let's share

The United States was established as a republic, at a point in world history when all other systems of government were monarchies, oligarchies, or some other form of despotism. What, then, are the proper precepts of political economy that a republic should use to organize and structure its economy?

In Securing the Fruits of Labor: The American Concept of Wealth Distribution, 1765-1900,
(Louisiana State University Press, 1998), Oklahoma State University history professor James L. Huston writes:

The republicanism that American leaders came to advocate held sacred the ideals of individual liberty, the equality of the citizens before the law, distrust of governmental power and of political demagogues, simplicity and frugality in the behaviors of the people, and public exhibition of virtue--the willingness of citizens to sacrifice their individual self-interest to obtain the common good. An important economic corollary of republicanism established primarily by Englishman James Harrington (1611-77) during the Puritan Commonwealth was widely acknowledged by American revolutionaries: to endure, a republic had to possess an equal or nearly equal distribution of land wealth among its citizens.

As the United States began to industrialize and urbanize, increasing number of citizens no longer lived and worked on the land, let alone owned land. The great failure of Thomas Jefferson and his Democratic-Republican Party (which later became the Democratic Party) was their inability to conceive of a way in which workers and the propertyless could be just a virtuous as agrarians and pastoralists, and also be accorded a full voice in public affairs. Instead, they sought to stymie and retard the progress of industrialization in the hope of prolonging their idyll of a republic dominated and ruled by agriculturalists.

The problems of that approach should be obvious. To lift propertyless workers to the exalted station of citizens of the republic, while preserving the republican notion of an equitable distribution of wealth, a theory of wage income began to develop which certain American economists came to call, by the last quarter of the nineteenth century, the Doctrine of High Wages:

In January 1876, an editor of The Times of London penned an attack on the protectionist policies of the United States, which Commissioners in Canada were considering adopting for their country. The policy of free trade, the editor wrote, is "the cardinal doctrine of English political economy, which is held in this country as an unquestionable scientific truth, to question which must indicate ignorance or imbecility." Opposition to free trade and a protectionist policy, he wrote, "could not be honestly held by an intelligent person."

The Times editor excoriated by name Henry C. Carey, the leading USA economist of the time, a staunch protectionist who had written the economic policy planks of the 1860 Republican Party platform on which Abraham Lincoln ran for President. But American protectionism was much more than simply a rejection the concept of comparative advantage. Michael Hudson explains in the Preface to his 2010 book America’s Protectionist Takeoff: The Neglected American School of Political Economy:

The protectionist doctrine that shaped America's industry and agriculture... went beyond the narrow boundaries of today's economics discipline by deeming public policy and technology central to economic theorizing, not "exogenous." Analyzing what was needed to increase productivity, the American School emphasized that wages and prices had to be high enough to sustain rising living and educational standards for labor, and investment in rising energy mobilization by capital."

But the American School even went beyond that. Carey and other American School economists always kept in view the ultimate goal of economic policies: the establishment and enhancement of civilization.

In the Conclusion to his 1851 book, The Harmony of Interests: Agricultural, Manufacturing & Commercial, Carey wrote that the British system of free trade "looks to pauperism, ignorance, depopulation, and barbarism," while the American School aims "to increasing wealth, comfort, intelligence, combination of action, and civilization."

Such is the true MISSION of the people of these United States. To them has been granted a privilege never before granted to man, that of the exercise of the right of perfect self-government; but, as rights and duties are inseparable, with the grant of the former came the obligation to perform the latter. Happily their performance is pleasant and profitable, and involves no sacrifice. To raise the value of labour throughout the world, we need only to raise the value of our own. To raise the value of land throughout the world, it is needed only that we adopt measures that shall raise the value of our own. To diffuse intelligence and to promote the cause of morality throughout the world, we are required only to pursue the course that shall diffuse education throughout our own land, and shall enable every man more readily to acquire property, and with it respect for the rights of property. To improve the political condition of man throughout the world, it is needed that we ourselves should remain at peace, avoid taxation for the maintenance of fleets and armies, and become rich and prosperous. To raise the condition of women throughout the world, it is required of us only that we pursue that course that enables men to remain at home and marry, that they may surround themselves with happy children and grand-children. To substitute true Christianity for the detestable system known as the Malthusian, it is needed that we prove to the world that it is population that makes the food come from the rich soils, and that food tends to increase more rapidly than population, vindicating the policy of God to man.... (pp.228-29) 

In his letters to The Times of London, Carey reviewed in detail the results of free trade policies in Britain, with the results of protectionist policies in France (an excerpt of this comparison is below). He then reviews the results of British free trade policies in China and India, detailing the ruin those unfortunate countries had been driven into by the so-called "Christian" traders of Britain. The fifth letter, in particular, throbs with Carey's moral outrage as he describes how Britain deliberately set about poisoning the people of China with opium. At a later date, we will provide a large extract from that letter.

So now we have a hard number on what it would cost to build a global solar infrastructure—the Chinese are telling the world they will do it for $50 trillion.  Since the Chinese tend to be the low-cost bidders for this sort of enterprise, we can probably assume this is about as low an estimate as we are likely to see.  My friendly amendment would be that they are only talking about stationary uses for energy (home heating, lighting domestic hat water, etc.).  It would be damn surprising if someone has calculated the costs of replacing fossil fuels for ocean shipping or anything that flies.  So let's double that figure and we have our unofficial blog slogan—serious discussions about cures for climate change start at $100 trillion.  And since any productive enterprise these days must also support the various corruptions of the Predator / Parasites, we may have to double that to $200 trillion.

In my last post, I covered the possibility that China could build an infrastructure of energy renewables for $50 trillion.  This elicited a comment from the ever-perceptive Mike who wrote:

Note the complete absence of European and American companies—

"Beijing’s network will be the world’s biggest infrastructure project, if given the green light. The State Grid has already signed a memorandum of understanding with the Russian energy grid Rosseti, Korea’s Electric Power and SoftBank Group of Japan."

—because this is what the denial of the future does, it makes us losers in participating in the future economic boom that began with the oil embargo in the 70s, wherein American participation ended when Reagan removed the solar panels off the White House and persists to this day with distracting discussions of political will.

As someone who grew up in the 1950s and 60s, I find it difficult to remember that I now live in a country that has lost the ability to even make its own shoes.  So for those younger than me who have only been exposed to USA the incompetent, let me remind you that this was once a nation where almost nothing was impossible.  There was once a time when we could swagger with accomplishment and not appear ridiculous.

The loser mentality that provided the "rationale" for deindustrialization mostly came from the Brits.  Remember those Wall Street geeks who wore their Adam Smith ties and preached the "virtues" of "free trade"?  I am so proud of Tony who keeps trying to educate the rest of us on the difference between the American System of economics and the classical forms that come from the UK.  And now we see that that they are even going to lose their ability to make steel from ore.  It is encouraging to see there are still Brits for whom this matters, but mostly I hear them as voices in the wilderness.  As someone who has spent most of his life crying about the loss of USA's industrial muscle from the wilderness, I know how frustrating it can be.

(Update)  Apparently there have been a few emergency levers pulled and it looks like what remains of UK's steel industry may gain a short-term reprieve.  Isn't sentimentality great!  This won't fix the problems caused by two generations of under-investment, but hey, it gives the Indian owners something to play with.

A week ago, I posted an excerpt from Commerce, Christianity, and Civilization, Versus British Free Trade. Letters in Reply to the London Times, by Henry C. Carey. Philadelphia, Collins, 1876. Though Carey today is rarely mentioned in economics textbooks, he was the leading USA economist of the mid-nineteenth century, a staunch protectionist who was probably the single greatest proponent of what was then called the American School of Political Economy.

If I may repeat part of what I posted last week: American protectionism was much more than simply a rejection of the concept of comparative advantage. Michael Hudson explains in the Preface to his 2010 book America’s Protectionist Takeoff: The Neglected American School of Political Economy:

The protectionist doctrine that shaped America's industry and agriculture... went beyond the narrow boundaries of today's economics discipline by deeming public policy and technology central to economic theorizing, not "exogenous." Analyzing what was needed to increase productivity, the American School emphasized that wages and prices had to be high enough to sustain rising living and educational standards for labor, and investment in rising energy mobilization by capital."

But the American School even went beyond that. Carey and other American School economists always kept in view the ultimate goal of economic policies: the establishment and enhancement of civilization. And unlike the competing British School of Adams, Ricardo, and Mill, a central element of the American School was morality. Note the heavy tone of scorn and sarcasm Carey uses in his fifth letter to the editors of the Times of London, as he reviews the British opium trade and its disastrous consequences for China.

Trying to digest the remarkable news that 350,000+ people have plunked down a grand to get on a list to buy a car that won't be made for two years, and that they stood in a line to do it, I found myself watching a video of Elon Musk announcing his $135,000 Model X SUV.  It is pretty easy to see why this guy gets that many to part with their money to just buy a place in line.  Musk talks with the sort of ease and confidence of someone who has had a string of successes and knows what he is doing.  In the world of the Producer Classes, this is the prime requirement of a leader.

This, friends, is probably the most interesting subject of all.  History has shown that political revolutions are usually murderous failures.  The main reason is that one subgroup of the Leisure Classes is likely to be very much like the bums they replace.  The Roman Senators of 46 a.d. were probably a lot like USA Senators in 2016—vain, greedy, and clueless.  They are essentially conservative—they don't want things to change because mostly, they want more of the same.  The Producer Classes, on the other hand, want to change things very much and in the last 300 years, they have succeeded magnificently.  Whether the subject is communication, transportation, food production, or energy production and utilization, the methods and objects created by Producers are dramatically better than a few centuries ago.   As I like to say, aero engineers are not in the habit of wondering exactly what their "founding fathers" like Wilbur Wright thought about airplane construction.

So yes, Musk is a Producer and yes, Producers actually CAN change the world.  In fact, they are about the only ones who can.  And over the years, there have been some strategies for change that have worked a lot better than others.  Musk has chosen one of the best and he is executing it extremely well.  The basic plan is this:

• The first products will be very expensive to make.  Therefore, you must get high prices for something no one has ever purchased before.
• The best way to get high prices for a new product is to get premiums for soft features.  The most obvious is aesthetics but appeals to the human as a social animal who wants to be a responsible members of the larger group will also work quite well with something like an electric car.
• Once you have figured out how to make something must-have with the trendsetters, the next step is to leverage this accomplishment by mass-producing a much more affordable version.

This strategy doesn't always work but it certainly has for Musk.  People now wonder if he can make so many cars.  Well, he does own the former NUMMI plant in Fremont California that at one time made 500,000 Toyota Corollas and Geo Prisms a year.  Some of the folks who made that operation work are probably still in the neighborhood.  He's already built his battery giga factory and it will soon start ramping up production.  Musk is a man on a mission.  And yet, these things take time.  It's one thing to say you want to have 30% of the passenger fleet electrified by 2025, but in the world of Producers, nine years in the future is next week.  Not only will Musk and Tesla have to sell 500,000 a year—all the other car makers will have to sell that many too.

Considering that with the possible exception of Musk, no one really knows how to sell these things so selling a half million cars is a TALL order.  Yes it will be easier once Musk has shown the way but it is still a LOT harder than it looks.  Musk builds brilliant cars.  He takes great joy in making something ridiculously interesting—not to mention crazy-fast.  People like buying products from someone who is out there trying to build something that is, as Steve Jobs would put it, insanely great.  And when electric cars become mainstream, the "revolutionary" who made it happen will be this Producer who first made them cool.

The follow is an article that highlights the massive problems of converting out of coal-fired electrical generation.  This is an industry that moves MUCH more slowly than the automobile business.  We should have been getting on with the conversion at LEAST a decade ago and yet we are still building brand new coal-fired plants.  Talk about not getting it.

Former Obama Attorney General Eric Holder refused to prosecute the largest banksters because, he said, doing so might ignite another huge crisis in the financial system. Now its clear that Obama's new Attorney General, Loretta Lynch, is continuing Holder's policy: this past week, no less than Goldman Sachs was allowed to a $5 billion plea bargain rather than facing a real court of justice for its role in deceiving investors and causing the 2008 financial crisis.

$5 billion may sound like a lot of money, but as various experts are pointing out, it is really not that much. First of all, the actual amount of cash extracted from Goldman Sachs will probably only be around $3 billion. Second, much of that $3 billion will probably be accounted as an expense as thus deducted from what Goldman Sachs pays in taxes, meaning that part of the agreement is actually being paid by USA taxpayers, not Goldman Sachs. Third, even the full $5 billion is a small amount when compared to Goldman Sachs's $32.9 billion in profits on $102.5 billion in revenues the past three years. David Dayen notes in a posting at The New Republic, that the settlement is for deceit in about 530 mortgage-backed securitizations between 2005 and 2007. Each securitization probably averaged  $1 billion in size, and it would be a stretch to assume that Goldman Sachs did not make well over $2 billion on them.   

Finally, as Allie Conti notes in a posting at Vice, the Government Accountability Office (GAO) has estimated that the fraud committed by Goldman Sachs and other banks cost American homeowners $9.1 trillion on paper, while the resulting Great Recession cost the economy $22 trillion. so, Goldman Sachs caused trillions of dollars in damages, but is going to cough up mere billions - less than one percent - for its misdeeds.