Two Generations of Trade Deficits: A Wee Complaint with Jared Bernstein

I was loving the latest from Jared Bernstein until I got to this passage:

I do know that we must start by lowering our economically large, persistent, and distortionary trade deficit, especially to the extent that it is pumped up by other countries manipulating savings and exchange rates.

Jared and I are the same age – both born in 1955. I started teaching economics when Ronald Reagan became President. It was about this period of time when we started witnessing persistent current account deficits. Most of us back then blamed a massive inward shift of the U.S. national savings schedule (created by Reagan’s tax cut for those of us who did not drink the Ricardian Equivalence Kool Aid) that led to a massive dollar appreciation. The next time we saw a large appreciation of the dollar was the late 1990’s. I recognize that Jared is channeling the excellent Dean Baker who often writes stuff like this:

Robert Rubin was also the chief architect of the “strong dollar” policy. Lloyd Bentsen, Rubin’s predecessor as treasury secretary, was quite happy to see the dollar fall. The logic was straightforward: A lower dollar would improve the US trade deficit. If the dollar falls relative to the euro, yen and other currencies, then it is more expensive for people in the United States to buy imported goods. Therefore, they buy domestically produced goods instead. Similarly, if the dollar falls in price relative to other currencies, then it is cheaper for people living in other countries to buy US exports. This will increase US exports, thereby further reducing the trade deficit. A lower valued dollar was in fact supposed to be one of the main dividends of the deficit reduction policy that President Clinton pursued from the start of his presidency. The argument was that lower deficits would lead to lower interest rates in the United States. If interest rates in the United States fell, then foreign investors would buy up fewer US government bonds and other financial assets. This gave us the lower dollar and improved trade deficit. That was more or less the picture until Rubin succeeded Bentsen as treasury secretary in 1995. Rubin began touting the strong dollar.

Dean is right to note the move to a mix of low interest rates and fiscal discipline that was part of the early Clinton years. This mix was the reverse of the Reagan macroeconomic mix. But as Dean blames the public statements of one official for the dollar appreciation over the next several years, I have a small problem:

If one thinks about the Clinton policy mix – fiscal restraint with easy monetary policy – it was the opposite of the Reagan policy mix. To the degree we lowered our interest rates relative to the rest of the world, one would expect ceteris paribus that the dollar would devalue increasing net exports. Of course the dollar appreciated and net exports fell but that was the result of the investment boom which led to a strong increase in real GDP, employment, and even real wages. When progressive critics complain that U.S. macroeconomic policy cost growth and jobs by letting net exports fall, they confuse cause and effect.

Should the U.S. pursue more national savings like we did in 1993? My answer would be no unless we could get more world investment given the legacy of the last several years with the Bernanke global savings glut combined with a dearth of investment. The hope in the U.S. is that we have our own infrastructure investment boom. Now if we can get nations like Germany and China to invest more, perhaps our next investment boom can be accompanied by rising U.S. net exports. But note alleged currency manipulation is not exactly the key issue.

The Electoral College, White Supremacy and Full Employment as "Reign of Terror"

Published in September 1947, Whither Solid South? A Study in Politics and Race Relations, by Charles Wallace Collins, "became both manifesto and blueprint" for the 1948 "Dixiecrat" campaign of Strom Thurmond and -- over the longer term -- the strategy whereby Southern white supremacists engineered a balance of power "lock" on the electoral college and thus on the Presidency. Matthew M. Hoffman examined the political consequences of that strategy in "The Illegitimate President: Minority Vote Dilution and the Electoral College," published 20 years ago in the Yale Law Journal. Joseph Lowndes discussed the broader influence of Collins's book on the emergence of a "New Right" in From the New Deal to the New Right: Race and the Southern Origins of Modern Conservatism. Collin's strategy can be summed up in a few paragraphs from chapter 17 "The South Need Not Surrender":

Comments on Milanovic on Marx

By Fred Moseley

I am a Marxist economist (Professor of Economics, Mount Holyoke College) and I appreciate Branko Milanovic's open-mindedness and his efforts in a recent post on his blog to educate economists who often have a crude and superficial misunderstanding of Marx’s labor theory of value.  

For context for my comments on Milanovic, I will first say a few words about my interpretation of Marx’s labor theory of value (LTV).  In my view, Marx’s LTV is primarily a macro theory and the main question addressed in Marx’s macro LTV is the determination of the total profit (or surplus-value) produced in the capitalist economy as a whole.  Profit is the main goal of capitalist economies and should be a key variable in any theory of capitalism.  Marx’s theory of the total profit is that profit is the difference between the value produced by workers and the wages they are paid, i.e. that profit is produced by the “surplus labor” of workers.

I argue that Marx’s “surplus labor” theory of profit has very significant and wide-ranging explanatory power.  Marx’s theory provides straight-forward and robust explanations of the following important phenomena of capitalist economies:  conflicts between capitalists and workers over wages, and over the length of the working day, and over the intensity of labor (i.e. how hard workers work, which determines in part how much value they produce); endogenous technological change (in order to reduce necessary labor and increase surplus labor and surplus-value); increasing concentration of capital and income(i.e. increasing inequality); the trend and fluctuations in the rate of profit over time; and endogenous cycles due to fluctuations in the rate of profit rate of profit.  (A more complete discussion of the explanatory power of Marx’s theory of profit is provided in my “Marx's Economic Theory: True or False? A Marxian Response to Blaug's Appraisal,” in Moseley (ed.), Heterodox Economic Theories:  True or False?, Edward Elgar, 1995).

This wide-ranging explanatory power of Marx’s surplus labor theory of profit is especially impressive when compared to mainstream economics.  In mainstream macroeconomics, there is no theory of profit at all; profit (or the rate of profit) is not even a variable in the theory!  I was shocked when I realized in graduate school this absence of profit in mainstream macro, and am still shocked that there is no effort to include profit.  Indeed, DSGE models go in the opposite direction and many models do not even have firms!

Mainsteam micro does have a theory of profit (or interest) – the marginal productivity theory of distribution – but it is a weak and largely discredited theory.  Marginal productivity theory has been shown by the capital controversy and other criticisms to have insoluble logical problems (the aggregation problem, reswitching, cannot integrate intermediate goods, etc.).  And marginal productivity theory has very meager explanatory power and explains none of the important phenomena listed above that are explained by Marx’s theory.  

Milanovic agrees that Marx’s LTV is primarily a macro theory, but he interprets it in this post as only the assumption that “sum of values will be equal to sum of production prices”.  And he continues:  “The former is an unobservable quantity so Marx’s contention is not falsifiable.  It is therefore an extra-scientific statement that we have to take on faith.  

I argue, to the contrary, that Marx’s macro LTV is primarily a theory of profit and my conclusion that Marx’s theory is the best theory of profit we have is not based on faith but is instead based on the standard scientific criterion of empirical explanatory power.  It is much more accurate to say that marginal productivity theory is accepted by mainstream economists on faith, as Charles Ferguson famously said in his conclusion to the capital controversy.

Now to my comments on Milanovic's three main points:  

1.  Milanovic's main point is that the LTV is often misinterpreted as a simple micro theory that assumes that the prices of individual commodities are proportional to the labor-times required to produce them.  Milanovic argues that is not true in a capitalist economy because of the equalization of the profit rate across industries with unequal ratios of capital to labor, so that according to Marx’s theory, long-run equilibrium prices are determined by the equation:  w + d + rK, where w is wages, d is depreciation and r is the economy-wide rate of profit (missing in this equation is the cost of intermediate goods, but I will ignore this).  

Milanovic emphasizes that Walras and Marshall had essentially the same equation for long-run equilibrium prices.  I agree that all three theories of long-run equilibrium prices have this same form, but there is an important difference.  Marx’s theory provides a logically rigorous theory of the rate of profit in this equation (based on his theory of the total profit discussed above) and Walras and Marshall just take the rate of profit as given, disguised as an “opportunity cost”, and thus provides no theory of profit at all.  Therefore, I think Marx’s theory of long-run equilibrium prices is superior to Walras’ and Marshall’s in this important sense.

2.  Milanovic's second main point is that Marx’s theory of long-run equilibrium prices are “clearly very, very far from derisive statements that the labor theory of value means that people are just paid for their labor input regardless of what is the ‘socially necessary labor’ required to produce a good.”  I presume that this derisive statement means that workers produce more value than they are paid and thus are exploited in capitalism.  But Branko is mistaken about this.  Marx’s theory of long-run equilibrium prices is based on his macro theory of profit according to which the source of profit is the surplus labor of workers.  This conclusion is indeed derisive and that is the main (non-scientific) reason that Marx’s theory of profit is rejected by mainstream economists in spite of its superior explanatory power.

I know from previous correspondence that Milanovic understands well Marx’s “exploitation” theory of profit, but he seems to overlook the connection between Marx’s micro theory of prices of production and his macro theory of profit.

3.  Milanovic's third point is that Marx’s labor theory of value is most helpful in understanding pre-capitalist economies and the relation between capitalism and non-capitalist economies today.  I argue, to the contrary, that Marx’s labor theory of value and profit is the best theory we have to understand the most important phenomena of capitalist economies, including 21st century capitalism.

It would be one thing if mainstream economics had a robust theory of profit with significant explanation power.  But it has almost no theory of profit.  Therefore it would seem to be appropriate from a scientific point of view that Marx’s surplus labor theory of profit should be given more serious consideration.

Thanks again to Milanovic and I look forward to further discussion.

It's Red Friday and Time to Discuss the Role of Exploitation in Profit

I would encourage all of you to read Fred Moseley’s case for the labor theory of value and the problems he has with Branko Milanovic’s interpretation of it.  This may seem like an exercise in Marxist antiquarianism, but the underlying questions are important.

For what it’s worth, my own view is that Fred is absolutely correct in arguing for the centrality of a theory of profit in any analysis of capitalist economies.  I’m less sure the LTV does this, however, since at best it’s simply an accounting relationship.  By contrast, Marx’s bargaining hypothesis, based on the reserve army of labor, has stood the test of time rather well, even if it now goes under the heading of the wage curve.

I think the time may also be coming to revisit the debate between Marx and Proudhon over the issue of profit and exploitation.  Proudhon argued for economies of scale, according to which workers would receive their marginal products, but the sum did not exhaust the value of production.  This was the basis for his advocacy of coops.  Of course, Proudhon did not have the math to express this with precision, leaving Marx with the impression that it was all a big muddle.

Most economists would now be inclined to side with Pierre-Joseph, and I would go along too, at least partly.  But the economy of scale argument also depends on the assumption there is normally a single efficiency optimum for the enterprise, which I would dispute strongly.  Reformulating Proudhon for a more complex vision of the economy, one that is multi-peaked and requires discovery and planning as well as scale, is an important task.  As both Marx and Proudhon would have understood, the theory of profit-making is at the core of figuring out how capitalism works and envisioning pathways beyond it.

Trumped Up Trade Policy

Brad DeLong challenges Donald Trump on his claims regarding trade policy:

In the United States 24% of nonfarm workers were manufacturing workers in 1971. It's 8.6% today. Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%--analysts disagree on trade expansion vs. trade diversion here.

Granted but let’s go further. The standard Mundell-Fleming model notes that under floating exchange rates, trade protection tends to appreciate the currency which virtually offsets any benefits to net exports from the trade protection. Of course one might wonder if there is anything one could do to alter net exports to which Brad adds a little more wisdom:

Maybe it would be 12% if the United States had followed Japan's and Germany's roads of being high-savings low-currency value countries focused on nurturing their communities of engineering excellence, rather than running the Reagan and Bush 43 deficits and combining that with a focus on financialization and a strong-dollar policy. I certainly think that would have been a better policy road for the United States. But it gets you only to 12% at most--not back to 24%.

Again – the standard Mundell-Fleming result. Germany and Japan’s policies have been the reverse of the disastrous mix of tight monetary policy and excessive fiscal stimulus we witnesses in the early 1980’s, which led to a massive appreciation of the dollar and a massive decline in net exports. While I’m all for a large public infrastructure stimulus, let’s not overdo fiscal stimulus by also providing massive tax cuts for the rich. If the President elect wants to see more net exports, he should stop asking the Federal Reserve to raise interest rates. Trade restrictions are not the answer – a more intelligent mix of fiscal and monetary policy is.

Two Weeks In And Counting

The election was two weeks ago today, and two weeks is roughly the period of short-term memory, the time in which most people can remember what happened day by day with those memories highly salient while things before then become "long ago."  So we are now deep into getting used to Trump becoming president, even as Clinton's popular vote lead has now surpassed 1.7 million and continues to grow. I also note that of the highly salient two weeks just before the election had 9 out of the 14 days dominated by the totally off-base Comey/FBI plunge into Clinton's nothing emails, with how so little she did really was remotely criminal becoming clearer as Trump has dropped his plan to have a special prosecutor go after all that nothing.  Too bad for all those people who go so worked up chanting "Lock her ups!"  I do think the Comey bit looks like the leading factor in tilting some of those parts of WI, MI, and PA that put Trump over the top.  A few other random observations.

1)  If Trump can avoid pulling something that tanks the economy, he may end up getting credit for doing well with the economy. This is because the economy is now doing quite well, growing more rapidly than almost any time since the Great Recession, with wages actually beginning to grow.  This should go to Obama's credit (or nobody's), but Trump will claim it if it continues and will probably get this accepted by much of the public.  I doubt his fiscal stim will do much, especially given what a scam his "infrastructure spending" plan appears to be. But under current circumstances, all he has to do is avoid doing something drastic that would slow down what is already going on and will probably continue for awhile.

2)  Foreign policy remains very scary and very up in the air, especially given the extremists he has been appointing to national security posts combined with his apparently massive ignorance and thin-skinnedness.  But even here, again, if he can avoid blowing everything up (not a trivial mater), he may also claim credit for something that is really the doing of Obama, namely defeating ISIS.  It is down to controlling only two major cities, and the assault on the bigger of the two, Mosul, is in full swing, and while slowed down, will probably succeed, possibly before Trump takes office. The assault on al-Raqqa has just barefly begun, and is likely to have more trouble getting united support by those in Syria against ISIS, but probably it too will fall in the not-too distant future, but almost certainly after Trump takes office, and he will certainly take credit for it, repeating the argument that ISIS was all Obama's fault anyway, even though it never would have come to be if Bush had not invaded Iraq in the first place.

3)  Another thing that may well work in Trump's favor is that it looks like as of yesterday's You Tube from him that he may be backing off or holding back on some of his more extreme campaign promises and themes, although in some cases he simply said nothing so we do not know, and he is clearly very unpredictable, one of his more worrisome aspects.  But there was no mention of ending Obamacare, and his only mention of immigration was the almost trivially minor matter of going after people with visa problems.  If that is all he does, well, fine with me, although clearly he is appointing awful people to many jobs, with his leading candidates for SCOTUS apparently exceptionally awful.  We have a lot of bad stuff still to see.

4)  Finally we have a very weird contradiction or problem that I have yet to see anybody really nail down.  It is this business of his having some of his kids, especially daughter Ivanka, sitting in on meetings we think they should not, like ones with foreign leaders.  I mean, Ivanka does not have a security clearance and was not vetted, quite aside from all the conflict of interest issues with she and her siblings supposed to run the Trump business empire, and also all those anti-nepotism laws in place.  But it may turn out that we will want her in those rooms, probably with no official position and preferably removed from running his business, if he can figure out what he needs to do with that so as to avoid getting impeached for violating the anti-emoluments clause of the Constitution.  The problem is that it seems that there are very few people who can talk to Trump with him taking them seriously at all, with Ivanka maybe the most important one who can.  And given his ignorance and thin-skinnedness, we shall need somebody who can and can hopefully hold him back from doing the really crazy and dangerous things he might do on the spur of a moment.  It is rarely discussed, but almost certainly First Ladies have quietly played such a role, with those since Pat Nixon almost certainly doing so, popular, intelligent, reasonably knowledgeable, and with good common sense. But, unfortunately, Melania Trump does not appear to be any of those and will not provide that private ballast, with Trump needing it far more than any of his predecessors.  So, we shall really need for him to get Ivanka legalized so that he can rely on her to keep him from doing something really seriously crazy, if she can.

Barkley Rosser.

Scab Labour: Where do we go from here?

Bridget Phillipson is the U.K. Labour MP for Houghton and Sunderland South. "You're not fit to be prime minister and you’ve got to resign," she told Jeremy Corbyn at an extraordinary meeting of the Parliamentary Labour Party after the Brexit vote last June. Today, "The Staggers, The New Statesman's rolling politics blog" published an essay by Phillipson titled, Where do we go from here? 

It is a very long read but eventually comes to the Lakoff-inspired conclusion that the Labour Party needs "to frame the debate again as one between collective action and its absence."

And having formulated that clear sense of how the Britain of 2020 would be run differently between 2020 and 2025 by Labour, we need to work out how to persuade the electorate of that – to work out exactly how we should communicate our promises.

Before arriving at that stirring platitude, however, Phillipson let these dubious cats out of the bag:

I take the view that the right decisions for Britain’s future are not invariably the ones that are immediately and universally popular. If they were, all politicians would be redundant. Sometimes things that are true are deeply unpopular, and sometimes things that are popular would be catastrophic as policy choices. That to me is why we are a representative democracy rather than one governed by referendum after referendum. I also believe that as politicians we have a moral responsibility to tell the truth. ...

If we pretend things that are true aren’t so, and pretend that seductively popular options which would actually damage us are without downsides, we deserve to get in trouble. The fastest way to lose trust is to be found out in deceit, and once we lose that trust, we will then find it very hard to gain the support we need to change what can and should be changed. It’s easy for those who don't believe in government: they have nothing to lose from a diminution of faith in politics and politicians. As Labour politicians we have everything to lose: we have a double responsibility. 

So to the point: the ‘lump of labour,’ the notion that there are a finite number of jobs to go round, is a long-known fallacy. Those who pretend otherwise or deny that finding should be treated with the same bemused contempt as Douglas Carswell when he claimed the tides were driven mainly by the sun. ... There is something horribly un-socialist about blaming people for the consequences of political decisions of a right wing government. That is the politics of populism not socialism, the politics of easy answers rather than right answers.

If it is the "double responsibility" of Labour politicians to "tell the the truth," it is a prerequisite responsibility for them to know what "the truth" is and not simply parrot something they happen to have heard from Jonathan Portes or Nigel Stanley. The claim about a lump-of-labour fallacy was conceived and propagated as the core reactionary "frame" for refuting the legitimacy of collective action by workers.

The Father of Systems Dynamnics Dies: Jay W. Forrester

Jay W. Forrester has died at age 98, the father of systems dynamics.  He arrived at the MIT to study electrical engineering in 1939 and during WW II would develop the first human-computer interactive system, the flight simulator.  He would invent the magnetic core system of computer memory, long widely used for RAM in many computers.  In 1956 he joined the Sloan School of Management at MIT where he remained for the rest of his career and founded the Systems Dynamics Society that year, which still exists and of which I am officially a member, although I have not been to one of their meetings since the 50th anniversary one at MIT a decade ago.

The main principles of systems dynamics were laid out in his most famous book from 1961, Industrial Dynamics, which would be followed some years later by Urban Dynamics, and then World Dynamics, which provided the program (DYNAMO) and the basic model used by the Club of Rome group in their much more famous The Limits to Growth (Meadows, Meadows, Randers, and Behrens, 1972). Many of both the virtues and flaws of systems dynamics can be seen in that effort, with the benefits being use of an integrated system of nonlinear difference equations to model a large-scale system, along with a tendency to over-aggregation of important variables along with weak statistical or econometric foundations for posited relationships and equations within the model.  In the case of the Club of Rome book, this led to exaggerated forecasts of impending global ecological-economic doom that did not happen, even as many of the problems highlighted in that book remain serious.

My old friend and complexity colleague, Richard H, Day, has long been an advocate of Forrester's work, which also included models of long economic waves in multi-sectoral models, as an early part of complexity modeling via nonlinear dynamics.  Something that Forrester long emphasized, and which is correct, is that such systems of interrelated nonlinear differential equations (to be more general) can lead to "counterintuitive results."  Funny things can happen on the way to Broadway when the world is full of nonlinear relationships, especially when some of those involve positive feedback effects that can lead to destabilizing dynamics in such systems.  Forrester's work dating from the late 50s and early 60s was among the first to warn of such matters, which indeed must be taken seriously, whether we are modeling financial markets or global climate dynamics.

The only time I really had a chance to talk to Forrester myself at any length was a decade ago at the 50th anniversary conference of the Systems Dynamics Society.  He was then fully alert and sharp, despite being 88 years old, and also full of his many strong views of the world.  Something I had not realized until then was the sharp competition he engaged in intellectually with Norbert Wiener and his cybernetics approach, which from my view have many similarities.  I have long listed cybernetics as the first of the "Four C's" of complexity: cybernetics, catatstrophe, chaos, and agent-based complexity.  I have long argued that in effect the last of these, also known as Santa Fe complexity (or small-tent complexity), essentially replaced cybernetics, which also shared the problem of over-aggregation that its rival, systems dynamics.  In principle neither of them needed to.  This may be more a matter of timing and improved computer power over time, rather than something fundamental.  Our modern computers can handle the much greater complexity of modern agent-based models than the earlier computers that the old cybernetics and systems dynamics models ran on. 

I note a curious personal aspect of my relation to all this. The very first paper I ever wrote to get published in the early 1970s while still a grad student was a critique of certain parts of Forrester's model used in his book, Urban Dynamics, which he had used as the basis for some testimony before Congress.  He had testified that the government should not build low-income housing because it would just attract poor people to cities where it was built, which would then lower investment and growth.  His model simulations showed such an outcome, but looking at it closely it was clear that this was driven by an equation that had inter-urban migration being driven most strongly by relative housing prices, whereas virtually all the literature said that it was jobs and wages which were the most important driving variables.  My paper was rejected by the journal I sent it to, with very poor in my opinion referee reports. I expressed a desire to send a letter to one referee to point out his errors, but the editor made it clear in no uncertain terms that he would not let me do this.  As it was, I never sent the paper anywhere else, and it remains unpublished to this day.  Ironically, housing prices may in fact now be beginning to impact migration and employment growth as we see high housing price locations possibly facing growth slowdowns as it becomes too expensive to live in them.

In any case, I think that Jay Forrester's role in the development of modern complexity economics based on nonlinear dynamics has been insufficiently appreciated.  I mourn his passing and recommend his work for those more deeply interested in these matters.

Barkley Rosser

Navarro Nonsense on Privatization of Public Infrastructure

Brad Plumer has a must read discussion on Trump’s plans for infrastructure:

What Trump has right now is an idiosyncratic proposal for Congress to offer some $137 billion in tax breaks to private investors who want to finance toll roads, toll bridges, or other projects that generate their own revenue streams. But this private financing scheme, experts across the political spectrum say, wouldn’t address many of America’s most pressing infrastructure needs — like repairing existing roads or replacing leaky water mains in poorer communities like Flint. It’s a narrow, inadequate policy. For instance: “This is unlikely to do much for road and bridge maintenance,” notes Harvard economist Edward Glaeser. “And [economists] have long believed that the highest returns are for fixing existing infrastructure.”

This proposal was written by Peter Navarro and Wilbur Ross. No kidding. As I noted even Greg Mankiw stated how their analysis of the macroeconomics behind the Trump tax cuts was nonsense. But the decision to publicly build infrastructure versus having the private sector has elements of financial economics embedded the discussion so maybe these two have some insights. Navarro and Ross are correct that we are under investing in infrastructure but their political spin on this is beyond belief:

For example, with Hillary Clinton’s full support, only 5% of Obama’s $840 billion program of infrastructure spending, initiated in 2008 at the depths of the Great Recession, was actually spent on “shovel ready” projects. The rest was dissipated, with little stimulus result while our nation’s infrastructure gap has widened.

Never mind the fact that Obama’s advisers wanted more infrastructure investment and less in the way of tax cuts but Obama had to deal with Republicans who wanted all tax cuts all the time. But this is not my problem with their paper. I will admit that my two cents on this was not a real analysis:

I’m not sure how the city decided that $1150 million was fair market value but let’s do a small DCF model that starts with nominal profits at $58 million per year but let’s this figure rise by 2 percent per year. The fair market value depends of course on what we assume the appropriate nominal discount rate should be. If one is willing to assume a 6.9 percent nominal rate, then this was a fair deal to the taxpayers. The current interest rate on 30-year government bonds, however, is only 3 percent. If we use this as our discount rate, the fair market value would be over $3 billion. Of course this has been an old story – government officials selling taxpayer assets to private companies at bargain prices.

I guess one could argue that the appropriate discount rate should include both the risk-free rate (which I took to be 3 percent) but also a small premium for bearing systematic risk. But I found the Navarro-Ross discussion of the cost of capital issue to be incoherent. Let’s quote the relevant portion of this discussion in full:

For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity. The difficulty with forecasting that revenue stream arises from trying to determine what the pricing, utilization rates, and operating costs will be over the decades. Therefore, an equity cushion to absorb such risk is required by lenders. The size of the required equity cushion will of course vary with the riskiness of the project. However, we are assuming that, on average, prudent leverage will be about five times equity. Therefore, financing a trillion dollars of infrastructure would necessitate an equity investment of $167 billion, obviously a daunting sum. We also assume that the interest rate in today’s markets will be 4.5% to 5.0% with constant total monthly payments of principal and interest over a 20- to 30-year period. The equity will require a payment stream equivalent to as much as a 9% to 10% rate of return over the same time periods. To encourage investors to commit such large amounts, and to reduce the cost of the financing, government would provide a tax credit equal to 82% of the equity amount. This would lower the cost of financing the project by 18% to 20% for two reasons. First, the tax credit reduces the total amount of investor financing by 13.7%, that is, by 82% of 16.7%. The elegance of the tax credit is that the full amount of the equity investment remains as a cushion beneath the debt, but from the investor point of view, 82 percent of the commitment has been returned. This means that the investor will not require a rate of return on the tax credited capital. Equity is the most expensive part of the financing; it requires twice as high a return as the debt portion, 9 to 10% as compared to 4.5 to 5.0%. Therefore, the 13 percent effective reduction in the amount of financing actually reduces the total cost of financing by 18 to 20 percent. By effectively reducing the equity component through the tax credit, this similarly reduces the revenues needed to service the financing and thereby improves the project’s feasibility.

Is this 5% the expected return to assets while the 10% is the expected return to equity? It seems that they are assuming that 83.3% of any project will be financed by debt while 16.7% will be assumed by equity but their writing is a bit vague where. I’m trying to also understand how their example is consistent with the standard Capital Asset Pricing Model as well as the Modigliani-Miller proposition but given their incomplete discussion, we need to do some assumptions. I guess they are assuming a 4% risk-free rate plus a premium of 1% for bearing operational risk. Given our assumptions about debt versus equity, this translates into a 6% premium for bearing both operational and leverage risk. Maybe these assumptions with respect to systematic risk are defensible but they have neither made the case nor even articulated that this is what they are actually assuming. Of course, a 4% risk-free interest rate strikes me as a bit high. There is so much more that I find questionable about their discussion but let’s stop there by making a simple request. Could they actually write a coherent discussion with respect to the cost of capital?

Race, Presidential Politics, and the Winner-Take-All Rule (5 of 5: Table of contents)

Race, Presidential Politics, and the Winner-Take-All Rule (links)

1. Strom Thurmond and the "Dixiecrat" Campaign of 1948
2. The Free Elector Movement of 1960
3. The Wallace Campaign of 1968 and the Rise of the Republican South
4. Racial Politics and Present-Day Campaigns 

Race, Presidential Politics, and the Winner-Take-All Rule (4 of 5)

The following excerpt from "The Illegitimate President: Minority Vote Dilution and the Electoral College," by Matthew M. Hoffman is presented under the fair use Section 107 of the U.S. Copyright Act. The article was published in The Yale Law Journal, Vol. 105, No. 4 (Jan., 1996), pp. 935-1021. I have removed the extensive footnotes to facilitate presentation in the blog format.

Racial Politics and Present-Day [1996] Campaigns

In the four most recent presidential elections, the South has been solidly in the Republican camp, notwithstanding a dramatic surge in the number of African-Americans registered to vote. But as the gradual realignment of white Southerners from 1948 to 1968 makes clear, the current Republican domination of the electoral college in the South is no accident. Rather, it is in large part the result of a conscious effort by white Southern politicians -- first by segregationist Democrats, and later by racially conservative Republicans -­ to make race a focal point of presidential politics.

Today, race remains a polarizing force in presidential politics. The realignment of the bloc of white racial conservatives from the Democratic party to the Republican party has altered the political picture, however. Because of this shift, racial conservatives no longer need to manipulate the electoral college in the manner that Thurmond and Wallace attempted. Instead, they rely on the discriminatory mathematics of the winner-take-all system, which ensures that racial minorities have no voice in determining the composition of the electoral college. Republicans today often refer to their party as having a "lock" on the electoral college by virtue of its dominance in the South. Such terminology echoes-though perhaps unconsciously-the language used by Collins nearly fifty years ago.

Racial appeals continue to be a staple of presidential politics. Rather than relying on overt racist imagery, as Thurmond did in 1948, modern politicians generally play the "race card" through subtle use of code words and careful manipulation of racial imagery. For example, George Bush's victory over Michael Dukakis in 1988 is frequently attributed to his campaign's skillful handling of racial imagery -- most notably the infamous "Willie Horton" episode. Indeed, many of the rhetorical devices and subtle racial images employed by modern-day Republicans are essentially variations on themes developed by Wallace in his 1968 campaign. Issues of race are frequently closely tied to a number of "social issues," ranging from crime to welfare to affirmative action.

Race surfaces in other unexpected ways in our national politics. In the current presidential campaign, many members of the media enthusiastically touted General Colin Powell, a prominent African-American and the former chairman of the Joint Chiefs of Staff, as a possible Republican candidate for President. In many ways, this phenomenon was curious, because Powell had never sought public office or offered any hint of a political agenda. While the origins of the Powell non-candidacy are complex, it seems undeniable that one of the primary reasons for the media fascination with him was his race. As an African-American Republican (or at least, a presumed Republican), Powell did not fit into established categories. He was seen as someone who might be able to attract the support of both black Democrats and white Republicans. In this respect, Powell's backers were tacitly acknowledging the stranglehold that race has on the American electorate. Indeed, Powell acknowledged as much in his speech announcing that he would not run for President, commenting that he wanted "to help the party of Lincoln move, once again, close to the spirit of Lincoln."

Racial politics also play an important role on the other side of the political aisle. Democratic candidates frequently try to walk an almost impossibly fine line, desperately trying to distance themselves from black political interests without alienating their African-American political base.

In short, race has by no means been a trivial or incidental issue in presidential politics of the modern era. Far from it, race has been a central issue in the most important political trend of the last fifty years: the conversion of the South from a Democratic bastion to a Republican one, and the Republican party's corresponding shift from a moderate stance on racial policies to a much more extreme position. In effect, the battle between the parties for control of the South has led to their severe divergence with respect to racial issues-a change that has been felt not just in the South, but nationwide.

For nearly five decades, politicians have been relying on the primacy of the winner-take-all scheme as a means of excluding African-American voters from the political process. The efforts of Strom Thurmond and George Wallace to inject race into the presidential contests in 1948 and 1968 help to illustrate the logic of George Bush's attempts to do much the same thing in 1988. This recurring emphasis on race all but guarantees the continued occurrence of racially polarized voting, and consequently ensures that minority voters will not enjoy an equal opportunity to participate in the selection of their Chief Executive.

Race, Presidential Politics, and the Winner-Take-All Rule (3 of 5)

The following excerpt from "The Illegitimate President: Minority Vote Dilution and the Electoral College," by Matthew M. Hoffman is presented under the fair use Section 107 of the U.S. Copyright Act. The article was published in The Yale Law Journal, Vol. 105, No. 4 (Jan., 1996), pp. 935-1021. I have removed the extensive footnotes to facilitate presentation in the blog format.

The Wallace Campaign of 1968 and the Rise of the Republican South

Overt racist appeals and efforts to manipulate the electoral system materialized again in the election of 1968. That election saw yet another attempt by an openly segregationist third-party challenger to manipulate the electoral system. This time the challenger was Alabama Governor George C. Wallace, who had become notorious for his no-holds-barred stance against integration when, in his 1963 inaugural address, he proclaimed that, “In the name of the greatest people that have ever trod this earth, I draw the line in the dust and toss the gauntlet before the feet of tyranny . . . and I say . . . segregation now . . . segregation tomorrow . . . segregation forever.” Furthermore, the 1968 election marked the beginning of the modem period of Republican domination of the South, as an increasing number of one-time Dixiecrats began to shift their allegiance to Nixon and the GOP.

In many respects, Wallace's campaign was similar to Thurmond's campaign in 1948. Blatant racism and continued support for segregation were integral to the message delivered by both men. There was one key difference, however. Wallace, unlike Thurmond, was determined to wage a nationwide campaign. His supporters were highly organized, and they managed to get his name placed on the ballot in all fifty states-a logistical feat that many had thought impossible for a third-party candidate.  Wallace was aided in this effort by the fact that, by 1968, race was no longer simply a Southern issue. Beginning with the 1965 Watts riots in Los Angeles, a series of violent disturbances in urban black neighborhoods had forced race to the forefront of the nation's political consciousness. In 1968, the assassination of Martin Luther King touched off a wave of riots in more than 100 cities throughout the nation, resulting in thirty-nine deaths and almost 20,000 arrests. This tide of violence prompted both Wallace and the Republican candidate, Richard Nixon, to make "law and order" a prominent theme of the presidential campaign-a theme that in Wallace's rhetoric had none-too-subtle racial overtones. School desegregation efforts, once limited to the South, were gathering strength in other areas, offering Wallace and Nixon another campaign theme.

Wallace's strategy was also similar to that of his Dixiecrat predecessor -­  but with one important twist. As he revealed in an interview after the election, he never had any intention of letting the election go into the House, where he would not have controlled a single state delegation. If he had collected enough electoral votes to block either of the two major party nominees -- Hubert Humphrey for the Democrats, or Richard Nixon for the Republicans-from getting an electoral college majority, Wallace would have attempted to strike a bargain with Nixon, throwing the support of Wallace's electors to the Republican in exchange for concessions on civil rights.

The 1968 election also solidified Republican domination of the "Solid South." Prodded by Thurmond, who had become a Republican in 1964, the GOP began to bid heavily for the support of the Dixiecrats. In the presidential election, Thurmond and other one-time Democrats threw their support behind Nixon.  The "Southern strategy" paid off, not just for Nixon in 1968, but for the Republican party. By appealing to the white segregationist bloc that had controlled Southern politics since the end of Reconstruction, Nixon captured six Southern states: Florida, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia. Wallace won another five states: Alabama, Arkansas, Georgia, Louisiana, and Mississippi. Once again, the winner-take-all system ensured that African-American voters, unlikely to support either Wallace or the Thurmond-backed Nixon, could not choose a single elector in these eleven states.

Next: "Racial Politics and Present-Day [1996] Campaigns"

Privatization of Public Infrastructure

The new Administration is talking the talk of an infrastructure boom, which may be good news from a macroeconomic perspective. Matthew Titolo, however, sounds an alarm bell as to how this will all work:

Infrastructure privatization is in the news. In the past ten years, Pennsylvania, California, Colorado, Indiana, and many other states and municipalities have privatized—or attempted to privatize—toll roads, parking meters and other public infrastructure. State and federal policies have encouraged these public-private partnerships and infrastructure privatizations.

A very good read but permit me to jump down to footnote 31 which notes a 2009 article by Dan Mihalopoulos:

Chicago’s new parking meter operators are raking in more than $1.1 million a week and expect even more revenue next year, according to internal company documents obtained by the Chicago News Cooperative. The parking meter company projects total revenues of more than $75 million and net income of about $58 million in 2010…Financial experts who reviewed the data say Chicago could have made out much better in the long run had it just kept the meters. The private company, Chicago Parking Meters LLC, paid the city $1.15 billion in February for the right to reap all parking fee revenues for 75 years.

I’m not sure how the city decided that $1150 million was fair market value but let’s do a small DCF model that starts with nominal profits at $58 million per year but let’s this figure rise by 2 percent per year. The fair market value depends of course on what we assume the appropriate nominal discount rate should be. If one is willing to assume a 6.9 percent nominal rate, then this was a fair deal to the taxpayers. The current interest rate on 30-year government bonds, however, is only 3 percent. If we use this as our discount rate, the fair market value would be over $3 billion. Of course this has been an old story – government officials selling taxpayer assets to private companies at bargain prices. I think the President elect even wrote a book on this.

Race, Presidential Politics, and the Winner-Take-All Rule (2 of 5)

The following excerpt from "The Illegitimate President: Minority Vote Dilution and the Electoral College," by Matthew M. Hoffman is presented under the fair use Section 107 of the U.S. Copyright Act. The article was published in The Yale Law Journal, Vol. 105, No. 4 (Jan., 1996), pp. 935-1021. I have removed the extensive footnotes to facilitate presentation in the blog format.

The Free Elector Movement of 1960

By 1960, civil rights issues had erupted into the foreground of American politics. With Congress beginning to place anti-discrimination laws at the top of its agenda and the White House using federal troops to enforce the Supreme Court's integration decree, the fears that Collins had expressed ten years earlier of a "Second Reconstruction" seemed to be coming true. And once again, Southerners attempted to use the electoral college to block it.

By 1958, white Southern politicians were laying the groundwork for what they described as a "free elector" plan -- essentially a variant of the third scheme proposed by Collins. Rather than running their own candidate for President, however, proponents of this plan sought to change state law and party rules to allow the Democrats in Southern states to nominate a slate of presidential electors not pledged to support the national party nominee. Although support for the free-elector plan initially ran strong in several Southern states, the Democratic nominee, John F. Kennedy, managed to defuse the rebellion by selecting a Southerner, Senate Majority Leader Lyndon B. Johnson of Texas, as his running mate.

Even with Johnson on the ticket, however, the unpledged-elector movement scored significant victories in two Southern states. In Alabama, Democratic voters chose the eleven members of the Democratic electoral slate in a primary election and a runoff. Only five of the winning candidates were pledged to support the national party's nominee; the remaining six were unpledged. In Mississippi, Governor Ross Barnett, a leading backer of the free-elector plan and an ardent segregationist, succeeded in a move to have two slates of Democratic electors -- one pledged to Kennedy and Johnson and one unpledged -- placed on the ballot. All told, then, fourteen unpledged Democratic electors were elected from the South: six from Alabama, and eight from Mississippi, where the unpledged slate defeated the Kennedy-Johnson slate.

Efforts to manipulate the electoral system to block civil rights initiatives did not cease after the popular vote, however. Although Kennedy appeared to have defeated Nixon in the popular vote and to have gained a slight electoral vote majority, allegations of fraud and widespread irregularities at the polls meant that the results were far from certain. If Kennedy had lost Illinois, he would have had only 273 electoral votes -- only four more than he needed to win the election. In that scenario, if the unpledged electors could have persuaded at least four other electors to join them, they could have denied Kennedy the White House, or more likely, could have wrested concessions from him on civil rights. Shortly after the election, an Alabama lawyer called for all of the Southern electors to meet with Kennedy to point out the “vital importance of Southern electoral votes in his attaining the Presidency.” Alabama newspapers backed the idea of an electoral revolt on openly segregationist grounds, condemning "[f]ederal efforts to force racial mixing in New Orleans" and the "enslavement" of Southern children as a result of school integration efforts. Mississippi Governor Barnett sent out letters to electors in six other states asking them not to vote for Kennedy. In Louisiana, leaders of the White Citizens Council sought to have the state's electors withhold votes from Kennedy, stating that he had "gone wild on integration."

Ultimately, the fourteen unpledged electors decided to cast their votes for Senator Harry F. Byrd of Virginia,  the man who four years earlier had pledged "massive resistance" to the Supreme Court's school desegregation decisions.  Resistance to civil rights reforms was the guiding principle behind their choice. Calling on electors from other states to join them, the unpledged electors declared that Byrd's election would depend "upon whether or not the people of the South who have expressed their dedication to the principles of constitutional government and to the right of a state to determine for itself the questions of segregation and freedom of association are sincere in the continued expressions of such dedication." In announcing their decision not to vote for Kennedy, Alabama electors called for "the preservation of racial and national integrity" and voiced vehement opposition to efforts to "integrate our schools, do away with literacy tests as a qualification for voting [and] otherwise undermine everything we hold dear in the South."

The free-elector movement of 1960 thus represents another deliberate effort by Southern segregationists to use the electoral system to change the course of the national debate over race and civil rights. Ultimately, of course, Byrd received only fifteen electoral votes. Kennedy won the election, with 303 electoral votes to Nixon's 219. Thus, the segregationist electors were not able to alter the outcome of the election as they had hoped. However, they were able to demonstrate the central importance of racial issues in controlling the Southern vote in the electoral college -- a lesson that Nixon would take to heart eight years later in his next bid for the presidency.

Next: "The Wallace Campaign of 1968 and the Rise of the Republican South"

The Eighteenth Brumaire of Donald J. Trump

That took me a while, didn't it? I was actually thinking about the parallels between Trump and Marx's caricature of Louis Napoleon, when I wondered "what day does the 18th Brumaire fall on, anyway?" Yes, November 8, 2016 was the 18th Brumaire!

A few of the passage from Marx's essay have become classic, "The tradition of all dead generations weighs like a nightmare on the brains of the living." Check.  "Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce. " Check. "Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past."

And just as they seem to be occupied with revolutionizing themselves and things, creating something that did not exist before, precisely in such epochs of revolutionary crisis they anxiously conjure up the spirits of the past to their service, borrowing from them names, battle slogans, and costumes in order to present this new scene in world history in time-honored disguise and borrowed language.

...

Finally, the scum of bourgeois society forms the holy phalanx of order and the hero Crapulinski installs himself in the Tuileries [White House] as the “savior of society.”

Marx's depiction of revolutionary episodes as costume dramas inspired Harold Rosenberg's compelling critique of Marxism:

As a liberating program Marxism founders on the subjectivity of the proletariat. So soon as it declares itself, rather than their common situation, to be the inspiration of men's revolutionary unity and ardor... Marxism becomes an ideology competing with others.

The following excerpt from Rosenberg's "The Pathos of the Proletariat," concludes with a vision of the historical tragedy of which the election of Trump may very well be the second coming:

The hero of history was to be a social class, a special kind of collective person. The German Ideology describes a class in general terms. As distinguished from other unions, "there exists," says Marx, "a materialistic connection of men with one another." Yet, though it is the basic bond among men, the class is not a mere collection of human beings. "The class in its turn achieves an independent existence over against the individuals." Corporeal and combative, the class stands apart from them and impresses them into an adventure of its own. 

History for Marx is the history of just such separated non-human entities. It is neither the history of individuals nor the history of ideas. Precisely because it is the history of the non-human classes must history be brought to an end. And for the same reason, only the class "character" can perform the act that will terminate it. 

Upon closer consideration, however, we note that these "mere personifications" are not, as such, historical actors but metaphors of political economy. They represent what Marx calls in the same passage the "peculiar traits" of capitalist production. They are like those little figures that illustrate statistical charts. Dramatically, they belong to the order of types in melodrama or the morality play. 

But it is the peculiarity of Marx's "political economy" that he sees this class [the proletariat] as destined to alter completely the conditions that created it. 

Within the movement of capitalism Marx might predict the general direction of certain processes -- concentration of capital, accelerated crises, etc. -- but he cannot predict the total historical situation of the masses, which includes the history of their consciousness of themselves in their situation, or their lack of it. Yet nothing less than this total situation can be meant by "existence" in its determination of consciousness.

Marxism must therefore admit that it can predict nothing concerning the consciousness of the proletariat and hence of its action, in which case the proletariat remains an hypothesis and not a certainty; or it must reduce the situation to a given number of external elements, definable in advance, and thus become identical with what is known as "vulgar materialism" or "mechanical Marxism."  

The failure of the situation to give rise to revolutionary consciousness leads Marx and Marxists to a second type of effort to guarantee the revolution: through politics and propaganda. 

For Engels in 1893 the continuity of the revolutionary movement no longer depends upon the reflexes of a proletariat that has been forced into revolt; it is no longer subject to the intermittences of the heart and mind of the working class. 

Instead of learning in action, the working class is put to school by the Party; it marches with its will in the secure custody of the leadership. Marching has indeed replaced revolutionary action, the movement which was to have been the source itself of the "alteration" of the workers. 

Was Engels' conversion of Marx's drama of history from an order assumed to be inherent in events into a didactic fable of socialist politics a betrayal of the master's thought a decade after his death? In no respect. Marx, too, had attempted to overcome by political means the laggardness of existence in producing revolutionary consciousness. 

But having translated class consciousness from tragic self recognition into political tutoring, Marxism is haunted by its philosophical premises. If its analysis is the consciousness of the socialist revolution, whose existence determines this consciousness? The class's? Or the Party's? Or is it undermined by both? So long as Marx could say, "The great social measure of the Commune was its own working existence," it was clear that theory was subordinate to the concrete action of the class and that communism was in truth attempting to be the intelligence of "the real movement that abolishes the present state of things." Once, however, class spontaneity has yielded to steady marching at the heels of the Party, the latter must look to itself as the source of historical consciousness, since it is it that experiences while the masses are undergoing the "long, persistent work" of learning. But if its own existence guides it, the Marxist Party is "an independent being" and its theory a mere ideology. In that case the high claims of socialism for the release of human individuals into unlimited creativity through the "self-activity" of the proletariat are no longer legitimate. Those hopes rested upon the origin of the collective act in history itself, in the reflex of the individuals of the class to their concrete situation, rather than, as formerly, in a separated community or ideal; but now socialism has produced its own illusory community and independently existing creation of the mind.  

Thus in the heart of Marxism a conflict prevails between metaphysics (existence determines consciousness and defeats all preconceptions) and politics ("we can initiate measures"). The "dialectical" overcoming of this conflict through combining its messianism of total liberation with guidance of the masses as an "army" results logically in a politics of hallucination. In Marx's "we can initiate measures which will later appear as spontaneous movements" -- this sentence shows the actual content of the synthesis of spontaneity and control -- a new principle is making its appearance, though dimly. It is neither the materialist principle of the primacy of existence nor the idealist one that action has its source in thought. It suggests that action can release a revealed destiny which both dominates existence and precedes thought. With the affirmation of this power we stand at the verge of 20th Century political irrationalism. 

Primarily, destiny-politics consists of a demonic displacement of the ego of the historical collectivity (class, nation, race) by the party of action, so that the party motivates the community and lays claim to identity with its fate and to its privileges as a creature of history. In What Is To Be Done, Lenin begins by denying that the proletariat can be an independent historical actor; for him it is a collective character with a role but without the revolutionary ego and consciousness necessary to play its part. Its struggles are but reflexes of economic contradictions which can never of themselves result in revolution. The giant figure of the proletariat is doomed to remain a personification of exploitation and misery until it is possessed by an alien subject that will send it hurtling along its predestined path. This conscious and active ego is the Bolshevik Party of "scientific" (destiny-knowing) professional revolutionaries. In the most literal sense the Party's relation to the class is demoniacal; after a series of paroxysms the collective body of the class is inhabited and violently moved by a separate will which is that of another group or even of one man. Lenin uses the word "subjectivity" to mean precisely the Party and its decisions.  

Political Marxism demands for itself the metaphysical privileges of class action. The violence of the "vanguard," having become "dialectically" the act of the proletariat, justifies itself by the existence of the workers as victims of the wage system. Any attack upon that system by Marxist intellectuals and wielders of power becomes a liberating movement on the part of the class. Thus the Party need not account for the means it employs -- all the more so since its program is taken to be identical with the reality which is the ground of all future values. It even denies that the form of its organization is a "principled question" -- to be totally authoritarian does not prevent its being totally democratic, since its acts are the acts of the proletariat and the proletariat is, by definition, the demos.  

As a liberating program Marxism founders on the subjectivity of the proletariat. So soon as it declares itself, rather than their common situation, to be the inspiration of men's revolutionary unity and ardor -- how else can it offer itself simultaneously to the French working class and to non-industrial French colonials? -- Marxism becomes an ideology competing with others. When fascism asserted the revolutionary working class to be an invention of Marxism, it was but echoing the Marxist parties themselves. If the class as actor is a physical extension of the Party, fascism was justified in claiming that a magical contest in creating mass-egos could decide which collectivities are to exist and dominate history. Moreover, it proved that heroic pantomime, symbolism, ritual, bribes, appeals to the past, could overwhelm Marxist class consciousness. What choice was there for the workers between the fascist costume drama and a socialism that urged them to regard their own working clothes as a costume? In Germany and Italy the working class was driven off the stage of history by the defeat of the Party -- in Russia it was driven off by its victory.

Race, Presidential Politics, and the Winner-Take-All Rule (1 of 5)

The following excerpt from "The Illegitimate President: Minority Vote Dilution and the Electoral College," by Matthew M. Hoffman is presented under the fair use Section 107 of the U.S. Copyright Act. The article was published in The Yale Law Journal, Vol. 105, No. 4 (Jan., 1996), pp. 935-1021. I have removed the extensive footnotes to facilitate presentation in the blog format. I will be posting one installment a day for the next three days followed by the fourth installment and table of contents on the fourth day.

Race, Presidential Politics, and the Winner-Take-All Rule

The political realignment of the South is unquestionably the single most striking development in American presidential politics since 1948. Once a solid bloc of Democratic electoral votes, the South is now a more-or-less solid bloc of Republican electoral votes. Although the reasons for this shift are complex, it is beyond question that one of the principal forces driving it has been the violent opposition of white Southern politicians to the civil rights policies of the national Democratic party. This section argues that this shift is intimately bound up with the politics of the electoral college, and in particular with the dominance of the winner-take-all system, which tends to ensure that the South will vote as a bloc. The national Republican party's efforts to control this bloc have forced it to move much farther to the right on issues of race, while the national Democratic party has scrambled to solidify its base of African-American voters. Modern presidential politics -- not just in the South, but in the nation as a whole -- can therefore only be understood in the context of this history. Accordingly, this section examines the ways in which Southern politicians have attempted to use their influence in the electoral college to exert control over national issues relating to race and civil rights.

Strom Thurmond and the "Dixiecrat" Campaign of 1948

The presidential campaign of 1948 marked the first in a series of efforts by white Southern politicians to manipulate the machinery of the electoral college to influence the national debate on civil rights. In that year, Southern Democrats in four states abandoned their party's nominee, President Harry S. Truman, and threw their support behind a segregationist ticket headed by J. Strom Thurmond, the Democratic governor of South Carolina.

Although "states' rights" was the rallying cry of the Southern Democrats -- or "Dixiecrats," as they became known in common parlance -- the true force that bound them together was their violent opposition to any measure of social and political equality for African-Americans. In 1948, the pressures that would ultimately crack the prevailing segregationist power structure of the South were just beginning to mount. Late in December 1947, the Fourth Circuit had upheld a federal court decision ordering the South Carolina Democratic party to allow blacks to vote in its primary. In February 1948, President Truman delivered a civil rights message to a joint session of Congress, calling for abolition of poll taxes, enactment of a federal anti-lynching law, creation of a permanent federal employment commission, and new measures to end discrimination in interstate transportation facilities. White Southerners were enraged. They responded with angry denunciations and threats to abandon the Democratic party, as well as with Ku Klux Klan rallies and cross burnings throughout the South.

Southern politicians were determined to use their influence in the electoral college to defeat Truman's agenda. The intellectual blueprint for their strategy was an unabashedly racist political manifesto by Charles Wallace Collins, a Harvard-educated Alabama lawyer with an extensive background in federal government service, including stints as the law librarian of Congress and the librarian of the Supreme Court. His book, entitled Whither Solid South? A Study in Politics and Race Relations, portrayed the South as a region under legislative siege by a conspiracy of, among others, "the Negroes and the New York City radicals." With undeniable candor and considerable prescience, Collins wrote that:

These groups, with ever increasing pressure during the past ten years, are attempting to drive the South into a corner of moral isolation on the Negro race question, as a vantage point for hostile action. I have shown how these organizations . . . are rallying to a new philosophy the slogan of which is the word "democracy" which in its very concept condemns in one breath the whole southern system, and how the whole movement is anchored to a craftily conceived legislative program to make the Negro equal to the white man economically, politically and socially.

Collins proposed that white Southerners should combat these efforts by abandoning the Democratic party and allying themselves with conservative Republicans in the North and West. Failing that, he called on Southern Democrats simply to break away from the Northern Democrats and form their own political party.

Manipulation of the electoral college was the crux of Collins's strategy. He noted that:

[T]here are two . . . weapons of respectability available to the South which cannot be taken away from her without her consent -- namely, her almost certain ability to prevent the Constitution from being amended and her power in the Electoral College. I have pointed out the logic of the conversion of the present Republican-Southern Democratic coalition into a new conservative political party. If that cannot be done it would be better for the South to fight independently in the Electoral College than to continue to keep political company with the left-wing New Dealers who are at heart the South's most bitter enemies.

Collins proposed three distinct methods by which the South might tinker with the electoral machinery to block civil rights legislation. The first would be for Southern Democrats simply to nominate their own candidates for President and Vice President, along with slates of electors pledged to support them. By controlling a large bloc of electoral votes, a Southern Democratic party could force the election into the House of Representatives, and possibly control the outcome. Collins acknowledged that this plan had drawbacks. The principal one was that "the old Democratic Party in the North" might also try to run candidates in the South, and that "old loyalties" might prevail. To avoid this possibility, Collins proposed an alternative: abolition of the popular vote and direct appointment by the states of presidential electors pledged to support a Southern party nominee. As a third strategy, he suggested that Southern Democrats appoint electors who were not pledged to support the national party's nominee. The unpledged electors would then hold a convention after the popular vote in December and decide whom to support.

The reaction of white Southern politicians to Truman's civil rights initiatives bears the unmistakable imprint of Collins's ideas. Four days after Truman's announcement, Southern governors met at Wakulla Springs, Florida, and denounced the President's efforts to end segregation. They adopted a resolution, written largely by Thurmond, which condemned efforts to undermine "the racial integrity and purity of the white and the negro races alike," and promised that white Southerners would not

stand idle and let all of this happen, for the sole purpose of enticing an infinitesimal minority of organized pressure blocs to vote for one or another candidate for the Presidency. It is thought that we have no redress. This assumption ignores the electoral college set up in the Constitution of the United States.

Determined to use their influence in the electoral college to deny Truman the Democratic nomination, party officials in Alabama, Mississippi, and South Carolina were soon in open rebellion. The Alabama Democrats adopted a new emblem for their state party: a rooster emblazoned with the words "White Supremacy" and "For the Right." Southern Democrats arrived at the national party convention in Philadelphia intending to keep any pro-civil rights language out of the party platform. When their efforts failed and a civil rights plank was included in the platform, half of the Alabama delegation and the entire Mississippi delegation walked out of the convention. At a rump convention in Birmingham, Southern Democrats nominated Thurmond as their candidate for President. The new nominee delivered a fiery acceptance speech, declaring, "[T]here's not enough troops in the army to force the southern people to break down segregation and admit the Negro race into our theaters, into our swimming pools, into our homes, and into our churches."

Thurmond's aim was to force the election into the House, where Southern influence would either lead to his election as President or force the major parties to adopt conciliatory policies on civil rights. The dominance of the winner-take-all rule was crucial to this strategy. Rather than running Thurmond as a third-party candidate, the Dixiecrats sought to use the existing Democratic party machinery. Because of the Democrats' nearly total domination of state politics, its slate of electors was assured victory. Hence if the Democrats in a Southern state nominated a slate of electors pledged to Thurmond, rather than Truman, Thurmond would win that state.

By August, the Democratic party in four states -- Alabama, Louisiana, Mississippi, and South Carolina -- had nominated slates of presidential electors who were pledged to support Thurmond, rather than Truman. Truman did get on the ballot in three of those states, but was shut out in Alabama. In the general election, Thurmond won all four states, receiving a total of thirty­ nine electoral votes. Despite the Southern defection, however, Truman managed to eke out an unexpected win over his Republican opponent, Thomas E. Dewey.

Although these events may seem like ancient history, they are not. One example of how recent they are in our nation's political development is the fact that Thurmond, now a Republican and the senior Senator from South Carolina, is currently serving as President of the Senate pro tem -- a position that, ironically enough, puts him fourth in line to succeed to the Presidency. The election of 1948 set the stage for a drama that was played out again in the South in the presidential elections of 1960 and 1968 and that, in many respects is still going on today.

Next: "The Free  Elector Movement  of 1960"

"White Supremacy is a Political Doctrine"

Excerpt from From the New Deal to the New Right and the Southern Origins of Modern Conservatism, chapter two "'White Supremacy is a Political Doctrine': Charles Wallace Collins and the Dixiecrat revolt of 1948":

On November 8, 1944, one day after Franklin Roosevelt was elected to his fourth presidential term [and 72 years, to the day, before the election of Donald J. Trump], southern attorney Charles Wallace Collins retired from his legal practice to write a book that would, he states, “rationalize and strengthen the position of the orthodox Southerner and . . . arouse him to action in the face of organized hostility to Southern States.” Finally published in 1947, Collins’s book Whither Solid South? A Study in Politics and Race Relations became both manifesto and blueprint for the states’ rights—soon nicknamed the “Dixiecrat”— Revolt. Although Collins’s intellectual guidance is generally acknowledged in accounts of the Dixiecrats, there have been no sustained analyses of his ideas, nor examinations of the political substance of his influence. 

Collins’s writings and political biography offer an essential perspective for understanding the origins and development not only of the states’ rights movement but also of the role of race in the evolution of the modern Right. Collins’s writings demonstrate how southern elites began to link racism and free market conservatism in theory, and began the first steps to break with the Democratic political order in practice. This process of forging new political identifications and severing old ones involved ideas, long- term strategies, and improvised tactics. Viewing the complex matrix of theory, strategy, and implementation of the Dixiecrat Revolt and its aftermath in massive resistance through one of its central figures, we see that there was nothing automatic or natural about the political changes that came to pass in the 1960s. ...

Collins's influence is particularly pertinent to the current operation of the Electoral College. Matthew Hoffman outlined that influence and its political consequences in an article published 20 years ago in the Yale Law Journal, "The Illegitimate President: Minority Vote Dilution and the Electoral College." I will be scanning in and posting to EconoSpeak a section from that article on "Race, Presidential Politics and the Winner-Take-All Rule" later today.

It needs to be remembered that the current operation of the Electoral College is not the "original intent" of the Founding Fathers of the Constitution but is the vile innovation of white supremacists. There is nothing inevitable or sacred about the Electoral College election of Donald J. Trump. On the contrary, it would be, as Trump himself once admitted, "a disaster in a democracy."

The Mode of Electing the President

Alexander Hamilton:

THE mode of appointment of the Chief Magistrate of the United States is almost the only part of the system, of any consequence, which has escaped without severe censure, or which has received the slightest mark of approbation from its opponents. The most plausible of these, who has appeared in print, has even deigned to admit that the election of the President is pretty well guarded. I venture somewhat further, and hesitate not to affirm, that if the manner of it be not perfect, it is at least excellent. It unites in an eminent degree all the advantages, the union of which was to be wished for.

It was desirable that the sense of the people should operate in the choice of the person to whom so important a trust was to be confided. This end will be answered by committing the right of making it, not to any preestablished body, but to men chosen by the people for the special purpose, and at the particular conjuncture.

It was equally desirable, that the immediate election should be made by men most capable of analyzing the qualities adapted to the station, and acting under circumstances favorable to deliberation, and to a judicious combination of all the reasons and inducements which were proper to govern their choice. A small number of persons, selected by their fellow-citizens from the general mass, will be most likely to possess the information and discernment requisite to such complicated investigations.

It was also peculiarly desirable to afford as little opportunity as possible to tumult and disorder. This evil was not least to be dreaded in the election of a magistrate, who was to have so important an agency in the administration of the government as the President of the United States. But the precautions which have been so happily concerted in the system under consideration, promise an effectual security against this mischief. The choice of several, to form an intermediate body of electors, will be much less apt to convulse the community with any extraordinary or violent movements, than the choice of one who was himself to be the final object of the public wishes. And as the electors, chosen in each State, are to assemble and vote in the State in which they are chosen, this detached and divided situation will expose them much less to heats and ferments, which might be communicated from them to the people, than if they were all to be convened at one time, in one place.

Nothing was more to be desired than that every practicable obstacle should be opposed to cabal, intrigue, and corruption. These most deadly adversaries of republican government might naturally have been expected to make their approaches from more than one querter, but chiefly from the desire in foreign powers to gain an improper ascendant in our councils. How could they better gratify this, than by raising a creature of their own to the chief magistracy of the Union? But the convention have guarded against all danger of this sort, with the most provident and judicious attention. They have not made the appointment of the President to depend on any preexisting bodies of men, who might be tampered with beforehand to prostitute their votes; but they have referred it in the first instance to an immediate act of the people of America, to be exerted in the choice of persons for the temporary and sole purpose of making the appointment. And they have excluded from eligibility to this trust, all those who from situation might be suspected of too great devotion to the President in office. No senator, representative, or other person holding a place of trust or profit under the United States, can be of the numbers of the electors. Thus without corrupting the body of the people, the immediate agents in the election will at least enter upon the task free from any sinister bias. Their transient existence, and their detached situation, already taken notice of, afford a satisfactory prospect of their continuing so, to the conclusion of it. The business of corruption, when it is to embrace so considerable a number of men, requires time as well as means. Nor would it be found easy suddenly to embark them, dispersed as they would be over thirteen States, in any combinations founded upon motives, which though they could not properly be denominated corrupt, might yet be of a nature to mislead them from their duty.

Another and no less important desideratum was, that the Executive should be independent for his continuance in office on all but the people themselves. He might otherwise be tempted to sacrifice his duty to his complaisance for those whose favor was necessary to the duration of his official consequence. This advantage will also be secured, by making his re-election to depend on a special body of representatives, deputed by the society for the single purpose of making the important choice.

All these advantages will happily combine in the plan devised by the convention; which is, that the people of each State shall choose a number of persons as electors, equal to the number of senators and representatives of such State in the national government, who shall assemble within the State, and vote for some fit person as President. Their votes, thus given, are to be transmitted to the seat of the national government, and the person who may happen to have a majority of the whole number of votes will be the President. But as a majority of the votes might not always happen to centre in one man, and as it might be unsafe to permit less than a majority to be conclusive, it is provided that, in such a contingency, the House of Representatives shall select out of the candidates who shall have the five highest number of votes, the man who in their opinion may be best qualified for the office.

The process of election affords a moral certainty, that the office of President will never fall to the lot of any man who is not in an eminent degree endowed with the requisite qualifications. Talents for low intrigue, and the little arts of popularity, may alone suffice to elevate a man to the first honors in a single State; but it will require other talents, and a different kind of merit, to establish him in the esteem and confidence of the whole Union, or of so considerable a portion of it as would be necessary to make him a successful candidate for the distinguished office of President of the United States. It will not be too strong to say, that there will be a constant probability of seeing the station filled by characters pre-eminent for ability and virtue. And this will be thought no inconsiderable recommendation of the Constitution, by those who are able to estimate the share which the executive in every government must necessarily have in its good or ill administration. Though we cannot acquiesce in the political heresy of the poet who says:

"For forms of government let fools contest --
That which is best administered is best," --

yet we may safely pronounce, that the true test of a good government is its aptitude and tendency to produce a good administration.

The Vice-President is to be chosen in the same manner with the President; with this difference, that the Senate is to do, in respect to the former, what is to be done by the House of Representatives, in respect to the latter.

The appointment of an extraordinary person, as Vice-President, has been objected to as superfluous, if not mischievous. It has been alleged, that it would have been preferable to have authorized the Senate to elect out of their own body an officer answering that description. But two considerations seem to justify the ideas of the convention in this respect. One is, that to secure at all times the possibility of a definite resolution of the body, it is necessary that the President should have only a casting vote. And to take the senator of any State from his seat as senator, to place him in that of President of the Senate, would be to exchange, in regard to the State from which he came, a constant for a contingent vote. The other consideration is, that as the Vice-President may occasionally become a substitute for the President, in the supreme executive magistracy, all the reasons which recommend the mode of election prescribed for the one, apply with great if not with equal force to the manner of appointing the other. It is remarkable that in this, as in most other instances, the objection which is made would lie against the constitution of this State. We have a Lieutenant-Governor, chosen by the people at large, who presides in the Senate, and is the constitutional substitute for the Governor, in casualties similar to those which would authorize the Vice-President to exercise the authorities and discharge the duties of the President.

PUBLIUS