The Chicago School: Agree or Die

Whether you agree or disagree with Milton Friedman's brand of Laissez-Faire Capitalism one thing that should be pretty obvious is that major investors can see that if his policies were implemented this would really help their return rates. When Friedman joined the University of Chicago in the 40's his views weren't carrying the day. But when the richest people in the world like what they are hearing your chances of carrying the day improve.

Between 1957 and 1970 about 100 select students from Chile received their education from the University of Chicago under Friedman's tutelage. The Rockefeller Foundation, the US Government, and other groups with major corporate interests provided grants to fund it. These newly trained economists returned to Chile and ran the Economics Departments at their respective schools. They of course advanced Friedman's theories in hopes of changing minds. (Source for these claims is this excellent though lengthy article.)

The election of 1970 though made it appear that this effort was waste. The Socialist Salvador Allende was elected. The first year of his presidency saw a GNP increase of 8.9%. Unemployment fell from above 8% to 3.8%. Even inflation was coming down (scroll to the bottom of this article for my source).

Not only had the Chicago Boys failed to persuade, but Allende, who was their economic opposite, was having a lot of success. So pressure was applied to persuade the Chilean people that an Allende administration was not in their best interest. Nixon's famous orders were to "make the economy scream." Edward Korry, US Ambassador to Chile would say "not a nut or bolt will be allowed to reach Chile under Allende. Once Allende comes to power we shall do all within our power to condemn Chile and the Chileans to utmost deprivation and poverty, a policy designed for a long time to come to accelerate the hard features of a Communist society in Chile." In addition to economic warfare massive propaganda was implemented.

The US and corporate economic warfare did have some effect. Inflation soared. The mid term elections arrived in March 1973. The result? Allende gained seats in the legislature.

Persuasion, even via deception and trickery, still hadn't worked. So the next option was violence. On Septermber 11, 1973 the coup was initiated. Soon Salvador Allende was dead. Thousands of unhappy civilians were herded into the stadium. Military walked throughout the stands with hooded collaborators that would point out the various leftists. These people would be taken away and tortured. Dead bodies were strewn about the stadium. Concentration camps were set up throughout the country. Thousands were murdered.

The "pink" economists at the University of Chile, the ones the Chicago Boys were unable to defeat on the field of ideas, were fired. Andre Gundar Frank was one of the 100 students sent to study at the University of Chicago (**Correction on 4/20/12-Gundar Frank was not a Chilean Chicago Boy, but a German that was schooled at Chicago while Chilean Chicago Boys were being trained, and would later move to Chile to see what all the fuss was about.**), but he would later repudiate Friedman's teachings and write angry letters to his former dissertation superviser (see for instance here). He was fired, and would report that during the coup 6 students were shot on sight at the main entrance to the School of Economics as a lesson to the rest.

The military dictator, Pinochet, stocked his ranks with Chicago Boys, who implemented the policies they had learned. Despite the fact that US economic warfare immediately ceased the economy tanked. Friedman was flown in in 1975 with the economy a shambles to try and save them. His advice was to actually apply his free market principles more intensely. And so they did, slashing government expenditures even more and removing government imposed limitations. Unemployment soared, above 20%. Freer capital movements would lead to speculative bubbles not unlike our recent housing bubble. This produced a brief euphoria between 1979 and 1981. But in 1982 the bubble burst and the economy collapsed in ruins and had to be bailed out by the state.

The connection between violence and Friedman's so called "freedom" endorsing economic policies was not lost on many. One such person was Allende's former Ambassador the the US, Orlando Letelier. He made this connection and detailed the state of Chile's economy in this 1976 article for The Nation.

On month later he was assassinated in Washington DC. Three weeks later Friedman's Nobel Prize in Economics would be announced.

Machinery of Freedom: Tedious Work

The Socialist claims that Capitalism produces monotonous, mind destroying work. To this David Friedman replies as follows:

You object that capitalism works too well, that more efficient means of production drive out less efficient, leaving everyone with sterile and repetitive jobs in a soul-killing environment.

More efficient means of production do drive out less efficient means, but your definition of efficiency is too narrow. If under one arrangement a worker produces a dollar an hour more than under another, but the conditions are so much worse that he will gladly accept a wage of two dollars an hour less to work under the other, which is more efficient? For both the employer, who saves more on wages than he loses on production, and for the worker, the 'less productive' arrangement is the more efficient. The efficiency of capitalism takes account of nonmonetary as well as monetary costs and products.

Let's suppose that I build radios on an assembly line. Rather than having a single task on an assembly line, say driving 6 screws to secure a cover, I'd prefer to install the circuit boards, the display, the heat sink, the covers. Everything. Because it's less boring and improves my skills.

That will reduce output. But you can have that in Capitalism, says David Friedman, because if you are willing to accept lower wages profits can be sustained even with the reduced output.

But there's an important question Friedman hasn't asked. How much less in wages are required? Maybe I'd be willing to take a 20% reduction in wages for a 20% reduction in output. What if I had to take a 90% pay cut for a 20% reduction in output? What if the former is the case on Socialism and the later is the case on Capitalism? Then guess what? The Socialist criticism is spot on and Friedman has not rebutted it.

Take a look at Foxconn, which makes your ipad and iphone. Workers make about $17/day working 12 hour shifts. When wages are already a tiny portion of overall expenses it may not matter how much less you are willing to earn with wage labor. You could go from $17 to $0 and still see profits reduce.

Below I offer a hypothetical example under Capitalism. Investors want profits. They'll be happy to alter the work environment as long profits are sustained. So let's suppose we have 100 empolyees and they produce $500 in value each day. Let's assume their total compensation is $90/day. I have an assumed capital expense as well. Under those conditions you see $31K in profit per day. Click to enlarge.

To the right I have the same conditions except the work environment has been altered so the work is more interesting and total output decreases 20%. I assume a 10% reduction in capital expense because fewer material is used. Based on this I calculate the required wage rate in order to sustaine the $31K in profits. The wages must fall to zero. Also if the initial wage was lower than $90 paying $0 would not be low enough wages to sustain the $31K in profit. Capitalism does not permit a less monotonous reduced output work environment under these conditions.

Contrast with Socialism. I have the same initial conditions, but on Socialism there are no investors that are paid. The workers only are paid. Worker wages start much higher since the bulk of the money is not going to the investors. But to permit a 20% reduction in output in order to improve working conditions workers must be prepared to accept 22.5% less in income. Much more than they make even under monotonous Capitalist conditions, but still a sacrifice.


What you find if you increase the initial wage rate on Capitalism is that you don't necessarily have to go all the way down to $0 to sustain the payments to investors. But you still must accept a greater % reduction in wages on Capitalism than you would on Socialism.

Education in Finland

One of the reasons I home school is because I'm concerned that testing and competing will cause my children to view learning as a chore. I think when you learn because of external compulsion you can retain some of it, but when you are learning something because you want to learn it that's when real education is occurring. That internal motivation is what really produces achievement.

It looks like Finland takes a similar approach.

Laissez-Faire Capitalism in the Real World: Africa

Neoliberalism has become dominant since the collapse of the Bretton-Woods financial framework, which now means free movement of capital. It's hard to find a region of the world that has more closely followed the neoliberal recommendations than Africa. African countries have been completely dominated by the World Bank and IMF. These groups work in tandem and impose what are called "Structural Adjustment Programs" for targeted countries. "Markets in everything" is a right wing slogan and that's the core of neoliberal thinking. Not just labor and resources. Health, education. Even voting.

In the early 80's the World Bank and IMF successfully imposed on African countries a reduction in government expenditures for health, introducing fee based systems. Life expectancy collapsed in Africa like nowhere else. AIDS proliferation is a direct consequence of these measures. Africa accounts for 14.5% of the world population, but 72% of the AIDS deaths. Neoliberalism has destroyed higher education. Neoliberal policies have consistently attacked subsidy for eduction, requiring instead fee based policies. This has been totally ruinous to education, which is now only a rich family's prerogative. The same trend exists in the US as the same policies are implemented here.

A short overview of how it works in Africa here and a more lengthy talk here.

Another Bombshell from Scahill

You can either watch the corporate media and learn about how political leaders of one party have offended those that belong to the other party. Or you can watch real news from groups that do real journalism and you can learn about stories that actually matter.

Real journalists include people like Nir Rosen, who actually investigates what's happening in Iraq rather than embedding with the US military and looking only at what they want you to see. Jeremy Scahill recently revealed the existence of a CIA black site in Mogadishu. Glenn Greenwald was the one that broke the Bradley Manning torture story. And of course Julian Assange and his team at Wikileaks. More scoops there than you could probably count, but here's a sampling.

Scahill has done it again with his lead story in "The Nation". Why is President Obama Keeping a Journalist in Prison in Yemen? That's right. Human rights groups and press freedom groups have denounced the detention of a journalist in Yemen. In fact the puppet dictator in Yemen felt the pressure and was prepared to release him. Until Obama personally intervened. Scahill was interviewed on Democracy Now. You can watch that below.

Machinery of Freedom: Pollution

Give David Friedman a little credit for at least addressing pollution, an extremely difficult issue for Laissez-Faire capitalists. It reminds me of my days as an evangelical Christian. I was comfortable making certain arguments for Christianity. The resurrection of Jesus or the existence of God. One area where I was quite uncomfortable was evolution. The Christian rebuttals didn't sit well. They seemed convoluted. Looking back I can see that I found excuses for avoiding the issue. The same I think is true of conservatives and pollution. What can they possibly say? I found it was usually a quick reference to property rights and then try to change the subject. If you are conservative and trying to understand it you're left scratching your head a bit. I read Bjorn Lomborg's "The Skeptical Environmentalist" which is an enormous book that kind of re-assures the conservative. 600 pages to tell us "Don't worry about it." Sounds great. And now let's move on.

Friedman does offer the old "property rights" defense. "Just sue the polluters for the damages and recoup the costs." Ask the indigenous people of Ecuador how that's working out against Chevron. Enough said.

At the end of the section though Friedman does offer some plausible sounding mitigation. Let the government set a price for pollutants and just charge people. The more destruction the more you pay. Presumably you pay the amount required to reverse the damage. Sounds OK. We do this with cars. Your car causes damage to the roads, but that's not a cost that's reflected in the price you pay. It's an externality. So what do you do? You have a gas tax. Use that to reverse the damage. You know what I found interesting about that though is how similar that sounds to Al Gore and his supposedly evil carbon credits.

When conservatives talk about Al Gore and how he stands to profit from global warming legislation this is the first proof offered for why global warming "alarmism" is misplaced. "Global warming? That's just a scam so Al Gore can make money." Why the sudden skepticism about the pursuit of profits? Is there something wrong with making money?

Watch a BP commercial. They have this little green flower logo. In fact the whole company is associated with the color green. The commercials include lush rolling hills, fresh clean water, and smiling people. They are trying to give you the impression that they are all about helping the environment. Which of course is absurd. But it serves their profit motive. BP works with the American Petroleum Institute and Chamber of Commerce on propaganda campaigns to give you the impression that global warming is a liberal hoax. The reason they do that is obvious. Profits. This is blatant deception and an effort to appeal to your irrational tendencies to maximize profits. Right wingers never object to those efforts to pursue profits. It's only Al Gore. But Gore is offering a market based solution. You're supposed to not care if he's pursuing profits. If he gets a profit that's supposed to be his just reward for providing a service. Why do conservatives suddenly become so skeptical of the profit motive when it comes to helping the environment? This is David Friedman's solution for crying out loud.

It's kind of like the Heritage Foundation's health care solution back in the 90's. It's the foundation for Romney Care. Which is pretty much the same as Obama Care. Right wing solutions are fine. Until they are adopted by the left. Then they are awful.

Top Tier Politicians Commit Open Felonies Involving Terrorist Groups

You may not know this, but if you are in contact with certain democratically elected political parties in Gaza or Lebanon and you work on strategies of achieving their ends, such as recommending non-violent resistance, this can be considered material support for a terrorist group and is in fact a felony. I bet you can guess which kinds of people have been prosecuted under the statute that makes this behavior a crime. Pretty much all Muslims.

But the tables have turned a bit. It sounds like top tier politicians have acted as paid spokesmen for a group designated as a terrorist organization by the US State Department. This includes Ed Rendell, Howard Dean, Rudy Guiliani, and others. Glenn Greenwald has the details. The very same people that advocated these statutes now decry them when people notice that this crime applies to these powerful people.

I think I'll write to my Congressman and Senators about this. Here's what I'll say:

Senator/Congressman

In June 2010 the Supreme Court ruled in Holder vs Humanitarian Law that speech coordinated with and on behalf of a group designated by the US State Department as a terrorist organization was punishable as a felony. This could include discussions of non-violent strategies for achieving their ends. This is a heinous ruling. It's a repudiation of what I think is best about America: the protection the law affords us with regards to our expression.

Major political figures such as Howard Dean, Rudy Guiliani, and Ed Rendell appear to have violated this law by providing support for the MEK, an Iranian group designated by the US State Department as a terrorist organization. The details are here:

http://www.salon.com/2012/03/12/washingtons_high_powered_terrorist_supporters/singleton/

Currently only relatively powerless people (Muslims) have been prosecuted under this law. For our nation's laws to be applied only to the weak and powerless is a great injustice. Laws must be applied to all equally, weak and strong. I am writing to express my wish that you would apply pressure on the relevant authorities so that they will investigate these powerful individuals to determine if they are guilty of crimes. I don't want anyone to be prosecuted under this statute. But applying the statute to the weak only ensures that this heinous law will remain. If we apply it to the strong we'll finally hear objections voiced, and then it may change.

In addition to freedom of speech the other feature of the US legal system that used to make America stand out is equality under the law. That is being undermined today. The law is a respecter of persons. The powerful seem able to flout the law, while the weak suffer often without mercy. We need liberty and justice for ALL to return America to greatness.

Afghanistan

A US soldier has gone on a drunken rampage in Afghanistan, killing 16, nearly all women and children. This is on the heels of Quran burning and also urinating on dead Taliban fighters. I've actually read right wingers aggressively defending the burning and urinating. Republican Presidential candidates are attacking Obama for daring to apologize.

But this is happening despite that the American people overwhelmingly want the US military to leave Afghanistan as soon as possible. Why are we inflicting so much misery when the American people oppose?

Because imperialism is an essential feature of our economic arrangement, as explained by t at Pink Scare.

The Machinery of Freedom: Exploitation

The concept of capitalistic exploitation is straightforward. Investors get the bulk of the money and don't have to actually do anything, except hold stock. Workers produce the product, manage the company, distribute salaries, etc. Then the money left over, that is the profits, which today are at record levels for US companies, is sent to the investor that hasn't actually done anything.

Most people that earn money in this way also earn money through labor. But what we're talking about when we talk about exploitation is the money earned by capitalists as capitalists. The shareholders of Apple Computer aren't the Chinese children forced awake at the drop of a hat, possibly at midnight, to work shifts as long as 24 hours to make i-pads and i-phones. Those children don't share the profit. They just do the work. Their incredibly hard work is a major reason Apple's profits are so large.

That doesn't seem right prima facie. Friedman of course says it is. Why? Because of the time value of money. Acquisition of capital requires savings and investment. The investor is deferring consumption. That sacrifice is the value offered, and so that sacrifice is worthy of compensation.

It is not a matter of indifference to me whether I can buy a house for my family today or ten years from now. Nor is the ten years insignificant to the man who lends me the money now and expects to receive something in exchange. The Marxist is wrong to regard interest received by a capitalist or paid by a debtor to a creditor as stolen money. It is actually payment for value received.

Let's first note the formulation offered here. Savings and investment are necessary for acquisition of tools under the institution of private property. Under laissez-faire capitalism you need the investor. That's kind of like infecting a person with an illness and selling him the antidote and telling him he should be grateful to you because after all, he'd be dead without the antidote. Fine. But what about the illness? Friedman is presumably rebutting the socialist, like Marx. And yet Friedman takes it as a given that savings and investment are necessary for acquisition of the capital needed for production. That is not an assumption Marx will grant.

But what about this claim that deferred consumption is a sacrifice. This statement is true for a poor person. Deferring consumption is a real sacrifice for someone that is hungry or lacks shelter. But is it true for the 1%? That is, for the people that actually own the bulk of the stock? Take Mitt Romney. He's worth what? Hundreds of millions? That last million dollars could either be invested or he could build a house with it. Is he indifferent towards building a house? No, he's not indifferent. He actually prefers not to consume his savings right now. Deferring consumption is not a sacrifice. It's actually his preference.

I'm exactly the same. I have a 401k where I work. There's going to come a day when I won't be able to work any more due to age. So I want to have money for that time. If I could hold my savings in my hands would that do me any good? No. I don't want to spend that money. I prefer to consume in the future, not now. So Friedman is just factually wrong that my investment in stock right now is a sacrifice for me.

A better argument I think would be a comparative one. Friedman should try and argue that this arrangement produces better outcomes than any alternative. I don't think those arguments hold up, but I just think they have more potential than this. This is a moral argument that simply rests on a false assumption.

Global Warming Deniers Are Right About One Thing

Naomi Klein attended a right wing conference put on by the Heartland Institute that strives to blunt the efforts of those interested in countering global warming. She wrote about it in a cover story for The Nation here. She notes that many in the audience and the speakers seem to think the global warming movement is a leftist conspiracy to undermine capitalism. She comments on that:

The deniers did not decide that climate change is a left-wing conspiracy by uncovering some covert socialist plot. They arrived at this analysis by taking a hard look at what it would take to lower global emissions as drastically and as rapidly as climate science demands. They have concluded that this can be done only by radically reordering our economic and political systems in ways antithetical to their “free market” belief system. As British blogger and Heartland regular James Delingpole has pointed out, “Modern environmentalism successfully advances many of the causes dear to the left: redistribution of wealth, higher taxes, greater government intervention, regulation.” Heartland’s Bast puts it even more bluntly: For the left, “Climate change is the perfect thing…. It’s the reason why we should do everything [the left] wanted to do anyway.”

Here’s my inconvenient truth: they aren’t wrong. Before I go any further, let me be absolutely clear: as 97 percent of the world’s climate scientists attest, the Heartlanders are completely wrong about the science. The heat-trapping gases released into the atmosphere through the burning of fossil fuels are already causing temperatures to increase. If we are not on a radically different energy path by the end of this decade, we are in for a world of pain.

But when it comes to the real-world consequences of those scientific findings, specifically the kind of deep changes required not just to our energy consumption but to the underlying logic of our economic system, the crowd gathered at the Marriott Hotel may be in considerably less denial than a lot of professional environmentalists, the ones who paint a picture of global warming Armageddon, then assure us that we can avert catastrophe by buying “green” products and creating clever markets in pollution.

There's no conspiracy to impose Socialism on an unwilling population. But here's what is true. Capitalism is incapable of dealing with the crisis. So attempts to cope with global warming are a threat to Capitalism. In that the conspiracy theorists are correct.