Wall Street and the New Economy

I’m going to throw out 2 numbers and ask you to keep them in mind: 2 Trillion; and 3.7.

When I first studied economics more than 30 years ago, the textbooks said that businesses and economic activity were comprised of 3 basic ingredients: land, labor and capital.  Land, what folks like Paul Hawken now call “natural capital”, represented the raw materials needed to make things.  This work of making things was presumably done by people, that is, labor.  And capital, the third component was understood to be the machines, equipment, and technology which increased the productivity of both land and labor, along with the financial investment which sustained it.  Thirty years ago, most economists were certainly not friends of land or labor, but they did at least understand that both were essential to a healthy economy.

But all of that has changed.  First, we shifted from an economy based primarily on manufacturing goods to one based on providing services.  Now this is not altogether bad, as many services are useful, even essential to a healthy world.  But this transition to a service economy, particularly in an increasingly globalized world, accelerated our estrangement from the land, both its wonders and its limits.  Of course we all still used stuff – food, wood, oil, steel, computers, appliances – in fact, more than ever.  It’s just that we weren’t growing or making those things ourselves anymore, preferring to outsource and offshore these functions.  With those basic, life-sustaining things now largely taken for granted, we could focus more on the services and amenities that seemed to make life more convenient, more comfortable.

The service economy soon gave way to the so-called information or “knowledge” economy.  This is the notion that economies based on things, or even tangible services have been replaced by an economy based on ideas.  So strong was – and is – this belief in a “knowledge” economy, that the old notions of land and labor, even capital in the tangible sense, became passé. George Gilder, a frequent writer and cheerleader for this new economy said “We have seen the overthrow of the tyranny of matter… our ability to create wealth is not bound by physical limits, but by our ability to come up with new ideas.  In other words it’s unlimited.”

But ideas of course are abstractions. You can’t eat them or heat your home with them. They don’t filter the impurities out of water, or sequester carbon.  To believe in a “no limits” economy, is to believe that we can live from abstraction, what James Howard Kunstler calls the “fictitious economy.”  It shouldn’t surprise us then, that the final stage of this economic paradigm is the global financial services sector, where “wealth” became completely estranged from, even antagonistic to productive activity; where liabilities – things like risky mortgages, or the energy speculations of Enron, or even bets as to when sick people will die – could be “repackaged”, and, voila, stock values sore.  In such an economy, sickness and predation become more valuable than health and self-reliance.

And that brings me back to my numbers.

In 2008, Wall Street lost $2 Trillion in just a few weeks.  That’s nearly $20,000 for every household in this country.  If there really was that much wealth to go around, we’d all be doing pretty well.  But it isn’t real. And because that wealth was fictitious, we are still struggling to recover from the economic bust of six years past.

What is real is the 3.7 acres of productive land per person that remains on our planet.  A century ago we had 14 acres per person.  Now it’s 3.7. That land, including the soils, grasslands and prairies, wetlands and forests, is the true foundation of our wealth.  Whether our job comes from farming or manufacturing, the service sector, or banking and finance, we all depend upon a productive landscape to meet our most essential needs.  If accelerating climate change and the Wall Street debacle have taught us anything it should be that we’d better target our capital and use our labor to restore this shrinking base of land and build communities of modest, but real wealth.

*Originally published at BottomUpEconomy.org

Is there an Alternative to Trickle Down Economics?

There are at least four key components of what I’m calling a “bottom up economy”:   Focusing on the assets and strengths of your community; developing infrastructure to support and build upon these assets; fostering local ownership of businesses and capital; and building entrepreneurial networks that increase the competitiveness and impact of local businesses.    Before we examine how public policy can help communities develop each of these elements of a bottom up economy, it is fair to ask, “Why bother?  What is wrong with traditional, top down economic strategies?”

Most of our economic policy and practices over the past thirty years have been top down, or “trickle down” in nature, based upon this belief:  If we free up a small group of job creators at the top – wealthy investors and large corporations – they will create wealth which will trickle down to the rest of us.  This has been the driver of our economic, fiscal and labor policy since Ronald Reagan was president.  Trickle down economics did create wealth, but there were two problems with it:  First, much of it has been based upon financial speculation, rather than real wealth.  As stock market “bubbles” and so-called derivatives both demonstrate, Wall Street can create a lot of “wealth” that has little real value or base of productive assets.   We’re talking here about the difference between the house that someone owns – a tangible asset – and the value of the debt on their home, repackaged with the debt and risk of thousands of other aspiring home owners as a tradeable commodity, known as a derivative.  One is real, providing shelter, warmth, pleasure (usually…).  The other exists purely in the mind and can rise or fall in value dramatically, overnight.  And that is exactly what happened to trillions of dollars of Wall Street “wealth” in 2007 and 2008.

The other fundamental problem with trickle down economics is that the promised prosperity never trickled down.  In fact, it has been quite the opposite, as income and wealth have moved up, not down, from working folks and the middle class to the rich.  From the end of World War II until the mid 1970’s, the benefits of economic growth were widely distributed, with Americans in the bottom and middle of the economic spectrum seeing more gains than those at the top.  However from 1980 on, we’ve seen those gains stagnate or decline, as the vast majority of new income and wealth has gone to people at the very top.  Rather than widely shared prosperity, we’ve become the most unequal country of all the advanced nations of the world.  The most unequal.

The problem with this inequality, this concentration of wealth goes beyond the question of fairness or justice.  In fact it is quite costly to our nation, as Joseph Stigletz (The Price of Inequality, WW Norton, 2012) and Richard Wilkinson (The Spirit Level:  Why Greater Equality Makes Societies Stronger, Bloomsbury Press, 2010)point out in separate books.  Stigletz demonstrates that economic inequality leads to lower overall economic output and less productivity, not more.  Wilkinson looks at a host of quality of life indicators, including life expectancy, obesity and health, educational attainment, teen pregnancy, substance abuse, crime rates and others.  He finds that the more unequal the society, the worse they do in nearly every one of these areas.   This mirrors a study, done by Thomas Lyson of Cornell University, of 200 rural counties across the country which found that those with one or two large companies dominating their economy were worse off in terms of health, economic and social indicators than the counties with a broad base of small to mid-sized businesses.

Every one of these problems is costly, both in terms of taxpayer dollars and the well- being of people.  Trickle down economic strategies haven’t solved these problems; they have made them worse.  It is time for fresh thinking about how to create jobs, to broaden the base of wealth, to lift people out of poverty and to increase the resilience of households and communities.  Fresh thinking based on successful, real world examples emerging across this nation.

What Bad Trade Policy Looks Like

Our so-called “free trade” policies are, quite simply, not about freeing up trade among people and businesses across national boundaries.   Instead, they are about freeing transnational corporations to increase their reach and profitability, and to reduce any risk that large companies and investors might face.  This is particularly true of the Trans Pacific Partnership (TPP) and the Trans Atlantic Trade and Investment Partnership (TTIP), both of which have now entered the final stages of negotiation.    Based on this, I’ve summarized in several categories below why I believe the TPP to be a very bad proposal.  Some of these issues relate to specific provisions in this proposal (as best as we can know, given the secrecy), while others pertain to the results of other trade deals, results which are likely to be repeated and exacerbated, given the extraordinarily overwhelming influence of major multi-national corporations in the current negotiations.

Deficits

• In 1993, before the signing of NAFTA, the US trade deficit with Canada and Mexico totaled $27 billion. By 2012, our deficit with these NAFTA partners had increased almost seven-fold to $181 billion.
• More recently, we signed a trade agreement with South Korea, called KORUS, an agreement said to be one of the models on which the TPP agreement is being based. In just two years, our trade deficit with South Korea has grown by $8.7 billion while our exports to them have fallen by $3 billion.

Jobs

• In the 2 years since implementation of KORUS, Robert Scott (Economic Policy Institute) estimates that 60,000 US jobs, mostly in manufacturing, have been lost due to the increased trade deficit and reduced US exports.
• Between 2001 and 2011, EPI estimates that 3.3 million US jobs were lost as a result of ballooning trade deficits with China, whereas only 1/6 of that number, 538,000 new jobs were created. Six times as many jobs lost as new jobs created.
• David Autor, in a paper in the American Economic Review, estimated that between 1990 and 2007, growing imports from China (and rising trade deficits) accounted for fully ¼ of all manufacturing jobs lost in the US, as well as lowering wage rates.

Wages

• Between 2009 and 2012, of US workers who lost their jobs due to offshoring of manufacturing but who found new jobs, two thirds had to take a pay cut, most at 20% or lower wages. Of course, hundreds of thousands of displaced workers have not found new employment.
• Nine of the eleven nations in the TPP have significantly lower average wages than the US, making further downward pressure on American wages highly likely.

Currency manipulation

• Even though many members of Congress have asked the US Trade Representative to make currency manipulation a key part of the TPP negotiations, and even though he has acknowledged that it is critical reason why US exports lag in relation to imports, as recently as April of this year he was still telling members of Congress that they have not included it even in the discussions taking place.

Patent Law

• Patent Law, which already favors big, “incumbent” companies over smaller businesses and individual inventors and entrepreneurs, is likely to further extend both the scope and duration of patentsfor major multi-national corporations through the TPP.   This is true in terms of pharmaceuticals, internet and information companies, and others.  This has at least three negative impacts:
  • First, inventors, innovators and entrepreneurs, who generate 16 times as many new patent innovations than do large corporations (per dollar of revenue) will now face more legal and bureaucratic hurdles as a result of these trade deals;
  • Second, much of what now continues to be in the “public sphere” – particularly in the realm of creativity, the arts and the exchange of ideas across the internet – will likely face pressures of privatization and control by large providers;
  • Third, pharmaceutical companies will make critical, sometimes life-saving drugs, much less available and affordable, by maintaining patents for longer periods, precluding the availability of lower cost “generics”. This will almost surely cost lives, probably tens of thousands of lives.  If you think that the big drug companies must do this to cover the high cost of research and development, consider that they spend more on promotion and marketing than they do on R & D, and that they are already among the most profitable companies in the world.

Secret Negotiations

• The intense public secrecy and the extreme restrictions even on elected officials in being able to view the proposals is absurd, unjustifiable and really, quite an offense to citizens and the public interest. Even the Bush administration, for goodness sake, provided more information on pending trade deals.  President Obama, to my knowledge, has never explained the need for such secrecy and for the great access granted to corporate representatives in the negotiations.

Investor State Dispute Settlement agreement – ISDS

• Existing ISDS agreements in NAFTA, the WTO and other trade agreements is already very bad, but the TPP’s setting up of “independent” panels, to whom only corporations and investors can bring a claim (not citizens, unions, or local/state governments) makes a very unfair system far worse. The use of ISDS by corporations to bring suit against communities has grown dramatically over the last ten years, now averaging about 60 such suits annually.  Here’s a very short sampling of some of those suits:
  • Phillip Morris has brought suit against both Australia and Uruguay for their efforts to reduce smoking, especially among young people, through stronger mandatory health warnings and smoker cessation campaigns.

    The Renco Group filed an $800 million suit against Peru for closing the company’s Zinc smelter, which they had refused to adequately clean up. Even though the WHO found that 99% of children living nearby had lead levels 3x greater than safe levels, and eventhough Time Magazine cited the community, LaOroya as one of the “world’s most polluted places”, Uruguay was forced to reopen the smelter as a result of the lawsuit.

  • After Ontario adopted its “Green Energy and Green Economy” plan in 2009, the growth of businesses, jobs and revenues in renewable energy grew dramatically in the province. In part this was due to the law’s requirement that a minimum of 40% of materials in the solar industry be sourced from within the province.  That generated a great deal of investment in solar manufacturing, including a state-of-the-art Italian facility, Silfab, to produce super efficient PV panels.  Japan and the EU brought suit, investment dried up, and the Silfab company and others are stuck in limbo, unlikely to ever open.

I think that all of these examples, and countless more, point to the fact that what we’ve been pursuing through these treaties is not “free trade” but “corporate trade”.  When corporations are invited into all of the negotiations, for several years running, but the US public is kept completely in the dark, and our elected representatives have only very limited access to see portions of the proposed agreement, what else can we call it?  When the US has steadily shed jobs, especially better paying jobs by the millions, while its trade deficit has grown, how is this good for workers, our communities, our nation?  When major multi-nationals are able to sue governments for working to protect their citizens from deadly pollutants, for discouraging smoking, or for building a home-grown, job-creating solar industry, how does this square in any way with the well-being of people, or with the development of more resilient, healthy and bottom up economies?  Cleary it does not.

It is time to take a stand against the TPP and the TTIP.  Beyond that, it is time for a completely new approach to international trade agreements, an approach that puts people, their communities and their environment at the top of the agenda, not ever-increasing corporate profits and ever-expanding corporate control.  Trade could be about the fertile exchange of ideas and innovations across borders, about filling the critical gaps in what a nation needs, and that other countries can produce better.  Current trade policy has nothing to do with these goals.  It must change, dramatically.

*Originally published at BottomUpEconomy.org

Why GMO Concerns are NOT Science Denial

I often agree with Neal deGrasse Tyson, the well-known radio host and promoter of scientific literacy in our country. But on genetic engineering of foods, Mr deGrasse Tyson is totally wrong. He is among a number of public figures who have equated concerns about the safety of GMOs, or their potential for environmental damage with ‘science denial’. In a 2014 video, he ‘explained’ that public concerns about GMOs were part of a “fear factor that exists” when new products of science come to the fore. He then made his case that virtually every food in the supermarket was genetically engineered, stating “There are no ‘wild’ seedless watermelons. There are no ‘wild’ cows.” And he then added the most common refrain one hears, that “We’ve been genetically modifying our foods for thousands of years.”

Because the United States Senate is now considering a bill that would ban mandatory labeling of genetically engineered foods, sponsored by Senator Pat Roberts, such assurances of the sameness and safety of GMO foods carry huge political importance.

It’s true that we have been modifying the genetic characteristics of our foods for millennia. But until the advent of genetic engineering (and radiation), all of that ‘modification’ was done utilizing the plants’ sexual organs, that is the male and female parts of the flowers. This is true of the natural evolution that occurs in the wild. It’ true of the ‘open pollination’ practiced by Luther Burbank and thousands of farmers. And it’s true of hybridization, the more controlled version of selecting specific genetic traits, but a process still based entirely on the reproductive parts of the plant (None of these breeding systems, we should also note, ever introduce genes from completely unrelated species, as GMO foods often do).

Genetic engineering, by contrast, totally bypasses the plant’s sexual organs, instead extracting DNA from parts of one plant and then forcefully inserting it into another piece of plant tissue. “Forcefully” is not an overstatement: The two main methods used to insert this material are either employing an invasive bacteria, or using a gun to blast the material from one species into the other. This type of force is needed because in many cases the inserted genes are so foreign that the plant’s defense mechanisms try to destroy or ignore them.

This blasting of the foreign genetic material is but one of several steps in the GE process that are utterly dissimilar from any other prior form of breeding. They also employ what is called a ‘marker gene’ in order to be able to identify the bits of tissue that ultimately accept the foreign genes; they add a virus to make the inserted genes more, well, virulent, more able to penetrate the plant’s defenses and overcome it’s natural inclination to shut down invaders; and then they douse all of the material with antibiotics, and grow the survivors out in a laboratory process called tissue culture. All of this is meticulously documented in Steven M Drucker’s remarkable book, Altered Genes, Twisted Truth.

Putting aside for a moment the question of whether or not GMO foods can cause health problems, or whether they’ve provoked environmental harm, the indisputable fact is that genetic engineering is nothing whatsoever like any prior plant breeding method, right up through modern hybrids. To claim that it’s just like what we’ve been doing for thousands of years, is akin to saying that cloning is no different from sexual intercourse; that the splitting of the atom that created atomic bombs was no different from the invention of the arrow head.

If we are going to have an honest discussion about genetic engineering of our foods, people like Mr deGrasse Tyson, and many others, must first stop making this utterly false argument of equivalence. Once we do that, we can begin to probe some very serious questions, like why the FDA’s own senior scientists repeatedly expressed grave concerns to their non-scientist superiors about the increased risks that genetic engineering posed? Or why multiple studies, in peer-reviewed journals have demonstrated a wide range of abnormalities, increased chronic diseases, and various mutations in laboratory animals fed GMO foods for longer periods of time? Or why a 2015 USDA study clearly demonstrated that the ‘Round up ready’ gene in genetically engineered alfalfa had contaminated multiple wild alfalfa, in complete contradiction of their assurances that this would not happen? I’m all for a science-based, fact filled discussion of genetic engineering and GMO foods. I just wish that GE proponents were as well.

*Originally published at BottomUpEconomy.org

Facebook versus Face-to-Face: As Shared Realities have Disappeared, So have Our Shared Truths

 A lot of folks have begun talking about “fake news” and more broadly, the widespread decline of shared truths, of commonly agreed-upon sets of facts about issues critical to most of us.  This is an enormous and daunting problem for our country, especially given the political and cultural polarization that it has helped foster.  Many people are debating how this has come to be, but at least one of the underlying causes has received scant attention:  The loss of functioning community, of shared realities in our day-to-day lives.  I’m speaking here not of community in the realm of the “community of social workers”, but in the Ghostbuster sense of the word, that is, ‘actual physical contact’.  If you think we’ve evolved beyond that, I hope you’ll read on.

In his essay, “The Vanishing Commons”, Jonathan Rowe quotes a man who explains why his luxury yacht-building business is booming: “Rich people can go to a beautiful hotel and pay $3000 a night for a suite.  The trouble is, when you go down the elevator you are in the lobby with people who paid twenty times less.  My clients don’t like that.”   Of course, the very rich have separated themselves from the hoi polloi for centuries.  But that trend has accelerated and broadened in recent years, with the number of gated communities in the US increasing from about 2000 in the 1970s to over 50,000 today.  It’s not just the rich that seek to insulate themselves from the wider community, but increasingly middle income people as well.   Especially, though not exclusively, White people.  Whether motivated by fear, racial animus or the hope for higher property values, the result, according to a recent study by Renaud LeGoix and Elena Vesselinov, is that “gated communities are significant contributors to segregation patterns at the local level”.

Enclaves for the rich or gated communities for the upwardly mobile are but two of the ways we have walled ourselves off from one another, eroding every day, face-to-face interaction.  There are at least three other critical trends that steadily increase our collective estrangement.  First, the decline of public spaces, like plazas, town squares, public playgrounds and parks, means fewer places for people to gather, play, eat lunch, or talk, without the requirement of membership, permission or payment.  In some places this has resulted from a general decline in the community or neighborhood, but in many more it is an outgrowth of the push to privatize what were historically public or common goods, a trend that Jonathan Rowe believes has “reached an epidemic level”.

A second critical factor is the decline of broadly-based voluntary civic associations, including groups like the VFW (Veterans of Foreign Wars), the Elks, rural associations like The Grange, and many more.  While far from inclusive, especially in terms of race and gender, these groups did provide a relatively level playing field across economic class, where working folks and professionals debated issues, developed skills ofgovernance, and worked through differences within organizations that were local, yet connected to regional, state and national bodies as well.  Theda Skocpol estimates that in the 1950’s 3 – 5% of all adults in the US held leadership positions in one of the twenty largest voluntary associations, meaning that tens of millions of people from all walks of life likely were regular participants.   Rotary, Kiwanis and other civic groups still operate today, but with a far smaller proportion of the public involved.

Reinforcing these trends of physical segregation and civic disengagement has been a third factor, the increasingly autonomous nature of commerce and shopping.  Chain stores and big box retailers emphasize speed and efficiency in the shopping experience, dramatically reducing social interactions when compared with independent retailers and farmers markets.  On-line shopping makes it easier still to get what we need – or want – with little or no interaction with people, let alone our neighbors.  And that impact is in a sense, self-promoting, with the meteoric rise of Amazon helping to shutter over 100 million square feet of retail store fronts, according to an analysis by the Institute for Local Self Reliance.  More autonomous shopping, fewer actual places where people might run into one another in their community.

Into this perfect storm of disengagement from one another and our communities, an array of social media platforms have arisen to help “connect” us, to provide “community” without place.  Being unbound by the limits of particular places – limits of ecology, of culture, of economics or human history – social media communities often become self-absorbed and self-perpetuating, insulated from outsiders, and nurturing of extreme points of view.  Facebook is not the only venue where this happens, just the most prominent one.  Its design fosters group-think, aligning cultural and political sympathies as tightly as buying preferences.   And it propels the inexorable decline of actual communities of place, which by comparison are, after all, a pain in the ass.

With all of the disengagement from our neighbors and communities, it should not surprise us that the language of debate in this placeless world is so often vitriolic, fiercely resistant to new information, skeptical of ‘facts’.   Discounting solidly researched analysis or accepting the seemingly preposterous is much easier when our realities are deeply segregated, and our relationships increasingly disembodied.   If Facebook were but a small part of how we interact with one another, how we get our news, how we experience the world, it might be different.  But just as Amazon’s rise has hastened and benefitted from the fall of brick and mortar retail shops, Facebook’s emerging dominance has made face-to-face community seemingly obsolete, at once cumbersome and painfully limiting.   Yet it is precisely those limits, those shared realities that can instill a bit of empathy for one another and with that, a modicum of humility about what we know and what we don’t know.

Many Saturday mornings the line at our farmers market booth includes libertarians, quiet conservatives and liberals; readers of The Nation and folks who listen to Glen Beck.  You can be sure that there are some very strong disagreements on economic, environmental and social issues in that queue.   But there’s no shouting, no hateful, dogmatic pronouncements.  What would happen if I stopped bagging produce and asked what everyone thought about climate change?  Or Black Lives Matter?  Or the president-elect?  I honestly don’t know.   I do think, however, that the realities we share, around food, our land and our local economy, may bind us to each other just enough that we’d actually listen, perhaps even consider a discomforting fact or two.  Maybe, only maybe.  Even so, compared to Facebook’s placeless world, this face-to-face community at least has a common place from which to begin the search for shared truths.

*Originally published at BottomUpEconomy.org