Demanding Democracy: American Radicals in Search of a New Politics

I have just spent an interesting day immersed in this new book by Marc Stears. I was looking for a recent work that combines political history and democratic theory with a radical bent, and I found it. Even better, Stears has insightful things to say about the “paradox of politics”, that the political forms that we would like to live under and the political life we would like to lead in an ideal world are inappropriate to the unequal world we live in today. This is always a central dilemma of radical movements, and it’s helpful to have it illuminated. From a historical vantage point, I like the linkages he draws between the radical Progressives (like Dewey), labor movement radicals of the 1930s, and civil rights and new left activists of the ‘60s.

I have some qualms as well. One criticism I would not make is that Stears was too selective in his choice of movements and political visions. It is true that he leaves out a lot: Marxists of almost every stripe, anarchists, and the fascinating parade of individuals and groupuscules which, even if they had little impact, often had ideas worth considering. If you are an afficionado of twentieth century American radicalism, you will probably find that some of your favorites are missing. But one can only do so much. Stears has arguably centered our attention on a core, continuous strand in American political thought and action. The book benefits from this clarity.

My real criticisms are these:

1. The most visible error in this work is to treat the 1950s consensus theorists as bearers of the radical democratic tradition. Some were reformers, but few members of the flock Stears identifies deserve to be called radicals; nor, more to the point, did most see themselves this way. In the end this does not undermine the book’s arguments, but it feels very wrong.

2. The most important lacuna is the linkage between movements to achieve greater democracy and those in pursuit of narrower ends. One aspect of Westbrook’s extraordinary biography of Dewey is its ability (through remarkable scholarship) to place the man in the context of his (long) times—all the crusades, from education reform to labor struggles to new forms of journalism and all the rest. This makes it possible for us to appreciate the substantive goals that lie behind the abstract formulations. Except for the most general references to the conditions of industrial workers during the ‘30s and segregation in the ‘60s, Stears gives us no indication of the issues around which the radicals were organizing, nor their relationship to those immersed in single-issue causes (immigrant rights, environment, etc.) whose struggles overlapped and gave meaning to struggles for fundamental political change. And, by the way, the women’s movement, both for suffrage and during the revitalization of the ‘60s and ‘70s is missing altogether—which means that feminist political theory is largely absent as well. Not good, brother.

3. The subtler problem is the framing of democratic theory as an “American” issue. This enables Stears to foreground the references that Progressives and later consensus theorists made to so-called American political values. But this is to give acquiescence to a myth, for the problems of democracy in America have never been insular. Every significant thinker/reformer in American history who has pondered democracy is closely tied, knowingly or otherwise, to ideas and experiences from abroad. The civil disobedience tradition has its origin in German idealism (via Thoreau), and nonviolent direct action was undergoing simultaneous experimentation in much of the world at the same time it was being tested in the US. Progressive reformers drunk heavily from European examples, as Dan Rodgers showed in Atlantic Crossings: Social Politics in a Progressive Age. (Everyone should read this book: the history of social policy becomes pure poetry.) The new left was a truly global phenomenon, which most of us in the movement knew in a general way, although we were constantly surprised by how global it turned out to be.

One consequence of the national frame is that Stears tries to shoehorn his analysis of radical democracy into a parochial debate between two camps in current US political science, the “deliberative” and the “realist” democrats. In one sense this is a distraction; in another, it obscures the much stronger connections between radical democratic theory and practice in the US, on the one hand, and the global exploration of radical democracy (particularly in the wake of 1989) on the other. That would have been a better frame entirely.

But I liked this book. I enjoyed reading it, and it helped me see the political issues I first struggled with in the ‘60s in a broader historical context. I think it could do some useful work in the classroom.

Robert Leonard

Robert Leonard's latest working paper, part of his magisterial project on the history of game theory, is "The Collapse of Interwar Vienna: Oskar Morgenstern's Community, 1925-1950." It is, as is everything else of his I have read, brilliant. What Toulmin and Shorske did for culture and philosophy in doomed interwar Vienna, Leonard does for the economic and mathematical community. If you have any interest in the history of economic thought, you must read him!

One focus of the paper is the growing rift between Morgenstern and Mises during the 30's. Morgenstern started out as a self-identified Austrian but pulled away. A big influence here was Karl Menger, the mathematician, not to be confused with his father, Carl Menger, the economist, founder of the Austrian school and indeed one of the troika usually credited with the Marginal Revolution. Anyway, Karl with a "K" thought Mises was presenting his normative libertarianism as scientific description and Morgenstern increasingly agreed. (Menger thought Neurath was doing the same thing on the Left.)

Another fascinating figure in the story is Abraham Wald, the general equilibrium pioneer to be, for whom Morgenstern found money in his capacity as head of the Institute for Business Cycle Research, funded by the Rockefeller Foundation. Here again it was Menger who saw Wald's genius and clued Morgenstern in. Wald was from Romania, Jewish, and made it out of Vienna after the Anschluss to Colorado to work for the Cowles Commission. Eight of his immediate family members were victims of the Nazis in Rumania.

I can't do Leonard justice here, but read him by all means!

Has BP Been Too Careless Due To Its Imperial Past?

There has been much speculation about why British Petroleum has been reportedly slopppier and more careless about safety and the environment than other oil companies. This may not be it, but the company has a past that is probably more tied up with classic imperialism than any other, or at least as much as the top ones. In that regard, its only rivals are probably the old Standard Oil, with the tradition most carried on after its breakup by New Jersey Standard, or Esso, which would become Exxon (and then merge with the old New York Standard to become Exxon Mobil), and Royal Dutch Shell, with its British-Dutch lineage, originating out of a company that sold shells out of the Dutch East Indies.

BP's origin is in the later 19th century D'Arcy oil concession by Persia to Britain, and much of the troubled history of Persia/Iran and the West has focused on BP, which was originally called the Anglo-Persian Oil Company, and then the Anglo-Iranian Oil Company after 1935 when Reza Shah changed the name of the country to go along with his budding alliance with Aryan master race fan, Hitler.

In the early 1950s, the Iranians under Mossadegh nationalized the company, which had been owned by the British government since 1917, when First Lord of the Admiralty, Winston Churchill, had it nationalized to guarantee a supply of oil for the British navy during WW I. The Brits had to bring in the US CIA to help overthrow Mossadegh and restore the Shah, along with BP activities in the country, although the price was that some US oil minors got in on the action there.

Perhaps an appropriate symbol of BP's traditional position as one of the first among the leading oil majors is the meeting that took place at Achnacarry Castle in Scotland in 1928. It was between the CEOs of BP (then APOC), New Jersey Standard (now Exxon Mobil), and Royal Dutch Shell. They made the Red Line Agreement and the As-Is Agreement, with the Red Line Agreement involving drawing red lines on a world map to deliineate which parts of the world would go to which companies. BP got Iran. Royal Dutch Shell got Kuwait. Both of them got into Iraq. Jersey Standard got Saudi Arabia, and even today, ARAMCO is dominated by Exxon Mobil.

The ghost of the Red line Agreement hovers over the world even today, even as their effort to restrict prodcution and prop up the price of oil collapsed when the great Texas gusher came in during 1930 at the beginning of the Great Depression, collapsing the price to about a tenth of what it had been. But, BP and the others would live to see it rise again, along with their fortunes, through thick and through thin, although BP may have overdone it this time with its hubris.

Afghanistan: Rich in Minerals?

There is a mystery to be unraveled in today’s New York Times story that declares that Afghanistan stands on the cusp of untold mineral wealth, almost a trillion dollars in undeveloped deposits. The mystery has nothing to do with the minerals themselves or their economic implications. Readers who think this portends a rosy future for the ravaged country should pinch themselves and remember that no nation—repeat, no nation—has ever become rich from mining. Mine owners, yes, of course, but the sad lands that sit atop mineral wealth, no.

The real question is, why are we reading this? Let’s assume that James Risen, the byline author and a journalist of considerable talents, is in this case a faithful conduit for an Obama administration news feed. What we might ask is, what purpose lies behind this disclosure? Those closest to the scene may already know the answer, but let me speculate:

1. The war is going very badly, and Washington wants to put a more positive spin on things. Hang in there, Afghanistan will become a prosperous, self-reliant nation. There is a light at the end of this tunnel. Or: we can’t let all these riches fall into the hands of the Taliban.

2. The Karzai regime is cutting deals with Chinese or other mineral-seekers that the US wants to squelch. By shining a light on this sector, some elements (rogue? official?) within the US bureaucracy are trying to mobilize the full resources of the government to bring the Afghans in line.

3. The real audience for the Times piece is not in the US but Afghanistan and Pakistan. Elites there are advised: Stick with the Americans, even though your people despise us. We know where the loot is buried. We can make you rich.

What do you think?

What Should the Price of Gasoline Be?

In today's WaPo Business section, in "Think gas is too pricey? Think again," Ezra Klein reports on a recent study by Ian Perry of Resources for the Future that attempts to estimate the cost of all the externalities arising from the use of gasoline in vehicular transportation. At the time of the report, the average price of gas in the US was $2.72 per gallon, but after adding in (in order of estimated costs), 52 cents for traffic congestion, 41 cents for auto accidents, 30 cents for energy security, 20 cents for climate change, 12 cents for local pollution, and 10 cents for oil dependence, this brings a supposedly more efficient prices of $4.37 per gallon. It is unclear if that 12 cents for local pollution was estimated before or after the BP oil spill in the Gulf of Mexico happened.

The Case Against Home Ownership

I am glad to see Elizabeth Warren come out, sort of, in a way, against the fixation on home ownership. When I give talks about the economic crisis to community organizations, I get, at best, a blank stare when I launch into my diatribe on why most working class people should not be buying their own homes. Warren is worried about the asset market implications, but I am moved, at least initially, by Finance for Dummies. Rule number one: diversify. Don’t put all your savings in one basket. Especially not your home, since if something terrible happens to it, it will also likely put a dent in your living expenses. Buy index funds or dairy futures in Switzerland or anything, but don’t put it all into your home.

Nocera’s commentary is about how the government can reconfigure its interest subsidies, but just as important, if not more so, is strengthening the tenure rights of renters. In areas of Europe where renting is more popular and enjoys higher social status, it is also more protected than it is here. The rules governing rental agreements are local, and we are not likely to federalize them very soon, but imagine a scenario like this: Washington announces that it plans to withdraw subsidies for homeownership, but in doing so it wants to provide a better rental alternative. So, in coordination with academic specialists and various stakeholders, the feds hammer out a new model for local ordinances, perhaps even new language for rental agreements. The withdrawal of subsidies is tied to the uptake of the new rights for renters.

A side benefit is that mortgage balances level off and the nation’s finances become less ragged.

Worried that average folks won’t save enough if they don’t have that monthly mortgage payment demanding their attention? Other countries have used postal savings accounts for this purpose. Postal is too 20th century. How about getting families to play a multi-player internet game, something medieval with armor and magic potions, where you buy kingdoms with game points that you earn by depositing some money in a savings account? As long as our virtual warriors are not borrowing from the moneylenders (with players’ real money), we’re OK.

A Waning of Controversy among Economists

Yves Smith's terrific ECONned, pointed to an ancient 1961 article from Time. The article suggests "a waning of controversy among economists," which meant that the article reflected the milquetoast economics of the leading democratic economists and the less rabid attitude of the Republicans. Galbraith merited a brief mention in which the author noted that most economists reject his view.

Anon. 1961. "The Economy: The Pragmatic Professor." Time (3 March).
http://www.time.com/time/printout/0,8816,897654,00.html


"Walter Heller is usually tagged as a "liberal," but he departs so often from what used to be liberal cliches that the identity tag is a bit blurred. A more descriptive label, one that he applies to himself, is "pragmatist." That is the vogue word among economists today, the term that most of them use to label themselves and one another. When economists call themselves pragmatists, they mean that they are the opposite of dogmatists, that they are wary of broad theories, that they lean to the cut-and-try approach to public problems, and that they believe it is possible to improve the functioning of the economy by tinkering with it."

Heller said, "My awareness of the seriousness of the situation is balanced by a conviction that we can do something about it -- and without interference in the basic freedom of our capitalist system."


"By broadening the areas of fact, the professionalization has narrowed the areas of theory, of disagreement, and blurred the old boundaries between liberals and conservatives."

The article emphasizes:

"One result has been a waning of controversy among economists. Today, says Kenneth Arrow, "you have to find a real crackpot to get an economist who doesn't accept the principle of Government intervention in the business cycle"."

"A decade ago economists identifiable as liberals were automatically prolabor, rejected the idea that wage increases could be economically harmful. Today Heller, like most other economists, holds that "excessively generous wage bargains'' between unions and management can lead to "cost-push" price upcreep."

Romer’s Charter Cities: A Really Witless Approach to Development

One of the great pleasures historians have is going back through the dead-end schemes of long-ago generations, the ideas, hailed as brilliant at the time, that are perfect fodder for can-you-believe-this curiosities today. You know, strange dietary regimes, inventions that run up against the laws of physics, wacko monetary systems. Smart people dreamed this stuff up, but now all we can do is shake our heads and smile. Surely future historians will find similar boneheadedness today.

Surely, and they can start with this utterly bizarre but characteristic puff piece about Paul Romer and his Charter City fantasy in the latest issue of The Atlantic. If this account is correct, it is all quite simple: Economic development depends on having the right rules in place for the economy. The right rules are privatization, free markets, and the protection of property rights. Investors have to believe these rules will be permanent before they are willing to invest. Therefore the formula for successful development is for governments in poor countries to turn over a portion of their territory to be run according to free market rules under the control of a willing rich country. A return to colonialism? Absolutely, but now it would be voluntary on both ends. Take control of some of our cities, the poor country governments would say, and force us to follow the true path to riches. Romer has set up a little enterprise to market this idea, and he says he has some nibbles.

The article in the Atlantic is pure hagiography, so it’s up to the rest of us to ask a few hard questions. Like: why are you so sure that there is only one correct set of rules, and it’s the one with a University of Chicago economics department logo? Safeguards for property rights in China? What planet are you on? And why would you suppose that the western powers that brutalized and robbed their colonies in olden days would be so virtuous today? In other words, do questions of venality and capture not apply to our governments, only theirs?

One could go on. An example crops up repeatedly in the article: kids in Guinea (they don’t say which one, not that the author seems to care) have cell phones but no electricity at home. The reason given is price subsidies, which reduce incentives to extend electricity to more homes. But how do we know this? Did the US, with a history that includes the Rural Electrification Administration and the Tennessee Valley Authority, and with many municipal utilities today, create its system through market incentives? Do countries with rapidly growing electrical grids, like China, all follow this formula today?

Here is something else: if foreigners are running your city, this means you have no political control over them—no democratic rights. Loss of democracy is a bad thing, right? Not for Romer. He points out that people who migrate in search of economic opportunity are voluntarily foregoing democratic rights in favor of income. He want to make his charter cities magnets of migration too. If migrants put more value on livelihood than the right to vote, that’s their choice, and it is their “preference” for democracy rather than yours that should count.

Actually, why go through all the bother and expense of migration? Why not just pay people to give their vote to someone else? There’s a history to that, too, in rich countries like the US. If democracy is essentially a private consumption good, valued according to willingness to pay, why not let the market rule?

Behind it all, and apparently beyond the awareness of either Romer or his chronicler, is the ghost of Friedrich Hayek. The charter cities idea is warmed-over constitution of liberty à la Hayek. According to this view, a liberal, free market economy is the very embodiment of liberty, but it is under threat from the short-sighted passions of planners, populists and other usurpers. Thus societies need to be placed under a constitutional constraint that protects economic liberalism against the threat of majority rule. Hayek, of course, did not see the need for foreigners to impose this constraint. It could be enforced equally well by elements within one’s own country. He preferred a more legitimate constitutional process, but if the country happened to be Chile, the element could be Pinochet.

UPDATE: I woke up this morning thinking about the Northern Marianas. Why settle for charter cities when you can charter whole islands?

John Boehner and the Laugher Curve

John Boehner has dusted off some Laugher Curve nonsense:

“You equate the idea of lowering marginal tax rates with less revenue for the federal government,” Boehner cautioned. “We've seen over the last 30 years that lower marginal tax rates have led to a growing economy, more employment, and more people paying taxes. And if you look at the revenue growth over those 30 years, you've got a prime example of what we've been talking about.”

Michael Ettlinger and John Irons debunked this nonsense about a year and a half ago. I’d like to simply pick up on this statement:

Economic growth as measured by real U.S. gross domestic product was stronger following the tax increases of 1993 than in the two supply-side eras. Over the seven-year periods after each legislative action, average annual growth was 3.9 percent following 1993, 3.5 percent following 1981, and 2.5 percent following 2001.

Part of the Reagan 3.5% per year average increase had to do with the fact that he inherited an economy below full employment. If you take out the Keynesian effect of returning to full employment – which was mainly from a reversal of tight Federal Reserve policy – average long-term growth during the Reagan years was closer to 3%. For the period from the end of World War II to around 1980 (just before the Reagan tax shift) average growth over this extended period was 3.5% per year. Why? Well in part because national savings as a share of income was higher before the 1981 tax cut than afterwards.

Maybe a reporter should ask the Congressman – how does fiscal irresponsibility and a lower national savings rate lead to more long-term growth rather than less?

Estimated Damages from BP Spill

A couple of follow ups to this. My $23 billion number was part of what Credit Suisse had been estimated but that also included $14 billion in estimated claims on top of the $23 billion in estimated clean-up costs. And this estimate is likely now outdated:

The new estimate is 25,000 to 30,000 barrels of oil a day. That range, still preliminary, is far above the previous estimate of 12,000 to 19,000 barrels a day.

With the estimated damages growing ever higher, this is disturbing:

Administration officials suggested that they had no immediate plans to directly block BP from paying the dividend, even as the White House and its allies made clear that they would pressure the company to ensure that it made paying spill-related claims its top financial priority.

If the debt of BP is now reflecting junk bond status, the government as a potential creditor needs to step in unless it is willing to do what Congressman Boehner and Tom Donohue (Chamber of Commerce) were recommending – have the taxpayers foot part of the bill for this mess.

On a related note - Mark Thoma offers some insights into the debate over regulation especially under a system of rules where companies such as BP might be shielded from much of the downside risks its activities create.

Update: BP stock price has gone up in the two days since the release of the news that the estimated amount of oil being leaked into the Gulf is much higher. So what other news would have offset what one would think to be really bad news? Have the chances that BP can keep its share of the costs from this disaster low gone up for some reason?

BP Share Price and the Gulf Oil Spill

Much is being made of the decline in BP’s stock price, which has lowered its market equity from around $200 billion before the Gulf Oil disaster to around $100 billion. Some pundits have wondered how the market value of its equity can be this low given that the book value of its assets is around $235 billion while its stated liabilities are around $135 billion. Of course, the book value of either can understate the true market value. The BP balance sheet implicitly assigns a zero book value for the contingent liabilities emanating from this Gulf Oil disaster. One pundit today claims that the maximum estimated amount for what BP will be held liable for is $23 billion. Given all the underestimates of how much oil has been dumped into the Gulf of Mexico, one has to wonder.

Then again – I’m sure the BP attorneys are working hard to make sure they pay only a fraction of the true damage. Paul Krugman had an interesting point:

the libertarian alternative to regulation — just use tort law to make people pay for the damage they cause — doesn’t work in practice, because when push comes to shove politicians will shield the rich and powerful from paying the real cost ... Well, here’s the thing: regulation demonstrably does work where tort law doesn’t. Consider the environmental issue: in reality, the perpetrators of oil spills never pay most of the cost

While the “drill baby drill” proponents of offshore drilling used to tell us that we had the technology to keep oil spills from happening or once they did happen from becoming environmental nightmares - as we have recently learned, technology has not advanced that much. If oil companies are shielded from paying more than pennies on the dollar for such potential problems, it is no wonder they under-invest in this technology. The stock market seems to be signaling that BP shareholders may indeed pay much more than pennies on the dollar. If that does happen, bravo!

Update: John Boehner voices a very different view than mine:

In response to a question from TPMDC, House Minority Leader John Boehner said he believes taxpayers should help pick up the tab for the clean up. "I think the people responsible in the oil spill--BP and the federal government--should take full responsibility for what's happening there," Boehner said at his weekly press conference this morning. Boehner's statement followed comments last Friday by US Chamber of Commerce CEO Tom Donohue who said he opposes efforts to stick BP, a member of the Chamber, with the bill. "It is generally not the practice of this country to change the laws after the game," he said. "Everybody is going to contribute to this clean up. We are all going to have to do it. We are going to have to get the money from the government and from the companies and we will figure out a way to do that." So today I asked Boehner, "Do you agree with Tom Donohue of the Chamber that the government and taxpayers should pitch in to clean up the oil spill?" The shorter answer is yes.

This sounds like the Congressman wants us to subsidize negative externalities.

Bolivian Lithium Future

Report on Bolivia's Lithium with maps from my student & basketball friend.
http://democracyctr.org/blog/archives/1527

Fred Barnes Must Want a 2011 Recession

Fred Barnes asserts that President Obama is really hoping for a Republican win in the 2010 elections:

If Mr. Obama wants to avert a fiscal crisis and win re-election in 2012, he needs House Speaker Nancy Pelosi to be removed from her powerful post. A GOP takeover may be the only way. Given the deficit-and-debt mess that Mr. Obama has on his hands, a Republican House would be a godsend. A Republican Senate would help, too. A Republican majority, should it materialize, could be counted on to pass significant cuts in domestic spending next year—cuts that Mrs. Pelosi and her allies in the House Democratic hierarchy would never countenance.

Well – we know that a Republican majority would never agree to tax increases. Steve Benen, however, reminds us that having both a Republican White House and Republican majorities in both houses of Congress wasn’t exactly the recipe for fiscal responsibility just a few years ago. But let’s suppose we did get massive reductions in domestic Federal spending. Maybe we should just turn the microphone over to Brad DeLong to explain why “we need bigger deficits” now.

Coming Soon: The Invisible Handcuffs: How Market Tyranny Stifles the Economy by Stunting Workers.

I am happy to report that Monthly Review has announced that the Invisible Handcuffs will appear next January. I am going over Michael Yates excellent copyedits now. Here is the announcement.

http://www.monthlyreview.org/books/invisiblehandcuffs.php

Brief Notes from China

We are getting ready to leave Shanghai. The timing of the trip was fascinating because China seems to be ready to move to a new stage of development.

For example, just today I read that the government is instituting a 5% energy tax in the remote Xinjiang province. The response to the Honda strike and the string of suicides at the Foxconn factory were critical of management. Of course, the ownership of these plants was not Chinese; even so, the China Daily has pushing the line that it’s time to leave the low-wage economy behind. China is also beginning to take more control over the strategic minerals, of which it has large share of the world’s production.

The taxes levied on real estate knocked the Shanghai stock market down quite a bit. The papers have also been taking a critical attitude towards the wanton demolition of neighborhoods to make way for expensive commercial projects.

All of these moves are consistent with intelligent social democratic principles, but I have difficulty in seeing socialism here. At the same time, virtually everybody we encountered treated the Chinese economy and socialist.

I tried to get a feel for the real estate bubble. Real estate construction in Shanghai seems to have calmed down a bit since I was here a few months ago, but the rate of construction Suzhou and Hangzhou was phenomenal.