Learning from History

Seems like just about every wit to ever put pen to paper, or finger to keyboard, has said something pithy about learning from history yet we, meaning human beings, continue to suck at it. Recently a new scholarly neo-abolitionist journal listed just about every discipline in academe, except history, as under its purview. Not only can history help to reduce the number of people forced to labor on behalf of others, it can help to prevent shipwrecks, like that heart wrenching tragedy in South Korea. How? In Institutional Revolution (2011), economic historian Douglas Allen explains why captains are supposed to go down with their ships -- it incentivizes them to be the best captain they can be, the type of captain who stays sober, pays attention to weather conditions and nautical charts, makes sure that life boats work, people know how to evacuate the ship, etc. Why do you think that commercial airplanes crash so much less frequently than ships sink these days? Airliner pilots are highly unlikely to be able to escape but ship captains, no longer bound by the old rule of being the last on board, escape with regularity.*

Similarly, my Corporation Nation (UPenn 2014) explains why the Left was right to squelch Social Security privatization during the Bush administration. Yep, corporations these days are governed almost as poorly as governments are! The book explains why, while showing how the U.S. came to have so many corporations. It also offers some suggestions on how corporations could clean up their acts. Alas, perhaps due to the high price (which signals scholarly tome in flashing lights), neither the right nor the left has picked up on the book's core message yet, making it almost as disappointing as Fubarnomics, which offered a completely balanced ("hybrid") view of major policy failures such as Social Security, healthcare, higher education, slavery, and the financial crisis. This tells me that most folks are more interested in scoring (largely worthless) ideological "points" than actually fixing these uber-costly messes.

*The latest news reports say that the captain will be arrested. That is a good start but he should not have been rescued until all the passengers were evacuated in the first place.

Kristi Noem's Justice Against Slavery Summit

Attended Kristi's* anti-slavery summit in Sioux Falls So. Dak. this morning. She made sure to meet everyone in the room but it was not a partisan event. No mention of "he who shall not be mentioned" or his administration or any partisan issues. I continue to be impressed by the genuine-ness of the people in the neo-abolition movement!

*We call our Reps, Senators, and other politicians by their first names in South Dakota, as a sign of respect and an acknowledgement of their humanity.

I hated to do it, but I was "that guy" in the back of the room tweeting away. Here are my tweets, in reverse order, and with my editorial comments in brackets. I'm @robertewright if you want to follow:

1. Hypothesis: #humantrafficking and other forms of #slavery directly correlated to income or wealth inequality. Econometricians get on it asap!

   Survivor Carrie: all age both gender @ risk. Vulnerability is individual & manifest. 2 see potential vic look in mirror. #humantrafficking
2. FBI guy says SD has too many small counties for effective enforcement. #humantrafficking #governmentconsolidation
3. Crazy guy from #historiansagainstslavery [me!] just said in q&a that more attention needs to be paid to history, economics. [Kristi agreed so I put her onto Stan Engerman] #humantrafficking
4. Brittany says "vacating conviction" 4 trafficking victims better than expungement as they should never have been prosecuted in 1st place.
5. Brittany says So Dak behind on legal front. Absolutely true but laws don't fix things, action does. Pushes uniform law. #humantrafficking
6. Brittany wants stronger laws. Kids trafficked via child welfare system! Doubt she means gibbeting w/o benefit of clergy. #humantrafficking
7. Brittany [Vanderhoof, Polaris Project] on 1st trip to So Dak happy w size of crowd. Turnout in some bigger states only 10. 50ish here. #HumanTrafficking
8. Carrie 2 explains "guerilla pimping" perpetrated by native american female gangs. Initiation includes gang rape! #humantrafficking
9. Another Carrie [Kerry Stephenson] helps trafficked Amerindians: sex tourism in Sturgis & huntingcamps. Women on IRs particularly vulnerable. #humantrafficking
10. Survivor "Carrie" says her enslavers have not been apprehended but she must speak out, help others, despite risk. Vics are brainwashed.
11. FBI guy [I may have this wrong. May be Captain Paul Niedringhaus, Minnehaha County Sheriff’s Department? IDK] says they are working both supply and demand sides of the problem. Great! But how many economists are involved? #humantrafficking
12. FBI guy says we all have to work together ... wonder if 5-O [police] could do more if they weren't chasing drug stats? #humantrafficking
13. Speaker #1: "This is an issue we've never faced before." A USD prof [Elizabeth Talbot, PhD, MSW, MS, CSW-PIP, who approached me later to say she does recognize the problem has a past], obviously not an historian. HAS has work to do! #humantrafficking
14. How often do you see politicians, 5 oh [uniformed police], ACLU, nuns, recent college grads, etc. in the same room agreeing with each other? #humantrafficking
15. Attending Rep Noem's antislavery conference in Sioux Falls today. @HASlavery #HumanTrafficking

Inequality for All = An Inconvenient Truth

Yesterday evening (2/20/14), my college showed Robert Reich's documentary Inequality for All to interested students, faculty, and members of the community and had the good sense to ask me to join a post-viewing discussion panel. The format was not shared with me beforehand so I brought a variety of props (one of which I threw across the stage at one point but not at anyone). I can't reproduce the discussion here, but I can share the remarks that I prepared (and did not have the opportunity to read). In short, Reich's name is very Dickensian as he has produced a (albeit liberal) propaganda film and narcissistic memoir best relegated to Billy Joel's "discount rack like another can of beans."

In his new documentary, Inequality for All, Robert Reich, who is no relation of mine by the way, is trying to match the success of Al Gore’s 2006 documentary An Inconvenient Truth. The documentaries are similar in important ways. Growing income inequality, like global climate change, is undisputable and both are clearly problems, by which I mean outcomes that policymakers should strive to mitigate rationally. The magnitude of both problems, however, remains unclear and, more importantly, the causes of both problems remain contested. The causes are the crucial thing because they lead to policy recommendations and possibly to actual policies with real world repercussions. Policymaking is tricky business even when the causes of a problem are clear. When policymakers have the causes wrong they are almost certain to develop the wrong prescriptions. I think Reich’s analysis is off the mark because instead of following the evidence in a nonpartisan manner, as he promises early in the film, he leans heavily on liberal causes. That was a double entendre by the way.

Please allow me to provide an exaggerated example so there is no mistake here. Reich is doing the equivalent of pointing out that sometimes grain mills explode. Sure enough, that is the case, though he exaggerates the extent of the problem by not dropping mills destroyed by military action or other external causes from the data. Then, Reich ascribes grain mill explosions to an excess of bilious humors that increase the amount of phlogiston to the point that an explosion is inevitable. If you have never heard of bilious humors or phlogiston, good for you as they were concepts long ago abandoned by scientists because they were nothing more than conceptual black boxes that could not predict when grain mills would explode or anything else for that matter. Reich has done something analogous here by pointing to a real problem, income inequality, but exaggerating it somewhat and, more importantly, attributing the wrong causes to it.

First, the exaggeration. Reich uses data on Real Wages, which have indeed stagnated since the 1970s. Real total compensation, however, has continued to increase. The difference is fringe benefits, especially healthcare.  Here is the chart, right from the St. Louis Federal Reserve’s FRED data system:

The core problem on the bottom end of the distribution, then, is not the demise of labor unions or low marginal tax rates on the rich but rising healthcare costs. Reich probably blames healthcare costs on quote unquote markets but in fact the core problem is a hybrid of government and market failures, of which the most important are government tax rules, first implemented during World War II, that encouraged the development of health insurance provided via employers. That led to a whole host of problems, including runaway costs and large numbers of uninsured individuals. I analyze the healthcare crisis more fully and offer solutions in two books, Mutually Beneficial and Fubarnomics.

Real wages have stagnated and real compensation increases have slowed because of globalization, which is just jargon for competition. The 1940s, 50s, and 60s were so sweet because the U.S. emerged from World War II not only unscathed but with tremendous productive capacity and hence was able to extract monopoly rents from the rest of the free world and even from the Soviet bloc to some extent. Unions waxed over that period because there was plenty of free money to go around. By the 1970s, however, the monopoly was gone as evidenced by the disintegration of the Bretton Woods system of fixed exchange rates, and Americans had to compete against Europeans and East Asians at both home and abroad. That competition was a good thing for the U.S. economy as it forced Americans to work harder and smarter but it also meant that the expectations of many Americans, especially those who assumed, for reasons that I’ll never quite understand, that an easy life was their birthright, were more Dickensian than Great. (I sincerely hope that you are enjoying the delectable word stew I have created for you today.)

Of course the disappointment of poorer Americans is relative: better to be in the bottom quintile of incomes in the U.S. than in the middle class, even the upper middle class, in most of Latin America, Africa, Central Asia, or Micronesia. But Reich doesn’t want to consider world income distributions even though there is a wonderful little book out about it, The Haves and the Have Notes, by Branko Milanovic, who points out that the global Gini coefficient, a widely used measure of inequality, is 70, far higher than the 45 that the U.S. currently registers.

The Gini coefficient in South Dakota, by the way, is 33, tied for the lowest in the entire nation and similar to that of the western European democracies that left leaners so love. Clearly, there is more to income distribution than just politics but you don’t hear that from Reich, who wants to concentrate on real wages in the U.S. because that allows him to pull out his Keynesian jargon about consumption and the need for a strong middle class, whatever that is. It’s all as much economic voodoo as trickle down economics ever was. Producers have a good idea what the income distribution in their markets is like and respond accordingly. Where income inequality is high, for example, they target a high margin luxury niche and/or make their wares as affordable as possible in a low margin mass niche. Check out C. K. Prahalad’s The Fortune at the Bottom of the Pyramid for details.

            Another inconvenient truth, unitalicized and uncapitalized of course, about Inequality for All is that Reich also fails to adequately explain the movement at the top of the distribution, to wit why the rich are getting richer. Globalization is at play here, too, at least when it comes to top actors and athletes, who now reach audiences that number in the billions. That is just market forces at work and taking Reich at his word that he is not a socialist there is nothing to be done there. Of course the title of the documentary, Inequality for All, belies Reich’s real views. The Pledge of Allegiance reads “with liberty and justice for all” and says nothing about equality. Reich can’t mention liberty, however, because his policies restrict it and he can’t rely on justice because we can’t agree on what it means.

In any event, when it comes to CEOs, market forces are not at play. Reich can’t see that because he conflates markets with corporations, a mistake that many left-of-center thinkers make. Corporations interact with other corporations and with consumers in markets but within themselves corporations are essentially governments and hence subject to politics and power plays. Due to a combination of market and government failures that I explain in detail in my new book, Corporation Nation, the ability of stockholders to minimize managerial rent seeking has waxed and waned over time. Most importantly, it waned after the Great War and after the Fall of the Wall, leading to increased rent seeking by CEOs and other top executives, variables that Reich is completely oblivious to in his infamous bridge graphic. Let me be perfectly clear here: inequality in the U.S. is rising in part because stockholders and governments have, once again, allowed CEOs to determine their own compensation without effective checks or balances.

            The same loss of checks and balances has made Washington rich as it sucks resources from the rest of the nation into its gaping maw. Suburban Washington now boasts several of the counties with the highest per capita incomes in the nation because they are chock full of high level government officials and government contractors. Reich claims that Americans at all income levels don’t want to pay taxes. I counter that Americans happily pay taxes when they know it is going to provide services that they actually need and in a relatively efficient way. Reich wants to restart his so-called virtuous cycle, which by the way is full of non sequiturs and other half truths, by taxing the rich instead of by trimming back government spending. We don’t need to throw more cash into DC, we need a government that uses what it already has more effectively. That means reforming education, including higher education, and not just shoveling more money at the problem. America already spends more per student than most of its peer nations do, it just doesn’t get as much bang for the buck because its schools and colleges don’t teach independent thinking as well as they could. For details, see my Fubarnomics or my Higher Education and the Common Weal: Protecting Economic Growth and Political Stability with Professional Partnerships, which was so radical that it was only published in India.

In conclusion, Robert Reich is right when he says that income inequality is increasing. He is also right that inequality is problematic but due to its negative effect on incentives to work hard and smart not due to kooky Keynesian concepts. Reich’s analysis of causes and hence his policy suggestions are way off base. If we fix corporate governance, healthcare, higher education, and the social safety net, inequality as measured by the Gini coefficient will decrease to the mid-30s of its own accord. If resorting economic freedom doesn’t work, then, and only then, we can think about increasing tax rates, keeping in mind, however, the inconvenient truth that with the free flow of capital globally actually collecting anything over 50 percent is highly unlikely, which is why the marginal rates were reduced in the first place. Thank you and God bless.

Viral Video on the History of the Federal Reserve

Word on the web is that a documentary on the Federal Reserve that I am interviewed in has gone viral, in the good sense of course. That is the one that Augie covered several days ago here. The documentary, put together by economist Murray Sabrin at Ramapo College in "Joisey," is embedded below. Enjoy!

America: Time to Learn From So. Dak.

I published the first two grafs below on the FacultyRow site several days ago but ran out of words. Here they are again, along with my closing thoughts.

America’s huge economy is finally showing signs of renewed vigor but it still faces significant headwinds in both the long and short terms. Inflationary pressure has been building for some years due to the rapid and sustained increase in the Fed’s balance sheet following the Panic of 2008. The monetary pressure may become insurmountable if the economy continues to heat up and the federal government continues to run large deficits. Longer term, the U.S. economy may face several crises related to the effects of changing demographics and runaway healthcare and higher education costs at a time when confidence in the federal government’s ability to do anything right, much less to implement substantial reforms, is at a very low ebb. 

Most troubling of all is the decline in Americans’ “economic freedom” as measured by the Heritage Foundation. The United States now ranks tenth in the world and its absolute score has declined for five consecutive years. Numerous studies have shown that economic freedom is highly correlated with sustained economic growth and many scholars believe, after removing the statistical noise created by the business cycle and one-off shocks like wars, that economic freedom is the root cause of growth. Bigger, more intrusive government, especially one that is no longer trusted by many citizens for a variety of reasons, is not conducive to entrepreneurship, especially of the more growth-inducing innovative and inventive varieties. Crony capitalism, one of the “bad” forms of capitalism identified by Will Baumol et al, appears ascendant.

Policymakers, pundits, and concerned citizens looking for a way out of this morass will find much to learn from South Dakota, America's freest state (and just a smidge less free than Alberta, the freest place on the continent). Although solidly Republican, the state is highly democratic; its people demand efficient government and usually get it, at least relative to many other places globally and even nationally. Congress has finally passed a budget, but one that doesn't solve any fundamental problems. Washington should not waste this reprieve but instead use it to really analyze government services and cut what is not needed, privatize that which can be privatized without endangering national security or the economy, and streamline the rest. If it makes those decisions based on independent studies and not partisan politics it will win back some respect and can then start to work on cronyism.

Jon Stewart: Gutless, (Economically) Brainless, but so Funny!

Jon Stewart has been making me laugh for over a decade now ... I started to tune in to The Daily Show just before the invasion of Iraq. He has often made the right calls politically and diplomatically over the years but almost every time he tackles economic or financial subjects, he sounds like an uncastrated male bovine with diarrhea. (That means a bunch of bullshit in case you missed the joke.) Last night was no exception as he berated somebody for asking if a $15 minimum wage is good for the economy, why isn't a $100,000 minimum wage? Of course nobody means that as a serious question. What she was really asking was how do central planners (like Stewart and others advocating for a higher minimum wage) know that $10 or $12 or $15 is the "right" figure economically. (As opposed to the one that is high enough to meet their policy objectives, which apparently is to garner votes for Democrats, who are hurting after the Obamacare website fiasco, but not so high as to cause inflation, immediate derision, etc.) Once you seriously begin to consider what the minimum wage "should" be economically, it soon becomes a silly exercise because the cost of living varies over place (and time) and the ability of businesses to pay it varies over industry, location, season, and so forth. A central planner who was really interested in the commonweal, i.e. in the most economically efficient outcome, would soon begin to pine for some sort of mechanism for balancing the number of workers with the need for workers in each industry ... and oh geesh there it is, supply and demand. If S&D lead to an equilibrium that is not socially efficient, direct subsidies are much more efficient than distorting the labor market with a wage floor.

I call Jon Stewart "gutless" because he won't have me on his show. He knows I will show him up and generally kick his knee jerk liberal, uneconomic brain all over his own stage and do it in a funny way too. I have sent him books before, with handwritten notes, etc., and never so much as a query has come from his office. He has another opportunity now, with the launch of my Corporation Nation from the University of Pennsylvania Press on Monday, December 9, 2013. The book should appeal to him at some level because it shows that corporate governance has broken down, giving execs too much power over their own compensation, by exploring in detail for the first time early U.S. corporate governance rules, which contained numerous checks and balances against arbitrary power that began to seriously erode after the Civil War and today are almost completely gone. I'll be on the East Coast a few times over the next few months to make it even easier for him to finally have on his show an intellectual who is not part of the NE academic elite. But he won't because he is afraid of what scholars in the Midwest might think or say, setting back his apparent attempt to brainwash his viewers with liberal economics of dubious (to say the least!) merit.

Slavery Today

Substance of a Talk Given in Madsen Center 201, Augustana College So. Dak. at 3:30 pm, 3 December 2013:

I got interested in modern slavery soon after coming to Augustana College because I was disappointed with a student in my U.S. history survey course who kept whining about how she couldn’t believe that quote unquote WE stole the land of Native Americans and that SHE would have stopped the exploitation of Indians. When I pointed out that she was doing nothing to help Native Americans today and that they were still very much exploited, she shifted to abolitionism and complaining about what quote unquote WE did to Africans. Two minutes on Google allowed me to bash her over the head, metaphorically speaking of course, on that one too. 

Only later did I realize that I should have thanked that student for awakening me to the notion that the study of history can do more than make us feel good or bad about the past, it can help us to change the future. Now I am the Academic Director of Historians Against Slavery and editor of “Slavery Since Emancipation,” a new book series being published by Cambridge University Press that publishes books that show that knowing something about the history of slavery and abolition can help activists today to reduce slavery worldwide.

The idea that slavery still exists in the world today may sound preposterous at first, but that initial incredulity evaporates when we reflect on North Korea or other totalitarian states that clearly condone political or Lockean slavery, i.e., the subjugation of people to the arbitrary will of some leader or his agents.

          The notion that economic slavery persists to this day might seem strange at first, too, until one becomes aware of labor conditions in many Less Developed Countries, the politically correct term for what we used to call undeveloped or Third World nations. 

Please note that I refer here not to sweatshops, which may or may not be staffed by persons working against their will, but to conditions like those depicted in the 2006 film Blood Diamond starring Leo DiCaprio, where workers are essentially abducted and forced to labor for others. That is very different from someone choosing to work in a factory for a pittance over selling fruit for half a pittance or not working at all. 

What separates the slave from the non-slave is personal agency, or the ability, in other words, to choose a course for oneself, even if the alternatives do not appear very savory to the individual worker much less to rich world observers. To be a non-slave is not to have the God-like power to arrange the universe to one’s liking but to take the world as it comes and change between existing paths as one sees fit, not as directed by another. For example, I do not count myself a slave because I was too fat, slow, and weak-armed to play Major League Baseball. I am a non-slave because when confronted with the reality of my inability to consistently hit 90 mile per hour sliders I chose where to go next with my life. Some might even call that freedom but it certainly is not slavery.

That economic slavery exists in the United States, and even right here in Sioux Falls, surely must be false, right? How could anyone be forced to labor for another in the U.S. today? There are no cotton plantations in So. Dak., no slave coffles are observed on Louise Avenue, or even Minnesota Avenue, and no runaway slave notices appear in the Argus Leader. That is all true because chattel slavery was abolished throughout the United States, and indeed the entire world, by the end of the second half of the nineteenth century.

But as anyone who has ever scored some alcohol before age 21, or a little weed outside of certain states, or maybe smoked some crack with Toronto mayor Rob Ford knows, making something illegal does not eliminate it but merely forces it into new forms. Slavery never went away but transformed into debt peonage, convict labor, and sex trafficking. It is not as important economically as it once was but that does not make it right or reduce our moral obligation to free those currently ensnared. 

Today, slavers keep their slaves hidden from open public view through a variety of techniques ranging from actual physical restraints to threats against family members to subtle psychological manipulation. Even in antebellum American slavery, most of the barriers to slave freedom were invisible, psychological rather than physical. Most slaves did not slay their masters or run for the North because slavers taught them that they were inferior and worked hard to deny them access to information that would aid rebellion or escape. Slavers do the same today.

Right here in Sioux Falls, in June of this very year, 37-year-old Carl Campbell of Sioux Falls received three life sentences plus 40 years after being convicted of luring minors and young adults into his power and forcing them to engage in commercial sex acts in the Sioux Falls area and elsewhere. That was one of three local cases cracked this year alone. How many are as yet undetected? Certainly more than zero because South Dakota’s sex trafficking laws have been ranked as the weakest in the nation and not all criminals are morons and hence will gravitate to where the likelihood and costs of getting caught are lowest.

Many of the prostitutes that service the Sturgis Motorcycle Rally and some pheasant hunting lodges are trafficked. In other words, they are tricked, cajoled, bullied, and intimidated into selling sex and are not doing it of their own accord. Some are shipped in from other states or countries for those and other events while others are Native, with a capital N. For more details, see Be Free 58’s website, befree58 dot org.

Modern slavery entails more than sex trafficking.  Slavers force people to do other sorts of work as well, usually low-skilled work. In 2007, for example, Robert and Angelita Farrell were convicted of forcing Filipinos to labor at their Comfort Inn and Suites hotel in Oacoma, which is just across the Big Mo from Chamberlain in case I pronounced it wrong. The enslaved Filipinos said that the Farrells controlled every aspect of their lives, including what they ate and where they lived as well as their working hours and tasks. The Farrells issued paychecks but then forced their slaves, under threat of turning them into federal immigration authorities, to endorse them back to the Farrells.

It doesn’t bother me when people work long, hard hours for what seems to be little pay so long as compensation is set fairly, which is to say by the market forces of supply and demand. But when employers steal from their workers by forcing them to accept below market wages they need to be stopped, fined, and imprisoned. And the victims, the enslaved individuals, need to be helped. That is where students like you can help the most, by providing resources to NGOs that interdict slavers and help victims to recover from their ordeals and to reduce their vulnerability to re-enslavement. Forming an Augie chapter of The Free Project, which is now part of Historians Against Slavery, is one way to do so. It is easy to do and the chapter itself gets to direct where every dollar it raises goes. Check it out at thefreeproject, all one word, dot org.

Thanks! I can take a few questions.