Review of Capitalism: A Love Story

Michael Moore’s latest documentary is of course anything but a love story. From the first seconds of the film to well into the last reel, Moore pulls no punches. As is usual for a Moore film, sob stories are intermixed with sobering visuals and powerful factoids. One moment we are witnessing a girl sobbing over her dead mother and the money Wal-Mart made off of her death (more on that later), and the next moment we are looking at what looks like a PowerPoint presentation showing us how the middle class has been deteriorating over the past few decades.

Criticize Michael Moore all you want, but this film clearly demonstrates countless hours of research. While many, including myself, don’t agree with how Moore interprets some of his research, his data is very sound. Moore also does a wonderful job interviewing famous and not-so-famous individuals. For someone that does a lot of qualitative interviewing, I respect his ability to conduct such high quality interviews no matter how many takes he may have had to get it right. There are several memorable takeaways from this film including how derivatives are extremely complicated, dead peasant insurance is  immoral, and FDR would have rolled over laughing in his chair (ROLIHC?) if he heard people calling Obama a socialist.

On derivatives, Moore does a nice job of demonstrating how industry insiders who made fortunes off of these fuzzy devices can’t even begin to explain them. As one insider who couldn’t put derivatives into words put it, “you could put a derivative on anything.” After satisfactorily demonstrating how screwed up capitalism has been over the past few decades, Moore then comes to a fairly odd solution to this problem. Instead of saying that communism or socialism was the answer to a failed system of capitalism, Moore posits that –surprise–wait for it–democracy is the answer. All plugs aside, he might just as well have offered off demockracy as the solution.

First of all, offering a political system as the answer to our economic problems seems like a bit of a cop out to me. In addition, he offers a political system that we’ve never even had in this country. Technically speaking, we live in a republic, not a democracy. While Moore is 100% right in his critique of the abuses and the absolute failure of unchecked, unregulated capitalism in recent years, I expected a more nuanced solution from someone of his supposed intellect. There is no one right answer here. One could argue for a little more regulation under the same basic system, fundamental changes in regulation in the same system, or even a move to more of a redistributive system. Those, at least, would have been largely economic arguments that would have forced one to defend his or her version of utopia against the status quo and other available alternatives.  Instead, Moore essentially says that world peace is the solution to our health care problems. Who can be against world peace? Democracy? What was the problem again?

On dead peasant insurance, Moore brings up an issue so unscrupulous and  immoral that millions of Americans undoubtedly shook their heads in disbelief that they had never heard of this before (I was one of them). In a nutshell, dead peasant insurance is the insider name for insurance policies that companies take out on young largely lower-level employees (hence peasants) that name the company (and not the families of the employee) as the beneficiary if the employee is to die (hence dead) while in their employment. Essentially, the company earns money the more seemingly healthy young employees die prematurely in a given year. While in many ways this type of policy may be fundamentally no different than many other mechanisms that companies use to diversify risk (derivatives?), the utter lack of transparency around these policies make us all rightfully assume the worst. The interesting thing is that Moore shows evidence that these policies aren’t limited to one sector or to a bunch of fly-by-night companies, but rather are seemingly pervasive among many blue-chip corporations. If anything comes of this movie, it will hopefully be pressure on corporations and other companies to at the very least be transparent about these seemingly gross bets. If they’re not as bad as they seem, fine, open up your books. Sunlight is always the best disinfective.

Finally, the film ends on a poignant note showing us FDR’s 1944 fireside chat where he proposed a second bill of rights that was largely economic in nature:

As shown in the video above, these rights included:

1. The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.
2. The right to earn enough to provide adequate food and clothing and recreation.
3. The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.
4. The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
5. The right of every family to a decent home.
6. The right to adequate medical care and the opportunity to achieve and enjoy good health.
7. The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment.
8. The right to a good education.

While a few of these may be a bit antiquated, on the whole they seem like largely “reasonable rights,” most of which have yet to be achieved. Above all, this speech is a clarion call to those who are proud to call themselves liberals or progressives. In this light, it seems ridiculous that anyone call the current President, who has yet to be bold enough on any of these issues, anything more extreme than a moderate. The movie also reminds us that despite being extremely popular with the majority of the populace, FDR was a big threat and thus largely hated by much of the top 1% of this country and many of those who believed that they were destined to be in the top 1% someday. Despite the triangulation of recent Democratic presidents, FDR realized that people hating you was a pretty good indication that you were actually getting something done. In fact, FDR makes this final argument of the film better than Moore could have ever made it himself. For that, I give Moore credit.

Michael Moore’s Romance with Capitalism

Michael Moore is coming out with another film to let us know more about evil corporations (as if we didn’t already know), Capitalism: A Love Story.

This new movie is the subject of this week’s cartoon.

Moore has been know to use questionable,  deceptive, and misleading tactics starting all the way back with “Roger & Me.” Now that GM and the major investment banks, the target of much of Moore’s criticism, have been forced to reinvent themselves, a new release gives the filmmaker a chance to bask in his pyrrhic victory.

The screening of the film begins with an  “alms collection” for the “host of needy banks.” While greed did serve as a major driver of the financial downturn, it’s too simplistic to blame capitalism per se – instead, there’s a lesson to be learned about human nature here, independent of the regulatory system.

Further, it’s interesting that a film criticizing capitalism is released to earn profits from sensationalism.  I don’t plan to buy a ticket– there are plenty of other worthwhile things to spend my money on during this financial downturn.

I Changed My Mind on Employee Free Choice

Berkeley is filled with bumper-stickered cars. One of a Berkeleyite’s favorite hobbies is telling everyone what his socio-political opinions are by declaring them on the bumper of his car. That car is most likely either a Toyota Prius (with its increased gas mileage, it saves the planet) or the Subaru Outback (which not only gets good mileage, but every model has all-wheel drive: great for the Berkeleyite’s frequent trips out to nature).

One of my favorite bumper stickers is: “Unions: The folks who brought you the weekend.” And it’s true. In this country, we can thank labor unions for a lot of the things we take for granted today in our jobs. Before labor unions, there was no redress for employees who were working long days in unsafe conditions. Upton Sinclair’s 1906 novel The Jungle was supposed to be about the horrible working conditions that slaughterhouse employees had to endure, but as Sinclair famously said, “I aimed at the public’s heart, and by accident hit its stomach.” The Jungle is famous not for its exposure of deplorable working conditions, but for its graphic depiction of unsafe food preparation.

It wasn’t until 1935 that Congress passed the National Labor Relations Act, which affirmed government support of unions, collective bargaining, and placing restrictions on what employers could do. At the turn of the century, businesses viewed unions with a combination of suspicion and disgust. Unionizing was socialism, and socialism was antithetical to the United States and its tradition of capitalism. Eventually, though, the country grew up and realized that the employer-employee relationship was hideously skewed in favor of the employer. In an industrialized economy — that is, an economy where people work for others instead of themselves — employers have tremendous power to enhance or destroy the lives of employees by hiring or firing them. And because an employee is a single person, he has little recourse when faced with the considerable power of an entire company.

Enter the union, the job of which is to leverage the power of all the workers in a firm against the firm, should it become necessary. Unions today enter into legally-binding agreements with firms. These agreements specify things like benefits and wage rates. When a union agreement is about to expire, it needs to be renewed. At this time, the union and the management each tries to re-negotiate the contract to get the best deal. If the two sides don’t come to an agreement by the time the contract expires, then the union members go on strike. They will refuse to work without a contract specifying exactly what their benefits will be.

But you’ve got to have a union first. According to Robert Reich, formerly Secretary of Labor in the Clinton administration and now a professor of public policy at the University of California, Berkeley, 1/3 of working Americans belonged to a union in 1955. In 2009, only 8% of workers belong to a union. Part of this trend has to do with the loss of manufacturing jobs in the United States. But even this doesn’t entirely explain the decline in unionization: Toyota, the most profitable auto manufacturer in the world, is a non-union shop. Its workers are not unionized, but they have good wages and benefits. Toyota is a benevolent employer. Wal-Mart is quite the opposite. Its workers make a little above minimum wage and they largely have no benefits. Wal-Mart is famously and virulently opposed to unions, engaging in practices that, if pursued by the National Labor Relations Board (NLRB), would probably be prosecutable in court. Wal-Mart has closed entire stores rather than suffer the possibility of unionization. We cannot always rely on the benevolency of employers in order to get good wages and benefits — hence the existence of unions and a national framework that supports them.

I have written before about the current process of unionization, as have other Demockracy writers, and I will not go into it here. Again, we come around to the Employee Free Choice Act (EFCA), which would augment the current system of union creation. Again, I have before explained how it would work. In my previous pieces, I came out against EFCA because it does not have a secret ballot. How, I said, can we get an accurate assessment of whether or not people want to unionize without a secret ballot? I neglected another factor: employer pressure between the initial petition and the actual election. During this period, which usually lasts between 30 and 60 days, employers dramatically increase pressure on employers not to form a union. This pressure can vary from the benign (”workshops” in which union-busters explain to employees why unions are actually bad for them) to the criminal (openly threatening employees with termination if they join unions). Starbucks was found guility of the latter when it fired some employees at a Manhattan store who tried to unionize.

It is this pressure period that causes the disparity we see between the numbers in the initial petitions and the actual elections. An apocryphal 1989 AFL-CIO organizing document declares that, according to its statistics, 75% of employees at a firm need to sign the intitial petition in order to get 51% in the final election. There has not been a study (that I have access to!) that examines the causality of this phenomenon. It could be attributed to peer pressure; that is, when employees’ names are visible, employees will say they want to unionize, even when they don’t. In the privacy of the secret ballot, they are free to vote against the union. But there is another possibility: that employees really do want to unionize, but after two months of propaganda and open threats, employees decide that they don’t want to unionize, after all, due to the possibility of losing their jobs. We have no way of knowing what employees truly want, since there is no test we have that is free from bias, whether from the employer or other employees.

Even though it’s illegal for an employer to fire — or even threaten to fire — an employee for unionizing, it happens routinely. As is pointed out in this sourcebook on EFCA from the UC Berkeley Center for Labor Research and Education, employers treat NLRB fines (the punishment for violating labor law) as just another operating cost. They will gladly fire employees and then pay the fines, since, in the long-term, paying the fines is cheaper than dealing with a union. Fortunately, one of EFCA’s provisions is to increase the penalties for violating labor law, but even then, the fines are still not so large that the world’s large anti-union companies — Wal-Mart, Starbucks, and Whole Foods among them — cannot write those fines off as operating costs and call it a day.

The only way to forestall those threats is to allow union creation immediately, which is the point of EFCA. It assumes that the initial petition is the gold standard for union desirability and declares that, if a majority of employees state on the petition that they want to unionize, then a union is immediately formed. This way, employer interference in the unionizing process is minimized.

Contrary to anti-EFCA propaganda, the legislation does not “eliminate” the secret ballot. If a union petition garners greater than 30% but less than 50% of employees’ approval, then the secret ballot process is initiated. EFCA does only what makes sense: namely, if at least half of the employees in a firm support a union, then the union is created. The in-between time is often useful only for anti-union employers, who will use the time either to persuade or to threaten.

So, I’ve totally changed my opinion of EFCA. All else equal, making union formation easier is not a bad thing.

Car Trouble? Let’s Bail

With the struggling auto industry predicting its own demise, there has been resistance by some Republicans on Capitol Hill to bail them out. And for those of us who haven’t been comatose the past eight years, we may have a knee-jerk reaction to disagree with anything Republican. So we may think bailing them out is a good idea. But let us not be so quick to judge a policy by its opposition.

“It’s insanity,” said Libertarian Party spokesperson Andrew Davis in a newsletter released Wednesday. “It’s insane that we keep going back to the taxpayers to bailout struggling corporations who, for lack of good management and sound business practices, have become unprofitable. Who in Congress is standing up for the taxpayers?”

When talks began a month ago about bailing out the struggling auto industry, I initially felt a little better about bailing them out than, say, bailing out the financial industry. In my mind, both the financial industry and the auto industry were greedy and stupid. All they wanted was more money, and they didn’t care about any negative repercussions of getting a lot of it.  However, also in my mind was the feeling that while the financial industry was mostly greedy with a good helping of stupid, the auto industry was mostly stupid with a good helping of greedy–and for some reason, I was more sympathetic to the mostly stupid.

Like many individuals, the auto industry had the mindset–sometimes referred to as path dependency–that if it has worked in the past, why wouldn’t it keep working? So, they kept building bigger cars that got fewer miles per gallon. Then, when gas prices skyrocketed, people started buying smaller, more fuel-efficient cars. This left American automakers–who had been building half-ton trucks and wide-load Hummers–with lots full of beasts they couldn’t sell.

Production went down, sales went down, and now they’re nigh unto hopeless. Some may want to blame the American people–who wanted these gas-guzzling mammoths, especially when gas was so cheap–and say that auto makers were going where the market was. Perhaps if things had stayed where they were–with gas prices and demand and such–they would have kept doing well. But when it comes down to it, automakers were being ignorant to the reality of the situation–that people would eventually want cars that ran on alternative fuels. A lack of long-term strategic thinking left the industry too vulnerable to sudden shocks in demand.

So what Detroit needs more than billions of dollars in bailout cash is some good leadership. As has been mentioned by others, the big three automakers need a complete restructuring–not an influx of money. All of the CEOs with their private jets and their fancy suits need to be standing in the unemployment line while new, fresh, smart leaders take the reigns to save the industry.

A government bailout–the very kind these aforementioned Republicans are resisting–doesn’t allow for that to happen and undermines the principles of the American free market economy. You see, the idea of capitalism and free market-ism is that the general population should run the economy. They decide what they want to buy and whom they want to buy it from. Those organizations that make mistakes, sell bad products, or poison their customer will soon be out of business; while those individuals who make bad choices with their money–or lack of money–will soon be begging on the streets.  Every so often, in order to grow in the long run, the market must flush out its waste water. People need to suffer the consequences of their bad decisions or they’ll never learn to do it differently the next time.

But bailouts turn the government into some sort of indulgent parent: “Oh you don’t have money for that? Here let Mom and Dad pay for it. Just promise to pay us back.” And as we all know, when someone has tons of bills to pay, the last people on the list to pay back are always the parents. Just like the $700 billion bailout of the financial industry, an auto industry bailout is not letting capitalism happen. When the government steps in instead of letting the greedy go bankrupt and the stupid go further into debt, that’s not capitalism.

There’s a natural ebb and flow of the economy (this time it’s, admittedly, a large ebb and/or flow). But let people learn from others’ mistakes. Let us be able to look back on this 20 years from now and realize what went wrong and the negative consequences of those actions. Without letting these companies fail, we will create moral hazard. In other words, there will be no incentive in the future to perform better , because, no worries, the government will just bail you out!

But even if the auto bailout does pass, let’s hope that’s the first step and not the last. Money doesn’t solve everything. The only way the money will do any good is if real, radical change takes place from top to bottom. There needs to be an industry-wide shakeup, and new leadership needs to step in, step up, or step out. There needs to be accountability.

Republicans, Real America, and S&M

John McCain’s arguments about Barack Obama’s tax plan rely upon a misunderstanding of how taxes work, in much the same way intelligent design proponents rely on a misunderstanding of how evolution works in order to get people to believe them. The Internet would call this tactic “FUD,” which stands for “Fear, Uncertainty, and Doubt,” and it is largely the way McCain has run his campaign. By planting fear of Barack Obama (he “pals around with terrorists”), uncertainty about Barack Obama (he’s inexperienced) and doubt about Barack Obama (he hasn’t even done anything significant in his time as a senator) in the minds of American voters, McCain can focus more on the qualities Obama lacks than the qualities that he, McCain, possesses.

On Meet the Press Sunday, McCain said that “CEOs” of companies like FedEx pay a 35% marginal tax rate. This is an intentionally misleading statement; CEOs do not personally pay any taxes for their companies. A “corporation” is created for the purpose of doing business without fear of personal liability. If the corporation incurs debts, then it is the corporation that is liable for those debts; the personal assets of the employees of that corporation cannot take the place of the corporation’s assets.

The separated assets of the company and its employees mean that the company doles out salaries to its employees. The corporation has a payroll, and employees – which includes CEOs and other executive officers – are compensated out of that payroll budget.

CEOs pay 35%? No, “CEOs” don’t pay 35%. Their companies pay 35%. They don’t personally pay anything, except their own personal taxes. A company pays 35% on its revenues. A person pays depending on his salary. Now, a business owner may decide how much to pay himself as an employee, but that does not change the fact that what the business makes and what the owner makes are separate things. As Obama has observed, 90% of small businesses make less than $250,000 and are therefore incapable of paying their owners an amount that would cause the owners’ taxes to go up. How many small business owners do you know who pay themselves more than $250,000? And if a small business owner does personally make more than $250,000, then he can certainly afford the tax increase. That’s the point of a graduated, or progressive, tax: the marginal tax rate increases as income increases because people who make a lot of money can afford to pay more than people who don’t.

The argument behind giving tax cuts to people who make a lot of money is that they are in a better position to take that tax cut money and purchase things or reinvest that money in the economy. This is called “supply-side” economics because it works on the side of people who, theoretically, provide the economy with goods and services; i.e., business-owners. Give business owners more money and they will employ more people – that is to say, people on the “demand side” of the economy. This is often referred to as “trickle-down” economics because the benefits of tax cuts given to the people at the top (in terms of income) will eventually trickle down to the people at the bottom (in terms of income).

Whether or not the trickle will ever come is unknowable. In the last eight years, we’ve seen the wealthiest classes increase in size, while the middle class has decreased in size. In 2007, the median household income in the United States was $50,740. 4% of households made $200,000 or more. 18.9% of households made between $50,000 and $75,000. In 2000, 2% of households made $200,000 or more, while 19% of households made between $50,000 and $75,000. On average, American households as a group have become wealthier, but only a small group of people has actually been the beneficiary of that wealth.

Obama’s plan to “spread the wealth around” sounds very much like the system Marx envisioned: “From each according to his abilities, to each according to his needs.” The question is, what’s wrong with that? To criticize a plan as “Marxist” is to deploy an ad hominem attack, an attack that addresses the person arguing but not the argument itself. Calling a particular tax plan “Marxist” does not address the argument: okay, if it’s Marxist, what does that mean? What’s wrong with that? Conservatives use “Marxist” as a proxy for “bad” without ever mentioning what is actually bad about the plan.

S&M

The “S&M” from the title of this article, as you probably guessed, is not that S&M. It’s socialism and Marxism. The word “socialist” has been bandied about of late with regard to tax plans and bailouts of the banks. Either through willful or deceptive ignorance, the people who throw this word around ignore the extant socialist components of our economy. We have a government that collects taxes at all; we have regulatory agencies that limit the things that businesses can do; we even have socialized health care in the form of Medicaid (government health care for impoverished people), Medicare (government health care for the elderly), and the Veterans Administration. Yes, our American veterans, who spent their lives defending our freedoms, are beneficiaries of socialism! Any veteran can walk into any VA hospital anywhere in the country and get treated. And you, the taxpayer, are paying the bill.

Even Alan Greenspan, champion of capitalism, was hypocritically in charge of a government-chartered bank that holds tremendous influence in the free-market economy. And he never once denounced that institution.

There was a time in American history when the economy was more capitalist than it is today. Do you remember having to memorize, in American history class, all of the various “panics” that occurred from 1789 to 1945? Every ten to twenty years, there was a “panic” that crippled the U.S. economy. Each successive panic resulting in either the passage of legislation designed to stop whatever activity caused the panic or an infusion of cash by the government. The Panic of 1907 was notably stopped by J.P. Morgan himself, whose company injected money into the economy to keep it going. The Federal Reserve Act was passed into law six years later, creating the modern-day Federal Reserve system.

The Federal Reserve System helped put a stop to regular panics, but even more important was the influence of a British economist named John Maynard Keynes. Prior to Keynes, the government was viewed by politicians and policy-makers as just another consumer. The government bought things from private industry, entered into contracts with private industry, and collected taxes. But it was still seen as being on par with a consumer or company. And as such, conventional wisdom dictated that it should act like a private company or citizen. When the Great Depression began in 1929, Herbert Hoover’s response was to cut spending and raise taxes. For an individual, this would seem to make sense: when faced with declining revenue and a worsening economy, cut your spending to save money. Raise your taxes (if you’re the government) to increase the money you can bring in.

But that only made things worse. The government, said Keynes, is far more powerful than any single consumer or corporation. With its essentially unlimited capacity to borrow money, the government can influence the economy in ways that individuals cannot. In a time of crisis, the government should cut taxes and increase spending in order to inject money into the economy. Even though this will cause the government to incur a deficit, it should be done in order to repair the economy. When the economy recovers, the government should decrease spending and raise taxes in order to pay off the debt it incurred during the recession. This process of government intervention is known as Keynesianism, and it has been employed by the U.S. government since World War II. And guess what? No more regular panics. The first economic depression since World War II was the oil crisis of the 1970s, caused by a combination of inflation and recession (something that economists didn’t think was possible, by the way).

These calls of “socialism” fall mostly on ignorant ears. Socialism is already here! If you pay taxes, you’re engaging in socialism. The question is, what degree of socialism are we talking about? Some countries have national monopolies that are endorsed or partly owned by the government. Think of Telefónica in Spain, Petróleos Mexicanos, or Petróleos de Venezuela. The United States would have to go a long way toward purchasing ownership stakes in our industries. Although, at least one industry – the railroads – are partially owned by the government. The U.S. government took control of the railroad system in the late 19^th century in order to cut down on corruption. Today, the government still owns the railroads, but not because of corruption. It’s because the costs of running railroads are so high that railroad companies would go bankrupt without government support.

Socialism is alive and well here, and it’s helping Americans in ways that they may not be aware of.