Contra Bernanke

The politically astute Chairman Bernanke took to the editorial pages of DC's premier political organ to complain about political interference in our very political Federal Reserve System. With a piece worthy of both fine Wall Street PR and DC political class propaganda, the Chairman tells the American people, "Hands-off the Fed!" The Chairman repeats the now time-tested mantra that the Fed "avoided financial collapse last fall," though fails to confront the ways the Fed was culpable for the financial collapse, and there was no institution more singularly responsible for the financial crisis than the Fed. Yves Smith does some Fed accounting.

Now a few years back, it would seem fairly unseemly for a Fed chief to be in such a open political brawl, but that was before the era of Alan "Bubbles" Greenspan, who by the end of his term was pronouncing on pretty much everything under the sun. I think he even had his own line on Sunday football picks by the end. Of course, Mr. Greenspan's pronouncements were always to be problematic for his successors. He broke one of the cardinal rules of the temple, say little, keep an air of mystery. If the Fed became too familiar and everyone understood how banks operated, we'd all want to be bankers, and we can't all be bankers. At least that's one lesson we should have learned from the last couple decades.

Mr. Bernanke say he's worried about "short-term" political influence. Of course, he doesn't have to worry about long-term political influence. Such issues were taken-off the table with the founding of the Fed. All such issues involving the monetary policy of the United States were placed firmly in the hands of Wall Street and the banks, and outside of the 1930s, have rarely been challenged. In fact, Wall Street and the banks, with the Fed's very active political involvement, pushed last several decades of "financial innovations, which were all about taking-back the power forced from them during the 1930s. Mr. Bernanke has been very proud of his policies of trillions for Wall Street and the banks, and not a penny for mortgage modifications, that in a nutshell is the politics of the Fed.

There are other ways to conduct monetary policy, however you'd need a simultaneous discussion on what government is in the 21st century, but that's not forth coming either. In fact, after the nastiness of last fall, you know the panic of the global financial elite and that November election, it seems things are right back on course. This week we'll get an increase in troops in Afghanistan and the reappointment of Mr. Bernanke. If things keep going on the straight and narrow, we can start talking about how we're going to pay for all this, like cutting Social Security, that's change you can believe in.

make thee no molten idols

And the Lord said unto Moses, Go, get thee down;
For thy people, which thou broughtest out of the land of Egypt, have corrupted themselves:
They have turned aside quickly out of the way which I commanded them:
They have made them a molten calf, and have worshipped it.
Exodus 32:7-8

Well gold's rise has certainly been fascinating, if not irrational. Gold worship is not a universal trait of homo sapiens, though Western culture has certainly long been enamored. Gold has little intrinsic value, but you can hold it in your hand, and even more importantly it is shiny, and anyone who's played with an infant knows we do like shiny things. Yet many people, people who consider themselves serious, still believe we should tie the value of all money to gold. And as global currency markets become increasingly unstable, gold is still considered a "safe haven," because, well I guess because, you can hold it in your hand and it's shiny.

Whatever else one thinks about Keynes, his destruction of any rational notion behind the gold standard was quite complete. As he wrote in the 1920's, "In truth, the gold standard is already a barbarous relic." Yet, barbarism continually reasserts itself. While the economic value of gold is limited, its political power as a monetary standard can be quite high. Simply, gold is a relatively rare element, thus if you make it essential to all economic activity, those who control gold have inordinate power. Gold is an undemocratic monetary medium.

Now, the American monetary system today is fairly undemocratic. The banks remain the prime instruments of money creation and the Fed acts, or does not act as the case may be, as the unelected governor of this process. Now, it is true the government could simply print money, but this is basically frowned upon by the Lords of Finance who insist the money creation process be limited to the banks, and thus for the most part kept in their control. This process drives the even more aristocratic gold-bugs up crazy, they claim, "How can you simply create money out of thin air, everyone knows it needs to be mined! And well, while you can hold paper money, it's not shiny."

While you can fault the gold-bugs for their standard, the idea that money must be upheld to some sort of standard is not as easily dismissed. However, what that standard is or how it operates is certainly a difficult and essential question. For example, the for six decades, the US dollar has represented the standard of US global economic and military dominance. The underlying deterioration of this power in the last couple decades preceded the present questioning of the dollar's value. And as the United States is the foundation of the last decades corporate globalization experiment, it is not simply a questioning of American power, but of the entire globalization process.

Now one thing for sure, historically, times in which the reigning monetary standard come into question are turbulent. The most serious such period in American history was the Populist era -- the final stand of America's yeoman farmers. They had no love for the gold standard, banks, or Wall Street. They devised a very serious democratically controlled money process know as the sub-treasury system. Money creation would be predicated on crops, which not only you can grow and hold, but you can eat, though for the most part crops aren't shiny.

Our global monetary system is to say the least strained. Our government's policy is deliberately devaluing the dollar. They are unwittingly forcing a dialog on money itself. We should engage it.

Afghanistan and Taxes

For from the least to the greatest of them,
everyone is greedy for unjust gain;
and from prophet to priest,
everyone deals falsely.
-- Jermiah

Don't led it be said DC is completely devoid of truth, or that it cannot produce the occasional good idea. Case and point, Senator Carl Levin of Michigan states any troop increase in Afghanistan should be paid for with a tax increase. Now, there's not a good idea, but an essential one. Levin calls for a tax increase on the wealthiest and that's fine. The destruction of a progressive tax system over the last three decades has been the cause of tremendous mischief and misery. However, I disagree this particular tax should be unevenly divided, it needs to be shared by us all.

There is no greater decision for any democratic society than going to war and its burdens need to be shared by all. Of course America's misadventures in Afghanistan and Iraq have been anything but shared. The actual burden of fighting, that of life and limb, has been placed on an extremely small minority of the population and in the best of Wall Street accounting, much of the war's cost has been placed off the books. Conservative costs, such as they can be counted, amount to a trillion dollars to date. That's enough to plug every hole in every state and local government budget thrice over.

There's no greater argument against allowing DC to simply keep spending money than America's obscene military budget. At this point without some control of the budget, we have no control over the military. Wealth generation through conquest is much older than industrial economics, and in that traditional sense, the opening of Iraq's oil fields to "Big Oil" will return some dividends. However the costs are quite high for a nation that is now running our military on borrowed money. As Paul Kennedy showed in "The Rise and Fall of Great Powers, conquest needs return on investment. When empires get to the point they are going in ever increasing debt to pay for their military exploits it is soon unsustainable.

This is pre-industrial economics lesson for all those who say deficits do not matter. At some point they do. When? Well again the only answer to that is when they do. Our debt literally papers over the vast structural imbalances in the American economy and to keep simply pouring more money into these imbalances is insanity. So, as DC pushes for more troops to Afghanistan, it needs to be paid for by all of us. I suggest a $2 tax on gasoline.

Come Home America.

Interestinger and Interestinger

After 30 years of watching the global economy, the numbers that came across in the 4th quarter 08 and the first quarter 09 were unprecedented. I described them simply as "impressive." They represented a fundamental shift. If anything, it seemed the past would not be a very good map for the future. The US government's response to the situation has been both unprecedented and impressive, but it has unfortunately followed the same map that got us here. Various economic numbers continue to come in that are very "impressive,"-- off the map -- nonetheless, we're told the map is fine, we just need to continue further down the same path.

In the last couple days, the path has taken some new turns. The rate on three-month Treasuries has turned negative, meaning people are paying for the security of Treasury bills, raising questions about the global equity rally. Another interesting development is the Treasury announced it is selling the bank stock warrants it's held from their TARP program. Why not hold for when the banks stock rise even higher? While the president of the St. Louis Fed stated the Fed will not raise interest rates until 2012, which doesn't bode well for unemployment. Meanwhile, the Japanese confirmed they are once again gripped in deflation, while on our east-side the NYT speculates the Brits are in for a lost decade.

The financial and DC establishment are becoming increasingly nervous. David Brooks job at the NYT is to remind the political class not to take their political theater too seriously. They are in fact importantly united in preserving the status quo. So, as Mr. Geithner's position becomes more precarious, it is no surprise Mr. Brooks issues a full throated endorsement of Mr. Geithner.

At some point, it would seem we must embark on a new path.

An Idea to Make DC More Nervous

Greider has a piece in The Nation saying people in DC are beginning to jitter. Greider's not prone to irrational exuberance. He writes:

Welcome to Mardi Gras, Washington-style. It feels like carnival time, when up is down and down is up, when humble folks parade as kings and queens and the reigning royals are dressed as clowns. As someone who has written about these heretical ideas for decades, I feel a bit giddy at the opportunities for real change, though mindful that the anarchy may not last long.

Greider giddy? Well, the Post has a piece chronicling the nervous ticks appearing. The long knives are definitely being unsheathed for Mr. Geithner, and none too soon. During the campaign, Mr. Obama showed a good ability to lose underlings quickly if they were damaging, it's a trait that would serve him well now.

An Idea

Greider writes:

The center is not holding. That's good news for the Republic, because the center has long been subservient to the demands of financial power. Cynics will say this is a passing tempest that will come to nothing. They might be right. But reformers should make the most of it, at least to agitate the fears of elected politicians--including the president.

We need to make DC much, much, much more nervous. Here's a way to start. There's one issue that 263 Congresspeople and 20 Senators don't want to face next November, that's their vote for the $700 billion Wall Street Bailout last fall. You can follow the links above to see how your Congressperson or Senator voted. You can also go here to Open Secrets, plug in your elected officials name and see how much money they've received from Wall Street.

Then write an email to ten friends asking them to write ten friends saying our Congressperson or Senator voted for the Wall Street Bailout. We need to make them understand we will remember this when we vote next year in the primaries and general election. What needs to be done is get a buzz going in these districts and states loud enough for your elected official to hear in DC. A buzz that gets into the reptilian part of every elected officials brain. A buzz loud enough that makes them understand it doesn't matter how money they raise, they're going to lose votes. We are paying attention and a electoral buzz saw is coming their way.

Here is a sample email:

Dear Friend,

Wall Street received $700 billion from our Congress last year. Congressman Frank voted for the Wall Street Bailout. In the last election he received $350,000 from Wall Street and the banks in the last election. Barney's been in the Congress for 3 decades and that's too long.

The only way we're going to get needed change is if we get new faces in Congress. We need to let Congressman Frank know, we understand what he's done and is now doing, and WE ARE NOT GOING TO FORGET. It's time our elected officials started working for us and quit working for Wall Street.

Let's start by getting this message around, please write ten friends, relatives, or co-workers.

Thanks,
Citizen

The more agitation that can be created in the districts and states in the next few months, the greater chance something of value will be gained on financial reform. But, its probably going to take a lot of new faces in 2011 for things to really move.

Eyes on the Prize

The only thing we did was right
Was the day we started to fight
Keep your eyes on the prize hold on
-- Eyes on the Prize

Students Protest UC System Tuition Hikes

About 30 students stormed UCLA’s Campbell Hall and barricaded the doors with chains and bike locks early this morning to protest a student fee increase that is expected to be endorsed by the University of California’s Board of Regents today.

The UC Regents have started to meet, and hundreds of students have surrounded the building, protesting the proposed fee hike.

Students who spent the night were sprawled outside Campbell Hall in sleeping bags. They carried posters and signs that read, “Don’t take our education away” and “Don’t privatize, democratize.”

the price of water

John Henry told his captain
"Lord a man ain't noth' but a man
But before I let that steam drill
beat me down
I'm gonna die with a hammer
in my hand, Lord, Lord
I'll die with a hammer in my hand"
-- John Henry

In my years in politics, one thing I've learned is Americans have little knowledge of the essential elements necessary for modern life. By essential I mean, if you awoke in the morning and they weren't there, you'd know immediately. Of course, the most recent example is the financial system. To understand the depth of ignorance on this issue, I asked a very knowledgeable friend the other day, "What percentage of economists do you think know how the financial system works?" He replied, "Three percent. Well, maybe five." I'd say three is probably right. Energy is another issue no one understands. If tomorrow there was no gasoline, electricity, or natural gas, you'd know immediately, but no one knows how these systems work. And then there is water. No money, no energy, you might get by, but no water, no life.

When I moved to California in 1987, it was the beginning of a five year drought. During the drought's last two years, I did some water politics, and water politics in California, actually in the entire American West, has long been contentious and important. Water politics were once a very public affair, for example, there was a shooting war about water in the Owens Valley at the beginning of the 20th century. Farmers fought to keep Los Angeles from stealing their water(check out Mark Reisner's exceptional history of water in the West, "Cadillac Desert"). However over time, water became the concern of only a very few. Increasingly, these issues of tremendous power and necessity were decided with little public input.

Today, Alternet has a really excellent piece on the last 15 years of water politics in California. It's an important piece not just on water, but on the last three decades politics of financialization. Water, it was advocated and instituted, could best be delivered through the profiteering of private middlemen. Enron played a big role in this, which is important because every act of criminality we've seen in the past couple years in the financial sector, had been exposed in the Enron fiasco six years previously. Wall Street is smack dab in the middle of everything.

In the last three years, California is in another cyclical dry spell, but now there's another seven million people here. The political class, subservient to financial and corporate interests, is pushing the same old solutions. The Governor is pushing more dams and the Peripheral canal, a giant water diversion around the Sacramento Delta to bring water to California's desert south. This is the same-old industrial era thinking, the idea the earth's resources are infinite. It has sown ecological destruction across the planet. For example in California, a century of water policy has destroyed its once bountiful salmon fisheries, decimating a once important food source.

California has enough water, but it needs to use it differently. We need to drip irrigate our agriculture system and recycle our urban "waste" water. But to do this, we need a different mindset and we need to break the power of California's entrenched interests. We don't need more financialization or industrial thinking, we need to revive our politics. In California, this can be started by reviving the state's hundreds of elected local water districts. The first step, getting Californians to know the water districts even exist.

California's water politics are a microcosm of the United States political problems. The only way we will get needed reform is by first breaking-up the power of entrenched interests. The advantage we have is the American republican system. We don't need to recreate it, so much as revive it. But to do that we must change our own thinking and our actions. We can't just be producers and consumers, we must be citizens.

Understanding the Debt Cycle

Hyman Minsky was an important figure in understanding debt and the economy. Steve Keen has studied his work and has a good talk on understanding what's happening(tx credit writedowns):

Good Idea(s)

An idea has sprouted which is both good and important. It's being dubbed "cash for caulkers,"(tx calculated risk) and simply means the government should on a mass scale be spending money weatherizing buildings, making them more energy efficient. This would be a nice "jobs stimulus" program. It is good for both the economy and the environment. However dig a little deeper and it reveals the underlying transformation our economy is going to have to go through in the next couple decades. It is this underlying transformation that needs to be understood as the foundation for all government action in helping the economy.

We need to transform our industrial economic growth model to a redistribution model. This is based on several simple facts our industrial economics have failed badly in accounting. First and foremost, the planet has a oil supply problem. The era of cheap oil is over and the 20th century industrial economic model, especially the American version, is based on cheap oil. Secondly, we are facing resource constraints in other sectors, most notably water, quality farmland, and other natural resources. Finally, we have seriously degraded many of the planet's natural systems, from which not simply industrial society, but human society itself has sprung.

The most important step the government can take is retooling our energy system and that must be done from the ground-up. This will not be so much a wealth creation process, as a wealth redistribution process. For example, we need to change our transportation system and that means one thing -- less cars. It means more trains, more buses, more biking, and more walking. We must take wealth from our automobile and streets industry, and redistribute it to trains, buses, biking, and redesigning our communities to be less car-centric and more walkable. Another example is the electric industry. We need to redistribute wealth from the centralized fossil fuel generation utility model to a more distributed renewable energy generation model, that is information and communication rich, and focuses not on using more energy, but less.

Now this is why the cash for caulkers idea is a good one and "cash for clunkers" was a travesty. Cash for caulkers is about redistribution economics, cash for clunkers is about old industrial growth economics. But this gets to a fundamental problem of our politics. Washington DC is controlled by the entrenched interests of the old model. Each penny we spend on the old model at best keeps us treading water, but mostly sinks us deeper.

It's important to understand this is not the 1930s, and more important to understand the Washington DC of 2009 is not the Washington DC of 1933. DC is a pretty corrupt and inefficient place and unlike the 1930s, the American economy doesn't need industrial growth as much as redistributed efficiency. Today, launching what might be considered the equivalent of the New Deal Tennessee Vally Authority requires taking on established electric interests and redistributing that wealth to small businesses, homeowners, and local municipalities. It's a different model. It's a different politics. It's a different economics.

Another idea we should borrow from the 30s is that of Reconstruction Finance Corporation, which was used by the government to lend money directly for development when the banks couldn't or wouldn't -- the same situation we face today. However, while legislated in DC, a new RFC's power instead of being concentrated in DC, needs to be distributed mostly to local governments. How exactly that works, we need to figure out, and no doubt it's going to take a little experimentation.

The world has changed, if it hasn't changed for you, don't worry it will. We have to undertake some fundamental restructuring of our political economy. We can live better than we do now, but it will be different and it's definitely going to require all our participation.

Magnanimous, ain't they?

Goldman Sachs announced it was giving the little folks $500 million spread over five years, because as CEO Lloyd Blankfein says, "We participated in things that were clearly wrong and have reason to regret,” and...wait for it.... “We apologise." If only all the boys sitting behind bars for sticking up a 7-11 knew all they had to do was apologize and give back a pittance of that they stole. All would be forgiven.

The FT states the 500 million to be tithed to small businesses is "2.3 per cent of its estimated bonus and salary pool for 2009" and the yearly amount "is equivalent to a good trading day at Goldman. In the third quarter, the bank had 36 days in which traders made more than $100m." What would the small business person do without its Wall Street benefactors?

Last fall, Goldman was "gifted" $14 billion from the American taxpayer with the Fed and Treasury's fraudulent payment of AIG's worthless derivatives. I wonder if that what Mr. Blankfein means by they "participated in things that were clearly wrong and have reason to regret," or maybe that's something else? But a tithe is supposed to be ten percent, so they're about billion short. Better, if they were made to payback the entire 14 billion and broke into a couple dozen pieces..

on money and china

SIGTARP, the Special Inspector General for TARP, who is supposedly charged to make sure your tax dollars going to the banks aren't wasted, which is funny in itself, released their first report, which is a joke in itself. The report basically says the New York Fed under Mr. Geithner was basically played by the banks in the money paid through AIG. Of course, that's not really true, AIG was simply used to funnel money into the banks, that was without a doubt always the idea. Whether you think that was criminal or in the public interest, well it was criminal. Yves Smith has a longer take down.

Of course this all plays into the growing global currency hoedown. The debate about who is beggaring thy neighbor is growing louder. Marshall Auerback has a piece at ND 2.0 entitled, Should America Kowtow to China. It's an unfortunate title, though accurate for the piece's tone, nonetheless it has some interesting bits on monetary history and thought of the 20th century. China and US at this point are tied at the hip, like it or not. More importantly, it is has been Wall Street and American mega-corporations that have profited from the past two decades of Chinese industrialization as much as anyone. It's their model, I would argue, the Chinese have mistakenly adopted.

The talk of China as a "major power" is greatly misconstrued. It is a very unstable society at this point, which is par for the course historically for the process of industrialization. China still has 800 million people who are subsistence farmers, that's almost three times the population of the US. As far as industrial development, China is more in the position the US was in the 1930s and Franklin Roosevelt depreciated the dollar. Asking the Chinese now to raise the Yuan is to say the least problematic, as Gary Shilling points out over capacity is endemic and growing. China could be the next big leg down, and who knows what that will mean?

All the money the Fed has pumped into the banks, propping up the real estate market, zero interest rates, and deficits have let the markets play with the dollar. The dollar as reserve currency has in certain respects the same role gold played under the gold standard. The dollar standard is being undermined, but not simply by the moves of the Fed and treasury of the last two years, but just as much by our mega-corporations' and Wall Street's deindustrialization policies of the past four decades. The dollar still represents the largest manufacturing and military power on the globe, but it is a power much decreased from just three decades ago. We need to rethink the global financial system.

The United States has 5% of the world's population and we use 25% of the world's resources. If 3/4 of the Chinese used oil at the same per capita rate as the United States, there wouldn't be a drop for anyone else. This is unsustainable. The old order is shaking and we need to go through some serious restructuring both here and globally. A restructuring that is going to take some time. For example, why should the Chinese be exporting anything? 20th century industrial-market thinking is not going to get us anywhere. You can't have a Banana Republic financial system and then act like you can throw your weight around. If Americans want to stand up to somebody, let's start with Wall Street and our mega-corporations.

on civil liberties and occupations

I have a grudging like for Pat Buchanan. I disagree with him on many many issues, but there's a few, most notably the concentration of economic power in this republic, that I stand beside him. In '92, when I was with Jerry Brown in New Hampshire, I met Buchanan on the streets of Concorde, which was having an evening winter parade -- an idea of winter fun in the frozen north. I was literally pushed up against him at the start of the parade. Realizing it was him, I grabbed him and said, "Hey Pat, here's Jerry." He grabbed Jerry's hand and with the biggest shit eating grin said, "Give em hell, Jerry." Buchanan has a love for politics and he played no small role in ending the career of H.W Bush, for which we all should be grateful. That should have been the end of the Bush dynasty, except you can never underestimate Democratic incompetence.

Buchanan is also a tremendous hack and it shows in his most recent piece, "Is America At War?" The short answer to that is no. Mr. Buchanan's piece is boilerplate Cheney scare tactics that kept the Democrats cowering for eight years and the populous frightened. Now, they're trying to use the Obama administration's correct decision to try Kalid Shiek Mohammed in a New York court. That is an excellent decision by the Obama administration and needs to be supported by all. Most importantly, it gives Mr. Obama the opportunity to show some fortitude in defending basic essential principles of this republic which have been trampled upon the last couple decades and took an even darker turn under Bush/Cheney. Mr. Obama stands rightly and firmly on the side of civil rights gained since the Magna Carta. He can unabashedly support both the rule of law and his faith in the American people.

It's an unfortunate and too common hack attack by Mr. Buchanan, who knows these issues, and in 2003 was an eloquent and prescient opponent of the Iraq occupation. What the piece reveals is the desperation of the Republican establishment. Their base is in economic turmoil and their grasping at whatever they can to try and keep what's left from flying to pieces. Buchanan would do better grabbing his pitchfork and working to bring the troops back from places they should have never been sent. Occupation is not war.

Meredith Whitney on Banks

Krugmanism, Jobs, and Heresy

Today, what can be called acceptable alternative economic thought might be deemed "Krugmanism," which is not much of an alternative, and more importantly a very thin weak reed to hang anything, particularly any political economy reform effort. In reality, Krugmanism is ruling neo-liberal market doctrine with a slight tip to reality that government may indeed have some useful role in the economy. That it is considered in any way economic opposition only shows how far the extremism of mega-corporate laissez faire has been taken in the last three decades. Krugmanism is neither an alternative or a solution, it's established orthodoxy.

Of course the founder of Krugmanism is Nobel Laureate and New York Times political hack Paul Krugman. In truth, Mr. Krugman is a promoter and advocate of the economic status quo, but he writes nasty things about Republicans and says the federal government should spend more money, so that makes him a darling of some parts of the Democratic side of our political class. Mr. Krugman came to this position by promoting theories of and being a lap-dog for our half-century experiment with corporate globalization. He has at times stumbled on some insights, his most important in a 1997 article where he states a fundamental truth about economics:

Economic theory...is a menagerie of thought experiments--parables, if you like--that are intended to capture the logic of economic processes in a simplified way. In the end, of course, ideas must be tested against the facts. But even to know what facts are relevant, you must play with those ideas in hypothetical settings.

In other words you pick your facts and set up fairylands to prove your argument...some science! Mr. Krugman was awarded his Nobel based on some theories about trade, economies of scale, and economic geography, which are basically stories -- parables if you like -- though Mr. Krugman uses equations too, which make his parables even more scientific! OK, I'm digressing way too deep into labyrinth of the priesthood -- abandon hope all ye who enter -- so, let me extricate.

Let's focus in Krugmanism as policy. This is important now because Mr. Krugman will be advocating for more stimulus, though this time it's going to be called a "Jobs Bill." This is a band-aid and does nothing about the more serious structural problems we face. It's not a solution. For Democrats, the biggest immediate concern is that attention, the little there is, on financial reform will be turned to an argument on the deficit, one the Democrats will lose. For proof, just look at Mr. Krugman himself, who after his dinner with Mr. Obama in the spring, has pretty much written nothing about financial reform and instead written a plethora of articles on health care.

Today, in promoting his new "Jobs Bill," Mr. Krugman brings his hack skills to the global stage, writing a currency piece claiming the Chinese are practicing "beggar thy neighbor" policies in regards to depreciating their currency. Of course, in reality not parables, the US is leading the way in currency depreciation. More importantly, it seems Professor Krugman didn't get the memo from Professor Bernanke that currency depreciation is not beggar thy neighbor. That is so 1930's thinking! Today, currency deprecation is monetary solution. And wasn't it rude of China's chief banking regulator, upon Mr. Obama's arrival, to point out Ben's Bet was leading to "speculative investment in stock and property markets and will pose new, real and insurmountable risks to the global recovery and particularly to the recovery in emerging markets." He didn't get the memo either.

We've now moved the two and half decades American financial bubble into the dollar and thus across the entire global currency market. We need much better thinking on this than a "Jobs Bill." In fact we need to understand the industrial economic model is facing serious failure, from an oil supply problem, resource constraints, and environmental degradation. The US is not going to produce and consume our way out of this problem. We need to redefine the job, not simply create more of them. We need to cut the work week, produce less, and consume less. It actually can be better if we start disregarding a few parables. Mr. Krugman will scream heresy.

Profile(s) In Courage

I got Soul, I'm Superbad
Living in America sure does drive you Mad

It's a man's, man's man's world in America
Jump back in my cell

please please please in America
Slipping into Hell
-- James Brown - Big Audio Dynamite

Like a needed gulp of air for a drowning individual, Afghanistan ambassador Karl Eikenberry's opposition to increasing US forces rose above the headlines. It is even more helpful because Mr. Eikenberry was a former commander in Afghanistan. Mr. Eikenberry's position is courageous and unfortunately far too rare in the go-along to get-along atmosphere that pervades DC. In a time, where the first imperative for American military activities is manufactured consensus of the foreign policy establishment, military, political class, and the corporate media, Mr. Eikenberry's advise should not be taken lightly, especially by Mr. Obama.

Mr. Obama was boxed-in early on Afghanistan by America's foreign policy establishment. He came out against the continuation of the Iraq occupation, but simultaneously backed the continued occupation of Afghanistan. This had become the consensus of a certain Democratic arm of the foreign policy establishment, though the division between the Dems and Reps is minute on most such matters. This consensus was formed during the 2004 Dean campaign. Dean's 2003 catapult to the top based on opposition to Iraq, unnerved many of those residing or wishing to reside in Foggy Bottom. Those of ambition in the foreign policy establishment, who glommed onto the campaign, developed the position, "Well, we can be against Iraq, but Afghanistan is the good war."

There's a lot of frightening elements in DC these days, but none more so than our foreign policy establishment. In the Dean campaign, I was tasked with cobbling together his major foreign policy address, to "make him look presidential" in the hack sense. Now in American presidential politics, the simplest element to this process is to make sure everyone understands the future president would not hesitate to kill. Our foreign policy establishment is comprised of such men and women, who share a stifling provincial, insular, and chauvinistic world view. Not quite what you'd expect to find at the pinnacle of the greatest power in world history is it? I distinctly remember the end of the first conference call with a half dozen members of the Democratic foreign policy "elite." At the end of the call, I walked into Trippi's office, collapsed on a chair and said, "That's the god damned scariest phone call I've ever had. We're working to put these folks into power?"

So, I understand where Mr. Obama has come from on this, but more importantly is the position where he now sits. At times in history, individuals are in positions where their actions can alter its course. In matters such as health care reform, financial reform, and the economy, the president's power is limited. The congress legislates, the president is charged with execution. However, in matters of foreign policy and particularly military affairs, the Congress long ago abdicated their constitutional power to their presidency. Mr. Obama can, individually, act on what he knows, Afghanistan is a failed occupation, the sooner America leaves, the better for all concerned.

Politically, pulling out of Afghanistan will cost Mr. Obama nothing. Only the foreign policy establishment and much of the corporate media will cry foul. The majority of American people will back the decision, and it is obvious from Mr. Eickenberry's position, the military itself is split. Most importantly, pulling out of Afghanistan will be the catalyst for the much other needed change the United States must effect both abroad and at home -- the Obama election mandate.

Mr. Obama's decision comes with the 20th anniversary of the fall of the Berlin Wall. There, Mr. Obama has his precedent with Mr. Gorbachev, the last man to pull-out of Afghanistan. Yet, the Afghanistan pull-out is not Mikhail Gorbachev's great legacy to the world. It is a far greater lesson and more acutely relevant for Mr. Obama and America. In his recent interview with The Nation, Mr. Gorbachev reveals this on the ground fact as the Wall fell, "In East Germany alone there were more than 300,000 Soviet troops armed to the teeth--elite troops, specially selected!" One call from the Kremlin, one word from the man atop the Soviet Union, and the wall certainly wouldn't have fallen at that time. Who knows what the world would be like today?

Such is the position Mr. Obama finds himself today. Declining troop increases and definitively declaring the movement toward the end of American occupation would take plenty of courage, and no doubt a little necessary desperation.

Happy 10th Anniversary Repeal of Glass-Steagall!

Ten years ago today, President Clinton signed, Gramm-Leach-Biley, better known as repeal of Glass-Steagall. Another gift from the Clinton era that keeps on giving. Glass-Steagall had been one of the most important New Deal banking reforms. For over six decades, it helped keep financial stability by separating commercial and investment banking. It was simple and effective.

But the Go-Go 90s was the era of "financial innovation" and the monster of financial innovation was Citi. Sandy Weill was at the top of his game and working with Treasury Secretary Rubin, Fed Chair Alan Greenspan, Larry Summers, and no doubt Tim Geithner was there somewhere. They were all so innovative that they ran right over the established law that was Glass Steagall.

In part, Gramm-Leach-Biley was passed to make the monstrosity Citi had become legal. If you were paying attention last year as the govenment was handing out the bailouts, the most painful groan occurred from those understanding the history when Citi wallowed up to the government trough. Goldman may be the vampire squid, but Citi is the pig of pigs.

All Clinton's so-called regulators had been in cahoots trashing the rules they were supposed to be enforcing. In an NYT interview a few months back, Mr. Clinton denies the repeal of Glass-Steagall had much to with our financial meltdown saying, "You could say that the signing of that legislation sped up what was happening anyway..." You still got it Bubba! That's what you say when your regulators were greatly responsible for "what was happening anyway."

The repeal of Glass-Steagall won by an impressive margin in the House of 362 - 57, including 155 Democrats. But in that august institution of the Senate, which we're told protects us from the whims of the rabble, the repeal passed 90 - 8. Most amusing was the Titan of the Senate, Mr. Gramm, who at the signing stated,

Abraham Lincoln used to like to use the analogy that old and outmoded laws need to be changed because it made about as much sense to continue to impose them on people as it did to ask a man to wear the same clothes he did when he was a child.

Well, you don't need to win any history contests to be in the Senate. The quote is actually bastardization of two thoughts from the third president of the United States, Thomas Jefferson. Mr Jefferson wrote:

"We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors."

"I know also that the laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed and enlightened as new discoveries are made, new truths disclosed, and manners and opinions change with the change of circumstances, institutions must advance and keep pace with the times."

Important thoughts, considering ten years later we can't even come close to simply reviving Glass-Steagall.

Ben's Bet

I was recently reading some economic material on the Depression of the 30s trying to figure out what Ben's bet of the dollar means for the global economy. I began to worry my memory was faulty, an occurrence of greater frequency these days. However, on this matter, it wasn't my memory. Instead, I discovered "revisionist history" had occurred, and this makes me even more nervous about Ben's bet.

The matter I researched was the "beggar thy neighbor" policies of the 30s, where countries enacted trade tariffs, import restrictions, and currency depreciations in the fight against economic contraction. I had understood currency depreciation to be an important aspect of beggar thy neighbor policies. In the early 30s, a number of countries raced to devalue their currencies for export advantage, only aggravating global deflationary movements. However, I found Micheal Pettis, who has some interesting insights on China, had linked to a paper being touted by the National Bureau of Economic Research entitled, "The Roots of Protectionism." The abstract states:

Thus, the 1930s' rush to protectionism was not so much a triumph of special-interest politics as it was a result of second-best macroeconomic policies, the authors write. Their study "suggests that had more countries been willing to abandon the gold standard and use monetary policy to counter the slump, fewer would have been driven to impose trade restrictions."

So, there it was. As monetary theory ascended, history was rewritten or revised accordingly. Currency depreciation moved from the "beggar thy neighbor" problem column, onto the monetary solution part of the ledger. So, I thought, "This is what wily old Ben is thinking." I went and looked up Mr. Bernanke's "Essays on the Great Depression," and in chapter-three(page 78), Mr. Bernanke writes:

Eichengreen and Sachs(1985) similarly focused on the beneficial effects of currency depreciation(i.e., abandonment of the gold standard or devaluation). For a sample of ten European countries, they showed that depreciating countries enjoyed faster growth of exports and industrial production, than countries which did not depreciate. Depreciating countries also experienced lower real wages and greater profitability, which presumably helped to increase production. Eichengreen and Sachs argued that depreciation, in this context, should not necessarily be thought of as a "beggar they neighbor" policy; because depreciations reduce constraints on the growth of world money supplies, they may have conferred benefits abroad as well as home(although a coordinated depreciation presumbly would have been better than the uncoordinated sequence of depreciations that in fact took place).

Professor Bernanke writes:

If monetary contraction propagated by the gold standard was the source of the worldwide deflation and depression, then countries abandoning the gold standard(or never adopting it) should have avoided much of the deflationary pressure. This seems to be the case.

"This seems to be the case." Now there's scientific rigor. Why such a hedge? Because data from the 30s, particularly worldwide is notoriously sketchy, as Bernanke writes further down, "We included countries for which the League of Nations collected reasonably complete data on industrial production, price levels, and money supplies." Hey-ho - "reasonably complete data," good enough for the science of economics.

Both Professor Eichengreen and Professor Bernanke state the data show countries which abandoned the gold standard, that is depreciated their currencies, were the first to mitigate deflationary problems. First, the data remains at best sketchy to come up with any grand conclusions, and in fact if it is of value, proves "beggar thy neighbor" worked -- if you acted first.

Secondly, even if the data is of much value, the Professors, looking to prove the case of a monetary hammer for pounding all economic nails, at best commit the eternal freshman mistake of correlation as causation. The "money shot" is then Professor Bernanke's conclusion:

The expected differences in the monetary policies of the gold and non-gold countries seem to be in the data, although somewhat less clearly than we had anticipated.

In summary, data from our sample of twenty-four countries support the view that there was a strong link between adherence to the gold standard and the severity of both deflation and depression. The data are also consistent with the hypothesis that increased freedom to engage in monetary expansion was a reason for the better performance of countries leaving the gold standard early in the 1930s, although evidence in this case is a bit less clear-cut.

There's the golden words of economics -- "seem to be in the data," -- even better, "although the evidence in this case is a bit less clear-cut." Good enough evidence for now Chairman Bernanke to bet the dollar like some drunken sailor at the roulette table, "It's been black four times in a row, 'seems to be' red is now inevitable. Bet the wad!" And that's what we're doing.

Now, I'm not making an argument that getting off the gold standard wasn't helpful. What I'm questioning is the value of a coordinated global currency deprecation. Mr. Bernanke's monetary policy of depreciating the dollar, classic beggar thy neighbor, is hurting exporting nations not pegged to the dollar. East Asian countries intervened in currency markets a few weeks ago to try and keep the dollar up, and the dollar's weakness continues to impact Euro-zone exports. As the dollar is the equivalent of the gold standard today, we are not depreciating just currency, but the standard itself. Despite all worrying about the dollar, what we are seeing is the Fed Chairman trying to instill his theorized policies prescriptions for the 1930s of "coordinated depreciation." Mr. Bernanke, it would seem, is trying to force currency depreciations across the board to prove his theory "a coordinated depreciation presumably would have been better."

Monetarists' theory was behind this financial crisis, a belief in what Professor Eichengreen calls, "the self-equilibrating tendencies of the market." Phew -- "self-equilibrating." In the 30s that would have been known as a ten-cent word, it's a belief today that has cost us tens of trillions, and counting. the The financial crisis was proof of the fallacy of much of theory at the foundation of monetarism and other market theory, the idea it's going to get us out of the mess seems incredulous. We're in the hands of academics trying to bend reality to their theories. Place your bets, Professor Chairman Ben has made his.

The Oil Yoke

I've put forth the idea for a couple years that the American and the global economies have entered an era where oil has become a yoke on future growth. The American economy and the corporate globalization experiment of the last several decades are dependent not just on oil, but cheap oil. I have roughly calculated that the American economy, and thus corporate globalization cannot run well on $80 or above a barrel.

The FT has a good piece on how longer dated oil futures have risen to a hundred dollars. It also states the Henry Kissinger founded International Energy Agency, "the rich countries’ watchdog, has admitted for the first time that the spike in prices last year played a significant role in tipping the world economy into recession."

The oil yoke calls into question many of the planet's current economic paths. Most importantly, the simplistic stimulus notions of pumping up the oil dependent American economic status quo, though more importantly the path the Chinese have taken. I'm not sure the stimulus efforts of the Chinese, which have boosted auto sales to a million a month is much to celebrate.

Twilight of the Economists

Or How to do Political Economy with a Hammer(apologies F.N.)

I've understood for a long time why people don't read economics or the financial press. I do it simply because it is the philosophy of contemporary America's power structure, and if you believe we need to change our ways, we're going to have to change the power structure. What our modern theology of economics has done best is erase any notion of power from it's tablets of laws. Across the ages, this is always job one of any successful power structure, eliminate, as best can be done, questions of power. This is most traditionally accomplished by instilling the idea the system's fundamental constructs are a priori, bestowed from somewhere above. We humans seem easily seduced by such notions.

Nonetheless, over the course of time, all human power arrangements meet challenges, many of their own making, and the philosophy and myths which have grown as the rationalizations of power suddenly lose their legitimacy. The system's underlying power reality becomes nakedly obvious, that is, for any who want to look. Such has been the situation of the financial crisis in the last two years. It doesn't matter what any economists says about this or that economic law, or what this equation shows, we have seen a very oligarchic financial sector cling to power by extorting trillions of dollars of taxpayer money using a compliant, no, a subservient political class.

We are in the midst of a Wizard of Oz moment. The financial crisis is Toto and it has pulled the curtain back for us all to see. The boys in the financial sector, the political class, and the economic priesthood from Paul Krugman to Alan Greenspan are furiously pumping out more smoke, thunder, everything they can manage, while shouting, "Pay no attention to that man behind the curtain." It's working to a degree, but there's great problems in the Emerald City.

There are two simple things that need to be done. First and foremost, the financial sector of the US economy needs to be at the very least cut by half, two thirds better yet. We can start by getting rid of derivatives, they serve no purpose, they are parasitic. Yves Smith has taken up the call on this and it needs support. To show how difficult to simply make this happen in "DC corrupt," Rob Johnson's, former economist for the Senate Banking Committee, testimony was in a Stalinesque manner disappeared from the record of that great progressive Barney Frank's committee.

Truth is, derivatives are small potatoes in the economic power game. The real load-stone of power, like Yahweh in the Old Testament, whose name shall go unuttered is the American empire. Actively occupying Afghanistan, Iraq, bases in Germany, Italy, Japan, and many other countries, the American empire is part of no modern economic equation. Accruing wealth through conquest might be older than markets themselves, both have prehistoric roots.

What is the value of empire to the American economy, in one word, large. Much larger than any economists' equation. Want proof? Go ask any Russian what the value of the Soviet empire was to the equations of "scientific socialism." All the chatter by the financiers and economists on the value of the dollar, well its foundation at this point is built much less on markets, than what Bismark called, blut und eisen.

Our political economy needs a fundamental restructuring.

Beyond the Dismal Science

March 24, 2008

I was 19 in October, 1979 when I first stepped into a campaign office. It was the Draft Kennedy(Teddy) for President office, located directly east across the Daley Plaza from Chicago's City Hall. I would work on that campaign across the country for ten months and it would instill in me an interest in politics, more accurately an interest in the politics of self-government that has lasted thirty years. It was a time when economics dominated political discourse from the nightly news to the kitchen table. Unfortunately, little did I understand, two months before I walked into that campaign office in 1979, President Jimmy Carter appointed Paul Volcker head of the Federal Reserve, an event that would change American politics for the next three decades. Almost everything I learned on the Kennedy campaign about how American politics worked collapsed over the course of the next ten years. A new political regime, people, institutions, thinking, and culture replaced what had been the dominance of New Deal politics. Monetarism, Reaganomics, or Neoliberlism, call it what you may, would totally dominate the American political landscape until today.

This new political regime's greatest accomplishment was actually something quite extraordinary, they basically removed economics, or at least any meaningful discussion of it, from politics. Various terms like “free markets” and “free trade,” became mantras repeated without end and thus believed by most adherents to have a meaning negating any need for further debate. Economics became removed from political discussion to an extent unprecedented in American history. Yet today, the Reagan Revolution seems similar to its New Deal predecessor in 1979, a cultural, ideological, and political spent force, not up to meeting the challenges being asked of it in the first decade of the 21st century. Looking a little deeper, it would seem this quaking of Neoliberal politics portends not simply the passing of another regime of our two centuries old industrial economics, to which the New Deal also belonged, but a more fundamental revaluation of political economy. A necessary revaluation of economics that will move us beyond the “dismal science.”

Looking back at the politics of 1979, what in hindsight can be seen as the end of the New Deal, it is an era seemingly belonging to a different world. The late 1970s and early 1980s were the greatest economic troubles the United States experienced since the Depression and there has been nothing as significant since. Unemployment was high, inflation was high, and the economy was barely growing, a configuration of symptoms economists up to that time didn't think possible, thus a new name was born, stagflation, and of course in that peculiarly human trait, the naming of something gave the wrongful notion that it was also understood.

Fundamental forces were moving the American economy in the late 1970s, including debt from the Vietnam War, the acceleration of de-industrialization, the slow but continuing deterioration of American post-war global economic dominance, and finally a spike in the price of oil brought about by the US domestic oil production peak in 1973. New Deal politics, which owed a great deal to the thinking of John Maynard Keynes seemed powerless in meeting these challenges. Much of Keynes economic thinking was developed in the Depression and dealt with falling prices, creating demand, and putting to use under utilized capital, while the problems of the 1970s seemed exactly the opposite, rising prices and too much demand. This created an open public dialog and thus the 1980 campaigns were all centered around economic ideas. The Kennedy campaign, unbeknown to all involved, became the last stand for New Deal economics, though its corpse would be dragged around by Walter Mondale four years later.

Yet the 1980 campaign's economic discussions were for the most part a moot debate. The real discussion and decisions were taking place inside the Federal Reserve. Jimmy Carter had handed over the country and his political career to Paul Volcker. Hitting one of the main pillars of stagflation and carrying out the greatest charge of the then seven decades old Federal Reserve, Volcker would raise interest rates to over 20%. The economy contracted, Carter lost the election, and the new, or maybe a newly resurrected economic era was birthed.

When one looks at the political economy of the New Deal, one principle stands out -- an active role for government in the economy to bring about a more equitable distribution of wealth. It would be wrong to simply state, an active role of the government in the economy, for every government that has ever existed in the history of humankind has played an active role in economic affairs. The greatest shift in this new political economy of Neoliberalism was the abandonment of any notion that the government had a role to play in more equitably distributing wealth. This was done in various ways from removing government oversight of labor relations, drastically dropping upper level income and corporate taxes, and year after year removing government oversight of corporate behavior. Where Keynesian demand-side economics worked to give the middle and lower incomes direct government support, the Neoliberal supplyside doctrine in many ways resurrected the ideas of 19th century Frenchman John Baptiste Say, who claimed supply generated its own demand. However, it is important to understand New Deal and Reagan Revolution economics, while their means differ, both claim identical ends, to generate goods and the demand to purchase them -- to create a continuum of growth. The greatest difference is New Deal economics claims some responsibility for equitable distribution, while Neoliberalism claims none. This is an important cultural difference.

The Reagan Revolution proved adept in its prime goal of redistribution of wealth from 1980 until today. The Center on Budget and Policy Priorities shows in a 2007 study:

“The top one percent of the population received 14.0 percent of the national after-tax income in 2004, nearly double its 7.5 percent share in 1979. (Each percentage point of after-tax income is equivalent to $71 billion in 2004 dollars.)
In contrast, the middle fifth of the population, which has 20 times more people in it, received 15.0 percent of the national after-tax income in 2004, down from 16.5 percent in 1979. The bottom fifth received 4.9 percent of the income in 2004, down from 6.8 percent in 1979.”

Yet, the most important cultural impact of the Reagan Revolution was the unleashing of the power of mega-corporations. It can be said in the year 2008, in the entire history of the United States, the power of large corporations is as unfettered as any time in American history, and that is saying something. The modern industrial corporation and the American republic were birthed contemporaneously. The basically centralized authoritarian structure of the corporation and the comparatively distributed democratic structure of the republic led to rather a fitful existence between the two from the beginning. Thomas Jefferson was the first to warn of the concentrated power of the new corporate entities. Fifty years later, at the dawn of the first Gilded Age, the great grandsons of America's second president John Adams, Henry and Charles Adams would warn in their “Chapters of Erie:”

“And yet already our great corporations are fast emancipating themselves from the State, or rather subjecting the State to their own control, while individual capitalists, who long ago abandoned the attempt to compete with them, will next seek to control them. In this dangerous path of centralization Vanderbilt has taken the latest step in advance. He has combined the natural power of the individual with the factitious power of the corporation. The famous "L'Etat, c'est moi" of Louis XIV represents Vanderbilt's position in regard to his railroads. Unconsciously he has introduced Caesarism into corporate life. He has, however, but pointed out the way which others will tread. The individual will hereafter be engrafted on the corporation, democracy running its course, and resulting in imperialism; and Vanderbilt is but the precursor of a class of men who will wield within the State a power created by the State, but too great for its control. He is the founder of a dynasty.”

It would be a warning continually sounded by others across the last decades of the Nineteenth century. Eventually, the Populist Movement would emerge, a uniquely American movement that was a reaction from a dominant but declining agriculture economy to a growing and increasingly powerful industrial economy. The question of concentrated corporate power became a popular concern.

The Populist Movement and the following Progressive era sought democratic republican solutions to the concentration of corporate power, most importantly, break them up. Understanding Jefferson's political imperative that any democratic system, any system of self-government, required power to be decentralized or horizontal, while the power of the industrial corporation was as centralized and vertical as any institutions in human history, reformers turned to attempting to break up their power, which became known as anti-trust. Unfortunately, corporate power had grown too strong at this point and the anti-trust effort was for the most part stillborn.

Instead of turning to the more American notion of decentralized power, American reformers began looking to Europe and particularly Bismark's Germany. Not only was industrial society creating new vast private entities of power, it was also growing government bureaucracies. The American system gradually began to use government as a counterbalance to the power of corporations, in doing so it needed to keep growing government bureaucracies as corporate power grew, until finally with the New Deal, an agreement was reached. Antitrust basically was abandoned and a regime of regulation, bureaucratically controlled, was instituted to quell corporate power.

Unfortunately for advocates of the New Deal, the acceptance of concentrated power in the form of corporations was a recipe for democratic failure. The idea that government could regulate such entities proved short lived, as corporations gradually gained control over the government. In the three decades of the Reagan Revolution, corporate power became pervasive across American life, unchallenged by the political class, and begrudged but not opposed by the populous. In exchange for an obscene cornucopia of material goods, Americans basically abdicated most of their political power.

Now however, just as in the late 1970s when New Deal economics seemed incapable of solving contemporary problems, Neoliberal solutions seem bankrupt against a rising number of economic concerns, some interestingly enough increasingly resembling the stagflation problem of inflation and slow growth of the 1970s. The greatest of these concerns is a slowing economy brought about by several things, but what might prove most critical in the short run, is a global financial system teetering on the brink of chaos. After three decades of dismantling the financial regulations of the New Deal and simultaneously expanding exponentially, the financial system seems to have become dangerously detached from the hard economy. With first the tech bubble and now the real estate bubble, the financial system resembles something not seen for decades -- a systemic bust -- a situation many of the New Deal regulations sought to not again allow. The damage these bubbles cause are once again being revealed. The answer of the Neoliberals to this point, simply, more of the same.

We have to remember, a robust financial system is one of the key components of Neoliberalism and its blind faith in monetary policy. The bubbles of the past decade are a direct result of monetary policy conducted by the Federal Reserve under the leadership of Alan Greenspan combined with a regulatory laissez–faire attitude toward the private financial system. As the financial system worsens and Fed action increasingly seems ineffective, the words of Fed Chief Eccles from the 1930s are bought to mind, “One cannot, push on a string.”

Two other problems have returned from the 1970s, the first is historic high oil prices coupled with growing inflationary pressures on many basic commodities. These are two trends that have completely reversed in the last several years from what was occurring in the previous two decades, and begin to reestablish trends that were common for most of the twentieth century. The Financial Times reports on Barklay's Equities annual report on stocks and bonds,

“Over history, the great enemy of investors has been inflation. Equities have done little more than offer a hedge against it. From 1899 to 1985, UK equities' real return, compared with UK retail prices, was negative. Stocks often failed to keep up with inflation. By 2007, the real return on UK equities since 1899 was 109 per cent, all of which had in effect been achieved in the past two decades.”

And the report adds,

“Now, Barclays says, this is coming to an end. Taking a four-year rolling average, inflation on both sides of the Atlantic has risen by more than 1 per cent during the current expansion - the first time this has happened since inflation was tamed in the early 1980s.”

This is quite a quandary for the adherents of Neoliberalism. One great difference between Keynesian and Neoliberal economics was in the rewards system. Keynesian economics with an emphasis on more equitable distribution of wealth concentrated on benefits in the real economy, such as higher wagers, benefits, and public infrastructure. While Neoliberals, unconcerned for the most part with any notions of wealth equality, concentrated almost entirely on financial rewards, thus the constant need for financial growth and the removing of taxes from gains on capital. This has had a tremendous impact on the American economy as the New York Times reported recently, “Profits from the financial sector now account for 31 percent of total United States corporate earnings - up from 20 percent in 1990 and 8 percent back in 1950.”

Now, the number one enemy of finance is inflation, so as inflation begins to rear its ugly head, the ability for Neoliberalism to provide its benefits, which are at best inequitable, becomes increasingly problematic. For in the school of Neoliberalism, low interest rates are imperative to financial benefits, but low interest rates are impossible in inflationary times. It seems Neoliberalism has run into intrinsic problems just as the New Deal economics did in 1970s.

However, we may very well be at a point of fundamental questions neither the New Deal or Neoliberalism care to ask. For in the end, New Deal and Neoliberal political economy are simply two sides of the same coin. They are a political and cultural school of thought that seeks one end, economic growth. Both ultimately depend on growth in the creation of jobs, growth in the production of goods, and growth in consumption each year. They are a school of thought that depends on infinite resources from what every year becomes increasingly clear to the collective mind of humanity is a very finite planet. It is this fundamental contradiction that will increasingly move into the center of all debate on political economy and a question neither New Deal or Neoliberal economics has any answers.

This contradiction has appeared most recently in the rise in the price of oil, which is the life's blood of any economy we have deemed modern for the past century. Global production of crude oil has basically plateaued, while demand has continued to rise. At the same time, rising standards of living across the globe has given pressure to prices in other commodities. Bloomberg reports,

“ Farmers aren't keeping pace with the diets of a burgeoning middle class in India and China. The Department of Agriculture predicted Feb. 8 that U.S. stockpiles for the 12 months through May will drop 40 percent to the lowest since 1948 as global production lags behind consumption for the seventh year in eight.

``There's been unprecedented demand globally for grains,'' said Gordon Davis, managing director of Melbourne-based AWB Ltd., the largest wheat exporter in Australia. “`It's being driven by demand for protein in Asia, which reflects rising incomes.''

Global wheat production for the marketing year through May will probably reach 603 million tons as consumption rises to 619 million tons, according to the USDA. Demand in India, the most-populous nation after China, is up 16 percent since 2001.”

The Financial Times adds,

“The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.”


The question becomes is the world entering a new era, one where the doctrine of unlimited growth has met its limits? The questioning of unlimited growth is not new to political economy, it has been around since almost the inception, beginning most famously, or as most of economic proselytizers of unlimited growth would say most infamously with the thinking of Thomas Malthus. An Englishman born 10 years before the 1776 publication of Scotsman Adam Smith's seminal, “The Wealth of Nations,” Malthus uncovered a fundamental rule of biological science that became essential to Darwin's thinking, but has been disowned by our unlimited growth scientists of economics.

Outlined in his 1798 “Essay on the Principle of Population,” Malthus' thinking is quite simple. In any limited biological environment, any species population growth rises to the limits of available food production and once hitting that limit will tail-off, much of the time extraordinarily. For example, a population of rabbits in a clover field will grow until they exhaust the supply of clovers. The population will then decline to match the lesser availability of clovers. Since Malthus, biologists have proven this to be an iron clad law of the natural world.

However, Malthus theory was held aghast by much of the theological and philosophical world. Humanity's theological and philosophical history has been one long attempt to hold itself exceptional from the rest of nature. Thus Thomas Carlyle, mid-19th century British historian and wag coined the phrase, “the dismal science” to disparage both Malthus and much else of early economic thinking. Yet, Malthus became held in ill-repute nowhere more so than amongst the economic community. His idea of humanity as part of nature flew in the face of both burgeoning growth economics, the new industrial ethos which seemingly proved man's control over nature, and of course the much older philosophical and theological conceits of humanity's natural exceptionalism.

For the next century and half, industrialization swept Western Europe, the United States, and some other small parts of the globe. By 1950, the economics of unlimited growth seemed to have vanquished Malthus. World population growth went from less then a billion to over 3 billion, seemingly a direct refutation of Malthus population theory and an even more direct confirmation of the notion of human exceptionalism. However, in the early 1970s as inflation amongst commodities picked-up, oil supplies tightened, and industrial economies slowed, Malthus suddenly made a reemergence. Organizations such as the Club of Rome in their report “Limits to Growth”, thinkers such as E.F. Schumacher in his “Small is Beautiful,” and hundreds of thousands of adherents to the growing global environmental movement, all began questioning industrial economics concept of infinite growth on a finite planet.

Malthus resurgence was short-lived in popular culture. Neoliberalism once again vanquished him and his ideas, and in fact over the last several decades few economic thinkers have taken as much vitriol as old Mr. Malthus. The last twenty-five years saw the re-triumph of the economy of infinite growth, a great virtuous chain of production rewarded by consumption expanded across the globe. Industrialization spread across the planet. Nations such as Korea, Taiwan, and Singapore joined and were followed in the last decade by China, India, and Brazil. A grand vision was shaped, a world of over 6 billion people could live like the United States, despite the one simple hard fact -- the United States with 300 million people, 5% of the world's population, was using over 25% of the world's resources. If in fact the planet's 6 billion people were to live like the United States several other planets would need to be available, and despite all efforts to date, we are still very much Earthlings. In the last few years, as a billion or so new people have embraced the philosophy of infinite economic growth, it is increasingly clear Malthus must once again be reckoned with. It is increasingly clear, the model of infinite growth on a finite planet is facing serious obstacles, one might say its endangering survival for much of the human species. It is time we move beyond the dismal science.

If we are to alter and reform the two centuries old patterns of industrial society, we must also completely reevaluate our understanding of economics. We can begin to do this quite easily by first rejecting the notion of economics as a science and understand that economics is at its foundation a cultural system. In order to change our industrial society, we will need to change our culture and we can begin by putting the political back into the economy.

There are several fundamental pillars in reforming political economy: 1)ending the idea of infinite linear production and consumption in the closed system that is the earth, 2)moving away from a fossil fuel based energy system, 3)Corporate and Government reform. Concentrating on these three interlinking subjects will allow a comprehensive though in no way exhaustive look at evolving political economy.

The first thing that must be changed is the linear production and consumption model. We must accept the fact that we live on a finite planet which means the doctrine of infinite growth is an eventual doctrine of disaster. The first rule we must adopt is to bend the current linear production and consumption process into a circle, which means most importantly, we must realize on a closed system like the earth there is no such thing as waste or garbage. We must look at everything we produce as recyclable and if it presently isn't, it must become so.

Secondly, we have to move people off the production and consumption hamster wheel. This is the wheel that requires people to work to produce ever more things so they can be rewarded with ever more consumption. An ethic must be developed of not wanting more, but simply wanting enough -- the system as whole must embrace this ethic. People must be enabled to work less and have more time to do other things than just consume.

For breaking out of the linear production and consumption model, the robust evolution of information technologies is going to play a critical role. To this point, information technologies have simply been used to enhance the linear production and consumption model, that is to simply produce more stuff. However, the real value of information technology lies in design, that is, eventually creating more livable societies that use less stuff. Most of our economic institutions will need to be retooled so their most important element is not production, but design. We need to figure out how to design our economy to not produce the most stuff, but more elegantly produce enough. Design is measured not by quantity, but by quality.

The most important element of the modern economy that will need to be redesigned is energy. If there is one thing that can be said that separates the industrial age from all preceding it, it is the exponential rise in energy consumption. Fossil fuels -- oil, coal, and natural gas -- have provided industrial society with incredibly cheap and portable sources of energy. Modern society is founded on this simple fact. Yet, we are fast reaching the limits of oil availability and the environmental problems of burning fossil fuels in a closed system like the earth are growing, including the increasing inevitability of altering millenia old weather patterns.

The interesting thing about industrial society and energy is that energy has been so relatively cheap and plentiful, little thought and even less practice has been given to using it efficiently and conservatively. For example, the automobile, thousands of pounds of steel powered by the internal combustion engine can also be looked at as one of the most energy inefficient methods to move around a hundred and fifty pound person. Yet, it has been the automobile that has defined development for the last century. The automobile is the ultimate symbol of infinite growth economics.

On a planet with 6 billion people, the use of energy can be looked at better than any other thing in defining what cultural economist Thorstein Veblen called “conspicuous consumption,” which is simply extravagance to publicly display wealth. Now, most Americans look at the use of automobiles or electricity as utilitarian, but looked at from a global perspective, American energy use is an extravagance of historical magnitude. The average Japanese uses 60% less energy than the average American. While, the nation of Tanzania has the same population of California’s 35 million people, but an economy 2% the size. The annual generation of electricity in Tanzania is less than .1% of California.

While over the course of industrial society, the cost of labor has been scrutinized extensively, in most processes, the cost of energy has been paid too little attention. The United States needs to redesign its energy economy, looking to how all its processes can become much more efficient. This includes food production, where Richard Manning in an article in Harpers Magazine writes, “In 1940 the average farm in the United States produced 2.3 calories of food energy for every calorie of fossil energy it used. By 1974 (the last year in which anyone looked closely at this issue), that ratio was 1:1.” It also includes redesigning our conspicuous consumption transportation systems, and the redesign of all our buildings and communities. It means redesigning every aspect of American economic life.

It is with the redesign of American energy economy where the conflict between the value system of industrial capitalism -- infinite quantitative growth, and the value system of an information intensive society -- qualitative design, becomes readily apparent. The American economy must be redesigned not to use the most energy possible but the least, and for this industrial society has no value. In large part, it requires information to be released from the constraints of market valuation and to develop a cultural value more similar to the political value of the 1st Amendment and the Jefferson and Madison imperative of the distribution of information through education being the life-blood of self-government, so it will be too for a society that values design.

Next, a revaluation of political economy will require a reformation of its institutions of power – corporations and the government. Taking people out of the production and consumption cycle giving them more extensive education, greater roles processing information, and greater design controls requires the flattening of decision making. Corporations are very centralized in decision making or as the Adams brothers stated in 1870, corporations had introduced Caesarism into the republic. It must be noted with little irony that in recent years, the term Czar, which is Russian for Caesar, has become ever more prevalent as a government solution. Decision making in the institutions of the republic itself has over the last century gone from flat to a very centralized hierarchy in DC.

In getting real value out of information, design must become an integral component to all aspects of society, and that means decision making must become a larger and more meaningful aspect of everyone's life, whether it is individual decisions or those taken with association. This means our corporate and government institutions, which have symbioticly grown more centralized and powerful over the course of the 20th century, must be most simply broken-up and restructured. This means more power to locality, not as independent entities, but as nodes in a distributed network.

The Internet has provided the model for a workable horizontally distributed network. Opposed to millenia old traditional hierarchies, the Internet has shown that order can be gained not just from centralized control, but through distributed simultaneous actions. To this point, the Internet has been used most effectively as means to consolidate corporate power, which is a little ironic. It should be a warning that we have long way to go in understanding how to make this work. Yet the simple answer to begin corporate reform is to break them up, all corporations should face a limit on their size.

Luckily for Americans, the American system was founded as a mixed horizontal- vertical system. It's hard for Americans to understand given both their atrocious history educations, and the centralist propaganda that all who are alive today have been fed their entire lives, that at the beginning of the republic and for most of the first century, any Americans interaction with government power was overwhelmingly at the local level. Today however, after two centuries, government has both centralized and atrophied in Washington DC. Power needs to devolve from DC, not to the states, but to cities and counties, then connections must be made between the cities and counties. There's no need for intercity policy having to be made in state capitals or DC, the cities can interact amongst themselves and develop appropriate actions.

Most importantly, the reformation of corporations and government will call for a revitalization and a necessary evolution of the role of citizen. It will call for people to take time previously given to the production and consumption cycle and devote it to what might best be defined as an expanded role of the citizen. Considering today most Americans have at best a most limited role as citizen -- making a joke of the very notion of modern self-government -- expanding the role of the citizen will not be hard. But it means much more than people reengaging in the traditional citizen affairs they have abandoned, it means creating new roles in information processing, valuing design, and distributed decision making.

Some will immediately attack the notion of a revived citizen as naïve or romantic, but it is nothing of the sort. Culturally we must value these roles to as great a degree as we today value work in the production cycle, or as a responsibility as important as parenting. Citizenship must be stripped of the notion that is voluntary and must be understood to be necessary. It must be looked at not as shining and exemplary, but more like work, much of the time simply an unavoidable drudgery, with the inescapable sad but nonetheless enlightening conclusion that the nirvana of democracy is meetings.

Thus we stand at an amazingly necessary cultural turning point in history. We must put the political back into the economy and in so doing we must evolve both. Some who have read this short essay will gripe it is too short on specific answers, but this is by design. In bringing about this change a crucial insight of democratic historian Lawrence Goodwyn must be kept in mind. Any movement for democratic change is inherently experiential. The institutions and new roles of the citizen will come out of actual actions and implementation. We must regain the courage and wisdom of this republic's founders who looked at their work as an experiment in self-government. We must do the same.

So much of the change we face is cultural, a revaluation of value, and history shows this is never easy. In many ways, the era we live in is most analogous to Europe right before the Reformation, where one doctrine held almost complete sway over life and was reinforced by centralized institutions speaking a vocabulary the vast majority couldn't understand. Yet the rot and insufficiencies became so great, the old doctrine proved untenable for a new era. If we are to provide change that is now so obviously necessary, we'll have to have the fortitude of that little Augustinian monk and state, “Here I stand, I can do no other.”

Tocqueville and Democratic Reform

1/19/07

“There is a very dangerous phase in the life of democratic peoples.

When the taste for physical pleasures has grown more rapidly than either education or experience of free institutions, the time comes when men are carried away and lose control of themselves at sight of the new good things they are ready to snatch. Intent only on getting rich, they do not notice the close connection between private fortunes and general prosperity. There is no need to drag their rights away from citizens of this type; they themselves voluntarily let them go. They find it a tiresome inconvenience to exercise political rights which distract them from industry. When required to elect representatives, to support authority by personal service, or to discuss public business together, they find they have no such time. They cannot waste their precious time in unrewarding work. Such things are all right for idlers to play at, but they do not become men of weight occupied with the serious business of life. Such folk think they are following the doctrine of self-interest, but they have a very crude idea thereof, and the better to guard their interests, they neglect the chief of them, that is to remain there own masters.” -- Alexis De Tocqueville, Democracy in America


The above statement was written by Alexis De Tocqueville over a hundred and fifty years ago, yet it describes better than most analysis today the greatest problems facing our contemporary American democracy. With this statement, Tocqueville wasn't chronicling the young American republic, but with one eye to the past and the other on the future, he was expressing difficulties the United States would encounter in some undetermined future. That future is now. The American democracy Tocqueville saw was young, vibrant, and full of energy; its people concerned with bettering their personal lot, but with an enlightened self-interest that understood the need to be knowledgeable and active participants in public affairs. “The common man in the United States” wrote Tocqueville, “has understood the influence of the general prosperity on his own happiness.” It is in our democracy today that individualism rules, the general prosperity ignored, and political disenfranchisement rampant.

Toqueville's book remains a seminal and important book on understanding American democracy. Reading it today, one can't help become dejected to see the degradation of American democracy. However, you also can't help get an equal measure of optimism, for with a little imagination, any person can see the possibility of the American people reclaiming their politics, their traditions of self-government, and reforming their moribund democracy in a great 21st century democratic reformation. While Tocqueville doesn't provide the blueprint for such a movement, he does provide the historical precedent and some of the necessary elements.

The mid-19th century American democratic politics Tocqueville describes are founded principally on egalitarianism, decentralization, and citizen participation. All three are foundering in contemporary America. Political participation outside of voting is in most every other aspect nonexistent. Power across society has become increasingly centralized, the Internet phenomenon being a recent important exception. However, the long march of economic and political power centralized in mega-corporations and Washington DC continues unabated. Newspapers, the local media of the era and Tocqueville's great love, have been destroyed by television. Finally, the most essential democratic ethic – equality – has in recent decades been gradually but continuously degraded in our politics, the economy, and across our culture.

Centralization of power is the prime factor in the destruction of American democracy. Tocqueville understood, as did Thomas Jefferson who Tocqueville called “the most powerful apostle of democracy there has ever been,” centralization was inherently undemocratic. The America of the 1830s was an agrarian and market economy, where the vast majority of the decisions of life were made at the local level. The economy was overwhelming comprised of yeoman farmers and local merchants. Citizens belonged to local associations. Townships and counties made and administered the vast majority of political decisions. Tocqueville witnessed the end of the first American republic. Over the next decade, the technologies and institutions of industrialization would begin to radically transform American democracy.

Tocqueville writing at the beginning of the industrial age stated, “I think that generally speaking, the manufacturing aristocracy which we see rising before our eyes is one of the hardest that have appeared on earth...the friends of democracy should keep their eyes anxiously fixed in that direction. For if ever again permanent inequality of conditions and aristocracy make their way into the world it will have been by that door that they have entered.”

Since Tocqueville's time, the egregious democratic faults of the corporation have been revealed. The corporation, like aristocracy, transfers wealth and power across generations. Tocqueville pointed out equality in America was assured by several means, the most important was the outlawing of primogeniture and entail, that is the passing of wealth from one generation to the next. Tocqueville writes, “I am surprised that ancient and modern writers have not attributed greater importance to the laws of inheritance, and their effects on the progress of human affairs.” The corporation became a new way of concentrating wealth and power and transferring it across generations, not necessarily by family, but through the corporate entity itself. The centralization of economic power in the modern industrial corporation and its ability to hold that power across generations has contributed most significantly to the growing inequality of wealth distribution.

American democracy struggled with the power of modern industrial and financial corporations since their inception, but a crucial political point was reached with the New Deal and World War II. The Great Depression and World War II were national and global phenomena propagated by industrial technologies and the modern corporation's control of the economy. The New Deal was a reaction by the Federal government to events resulting from the economic centralization that had rapidly occurred in the United States over the previous half-century. It was a well meaning attempt by a democratic republic birthed decentralized and participatory, to develop new processes and institutions to meet the challenges of a collapsed centralized economy. In many ways, the New Deal was the second republic, but it was much different than the first. Political and government power followed down the path paved by industrial economic centralization, not, the distributed power of yeoman farms, democratic associations, and county administration.

In some ways, the politics of the New Deal can best be understood with an historical analogy of the ancient Roman republic. Dictator is a Latin term. The office of dictator was an extraordinary institution of the Roman republic. It was an institution developed for use in times of extreme crisis, when the Roman people for a brief period of six months would bestow extraordinary power onto one man to meet a challenge, almost always a military challenge. In the republic's five centuries history, the dictatorship was used little more than a dozen times, and after six months the army or other instruments of power created by the dictator were dismantled, results and memory became its only vestige. The Roman republic looked at this temporary centralization of power as a short-term necessary evil.

The New Deal was the American republic's virtuous reaction to a profound national and global crisis. Unfortunately, at the end of World War II, the centralization wasn't dismantled, it was institutionalized. While Tocqueville considered America's decentralized administration of public policy key to understanding American democracy, the New Deal centralized administration in DC's ever since growing bureaucracies. Instead of being dismantled in both the Roman and American republican traditions, the WWII military was institutionalized into an imperial force. Finally, the New Deal was the republic's last capitulation to economic centralization in the form of leviathan industrial and financial corporations.

This centralization is antithetical to everything Tocqueville writes about American democracy. In much of Tocqueville's work he compares decentralized democratic America to centralized aristocratic Europe. However, it is very difficult to use the word aristocracy today, especially in America. The tradition and knowledge of aristocracy is now two centuries removed from the American experience. To use the term aristocracy is in may ways to use an anachronism. Nonetheless, after over a century of centralization, we see developing in the United States a malformed and mutant aristocracy comprised of militarists, the political class, and an economy run by corporate barons, whose corporations more resemble the bureaucracies of Louis the XVI than Tocqueville's American economy, or Adam Smith's nascent industrial era for that matter. In Tocqueville's eyes, aristocracy of any sort was completely Un-American.

As American democracy degrades, with the increasing centralization of political and economic power, the American egalitarian ethic slowly erodes. Instead of each citizen having equal rights, responsibilities, and roles for societal prosperity, power increasingly gravitates around certain centers. A culture of entitled wealth and power replaces an egalitarian ethic of democratic opportunity and enlightened self-interest. This loss of equality reveals itself no place more than in the lack of political participation. The American public feels disenfranchised from politics. Overwhelmingly, they belong to no political or civic associations. Individuals have little or no ability to impact political decision making or administration.

Tocqueville wrote:

“The inhabitant in some countries shows a sort of repugnance in accepting the political rights granted to him by the law; it strikes him as a waste of time to spend on communal interests, and he likes to shut himself up in a narrow egoism, of which four ditches with hedges on top define the precise limits.

But if an American should be reduced to occupying himself with his own affairs, at the moment half his existence would be snatched from him; he would feel it as a vast void in his life and would become incredibly unhappy.”


As our democratic culture grows weaker, Americans are reduced to occupying themselves in their own affairs. The American citizen has voluntarily abdicated political involvement out of a increasing sense of dis-empowerment emanating from the loss of equality. They are encouraged by those who have taken their power to turn completely from the enlightened self-interest of democratic participation and to shut themselves behind the fence-walls of suburbia. Desperate former citizens futilely try to fill the vast void with mindless consumption.

Centralization of power is inherently undemocratic and over time in an established democracy, it destroys egalitarian culture. We see the destruction of equality across our culture today, with “superstar” sport's figures, celebrity filled media, and most obscene, the cult of the CEO. Instead of an appreciation of healthy and fair competition, America is led to believe the only thing that matters is who at the top, and the top justifies the most unequal distribution of wealth and power in the republic's history.

The greatest political manifestation of our egalitarian and democratic decline is represented in the growth of the presidency. In this institution, the burgeoning culture of aristocracy and the degradation of democracy meet. The chaotic universal cacophony of political voices Tocqueville admired is no longer audible. Instead, the amplified voice of centralized media and a decadent professional politics focus on one institution, endlessly drumming into the citizenry a focus on one person and the one office furtherest from their influence. The presidency has become the most anti-democratic institution of the republic and it propagates the culture of non-participation and inequality, today, it completely dominates our entire political system.

On all fronts, political, economic, and cultural, our egalitarian spirit and the actual democratic processes of our two centuries old republic are in decline. Thus the increasingly urgent question presses upon the American people, “Do you still want your democracy?” Only the American people will be able to revive and reform their democracy. We can not hope to bring back Tocqueville's agrarian/small merchant republic, nor the necessary and honorable impetus that made the New Deal a temporary solution. We need a reformation of democratic culture, associations, processes, and institutions, based on Tocqueville's insight that once a republic's democratic ethos has degraded, “the most powerful way, and perhaps the only remaining way, in which to interest men in their country is make them take a share in its government.”

A democratic reformation must begin by revitalizing democratic culture -- a rebirth of America's passion for equality. Americans must once again understand liberty in a democracy is dependent on equality. A culture of equality begins not with the acceptance of diversity, but something much more fundamental and universal, the understanding of our common humanity. The vibrancy of democratic processes strengthen egalitarian culture. We must address how decisions are made across society, how institutions are structured, and most importantly how citizens participate.

A first step to reviving democratic culture can begin with the simple process of beginning a new, healthier, political dialog. The important democratic historian Lawrence Goodwyn has accurately stated, “Americans don't know how to talk about politics today.” We have removed political discussion from our lives, now we must recreate public space at the local, national, and for the first time global level for discussions of the issues of our time. We need to redefine our political vocabulary and once again make it vital. We must break politics free from its present narrow definitions mouthed by bad professional political actors on a neo-vaudevillian stage, that lacks any of the original integrity. The American people must regain the egalitarian principle that each and every one of their voices has value.

We can begin a democratic conversation by asking: what is democracy in the 21st century; what are the processes of democracy; what are its institutions? An easy starting point, though not necessarily the best, is examining our government institutions. Tocqueville observed, “In America not only do municipal institutions exist, but there is also a municipal spirit which sustains them and gives them life....if you take power and independence from a municipality, you may have docile subjects, but you will not have citizens.” The centralization of power in both state capitols and DC has destroyed municipal spirit. We can help recreate a civic spirit reforming government by making it more participatory.

We must also simultaneously engage corporate reform. Corporate power must be broken up and there must be institutional reform. However, there is an issue I have mentioned previously, that is little understood, but has played just as an important role in industrial centralization as the corporation, it is technology itself. There is a politics of technology. Entrenched technologies create generational dynasties as strong as any family or corporation. There has not been nearly enough thinking on this issue, but a couple key insights have been gained over the last several decades.

The first was Marshall McLuhan's still little understood insight that, “the medium is the message.” Simply understood, a society adopts a technology, the technology then adapts the society. For example, the automobile creates automobile culture, no matter if inside the automobile are English, Americans, or Chinese. Suburbia is automobile culture, created by the automobile. Another example, broadcast television creates television culture, which is a sedate individual staring into a screen no matter what the content. The individual has zero control. Make no mistake, the message of broadcast television is, it is one of the most undemocratic technologies ever devised.

The second insight on the politics of technology was offered by Mitchell Kapor, who helped found the personal computer industry. From the insights he gained understanding the development of the personal computer and the Internet, Kapor deduced “architecture is politics.” Simply, the design of technologies determines control of the technology and the politics that develop from it. The easiest example of this is the Internet, where the distributed, decentralized, and participatory design at its inception, allowed an amazingly explosive democratic culture to grow atop it. Of course today, our corporate barons, increasingly with the help of government, look to change the Net's architecture, making it much more centralized, and thus lessoning its democratic politics.

Technology's role will be instrumental in any democratic reformation, this role must be publicly understood.

The new technology revolution of the last fifty years, electronic and information based, will shape society in radically different ways than the industrial revolution. It is simplistic though insightful to say industrial technology was built on Newtonian physics and chemistry, while this new technological revolution is based on quantum physics and biology. One innovation of this new technology, that is just beginning to be understood and can have a revolutionary impact for democracy, is the architecture of distributed networks. The Internet has shown that order can be gained with openness and decentralized distributed control. This is the most promising idea and process for a democratic reformation. In most ways, the American system described by Tocqueville of local, state, and Federal entities was an 18th century distributed political system, thus the architecture of distributed networks offers great promise in revitalizing democracy -- a great reform tonic for our sick democratic body politic.

Another element of the 21st century that must be considered is its global nature. Today, you cannot consider local, state, or national democracy, without considering global components. Technologies, corporations, and America's military, bring global affairs to every level of American life. A shirt bought in Lawrence, Kansas is made in Guangzhou, China. A gallon of gas burned in Kentucky comes from the Persian Gulf. It is with the global economy that the great disparity in political power between transnational corporations and the citizen is made so readily visible.

Yet, an even more important global element is our ever growing recognition that the human species is part of a greater planetary environment, an environment we are altering ever more rapidly, and now threatens to radically alter global systems which are tens of thousands of years old. In the 21st century, no understanding of an individual citizen's democratic role will be complete without a global element.

I have only touched briefly on a few themes in Tocqueville's work, but I look at them as the fundamental elements of any democratic society. If power is not distributed, equality not both honored and kept, and the majority of citizens actively participating in political affairs, no society has a hope for democracy. Tocqueville shows how this system worked in the 1830s, I have hoped to very briefly demonstrate how in very important ways it has changed, but more importantly, reveal some important elements that must be part of any reform. We will not go back to the democracy of Tocqueville's time, but what we can hope for a rebirth of the democratic spirit and a resulting democratic reformation for the 21st century.

History reveals the change required on the scale necessary to reform American democracy is not something that can be worked on gradually or will come with some well thought plan. It will come in a concerted ephemeral movement, unleashing the wonderful creativity of democratic political action. The tremendous inertia of the political status quo, just as in physics, will only be altered with an equal or greater force. Otherwise, things will continue in the same direction and where that direction leads has been amply demonstrated most recently. As Tocqueville wrote:

“A nation which asks nothing from the government beyond the maintenance of order is already a slave at the bottom of its heart. It is a slave to its prosperity, and the road is free for a man to tie the fetters.

When the great mass of citizens does not want to bother about anything but private business, even the smallest party need not give up hope of becoming master of public affairs....one is left in astonishment at the small number of weak and unworthy hands into which a great people can fall.”

Thus, we must begin. We must begin a conversation amongst the American people and ask them to reengage with their democracy. Not a conversation about who should be elected or for what office, but a conversation that speaks of the future and our responsibilities. We must begin to recreate a healthy political space, a process that allows each of us to participate in making decisions for the public interest. We need to understand once again, as the citizens of Tocqueville's republic did, that our private welfare is founded in the commonweal. We need to place the power of American government back into the hands of the sovereign -- we the people -- and understand the political power of each citizen is not restricted or enhanced by race, gender, position, or wealth, but flows from the simple and radical notion that we are all created equal.