The Inconvenient Truth about Conservative Economics

(c) by Mark Dempsey

A recent NPR Throughline podcast summarizes Austrian economist Friedrich Hayek's thought, and includes an account of his 1947 meeting with other like-minded thinkers in Switzerland at Mont Pelerin. Hayek began the Mont Pelerin Society (MPS) with the 39 economists, historians and sociologists who met there, and they eventually became influential--of 76 economic advisers on Ronald Reagan's 1980 campaign staff, 22 were MPS members. It's also worth noting that MPS is full of climate change deniers, and membership includes right-wing petrochemical billionaire Charles Koch. If the wealth of multi-billionaire brothers Charles and David Koch were held by a single individual, he would be the wealthiest on the planet.

The historical context may have influenced some of MPS' more extreme positions. After all, Hayek and his MPS colleagues were concerned about the rise of Mussolini, Stalin and Hitler. So perhaps even their exaggerated libertarian, freewheeling, free market economic prescriptions are more understandable in that context, acting as a protest against a troubling authoritarian trend. Nevertheless, the MPS economists were, and are, not at all on the left side of the political spectrum--and Throughline certainly does not align with NPR's supposedly liberal editorial policy with this relatively uncritical presentation.

Central to MPS and Hayek’s thought is their advocacy for markets relatively free of state influence and regulation. “When you go down to the store and buy [a] pencil, you are, in effect, trading a few minutes of your time for a few seconds of the time of all those thousands of people [who made the pencil]....That's the miracle of the price system. Everybody has benefited. There's been no central direction.” The quote is from Milton Friedman, but the reverence for "free," unregulated markets is a sentiment shared by Hayek and MPS generally.

In fact, conservative economists like the Hayek's fellow Austrians and Milton Friedman's Monetarists have been devoted to "free" markets with a quasi-religious fervor, and they are positively giddy that consumers can command a huge crowd of pencil producers for a trivial amount of money. Throughline's reporting does say Hayek himself advocated a more nuanced view rather than a completely unregulated free market, after all, Hayek insisted on a pension to replace his Austrian state pension before he would move to the U.S. 

Apparently a Readers' Digest version of Hayek's most famous work, The Road to Serfdom, is what guided many subsequent followers to advocate nuance-less dispensing with state regulation, or even most of the state iself. Grover Norquist, a part of the Koch's network of political influencers, famously said he wanted to reduce government until it's small enough to "drown in a bathtub." In their view, states and regulation simply interfere with the "magic" of the market.

Still, a few inconvenient truths contradict Friedman's assertion that "there's no central direction,"even in that pencil transaction. Among other things, some central direction makes sure the pencil is not coated with poisonous lead paint. Market regulations also makes sure the money used for that purchase isn’t counterfeit, and the state provides enough security so thieves generally do not rob the buyer or seller as the purchase occurs. There are certainly more examples of central direction, but poisonous paint, counterfeit money and security are not immediately obvious, so "free" marketers can continue to believe these assertions without questioning the premise as long as they don't look too closely at what's really going on.

And don't get me wrong, the U.S.' "central direction" is anything but perfect. Scientists knew since the 1920s that lead in paint was toxic to humans, but one had to wait until 1978 for the Carter administration to sue and to get manufacturers to get the lead out. Those who suffered from the paint manufacturers' negligence sued for compensation, and they won their suit, at least initially. However, the U.S. Supreme Court vacated the multi-million-dollar judgment against the paint manufacturers. 

Historians speculate that Caligula was not so much mad as poisoned by his lead plumbing. Other historians note that Beethoven's deafness is one symptom lead poisoning could have produced. Even small amounts of lead can cause serious health problems. Children younger than 6 years are especially vulnerable to lead poisoning, which can severely affect mental and physical development. And no, pre-1978 pencils did not come with a warning not to put them in your mouth.

Given the number and frequency of arms-length transactions in modern economies, one cannot help but be astonished that MPS and its successors continue to advocate dramatic deregulation. After all, in recent years the Chinese shipped the U.S. dog food containing poisonous methyl mercaptan. What drives deregulation, then, a feeling of invulnerability? Arrogance? Ignorance?

As for the historical record of "central direction," David Graeber (in Debt: the first 5,000 years) asserts there have never markets without states, ever. It's even a recent re-interpretation of "freedom" to say markets can be free of regulation. Classical economics talks about markets free from the influence of economic rent--money paid for no productive purpose, particularly to landlords--not markets free of regulation.

The Throughline transcript continues with more of Friedman's fervor: “That is why the operation of the free market is so essential - but even more to foster harmony and peace among the peoples of the world.” Given the frequency of various conflicts, including wars and assassinations, over the shape of markets and the states that regulate them, calling this sunny assertion bizarre is an understatement.

The only historical example of a libertarian, completely unregulated market is the "dark web." This portion of the internet, which originated with U.S. military research, encrypts communication so thoroughly, no central direction is possible; in fact, those visiting dark web websites cannot identify buyers or sellers at all, and must use an anonymous payment method like bitcoin to transact their business. 

On the dark web, one can buy drugs, kiddie porn, even assassinations. There are no regulations at all. As you might imagine, criminals cheat customers and each other, so the "brand" of such websites, assuring the transaction would occur as advertised, became very important. One such website was the Silk Road, run by "Dread Pirate Roberts" (Robert Ulricht), who proclaimed that his website would demonstrate the validity of his libertarian principles. 

Ulricht was making roughly $40 million a year from the Silk Road when he was arrested by the FBI for trying to hire a hitman to kill someone he believed cheated him. No evidentiary hearing, jury, or law made this decision, just the feudal lord who decided whether that cheater would live or die. 

This reminds me of a sentiment I'm told is Russian: things are never so bad they can’t get worse. In any case the dark internet is as close to a libertarian market as humanity has ever seen. I'd suggest the inevitable destination of such completely unregulated markets is the feudalism Ulricht practiced.

We might be a little more sanguine about Friedman if his disciples hadn’t participated in the overthrow of Salvador Allende’s elected government in Chile in 1973, installing human rights criminal General Augusto Pinochet, killing an estimated 10,000 people in the process, including any economists who disagreed with the "Chicago Boys" (Friedman taught at the University of Chicago). That legacy endures, too. Here's a picture of a recent (October 25, 2019) million-plus person Chilean demonstration, protesting the failing, privatized Chilean pension system under Pinochet, created at the Chicago boys' direction. 

This enormous demonstration was so spontaneous no one had time to make signs. Meanwhile, the U.S. pension system--Social Security--eliminated 65% of elder poverty.

Reagan followed some of Friedman's economic advice about controlling the money supply, at least for the first two years of his administration. Paul Krugman’s Peddling Prosperity outlines just how Friedman’s monetarist economics failed to produce the desired result, and were abandoned. And this reliance on bogus economics persists even today. People still tell me that the Fed can control the money supply, even though 97% of the money is bank credit, not federally-issued dollars. 

Many readers might remember when Ron and Nancy Reagan were ridiculed mercilessly for consulting an astrologer. Would that astrologer provide better advice than they had from their economic advisors? Reagan apparently refused to privatize Social Security, as the Kochs wished. Perhaps the stars didn't align.

Here are some common criticisms of Hayek's Austrian economics:

• The belief in the pure efficiency of markets does not square market failures like the growth of subprime mortgages / securitisation leading up to credit crisis of 2008. Note that Democrat Bill Clinton colluded with Newt Gingrich's congress in deregulating Wall Street. Glass-Steagall remains repealed.
  
• High tax and high spending regimes do not necessarily impinge on social freedoms. Many western European economies have high tax and high government spending, but, citizens get a comprehensive welfare state, education and health care. Healthcare in particular is roughly half the cost of the U.S.' privatized system, and, uncontroversially, produces better outcomes.
• Austrians advocate a return to the deflationary bias of the Gold Standard. Political economist Mark Blythe says "You can either have the gold standard or democracy, not both." In any case, it's truly insane to tie the success of the economy to the output of its gold mines.
  
• Austrians suggest economies will recover from downturns without government intervention, but experience says leaving economic policy to market forces may means moving the economy back to full capacity takes a very long time. Therefore, Austrians' policy prescriptions for the Great Depression are considered to be ‘nihilistic’ because they advocated no government intervention. In effect, the Austrians have been shaping their political beliefs into economic policy.
• The Austrian model says consumption will rise in a recession. Actually, in a recession there is a powerful negative multiplier effect reducing output of all sectors.
• Even their ally, Milton Friedman, argues an examination of US data suggests the Austrian theories of credit cycles are wrong. Surprisingly, even Friedman advocates a basic income guarantee.

Given the sorry historical performance of such economic principles one has to ask why anyone would give these people credence, never mind the time of day. The answer is fairly simple, though: their recommendations give intellectual respectability to the plutocrats who profit from poison, counterfeiting and insecurity, among other things. 

The graph above shows that, generally speaking, the upper income brackets have profited most from the U.S. economy since 1980, as influenced by the MPS economists. The bar on the far right would be even taller if it were for the top 0.1%. Investigative reporter David Cay Johnstone notes that median, real income for the bottom 90% has increased all of $59 since 1972. If that $59 were an inch on a bar graph, the bar for the top 10% would be 141 feet tall. The bar for the top 0.1% would be five miles high.

The profit achieved by those top brackets gives them the resources to fund MPS and its allies, and the plutocrats have not stinted in doing so. For the 2016 election cycle alone, the Kochs spent $889 million. Their supposed "lefty" nemesis, George Soros, spent only $27 million. Soros, incidentally, is a fan of philosopher Karl Popper, and Popper was a founder of MPS. So, the spectrum of respectable public policy options has been narrowed tremendously. Even a capitalist's capitalist like currency speculator Soros is thought to be a lefty.

"Indeed, [Professor Tyler Cowen, the Holbert L. Harris Chair of Economics at
George Mason University and the partner with Charles Koch for two decades now in the
academic base camp of Koch’s political project, housed at George Mason University’s Mercatus Center] pointed out of the very few [what libertarians would call] success stories to date that 'in no case were reforms brought on by popular demand for market-oriented ideas.” More challenging still, the libertarian cause had run up against a persistent problem: it wanted a radical transformation that 'find[s] little or no support” in the electorate.'" (From Nancy MacLean's essay "'Since We Are Greatly Outnumbered':Why and How the Koch Network Uses Disinformation to Thwart Democracy" [pdf])

MacLean continues: "one thing is abundantly clear from the available evidence: operations funded by Koch and his wealthy allies through organizations such as Freedom Partners Chamber of Commerce and Donors Trust have relied on disinformation and manipulation to advance their agenda of radical transformation, leveraging the specter of a supposedly threatening “liberal elite” and strategic racism (what Ian Haney López calls “dog whistle politics”) to compensate for lack of persuasive evidence by inciting clannish responses.

"Indeed, after witnessing several years of the Tea Party doing precisely that, a Cato Institute
publication boasted of libertarians’ role in encouraging the cause and exulted that Tea Party
activism was pushing the GOP to become 'functionally libertarian.'"

So these conservative economists and philosophers have been successful beyond the dreams of avarice at least partly because they are willing to disseminate lies in service to their principles. In the U.S. they have whittled opponents down to a tiny remnant. Among other things, thanks to Koch money, any legislator who strays from the Republican party line can expect well-funded opposition in the next election.

This is a perilous course, if only because even well-regulated markets are very good at solving short-term, individual problems, but long-term, systemic problems remain inevitably unsolved. Unemployment, immigration, healthcare, infrastructure and the climate catastrophe barreling down the tracks toward us are a few examples. 

Humanity has been delusional enough to believe counter-factual information for literally millenia--the heliocentric solar system is common knowledge in the West only since the Renaissance. It's difficult to get out of a rut in thinking and perception. The propaganda narrative is very effective, and thanks to the Kochs, well-funded. But rude awakenings await those who believe this kind of sleep walking is a winning life strategy. Heck, closing one's eyes and stopping up one's ears isn't a good strategy to navigate the living room furniture.

Why Does Congress Fight Over Childcare But Not F-35s?

[via nakedcapitalism.com]

Yves Smith: Of course we know the answer to how Congress sets its priorities. No one wants to lose donations or cause their friends in Virginia to lose sleep wondering how they’ll pay for their kids’ college tuition. Even so, the New York Times has finally deigned to notice that the US is an outlier, in an obviously bad way, on childcare spending. Gee, one wonders why.

In fairness, this post gives useful detail on America’s over the top military spending and how it manages never to come up for debate. However, it unfortunately also takes up the balanced budget myth.

Why Does Congress Fight Over Childcare But Not F-35s?

By Medea Benjamin, cofounder of CODEPINK for Peace and author of several books, including Inside Iran: The Real History and Politics of the Islamic Republic of Iran and Nicolas J. S. Davies is an independent journalist, a researcher with CODEPINK and the author of Blood On Our Hands: the American Invasion and Destruction of Iraq

President Biden and the Democratic Congress are facing a crisis as the popular domestic agenda they ran on in the 2020 election is held hostage by two corporate Democratic Senators, fossil-fuel consigliere Joe Manchin and payday-lender favorite Kyrsten Sinema.

But the very week before the Dems’ $350 billion-per-year domestic package hit this wall of corporate money-bags, all but 38 House Democrats voted to hand over more than double that amount to the Pentagon. Senator Manchin has hypocritically described the domestic spending bill as “fiscal insanity,” but he has voted for a much larger Pentagon budget every year since 2016.

Real fiscal insanity is what Congress does year after year, taking most of its discretionary spending off the table and handing it over to the Pentagon before even considering the country’s urgent domestic needs. Maintaining this pattern, Congress just splashed out $12 billion for 85 more F-35 warplanes, 6 more than Trump bought last year, without debating the relative merits of buying more F-35s vs. investing $12 billion in education, healthcare, clean energy or fighting poverty.

The 2022 military spending bill (NDAA or National Defense Authorization Act) that passed the House on September 23 would hand a whopping $740 billion to the Pentagon and $38 billion to other departments (mainly the Department of Energy for nuclear weapons), for a total of $778 billion in military spending, a $37 billion increase over this year’s military budget. The Senate will soon debate its version of this bill—but don’t expect too much of a debate there either, as most senators are “yes men” when it comes to feeding the war machine.

Two House amendments to make modest cuts both failed: one by Rep. Sara Jacobs to strip $24 billion that was added to Biden’s budget request by the House Armed Services Committee; and another by Alexandria Ocasio-Cortez for an across-the-board10% cut(with exceptions for military pay and healthcare).

After adjusting for inflation, this enormous budget is comparable to the peak of Trump’s arms build-up in 2020, and is only 10% below th epost-WWII record set by Bush II in 2008 under cover of the wars in Iraq and Afghanistan. It would give Joe Biden the dubious distinction of being the fourth post-Cold War U.S. president to militarily outspend every Cold War president, from Truman to Bush I.

In effect, Biden and Congress are locking in the $100 billion per year arms build-up that Trump justified with his absurd claims that Obama’s record military spending had somehow depleted the military.

As with Biden’s failure to quickly rejoin the JCPOA with Iran, the time to act on cutting the military budget and reinvesting in domestic priorities was in the first weeks and months of his administration. His inaction on these issues, like his deportation of thousands of desperate asylum seekers, suggests that he is happier to continue Trump’s ultra-hawkish policies than he will publicly admit.

In 2019, the Program for Public Consultation at the University of Maryland conducted a study in which it briefed ordinary Americans on the federal budget deficit and asked them how they would address it. The average respondent favored cutting the deficit by $376 billion, mainly by raising taxes on the wealthy and corporations, but also by cutting an average of $51 billion from the military budget.

Even Republicans favored cutting $14 billion, while Democrats supported a much larger $100 billion cut. That would be more than the10% cut in the failed Ocasio-Cortez Amendment, which garnered support from only 86 Democratic Reps and was opposed by 126 Dems and every Republican.

Most of the Democrats who voted for amendments to reduce spending still voted to pass the bloated final bill. Only 38 Democrats were willing to vote against a $778 billion military spending bill that, once Veterans Affairs and other related expenses are included, would continue to consume over 60% of discretionary spending.

“How’re you going to pay for it?” clearly applies only to “money for people,” never to “money for war.” Rational policy making would require exactly the opposite approach. Money invested in education, healthcare and green energy is an investment in the future, while money for war offers little or no return on investment except to weapons makers and Pentagon contractors, as was the case with the $2.26 trillion the United States wasted on death and destruction in Afghanistan.

A study by the Political Economy Research Center at the University of Massachusetts found that military spending creates fewer jobs than almost any other form of government spending. It found that $1 billion invested in the military yields an average of 11,200 jobs, while the same amount invested in other areas yields: 26,700 jobs when invested in education; 17,200 in healthcare; 16,800 in the green economy; or 15,100 jobs in cash stimulus or welfare payments.

It is tragic that the only form of Keynesian stimulus that is uncontested in Washington is the least productive for Americans, as well as the most destructive for the other countries where the weapons are used. These irrational priorities seem to make no political sense for Democratic Members of Congress, whose grassroots voters would cut military spending by an average of $100 billion per year based on the Maryland poll.

So why is Congress so out of touch with the foreign policy desires of their constituents? It is well-documented that Members of Congress have more close contact with well-heeled campaign contributors and corporate lobbyists than with the working people who elect them, and that the “unwarranted influence” of Eisenhower’s infamous Military-Industrial Complex has become more entrenched and more insidious than ever, just as he feared.

The Military-Industrial Complex exploits flaws in what is at best a weak, quasi-democratic political system to defy the will of the public and spend more public money on weapons and armed forces than the world’s next 13 military powers. This is especially tragic at a time when the wars of mass destruction that have served as a pretext for wasting these resources for 20 years may finally, thankfully, be coming to an end.

The five largest U.S. arms manufacturers (Lockheed Martin, Boeing, Raytheon, Northrop Grumman and General Dynamics) account for 40% of the arms industry’s federal campaign contributions, and they have collectively received $2.2 trillion in Pentagon contracts since 2001 in return for those contributions. Altogether, 54% of military spending ends up in the accounts of corporate military contractors, earning them $8 trillion since 2001.

The House and Senate Armed Services Committees sit at the very center of the Military-Industrial Complex, and their senior members are the largest recipients of arms industry cash in Congress. So it is a dereliction of duty for their colleagues to rubber-stamp military spending bills on their say-so without serious, independent scrutiny.

The corporate consolidation, dumbing down and corruption of U.S. media and the isolation of the Washington “bubble” from the real world also play a role in Congress’s foreign policy disconnect.

There is another, little-discussed reason for the disconnect between what the public wants and how Congress votes, and that can be found in afascinating 2004 study by the Chicago Council on Foreign Relations titled “The Hall of Mirrors: Perceptions and Misperceptions in the Congressional Foreign Policy Process.”

The “Hall of Mirrors” study surprisingly found a broad consensus between the foreign policy views of lawmakers and the public, but that “in many cases Congress has voted in ways that are inconsistent with these consensus positions.”

The authors made a counter-intuitive discovery about the views of congressional staffers. “Curiously, staffers whose views were at odds with the majority of their constituents showed a strong bias toward assuming, incorrectly, that their constituents agreed with them,” the study found, “while staffers whose views were actually in accord with their constituents more often than not assumed this was not the case.”

This was particularly striking in the case of Democratic staffers, who were often convinced that their own liberal views placed them in a minority of the public when, in fact, most of their constituents shared the same views. Since congressional staffers are the primary advisors to members of Congress on legislative matters, these misperceptions play a unique role in Congress’s anti-democratic foreign policy.

Overall, on nine important foreign policy issues, an average of only 38% of congressional staffers could correctly identify whether a majority of the public supported or opposed a range of different policies they were asked about.

On the other side of the equation, the study found that “Americans’ assumptions about how their own member votes appear to be frequently incorrect … [I]n the absence of information, it appears that Americans tend to assume, often incorrectly, that their member is voting in ways that are consistent with how they would like their member to vote.”

It is not always easy for a member of the public to find out whether their Representative votes as they would like or not. News reports rarely discuss or link to actual roll-call votes, even though the Internet and the CongressionalClerk’s officemake it easier than ever to do so.

Civil society and activist groups publish more detailed voting records. Govtrack.uslets constituents sign up for emailed notifications of every single roll-call vote in Congress.Progressive Punchtracks votes and rates Reps on how often they vote for “progressive” positions, while issues-related activist groups track and report on bills they support, as CODEPINK does atCODEPINK Congress. Open Secretsenables the public to track money in politics and see how beholden their Representatives are to different corporate sectors and interest groups.

When Members of Congress come to Washington with little or no foreign policy experience, as many do, they must take the trouble to study hard from a wide range of sources, to seek foreign policy advice from outside the corrupt Military-Industrial Complex, which has brought us only endless war, and to listen to their constituents.

TheHall of Mirrorsstudy should be required reading for congressional staffers, and they should reflect on how they are personally and collectively prone to the misperceptions it revealed.

Members of the public should beware of assuming that their Representatives vote the way they want them to, and instead make serious efforts to find out how they really vote. They should contact their offices regularly to make their voices heard, and work with issues-related civil society groups to hold them accountable for their votes on issues they care about.

Looking forward to next year’s and future military budget fights, we must build a strong popular movement that rejects the flagrantly anti-democratic decision to transition from a brutal and bloody, self-perpetuating “war on terror” to an equally unnecessary and wasteful but even more dangerous arms race with Russia and China.

As some in Congress continue to ask how we can afford to take care of our children or ensure future life on this planet, progressives in Congress must not only call for taxing the rich but cutting the Pentagon–and not just in tweets or rhetorical flourishes, but in real policy.

While it may be too late to reverse course this year, they must stake out a line in the sand for next year’s military budget that reflects what the public desires and the world so desperately needs: to roll back the destructive, gargantuan war machine and to invest in healthcare and a livable climate, not bombs and F-35s.

Eeek! You can never be too safe!

The media critics at FAIR recently aired an answer to "copaganda"  (~28 minutes), the NY Times report (here and here) of  rising murder rates attributed to the "Ferguson Effect." This means the public's distrust of police means police withdraw from traditional crime prevention.

They interview the author of Usual Cruelty, Alex Karakastanis (of https://civilrightscorps.org/) who says the reporters are biased, and assert things fictional for many of their arguments. In effect, the Times is actually speculating there's a connection between police and murder rates. Murder rates far more often correlated with poverty, toxic masculinity--things not really connected with the police.

The truth: murder is at historic lows despite a recent upswing, perhaps more connected to COVID than policing. More police means less crime is a common meme, promoted by every mystery or crime procedural, but the truth is that police solve ~20% of crimes, and only ~2% of serious crime. Perry Mason they ain't.

Actually crime statistics are based on something the police define, and the published crime statistics  reflect that. For example, those statistics do not include police crime, wage theft (five times the reported robbery/burglary stats), clean water act violations, etc.

That the Times authors limit the debate to exclude lots of white collar crime and police crime--even poverty--makes it seem like there are really a narrow range of views. It's then possible to blame the victim, for example, asserting civil rights protests of police violence are to blame for rising crime rates.

Lately, bail reform (the "revolving jailhouse door") is blamed as adding to crime. Evidence is that detaining people who can't afford bail actually harms public safety, disrupting lives already on the brink, making crime, assault, murder, more likely. As Anatole France says: "The law in its magnificent equality forbids rich and poor alike from sleeping under bridges, begging in the street and stealing bread."