Wednesday, November 05, 2008

Harper's offers forum on saving capitalism: take the moral debate seriously

The November 2008 issue of Harper’s has a forum “How to Save Capitalism: Fundamental Fixes for a Collapsing System,” with James K. Galbraith, Michael Hudson, Eric Janszen, Barry C. Lynn, Bill McKibben, Joseph E. Sitglitz, Elizabeth Warren, and Amelia Warren Tyagi. The link is here, but Harper’s shows the full content only to subscribers. Of course, one can buy a hardcopy; at most newsstands. The forum starts on p. 35.

I recall those days dabbling with the People’s Party of New Jersey (in 1972), and hearing one of the women say, “Oh, why do we have to have capitalism?” Back then, there was a sizable minority of young people who found the idea of economic profit morally repugnant. Middle class salaried computer professionals like me (I was working for Univac then) were seen as part of the problem or enemy. I was, at best, a disinterested spy, maybe an anachronism who ought to have paid his dues by living in the period of James Fenimore Cooper. Today, what we see criticized is “extreme capitalism” or “market fundamentalism.” Social conservatives think profit is morally justified when it is predicated on concrete emotional commitment to others (as in marriage and the procreative family).

Certainly the tone of the Forum is appropriate for having anticipated Barack Obama's spectacular election yesterday. I suspect that the president-elect has read it, for the ideas seem to track to some things he has said, although one could take the ideological issues further.

The most important piece, from my perspective, in the form was that by Joseph E. Stiglitz, “Realign the Interests of Wall Street”. Stiglitz says that reasonable capitalism manages risk for productive purposes. But the current unregulated environment encourages the creation of risk. Because traders are rewarded on short-term profits, they have every incentive to “beat the regulator” (rather like “beat the bill collector”) by conniving. By now, we know how they separated the borrower from the investors who ultimately bore the moral hazard risk by layers of securitization, unfortunately with an unbounded mathematical model that could literally eat up all the globe’s money if people suddenly called in their loans (or “swaps”).

But I could tell a few years ago, after my own layoff-retirement at the end of 2001, that something was wrong from the kinds of jobs I was invited to interview for. Everything was about manipulating people to buy things. Some of the setups might have made long-run sense (say, convincing customers converting whole life policies to term), but some of the rest of them were – you guessed it – selling these kinds of flawed mortgages. (As I noted Nov. 1 on my main blog, I had already been burned by real estate that had lost value during the Texas crash of the late 80s; it was common sense to me that it would happen again. Apparently no one on Wall Street had common sense.) “Always be closing.” You have to be when you have a quota to meet.

We had this bourgeois notion of what an education was for. It was to do “business” instead of productive manual labor (boy, this sounds like Marx). “Business” usually meant explaining “complex” abstractions to less education people – and manipulating them to buy things. At the same time, we kept buying things from overseas made with almost slave labor.

It seems that our economy will have to reward real productivity more. More things will be made or grown locally. Green technology encourages local manufacturing and intellectual innovation (the “green Internet” of Thomas Friedman). Future economies may not reward middlemen as much. Indeed, the transparency of information on the Internet should make middlemen to “explain” and sell things in person less essential, if the models of knowledge management (Jimmy Wales style) really worked.

Other ideas in the Forum were less interesting, to me at least. Barry C. Lynn talks about abolishing or at least restructuring stock options. Elizabeth Warren and Amelia Warren Tyagi want a consumer protection movement to reduce the risk to consumers of financial products (just like requiring seat belts and car seats in the physical world). Michael Hudson talks about a land tax and reminds me of David Ricardo, the way we studied “rent” and other economic concepts in high school civics back around 1961.

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