Dark Money

Dark Money by Jane Mayer covers a period from the early 1970’s to the run up to the Trump election. It documents in meticulous detail the amount of money spent over the period by super rich Americans, not just to secure the election of politicians  supportive of their radical libertarian views but more insidiously to shift the terms of political debate to the right.

DMThe process begins in the late 1960’s early 70’s when a number of very wealthy Americans began to fear the US was about to succumb to socialism. It may seem unbelievable now but looking back it was a time of radical foment, the rights of black Americans were being fought for, a nascent women’s rights movement was emerging, young people’s opposition to the Vietnam war resulted in 4 students being shot and killed in a protest at Kent State University.

Whilst all this protest were real worries to many on the right there were other issues about the role of the state that were of perhaps of more profound concern. The Democratic President Lyndon Baines Johnson had initiated a War on Poverty. Worse however was a proposal by Republican President Richard Milhous Nixon to create a modest basic income, an idea about which there is currently renewed interest.

In 1970 the Family Assistance Plan passed through Congress with a healthy majority but was lost in the Senate to Democratic opposition that it was not radical enough. At the time it was said “This bill represents the most extensive, expensive and expansive welfare legislation ever handled.” Not only was their bipartisan support for this proposed legislation, but it was supported by 90% of the press and popular in the country.

For some, all of this represented an unwarranted intervention by the state in the operation of the market economy. An intervention that would expand the role of the state, require increased taxation and thus impact directly on the fortunes of the very wealthy. Some decided it was time time to act.

Ms Mayer’s book focuses primarily on the brothers Charles and David Koch. The brothers engaged in active politics in the 1970’s providing financial support to the Libertarian Party. In 1980 David Koch ran as the running mate to the party’s Presidential candidate, Ed Clark who was challenging Ronald Reagan, from the right. They got 1% of the vote. From this point on the Koch’s receded from public view and over the next three decades according to Ms Mayer gave well in excess of $100m “…to dozens of seemingly independent organisations aimed at advancing their radical ideas.”

The book charts how the brothers “weaponised philanthropy”, maximising the tax benefits of establishing charitable trusts, thus avoiding inheritance tax, and then using the money from the trusts to support a series of educational and social welfare groups to promote their libertarian viewpoint. Over the years a variety of think tanks were established or supported all with the aim of ensuring that conservative ideas were made respectable.

Over time the thinking evolved and there was a recognition that in order to change opinions the elite educational institutions of the US had to be “penetrated”. This led to the “beach head” theory which was about establishing conservative beach heads at “…the most influential schools in order to gain maximum leverage.” By 2015 the Charles Koch Foundation was “subsidising pro-business, anti-regulatory and anti-tax programmes in 307 different institutions of higher education in America.” Interestingly the book reports a comment about the Golden Rule of philanthropic giving – those with the gold, rule. This was taken to a higher level when a donation of $965,000 to West Virginia University by the Charles Koch foundation came with strings. The foundation was to have a say over the professors it funded, fundamentally undermining academic independence.

The Koch’s were not alone in this enterprise but they did, and continue, to play a major co-ordinating role such that at one point the sprawling breadth of their influence in right wing political promotion was described as Kochtopussy. Ms Mayer’s book makes clear that this was not the outcome of a series of more or less random individual initiatives. Rather it was an evolving, but very conscious, political strategy to move the political goal posts. It responded to a very clear cri de coeur set out in a memo by Lewis Powell in the late 1970’s urging American capitalists to wage “guerrilla warfare” against those he saw as trying to insidiously undermine them. Ms Mayer claims his call to arms inspired some of the super rich, “to weaponise their philanthropic giving in order to fight a multi-front war of influence over American political thought.”

You may wonder whether these people were driven by a bizarre but genuine belief in radical libertarianism, where the state, taxes and regulation were perceived as demeaning constraints on the freedom of the individual. In truth their idealism was always tempered by a strong regard for their personal advantage. When congress was considering the Troubled Assets Relief Progamme (TARP) the Koch’s and their radical caucus were opposed to the massive package of  state support. This changed however when the stock market started to tank. Suddenly their wealth was at risk and opposition to the TARP was dropped.

Another fascinating insight into the motivation of the Koch brothers comes from a post mortem conducted into the right’s failure to prevent a second Obama term at one of their annual seminars. Arthur Brooks, President of the American Enterprise Institute funded generously by the Koch brothers, made the point that if the 1% want to win control of America, “… they needed to rebrand themselves as champions of the other 99%”. This theme was built on in 2014 in a paper that Richard Fink, Charles Koch’s “grand strategist”, gave to a meeting of one of their annual seminars of the libertarian super rich. The paper was entitled “The Long Term Strategy: Engaging the Middle Third”. In a perfectly candid way Fink asked the question, “We want to decrease regulations. Why?” he then answered his own question, “It’s because we can make more profit, okay?.”

One third of the electorate who were perceived as solidly on the side of the libertarians, another third never would be. This mean the battleground was about gaining the trust of the middle third. To do this it would be necessary to convince the them that libertarian intent was virtuous. “We’ve got to convince these people we mean well and that we are good people.”

Following a Supreme Court decision in 2010 known as Citizens United it was found that corporations had the same rights to freedom of speech as individuals. This overturned a century of restrictions banning corporations and unions from spending all they wanted on the election of candidates. This opened the floodgates to political spending to support congressmen and senators and the Koch Brothers took maximum advantage building a real power base which was in but not of the Republican Party.

In 2014 the Koch network invested $100m into House and Senate races for the GOP plus almost twice as much into other kinds of activism. The result was they won full control of both. Their aim was to spend $889m in the 2016 presidential race. Whilst they could not legislate for the Trump wildcard the first attempt to replace Obamacare was such a shambles because of the intransigence of the right wing caucus within the Republican Party largely made up of Koch supported Congressmen and Senators who thought the Trump proposal was too generous!

Dark Money is a sobering work which casts an unflinching light on the very private world of the super rich in America and specifically on the brothers David and Charles Koch estimated to be worth $41.6bn each. It raises all kinds of issue about the role of multi-billionaires in undermining democracy in America and reinforcing a process which is concentrating ever more power and wealth in the hands of a smaller and smaller group of super rich plutocrats.

The influence of the Koch brothers, and many others of the same ilk, is not confined to the States however. They have played a part in shifting the terms of political debate across the whole of the developed world, dragging the centre of politics so far to the right that people like Richard Nixon look like lefty softies. If one thinks about how a proposal to increase taxes on the rich in Britain today would be greeted it is a testament to how far the super rich have captured common sense and shaped it to their benefit.

This is a book that should be read widely. It’s scale will probably prevent this which is a real shame. It is a tremendous summary of a long and sustained process of the exercise of soft power through the expenditure of vast amounts of private money. If the process is not stopped it will ultimately undermine democracy.

Dark Money. Jane Mayer. Scribe Publications 2016

 

 

 

President as C E Ohhh!

Many of those that elected President Trump voted for him because he was a business man. They thought if he could run a successful business empire, 4 bankruptcies notwithstanding, he should have transferable skills to run the country efficiently. The case is often made that people successful in business will almost certainly be better at running government than career politicians and it is clear President Trump believes this also.

Whilst there may be superficial similarities and some overlapping skill sets, such as managing people and negotiating there are profound differences which in truth mean the two jobs are not just quantitively different they are qualitatively different as well.

Firstly, there is a level of accountability in government that is far in excess of that of both public and private companies. It is one thing to give a motivational speech at the staff conference to a group of people who’s careers depend in large part on your view of them. It is a wholly different issue to have your every utterance picked over by your peers who have a career interest in demonstrating that what you are doing is wrong.

The relative power and ability to challenge of, on the one hand, staff, customers and shareholders and on the other Congress, pressure groups and the media is immense. In the former case the executive has an information resource which translates into a real power advantage. In the latter it may often be the case that citizens, think tanks and pressure groups are much more informed about an issue than the President. Worse they can demonstrate in public his ignorance.

There is also an important difference in the relationship between means and ends. In most businesses there is a fairly well defined objective in terms of growth and profit. There may be debates about how this is achieved but those debates are largely within a relative well defined area. In politics the ends are often in question and the means so diverse and contested as to reignite challenge as to the nature of the ends.

Another huge difference lies in relation to the transparency of the processes of government and business. Even where there is not out and out secrecy there is much within business which remains behind the corporate veil. Intellectual property law, commercially sensitive data, compromise agreements for staff leaving organisations all provide more (or less) legitimate protections of corporate information. In liberal democratic governments the presumption is of the peoples’ right to know and only in clearly specified areas, such as national security, is there an ability for the state to limit transparency. Even then there is often oversight by independent individuals to ensure policies are not being breached.

Leading a country is about persuasion, consensus building and the ability to compromise. Running a private business you are the principal owner of is unlikely to be a good learning environment for those skills. Indeed it is very unlikely that direct challenge of any kind is going to flourish. From his behaviour in the course of the campaign and his month in office no one is going to describe President Trump’s management style as collegiate.

He clearly cannot tolerate anyone questioning his view of the world. His behaviour in the recent press conference confirmed this. He is hectoring and plain rude when he deals with people who do not simply say “Yes, Mr President”. His style betrays a lack of real confidence. He seems to need approbation and confirmation of his brilliance.

His continued attacks on Hilary Clinton are instructive, they are those of someone who, despite having won the election, is not convinced he has beaten her. At one point in the press conference he felt compelled to state. “I won the election.” Who was he trying to convince? Himself?

It looks very unlikely that President Trump will learn from his mistakes. Difficult when you do not think you have made any. He will plough on as he has started. As time goes by more and more people will say no to Mr Trump, eventually even those within his “team” will start to abandon him. He will become ever more beleaguered. The outcome is unlikely to be good. There is a chance he may resign in a fit of pique and speak to “his people” about how he has been undermined by the Washington establishment.

Alternatively he may start to manufacture reasons for dismantling the bulwarks of liberal democracy. He has already started undermining the legitimacy of the courts, the press and the opposition in Congress. With a divided America the opportunity for authoritarian action should not be underestimated. The idea that “it can’t happen here” was challenged by Sinclair Lewis in the 1930’s when populist right wing parties were growing across Europe. His warning has a new currency which should not be ignored.

Many see President Trump as an outrageous clown, a gift to the satire industry, a reason to open Twitter to see what latest irrational rant he has supplied for our entertainment. This is a mistake. President Trump is a dangerous liability.

He has identified a genuine and difficult problem. The existing political elite of Republicans and Democrats have failed to protect the interests of many millions of ordinary Americans. That issue will remain after President Trump has gone. Once he has gone if the narrative of “elite conspiracy” gets hold there are a lot of very angry and very well armed Americans who’s remaining faith in democratic change might be destroyed. If he does not go he may well become a genuine threat to American democracy.

 

 

 

The Rise and Fall of American Growth

This is a work whose central thesis is relatively straightforward but of immense significance not just for the United States but also for the rest of the world. In essence Mr Gordon argues that the growth rate of the American economy, which for so long has driven much of the world economy and transformed the lives of its citizens has its best days behind it. This is not because of a loss of entrepreneurial flair or lack of self-confidence. Rather, more substantive structural issues relating to an unprecedented and unrepeatable period of innovation mean that the levels of economic growth achieved over a period from 1870 to 1970 are unlikely to be recovered in the foreseeable future i.e. the next 25 years, or perhaps ever.

The book analyses economic growth in the States over three historical periods, first 1870 to 1940, then 1940 to 1970 and finally 1970 to 2014. For someone who has sat through more strategic planning meetings than I care to remember which have been peppered with phrases such as “the pace of change is unprecedented”, “learn to love change”, “change is here to stay”, it is absolutely fascinating to have pointed out how truly revolutionary was the first of the periods Mr Gordon addresses.

Part one of the book covering the period 1870 t0 1940 considers what people ate, how they dressed, how they got around, what their heath was like, how illness was managed, what their homes were like, how they communicated, and what working conditions existed. Each area is addressed in exhaustive and, one feels, loving detail. The book is a treasure trove of practical illustrations about how America has evolved over the past 150 years.

If we take the homes Americans lived in in 1870, they were lit by candle or paraffin lamp, which was inefficient, dangerous, required significant maintenance, and smelly. Water was provided by wells or other external sources. It had to be brought in and taken out of the home by hand, predominantly women’s. Human waste was deposited outside of the home in pits. Heating and cooking was mainly by open fire and centered on the main room of the home the kitchen/dining/living and occasionally bathing area.

To say life in such a home was “mean brutish and short” may be an exaggeration however compared with the home of the 1940’s not much of one. In a powerful use of language Mr Gordon describes the homes of the 1940’s as having become “connected”. I know that if our home lost its connection to the internet my youngest son would think the world was about to collapse and to be fair I would not be far behind him. However, it would be interesting to see how important the internet connection would be if it had to be traded off against connection to clean, running water, an effective sewage system or electricity.

One of the great things Mr Gordon’s book does is make visible the incredibly transformative function of advances which are now so ubiquitous in developed economies they are “invisible”.

One example from the book is the calculation of what a typical North Carolina housewife had to do to provide the home with water in 1886. She had to carry water 8 to 10 times a day meaning that over the course of a year she toted more than 36 tons of water over 148 miles. Washing, boiling and rinsing a single load of washing would require 50 gallons of water to be brought in and out of the home by hand. Running water and effective sewage were, of course, not just about convenience. Their impact on public health and urban development was immense.

In area after area a similar picture emerges. In 1870 transport was powered by horses or steam trains the internal combustion engine transformed this so that by the end of the period cars, trucks, electric transit systems and, even more spectacularly, airplanes were the norm. The germ theory of medicine and antibiotics extended average life expectancy significantly by reducing the high levels of infant mortality commonplace in 1870. Clarence Birdseye perfected the process of freezing food thus transforming the diets of the population. Electronic communications moved on from the telegraph to the phone to the radio, to the silent movie and by 1939 the release of The Wizard of Oz and Gone with the Wind.

The changes that occurred were overwhelmingly the product of the general purpose innovations of the second industrial revolution specifically the application of electricity to lighting and other uses, and the invention of the internal combustion engine. These reached into every aspect of peoples’ lives revolutionising how they lived.

Many of them were quantum shifts which were subsequently refined and developed but cannot be repeated. The provision of the first motorcar is such a paradigm shift. In the space of a few decades it meant the horse, which had effectively been the only mode of personal transport for millennia, was made redundant. This had enormous implications for areas as diverse as urban design, allowing suburbs to be “invented”, and public health with the removal of literally tons of animal waste from the streets of cities.

The productivity increases of the agricultural revolution and the growing application of steam power to production of the first industrial revolution were supercharged with the inventions of the second industrial revolution leading to the rapid and massive process of urbanisation. In every area productivity was increasing at a spectacular pace and the whole of the environment within which people lived was being transformed.

The Depression and the Second World War threatened all this and there was a fear that after the hot house of planned military production the post war period would lead to a collapse in productivity rates and a return to the stagnation of the 1930’s. What happened could not have been further from the truth. The period from 1940 to 1970 saw the rapid expansion of consumer capitalism as wartime production facilities were turned to peacetime white goods creation.

The era from after the war to the early 1970’s some have labelled as the Great Compression because of its redistribution of wealth transforming blue collar workers into what became, up until recently, the middle class bedrock of American politics. Trade unionism flourished, redistributive taxation with higher rates of 70% and 90% enabled the federal government to investment in infrastructure projects to do things like bring electrification to the South, establish social programmes such as Medicaid and Medicare and mount a war on poverty.

Whilst innovation continued it was largely about the more effective exploitation of the technologies that had been created in the earlier period from 1870 to 1940. Nothing was discovered that had the all purpose transformative power of electricity or the internal combustion engine.

Finally, we move to the era from 1970 to 2014. The story in this era is far less positive. The newly created middle class, who had experienced nothing but growth with living standards effectively doubling every 30 years, began to find their incomes stagnating or declining in real terms. Inequality began to grow and the pace of economic growth began to slow down.

This process was punctuated with the third industrial revolution around information and communications technology (ICT). This had a significant but relatively brief impact on productivity growth in the decade from the mid-1990’s to the mid-2000’s. There is a famous quote by Robert Solow, the Nobel prize winning economist that “You can see the computer age everywhere but in the productivity statistics.” This encapsulates what has become known as the “productivity paradox”, the fact that spectacular improvements in computer technology have had little impact on the overall level of productivity growth in the economy.

In essence Mr Gordon believes the period 1870 to 1940 saw a scale of transformation that is very unlikely to be repeated in the medium term and possibly never again. What it enabled was a period of economic growth unprecedented in human history. The speed of that growth was spectacular but has been in decline for over 30 years. If we take the annualised growth rate of output per hour in the period from 1870 to 1920 it was 1.79% per annum. In the period from 1920 to 1970 it was a very impressive 2.82%, but in the period from 1970 to 2014 it fell back to an average 1.62% per annum and of course this included the decade of growth between 1995 to 2005 associated with the ICT revolution. If this is stripped out the average growth rate in this period is 1.38%.

However Mr Gordon identifies four critical “headwinds” that might undermine even this rate and may mean “the future growth of real median disposable income will be barely positive and far below the rate enjoyed by Americans dating back to the nineteenth century.”

The headwinds he identifies are a) growing inequality which means that increasing amounts of whatever growth does occur is captured by a tiny fraction of the population; b) a faltering education system where the poor enter the system late and at a massive disadvantage leading to their early exit with all the negative career and income implications of this; c) a demographic shift with baby boomers retiring over the next twenty years reducing the supply of labour and increasing the dependency ratio; d) government debt to GDP ratio will inevitably increase as a result of these demographic changes and lead to the need for action in terms of cuts or tax increases to reduce the fiscal imbalance.

Taking account of the potential economic consequences of these headwinds Mr Gordon estimates that real GDP per person may grow at around 0.8% per annum over the next 25 years. This is a third of the rate achieved in the period 1920-1970, and barely half the rate achieved in the period 1970-2014. If the success of Mr Trump is in any way connected with the stagnation of the blue collar / middle class standard of living over the past thirty years what might a future of lower growth and more extreme inequality hold for politics in the States?

Mr Gordon ends his work with a number of policy prescriptions to mitigate the worst of the slowdown in economic growth. These include, a much more progressive tax system, a higher minimum wage, increased earned income tax credits, drug legalisation, improved pre-school education, a move away from the current property tax based system for the funding of education, increased but targeted immigration.

I suspect Mr Trump has not read this book, for if he had I am sure we would have heard the howls of condemnation from across the Atlantic. It is impossible to get across the quantity or quality of information contained within it nor the humane tone with which it is suffused. It is an important book that deserves to be debated widely amongst policy makers on both sides of the Atlantic. If even only partially correct its implications are profound for the economic, social and political future of the United States.

Further, one suspects the thesis has traction in the UK and Europe. This may mean any assumptions about future growth solving the UK’s current fiscal problems may be completely misplaced.

“The Rise and Fall of American Growth: The US standard of living since the civil war.” Robert J Gordon. Princeton University Press. 2016.

The Price of Civilisation – Jeffrey Sachs

This is an excellent book by someone with the pedigree to be taken seriously. He is currently the Director of the Earth Institute and Professor of Health Policy and Management at Columbia University. He has been named by Time magazine as one of the 100 most influential leaders in the world.

The book provides a critique of the  economic crisis facing the USA at the moment. He sees this crisis having a moral root in “the  decline of civic virtue amongst America’s political and economic elite.”  Sachs documents the declining prosperity of middle America and the scale of growing inequality with a wealth of statistics. At a time when one in eight Americans depends on food stamps the wealthiest one percent of American households enjoy a higher total net worth than the bottom 90 percent. In relation to incomes the top one percent of earners receive more than the bottom fifty percent.

Sachs provides a critique of the demonisation of taxation and big government by successive administrations. This radical liberal position meant that other key issues were neglected specifically the rise of the internet; of a new economically dynamic Asia and an evolving ecological crisis. The book charts the shift in US policy over the course of the 20th Century away from a belief in the potential for positive intervention by the state as evidenced by the New Deal in the 1930’s and the War on Poverty in the 1960’s to a situation where Washington was seen as the enemy. Cutting back regulation, privatising public services, cutting taxes. These were the new orthodoxy pursued by governments of both Democratic and Republican persuasion.

Sachs refutes some some of the key assertions of the extreme liberal consensus about, for example, the negative effect of high taxation. He points out that in the period 1955-1970, the top marginal tax rate in the US was 82% and GDP growth was 3.6% whilst in the period 1981-2010 the top marginal tax rate was 39% and the growth in GDP was  2.8%. He claims that the causes of the relative decline in the position of the US has been more to do with the process of globalisation than the processes of allegedy big government.

The book describes the growing polarisation of opinion in the states between the Sunbelt and Snowbelt. Sachs points to the irony of the fact that the states most opposed to big government are, in fact, net recipients of Federal spending.

Sachs, identifies a number of forces which have undermined the effectiveness of the political system. Weak national parties, the corporate financing of the political process, a process of globalisation which has undermined the power of labour groups. All these have led to the rise in power of what Sachs calls the corporatocracy unchallenged by either of the two main parties. Challenge by the citizenry is undermined by the advent of the media saturated society where people spend their working days tied to a computer screen and then come home to spend their leisure time glued to a range of leisure screens creating  a “…technology-rich, advertising-fed, knowledge poor society.”

Having analysed in some details of the problems of contemporary America Sachs goes on to provide a programme of change to renew American democracy and and redistribute wealth to pay for civilisation. It is not a revolutionary programme of confiscation, rather he proposes that overall tax rates in the states be raised so that they are comparable with overall tax rates in Europe. This increase in taxation should be accompanied by a shift of resource away from the federal government towards the individual states to support increase investment in education, early childhood development, infrastructure and a range of other headings to improve productivity.

In parallel with the fiscal reforms he proposes a series of reforms of government to overcome the problem of “corporatocracy” which he sees as the capture of the state by big business. His proposals here would make some blanch, things like, public funding for political parties; free media time allocated according to criteria other than who can pay for most; statutes to prevent Federal employees from taking lucrative jobs in the private sector for a minimum of three years after they leave office and banning campaign contributions from lobbying firms. The aim being to transform America from being the best democracy that money can buy to a political system with its roots in a thriving and diverse civil society.

Sachs might be seen, in some quarters, as a hopeless idealist however it is clear that the US has a number of long term issues which at some point are likely to force radical change. Its political system is paralysed by a polarity, the vehemence of which is incredible given the substantive areas of agreement. Its inequitable distribution of wealth which is getting worse and worse. The state of its public infrastructure. As critique and proposal Sachs’ book is well worth a read.

The Price of Civilisation – Economics and Ethics After the Fall. J Sachs. Published by Bodley Head 2011.