An Assassination’s Long Shadow

Patrice Lumumba, independence leader of the Congo was assassinated 50 years ago. Adam Hochschild writes in the New York Times of the profound, long-term consequences of the western-backed assassination and the subsequent dictatorship and civil war.

Lumumba’s violent end foreshadowed today’s American practice of “extraordinary rendition.”

The Rise of the New Global Elite

Chrystia Freeland writes in January's Atlantic that The Rise of the New Global Elite [print] is a consequence of technology and globalization and is resulting in growing income inequality in developing and established economies.

The new elites are different in some ways from the aristocrats of the last gilded age. They are more global and more likely to be hard working careerists than inheritors of great wealth.

...a defining quality of the current crop of plutocrats is that they are the “working rich.” ... They are not aristocrats, by and large, but rather economic meritocrats, preoccupied not merely with consuming wealth but with creating it. ... another defining characteristic of today’s plutocrats: they are forming a global community, and their ties to one another are increasingly closer than their ties to hoi polloi back home.

In America, many in the elite hold the opinion that the hollowing-out of the American middle class doesn't really matter. “...if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,”

America’s business elites appear so removed from the continuing travails of the U.S. workforce and economy because the global “nation” in which they increasingly live and work is doing fine.

This isolation may end up their undoing. Instead of being grateful for the hundreds of billions in bailouts and hundreds of billions more in hidden subsidies by the Fed, the elites fret about the expiration of the Bush tax cuts and complain of Obama's anti-business attitude.

In America, the traditional remedy to class warfare has been social mobility. But, as mobility breaks down, the safety valve no longer works.

The real threat facing the super-elite [is] the possibility that inchoate public rage could cohere into a more concrete populist agenda.

...which pretty much describes what happened in Venezuela in the 90's.

The lesson of history is that, in the long run, super-elites have two ways to survive: by suppressing dissent or by sharing their wealth. It is obvious which of these would be the better outcome for America, and the world. Let us hope the plutocrats aren’t already too isolated to recognize this.

On the other hand, Felix Salmon responds...

The inchoate anger of the masses shows no sign of cohering into anything at all... The Tea Party, which is the closest thing we have to a populist revolt, is bought and paid for by plutocrats.

More...

• In Bubble Bath, Freeland proposes that people didn't cause the financial crisis; a bad system did
• Brief discussion on Morning Joe
• Who Will Stand Up to the Superrich?
• Still the Best Congress Money Can Buy
• rise and fall of the creative class
• Peak Globalization
• Welcome to the New Middle Ages
• Ralph Nader thinks only the super-rich can save us.
• The WSJ asks Do the Rich Need the Rest of America?
• Are the American people obsolete? The richest few don't need the rest of us as markets, soldiers or police anymore.

WikiLeaks is free speech

It's little surprise that WikiLeaks founder Julian Assange has found himself in trouble. People in high places like to keep their secrets. But secrecy is incompatible with democracy and an open society. Maybe that doesn't mean there should be no secrecy. But it does mean there should be people fighting relentlessly to bring the truth out into the open.

It's revealing that the same people that promoted corporate funding of independent political broadcasts as free speech deny the same label to WikiLeaks.

I'm reminded of what happened to Eliot Spitzer when he pissed off the wrong people. He was taken down by a hooker scandal after a bank reported a suspicious wire transfer.

• WikiLeaks at the Guardian
• The Beginner's Guide to WikiLeaks
• How to Think About WikiLeaks
• Julian Assange and the Computer Conspiracy; “To destroy this invisible government”
• A defense of WikiLeaks: Some inconvenient facts

Will India's growth outpace China's?

The Economist's cover this week makes the claim that India's growth will outpace China's. India will be experiencing the demographic wave that other asian countries have ridden to prosperity in which a high percentage of the population falls within working age. Prevalence of English is an extra bonus. Further, India's democracy and entrepreneurial culture give it a flexibility unmatched by China's state dominated economy.

The conventional wisdom is that India's boom in the service sector is leaving a big chunk of the population stranded in poverty. This is because high skilled jobs like engineering or medicine -- even moderately skilled jobs in call centers -- require education and therefore are available largely to the children of the established middle class. In many countries, manufacturing has been the traditional stepping-stone out of subsistence agriculture. For example, a chinese factory girl might be the daughter of farming peasants from the countryside. These missing bottom rungs of the ladder have resulted in rising inequality. Amartya Sen warned that India risks becoming "half California and half sub-Saharan Africa".

Also working against India is it's crappy infrastructure and low literacy rates, 66% vs China's 93%. India's primary schools perform poorly and, the world-class IIT schools notwithstanding, its university system is undersized. The result is a chronic shortage of skilled workers. And business dealings involving land, natural resources and government contracts are riddled with corruption.

On India's cacophonous democracy, they quote a western banker as waying, "It's much easier to deal with the well-understood 'org chart' of China Inc than the freewheeling chaos of India.", which probably says a lot about western bankers.

I'd love to see India, with all it's contradictions, bust out and rival China. Based on Indian multinationals like Tata or Infosys, or the "frugal innovations" like $2000 cars, you might believe it possible. Whether the "freewheeling chaos" of democracy can function in a country of 1 billion; whether democracy is compatible with productivity; whether India can get its act together; those are some serious open questions. I hope the answer is yes.

• India's surprising economic miracle
• A bumpier but freer road
• relationship between China and India
• Economist country profile on India
• Amartya Sen on Radio Open Source
• Amartya Sen's Nobel prize autobiography
• Lakshmi Mittal

Bill Clinton on the Tea Party

If you have an ideology, it means everything is determined by dogma and you’re impervious to evidence.

They’re saying that Barack Obama represents the spearhead of this vast socialist conspiracy to have government swallow up the fabric of American life and he’s going to crush our individualism, and our freedom, and the vitality of small business ... They tell us that they they represent America the way it used to be, self-reliant, virtuous individuals and small businesses. And the truth is, what they want to do is dismantle government so corporations, big corporations will control our destiny.

Beware of Greeks Bearing Bonds

Americans should be ashamed. We're amateurs at corruption. Ok, well, Wall Street excepted. Anyway, the Greeks are pros. Michael Lewis, of Liars Poker and The Big Short writes Beware of Greeks Bearing Bonds in Vanity Fair.

In 2001, Greece entered the European Monetary Union, swapped the drachma for the euro, and acquired for its debt an implicit European (read German) guarantee. Greeks could now borrow long-term funds at roughly the same rate as Germans—not 18 percent but 5 percent. To remain in the euro zone, they were meant, in theory, to maintain budget deficits below 3 percent of G.D.P.; in practice, all they had to do was cook the books to show that they were hitting the targets. Here, in 2001, entered Goldman Sachs...

• Tim Bray reviews The Big Short.
• The rats have certainly gotten into Greece
• Michael Lewis’ Big Short and Our Appetite for Apocalypse on Radio Open Source

Let the Bush tax cuts expire

Has the Wall Street Journal gone totally right wing nutballs or has it always been that way? A recent article on the expiration of the Bush tax cuts gives cause for concern.

In the summer of 2007, Rupert Murdoch prevailed upon the Bancroft family and sucked the WSJ into the media empire of News Corp. Murdoch's other properties include Fox News and the New York Post, neither of which are exactly monuments to journalistic integrity. As a very occasional reader, I can't say whether or how much the WSJ has changed since.

In the weekend edition of August 28, 2010 an unsigned editorial titled The $31 Billion Revenue Fantasy complains about the plan to let the Bush tax cuts expire. They make the claim that the Bush tax cuts were not a windfall for the rich. After the particularly piercing argument "Yada, yada, yada," (really, they said that), they throw up a bunch of numbers. It's not that surprising to find a sermon to the anti-tax faithful in the WSJ. But, the totally bogus and deceptive line of argument they use has a real Fox News ring to it. For example:

The IRS data show that in 2003 those with incomes above $200,000 paid $313 billion in income tax. By 2007 they paid $610 billion. When the recession hit, the payments fell to $537 billion in 2008. But even accounting for that decline, payments by the rich were still 65% higher five years after the rate cut that was supposedly a giveaway to the rich. The share of federal income taxes paid by the $200,000-a-year club was 42% in 2003 but 52% in 2008. (The IRS doesn't adjust these annual numbers for inflation.)

Inflation is only one reason why these numbers are not very meaningful. According to CPI numbers, 100 2003-dollars is about 117 2008 dollars. So, even if incomes only track inflation the pool of 200k-plus tax-payers grew. Also at the same time, the economy was expanding (and bubbles growing in housing and finance), which also lifts people into the higher income bracket. Tax receipts at all levels go up with the economy. Tax receipts from higher brackets go up more. Finally, high-income earners (for example those already over the 200k line) saw their incomes increase at a rate greater than the economy as a whole, thus paying more taxes.

These numbers are completely consistent with the story that the rich got richer while being taxed at a lower rate. As the New York Times put it:

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

- NYT “Tax Cuts Offer Most for Very Rich”

In 2003, 450 economists signed a statement (Economists’ statement opposing the Bush tax cuts (2003)) opposing the Bush tax cuts on the grounds that they would fail as a growth stimulus, increase inequality and worsen the budget outlook. Even Alan Greenspan thinks these tax cuts should expire as do former Treasury Secretaries Robert Rubin and Paul O'Neill.

The real question the editorial is trying to address is what degree of progressivity do we want in our tax system. Should those who have benefited most, in turn, support the system most? That's a fair and legitimate question. As economist Russ Roberts puts it, “Should we be more like France or less like France?”

What disappoints me about the WSJ article is this: Shouldn't the readers of the WSJ - educated businessmen, rather than tea-party loonies - be able to think this through soberly and logically? Given the audience of the WSJ, we're left with the scary conclusion that many of the wealthy are lying to themselves to justify their own sense of entitlement. Either that, or they're trying to arm themselves with deceitful and self-serving arguments to manipulate those less savvy than themselves.

There are common features to be found in several species of voodoo economics from the Laffer curve and trickle-down economics to "starving the beast" to the claim that letting the Bush tax cuts expire would stifle the recovery. Numerical quackery obscures policy that always seems to favor the rich at the expense of the common good.

What about what's good for the country? Shouldn't the country's business elites have a few ounces of patriotic blood in their veins? And might that lead to pursuit of goals that are good for America as a whole; strategies that grow the pie for everyone rather than tactics for capturing an ever bigger slice?

Related stuff

• Businessweek says: The debate over extension of the Bush tax cuts is the opening salvo of a generation-defining fight. With Medicare and Social Security spending set to balloon as baby boomers retire and grow old, the terms of the conflict are crystallizing: What do Americans expect from their government? How much are they entitled to, how much are they willing to contribute—and what are they willing to do without?
• One of the few things I like about the Bush tax cuts is the cut in the rate for dividends. Dividends are a healthy thing for the economy. They are a stabilize force in the stock market. They encourage investment and, by paying out slowly over time, they encourage a longer-term perspective. Dividend tax cuts are regressive but have redeeming social value.
• A Washington Post piece by William Gale, Five myths about the Bush tax cuts
• CBO's estimates of average federal tax rates (tax rates as a percentage of income) paid by households in various income categories
• Wikipedia on Economic policy of the George W. Bush administration
• Years ago I came across a dissertation about welfare, in which I found an interesting idea. While welfare for the poor may be corrosive to the work ethic, welfare for the rich is much more destructive because the wealthy are in a position to influence the political system, setting up a vicious cycle of increasing entitlement and plutocracy. The closest thing I could google up is this: Welfare for the Rich.