concerned about modest increases in the rate of inflation. They lend money at fixed interest rates. If the inflation rate rises above the rate they anticipated when they made loans, then the bankers will be repaid in money that is worth less than the money they lent. In other words, higher than expected inflation rates cut directly into bank profits.

Baker also shows how businesses are less likely to approve of high wages and benefits that accompany unemployment if they can’t justify it in the bottom line. All of this is to demonstrate that the lowest paid among us are the most vulnerable to Fed policies. The Fed policy has almost always been to raise the price of money - in the form of interest rates - once worker wages get too high, thereby benefiting employers and politically powerful sectors over wage workers. If you’re going to support a monetary policy that calls on state intervention at the expense of a certain class, you have a responsibility to help the people who will be most impacted by the loss of purchasing power: namely, the supposedly “least skilled”.

Although in reality all this talk about minimum wage workers not have the skills for the 21st century and all that is largely disingenuous. It is certainly true that those who don’t have as wide an array of skills to offer will be less able to compete. However, there’s no reason to assume that certain skills should be more or less in demand than others - in other words, there’s no necessary reason why a doctor should be more in demand than a dishwasher. If this were a case of the market allocating incomes based on pure supply and demand with no outside intervention, then RTG would certainly have a point.

However, the bottom line is that the market she’s talking about is by no means free. Doctors are protected by regulations and licensing that don’t allow the same kind of worldwide market in their field with which textile or automobile workers have to deal, or even dishwashers, given the tepid policy towards illegal immigration (which RTG does support getting tougher on, but for terribly wrong reasons). The same goes for lawyers, those in the financial sector, and other licensed and regulated professions. The effect of these government requirements is to artificially restrict the supply of labor in those fields - the very same thing Republicans hate labor unions doing for their people! Dean Baker explains:

If U.S. trade negotiators approached the highly paid professions in the same way they approached the auto industry, then they would actively be trying to uncover all the factors that prevent direct competition between U.S. professionals and their counterparts in the developing world, and then construct trade agreements that eliminated these barriers. They would be asking hospitals, law firms, and universities what is preventing them from doubling, tripling, or quadrupling the number of doctors, lawyers, and economists from developing countries working in their institutions. They would also be asking the trade negotiators from Mexico, India, or China what obstacles prevent them from sending hundreds of thousands of highly skilled professionals to the United States.

Instead of acknowledging the state intervention that makes certain professions artificially higher priced by restricting their supply, she launches into an absurd display of question-begging: what if we set minimum wages for all professions?

And by the way, if that’s all their skills are worth to employers, then that’s all they are worth. Perhaps if we want to make the minimum wage fair, we should have minimum wages for each profession. Doctors: minimum wage: $300,000 per year. Lawyers: $300,000 per year. Structural engineers: $750,000 per year. Grocery bag clerk at the Wal-Mart: $2 an hour.

Indeed, if we set wage standards via the state, we would get some ridiculously unfair outcomes. Yet the same affect is achieved by creating barriers for entry for certain industries and not others, thus putting certain classes at a comparitive disadvantage to others. Nothing pisses me off more than people who claim to want to “let the market work” yet consistently support certain advantages for some classes over other classes. The irony is delicious!

Finally, RTG cements her incredible flight of elitist fantasy with some ridiculous notions:

It pushes out the higher paid workers because employers simply can’t afford to keep them. Put it like this: I have a maid (she’s legal) who I pay about $22,000 per year. I also have a pilot who I pay about $120,000 per year. If I am forced to raise the maid’s wages, I can no longer afford the pilot and will have to fire him. That’s why hikes of minimum wage increase unemployment.

The lack of economic knowledge here is getting to be pathetic. It’s well established that low-paid workers are the most likely to be hurt by minimum wage laws, not highly paid workers. I tried to explain this to RTG but she probably ignored it in favor of ranting on another hot button party issue:

If an employer has to choose between two applicants for given low-skill task, but he doesn’t have flexibility on what to pay them, he will choose the more skilled applicant instead of the less skilled applicant, because it’s a better value for the wage he’s forced to pay.

If he could have paid the lower skilled worker less, he would have taken him over the higher skilled worker, since the latter was overqualified anyway. But since he has no flexibility on wages, his money is better spent on the more experienced applicant.

I sum my position up with a supposedly conservative issue: the solution is a free market, not just for some but for all:

The solution is absolute flexibility on wages, so that low skilled workers are more likely to be hired and more likely to get the skills they need through experience, vs. competing in a market where the bar is artifically raised.

This applies to doctors and lawyers and accountants and defense contractors, too, by the way. Imagine that: white collar people using the state to boost their wages! It’s almost like a *gasp* labor union - only instead of targeting the poor, defenseless capitalists, these lawyers, doctors, and other protected professions are boosting prices to you and me by effectively cartelizing. Or, as RTG puts it:

It’s not as if a cabal of men are sitting around thinking, “Well if we only set the minimum wage at $5.15, that will ensure that ‘many’ of them are women! And we like our women poor and dirty!”

Perhaps that cartoonish portrayal is not entirely accurate, but it’s too close for comfort.

Let me make clear: I do not support government intervention into the market on behalf of any class. In the long run minimum wage distort the market. But remember that such market manipulation is occuring within a market that is already heavily favoring the upper classes - and not based on their productivity, but rather on their artificially diminished need to compete. Unlike RTG and the rest of the Right, when I speak of a free market, I actually mean it. And if we’re going to have a market where the rich are favored by the state, I do support them having to pay for their privilege and not talking out of both sides of their mouth. But why should they do it, when RTG will do it for them?

Tags: minimum wage, right thinking girl

Over at Catallarchy, Sean Lynch critiques a recent study by the International Center for Technology Assessment focusing on hidden externalities in the automotive fuel market. The study makes a startling claim:

The report divides the external costs of gasoline usage into five primary areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle Services; (4) Environmental, Health, and Social Costs of Gasoline Usage; and (5) Other Important Externalities of Motor Vehicle Use. Together, these external costs total $558.7 billion to $1.69 trillion per year, which, when added to the retail price of gasoline, results in a per gallon price of $5.60 to $15.14.

A swing of almost $10 per gallon is quite a bit of uncertainty, I’ll admit. But the entire point of the study (at least, the one I took away) is that these hidden costs that the State assumes make calculating the real price of gasoline completely impossible. Therefore, consumers cannot adjust their consumption - or demand for an alternative - with any degree of reliable market information. Merely by distorting prices to cover up true calculation, the gasoline market is helped simple by being the “stable”, established product.

Of course, libertarians (and mutualists in particular) have always argued that, without a market free of state manipulation, it’s impossible to arrive at a price that reflects the true input and external costs. As I’ve written earlier, corporations thrive in an environment where the state apparatus allows them to offset these costs onto the public at large - but they do so at our collective expense, to say nothing of the efficiencies we’re missing out on because of opportunity costs. Indeed, state-sponsored handouts to American corporations may in fact dwarf their actual profits by a factor of five!

While Lynch attacks subsidies, there is a hint of apologism in the tone he uses to analyze this particular example of state intervention:

In fact, some of the “subsidies” mentioned by the study actually serve to drive the average price of gasoline up by providing price supports. The study just takes the total cost of these subsidies and then adds them to the price of gasoline, which doesn’t make much sense to me.

…

I’m all for ending government subsidies in any form, but it’s not clear to me that overall government meddling in the oil market is really driving the price we pay at the pump down.

And a fellow Catallarchy blogger, Matt McIntosh, chimes in:

I’ve never understood why anyone would refer to tax breaks as subsidies. We have two different terms for these things for a reason: a subsidy is when government robs Peter to pay Paul. A tax break is when it declines from robbing Peter in the first place. Yeesh.

While I commend Lynch’s call for an end to all subsidies, I think he’s missing the point about the “price at the pump”. Without correctly calculating and responding to costs, there’s no way to communicate to consumers the relative efficiencies and inefficiencies inherent in their purchase. These extend well, well beyond price supports: they include alternative energy competitors who are put at a competitive disadvantage (which was the point of the article that inspired the orignal post), traditional energy competitors who experience barriers to market entry and true competition, and a host of other opportunity costs that are impossible to really quantify outside of market calculations.

It is in this context of large scale industry with little differentiation or opportunity for cost-cutting that tax breaks serve as effective subsidies. In his analogy, McIntosh correctly recognizes that the Peter is not being robbed to pay Paul because he’s not being robbed at all. However, if the state continues to rob Paul or the other competitors, it puts Peter at a comparitive advantage. This advantage has a value equivalent to what Peter’s competitors are paying in taxes and the increased market share Peter is now able to secure by lowering prices just enough. Especially when one takes into account all the costs businesses externalize onto the state - for which some of are paid from public funds, such as military defense of oil production in hostile third world countries as well as the violent opening of markets overseas - these tax breaks are effective subsidies in disguise, as another commenter pointed out, regardless of whether we notice the wool over our economic eyes.

I go on to point out another issue that I think they’re ignoring: the cartelizing effects of regulation upon the energy market:

And don’t forget that regulations - especially, of all places, in the oil industry - serve to cartelize the market. By setting almost insurmountable barriers to entry for competitiors to build new refineries, this keeps supply lowerer than the market would otherwise be able to bear.

Now, one may argue that the energy industry in the aggregate - seeing opportunities for profit in increasing supplies - may start regarding this regulatory effect as less than 100% advantageous. However, throughout the history of state capitalism, big business has frequently sought government intervention at the expense of profit in order to rationalize the market and insulate themselves against risk. Sure, they may be forgoing some profits to be made by expanding supply, but on the other hand, they’re in a fat “market” position right now with no foreseeable dip in sales in the long run. It’s not at all clear to me from my study of corporatist history that big, established business values profits over stability - and the oil industry is a perfect example.

In other words, the corporate beneficiaries of a cartelized market realize that it’s more advantageous to keep competitors out of the market than to expand their production to meet demand. In a functioning free market there would be all sorts of pressures to meet demand and bring costs down through competition. But that would introduce into the market the very volatility big business seeks to avoid in order to assure steady profits. The idea is to stake out a favored position in the economy and just collect the windfall - then any expansion of production can be done on one’s own terms without taking the entrepeneurial risks of business. State intervention for the purposes of rationalizing markets - making them more predictable and steady - is actually preferable to increasing profits.

Kevin Carson makes a point of articulating this interest in stabilization of corporate oligarchy around the end of the 19th century, as both big business and the regulatory state started to gain real power. He argues in Studies in Mutualist Political Economy that the rising “New Class” of scientific social management sought a partnership of state and business interests long before it got the name “fascism”. Market rationalization was a huge motivation once markets were acceptably locked up by fat cats:

The New Class, its appetite for power satiated with petty despotisms in the departments of education and human services, was put to work on its primary mission of cartelizing the economy for the profit of the corporate ruling class. Its “populist” rhetoric was harnessed to sell state capitalism to the masses. Those overeducated yahoos admirably served their masters in the capacity of useful idiots.

But whatever the “idealistic” motivations of the social engineers themselves, their program was implemented to the extent that it furthered the material interests of monopoly capital. Kolko used the term “political capitalism” to describe the general objectives big business pursued through the “Progressive” state:

Political capitalism is the utilization of political outlets to attain conditions of stability, predictability, and security–to attain rationalization–in the economy. Stability is the elimination of internecine competition and erratic fluctuations in the economy. Predictability is the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations. By security I mean protection from the political attacks latent in any formally democratic political structure. I do not give to rationalization its frequent definition as the improvement of efficiency, output, or internal organization of a company; I mean by the term, rather, the organization of the economy and the larger political and social spheres in a manner that will allow corporations to function in a predictable and secure environment permitting reasonable profits over the long run.

The entire chapter is worth reading to understand the full context of how “captialism” works only superficially as a market phenomenon. One cannot argue against subsidies without arguing against those politically responsible for them: politicians and the corporations that support them. By forcibly and purposefully reconstructing the economy to their own advantage, massive corporate interests - such as Big Oil - have always profited at our expense. Without a doubt they continue to do so.

Tags: oil, gasoline, energy, cartelization, rationalization, markets,

Via WendyMcElroy.com comes this story:

The U.S. National Security Agency asked AT&T Inc. to help it set up a domestic call monitoring site seven months before the Sept. 11, 2001 attacks, lawyers claimed June 23 in court papers filed in New York federal court.

The allegation is part of a court filing adding AT&T, the nation’s largest telephone company, as a defendant in a breach of privacy case filed earlier this month on behalf of Verizon Communications Inc. and BellSouth Corp. customers. The suit alleges that the three carriers, the NSA and President George W. Bush violated the Telecommunications Act of 1934 and the U.S. Constitution, and seeks money damages.

“The Bush Administration asserted this became necessary after 9/11,'’ plaintiff’s lawyer Carl Mayer said in a telephone interview. “This undermines that assertion.'’

Indeed - that is, if it’s true. If it is, it makes me wonder how Bushites will spin this. I’m sure in their world this revelation will take on the trappings of impeccable Americanism - “Bush was strengthening our defenses even BEFORE 9/11!!!”. Of course, monitoring telephone calls - and other law enforcement “tools” - do no good unless you listen to your own agents.

Try as well to exclude from your mind the fact that all this government expansion at the expense of freedom, privacy, and accountability was being pushed before 9/11 - by the Clinton Administration (see the “Anti-Terrorism and Effective Death Penalty Act of 1996“. This isn’t a partisan issue, obviously, but one of examining the core motivations and pressures on the hierarchical State. Indeed, there’s more to be said on this topic concerning top-down governmental mangement of communications and other information in general. Expect a future post that examines the information technology industry, its conscience and ethos, and the growing technofascist market.

Tags: terrorism, clinton, patriot act, nsa, monitoring, telephone, 9/11

Recently I’ve been challenged in political conversations to stop bitching about the problems in other people’s ideologies and propose something better (here and here). This puts me in an interesting quandry as an anarchist, since one of the problems I have with politics - especially statism - is the need to achieve certain outcomes deemed desirable. Once you’ve landed on the model you insist society must fit, it’s no big leap to go from wishing for your ideal to advocating conformity to that ideal, by force if necessary.

As an anarchist, I believe that distributed systems of decision making like the market are the best ways for processing information and organizing society. Central planning doesn’t work, and my ideology seeks to better understand the way humans relate rather than making them turn into something they’re not. Therefore, since I don’t wish to impose a plan on anybody, I really have none to offer - just ideas, reflections, and some theories. This often cripples me rhetorically, though - people don’t seem to understand why I can’t just “give them a plan” for how anarchism would work. It just goes to show you how deeply ingrained politics and central, top-down managerialism really is in our society.

Robert Anton Wilson laid out some concise definitions that highlight the political spectrum in ways that speak succinctly to this issue of why statists and anarchists have a hard time finding common ground:

• FREE MARKET: That condition of society in which all economic transactions result from voluntary choice without coercion.
• THE STATE: That institution which interferes with the Free Market through the direct exercise of coercion or the granting of privileges (backed by coercion).
• POLITICAL CAPITALISM: That organization of society, incorporating elements of tax, usury, landlordism, and tariff, which thus denies the Free Market while pretending to exemplify it.
• CONSERVATISM: That school of capitalist philosophy which claims allegiance to the Free Market while actually supporting usury, landlordism, tariff, and sometimes taxation.
• LIBERALISM: That school of capitalist philosophy which attempts to correct the injustices of capitalism by adding new laws to existing laws. Each time conservatives pass a law creating privilege, liberals pass another law modifying privilege, leading conservatives to pass a more subtle law recreating privilege, etc., until “everything not forbidden is compulsory” and “everything not compulsory is forbidden.”
• SOCIALISM: The attempted abolition of all privilege by restoring power entirely to the coercive agent behind privilege, the State, thereby converting capitalist oligarchy into Statist monopoly. Whitewashing a wall by painting it black.
• ANARCHISM: That organization of society in which the Free Market operates freely, without taxes, usury, landlordism, tariffs, or other forms of coercion or privilege.
  • RIGHT ANARCHISTS predict that in the Free Market people would voluntarily choose to compete more often than to cooperate.
  • LEFT ANARCHISTS predict that in the Free Market people would voluntarily choose to cooperate more often than to compete.

See the difference? Statists - whether minarchist or totalitarian - define their politics in terms of what people should be. Anarchists define their ideology by how we think people actually are in their natural, uncoerced state.

Statists are prescriptive, setting forth the exact way they think things have to work in order for the natural world to be acceptable. Something needs to be done to make the world, better, and so the whole task for them entails the philosophical arrival at some desirable societal result they think is necessary - above all others - to achieve in order for “things to work”. Once this essential ingredient is identified - the key cause to which all of society’s problems can be reduced - the statist articulates the now justified political (coercive legal or managerial) means by which we arrive at that end. Whether or not their prescriptive plans ever really work - or could work - is not nearly as important to them as justifying the rightness of their plan. Even base pragmatism in politics is only useful in the context of some end state to achieve - and all too often that goal is simply keeping things the way they are: a rear guard defense against any progress whatsoever.

I find it interesting that many statists of different stripes tend to find fault among each other, not because of the goals they pursue (though this does sometimes occur), but because of the means they propose to reach the goal. This matter of “the plan” is the crucial issue they use to critique one another, and it’s no surprise that my refusal to engage in prescriptive politics stymies their ability to advance, defend or even modify their plans in response to my criticisms. One wonders whether statists ever really wrap their heads around the idea that not only do they not have all the answers, but that trying to manage a complex adaptive system like a market society without having omniscience is an exercise in futility. Indeed, there are some schools of thought that see the unintended negative consequences of their necessarily shallow informational picture as necessary - look at social darwinism or royal absolutism for schools of thought that see certain types of human suffering as desirable. When your goal is to remake the world the way you want it, can you afford to really sweat the little stuff? At least these outwardly conservative types are up front that the utopia they seek is not for everybody.

The difference between the politics of prescription and anarchism could not be more pronounced. Anarchists take the world - lumps and all - as a given and seek to let the actual world we live in work on its own natural terms. Plans are not what we are after; we seek an uncoerced, unforced, purely voluntary society for its own sake. While this may seem like another example of an ideology fixating on one “social outcome” and promoting it to the exclusion of other desirable goals, this analysis fails to appreciate our view of society as the answer to social problems, not the cause. We view the market and the community as holistic systems that simply work - if allowed to. No plan, no grand managerial strategy necessary - simply let the system work things out.

In our debates among ourselves, anarchists are predictive: we differ in what exactly we think that natural system will look like once it achieves a stateless condition. However - and this is key - we would not reject a stateless society simply because it doesn’t conform to “the way we think it ought to be”. As long as the society is free from institutionalized coercion, people will be able to work their problems out - whether by competiting market players or cooperative enterprises. Sure, we sometimes have different analyses of the exact nature of the state, and our conception of human nature determines the scope of what we think society would be. But the number one thing to keep in mind is that freedom is an end in itself - we just happen to believe that things work better that way as well.

This is why the anarchist package is so hard to sell to statists: they’re used to being sold a cure-all, not a value, let alone thinking deeply about the need for a cure-all. Politics has spun itself into such a complex array of prescriptive planning and systemic analysis that it often has no ability to appreciate simple truths like freedom, liberty, and individualism - even if some schools claim to advance those causes. Anarchists see overplanning from a paucity of information as the whole problem, so we’re simply not going to participate in any wrestling for mastery of an irreducable spontaneous order. We’re simply going to ask that these statists have some faith in humanity and let humans run the show for once. Let’s see where it takes us! Surely we can’t do worse than the last century for sheer violence, and the fact that we’re still around despite the perfidity of state warfare and domination says something about how resillient civil society is.

Tags: anarchy, politics, terminology