Tuesday, September 29, 2009

Eviscerating the Consumer Financial Protection Agency, Breaking the Treasury Secretary

[2009.10.11: It seems I was wrong about Geithner, who has long been a creature of the banks, and employee of the mass murderer Henry Kissinger as a young man.]

As part of the response to the financial meltdown of the past year, the Obama administration proposed, among other things, a Consumer Financial Protection Agency. The proposed CFPA would have had sweeping powers to regulate the financial services industry, excepting the insurance industry. Excepting the insurance industry is questionable, but much worse was to come. In the legislative process, the proposal has gradually been eviscerated. Last week, a very important restriction on consumer banking was removed from the bill by Barney Frank, chair of the House Committee on Financial Services: a requirement that the banks offer "plain vanilla" mortgages that could be straightforwardly evaluated and compared. Astonishingly, Treasury Secretary Timothy Geithner, whose own department wrote the provision, commented: "The chairman’s proposals, which I’ve had a chance to read quickly, provide a better balance of choice and protection."

James Kwak of The Baseline Scenario, writes in e-mail, shocked:
The most shocking thing is what Geithner said about the change - he said it made the bill better. Remember, the plain-vanilla requirement is something that came from the draft legislation that he sent to Congress. […] nothing, I repeat nothing, explains his cheering on the elimination of something he asked for. He should have complained about it, if for no other reason than to combat the mounting suspicion that he has no backbone.
I think it likely Geithner's backbone has been broken. In economics and finance, the Obama administration is starting to resemble the Reagan and Bush II administrations in the way it destroys reputations: Geithner will have no credibility by the time he leaves office. Think of the way Lyndon Baines Johnson broke Humphrey.1 Think of what Reagan did to Stockman. This is court politics, the way power has been deployed in aristocracies throughout history. I'm suspecting Summers and Emanuel of doing the dirty work.  Summers in particular strikes me as a better-educated male version of Sarah Palin, and, like Palin, I think he loves to break people, but he would not have broken Geithner without Obama's support.

Stepping back a bit, I think the Johnson administration provides a useful parallel to the Obama administration. Johnson expanded social democratic programs in the USA at the cost of giving the Senate hawks Vietnam, prompting a friend of the Raven to christen Johnson's coalition the "socialist warmongers." It was a devil's bargain leading to millions of deaths,2 and the reactionary side of the coalition betrayed the social democratic side as soon as it could, leading to the Nixon and, especially, Reagan administrations.

In this case, Obama seems to be paying for his social democratic programs with giveaways to the financial services industry, the health care industry, and the warmongers of our time. This, I belive, is his devil's bargain. Health reform is being undermined even before it passes, with the most likely Senate bill hard on the middle class. Since the House bill is already a reasonable compromise, it's likely that the result will be a bill with a mandate that will fall hard on the lower-income half of middle income people.

Johnson, in supporting Vietnam, lost the Presidency. His party lost power to the reactionaries who began to undercut his programs. With his deals with the financiers, and especially the Senate insurance mandate, Obama, it seems to me, may lose the Obama Democrats, who were once the Reagan Democrats: the working men (they are mostly men) who want a square deal. The Democrats may never get them back.

1. Robert Caro, The Years of Lyndon Johnson: Master of the Senate. Google Books.
2. Foucault said that every expansion of the power of the state to control everyday life ("biopower") in Europe was marked by both positive and negative aspects. I haven't read that essay in 20 years, have even forgotten the title, but I suspect it would bear review in this context.

[minor edits on the night of & day after publication for clarity & to correct links]

Saturday, September 26, 2009

Krugman: the Croak of the Times

On reactionary opposition to measures against global warming:
So, have you enjoyed the debate over health care reform? Have you been impressed by the civility of the discussion and the intellectual honesty of reform opponents? If so, you’ll love the next big debate: the fight over climate change. ***
I think I am going to award Krugman the Raven's "Croak of the Times" award & stop giving him "Croak of the Day" on the grounds that I may never give it to anyone else if I don't.

[2009.09.29: Added some quote marks.]

Sunday, September 13, 2009

Ethics and the Discipline of Economics

In an long article in the New York Times Magazine, Paul Krugman writes:
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. ***
Yet further down in the article, Krugman writes:
Meanwhile, saltwater economists, who had comforted themselves with the belief that the great divide in macroeconomics was narrowing, were shocked to realize that freshwater economists hadn’t been listening at all. Freshwater economists who inveighed against the stimulus didn’t sound like scholars who had weighed Keynesian arguments and found them wanting. Rather, they sounded like people who had no idea what Keynesian economics was about, who were resurrecting pre-1930 fallacies in the belief that they were saying something new and profound.
This is ideological, rather than rational, opposition. Let me take a little digression into cognitive science to explain something about distortions of reasoning. If you put a VR headset on someone and have them walk around then (before VR sickness sets in) they can interact in a computer-synthesized space. Unless, that is, the ground they are on is sloping. In which case they will, quite unconsciously and without visual cues, drift down-slope. And this is how it is that ideology and, yes, money influenced the economic profession. The claims of rationality were, for the freshwater economists, only the rationalizations of status-seeking behavior.

The field of economics, I think, needs ethics to keep it track, so that it is a scholarly discipline rather than one that produces extensively rationalized propaganda. The ethics I believe the field needs to remember, first, is that of scientific validity. Marxists have made claims for scientific validity for their theories. Yet those claims have largely failed and Marxists are roundly criticized for them by non-believers. The views of the uncritical supporters of wealth and power are to be equally subject to skepticism. By which standard it is plain that a great many capitalist economic theories failed, yet were not discarded. Economics, if it is to be science, must no more be a propaganda arm of capitalism than of socialism.

Beyond the ethical standard of scientific validity, I think economists would do well to adopt some ethical standards from other human sciences. Economics began in a time when vast disparities of wealth were the norm and, so far as anyone knew, society had always been agrarian. It was tempting to find ethical validation for this situation. We now know that humans did not start out with an agrarian society and that vast disparities of wealth are not a human universal. It is time to abandon the idea that these disparities are natural.

In the late 19th century, the idea of social Darwinism was popular. It was widely believed that intense interpersonal competition was healthy for humanity, regardless of how hard it was for individual humans. This turned out to be false, and acting on the idea led to horrors in the 20th century. The rest of the social sciences reluctantly repudiated social Darwinism, though it is not entirely forgotten. But economics has yet to reject it; the idea lives on in the high value economists place on market competition. It is time, and past time, for economists to reject social Darwinism.

It is hard for any social science to separate its ideas from the ideas of its times, yet of what use is any science if it only echoes the ideas of its time? It is exactly the value of science that it seeks ideas of value outside of the time and place of their development. One of the best ways to learn to distinguish the unique ideas of a social science discipline from the general ideas of its time is to study the discipline's history. Economics is, in addition, a largely historical science: economic theory depends heavily on the study of historical data. Indeed, the recent failures of the discipline were made possible in part by the abandonment both economic history and the history of economics as essential parts of the discipline. It is time for economists to remember.

This article has taken a path which surprised me. I did not realize, when I began writing, that this was going to be an article on ethics and science. Yet it seems to me that without ethics, scientific research is not possible. Without basic honesty, without the ability to admit error, without the tools of criticism and review, there is no way to arrive at scientific truth. I believe that economics went off-track partly because of highly-rewarded status-seeking behavior on the part of many economists. This was rationalized as a choice of elegant theories yet in reality was the expression of a desire for the favor of the wealthy and powerful. I have discussed four specific ethical failures:
  1. The first, and most significant failure, is in an area of ethics common to all sciences: the failure to honestly test theories against experimental evidence. This is the first and final proof of all scientific work, and if it is undertaken dishonestly, the discipline will accept as true and teach invalid ideas.
  2. The defense and validation of vast disparities of wealth. This reduced non-socialist economics to a propaganda arm of wealth and power, and led to a failure to criticize the abuses of wealth and power.
  3. The concealment of social Darwinism in the ideology of the free market.
  4. The rejection of history, both as a way to test theory and as a method of self-understanding. This led to a collapse of self-criticism, which in turn concealed and defended other failures.
It's customary, at this point, to end with an uplifting exhortation. But haven't we had enough promises of heaven on earth? I won't promise that a reformed economics will resolve all the problems of the world. Yet we face many global challenges in this century and economics plays some role in every one of them. I hope a reformed economics will help us face these challenges.

Thursday, September 10, 2009

Croak of the Day

We have an early winner, here:
I am truly sick of health insurance being compared to car insurance. I can choose not to own or drive a car - which absolves me of needing car insurance (in fact currently I don't even have a drivers license). I don't think I can choose not to have a body, at least not while being alive. --"alymid" on LiveJournal

Wednesday, September 9, 2009

The Heel of a Loaf: the Obama Plan

Obama's done an excellent job of making a case for the Democratic Party consensus. A mandate, some supports for the most needy, some tepid support for a public option, no talk about regulation. Is this the best system? That's still Medicare for all. Is this a just system? As proposed, it seems to require the lower middle class and the small businessperson to pay the biggest share. So, not just. Is it better than what we have now? Probably, at least until the insurance companies figure out a way to squeeze so much money out of it that no-one can pay. Not even half a loaf; the heel of a loaf.
  • Big winners:
    • The insurance industry will clean up at taxpayer expense.
    • Big corporations maintain their big hiring advantage over small businesses.
  • Moderate winners:
    • My corporate-employee friends will have an easier time changing jobs.
    • The truly poor will get a bit of help with the insurance they’ll be required to purchase.
  • Half loaves:
    • People who want to quit their corporate jobs & start their own businesses not only lose their corporate insurance, but have to pay the unregulated independent insurance rates.
    • My writer and artist friends will be required to spend scarce money on insurance at unregulated rates. Same thing for the baristas. There may actually be a health advantage to a lower income.
  • Big loser:
    • Social justice. Taxing the lower middle class and the independent businessperson to the advantage of the insurance industry and big business is unjust.

[Edited for clarity and to remove some swearing.]

Reconciling the Wings of the Democratic Party

That seems to be Obama's main task on health care. I don't think he realized--he was punked by the likes of Baucus. We're all watching. Don't screw it up, man.

Wednesday, September 2, 2009

Converse and Democracy, Part 2

It's called a fiduciary responsibility. It's what architects, lawyers, and doctors have towards their clients and patients. And it's what I would like to see from our elected officials. It's the responsibility of someone who knows more than a client: the doctor who knows the patient's health better than the patient.

Need I say that most US elected officials fail of this standard? If they were doctors, lawyers, architects, 3/4s of the Senate would be forbidden to practice. Many would be facing charges.

If there is a key problem of mass democracy, it is how to elect officials that take their responsibilities to their constituents and their country seriously, and seek to discharge them honorably.

Tuesday, September 1, 2009

For Seattlelites

Mayoral candidate Mike McGinn has a suggestions board.