The Comical History of Capitalism(the word)

CapitalismThis is not about capitalism, the theorized socio-economic system of production.  This is about the word “capitalism” itself.  The term, “capitalism” has been used, abused, reborn, and re-mutilated so many times that if one were to use the term, you have to immediately stop and define what you mean by “capitalism”. Why is that?  There aren’t multiple definitions of mercantilism or feudalism.  So what happened to “capitalism”? To find out, follow me through the comical history of “capitalism”, the word.

In the Beginning…

“Capitalism” came into focus somewhere around the early to mid 18th century.  But nobody called it “capitalism” at the time.   The term “capitalism” didn’t appear until about a 100 years later when it was first coined by socialists in the mid 19th century as a pejorative for the current state of the world.  This was when the term capitalism was first used to describe a socio-political-economic system.  (there are a few uses of the term pre-1850.  But they were all used as synonyms for commerce or a capitalist.  And was not widely used, and, therefore I think can be ignored)  So the first comical thing to note about the term, “capitalism” is that the history of the word is tied to socialism and socialist thought, and NOT to the system it describes.

What about Marx?

Here’s another funny thing about “capitalism”.  Despite what most people think, Karl Marx, the most infamous socialist, neither coined the term nor popularized it.  The term “capitalism” was coined by Pierre-Joseph Proudhon,  A French individualist socialist(more commonly referred to today as an anarchist).   You will not find the term anywhere in The Communist Manifesto.  Later, when Marx and his partner Engels wrote Das Kapital, they would describe the situation as “the capitalist mode of production”.  Engels may have used “capitalism” later in life, but neither he nor Marx popularized the term.

It wasn’t until the turn of the century that it was made clear that “capitalism” was the word to describe what socialists opposed.  Werner Sombart’s “Der Moderne  Kapitalismus” in 1902 exploded the term’s popularity both inside and outside of socialist circles.  Or as respected historian Fernand Braudel puts it in his book Civilization and Capitalism:

In fact, it was not until the beginning of this century that it fully burst upon political debate as the natural opposite of socialism.  It was to be launched in academic circles by Werner Sombart’s explosive book Der moderne Kapitalismus.  Not unnaturally, this word which Marx never used was incorporated into the Marxist model, so much so that the terms slavery, feudalism and capitalism are commonly used to refer to the three major stages of development defined by the author of Capital.

The term must have stuck because two years later Max Weber published his famous tome, “The Protestant Ethic and the Spirit of Capitalism” which is “the fourth most important sociological book of the 20th century”.

So, to be clear on why I find this so damn funny… At the beginning of the 20th century, “capitalism” became a “marxist” term that was neither coined nor popularized by Karl Marx!

Capitalism is a good thing now?

Now fast forward 60 years.  It’s 1962 and at this point, The terms “capitalism” and “capitalist” had been pejoratives and a negative descriptions used by socialists for 100 years.  Up until this point, intellectuals that were opposed to socialism described themselves as being in favor of liberalism(especially the classical kind) and not “capitalism”.  Then, Milton Friedman publishes a book called Capitalism and Freedom in 1962.  And then 4 years later, Ayn Rand comes out with her book Capitalism: The Unknown Ideal.  In these books, these (now famous) authors described “capitalism” in glowing terms and came out FOR it.

Wait a minute!  (insert record scratch sound)  What the F*!)K Just Happened???  The 50s and early 60s mark when many intellectuals started openly using the term “capitalism” as the term for their ideal system instead of “liberal”, “free market”, “Laissez faire”, or “free enterprise”.  I’ve checked as many places I can think, but it just didn’t happen until that time.

The Foundation for Economic Education was created in 1946 to promote free markets.  And no where in their founding 14 principals was the term capitalism.

The American Enterprise Institute founded in 1943 didn’t defend “capitalism”, it defended “competitive, free-enterprise”.

The Founding article in William Buckley’s conservative National Review mentions “capitalism” only in relation to socialism.  Among the magazine’s “convictions”, it only states “The competitive price system” and no mention of “capitalism”.

Who can I blame for this???

Now we come to the person whom I blame for this whole mess:  Ludwig von Mises.  At the time, he was a semi-known Austrian economist who was very much in favor of “liberalism” and very much against socialism.  However, in his writings, he adopted the language of his socialist rivals.  In his 1922 book titled “Socialism”, he acknowledged that the term “Capitalism” was a “political word”.  He stated:

The terms “Capitalism” and “Capitalistic Production” are political catchwords. They were invented by socialists, not to extend knowledge, but to carp, to criticize, to condemn. Today, they have only to be uttered to conjure up a picture of the relentless exploitation of wage-slaves by the pitiless rich. They are scarcely ever used save to imply a disease in the body-politic. From a scientific point of view, they are so obscure and ambiguous that they have no value whatever. Their users agree only in this, that they indicate the characteristics of the modern economic system. But wherein these characteristics consist is always a matter of dispute. Their use, therefore, is entirely pernicious, and the proposal to extrude them altogether from economic terminology, and to leave them to the matadors of popular agitation, deserves serious consideration.

Despite that, Mises attempted to “appropriate the word for his own purposes”.  After acknowledging this, 2 paragraphs later, he tries to justify the use of the term “capitalism” to describe the liberal system that he favored:

If the term capitalism is used to designate an economic system in which production is governed by capital calculations, it acquires a special significance for defining economic activity. Understood thus, it is by no means misleading to speak of Capitalism and capitalistic methods of production, and expressions such as the capitalistic spirit and the anti-capitalistic disposition acquire a rigidly circumscribed connotation. Capitalism is better suited to be the antithesis of Socialism than Individualism, which is often used in this way.

As far as I can tell, this 1922 book was the beginning of the shift in the meaning of the term Capitalism.

So then, what is the connection between Mises and future “capitalism” supporters?  Ludwig von Mises was Fredrich Hayek’s teacher in Austria.  The one that converted him from socialism to “liberalism”.  Hayek would later found a social club called the Mont Pelerin society in 1947 for free market economists.  At the founding meeting was Hayek, Mises, and… Milton Friedman, the aforementioned author of “Capitalism and Freedom”.  I don’t think it is a stretch to say that Mises attempts to redefine capitalism as a positive would’ve rubbed off on the younger economists.

In fact, before founding the society, Hayek published the book “The Road To Serfdom” where he did pretty much the same thing as his teacher did in “Socialism”.  He notes that the term conceals the truth, but then later redefines the term “capitalism” and then speaks approvingly of it.  On page 89 of the book he wrote

Though the terms “capitalism” and “socialism” are still generally used to describe the past and the future forms of society, they conceal rather than elucidate the nature of the transition through which we are passing.

And then by page 109 he redefines capitalism and praises it as the only way democracy can thrive:

It is now often said that democracy will not tolerate “capitalism”.  If “capitalism” means here a competitive system based on free disposal over private property, it is far more important to realize that only within this system is democracy possible.

Another early and obscure attempt to redefine capitalism – and then come out in favor of it- was by Political Philosopher Frank Chodorov.  In October of 1945 he wrote an article titled “Let’s Try Capitalism”.  Whether his attempt to redefine capitalism was his own, or influenced by Mises, I cannot say for certain.  But being that he was very much active in the “free market liberalism” movement in New York for years, and that Ludwig von Mises had been teaching at NYU for 5 years while promoting free markets, it’s not hard to fathom that they may have run into each other and exchanged ideas by 1945.  In fact, based on the fact that both men knew Murray Rothbard(Another “free market” advocate) and Milton Friedman, it is hard to imagine that they didn’t at least know each other.

Backlash, and Backlash to the Backlash

So after the “free market” advocates tried to commandeer the word for their own purposes, you can imagine that there was a backlash.  But the backlash wasn’t from state socialists.  It came from anarchists and other “free market” advocates!

In 1972 Murray Rothbard noted the absurdity of trying to commandeer the term “capitalism” as a description of what he advocated for.  By 1972 , Murray Rothbard notes in an essay that there are multiple definitions of “capitalism”.  He tries to split the definition in two to describe two very different concepts, “free-market capitalism” and “state capitalism”.  Naturally he is in favor of one and against the other.

From the very first we run into grave problems with the term “capitalism.” When we realize that the word was coined by capitalism’s most famous enemy, Karl Marx, it is not surprising that a neutral or a pro-”capitalist” analyst might find the term lacking in precision. For capitalism tends to be a catchall, a portmanteau concept that Marxists apply to virtually every society on the face of the globe, with the exception of a few possible “feudalist” countries and the Communist nations (although, of course, the Chinese consider Yugoslavia and Russia “capitalist,” while many Trotskyites would include China as well). Marxists, for example, consider India as a “capitalist” country, but India, hagridden by a vast and monstrous network of restrictions, castes, state regulations, and monopoly privileges is about as far from free-market capitalism as can be imagined

If we are to keep the term “capitalism” at all, then, we must distinguish between “free-market capitalism” on the one hand, and “state capitalism” on the other. The two are as different as day and night in their nature and consequences.

Other, more modern writers have continued the backlash.  Sheldon Richman argues that libertarians should use “capitalism” as the description of what they oppose.

 We are a group of libertarians who understand that historically the word “capitalism” has meant, not the free market, but crony capitalism — that is, collusion between business and State at the expense of consumers/workers. Thus we refuse to use the word “capitalism” to describe what we favor: individual liberty in all respects and free, competitive markets. We believe that what we have today IS capitalism — and we oppose it.

Other modern free marketers have noted the same thing.  And now, of course, there is a backlash against this backlash.  The suggestion of letting “capitalism” return to it’s original meaning, is rejected because(among other reasons), we shouldn’t let the definition of words change.  I shit you not:

As Sheldon admits in his talk, however, changing words is like changing currencies.  If they’re already widely accepted, you need a really good reason to abandon them.  Awkward etymology notwithstanding, I think the concepts of capitalism and socialism are good enough to keep using.

Conclusion

So now you know why it is so damn hard to talk about “capitalism”.  And now, before one can even debate the merits of “capitalism”, one has to define what they mean by “capitalism”.  Do they mean the system of exploitation as defined by Proudhon or Marx(who both defined it differently)?  Or do they mean “a competitive system based on free disposal over private property”?  Or something else?  My recommendation is to never use the term.  If one has to define a word every time one uses it, then it’s not a useful word.

If you enjoyed this article, let me know.  If there is interest I can attempt a similar article on the terms “socialism”, “liberalism”, “fascism”, and probably even “keynesian”.  Also, if you ever an article by an influential person from before 1922 describing “capitalism” as a good thing, please let me know.  I would be interested if there is another or a different person we can blame for this mess.

Just in Case you Thought Patents protected the small from the big.

Originally from OpenSource Way http://www.flickr.com/photos/opensourceway/4598624005/

I strongly object to all forms of software patents. I also believe other patents need to be reformed or even outright abolished.  When I tell people this I usually get a lot of pushback.  One of the arguments I hear is that Patents are there so that big companies can’t “steal our ideas”.  Obviously, I disagree.  And last week’s revelation about Microsoft’s 2 Billion dollar patent profits from Android Phones illustrates my point.

The problem with this argument, I think, is people’s view of how new inventions come about.  I think we all have a collective image of a quirky scientist working away in a tiny lab in almost complete isolation. Another image is some small start-up company spends years of time inventing some revolutionary new gadget or process.  In both cases, you might feel that it would be unfair for a big company to swoop in and “steal” their work and make a bunch of money off it.

It is these images that, I think, drive public support for patents.  But in reality these are exceedingly rare cases.  In reality almost all inventions are either small improvements on existing products, and\or was the result of teams of people working for an already large corporation or public institute.

Instead, what happens more often is that big companies use their patents to file lawsuits or threaten to file a lawsuit to keep would-be competitors from offering better and lower cost products.  That is what is happening with Microsoft.  Just the threat of being sued by Microsoft has scared businesses to collectively pay Microsoft 2 billion dollars in tribute every year.

What effect does this have on competition?  Well, first of all, it’s going to scare companies from getting into the smartphone business.  Less competition is going to drive up cost and drives down quality.  Secondly, any company that wants to get into the smartphone business will have to make sure that they have the money to either pay the patent tribute or hire an army of lawyers to defend itself in court.  Thus raising the start-up costs and further driving away potential competition.

Now think back to that quirky scientist and start-up company with a revolutionary gadget.  Let’s say they come up with a software patch that makes the android phone’s battery last longer.  Now let’s say they try to sell it as a patch for Android.  Uh oh, here comes Microsoft claiming that the software violates a Microsoft patent.  Now the company can’t sell it, even though they may have come up with the idea completely separate from Microsoft.  So now, instead of patents protecting the inventor from big business, it is big business that is protected from the little guy.

You might think that my scenario from above is contrived.  But that is exactly what happened when General Electric sued the small medical imaging company, DR Systems.

The patent in the case, entitled “picture archiving and communication system employing improved data compression,” was issued to Fairfield, Conn.-based GE in October 2003.

DR Systems and GE compete in the market for Radiology Information Systems (RIS) and Picture Archiving and Communications system (PACS).

RIS is used by radiology departments to store, manipulate and distribute patient radiological data and imagery. The system generally comprises patient tracking and scheduling, result reporting and image tracking capabilities.

Of course it isn’t just small companies.  Large companies waste a lot of time suing each other as well.  Patent trolls are a major problem in the computer and software industry.  There are now entire companies whose sole existence is to file or acquire software patents and then sue everyone in sight.

Of course, big companies aren’t immune to all this patent absurdity.  Google and other Android makes are being sued by their smartphone competitors.

Google probably knew this was coming. When it lost out in the Nortel auction, the company’s top lawyer, David Drummond, complained that the Microsoft-Apple patent alliance was part of a “hostile, organized campaign against Android.” Google’s failure to get patents in the Nortel auction was seen as one of the driving factors in its $12.5 billion purchase of Motorola in 2011.

Rockstar, meanwhile, was pretty unapologetic about embracing the “patent troll” business model. Most trolls, of course, aren’t holding thousands of patents from gigantic technology companies. When Rockstar was profiled by Wired last year, about 25 of its 32 employees were former Nortel employees.

The suits filed today are against Google and seven companies that make Android smartphones: Asustek, HTC, Huawei, LG Electronics, Pantech, Samsung, and ZTE. The case was filed in the Eastern District of Texas, long considered a district friendly to patent plaintiffs.

The problem of these patents gets even more absurd and harmful.  Monsanto has taken to suing small time farmers for “patent infringement” because they planted seeds that they cultivated themselves.

According to the report, Monsanto has alleged seed patent infringement in 144 lawsuits against 410 farmers and 56 small farm businesses in at least 27 U.S. states as of January of 2013. Monsanto, DuPont and Syngenta together hold 53 percent of the global commercial seed market, which the report says has led to price increases for seeds — between 1995 and 2011, the average cost of planting one acre of soybeans rose 325 percent and corn seed prices went up 259 percent.

[snip]

In the case of “Bowman v. Monsanto Co.,” Bowman allegedly replanted second-generation seeds that had been purchased legally from a licensed Monsanto distributor instead of buying new seeds. Monsanto claims that in doing so, Bowman was essentially stealing its product. Monsanto has won battles in several lower courts.

Can you believe that?  If you purchase corn seeds and save 10% of your crop to replant next year, you’re committing a crime!  I don’t know if this patent absurdity can get any worse than this.  Whether it is a tech corporation like Microsoft extracting 2 billion from potential competitors, or Monsanto controlling small time farmers, patents are more likely to benefit the powerful at the expense of the small and the greater economy.

Syria – Trying to Understand What’s Really Happening

The latest news is that Putin has successfully convinced the Syrian Dictator Al-Assad, to give up his chemical weapons in exchange for a guarantee that “The West” will not conduct air strikes against Syria.  Why would he do that?  Why would Assad agree?  To try and understand those questions, I think we have to know a little more about how other countries and regimes are reacting to the Syrian civil war.

As much as I’d like to believe that the Syrian civil war is about a group of people overthrowing a brutal dictator.  But while that might be what many Syrians are fighting for, that is not the only thing going on here.  I think the best way to think of Syria now, is as a Proxy war between Iran, Saudi Arabia, and Qatar.

The Brutal Iranian theocracy is allies with Assad’s Syrian regime.  It has been supplying the Assad Government with money, supplies, and weapons before and during the current uprising.  This is so well known, you’ll forgive me if I don’t provide a link backing up the claim.

Here’s a lesser known fact.  The Saudi Royal dictatorship(along with Qatar) has been supplying the Syrian rebels with weapons and supplies for a long time.  First reported in June of last year(see here and here), it has been repeatedly confirmed since then over and over again (Qatar link).  So while it’s lesser known to the public, it certainly isn’t a secret.

Without getting into why the Saudi dictators and Iranian theocracy are enemies, let’s explore why these two powers would be so bent on getting a “friendly” government in Syria.  There’s the standard reasons:  Just to have another partner in the region, the country has some oil reserves – the lifeblood of economy in the middle east, is that it?  Before we answer that rhetorical question, let’s ask the same thing of Russia.  What is their interest in Syria?  Russia has access to the second highest amount of oil and natural gas fields in the world and is a routine exporter of them.  So, therefore, Russia doesn’t need Syrian (or for that matter, Iranian oil) like the U.S. and Western Europe does.  Often repeated in the media is the fact that Russia has a naval base in Syria.  This is cited as Russia’s interest in the region.  Is one military base the reason to give free food, aid, and weapons to a regime that is about to collapse?  Why not stand back, and just buy off the victor to keep your facility?

These are all possible reasons why the leaders of these countries are spending so much to support “their side”.  But the one thing almost never mentioned in all the analysis on TV news or front page papers is oil and gas.  No, it’s not about Syria’s oil reserves – they’re pretty small compared to Iran, Iraq, Saudi Arabia, and Russia.  It’s about geography.

Iran wants to build an oil and natural gas pipeline going from Iran, all the way through Syria, and Lebanon, and eventually even into Europe.  The agreement was about to be finalized back in 2011:

The deal of new pipeline to transfer Iran’s gas to Iraq, Syria and Europe will be signed on Monday between three countries in Asalouyeh port, south of Iran, Mehr news agency reported on Friday.

The primary agreement on the strategic project was reached in May in Baghdad.
Under the new deal, a gas pipeline will be constructed to transfer Iran’s gas to Iraq and Syrian territories feeding their power plants and next through southern Lebanon will extend to the Mediterranean Sea and Europe.

But guess what?  Qatar and Saudi Arabia want the same thing – especially Qatar(another Royal dictatorship government).  Since at least 2009 they’ve been trying to get a natural gas pipeline from their country to Turkey.  Syria was not open to that deal and has been a major sticking point.

Qatar has proposed a gas pipeline from the Gulf to Turkey in a sign the emirate is considering a further expansion of exports from the world’s biggest gasfield after it finishes an ambitious programme to more than double its capacity to produce liquefied natural gas (LNG).

“We are eager to have a gas pipeline from Qatar to Turkey,” Sheikh Hamad bin Khalifa Al Thani, the ruler of Qatar, said last week, following talks with the Turkish president Abdullah Gul and the prime minister Recep Tayyip Erdogan in the western Turkish resort town of Bodrum. “We discussed this matter in the framework of co-operation in the field of energy. In this regard, a working group will be set up that will come up with concrete results in the shortest possible time,” he said, according to Turkey’s Anatolia news agency.

Furthermore, even if NO pipeline was being built, Qatar probably wouldn’t care what happened in Syria.  Qatar ships natural gas to Europe and is a large player(next to Russia) in that market.  But with a cheap pipeline, they would lose their market share and profitability.

Here’s where things really start getting murky.  Saudi Arabia, the foremost player in middle east oil and gas, would love nothing more than to block their rivals Iran from building out their infrastructure.  That, combined with the prospect of weakening Iran seems to be fueling their interest in Syria.

The Saudi stance on Syria is motivated by a combination of personal, sectarian, and, above all, political factors. First, the Saudis were never head over heels about Assad and his Ba’athist secular ideology. Second, the continuous crackdown of the mostly Sunni political opposition by the Alawite-dominated regime made Riyadh very uncomfortable. Third, and most significant, Saudi Arabia perceived the decline of the Assad regime as a golden opportunity to weaken Iran, their bigger regional competitor. Moreover, supporting the opposition would also play well within Saudi Arabia while deflating some of the regional criticism regarding the KSA’s policy with respect to the Arab Spring.

So with Saudi Arabia and Qatar backing up the rebels you would think they’re allies.  But they’re not.  Saudi Arabia and Qatar Royal dictatorships could best be described as “frenemies”.  To the point that the two dicators are backing different rebel groups in Syria.

Qatar backs the Muslim Brotherhood and, it appears, would not object to a brokered deal to end the insurrection that allows the MB to get its nose in the political tent, then make its play for winning control of the new government through some combination of foreign pressure, domestic mobilization, and elections.

Saudi Arabia, it appears, has no love for the Muslim Brotherhood and is perfectly happy to crater the Assad regime through a bloody insurrection abetted by foreign jihadis,  in order to deny Iran a regional ally, score another victory for fundamentalist Sunni rollback, and increase the pressure on the Shi’a-led government of Iraq by adding the factor of a hostile, pro-Saudi and overtly Sunni Syrian regime to the increasingly disgruntled and emboldened Sunnis of western Iraq (some of whom are reportedly participating in the Syrian war).

Let’s go back to Russia.  What’s their interest?  Sure, that naval base is nice, but their interest ALSO involves natural gas lines.  Russia(or should I say, Putin?) wants the Iran\Iraq\Syria natural gas line as well.  Putin wants more control and more influence on the flow of it and his allies’ natural gas.  It is the only power that takes gas from Turkmenistan and ships it to Europe.  So a Qatar or Saudi friendly government in Syria would provide competition to Russia.  It’s no wonder Putin would continue backing Assad.

But wait, you might say, isn’t Iran going to send Natural gas through Syria to Europe?  Well, yes.  But the Iranian theocracy and Putin’s Russia are close allies.  Putin, Iran, and Turkenistan control the first, second, and fourth largest natural gas reserves.  And since they can control Turkmenistan, they can better control prices.  Russia has no leverage to control Qatar.  Besides, as stated above, Qatar already manages to ship quite a lot of natural gas to Europe.

So, to recap.  Qatar doesn’t want Iranian natural gas competition via a gas pipeline.  Iran and Russia really want it.  And Saudi Arabia just wants to weaken it’s rivals.  All three groups are backing different Syrian factions.  What started out as a popular uprising has turned into a proxy war over regional politics and oil\gas exporting economics.  All this before we even get to the possibility of U.S.\Western involvement(“involvement”  here is a euphemism for “bombing and killing a bunch of people”).

Even if we assume for the moment that the Obama administration is genuinely concerned about the use of chemical weapons, that doesn’t explain why the CIA has been supplying rebel factions from the beginning.  Fortunately, when asked about the weapons the U.S. government is sending to Syria, it is surprisingly up front about who and why.  They are trying to fund a fourth, more western friendly rebel group.

“Movement of those items [directly] to Gen. Idriss,” Kerry said, “is going to have an impact, particularly in the south,” where rebel fighters have begun to gain territory. Donor nations meeting here also pledged to funnel all future aid — weapons largely provided by Saudi Arabia and Qatar, and nonlethal assistance from the United States, Britain, France and others — through the military council to prevent it from falling into the hands of Islamist extremist groups that have grown in power within the anti-Assad ranks.

Idriss, Kerry said, could not have been more clear about “what he and the opposition are doing to separate themselves from what some of the extreme elements are doing. . . . We are quite confident that he is a strong leader with the capacity to make a difference.”

That report was from April of this year, before the Chemical weapons usage.  The goal of supporting “moderates” is repeated in this more recent Sept 11th. article.

In addition to boosting support for rebels under the command of Idriss, who speaks fluent English and taught at a military academy before defecting from the Syrian army last year, U.S. officials in southern Turkey are using aid to promote emerging moderate leaders in towns and villages in rebel-held areas. Across much of the north, Syrians have begun electing local councils and attempting to rebuild communities devastated by war.

Ward’s team — working primarily out of hotel lobbies — has spent the past few months studying the demographics and dynamics of communities where extremists are making inroads. Targeted U.S. aid, he said, can be used to empower emerging local leaders who are moderate and to jump-start basic services while dimming the appeal of extremists.

Now it becomes clear what the Obama administration is actually trying to do.  If the U.S. government does nothing in Syria, 1 of 2 things will most likely happen.  1.  Assad survives the uprising and Iran becomes stronger than ever.  Also boosting Russian economic influence  2.  Saudi Arabia or Qatar backed Muslim extremists will take over the country that are as hostile to America and the West as Iran.  Neither scenario is a good thing for America.  This is probably why Obama was going to try and act directly against Assad under the guise of responding to his use of chemical weapons.  End the war quickly and better able to coordinate action so support the so-called “moderate” factions.

I don’t agree with the reasons.  But I think it’s starting to become a lot more coherent than the excuse of “limited strikes” and chemical weapons.

 

Syrian BattleGround

Syria, Obama, and More Violence as the Only Option

When President George W. Bush was gearing up to launch the invasion of Iraq under the guise of the “war on terror”, a common critique was that he was using only one tool.  The cliche` “When your only tool is a hammer, everything looks like a nail” was used to suggest he couldn’t see beyond the military for ways of fighting Islamic extremists.  President Obama, a strong critic of the Iraq invasion is making the same mistake.

I can’t imagine the amount of suffering of the Syrian people are suffering during their civil war.  Their President for life, Bashar Al-Assad, appears to be ready to hang on to power, or destroy the whole country trying.  On top of targeting civilians, hiring thugs and mercenaries, he is now using chemical weapons to try and kill all the rebels.

Obama and his administration also appears to be moved by the suffering of the Syrian civilians.  So he reached into his Presidential tool bag and pulled out… the U.S. military.

The United States military has provided Barack Obama with a range of options for launching an attack on Syria and is “ready to go” with an offensive, the US defence secretary has said.

There is now a growing belief in Washington that a US strike against Syria, possibly involving cruise missiles or long-range bombers, could take place in the next few days.

I understand people wanting to do something to stop the killing, but is sending in the U.S. military to fire million-dollar-each missiles the only way?  Military action isn’t clear cut.  There’s no guarentee that it’ll do more good than harm.  You can’t kill people without expecting blowback.

Iranian lawmakers and commanders issued stark warnings to the United States and its allies on Tuesday, saying any military strike on Syria would lead to a retaliatory attack on Israel fanned by “the flames of outrage.”

This doesn’t mean that U.S. policy shouldn’t act based on threats of other dictators, but it’s best not to pretend that launching missiles and dropping bombs is consequence free.  Also under consideration should be “collateral damage”.  “Collateral damage” is, of course, a nice clinical term for accidentally killing civilians – including children.  It is also something that the current Chairman of the Joint Chiefs recognizes.

Conducting limited “stand-off” missile and air strikes against “hundreds” of Syrian military facilities, advanced weapons depots and defense facilities. The operations would involve “hundreds” of aircraft, ships, submarines and other forces. Cost estimates would be “in the billions.” Syrian retaliatory attacks and collateral damage would be a likely byproduct;

(emphasis mine)

Even though they aren’t targeted, and attempts will be made to avoid it, the cost of military action must be weighed against the fact that innocent people will die at the hands of American weapons.  So what else could the government do other than military action?

There’s diplomatic pressure, helping Syrian refugees, supplying doctors without borders with medicine and supplies.  Those are all things that can save lives without resorting to violence.  There are Syrian refugees crammed into camps that could use additional supplies.  Think of the cost of 1 1.4 million dollar missile.  Now think about how many people could be fed and get medical care for that amount?  One might argue that it won’t stop the killing, but in all likelihood, no military action would either, short of all-out invasion or treacherous, long-term airstrikes.

There could be other options that would be less destructive, like working to help seal the Syrian borders to keep the Al-Assad regime from bringing in his own troops and supplies.  In this case Obama might still be using the U.S. military, but at least it’s in a way that might be less likely to get civilians killed.

Finally, I’d like to end with asking a few annoying rhetorical questions.  Why is reigning down death from American planes and ships the first and, really, only option being considered?  I read an article called Obama’s 3 options in Syria and they were all varying degrees of military action.  Why is that?  Is this a product of our Culture?  A product of American Empire?  A result of 12 years of war in Iraq and Afghanistan?  Why?

Alternatives to blocking American-US Airways merger via Lawsuit

Flying Plane

On Tuesday, the U.S. justice department announced that it was filing a lawsuit to prevent American Airlines and US Airways from merging.

The Justice Department and attorneys general from six states and the District of Columbia filed a lawsuit Tuesday challenging the $11 billion merger of American Airlines and US Airways, saying the combination would lead to higher prices and less service for consumers. The merger, which would create the world’s largest airline, would “substantially lessen competition” for commercial air travel, contends the complaint, filed in U.S. District Court in Washington.

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A top concern is local markets, the Justice Department said. It cited the example of Ronald Reagan Washington National Airport, where the combined airline would control 69% of takeoff and landing slots, and 63% of the outbound nonstop routes.

All I can think is that the government and business are going to spend a whole lot of money and time fighting this.  Don’t get me wrong, I agree with the goal of keeping the airline industry competitive and with smaller, not bigger airlines.  In the article the CEOs of the companies tried to portray the merger as “pro competitive”, but that, to me, is an abuse of language.  Any time a market has fewer and bigger players, it is -almost by definition – going to be naturally less competitive.

Instead of using anti-trust law to break the increasingly large airlines, consume them by encouraging more start-ups to compete with them.  Smaller companies tend to be more nimble and better able to out compete niche areas of the market, and consume market share from the massive companies that become large and unwieldy.

The problem is that this hasn’t been happening in the airline industry.  According to this site, there’s only been about 1 new airline startup in the United State per year.  And just as many failing.  Why are there so few startups?  This article makes some suggestions as to why.

But getting an airline off the ground has become a lot more treacherous. High oil prices these days mean carriers must fly full planes to turn a profit, and smaller airports just do not provide enough passenger traffic. At the same time, the major domestic carriers are more entrenched than ever in their own hub airports, making it harder for a new entrant to wrangle gates there. And investors have become more cautious about lending to just any airline project.

But is that it?  I would add that the number or rules and regulations from the FAA, TSA, and other agencies piles on to the cost of startup airlines.  There are thousands and thousands of regulations on everything from plane specs, to passenger movements, and airports.

One might be tempted to think that those rules are put in place to protect passengers.  That may have been the intent, but the additional costs of compliance help further entrench the big airlines by raising the startup costs of potential competitors.

In some cases the big airlines may have helped write some of those regulations with the mind that it would cost them little to comply, but cost other’s greatly.  Here a great article that goes into detail about how this has occurred in other industries.  How Regulations Help Sustain Corporate Monopolies

However, in the world which we inhabit, most in the “business community” (who are actually antithetical to true business), tend to favor the status quo where regulations are concerned. This conglomerate of business interests do their part to actually favor certain regulations, especially those that would save their huge corporate monopoly from the doomed-uncertainty and promise of competition a truly free  market would provide.

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The example I shall be drawing from is documented on Bloomberg News, in an article published just yesterday. It is titled Accidental Death Becomes Suicide When Insurers Dodge Payouts by David Evans. Evans analyzes the case of Todd Pierce, a 46 year old cancer survivor killed in a horrific and fiery car accident. Through his employer, Todd took out accidental life insurance that would pay his wife were he to pass away unexpectedly, as did happen. Due to the pursuant contractual obligations mutually agreed upon by both parties, MetLife was expected to pay Todd’s widow an total of $224,000.  Despite the sheriff, the state medical examiner, and the official autopsy report concluding that Todd’s death had been an accident, however, MetLife made their own medical decision. They labeled the death a suicide, noting Todd’s previous battle with cancer and the toxicology reports which indicated he had a prescribed drug in his system. As any breach of contract would be submitted to, the case was brought to Federal court in Montana by Todd’s wife, Jane Pierce. What Jane didn’t know, however, is that she wasn’t just fighting for her husband’s benefits, she was fighting the corruption of the entire American corporate monopoly system.

This is but one existing example.  I’m willing to bet that the same is true with the airline industry.  It would be better, and more cost effective if the government started curtailing as many of these regulations as possible.  If it did, we might see more new competition and it wouldn’t have to spend tens of millions of dollars to fighting lawsuits to keep the big guys from getting bigger.  Instead, the little guys could do that for us.

Latest Grand Bargain is (mostly) a Grand Waste of Time

It’s so frustrating to know how the economy works(MMT), and then watch a bunch of men who don’t, try and improve the national economy. Here is a one line sentence explaining how to grow an economy.

People need to spend more money so that there will be the increased demand for new jobs and new business.

That’s it.  But let’s look at Obama’s latest Grand Bargain proposal from a critical MMT perspective.  Obama’s plan has 3 parts.

  1. Simplify the corporate tax code
  2. Try to coax companies to “repatriate” their foreign money holdings
  3. Use the tax increase to fund infrastructure jobs.

The firsObama_and_Mitch_McConnell[1]t plan is to simplify the corporate tax code in 2 steps.  First, it’s going to eliminate several deductions and so-called “special interest” loop holes.  That will increase the amount of taxes the government collects.  The second step is to lower the tax rate to the point where the money gained by closing loopholes is roughly equivalent to what’s lost by lowering the tax rate from 35% to 28%.  Overall this is “revenue” neutral.  Will this help the economy grow?  Hell no!  At best it might make the economy run more efficiently(always a good thing!), but it won’t grow.   It won’t grow because all they’re doing is changing who pays what, and not the total amount taxed.  No growth.

The second part is to get companies with foreign money holdings to bring the money into the country.  Normally, there is, apparently, a tax on doing that.  Therefore, companies leave their earnings overseas.  This estimate says there are over a trillion dollars out there.  Obama’s proposal is to try and get those companies to bring in the money by offering a one time, low tax, to do so.  From an MMT perspective this would be bad for the overall economy because it’s taking money out of the economy.

The third and final part of the Obama plan is to start funding infrastructure and job training programs.  From an MMT perspective, increasing government spending will be good for the overall economy because it will increase demand for jobs and business.  Hooray!

The reason I call this plan a waste of time is because, the first part offsets itself and the good in the third part is offset by the harm of the second part.  Making these plans revenue neutral will never give the economy the boost it needs.  Infrastructure jobs that aren’t offset with tax increases will.  Tax cuts that aren’t offset by tax decreases will also do the trick.

If there is any redeeming part of the proposed ‘grand bargain’ is the possibility that money will be shifted from those who are letting it sit, to those who will spend it.  That’s why I added the qualifier(mostly) into the title.  If that money is truly just sitting in a foreign bank, collecting low interest dust, then shifting the money to infrastructure and creating jobs for the unemployed will help some.  My guess is that only some of that money is “just sitting there”, the rest is being reinvested into other enterprises and will only end up moving around who gets it.

The thing that Obama, along with the GOP that’s already dismissed the whole thing, don’t understand is that the government doesn’t need that money to spend on infrastructure.  The government can’t run out of money anymore than a stadium can run out of points on a scoreboard.  Therefore, we can grow this economy until unemployment is back to a non-embarrassing level.

Recognizing who\what Really Controls Interest Rates

Just in case there was any doubt about what really controls interest rates, the past couple of months should dispel any lingering doubts.  The Federal Reserve(The Fed) is without a doubt in full control of interest rates going up or down.Money Graph

Back in spring, the Fed hinted that it was going to ease up on “Quantitative Easing” or QE3.  Quantitative easing, for those who don’t know, is the Fed trying to flood the market with dollars by buying stocks and bonds(*True Story)  They call it Quantitative Easing to make themselves sound smarter than you(*Not a true story).

So guess what happened?  Interest rates have been steadily rising this summer.  Despite that, many people mistakenly believe that interest rates are determined by a “Free Market” or by “bond vigilantes”.  The only time “the market” really gets involved is when they start trying to guess at what the Fed is going to do.  That was demonstrated last Wednesday.  The Fed said nothing, the market reacted as if that meant interest rates were going to go up.

The policy implications for this are immense.  I won’t get into all of them on this little post.  But let’s just start at the bottom.  The Fed sets interest rates.  That is a fact, once that cannot be denied.  Whether or not that is desirable is a different argument.  But, right now, the only thing standing between a 0% interest rate, or a 40% interest rate is a whole bunch of wealth, well-connected bankers.

No amount of budget deficits or surpluses can change that fact.  Granted, the bankers may make their decisions based on federal budgets or the health of the economy.  But the decision is still in the hands of a small number of people, not “the market”.

When did Following the Constitution become Optional?

Could someone please tell me exactly when following the constitution became optional?  In the last week I have heard Senators openly call on the president to violate a citizen’s rights.  Some prominent figures have demanded that the government act like following the Bill of Rights is optional and can be decided on a case by case basis.  It is my humble opinion that every American citizen has certain unalienable rights that cannot be taken away without due process.  I never thought that would be a controversial opinion to hold in the United States, but apparently it is now.

I think we have all been horrified by the Boston Marathon bombing.  Made even worse by the high profile manhunt that resulted in shootout and dead police officers.  Because of the heinous nature of the crimes and the high profile, Senators and media figures are calling to throw away the constitution when dealing with the American citizen that did these awful things.  I’m going to type that again, because it is an important point.  Dzhokhar Tsarnaev is an American citizen.  And that (should!) guarantees him the right to due process – no matter how terrible his crimes.

Yet, we have yahoos lie Senator Lindsey Graham calling for him to have his citizenship revoked and treated lie an ‘Enemy combatant‘ so that there doesn’t have to be a trial.   John McCain and others has called for not giving an American citizen his Miranda rights.  For McCain, this is not the first time he has done soSean Hannity wants to torture an American citizen and do so without a trial.  So much for the 4th, 5th, 6th, and 8th amendments in the Bill of Rights… (try to walk past the Ann Coulter Statement in that last link where she wants an American citizen  arrested for what they wear – that absurdity is WAY beyond the scope of this post)

To be clear, I think that the Boston Marathon bombers are horrible people that deserve whatever they get.  Thanks to the high profile of the case, I can be reasonably certain that Dzhokhar Tsarnaev is one of those bombers.  I shouldn’t have to say this, but I have to, to keep people from accusing me of being a “terrorist lover” or “America hater”.  I will not get emotionally upset if bad things happen to him.  It is the next person, the less high profile case, that I’m concerned about.

Our rights don’t exist to protect guilty parties such as Tsarnaev, they exist to protect the innocent and falsely accused.  If the government has the power to take away certain rights from the guilty – without trial – what prevents it from doing the same to the innocent and falsely accused?  We cannot let the government say that since somebody is a horrible person they don’t deserve his constitutionally guaranteed rights. Why? because without a trial how do we know he is guilty?  That is my concern and is the thing that everyone should be concerned about.

If the president has the power to declare a guilty person can declared an “enemy combatant” and swooped off to a secret prison to be tortured – all without a trial -, he also has the power to do it to an innocent person.  If we give the president that power, that means we are only one sociopath getting elected president away from a dictatorship.  If the president can declare ANYBODY an “enemy combatant” what is to stop him from doing that to his political enemies?

I am not an expert in liberty, constitutional law, or history, but these are very basic arguments.  These are foundational principles of our country. These arguments can be grasped by any middle schooler in a basic government class.  These are the things that concerned our founding fathers and lead them to create the Bill of Rights.  It scares me that they aren’t grasped by prominent members of the media and long time U.S. Senators.  An even scarier thought is the possibility that they do know them and are purposely ignoring them.

Dzhokhar Tsarnaev must have his full rights as a U.S. citizen(because he IS a U.S. citizen) protected because it is the only way to guarantee that the rest of us will have them.  Any arguments about denying Tsarnaev his rights because he’s a bad person or a public danger is, at best, an extremely short-sighted view.  At worst it is emotional manipulation by a future dictator.

TSA: 3.5oz of Toothpaste = terrorist, 2.36 inch Knives = Patriot

Are you kidding me? The TSA is now going to be allowing some small pocket knives on airplanes. Meanwhile I still can’t take a decent tube of toothpaste through(and lord help you if you caught with a sealed bottle of water or pop!).  Coming from someone who has lost a 20oz bottle of pop, a full tube of toothpaste, was “detained” for a 3 inch philips-head screwdriver, and who won a random “full baggage search” in front of everyone, I feel much safer now.  I might be stuck with overpriced soda from airport shops, off brand toothpaste, and limited hardware, but at least the guy sitting next to me on the airplane can stab me in the eye (with his 2 inch blade) when I tell him about all of America’s “freedoms”.

This also doesn’t mean any other security will be loosened. If you want to ride on a plane in this country, You’ll still have to decide between either someone taking naked pictures of you, or a full body pat down. (If you’re really lucky, you’ll be among the few who have to endure both!)  If you’re among the 99% of americans who like to both ride an airplane and thinks their “right to privacy” extends to their body, there is some good, slightly less publicized news.  There is a small pilot(pun intended) program for those to have “expedited” screenings by going through a voluntary “pre-screening”.  Of course, the program is currently only for frequent flyers and other “preferred” airline customers.  You’ll be contacted shortly if you are eligible.  (Apparently when it comes to getting government permission to retain ones dignity at the airport, Jet-setting millionaires, corporate execs, and traveling sales people get to be in the front of the line)

One last piece of good news, the nude photo scanners might be going away.  Well, not entirely.  They’re staying, but being changed(those that can) to display a cartoon like drawing of the person’s body – golly I feel better already.  Now all I have to do is endure the (likely) cancer causing radiation.

Despite being a liberty-minded person, I think could tolerate all of these things, or at the very least forgive those who impose it upon us, if I thought that it actually kept me and my family safer at the airport and on airplanes.  But, I really don’t believe that. I think others have described it best when they call all of these procedures security theater.  They aren’t designed to make us safer so much as make us FEEL safer.

The system is easy to game.  One can’t have 12oz of shampoo because the shampoo might have been replaced with explosive liquid.  Assuming for a moment that one needs 12oz of this liquid, all you’ve changed is that to pull of an operation you need 4 guys with a 3oz bottle instead of 1 guy with a 12oz bottle.  We can have small knives as long as the handle isn’t grooved nor locked in place?  No problem, I’ll just put my blade in one handle when I go through security, but put it in a different handle once I’m on the plane and want to use it.  Those are just ways to get dangerous items on board without breaking TSA rules.  There is a good chance that whatever you need will make it through TSA screening thanks to all of it’s mistakes.

All of these scanners and screenings seem like they are putting faith in technology instead of people.  There might be an incentive for that considering that the last Homeland Security secretary had ties to the company that sell the naked scanners.  Instead, TSA they may want to spend time concentrating on finding terrorists.  I understand there is a pilot program to try out the “Israeli” method which is to (horror upon horrer) TALK to people.  And if they act suspicious, then they go through additional security screening.  Of course, this is being floated as additional security on top of the useless measures used now, and not a replacement of it(facepalm!).

Now I understand that in Israel if you don’t pass the first screening, things get hardcore fast.  We don’t necessarily have to adopt the ENTIRE system, but talking to a guy and telling him your name, where you’re going, and who you’re traveling with seems less intrusive then losing my entire toiletres bad and getting a full body pat down.  We’re pretty much already asked those questions by 2 or 3 different TSA agents at some point or another.

Even if the “talk to people” method wasn’t implemented.  I’d still advocate for getting rid of most of these other measures.  No sense in making everyone “feel” safer when they’re not.  I don’t believe in a false sense of security.

The Farce That is Sequestration

Brace yourselves, The effects of the so-called “Budget Sequestration” are about to hit.  The two parties aren’t going to compromise so the automatic budget cuts are going to hit and hurt the economy.  The media will probably ultimately blame the two political parties for not coming together to fix something that EVERYONE knows is going to be bad for the economy.

The actual economic damage is compounded by the other deficit-reduction measures that have already slowed growth, including a 2 percent payroll tax increase. All told, economists expect the sequestration plus last month’s fiscal-cliff deal to slow the pace of GDP growth by 1.5 percentage points. That’s no small change for an economy growing about 2 percent a year, particularly one that appears to have lost steam in the fourth quarter of 2012.

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The reality is that they are equally at fault: Both sides accepted the across-the-board cuts if they couldn’t agree to more sensible ones.

I don’t blame the two parties for this mess.  I blame bad economics.  John T. Harvey has a good write-up of why this is going to be bad and why it’s all unnecessary in his article Suicide by Sequestration.

As suggested above, many others have already gone into detail on where cuts will hit and how bad it will be. But, the overwhelming majority of this has been written based on the assumption that we do, in fact, need to cut the debt and deficit, just not this way. I therefore want to do what I’ve done so many times before in this blog: explain why this is a false and terribly dangerous premise. ANY reductions in the deficit are a mistake, not just those forced by sequestration. Below, I attack a number of the fallacies on which these contrary opinions are based (many of these have appeared before in this column–I’ll keep repeating it until President Obama listens!):

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For God’s sake, we have so many difficult problems facing us today. Why add to that by shooting ourselves in the foot–no, the head–by purposely reducing economic activity even more? To see how well this brilliant economic-recovery strategy works, just look at Greece, Spain, and the UK. Better yet, look at the US in fourth quarter of 2012. That negative growth, correlated as it was with a big drop in government spending, is a precursor of things to come.

I highly recommend reading the rest.  John explains better than I could so I won’t repeat his points.  Instead, I’ll try to answer his question of Why do we keep trying to do this to ourselves?.

The economists that our leaders listen to keep telling them that budget deficits are always bad.  It’s always bad to have debt for a household or business, so in theory, it should be bad for a national government.  It’s a very powerful and emotionally convincing theory backed up by the metaphor of a household or business budget.  The people who keep pointing out that The Federal Budget is not Like Your Budget keep getting drowned out.

How powerful is this theory?  It’s so powerful it drowns out common sense.  Let’s take a different situation.  Let’s say someone at the pet store tells you your fish tank should have no more than 3 snails for every 5 fish.  But your fish tank has 4 snails and 5 fish.  So you take away one snail.  But you notice that a week later your fish starting looking sickly and the water gets dirty.  You add back a snail and everything starts slowly recovering.  When you tell this to the pet store owner, he assures you “no no, you gotta take that snail away.  Your tank will get ‘too clean’.  The 3 snails will eventually learn to clean more.”.  So you go home and take the snail away again, but sure enough your tank gets dirty and the fish sickly.  How many times would you keep trying to take a snail away before you conclude that the pet store owner doesn’t know what the hell he’s talking about?  Well, if you’re a congressman, at least more than 5 years!

We have experienced nearly 5 years of a trillion plus dollar budget deficit.  The entire time our economy has been slowly recovering.  The only times it has faltered is when congress has another budget or debt ceiling fight to cut the budget.  How long can this go one until more people start realizing that the economy is recovering and falters when we prematurely try to balance the budget?  If we were scientists and observed this many countervailing examples of our theory, we’d throw it out in a heartbeat.

But, we don’t throw out the theory that “Budget Deficits are always bad”.  Why?  Because the metaphor of the federal budget being like a household budget is just too strong.  We’ll just keep telling ourselves that we “cut the ‘wrong’ things”.  Apparently, they’ll never conclude that it’s the cutting itself that is ‘wrong’.