You floss regularly, yield to oncoming traffic and use your credit cards judiciously, dutifully paying off your balance every month.

You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case.

Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected.

Citigroup, meanwhile, has started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don’t use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.

USA Today: Pay your bills on time? There’s a charge for that.

Also: Citibank is randomly closing credit cards without warning.

Talk about putting wolves in charge of protecting sheep…

A former Goldman Sachs (GS.N) vice president has been named the chief operating officer of the U.S. Securities and Exchange Commission’s enforcement division, the regulator said on Friday.

Adam Storch, who was a vice president in Goldman’s “business intelligence group,” will be responsible for managing projects and other operational aspects of the SEC’s enforcement division, the agency said.

Reuters: US SEC hires Goldman vice president for enforcement

Looong article on the San Francisco general strike:

On May 9, 1934, San Francisco longshoremen went out on strike against West Coast ship owners, igniting a movement of 35,000 maritime workers of the International Longshoremen’s Association (ILA) that shut down 2,000 miles of Pacific coastline from Bellingham, Washington, to San Diego, California.

Driven by the determination and militancy of the rank and file, this 83-day struggle defied the employers’ Industrial Association of San Francisco, President Franklin D. Roosevelt’s federal mediators, the conservative American Federation of Labor (AFL) union leadership, and culminated in the San Francisco general strike.

The San Francisco strike combined with two other momentous labor struggles in 1934 to alter the American political landscape—the Toledo Auto-Lite strike led by socialists in the American Workers Party, and the Minneapolis truck drivers strike led by Trotskyists in the Communist League of America. These three strikes—which were, in essence, rebellions not only against business interests but also against the business unionism of the AFL—paved the way for the pivotal victories of Detroit auto workers in sit-down strikes led by socialist-minded workers in 1937 and the formation of the mass industrial unions in the CIO (Congress of Industrial Organizations.)

World Socialist Worker: 75 years since the San Francisco general strike

(via Nick P)

I spent my initial months in Amsterdam under the impression that I was living in a quasi-socialistic system, built upon ideas that originated in the brains of Marx and Engels. This was one of the puzzling features of the Netherlands. It is and has long been a highly capitalistic country — the Dutch pioneered the multinational corporation and advanced the concept of shares of stock, and last year the country was the third-largest investor in U.S. businesses — and yet it has what I had been led to believe was a vast, socialistic welfare state. How can these polar-opposite value systems coexist? [...]

The collaboration goes all the way to the top, where something called the Social Economic Council — consisting of trade-union, business and government representatives — advises the government on major issues. “It’s possible because our trade unions still play a prominent role,” said Alexander Rinnooy Kan, the chairman of the council. “In the U.S., the relationship between employers and unions is adversarial, but here we’ve learned there’s a joint interest in working together.”

There is another historical base to the Dutch social-welfare system, which curiously has been overlooked by American conservatives in their insistence on seeing such a system as a threat to their values. It is rooted in religion. “These were deeply religious people, who had a real commitment to looking after the poor,” Mak said of his ancestors. “They built orphanages and hospitals. The churches had a system of relief, which eventually was taken over by the state. So Americans should get over ‘socialism.’ This system developed not after Karl Marx, but after Martin Luther and Francis of Assisi.” [...]

This points up something that seems to be overlooked when Americans dismiss European-style social-welfare systems: they are not necessarily state-run or state-financed. Rather, these societies have chosen to combine the various entities that play a role in social well-being — individuals, corporations, government, nongovernmental entities like unions and churches — in different ways, in an effort to balance individual freedom and overall social security.

New York Times: Going Dutch – How I Learned to Love the European Welfare State

(via Richard Metzger)

See also: Matthew Yglesias’s hoorah for the European welfare state.

Very interesting bit: the Swedish MP explains that Sweden has a trade surplus and lends money to the US (we, of course, have a massive trade deficit).

There is, of course, a contrarian view: that the trade deficit is not a bad thing. That it is, in fact, a good thing:

The Causes and Consequences of the U.S. Trade Deficit

Are Trade Deficits Really Bad News?

(a case that seems less and less reality-based every day)

Since I’ve been a little soft of socialism lately, here are some thoughts on this episode: they talk a lot about the problems with capitalism and the need for more welfare to support the large numbers of people who will be unemployed long term as the economy continues to change.

However, they do not propose any real solutions (granted, this is just a short interview). The Welfare State needs a tax base to fund its social programs. Metzger mentions that he doesn’t see the market proposing any solutions to our problems. “The market” (a dubious term in its own right – what we should actual say is “private industry”) is perhaps the only thing proposing solutions – alternative energy, biotechnology, and other initiatives to increase actual, non-fictitious capital. Even solutions like permaculture, co-ops, credit unions, and alternative currency are “market” solutions, in that they are they are the private undertakings.

The good news is that McCain was, probably inadvertently, right when he said that the “fundamentals of our economy are strong.” We remain amongst the largest manufacturing countries in the world and one of the biggest exporters in the world. (Here’s an interesting article about the modern US manufacturing industry)

The bad news of course, we’re all familiar with: heavy debt both as a nation and as individuals, lack of individual savings, a serious trade deficit, etc. Some of these problems may have some governmental solutions. But redistribution of wealth require wealth to redistribute, and tariffs and trade regulation require commerce to regulate (whatever the advantages and disadvantages may be). This is what “the market” is good for.

Rest of the episode after the jump.

Read the rest of this entry »

Can anyone point me to a decent libertarian/laissez faire/Austrian-style/whatever critique of the work of Fernand Braudel and the Annales School and/or Immanuel Wallerstein’s work and the World System Approach?

I’ve searched the usual suspects: Reason, Cato, and Mises. All I’ve found were a few citations, and some blog comments that mention them. The blog comments were… insubstantial.

Full text of Matt Taibi’s recent Rolling Stone article on the bailout:

So that’s the first step in wall street’s power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people – to say nothing of federal regulators and even the CEOs of major corporations like AIG – are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation’s top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm’s fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone – then the chairman of the Senate Banking Committee – collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America – and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. “We’re moving to an oligopolistic situation,” Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.

The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America’s big investment banks if the U.S. didn’t strengthen its own oversight. So the top five investment banks got together on April 28th of that year and – with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson – made a pitch to George Bush’s SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

CommonDreams: The Big Takeover: How Wall Street Insiders are Using the Bailout to Stage a Revolution

This is the most comprehensive, clear, and funniest article I’ve read on the bailout yet.

It’s curious that Taibi doesn’t even mention Fannie and Freddie in this article, however.

Socialism is on the rise in America. Capitalists are on the defensive. So I’ve put together a handy list of rules to use whenever debating anyone who doubts the power of the Flying Invisible Market Hand to solve all life’s problems.

1. When market liberalization has a positive impact (such as in Chile), this is a victory for capitalism. When market liberalization has a negative impact (the recent economic meltdown), it’s because there is government intervention somewhere and free markets don’t really exist (therefore, capitalism is not responsible).

2. When they are doing things you don’t like, countries like Venezuela and Norway are socialist and therefore doomed to fail. But if someone makes the argument that socialism can work and uses these countries as examples, point out that they are actually capitalist.

3. When the government charges for its services (taxes), this is theft. When private enterprises charge for food and rent, this is just.

4. Theft is the worst crime known to man. It is a far worse that rich people are forced to pay taxes (if their accountants can’t get them out of it) than that poor children are allowed to go hungry.

5. Speaking of which: capitalism is both the fairest AND the toughest philosophy. If you think it’s unjust that children starve, you’re a pussy and need to awaken to the harsh realities of life. If you think that progressive income tax is a good idea, then you are an unjust Nazi bastard.

6. As an alternative to # 5, you can just claim that the US is actually a socialist nation and therefore starving children in this country are the fault of socialism. However, when it compares favorably to China or Soviet Russia, the US is a capitalist nation (refer to rules # 1 and # 2). Socialism puts naive faith in the nature of humans. But people would be good natured enough to donate to charities if they didn’t have such tax burdens.

7. Even though Karl Marx literally wrote the book on capitalism, his very concept definition of capitalism is “flawed.” Capitalism doesn’t mean what Marx said it meant, it means whatever capitalists say it means. Therefore, his whole critique is invalid. Also: Stalin and Mao killed millions of their own people – therefore nothing Marx said was ever correct.

If you ask a staunch capitalist about the global economic meltdown and the state of the system that brought us to this point they say “that isn’t really capitalism.” This sounds a lot like the socialists they’ve always criticized who defend their ideology by saying that the Soviet Union and China aren’t REALLY communist.

In the afterword of the copy of Anthem I read years ago, Ayn Rand wrote that if collectivists were successful in the political agenda, we would end up with a world much like Rand described in Anthem and the well-meaning commies behind it all would stand up and say “But this isn’t what we MEANT.”

Today, it is the those free market ideologues who are left to say “this isn’t what we MEANT.”

The current global economic crisis should lay rest to the notion that markets or the invisible hand or whatever can produce the “least bad,” let alone “optimal,” economic results. None the less, there are still those who would try to blame government intervention, rather than market failure, for the situation. In January, Reason Magazine ran a few articles on the subject, notably:

Is deregulation to blame? by Katherine Mangu-Ward

and

Anatomy of a Breakdown by Michael Flynn

This is a great pair of articles – they provide a clear, easy to understand insight into what went wrong. But they fail to make the case the authors are trying to make: that not only is deregulation not to blame, but that government policy is to blame.

Weirdly, Katherine Mangu-Ward finds case by case that the arguments that deregulation are to blame are in fact correct (with the exception of blaming the Glass-Steagall Act), and then concludes the exact opposite. She admits the The Commodity Futures Modernization Act of 2000, a loosening of debt rules in 2004, and the lack of oversight of Fannie and Freddie caused the meltdown. Her essential argument, however, is that the debt rule change and the lack of oversight of Fannie and Freddie are not technically deregulation but misregulation. This semantic argument does nothing to support the idea that banks (and by extension “the market”) can self-regulate. In fact, Mangu-Ward’s examination of the facts should lead to the exact opposite conclusion: left to their own devices, banks make stupid, stupid mistakes like taking on too much debt and trading in crazy derivatives.

Michael Flynn meanwhile makes the case that the government’s home ownership evangelism is to blame for the crisis. He says that the poor banks were bullied by the government into making bad loans, but all that would have been fine if not for the ripple effects caused by Fannie and Freddie’s stupid moves. And the fact that Fannie and Freddie were allowed to go hog wild? That wasn’t “deregulation” since they were government agencies (semantics again). Which is all more or less correct, but doesn’t address a few small problems: none of this proves that there wasn’t a market failure.

No one had to take out subprime loans. They could have read the fine print and then walked away. Banks could have found other ways of dealing with subprimes loans, recognizing the problems with Fannie and Freddie. Nothing suggests to me that Fannie and Freddie would have acted differently had they been private banks (except that they would have been more regulated as private banks). In other words: the government may have started the problem in motion. They definitely failed to stop the problem when they could have, and they seem to have made it worse. But they never did did anything that the market could not have stopped had the industry been “self-regulating.”

The two Reason articles are good, but they miss a big piece of the puzzle: the preemptive squashing of derivatives regulation in the 90s. In this case it is again not “deregulation” that was the problem – it was the lack of existence of regulation in first place. We were warned by congress, in no uncertain terms, what would happen back in 1994 but concerns were shouted down by anti-regulation ideologues in government, the industry, and the press. We were warned again in 2003 by Warren Buffet and still took no action.

None of this bodes particularly well for the government’s ability to regulate markets. But the idea that the financial industry can regulate itself has proven completely wrong, and no amount of spin and semantic games can change that. Unregulated free market capitalism has failed as socialism (or as some call it, “state capitalism”) is looking stronger than ever.

Meanwhile, the idea that economic freedom brings with it individual freedom has also been discredited by the persistent human rights abuses in Singapore (one of the most “economically free” places in the world) compared to the more economically regulated nation of Norway. You can’t make a convincing argument that strong civil liberties make for a strong economy, nor that economic liberty will necessarily result in civil liberty.

The battle between market economics and total state control (as played out between the US and the USSR) was only the beginning of a much longer struggle between many different economic policies that are neither strictly capitalist nor strictly socialist.

Those who still believe, as I do, in the virtue of open societies can no longer rely on practical arguments against the sort of extreme market regulation and lack of civil liberties found in countries like China. China’s technocracy has been too successful and the US’s dependence on markets too disastrous. We now must ask harder questions such as “what specific regulations make sense?”

Further reading:

Economic freedom? It depends where you stand

Who’s Afraid of Friedrich Hayek?

Markets and Anti-Markets in the World Economy

Now I know why Abe’s always talking about this guy:

“Instead of the peasant that shows up to the market to sell a certain amount of corn, here you have a wholesaler with a huge warehouse where he stores all the corn he can. If the prices are too low, he can always with drawn certain amounts from the market, put them in the warehouse, and artificially make the prices go up. When the prices go up, he then sells the rest of the corn at these high prices and he makes a lot of money. But, of course, he is manipulating demand and supply. He is not being governed by these anonymous forces. He is not being subject to self-organization; he is organizing everything in a planned cunning way. And so, because economists use the word “market” to describe both, that is one of the main confusions I see in contemporary thought.

We need another word to describe these organizations that are large enough to manipulate markets. A word has been suggested by historian Fernand Braudel and it is a very simple one: “anti-market.” Why? Because they manipulate markets. And so today, in the United States, there is a very strong political movement, mostly by the right wing, and Newt Gingrich is perhaps the most well known politician in this regards, who are trying, as they say, shrink the size of the government, let market forces have more room to operate. But, of course, translated into the terms we?ve just introduced, what they really want to do is let anti-market forces run wild. They don?t really want small producers and small manufacturers and bakers and printers and mom-and-pop shops to have more room to manoeuver and make money. They want national and international corporations to have more room to manoeuver. They want to shrink government so that there are less regulations to keep international and national corporations from doing what they want.