Minimum wage, again Wednesday, Jun 23 2010 

A little less than a year ago, I wrote a rather long post about the minimum wage. I explained the “textbook model” of the minimum wage, which many students just beginning to learn economics are taught. The basic neoclassical model tells us that a minimum wage set above the equilibrium wage in a market creates a surplus of labor or, in other words, unemployment. I disputed some of the assumptions on which such an argument rests, for example, elastic demand for labor, the “one-sector” model, perfectly competitive markets, equal bargaining power, etc. I also looked at empirical evidence that suggests that the minimum wage may in fact be beneficial for employment or, in the very least, may only have a modest employment effect (primarily for teenagers). Finally, I looked at some ideological or pragmatic reasons why people support the minimum wage and why it is more favorable than other redistribution policies (e.g. welfare). Rather quickly, this post became the most looked at article on this blog, and remained that way for quite some time. Today, it remains the second most-read post I’ve written.

Last month, King Banaian, a professor and chairman of the economics department of SCSU, wrote about about a study that concluded people who accept “enlightened economics” are more conservative than they are liberal. These “economically enlightened” folk were required to believe, for example, that a minimum wage necessarily decreases employment. I disputed this type “enlightened thinking.” Dr. Banaian has again made another post about the minimum wage, this time explaining why a minimum wage is bad policy (it prevents people from coming to “mutually agreed” wages below the minimum wage) and how there is a “consensus” among economists about this issue.

In the first post, I responded by saying there is quite a bit of evidence in support of a minimum wage, even if neoclassical theory provide none. One of the most famous example is research done by Card and Krueger, who found that the minimum wage had positive effects on employment. This seems quite stunning, considering the standard neoclassical model predicts just the opposite. So, quite naturally, one becomes rather suspicious of this research, but I think a careful review of the literature will show that the underlying conclusions that Card and Krueger come to are solid and are supported by additional research. Of course, one wonders how increasing wages can, in fact, increase employment levels. It seems counterintuitive. David Switzer, a professor of economics at SCSU, said it “goes against all of neoclassical economic thinking.”

Fortunately, neoclassical economics (as well as a little bit of intuition) does provide us with an answer. It isn’t, after all, beyond one’s imagination that an employer might actually pay its laborers a wage below the market clearing (i.e. equilibrium) wage. A firm seeking to maximize its profits has this incentive if it has the ability to do so. One scenario that might bring this about is one in which the labor market is oligopsonistic. Oligopsony is a fancy word to describe markets where there are few buyers and many sellers. (A related term that is perhaps more familiar is monopsony, where there is only one buyer and many sellers; this is the opposite of monopoly, which is one seller and many buyers.) In the case of oligopsony, the small number of firms can distort the wages in a market (in a similar way a monopoly can distort prices in a market), such that wages can be set below the equilibrium wage. Oligopsonistic labor markets reduce the welfare of laborers and creates deadweight loss. Under such circumstances, raising the wage that employers must pay their labor actually increases employment, reduces deadweight loss, and increases efficiency in the market. (A simplified graphical representation of monopsony can be viewed here.) So, in this case, the minimum wage has some extraordinary benefits.

The question becomes whether particular low-skilled labor markets are oligopsonistic or not. If the New Jersey fast food industry was oligopsonistic in 1992, that might explain Card and Krueger’s findings. However, as Dr. Banaian points out, the research in this area is not robust and is still “very young.” He may well be correct, in which case it would be helpful to look at empirical evidence and other areas that are more thoroughly understood. As I said earlier, a little bit of intuition might be able to help us explain why the effects of minimum wage may not be consistent with the standard model. In a 2008 study, David Metcalf explores why the minimum wage in Britain has “had little or no impact on employment.” Some of these include changes in hours, tax credits, compliance issues (part of the two sector model that Gary Fields discusses in previously noted research), productivity changes, price changes, reduced profits, and so on. He also considers the existence of “modern monopsony” (oligopsony) “very likely” in British labor markets. I defer you to Metclaf’s research for a more thorough discussion on how these variables can effect employment levels following a minimum wage hike. Suffice it to say, how these variable change does have an effect on employment, and may help explain why the minimum wage might have “minor negative effects at worst.”

In fact, that’s what most research has concluded. The conclusion that I support is that the minimum wage has a modest adverse effect on employment, primarily for teenager workers. It may even have positive employment effect for older cohorts, consistent with research by David Neumark and Olena Nizalova. (Neumark, keep in mind, is a fairly notable labor economist who opposes the minimum wage.) I think this is what a majority of the published literature out there reports (I can provide plenty of references, if needed), and the reasons explaining these findings are quite reasonable. That isn’t to say that there is a “consensus” against the minimum wage, as Dr. Banaian contends there is. He thinks I am “wrong on this point in terms of where the profession is on the literature.” A few years ago, The Economist, the main establishment journal, actually printed an interesting story on the issue. They wrote, “Overall, economists have become less worried about the job-destroying effects of a modest hike in the minimum wage. . . . Today’s consensus, insofar as there is one, seems to be that raising minimum wages has minor negative effects at worst.” There’s a wealth of research to support these views, as I stated earlier. What there is not is a consensus against the minimum wage, as Dr. Banaian contends there is.

In defense of his position, Dr. Banaian cites research by Neumark and William Wascher, which stated, in its abstract no less, “Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage.” Even more stunningly, Dr. Banaian readily confessed these facts in a post on his blog post he made in 2006, stating, “Both studies find a lack of consensus on the minimum wage, which I simply find shocking.” He finds the lack of consensus among economists “shocking,” but he at least acknowledges the fact. Today, he has shrunk from the issue and maintains that there, in fact, a consensus. He cites, for example, a 1996 survey by Robert Whaples, which suggested that there is a consensus among labor economists that the minimum wage decreases employment. That’s already been established. What Dr. Banaian conveniently does not do is refer to Whaples’ 2006 survey of PhD economists from the American Economic Association, which found that only less than 47% of them disagreed with a minimum wage policy. Though he readily mentioned it four years ago, perhaps the 2006 Whaples study is too inconvenient for the Minnesota House Representative hopeful in 2010.

The question, then, becomes less about the employment effects of the minimum wage, since there does seem to be some agreement on that issue. As one study by the U.S. Congress revealed, “Historically, defenders of the minimum wage have not disputed the disemployment effects of the minimum wage, but argued that on balance the working poor were better off.” That’s always been at the heart of the issue. Richard Freeman, one of the foremost labor economists and a professor at Harvard, writes in a 1994 study, “The question is not whether the minimum distorts market outcomes, but how its distortionary effects compare with those of other modes of redistribution, or with the benefits of redistribution.” He concludes that the minimum wage is a decent redistribution tool for four primary reasons that are typically ignored in the textbook models. I think his conclusion is consistent with what a majority of Americans believe. An overwhelming majority, usually over 80%, support the minimum wage. People support policies that help those who work (you need to work to earn the minimum wage), compared to those that help non-workers (e.g. welfare). They also are comfortable with redistributing their income via higher prices to help the most disadvantaged of workers. As Gary Fields keenly points out in a 1994 study, “One’s views about the desirability of a minimum wage ought to depend on more than the size of the unemployment effect alone.” I think he’s correct.

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Cooperate AND Compete Saturday, Apr 17 2010 

Yesterday, in my managerial economics class with professor Komai, we talked about “co-opetition.” Coopetition is a portmanteau of “cooperation” and “competition,” and it essentially means cooperative competition. This is the first time I’ve heard of the concept being formally introduced, and the first time I’ve ever heard of the concept was when Barry Nalebuff, a professor of management at Yale University, gave a speech about it at last March’s Winter Institute. (I wrote about his speech, briefly, here.) The idea that he introduced was that firms, even if they are competitors, work together in such a fashion that they can “expand the pie,” which he argues is better for both the consumer and the firms. He is careful to note that he does not advocate collusion or anti-competitive behavior. The difference between coopetition and, say, collusion is that the former is a strategy for expanding the market whereas the latter is a strategy to divide the market. In this sense, coopetition is not anti-competitive. I’m sure there are various examples that Dr. Nalebluff offers in his book, but I have not read it. One example might be if two newspapers share their distribution systems. In this way, they are not being anti-competitive, but are acting cooperatively to expand total demand (i.e. the size of the market).

What Dr. Nalebluff does brilliantly is take microeconomic and managerial economic theory and apply it to the real world. Too often, these theories focus on competition. How can oligopolies compete? Managerial economics gives many neat theories about how firms can set prices and quantities to compete effectively with their competitors. It also tells us how anti-competitive cooperation between firms is bad for society (e.g. when firms collude). But not often spoke about is how firms can effectively cooperate with each other and still compete at the same time.

This is why, I think, King Banaian of the economics department here at SCSU got so worked up last September about a note hung up on a board on campus that read, “Cooperate, DON’T Compete.” Dr. Banaian implied that such a comment was the result of “indoctrination” and was surprised by how remarkably “economically illiterate that comment was.” (Although, as I explain in the comment section, it’s not at all clear that the writer of this message was even talking about economics.) Even if the author of this message was talking about economics, is it true that such a comment is remarkably “economically illiterate”?

Everyone in economics is taught that competition is a good thing. We’re usually told cooperation is a bad thing. We can learn something from applied managerial economics though, which is that this conception of economics is not necessarily true. Competition in economics is good, yes, but cooperation can be too. Although economists seem to focus on how competition can be used effectively, there are other aspects to consider. Firms, after all, can cooperate with suppliers, can cooperate with governmental agencies, can cooperate with their employees, and can even cooperate with competitors (hence coopetition). More aptly, the comment should read, “Cooperate AND Compete.”

First Amendment Forum, again Friday, Apr 16 2010 

Today I was able to attend one of the presentations that was a part of the First Amendment Forum on campus, put together by the SCSU Society of Professional Journalists, the Department of Mass Communications, the St. Cloud Times, and others. The topic of the presentation that I attended was “Protecting Journalism in the Era of Dying Newspapers and Social Networking.” Though the topic was about the death of newspapers and the rise of online content and social networking, most of the panelists discussed how they were using or had used social media to complement their writings as journalists, reporters, or editors. However, once the discussion was opened to those in attendance, the issue of the death of traditional media was brought up.

Namely, the issue of charging for online content was brought up. This issue is the same issue that I had addressed in an earlier blog post and letter to the University Chronicle. I didn’t bring it up, but I believe the person who did was the same person I wrote my post in response to (that is, Kyle Stevens). The person asked the panel what they thought about the media charging for online content.

A salient point that one of the panelists (Ramla Bile) brought up was that charging for the news online introduces some problems in that doing so bars certain people (namely the poor) from accessing the news. Bob Collins, who works for Minnesota Public Radio (MPR), said he really wished the Star Tribune would start charging people to read online content, because he believed doing so would drive more people to MPR. Adam Hammer of the St. Cloud Times likened it to the music industry, and the challenges they faced with the digitization of music and the piracy of said music. He explained how people became accustomed to listening to music through digital media, and it was Apple who recognized this and created iTunes to provide a legal channel through which people could access this digital music.

Of course, there’s the other side of this issue. The content wasn’t produced without a cost. How are the media supposed to make money if they can’t charge people to view their content? Both views are valid. We need to balance the ability to make a profit through producing important news and the necessity of not pricing people out of the market for this important news. In other words, we want people to get paid for doing good journalism, but we don’t want to bar people from accessing this journalism simply because they can’t afford it.

Some people might just respond that if people can’t afford something, they don’t deserve it. If you can’t pay for it, why should I give it to you? The problem with this argument, however, is that important news is not just another commodity to be bought and sold. The news, as I have always said, is a cornerstone of democracy. (In economics, it might be called a public good.) Scholars and political theorists have long recognized that a free and vibrant press is the foundation of civic society and liberal democracy. This is what differentiates online news from, say, online music in Hammer’s example. Music is important, yes, but not necessarily a requisite for a functioning democracy.

The question, thus, becomes whether we want to limit the dispersion of knowledge and important news or if we want to make it as free and vibrant as possible. This is where I disagree with Stevens. He believed we should charge for online content, which would have the effect of pricing people out of the market for important news. As I said, though, we need to consider the fact that the content was not produced for free and there is a certain necessity to generate a revenue to at least cover the costs of making such important news available. The suggestion I made, basing my argument off the work of Robert McChesney and John Nichols in their book The Death and Life of American Journalism, was that there be a public subsidy for independent journalism. Both McChesney and Nichols present several convincing arguments in support of their case. A public subsidy for independent (that is, not corporate) news would solve the aforementioned balancing issue; the cost of producing important news would be paid for, and accessing this content would be kept free, allowing for the greatest number of people to access vital information.

Are most economists against government intervention? Monday, Mar 15 2010 

Do most economists think government being involved in markets is a bad thing? The answer to that probably depends on the market. If markets are efficient, there’s probably no need for government to get involved. If markets are inefficient, there’s probably a good reason for government to interfere to attempt to increase efficiency and so there could be an economic argument in favor of government intervention. So the question now is whether markets are efficient or not.

The reason I bring up the topic is because of something professor Komai of the economics department brought up in my managerial economics class today. (Dr. Komai is definitely one of the best professors I have had at this university.) She said only a small amount of economists are totally against government intervention, but they seem like a majority (because they make a lot of noise). The reason, she says, is that most economists do agree that government probably should not be involved in perfectly competitive markets, because perfectly competitive markets are efficient. At the same time, however, perfectly competitive markets exist virtually nowhere. Thus, when markets are not perfectly competitive, there is market inefficiency and perhaps a good reason for government to get involved to try to increase the efficiency of the market.

Most markets are oligopolies and a small amount are monopolies (which are even more inefficient). Therefore, there are compelling economic reasons for government to get involved to try to increase competition or otherwise reduce inefficient behavior. This is one argument in favor of government involvement in markets—there are others as well—but this one is particularly convincing.

One example, which was brought up in class, is the Clayton Antitrust Act of 1914. It is one of the many antitrust laws passed throughout American history and is specifically aimed at preventing the rise of corporate power. The late nineteenth century and early twentieth century were interesting times. This was the time of when the Republican Party was still a fairly young party (it was formed in the middle of the nineteenth century). At some level, Republicans of this era represented the true ideals of Republicanism. William H. Taft and Theodore Roosevelt, for example, were completely against big corporations. The history of these presidents, particularly their domestic economic policy, is quite fascinating, and there is great literature and documentaries on this topic. These early Republicans are what were called “trust busters.” They saw government power as one counterweight to corporate power, which they found subversive. So they busted trusts, so to speak, and they increased regulations. Roosevelt’s Square Deal endorsed these principles and was totally supportive of progressivism. Those were the ideals of early Republicanism. And I believe many of these ideals have been lost in today’s Republican Party.

Update (3/31/2010): I just want to clarify that I do not mean to misconstrue the position of Dr. Komai. She has made it clear to me in class that she prefers to stay in the center or the middle of issues. It’s not my intention to brandish her as a leftist of some sort who is automatically in favor of government intervention in markets. That’s not my position either.

The point that I think ought to be taken here is that market fundamentalism is misguided. We often here that governments are inefficient and that we should “just let the markets work.” It might certainly be true that governments are inefficient, but less heard is the fact that markets can also be inefficient. I personally do not think this message is conveyed a lot—certainly not as much as the message of government inefficiency is. So my point isn’t to say governments are great, that we should have intervention everywhere, and so on and so forth; instead, I am pointing out that markets are not as great as they are lauded by some on the right, particularly market fundamentalists and Austrian economists. It’s simply my feeling that when people are taught about markets, especially in courses that introduce the principles of economics, they usually are not hearing the complete side of both stories. What’s being projected, I think, is skewed a bit. That’s the part I take issue with. We can, of course, always quibble about the right balance of things—but that’s not quite my objective here.

Unfree news Saturday, Feb 27 2010 

Note: This a much longer version of a letter I submitted to the University Chronicle in response to Kyle Stevens. It did not appear in this week’s edition, but perhaps it will next week’s in the edition following spring break (darn!). I’ll update this post with a link if it is.

Update: I was expecting my letter to be published in this Monday’s edition of the University Chronicle. It seems the opinions editor is unaware of any reason why it was not published in this edition and promised to publish in next week’s edition and upload it online as soon as possible. I’ll post another update with a link as soon as there is one.

Update 2: The letter was published in this week’s edition of the University Chronicle. You can read it online here.

In an opinion published in the February 22 edition of the University Chronicle, Kyle Stevens argues that The New York Times charging readers to see articles on their Web site is “good news.” People who do not subscribe to the newspaper will have to pay a fee to get unlimited access to NYT online articles sometimes in early 2011, according to Stevens. Though Stevens admits “this does not qualify as ‘good’ news” for the general public, he says “this is ‘great’ news” for the media industry. The reason, he argues, is that when The New York Times began to provide free news on their Web site in 2007, small papers like the St. Cloud Times had “to play the same game.” In other words, other newspapers also had to provide free content in order to effectively compete in the market. Apparently, the news industry couldn’t survive off of this model, and now with this change “maybe the news industry can be saved,” says Stevens. This “fee-to-see format,” says Stevens, “makes so much sense that I cannot believe it has happened.”

Does it make so much sense?

We know that a free and vibrant press is a cornerstone of civic society and liberal democracy. The spread of information, knowledge, discussion is essential for any healthy society. The question is whether we want to limit this dispersion or if we want to make it as free and vibrant as possible.

Knowledge is what economists call a “public good” in the technical literature. Thomas Jefferson wrote that ideas have a “peculiar character” in that “no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening mine.” In economics, that is the idea of a non-rivalrous good. Your possession of knowledge does not hamper or diminish mine. Therefore, we ought to spread knowledge and ideas as widely as possible. Yet, setting up fees to read the news does not accomplish this goal. Hampering the spread of knowledge creates an economic inefficiency. There is a better outcome, which is to make the news as dispersed as much as possible, to share it freely. Therefore, making the news more expensive does not generate a favorable outcome, and Stevens acknowledges this when he states “this does not qualify as ‘good’ news” for the general public. Yes, it might help a handful of private corporations maximize their profit (as Stevens correctly points out), but it does not benefit the whole of society.

Helping large corporations maximize their profits often does not produce the most economically efficient or socially desirable outcome. As many media critics are quick to point out, the interests of large corporate media are not aligned with the interests of a vibrant and democratic society.

In this sense, the ownership of the media has a substantial influence on the output of the media. This is a core thesis of the propaganda model developed by Herman and Chomsky in their 1988 book, Manufacturing Consent, as I’ve discussed in an earlier post. Our dominant source of information is increasingly being controlled by fewer and fewer large multinational corporations. That has an effect on the output, and we experience it on a daily basis. The propaganda model has strong explanatory power.

Explains John Nichols, “The primary one is that the people who own most of the newspapers are not interested in civic or democratic values. They’re interested in commercial and entertainment values, and primarily to make a lot of money.” And it these large oligopolistic corporations that are being subsided and supported by government, through copyrights, Communications Act of 1934, and so on. Furthermore, according to Robert McChesney, this is “encouraged by the corruption of the U.S. political system, in which politicians tend to be comfortable with the status quo and not inclined to upset powerful commercial media owners and potential campaign contributors. The dominant media firms enjoy the power to control news coverage of debates over media policies; this is a power they have used shamelessly to trivialize, marginalize, and distort opposition to the status quo.”

The pre-capitalist Framers of our nation readily understood that the media are to function as a prevailing counterbalance to corporate and state power. In other words, the media are meant to give the people an independent voice. Now, however, we cannot speak of corporate influence on the media, because the media are the huge corporations. They are one and the same. And when you think of the media as agenda setters, which they are, the result is what’s been referred to as a “democratic deficit,” namely because “it was understood that if you just let wealthy people run the media system, it would serve only wealthy people, not viable democratic self-government.”

Well, now there is a crisis that is widely recognized, especially by people like Stevens and those in the media businesses, particularly in the printed press. It’s been referred to as the “death of newspapers.” Small, independent newspapers, local papers, and even some of the big dailies, are closing down or firing thousands of journalists each month. The problem is real and it’s a threat to a healthy democratic process. The reasons for it are numerous and fairly apparent. The real question is what we should do about it. Stevens offers one solution, which is to make the big newspapers like The New York Times less accessible to the general public so that smaller papers like the St. Cloud Times can have a chance. I don’t think this is the optimal solutions for the reasons I’ve already laid out. But there remains a definite problem where the printed news media are struggling to stay alive. It seems reasonable to make people charge more for good journalistic news, because it’s not free to produce. You have to balance the budget somehow.

There are alternatives to increasing charges (which is not likely to save the printed press), and two leading media scholars offer some in their book, The Death and Life of American Journalism. The subject of their book deals with the problems of the current state of affairs in the media and journalism, and how we can overcome the current crisis that the media face. This was also the subject of a fascinating interview the two authors had that aired on PBS last month. Had I not watched that interview last month, I probably would have thought nothing of Stevens’ letter. But Nichols and McChesney offer an alternative to Stevens’ argument, which I think is both sensible and pragmatic. What they suggest is subsidizing independent journalism. I can’t do their proposal much justice here, so I implore you to listen to the interview or buy their book (both of which I linked to above).

Obviously, the idea of a government subsidy makes a lot of people uneasy, and not just right-wingers who want to see the government disappear. There are concerns by people who think the government getting involved in the media would be akin to something like state media or, at the very least, government meddling in the generation of opinions and ideas. This, too, would be very unhealthy for a democracy. These concerns are addressed by Nichols and McChesney and they offer solutions to prevent any of this from happening. And the reason they urge a government subsidy for journalism is for the same reason that the Founding Fathers were very aware of. A free press is meaningless without a vibrant press. This was instantly recognized by the key Framers of the United States. So, for example, there were debates in early American history about how to subsidize the press, to ensure the democratic process flourished. And the government offered many subsidies to the press, one of the primary ones being postal subsidies. Congress debated how little presses should be charged for postal services. James Madison, the Father of the Constitution, thought the debate was nonsense. He thought there should be no charge, that it should be completely subsidized by the government, because anything less would interfere with the free flow of ideas and opinions, which, again, was recognized as the cornerstone of liberal democracy. Madison wrote, “Whatever facilitates a general intercourse of sentiments, as good roads, domestic commerce, a free press, and particularly a circulation of newspapers through the entire body of the people … is favorable to liberty.”

In order for there to be liberty, there needs to be a free press in addition to a vibrant press that offers a whole range of ideas. Madison and other key Framers understood this well. It’s the only way that independent voices could actually challenge, for example, state power. It’s how the abolitionist press stayed alive even during the years Congress banned any debate about slavery. Journalism and democracy are intimately linked, and so it is our imperative that we support it to its fullest. If one role of government is to protect and ensure democracy, as some libertarians might agree it is, then there exists an obligation on its part to protect and ensure independent journalism, in the same way it ensured it during the early years of the republic. One idea that Nichols and McChesney offer is vouchers or tax write-offs for citizens to give money to independent news sources. Again, you can read their book or listen to their interview for a more in-depth discussion. When you look at the subsidies the early republic offered to the press as a percent of the GDP, it would translate into roughly $30 billion in today’s money. Moreover, when you look at the places recognized as the freest and most open democracies in the world, where the press is rated as the most independent and freest, it’s places like Finland, Norway, Sweden, and so on, where they also offer roughly $30 billion in subsidies. It is in this way that vibrant, healthy, and independent news is ensured and maintained. Writing for the CATO Unbound blog, Paul Starr says, “we should be open to the idea” of public subsidies for journalism. I also think we should be open to the idea as a viable and pragmatic alternative to Stevens’ solution, to ensure that independent journalism can survive, that it is vibrant and healthy, and that it can continue to challenge corporate and political power.

A comment on the recent Supreme Court decision Saturday, Jan 23 2010 

Recently, the Supreme Court ruled in Citizens United v. Federal Election Commission that corporations (and labor unions) can spend unlimited amounts of their money on elections. Essentially, the Supreme Court ruled that corporations can run campaigns. Many have lauded the decision as a great defense of First Amendment rights.

Is it? “Freedom is awaking from its coma today,” declares conservative Rush Limbaugh. Dr. Spagnoli, writing on his blog, states, “there’s no reason to deny corporations [free speech].” This is because “free speech [is a human right],” he says. I agree with Dr. Spagnoli, free speech is a human right. But are corporations humans?

As it happens, corporations are not people. They are social constructs, entities created to carry out specific functions. However, as I discussed in a earlier blog post, Are corporations individuals?, corporations slowly became considered “persons” through a series of judicial rulings. There is no law that says corporations are humans. It’s not anywhere in the Constitution. The Fourteenth Amendment was passed after the Civil War to give rights to people, specifically the newly freed slaves. It declared, “No State shall … deprive any person of life, liberty, or property, without due process of law.” It affirmed the rights of people. It was there to protect blacks from the evils they had endured under the brutal regime of slavery that had oppressed them for centuries.

Well, corporate lawyers were very savvy, and they began to say, “look, corporations are persons.” Corporations deserve the protection that was meant for freed slaves. In fact, when you look at the history of it, it’s very perverse. According to work done by Doug Hammerstrom, of the 150 cases involving the Fourteenth Amendment heard by the Supreme Court up to Plessy v. Ferguson, only 15 involved blacks. The other 135 were brought by corporations. This is the exact opposite of what we would expect to happen. However, through a series of activist decisions by judges, which has no basis in law, corporations gained personhood. Richard Grossman proclaims, “600,000 people were killed to get rights for people, and then with strokes of the pen over the next 30 years, judges applied those rights to capital and property, while stripping them from people.”

So now they can say corporations deserve the rights of flesh-and-blood persons, like the right to free speech; the ability to sue others; the right to “life, liberty, or property”; the right to own other businesses; the right to run campaigns; and so on. But there’s nothing inherent to a corporation that says its a person and deserves the rights of flesh-and-blood people. That’s only come about through very perverse judicial activism (e.g. Santa Clara County v. Southern Pacific Railroad). Moreover, there’s nothing in economic theory that says corporations ought to be treated as persons. That corporations should run campaigns has got nothing to do with capitalism. There’s nothing about efficiency that says corporations should be allowed to do this. In a free and competitive market, it wouldn’t happen.

Anyone who argues that corporations should be treated as persons and have the same rights would also have to accept that corporations should also then be allowed to run for office, hold office, to vote in elections, and so on. But no one agrees with that and for obvious reasons. Moreover, Dr. Spagnoli does not say that only corporations should have the rights of persons. He also says, “corporations, trade unions etc.” should not be denied the right to free speech. Well, what does “etc.” constitute? If a corporation is a person, why not a sports team? Can a townhome association be considered a person under the Fourteenth Amendment? Why not?

What happened before corporations were granted the rights of persons? They were chartered by the state to carry out some function that was meant to serve the public good. They had a specific charter, their shareholders were accountable, they had limited rights, they were regulated, and so on. That they should be running campaigns was completely unfathomable, particularly to the Founding Fathers, who were vary wary of corporate power. Within this framework, corporations had moral obligations to the communities they served. With judges granting corporations personhood, however, the moral obligations we ascribe to flesh-and-blood persons was not ascribed to corporations. The moral obligations and social responsibility that corporations have, according to people like Milton Friedman and Ayn Rand, is to serve their own interests. The only obligation corporations are to have is to maximize profits. These are not the same type of moral obligations we think flesh-and-blood people have. Most decent people, ignoring extreme ethical egoists, believe we ought to consider what happens to other people, that we have an obligation not to harm others, that we should not rape the environment, that we should not ignore grave injustices, that we should treat flesh-and-blood people as ends rather than means, and so on. Even those who support corporate personhood do not ascribe these moral obligations to corporations. These are very special types of “persons” indeed.

Should people have the right to free speech in a democracy? Yes. Are corporations people? No.

Democracy vs. libertarianism Monday, Jan 11 2010 

One of the problems that ideologues of any persuasion probably run into is the problem of democracy. What do I mean by “the problem of democracy”? What I mean by this is that the democratic majority often does not adhere or conform perfectly to the ideology that a person or group may have. This can be a problem for the ideologue if he or she professes to be a democrat (a supporter of democracy). So, for example, the libertarian may decry the government’s role in society, despite the democratic majority wanting social programs or government regulation. Thus, any claim that we should wipe out social spending is inherently anti-democratic in this sense. My previous post on government involvement touches on this issue. Of course, the ideologue can bypass this “problem” if they do not profess to be democrats. Instead, we should simply implement the policies of our ideology, no matter how much the public is opposed to it. That is, we become authoritarians. For the libertarian or the anarchist, this is inherently paradoxical. We cannot claim to be libertarians and authoritarians at the same time—the ideas are necessarily opposed to each other. It is not possible to authoritatively implement our policies in the name of libertarianism, for example. That isn’t to say no one has tried; for example, Augusto Pinochet, in his brutal dictatorship over Chile, enacted free-market reforms in the name of “liberating.” We know that’s hypocritical, and we understand the perversity in his understanding of “liberty.” Here, “liberty” means liberty for the corporation, not for the people. Thus, the ideas of libertarianism and anti-democratic measures are incompatible.

How can the ideologue cope with “the problem of democracy”? How can we accept certain principles that the majority rejects, yet still call ourselves “champions of democracy”? I have two suggestions, and others are welcome. First, be what could be called a philosophical ideologue (cf. philosophical anarchism). That is to say, you keep your beliefs in whatever ideology you choose, but you accept the majority’s opinion as the opinion that should be adhered to. So, for example, if you’re against social spending, but the majority supports it, you continue to believe that social spending is wrong but accept the majority’s choice as the will of the people. For some, this might seem like an unpleasing solution, which I accept. It does seem contradictory to accept the choice but at the same time to not accept the choice. It would seem as if we are not truly adhering to our ideologies (that’s a common argument against anarchists who do not support the overthrow of the state—they’re not real anarchists). Do we or do we not accept that argument? The other thing I suggest is that we teach or advocate our ideology in a way that is not anti-democratic. We explain our philosophies (non-coercively) to others in the hopes that they will accept them. In this way, we can influence the outcome of the democratic choice without resorting to authoritarianism.

I accept that others may not accept this. They may say we have to cling to our ideologies, no matter what. We must reject the democratic majority. They may not say it in this way, but it is what they’re saying. I reject this argument and find it to be dangerous. Over ideology, I am a democrat.

P.S. This is a further exploration of a concept that Dr. Spagnoli explores on his blog in a post titled “What is Democracy?” In it, he explains, “Napoleon Bonaparte propelled his armies across Europe on behalf of the universal principles of liberty, equality and fraternity . . . Napoleon’s armies occupied Europe because they wanted to export French principles and French civilization. . . . France was the advance guard of the struggle of humanity for freedom and against old-style authoritarianism.” The parallels to contemporary foreign affairs are obvious enough. Claims Dr. Spagnoli, “Attacking, conquering and occupying other countries, even with the purpose of liberating these countries from oppression and archaic authoritarian forms of government, seems to be highly illogical and self-contradictory. It’s incompatible with the very principles of democracy (democracy is self-determination).” The question being raised is, “are we allowed to impose or enforce democracy in an authoritarian way?” Likewise, I raise the question if libertarians are allowed to impose or enforce libertarianism in an authoritarian way. I say no.

The profit motive Friday, Nov 20 2009 

In my global marketing strategy class the other day, instructor David Thomsen showed two pretty shocking videos in discussing public relations. One was on the Bhopal disaster of 1984. The Bhopal gas tragedy is the worst industrial disaster in human history, leaving 8,000 dead within hours of the gas leak in the Indian city, 25,000 dead since the disaster, hundreds of thousands adversely affected by the chemicals, continuing side effects on humans and other animals, and environmental damage that persists today. The “compensation” the video talks about was less than $900 per injured person. Union Carbide, the corporation responsible for the leak, denied any culpability. The Dow Chemical Company later bought them in 2001. The CEO of the company at the time, Warren Anderson, was charged with homicide and manslaughter. He left the country and fled to the United States, where he currently resides, and refuses to appear before Indian courts.

The second video was a report by Australia’s Channel 7 revealing that Nike, a corporation marred by its human rights violations and despicable working conditions in Third World countries, continued to engage in forced labor practices in sweatshops in Malaysia as late as 2008. Note this is after they claimed to have cleaned up their act.

There is a simple reason these types of actions, and others like them, occur, which is what’s called the profit motive. When profit-maximization is the creed, what happens to people is only incidental. There is a whole generation of businesspeople who have been influenced by the work of people like Milton Friedman and Ayn Rand, whose principle message is that the only socially responsible (and indeed morally right) action is to maximize self-interest by way of profits. These ideas are justified by ethical egoism, a morally bankrupt and vacuous theory that says the only morally right actions are actions that maximize the acting agent’s self-interest. That’s what’s called “the moral economy.” The right, in their usual perversion of Smithian theory, always tries to defend this on economic grounds, appealing to what they refer to as “the invisible hand,” a term meant to describe the unintentional benefit to society that corporations bring about through acting in their self-interest. Adam Smith, of course, only used the term once in his The Wealth Nations and only as a “casual metaphor” for risk-adverse merchants wary of foreign exchange who inadvertently help their own countries. Smith, like many of the other great anti- and pre-capitalist Enlightenment thinkers, denounced greed and selfishness. As most serious scholars of Smith recognize, Smith never saw the “invisible hand” as a reality or “law” of markets. As Joseph Stiglitz puts it, “the reason that the invisible hand often seems invisible is that it is often not there.”

As ethical egoism posits to us, there is a certain calculus all moral agents are supposed to undertake in their actions. Namely, they are to ascertain which actions will ultimately lead to profit maximization and undertake those actions. For Union Carbide, that meant denying responsibility for the worst industrial disaster in human history and paying its victims an inconsequential and truly unjust fraction of its coffers. For Nike, that meant finding the cheapest source of labor and exploiting them in the worst kinds of ways—that is, until they’re caught. And while these might indeed be the profit-maximizing choices, surely nobody agrees they have improved the lot of all. When we ignore the rights of people and the laws that regulate acceptable behavior (as, indeed, ethical egoism asks us to do when it is profitable), the necessary result is an abject and deplorable world. The fact that the far-right advocates the abolition of regulations intended to safeguard against such massive injustices from ever happening is justified, they say, by a certain euphemism they call “market democracy” (the idea that ordinary market participants, like you or me, can shape business behavior—but you more than me, because I’m poor). The sobering reality: Dow’s revenues in 2008 totaled more than $57.5 billion, and over $16.6 billion for Nike.

So long as corporations continue to operate within the framework of this “moral economy,” justified by Friedman, Rand and others, we will continue to witness the tragedies and corruption that we hear about on an everyday basis. What is needed instead, at the most minimal level, is a better consideration for those other than the self, as advocated in theories like stakeholder theory, and better regulations and stiffer penalties to ensure “profit over people” (what Smith described to as “the vile maxim of the masters of mankind”) does not become the norm.

Libertarianism. What’s in a name? Sunday, Nov 1 2009 

I just got done reading an excellent article by Kerry Howley in Reason, a libertarian magazine. I think the article raises some very thought-provoking questions concerning libertarianism.

What exactly is libertarianism, and what does it entail? Is it, as the article asks, the opposition to coercion and authority only by the state? Or does it entail opposition to other forms of coercion and authority outside of the state, such as that coming from cultural norms, societal practices, traditions, or other institutionalized structures and conventions? If libertarianism is concerned with liberty, particularly individual liberty, do we define it only as liberty from the state? Are there other ways individual liberty is restrained that libertarians ought to care about? Are there practices and norms all people calling themselves libertarians ought to fight against, “even if no one has bothered to codify the rules in an Important Book and call them ‘laws'”?

A central question for left-libertarians or leftist anarchists is whether private power is just as bad (or even worse) than state power. To them, the answer is a resounding “Yes.” This is why, for example, they oppose capitalistic economic orders that act to propagate “unaccountable private tyrannies” (corporations) and private property. Traditionally, libertarianism was associated with these leftists. Today, and most notably in the United States, “libertarianism” is associated with rightist libertarians—those who advocate free markets and the protection of private poverty. American libertarianism, most closely associated with the Libertarian Party, is very much a part of the Lockean imagination. To quote Ayn Rand:

The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.

These are profound remarks. According to Rand, “Those who advocate laissez-faire capitalism are the only advocates of man’s rights.” Similarly, as Murray Rothbard states, “Capitalism is the fullest expression of anarchism, and anarchism is the fullest expression of capitalism.” As Howley explains, however, free markets and anti-statism are only one part of the story. “It’s possible to be an anti-government zealot with no interest whatsoever in individual liberty,” she writes.

According to Howley, “libertarians for whom individualism is important cannot avoid discussions of culture, conformism, and social structure. Not every threat to liberty is backed by a government gun. . . . when a libertarian claims that his philosophy has no cultural content—has nothing to say, for instance, about society’s acceptance of gays and lesbians—he is engaging in a kind of cultural politics that welcomes the paternalism of the mob while balking at that of the state.” As I said, I think this raises many interesting questions. Particularly, if we see a social injustice that we perceive to be limiting the individual liberty of certain people, is it our moral obligation to attempt to change that? If a particular society’s mores dictate that women should be restricted to the confines of the home, is it the libertarian’s job to fight against it? Importantly, would that not entail forcing our cultural preferences and ideals on others whom we might consider “backward”? As the response by Todd Seavey to Howley’s article strongly proclaims, “Freedom’s Just Another Word for Kerry Howley’s Preferences.”

Truly, all libertarians should be concerned with the exercise of authority, in any context. As the left-anarchist Noam Chomsky posits, “The core of the anarchist tradition, as I understand it, is that power is always illegitimate, unless it proves itself to be legitimate. So the burden of proof is always on those who claim that some authoritarian hierarchic relation is legitimate. If they can’t prove it, then it should be dismantled.” To wit, it is not enough to simply confront political and economic orders that restrict individual liberty; rather, it is required of us to oppose even the social and cultural orders that act similarly, working under the basis that power is illegitimate by assumption. Writes Howley, “In turning so definitively from the left, libertarians denied themselves a powerful vocabulary with which to engage discussions of individualism.” Even those libertarians concerned with free markets and other rightist agendas ought to concern themselves with other institutionalized forms of coercion and authority. The answer to the question “Are Property Rights Enough?”, I believe, is “No.”

Your own thoughts about the nature of libertarianism are invited.

Business ethics and economics Thursday, Oct 29 2009 

Today I attended a presentation given by Paul Neiman, an Assistant Professor of Philosophy at SCSU. The topic of his presentation was international business ethics. He focused on providing an ethical framework for conducting international business from a social contract perspective, expanding on the work of John Rawls and his “A Theory of Justice.” The presentation is based on a paper he is currently in the process of writing.

The basic premises are that social contracts should incorporate common shared presumptions that are reasonable and generally acceptable. Based on this, Dr. Neiman argues there are four restrictions that seem reasonable and generally acceptable to place on free markets:

1. Contractors should not be forced into accepting or rejecting principles.
2. Contractors should not be willfully deceived in arguing for or against principles.
3. All contractors must have an equal right to propose or argue against principles.
4. All contractors should expect that the terms of the social contract will be enforced.

These are all well and good. They are reasonable and generally acceptable rules to impose. The problem is when Dr. Neiman ventured into what these rules would result in for two contractors, one representing a corporation and another representing a community, coming to negotiate a deal but who are completely unfamiliar with their constituents. That is, the business contractor does not know anything about the corporation he is representing other than that they seek profit maximization. Likewise, the community contractor does not know anything about the community she represents except that they care about their living standards, their culture and social norms, their environment, and so on. These two people are then supposed to negotiate a deal based on the four rules above, and we’re supposed to assume both have an equality of power (the community does not desperately need the corporation and the corporation does not desperately need the community).

Based on these rules, Dr. Neiman posits that the negotiators will come to expect that the corporation is obligated to pay a living wage, be fully responsible for any environmental damage it creates, respect cultural and social norms all the time (i.e. not just when it is profitable to do so), and so on. Clearly it seems the balance of power rests with the community negotiator, not with the corporation (and Dr. Neiman justifies this by saying it is the community that has the deal-breaking terms, as if the corporation has none of its own).

To be frank, the presentation made little economic sense to me, as someone who is minoring in the subject. That’s just my opinion. Let’s take the living wage obligation, for example. Dr. Neiman says the community won’t accept any corporation that won’t pay its population a living wage because that would decrease their wages. I assume that means they won’t take any salary below the average. Already something seems quite wrong with this ethical framework. What happens to, say, cashiers at a grocery store? They usually don’t get paid a “living wage” because they do not add at least that much revenue to the company. If the marginal cost of an additional laborer does not at least equal the marginal revenue of hiring that laborer, the laborer won’t be hired. That is, the company won’t hire someone at a cost that exceeds the benefit that hiring that person would bring. Otherwise they’re just losing money. So what does this mean when we say the corporation is obligated to pay a living wage? Well, it means this theoretical world doesn’t have any cashiers or any other job, for that matter, that would normally pay less than a “living wage.” (That’s the classical argument against minimum wages, a topic I’ve explored here [by far my most popular post for some reason]. The difference, really, is in the magnitude in setting the minimum. The hypothetical purpose of a minimum wage, as I see it, is to set wages at an equilibrium price that clears the market, essentially correcting for market failures that exist. A “living wage” minimum sets it way above this level and is based more on ethical rather than economic arguments.)

So the result is actually very high unemployment because there is a lack of jobs. Jobs that cannot afford to pay a “living wage” won’t exist. People whose labor is not worth this living wage are out of luck. And I did ask Dr. Neiman about this problem. He essentially responded that he doesn’t buy the argument and that perhaps some people will just have to live unemployed to persevere the interests of the community, namely high wages. To me, this is a very astonishing ethical guideline he is proposing. What he is saying is that it is better to receive nothing rather than something. That it is better to live in poverty and in unemployment than to receive at least some amount equal to the worth of your labor (if your labor is worth less than the “living wage”). Is that ethical? Further, having people earning zero rather than even a minimal amount decreases the average wage, what Dr. Neiman was originally against.

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