Why Isn’t Wall Street in Jail? | Rolling Stone Politics

The headline says it all.

Why Isn’t Wall Street in Jail?

Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them

via Why Isn’t Wall Street in Jail? | Rolling Stone Politics.

It’s all about cronyism and revolving-door regulation.  There’s no way the feds can compete with the money the banks put out there, so probably the only way to stop this kind of crookedness is to keep the banks from getting so big in the first place.  We used to have laws about that – antitrust, Glass-Steagall, etc.

Real Causes of Federal Spending Growth: Military and Healthcare

Kash at Streetlightblog and Angry Bear explains easily with one graph both how the federal budget got to be in such imbalance (deficit) relative to GDP and how insignificant the so-called “massive stimulus” was in 2009-10.

I think that when trying to understand the federal government’s fiscal situation, at least on the spending side, it is more informative to see how we got to where we are. We now have an on-budget (i.e. excluding the Social Security program, which continued to run a surplus in 2010) deficit of about 9% of GDP. In the early 2000s, the budget deficit was about 4-5% of GDP. That’s deterioration in the on-budget deficit of about 4-5% of GDP between 2003 and 2010.

Now take a look at the following chart, which shows federal spending on actual goods and services broken into two pieces: spending related to defense, and spending related to everything else. Then I’ve added federal spending on the two Meds: Medicare and Medicaid. (Note that this latter category is actually a transfer payment, not spending by the government on goods and services, since it takes the form of the government reimbursing individuals for medical spending that THEY have done.)

Defense spending has gone up about 2 percentage points since the early 2000s. Med+Med spending has gone up by about 2 percentage points since the early 2000s. All other federal spending has meandered feebly between 2% and 3% of GDP. That slight lift in the green line in the last two years is the “massive” stimulus, or put another way, what “out of control government spending” apparently looks like.

If it weren’t for increased defense spending and the Meds over the past several years, the federal government’s budget balance would have been pretty close to unchanged. Despite the most severe economic downturn in 70 years.

I say again: what stimulus?

Why Collective Bargaining Is Necessary

Collective bargaining and unions are necessary and beneficial to society, even for those who are not members of the society.  It’s not because unions are always in the right or that the positions they espouse are always the best  They aren’t. But then neither are the positions or policies of large corporations, or churches, or the military, or the either  Republican or Democratic parties or administrations.  Unions are needed for two reasons.

First, they provide an offset to concentrated power of very large employers.  This is called countervailing power, an idea first put forth and made famous by John Kenneth Galbreath. Governments can be very, very large employers. As such, governments possess a disproportionate bargaining power against individuals employees.  Unions balance the scale.  It is interesting, that even with unions, government employees are lower-compensated than comparable private-sector employees.

The first reason is of interest to those employees who are represented by unions. But the larger society benefits too.  Government listens to wealth. Supposedly government in a democracy is supposed to listen to the voters, the people. But when income and wealth inequality becomes too disparate and the nation or state too big, the wealthy can control the voting. They can do this by controlling and influencing media which controls and guides what the people know and think. The wealthy raise the bar on how much money it takes to campaign.  Then only rich or the -willing-to-do-as-the-rich-say candidates get on the ballot.  The result is oligarchy. Rule by the wealthy elite.

I’ll let two others explain in more detail.  First, it’s Kevin Drum from Mother Jones:

Every single human institution or organization of any size has its bad points. Corporations certainly do. The military does. Organized religion does. Academia does. The media does. The financial industry sure as hell does. But with the exception of a few extremists here and there, nobody uses this as an excuse to suggest that these institutions are hopelessly corrupt and should cease existing. Rather, it’s used as fodder for regulatory proposals or as an argument that every right-thinking person should fight these institutions on some particular issue. Corporations should or shouldn’t be rewarded for outsourcing jobs. Academics do or don’t deserve more state funding. The financial industry should or shouldn’t be required to trade credit derivatives on public exchanges.

Unions are the most common big exception to this rule. Sure, conservatives will take whatever chance they can to rein them in, regulate them, make it nearly impossible for them to organize new workplaces. But they also routinely argue that labor unions simply shouldn’t exist. This is what’s happening in Wisconsin: Gov. Scott Walker isn’t satisfied with merely negotiating concessions from public sector unions. He wants to effectively ban collective bargaining and all but do away with public sector unions completely.

Nobody should buy this. Of course unions have pathologies. Every big human institution does. And anyone who thinks they’re on the wrong side of an issue should fight it out with them. But unions are also the only large-scale movement left in America that persistently acts as a countervailing power against corporate power. They’re the only large-scale movement left that persistently acts in the economic interests of the middle class.

So sure: go ahead and fight the teachers unions on charter schools. Go ahead and insist that public sector unions in Wisconsin need to take pay and benefit cuts if that’s what you believe. Go ahead and rail against Davis-Bacon. It’s a free country.

But the decline of unions over the past few decades has left corporations and the rich with essentially no powerful opposition. No matter what doubts you might have about unions and their role in the economy, never forget that destroying them destroys the only real organized check on the power of the business community in America. If the last 30 years haven’t made that clear, I don’t know what will.

Next we’ve got Paul Krugman at the New York Times:

Tellingly, some workers — namely, those who tend to be Republican-leaning — are exempted from the ban; it’s as if Mr. Walker were flaunting the political nature of his actions.

Why bust the unions? As I said, it has nothing to do with helping Wisconsin deal with its current fiscal crisis. Nor is it likely to help the state’s budget prospects even in the long run: contrary to what you may have heard, public-sector workers in Wisconsin and elsewhere are paid somewhat less than private-sector workers with comparable qualifications, so there’s not much room for further pay squeezes.

So it’s not about the budget; it’s about the power.

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions.

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years — which it has — that’s to an important extent due to the decline of private-sector unions.

And now Mr. Walker and his backers are trying to get rid of public-sector unions, too.

There’s a bitter irony here. The fiscal crisis in Wisconsin, as in other states, was largely caused by the increasing power of America’s oligarchy. After all, it was superwealthy players, not the general public, who pushed for financial deregulation and thereby set the stage for the economic crisis of 2008-9, a crisis whose aftermath is the main reason for the current budget crunch. And now the political right is trying to exploit that very crisis, using it to remove one of the few remaining checks on oligarchic influence.

So will the attack on unions succeed? I don’t know. But anyone who cares about retaining government of the people by the people should hope that it doesn’t.

More On Wisconsin

So we’ve already established that Wisconsin Gov. Scott Walker is not trying to balance the budget or otherwise “fix” a deficit (see yesterday’s post).  In fact, the bill itself is going to result in more funding problems, not less.  Menzie Chinn shows us:

Another interesting implication for Wisconsin is that the transit systems would lose approximately $45 million in funds from the Federal government under Governor Walker’s bill. From “Walker proposal could result in $7.1 million cut in federal aid to Madison Metro Transit,” Wisconsin State Journal:

The state received $73.9 million in federal transit funding in 2010, including $22.5 million for the Milwaukee area and the $7.1 million for Madison, according to the memo.

About $27.3 million for the Milwaukee area likely would not be affected because Milwaukee County has a contract with a private corporation to run its transit services, the memo says.

But the remaining $46.6 million, including the funds for Madison, “could potentially be withheld” due to the governor’s proposal, it says.

This is because:

…federal law requires continuation of collective bargaining rights on wages, pensions, working conditions and other conditions to get federal transit money, according to a Legislative Fiscal Bureau memo.

The article observes “[t]he Walker administration did not respond to a phone call and e-mail.” regarding this issue.

Empirical question of the day: who [which income decile] relies the most on city bus systems in Wisconsin?

The bill stripping public employee unions of collective bargaining rights is a pure political power grab instead.  But now we learn that the bill itself isn’t based on some sort of reasoning that opposes theses unions on principle.  Instead, the bill appears to be pure and simple power pay-back at political opponents. It seems the bill exempts four particular public employee unions – the exact public employee unions that endorsed Scott Walker.  As church lady might say, Isn’t that special! How conveeenient!  From the WISC-TV newsite in Madison, Wisconsin:

Walker’s bill would strip state and local government employees, including teachers, custodians and game wardens, of their ability to collectively bargain everything except their wages.

But the measure carves out a special exemption for local police officers, firefighters and the Wisconsin State Patrol.

Critics said the move amounts to political payback for unions that support Walker and could create a schism between government workers.

During his campaign for governor, Walker was endorsed by the Wisconsin State Troopers, as well as the Milwaukee Police and Firefighters associations and the West Allis Professional Police.

In all, five public employee unions endorsed Walker, and four of the five are completely unharmed by Walker’s budget repair bill, WISC-TV reported. Walker has denied that the unions are getting political payback.

Apparently Governor Walker’s favoritism to unions who supported him isn’t being accepted very well. From the same article:

The executive board president of the Wisconsin Law Enforcement Association has issued a statement on the organization’s website expressing regret for the endorsement of Gov. Scott Walker in the governor’s race.

In a post dated Feb. 16, Tracy Fuller writes, “I am going to make an effort to speak for myself, and every member of the Wisconsin State Patrol when I say this … I specifically regret the endorsement of the Wisconsin Trooper’s Association for Gov. Scott Walker. I regret the governor’s decision to ‘endorse’ the troopers and inspectors of the Wisconsin State Patrol. I regret being the recipient of any of the perceived benefits provided by the governor’s anointing. I think everyone’s job and career is just as significant as the others. Everyone’s family is just as valuable as mine or any other persons, especially mine. Everyone’s needs are just as valuable. We are all great people!!” The full statement can be found at www.wlea.org. The executive board president of the Wisconsin Law Enforcement Association has issued a statement on the organization’s website expressing regret for the endorsement of Gov. Scott Walker in the governor’s race.

In a post dated Feb. 16, Tracy Fuller writes, “I am going to make an effort to speak for myself, and every member of the Wisconsin State Patrol when I say this … I specifically regret the endorsement of the Wisconsin Trooper’s Association for Gov. Scott Walker. I regret the governor’s decision to ‘endorse’ the troopers and inspectors of the Wisconsin State Patrol. I regret being the recipient of any of the perceived benefits provided by the governor’s anointing. I think everyone’s job and career is just as significant as the others. Everyone’s family is just as valuable as mine or any other persons, especially mine. Everyone’s needs are just as valuable. We are all great people!!” The full statement can be found at www.wlea.org.

So who’s really behind Governor Walker and his move to destroy collective bargaining for all but the those who support right-wing, Republican causes?  The Koch Brothers.  The same folks who supported the Tea Party movement with behind-the-scenes money. The same folks who funded opposition to healthcare. The same folks who own and make Georgia-Pacific paper products (might want to consider that on your next shopping trip).  From Mother Jones (and many other sources):

Wisconsin Republican Governor Scott Walker, whose bill to kill collective bargaining rights for public-sector unions has caused an uproar among state employees, might not be where he is today without the Koch brothers. Charles and David Koch are conservative titans of industry who have infamously used their vast wealth to undermine President Obama and fight legislation they detest, such as the cap-and-trade climate bill, the health care reform act, and the economic stimulus package. For years, the billionaires have made extensive political donations to Republican candidates across the country and have provided millions of dollars to astroturf right-wing organizations. Koch Industries’ political action committee has doled out more than $2.6 million to candidates. And one prominent beneficiary of the Koch brothers’ largess is Scott Walker.

According to Wisconsin campaign finance filings, Walker’s gubernatorial campaign received $43,000 from the Koch Industries PAC during the 2010 election. That donation was his campaign’s second-highest, behind $43,125 in contributions from housing and realtor groups in Wisconsin. The Koch’s PAC also helped Walker via a familiar and much-used politicial maneuver designed to allow donors to skirt campaign finance limits. The PAC gave $1 million to the Republican Governors Association, which in turn spent $65,000 on independent expenditures to support Walker. The RGA also spent a whopping $3.4 million on TV ads and mailers attacking Walker’s opponent, Milwaukee Mayor Tom Barrett. Walker ended up beating Barrett by 5 points. The Koch money, no doubt, helped greatly.

The Kochs also assisted Walker’s current GOP allies in the fight against the public-sector unions. Last year, Republicans took control of the both houses of the Wisconsin state legislature, which has made Walker’s assault on these unions possible. And according to data from the Wisconsin Democracy Campaign, the Koch Industries PAC spent $6,500 in support of 16 Wisconsin Republican state legislative candidates, who each won his or her election.

It is important to note that the Koch Brothers are not just funding their favorite candidate as an expression of their voting preferences. They are also using their large wealth in deceptive and sophisticated ways to get around legal limits on campaign contributions. Those limits exist so that everybody has at least some of a fair shot at influencing politics. Note too, the Koch Brothers fund a lot “astroturf” organizations – organizations that are named so as to appear nice-and-who-could-be-opposed, but in reality are trying to do things only in the interests of a few folks who know that truth and transparency would be fatal to their cause.  So why are the Koch Brothers funding Scott Walker and a lot of other right-wing conservatives and astroturf organizations? It’s about oligarchy. It’s about power for the rich and more profits. Which means in the end it’s about crushing the middle class. But I’ll tackle that subject in the next post here.

Foundations of Micro Cracking: Altruism as Instinct?

A fascinating interview with Professor Frans de Waal, a Dutch primatologist and ethologist and author of the book, Age of Empathy. de Waal makes a strong research-based case that  cooperation, altruism, and  a sense of fairness are much more powerful and common in driving our moral judgements than mere self-interest.  This apparently holds true in other primates and animals as well as humans.  Since virtually all of neo-classical, mainstream microeconomic theory is based on the assumption that only self-interest governs human behavior, this is significant. (red emphasis is mine).

Are we witnessing the end of an erroneous stream of thinking in which selfishness and self-preservation were seen as the only basic ‘natural instincts’ of all animal species?

PROF. FRANS DE WAAL: For the past three decades, scientists and popularizers have tried to tell us that we and all other animals are inherently selfish, and that the evolution of morality is an almost impossible affair, since nature cannot provide the caring for others needed for morality. I call this “Veneer Theory,” since it assumes that human morality and kindness is just a thin veneer over an

otherwise nasty human nature. This is a position that goes back to Thomas Henry Huxley, a contemporary of Darwin, and has been repeated over and over even though Darwin himself disagreed. Darwin saw human morality as continuous with animal social instincts, and my own work is a return to Darwinian thinking.I am supported in this now by many recent studies that indicate that humans (and other animals) are far more altruistic and cooperative than was assumed. The field has radically changed in recent years. Psychologists stress the intuitive way we arrive at moral judgments while activating emotional brain areas, and economists and anthropologists have shown humanity to be far more cooperative, altruistic, and fair than predicted by self-interest models. Similarly, the latest experiments in primatology reveal that our close relatives will do each other favors even if there’s nothing in it for themselves.

Chimpanzees and bonobos will voluntarily open a door to offer a companion access to food, even if they lose part of it in the process. And capuchin monkeys are prepared to seek rewards for others, such as when we place two of them side by side, while one of them barters with us with differently colored tokens. One token is ‘selfish,’ and the other ‘prosocial.’ If the bartering monkey selects the selfish token, it receives a small piece of apple for returning it, but its partner gets nothing. The prosocial token, on the other hand, rewards both monkeys. Most monkeys develop an overwhelming preference for the prosocial token, which preference is not due to fear of repercussions, because dominant monkeys (who have least to fear) are the most generous.

It is often thought that the microeconomic assumption of self-interest comes from Adam Smith.  It did in large measure, but not to the extent that modern mainstream microeconomic theory has taken it. Smith often wrote of the other motivations and their effects (see Theory of Moral Sentiments as well as Wealth of Nations), but economists have largely ignored them.  In particular in the 20th century when economists copied the mathematical models of Newtonian physics, it was convenient to ignore anything but the self-interest assumption as the motivation of all activity.