The Betrayal Of Adam Smith

I’ve been thinking about writing something in the wake of Don Arthur’s Nanny and the Libertarians post, but until now I haven’t had the heart.  Discussion threads on posts dealing with such issues always seem instantly to degenerate into a slanging match between, on the one hand, extreme libertarians who think that the magical incantation “markets” is a slam dunk answer to any criticism and that markets always deliver freedom of choice for workers and consumers even when they patently don’t, and on the other hand more left-leaning readers with touching faith in the ability of governments to solve all problems by regulation and who have learned mainstream economic jargon only far enough to label as “market failure” any outcome they personally dislike.

I have little doubt this thread will result in exactly the same frustrating conversation.  The only reason I concluded it was worth venturing onto the topic is that I’ve found a writer who expresses my own thoughts much better than I ever could.  Following is an extract from retired Harvard economics professor David Korten’s 1995 book When Corporations Rule the World.

I should stress at the outset that I disagree strongly with Korten’s extremely negative apocalyptic view of corporate capitalism and globalisation, in that he ignores its extraordinary positive potential for delivering a prosperous future for all especially currently poor countries. Had the Chinese listened naively to Korten’s central message way back in the early 1990s they would never have experienced the explosive growth and delivery of hundreds of millions from extreme poverty that have subsequently occurred. It clearly is possible to restrain the excesses of global corporate capitalism while benefiting from its productive potential, through effective international co-operative regulation.  At least it’s possible as long as we don’t fall for the self-interested spin of the corporate shills who try to convince us that just about any regulation is both illegitimate and destructive. Of course, China itself is, to put it neutrally, a work in progress in these repects.

Nevertheless Korten’s demolition of the more simplistic nostrums of what he calls “corporate libertarianism” is persuasive in my view and worth reproducing here. Korten defines “corporate libertarianism” like this:

In the name of individual freedom, this alliance [of economic rationalists, market liberals and members of the corporate class] advances a doctrine that places the rights and freedoms of corporations ahead of the rights and freedoms of individuals acting through governments to hold corporations accountable to the public good. Their ideological doctrine is perhaps most accurately described as corporate libertarianism, because its consequence is to increase the freedom of corporations at the expense of human freedom. Presented as an economic agenda, it is in truth a governance agenda that systematically transfers power from people and governments to the persona of the corporation and those whose interests align with corporate power.

An extensive extract from a chapter of Korten’s book dealing with the issues that arose in the discussion thread on Don’s post is reproduced below (with a couple of side-notes from me – I think Korten’s views are extreme in some respects but interesting just the same):

Proponents of corporate libertarianism regularly pay homage to Adam Smith as their intellectual patron saint. His writing remains to this day the intellectual foundation of policies advanced in the name of market freedom that are allowing a few hundred corporations to consolidate their control over markets all over the world. See An Economic System Dangerously Out of Control.

Ironically, Smith’s epic work The Wealth of Nations, which was first published in 1776, presents a radical condemnation of business monopolies sustained and protected by the state. Adam Smith’s ideal was a market comprised solely of small buyers and sellers. He showed how the workings of such a market would tend toward a price that provides a fair return to land, labor, and capital, produce a satisfactory outcome for both buyers and sellers, and result in an optimal outcome for society in terms of the allocation of its resources. He made clear, however, that this outcome can result only when no buyer or seller is sufficiently large to influence the market price—a point many who invoke his name prefer not to mention. Such a market implicitly assumes a significant degree of equality in the distribution of economic power—another widely neglected point.

Indeed, Smith was almost fanatical in his opposition to any kind of monopoly power, which he defined as the power of a seller to maintain a price for an indefinite time above its natural price. Indeed, he asserted that trade secrets confer a monopoly advantage and are contrary to the principles of a free market. He would surely have strongly opposed current efforts by market libertarians to strengthen corporate monopoly control of intellectual property rights through the General Agreement on Tariffs and Trade (GATT). The idea that a major corporation might have exclusive control over a lifesaving drug or device and thereby be able to charge whatever the market will bear would have been anathema to him.

Furthermore, Smith did not advocate a market system based on unrestrained greed. He was talking about small farmers and artisans trying to get the best price for their products to provide for themselves and their families. That is self-interest—but it is not greed. Greed is a high paid corporate executive firing 10,000 employees and then rewarding himself with a multimillion dollar bonus for having saved the company so much money. Greed is what the economic system being constructed by the corporate libertarians encourages and rewards.

Smith had a strong dislike for both governments and corporations. He viewed government primarily as instruments for extracting taxes to subsidize elites and for intervening in the market to protect monopoly. In his words, “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.” Smith made no mention of government intervention to set and enforce minimum social, health, worker safety, and environmental standards in the common interest—to protect the poor against the rich. We can imagine that given the experience of his day the possibility never occurred to him.

The theory of market economics, as contrasted to free market ideology, specifies a number of basic conditions needed for a market to set prices efficiently in the public interest. The greater the violation of these conditions, the less efficient the market system. Most basic is the condition that markets must be competitive. I recall the professor in my elementary economics course using the example of a market comprised of small wheat farmers selling to small grain millers to illustrate the idea of perfect market competition. Today, four companies—Conagra, ADM Milling, Cargill, and Pillsbury—mill nearly 60 percent of all flour produced in the United States, and two of them—Conagra and Cargill—control 50 percent of grain exports.

In the real world of unregulated markets, successful players get larger and in many instances use the resulting economic power to drive or buy out weaker players to gain control of ever larger shares of the market. In other instances “competitors” collude through cartels or strategic alliances to increase profits by setting market prices above the level of optimal efficiency. The larger individual and more collusive market players become, the more difficult it is for newcomers and small independent firms to survive, the more monopolistic and less competitive the market becomes, and the more political power the biggest firms wield behind demands for concessions from governments that allow them to externalize ever more of their costs to the community.

Given this reality, one might expect the economic rationalists to be outspoken in arguing for the need to restrict mergers and acquisitions and break up monopolistic firms to restore the conditions of a competitive market. More often they argue exactly the opposite position—that to “compete” in today’s global markets firms must merge into ever larger combinations. In other words, they espouse a theory that assumes small firms and advocate policies that strengthen monopoly.

Another basic condition of efficient market allocation is that the full costs of production must be born by the producer and be included in the producer’s selling price. Economists call it cost internalization. This condition is so basic to market theory that it is rarely disputed even by the most doctrinaire of free market ideologues. If some portion of the cost of producing a product are borne by third parties who in no way participate in or benefit from the transaction, then economists say the costs have been externalized and the price of the product is distorted accordingly. Another way of putting it is that every externalized cost involves privatizing a gain and socializing its associated costs onto the community.

Externalized costs don’t go away—they are simply ignored by those who benefit from making the decisions that result in others incurring them. For example, when a forest products corporation obtains rights to clear-cut Forest Service land at give away prices and leaves behind a devastated habitat, the company reaps the immediate profit and the society bears the long term cost. When logging companies are contracted by the Mitsubishi Corporation to cut the forests of the Penan tribes people of Sarawak the corporation bears no cost for devastating native culture and ways of life.

Similarly, Dow Chemical externalizes production costs when it dumps wastes without adequate treatment, thus passing the resulting costs of air, water and soil pollution onto the community in the form of additional health costs, discomfort, lost working days, a need to buy bottled water, and the cost of cleaning up what has been contaminated. Walmart externalizes costs when it buys from Chinese contractors who pay their workers too little to maintain their basic physical and mental health or fail to maintain adequate worker safety standards and then dismiss without compensation those workers who are injured.11. KP: However you can’t take this argument too far. The Ricardian comparative advantage poorer countries enjoy includes lower wage and related costs. While it is undoubtedly immoral for major corporations to take their operations to places where workers are paid below subsistence wages to work in extreme dangerous conditions, it’s equally immoral to deny poor countries the opportunity to utilise their comparative advantages to pull themselves out of poverty. If corporations were only permitted to invest in places that paid first world wages and offered first world conditions then poor nations would forever remain poor.  Some degree of trade-off and compromise is unavoidable, a proposition Korten’s moral absolutism simply ignores. []

When the seller retains the benefit of the externalized cost, this represents an unearned profit—an important source of market inefficiency. Passing the benefit to the buyer in the form of a lower price creates still another source of inefficiency by encouraging forms of consumption that use finite resources inefficiently. For example, the more the environmental and social costs of producing and driving an automobile are externalized, the more automobiles people buy and the more they drive them. Urban sprawl increases, more of our productive lands are paved over, more pollutants are released, petroleum reserves are depleted more rapidly, and voters favor highway construction over public transportation, sidewalks, and bicycle paths.

Yet rather than demanding that costs be fully internalized, the corporate libertarians are active advocates of eliminating government regulation, pointing to potential cost savings for consumers and ignoring the social and environmental consequences. Similarly they advise localities in need of employment that they must become more internationally competitive in attracting investors by offering them more favorable conditions, i.e., more opportunities to externalize their costs through various subsidies, low cost labor, lax environmental regulations, and tax breaks.

Market forces create substantial pressure on business to decrease costs and increase profits by increasing efficiency. The corporate rationalists fail to mention that one way firms increase their “efficiency” is to externalize more of their costs. The more powerful the firm, the greater its ability to take this course. As ecological economist Neva Goodwin has observed, “…power is largely what externalities are about. What’s the point of having power, if you can’t use it to externalize your costs—to make them fall on someone else?” When corporate libertarians promote practices that allow corporations and wealthy investors to socialize their costs and privatize their gains, they reveal their fidelity to a political interest rather than to economic principles.

A third condition basic to the market theories of Adam Smith, but rarely noted by corporate libertarians—is that capital is locally or nationally rooted and its owners are directly involved in its management. Adam Smith made quite explicit in The Wealth of Nations his assumption that capital would be rooted in place in the locality where its owner lived. He made it clear that this condition is critical to enabling the invisible hand of the market to translate the pursuit of self-interest into optimal public benefit. Indeed, the following is the only sentence in the entire text in he made reference to the invisible hand.

By preferring the support of domestic to that of foreign industry, he intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

 The circumstance that Adam Smith believed induced the individual to invest locally, was the inability to supervise his capital when employed far from his home. In the current age of instant communications by phone, fax, and computer, and twenty-four hour air travel to anywhere in the world that circumstance no longer endures. However, the advantage to the community and the larger society of productive investment being locally owned remains. Local investment is more likely to remain in place and is more easily held to local standards.22. KP: I should stress that I strongly disagree with Korten’s simplistic condemnation of global capital markets, although the  still unfolding consequences of the GFC starkly indicate that they do require effective local and international regulation which is clearly by no means easy to achieve (Australia seems to have done better than most). Alan Kohler’s article Too Fat to Fail a couple of days ago is interesting in this regard, although Kohler evinces an extraordinary faith in “markets” to manage optimally a major shrinkage in the reach and size of global banking. []

Smith was also quite explicit that optimal market efficiency depends on the owners of capital being directly involved in its management—the owner managed enterprise. One could also argue that implicitly he favored worker owned enterprises, as in his ideal small firm owner, manager, and worker were one and the same person.

Thus Smith’s vision of an efficient market was one comprised of small, owner-managed enterprises located in the communities in which the owners reside, share in the community’s values, and have a personal stake in its future. It is a market that bears little in common with a globalized economy dominated by massive corporations without local or national allegiance managed by transient professionals who are removed from real owners by layers of investment institutions and holding companies.

Economist Neva Goodwin, who heads the Global Development and Environment Institute at Tufts University suggests that the neoclassical school of economics, with which many of the most vocal proponents of corporate libertarianism are identified, may be roughly characterized as the political economy of Adam Smith minus the political analysis of Karl Marx.

The classical political economy of Adam Smith was a much broader, more humane subject than the economics that is taught in universities today. . . . For at least a century it has been virtually taboo to talk about economic power in the capitalist context; that was a communist (Marxist) idea. The concept of class was similarly banned from discussion.

Adam Smith was as acutely aware of issues of power and class as he was of the dynamics of competitive markets. However, the neoclassical economists and the neomarxist economists bifurcated his holistic perspective on the political economy, one taking those portions of the analysis that favored the owners of property and the other those that favored those who sell their labor. Thus, the neoclassical economists left out Smith’s considerations of the destructive role of power and class. And the neomarxists left out the beneficial functions of the market. Both advanced social experiments embodying a partial vision of society on a massive scale and with disastrous consequence.

In Praise of Competitive Markets

When the necessary conditions are met the market is a powerful and efficient mechanisms for allocating resources. What we now have is not a market economy. It is increasingly a command economy centrally planned and managed by the world’s largest corporations to maximize financial returns to top managers and the wealthiest shareholders at the expense of the rest of society. If the corporate libertarians were to bear serious allegiance to market principles and human rights, they would be calling for policies aimed at achieving the conditions in which markets function in a democratic fashion in the public interest. They would be calling for measures to end subsidies and preferential treatment for large corporations, to break up corporate monopolies, encourage the distribution of property ownership, internalize social and environmental costs, root capital in place, secure the rights of workers to the just fruits of their labor, and limit opportunities to obtain extravagant individual incomes far greater than their productive contribution.

Corporate libertarianism is not about creating the market conditions that market theory argues will result in optimizing the public interest. It is not about the public interest at all. It is about defending and institutionalizing the right of the economically powerful to do best serves their immediate interests without public accountability for the consequences. It places power in institutions that are blind to issues of equity and environmental balance.

 

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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31 Responses to The Betrayal Of Adam Smith

  1. Catching up says:

    This fits in with my understanding of Adam Smith. I have similar respect for what Karl Marx wrote as well.

    I see them agreeing in much. They bot appeared to have a good understanding of how society works.

  2. Patrick says:

    Well, I certainly agree to the extent that I think that we should have a national rent commission, devoted to identifying legislative rents created by any new legislation as well as working out bit by bit all the existing legislative rents.

    And then beating parliamentarians with their reports until the rents are repealed or able to be justified by a productivity commission report.

    I’d never had picked myself as such a technocrat at heart!

  3. Mel says:

    KP:

    “I’ve been thinking about writing something in the wake of Don Arthur’s Nanny and the Libertarians post, but until now I haven’t had the heart. Discussion threads on posts dealing with such issues always seem instantly to degenerate … ”

    I thought this blog had a daily readership in excess of 100,000. Why worry about the sad losers who have nothing better to do than comment on blogs :)

    But in all seriousness, thanks for the post.

  4. Pedro says:

    “While it is undoubtedly immoral for major corporations to take their operations to places where workers are paid below subsistence wages to work in extreme dangerous conditions, it’s equally immoral to deny poor countries the opportunity to utilise their comparative advantages to pull themselves out of poverty. ”

    I’m sorry, but that statement is just silly. Let’s assume corporations follow your morality and don’t go to countries with such low wages (and I doubt they exist anyway) … I know you went on with a qualification, but only a moment’s thought is required to realise that even the poorest people will only take a job at below subsistence wages if the alternative is even worse; and so your moral act confirms those people in that worse poverty.

    As one of your extreme libertarians I have to say that the post seems misconceived. I’d be very surprised if any of your usual suspects want corporations to be free to pollute dangerously or to create cartels. The term corporate libertarian reminds me of some old socialist mates who used to justify away the USSR by saying that was state capitalism and not socialism.

  5. desipis says:

    only a moment’s thought is required to realise that even the poorest people will only take a job at below subsistence wages if the alternative is even worse

    You seem to be ignoring the possibility that the corporations either directly or indirectly reduce or limit the alternatives available to the workers. If a corporation uses its weight to trash the local economy/environment/community then it can hardly said to be acting morally just because it offers a few subsistence jobs in return.

    • Pedro says:

      Yes, I did ignore that possibility because of all the evidence of it not happening.

    • Tel says:

      I can think of quite a few cases where governments have limited the options available to workers. The most obvious would be the very high prices of housing in major cities like Sydney, driven up by locking up available land, by complex building regulations, by indirect taxation such as the system that makes developers pay for all surrounding infrastructure up to a very high standard (i.e. in effect those taxes that pay for local roads and drains are built into housing prices, but it won’t stop you getting taxed again to pay for those things).

      Then if you want to hire someone there are heaps of regulations you have to go through, so lots of small business just keeps it within a family or partnership because hiring on the open market will get them into too much trouble.

      Then there’s industries locked down by unions (e.g. the major players in the transport industry), that’s not exactly government itself but they do seem to have a major influence on government lately.

      This is all in the worker’s best interest you understand — it is well understood by their professional advocates that these people are far too stupid to make any decisions for themselves. Good thing too… now the marginal productivity of their labour has to pay for both their corporate bosses AND all the sundry hangers on who provide the helpful service of making their choices for them. Dunno how you intend to blame that one on the libertarians, but I’ll give you some time to think about it.

  6. john r walker says:

    Ken didn’t Smith say something like , ‘ business types rarely gather together under one roof without the talk quickly turning towards monopoly against the public.’

  7. JC says:

    Their ideological doctrine is perhaps most accurately described as corporate libertarianism, because its consequence is to increase the freedom of corporations at the expense of human freedom. Presented as an economic agenda, it is in truth a governance agenda that systematically transfers power from people and governments to the persona of the corporation and those whose interests align with corporate power.

    Really? This is the sort of argument that is left open ended which seems to me to be a way of putting forward an opinion without any facts behind it.

    What is the “corporate power” the writer is suggesting here?There’s no explanation. What “power has been transferred”? Corporations can’t vote and if if they could there wouldn’t be enough of the large ones to even make a microscopic dent. The Dow 30? The S&P 100, 500 even? And how eggsactly does the author define “freedom”? No explanation given.

    Proponents of corporate libertarianism regularly pay homage to Adam Smith as their intellectual patron saint. His writing remains to this day the intellectual foundation of policies advanced in the name of market freedom that are allowing a few hundred corporations to consolidate their control over markets all over the world.

    Adam Smith is like the old testament. Paying homage to him means lifting extracts from his works, but economics has moved on since then. Why we even had Milton Friedman since Smith.

    Another basic condition of efficient market allocation is that the full costs of production must be born by the producer and be included in the producer’s selling price. Economists call it cost internalization. This condition is so basic to market theory that it is rarely disputed even by the most doctrinaire of free market ideologues. If some portion of the cost of producing a product are borne by third parties who in no way participate in or benefit from the transaction, then economists say the costs have been externalized and the price of the product is distorted accordingly. Another way of putting it is that every externalized cost involves privatizing a gain and socializing its associated costs onto the community.

    Yes, but the author is extremely selective. What’s left unexplained to the reader is that actually defining externaltiies can be an extremely difficult proposition. In fact it’s now the most abused word in economics. Next to “market failure” it’s used to offer cred to what a person doesn’t like most times.

    If one brings up extermalities you can’t walk away without discussing trade offs and this is the most underutilized term in economics. It also seems to me to be the one term people understand the least.

    Externalized costs don’t go away—they are simply ignored by those who benefit from making the decisions that result in others incurring them.

    Nonsense. Most do, some don’t.

    For example, when a forest products corporation obtains rights to clear-cut Forest Service land at give away prices and leaves behind a devastated habitat, the company reaps the immediate profit and the society bears the long term cost.

    Umm the firm doing the cutting most likely has bid for the contract or in some cases participated in some dodgy deal with the government. However, the blame for all this mostly rests with the government concerned, particularly if the contract was above board. Secondly it all depends on what the contract specifies are the firms obligations. If the firm simply bid to take the logs then it’s up to the government to replant the vegetation. Don’t blame the firm.

    When logging companies are contracted by the Mitsubishi Corporation to cut the forests of the Penan tribes people of Sarawak the corporation bears no cost for devastating native culture and ways of life.

    I’m sure Mitsubishi is meeting its end of the deal and therefore if replanting isn’t specified the accusation the author is making against the firm is deceitful.

    When the seller retains the benefit of the externalized cost, this represents an unearned profit—an important source of market inefficiency. Passing the benefit to the buyer in the form of a lower price creates still another source of inefficiency by encouraging forms of consumption that use finite resources inefficiently. For example, the more the environmental and social costs of producing and driving an automobile are externalized, the more automobiles people buy and the more they drive them. Urban sprawl increases, more of our productive lands are paved over, more pollutants are released, petroleum reserves are depleted more rapidly, and voters favor highway construction over public transportation, sidewalks, and bicycle paths.

    It’s not a given that externalized costs are material in nature. To use the motor car as an example is wrong headed in my book. Where are the benefits being counted that ought to come with this sort of accounting. I see none.

    Where is the benefit counted to those people that want to live outside the city in cramped surroundings? I see none.

    I won’t go further, but all I’m reading here is a creed against modern life, the way we do things now which is almost nostalgic for the past. There’s no attempt to figure things like trade offs and benefits that accrue.

    Dow Chemical is a first rate firm that produces first rate stuff people want to buy. There are of course trade off in some of the things it does, however the author either doesn’t understand what trade offs and benefits are or simply wanted to leave them out to slant the argument.

    • Tel says:

      When logging companies are contracted by the Mitsubishi Corporation to cut the forests of the Penan tribes people of Sarawak the corporation bears no cost for devastating native culture and ways of life.

      I’m not 100% familiar with the details here, but I believe that Mitsubishi never actually came to a deal with the Penan tribes people themselves. For that matter I doubt that the Penan tribes have official property rights over their traditional land (other than the natural rights, being what they are willing and able to fight for, which is not much).

      You would have to check what involvement the Malaysian government had in this situation, and since they are a Democratic government the basic principle is, “The needs of the many outweigh the needs of the few.”

      My suspicion is that, the Malaysian city dwellers are the many, and the scattered hunter gatherer tribes on the fringe are the few. The ability of government to commandeer property rights for this purpose, is the very essence of central government power. It’s happened to every small tribal group at the hands of a central power ever since Julius Caesar smashed the Gauls. Welcome to modernity.

  8. JC says:

    …..and by the way I had 1.87 million page result when I typed in Google, Dow Chemical’s Environment Policy”

  9. Tel says:

    In order to reply to David Korten, I did a search on “corporate libertarianism” and all I got was more David Korten, so seems like he coined the phrase (no one actually identified themselves as such a thing). Most libertarians are pretty solidly opposed to corporatism (especially modern libertarians) but I guess Korten was writing back in 1995 and there’s been such a massive amount of discussion on this topic that it sort of swamps out the historical stuff. I did find this (from 1994):

    http://www.cato.org/pubs/journal/cjv14n2-6.html

    So even in 1995 it was whipping a strawman to try and pretend that libertarians are secretly corporatists. Doing that sort of thing today is pretty much inexcusable in my book (I’m sure that won’t slow anyone down).

    I would take me a long post to list all the dishonesty in Tom Tomorrow’s effort, but I’ll start with four words: too big to fail, and suggest that interested readers might want to research what actually happened when the regulator came to a deal with the banks who had been caught fraudulently “robosigning” — they just offered a few thousand in compensation and basically business as usual after that. Good work Mr Regulator, abandoning property rights really helped solve that pickle.

    In the case of Warren Nyerges (i.e. the guy who got foreclosed on when he didn’t even have a mortgage) he did NOT get helped by the regulator, he had to fight it through the courts himself. Oh and by the way, all of those foreclosures actually went past judges (you know that law-and-order system that government provides for us) and those judges were the ones who furnished the banks with police, and US marshals to help evict the hapless home owners. Thank you for that, Mr Green Hat Regulator Guy, love your work.

    Hey Tom Tomorrow, perhaps we should try Capitalism, but maybe perhaps you should try honesty for a while first.

    There’s a lot more to it, but the post would be many pages.

  10. JC says:

    …..that interested readers might want to research what actually happened when the regulator came to a deal with the banks who had been caught fraudulently “robosigning” — they just offered a few thousand in compensation and basically business as usual after that. Good work Mr Regulator, abandoning property rights really helped solve that pickle.

    Huh? It ended up costing the banks a $25 billion settlement. A $25 billion settlement with the states and seems to be that most of the money is going to the state governments rather than the injured parties.

    • Tel says:

      … most of the money is going to the state governments rather than the injured parties …

      When I said “abandoning property rights” that was pretty much what I was referring to. What Tom Tomorrow says is, “I’m shutting you down hand.” which is nothing like what happened.

      A lot of the money went towards relief for existing mortgage holders who never were victims at all, but essentially the government took the opportunity to force a renegotiation where convenient. Since the banks have not needed to markdown their losses for some years (the whole “temporary” suspension of mark-to-market) they probably are not really losing this money at all (or rather they already lost it long ago, but kept the loss off the books).

    • Tel says:

      http://www.nationalmortgagesettlement.com/about

      Immediate aid to homeowners needing loan modifications now, including first and second lien principal reduction. The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.

      State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

      There’s half of the money right there, and largely unrelated to the original complaint. NOTHING to do with the guy who got hit with foreclosure even though he didn’t have a mortgage — the whole subject of the cartoon above.

  11. murph the surf. says:

    The entire dynamic Kohler describes could also be called the financialisation of the economy.
    We are headed for a political paralysis similar to the experience of the Japanese during the last 2 decades? Slow deflation?
    Things really started to come apart after 1987 and the solution to all problems was more credit.
    While this may sound venal where is value these days?

  12. Mel says:

    “…..and by the way I had 1.87 million page result when I typed in Google, Dow Chemical’s Environment Policy””

    Oh how thrilling.

    Does it mention walruses?

    (ps Why were you sacked from Brookes News?)

  13. paul walter says:

    The cartoon does fine for now.

  14. Dan says:

    Good post.

    cf. Galbraith, The New Industrial State (again).

    JC is not wrong that tradeoffs need to be taken into consideration, but a political economy that gives us a second plasma screen while making the biosphere unusable seems like a pretty questionable deal.

    cf. Tim Jackson, Prosperity Without Growth.

    • john r walker says:

      a political economy that gave up to 40 cents in the dollar incentives to speculating in land prices seems like a even more questionable deal, no?

      • Dan says:

        If I had to pick, I’d run with the biosphere example.

        • john r walker says:

          Turning arable land into unoccupied tax deduction subsidized speculative subdivisions is not a good result for the biosphere . It results in a lot of (effective)opposition to wind farms- they spoil the subdivision prospects.

    • Pedro says:

      Have you ever tried to sit back after work and watch a biosphere? It’s boring as all get out. gimme that plasma please. Seriously, you neighbour nearly a death zone these days is it. You should move to Qld home of coal mines and the good life.

  15. Mel says:

    Pedro:

    “Seriously, you neighbour nearly a death zone these days is it. ”

    Maybe all that plasma accounts for your mouth-breathing and low level of literacy.

    Meanwhile, more evidence that the folks at Dow Chemical are truly splendid chaps.

  16. john r walker says:

    I think that what smith might say these days is that small to biger medium size business is essentially self correcting , it is subject to negative feed back by market realities. But that when a business becomes a very big powerful and abstract corporate entity that business is now in the position to manipulate market reality. The reality of twenty years of “corporate libertarianism” does look pretty lawless, more “psychic wealth’ than reality.

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