Jefferson, Jackson and Robert Rubin’s Hamilton Project
As progressive Democrats from California to New Hampshire hold their traditional Jefferson-Jackson Day dinners, they must pause for a groan at ex-Treasury Secretary Robert Rubin’s April ploy for re-lionizing himself as the party’s top economic thinker. It’s a Washington-based bit of pretentiousness called – of all things – the Hamilton Project.
Rubin, now Chairman of the Executive Committee of Citigroup, the world’s biggest bank, co-chairs the HP with fellow Wall Streeter Roger Altman, in thinly disguised pursuit of moving party policymaking from the grassroots of voter primaries and caucuses to the golden financial roots of Manhattan. Thomas Jefferson and Andrew Jackson, who loathed Federalist Alexander Hamilton and what he stood for – using government to support the monied classes – must be rolling over in their graves.
Not that this is the first time. Back in the late 19th Century Gilded Age, President Grover Cleveland, a conservative Democrat from New York, fatally divided the national party with his loyalty to Eastern finance. During the 1920s, the Democrats did much the same thing by nominating Wall Street lawyer John W. Davis for president in 1924, sending progressive and labor voting flocking to third-party candidate Robert LaFollette. The Clinton administration, tutored by Rubin, moved in some similar directions. But no one ever dared a Hamilton Project.
My interest was piqued some weeks ago by a blistering attack on me and my new book American Theocracy: The Perils and Politics of Radical Religion, Oil and Borrowed Money by Jacob Weisberg, the editor of Slate. Not knowing Weisberg – indeed, barely knowing who he is – his venom was a surprise, and likewise his odd pre-occupation: that I have tried to mislead Democratic economic policymakers who should ignore me. The name Robert Rubin appeared nowhere in this screed.
But the clouds blew away when I saw Weisberg identified as the “co-author” with Robert Rubin of a 2002 book In an Uncertain World: Tough Choices From Washington to Wall Street. While this tome never quite suggested that Rubin’s portrait replace Hamilton’s on the ten-dollar bill, hints lurked everywhere. Indeed, Weisberg auditioned for this ghostwriting with a 1998 article for the New York Times Magazine about Rubin (un-prophetically entitled “Keeping the Boom From Busting”), which oozed like an overgrown Valentine.
“Co-author,” however, is not quite right. Check on Amazon.com and you won’t see Weisberg’s name under Rubin’s on the cover without a magnifying glass. Indeed. Rubin’s short bio in the Hamilton Project press release refers to his recent authorship (and then in parentheses “with Jacob Weisberg”). Sorta like My Story by Zsa Zsa Gabor with Dwayne Slick or some such. Nevertheless, Weisberg was undoubtedly close enough to Rubin to pick up the man’s view of Kevin Phillips and his books.
Over the years, these views have been mixed. In 1990, he liked my volume The Politics of Rich and Poor enough to try to enlist me in his and the Democratic party’s service. Unwilling to be anybody’s strategist, I said no. In 1993 and thereafter, as Rubin’s star rose in the new Clinton administration, my negativity centered on three Rubin hallmarks: bond-market fetishism, multiple bail-outs for finance (the Mexican peso crisis, and the Russian and East Asian currency crises) and late 1990s financial bubble-blowing. My book Arrogant Capital in 1994 had suggested that the truer Democratic philosophy came from Thomas Jefferson who said that “Banking establishments are more dangerous than standing armies” and from Andrew Jackson, who wanted to see “all the stockbrokers, jobbers and gamblers swept from the land.”
In 2002, my book Wealth and Democracy: A Political History of the American Rich, described how during past economic go-go periods, important elements of the Democratic party invariably competed with the GOP in wooing the financial community. Luckily for party self-respect, these courtships always ended when times got tough. Robert Rubin, the book suggested, had been the most skillful Democrat working to knit the Clinton Administration into what was rapidly becoming a bipartisan Washington strategy of favoring and bailing out the financial sector while largely ignoring the shrinking manufacturing sector. The book also pointed out a less-heralded dimension: “Never before had a Democrat in the White House presided over a great technology mania and bubble.” The 1920s equivalent had been Republican.
American Dynasty, my book out in 2004, did not mention Rubin but dwelt on the dangers to U.S. politics from the growth of dynasties – Bushes for the GOP, Clintons on the Democratic side – that invariably promote famous names and entrenched privilege. My 2006 book, in turn, bore down heavily on the watershed transformation of the U.S. economy from one dominated by manufacturing (a quarter of U.S, GDP in the 1970s) to one in 2000 where financial services (20%) had displaced manufacturing (down to 14%). Once again, the 1990s and Rubin were identified as pivots – dangerous because financialization has been a key to decline for previous great powers, most recently Britain.
This year’s volume also noted, without citing Rubin, that Citigroup had emerged during the 2000s as America’s most anti-social financial institution. As the Times of London observed in 2004, “Name any scandal of the last decade – Enron, Worldcom, Parmalat, biased (stock) research – and Citigroup’s name will crop up.” On the surface, Rubin enjoys a reputation as an unassuming man of unblemished character and deep charitable and social concern. However, he was Chairman of the Citigroup Executive Committee (since 1999) while much of this anti-social behavior was going on; he also called the U.S. Treasury to pitch for help to Enron, with which Citigroup was closely involved (a collusion for which Citi paid a huge fine of $300 million). A 2008 Democratic campaign that includes Robert Rubin will not be credible on Enron-type issues.
For now, he is not worried about that. He is trying to enlist disaffected moderate Republicans in groups like the Council on Foreign Relations and several budget organizations to back the newly centrist and pro-finance Hillary Clinton in 2008. Presumably this includes the further Hamiltonization of the party of Jefferson and Jackson.
If these words have done any injustice to Bail-Out Bob the Bubble Blower, fear not. He can always put chalk to Slate and re-appear in the guise of his heavy-breathing acolyte.
Kevin Phillips’s new book, American Theocracy: The Perils and Politics of Radical Religion, Oil and Borrowed Money was published in March by Viking, and featured in TPMCafe's BookClub.
As you tried to indicate we really only have one and a half political parties in the US: Republican and Republican Lite.
Over the past 40 years all economic models except that of unfettered commerce have been swept aside. Non-profits like Blue Cross have been privatized. Government agencies have been demonized as being inefficient (with the exception of the DoD, which can do no wrong). Just recently Illinois started selling off some of its highways to private firms. In the past we had a mixed economy, public firms, non-profits, government run firms (like the TVA) and government agencies. Now one size is supposed to fit all.
The Dems need to play the same game because politics is now controlled by money. Running for office is expensive and business is where the money is. Candidates are either wealthy (Frist, Corzine, Bloomberg) or are beholding to their corporate backers. Those going into government (like Rubin, or Snow) come from industry and intend to return. Government service is seen not as a way to be a public spirited servant (as with FDR's brain trust), but as a way to further one's commercial interests when one returns to private life.
Without a way to get the money out of electoral politics there is little hope for change. TV is where the swing voters are and paying for ads is the only way to reach them. No one has suggest any viable reform ideas so far.
--- Policies not Politics
Daily Landscape
May 17, 2006 8:36 AM | Reply | Permalink
Well-said, Kevin Phillips. The Lord deliver us Democrats from Hillary Clinton as our candidate for president. How much further to the right can she go? I don't like dynasties either, except maybe for the Adams family.
By the way, I enjoyed your appearance on Stephen Colbert's show. You were able to get your message across with humor equal to that of Colbert's ultra-rightest persona. You knew how to hold your own in that milieu, as many of his guests do not.
May 17, 2006 9:38 AM | Reply | Permalink
RDF speaks truth.
I found "American Theocracy" greatly informative, if terribly depressing. Thank you for this contribution to understanding.
I am confused as to what we should consider Hamilton's legacy. From reading the Federalist Papers and a recent biography of him I feel it's a bit unfair to cast him as only a friend of the moneyed class.
I may have taken the wrong impression but he seemed, at least at first, to view banking and credit as essential to the viability of the young nation, and became a banker only because he now had some connections and experience in the field.
Coming from questionable social circumstances he must have retained some sense of the merit of people separate from their class. Certainly he must have felt respect for the soldiers under him; I recall no complaints about his command.
I admire his thinking and writing so much that I am quite content that he is honored on our currency. By contrast, if Jackson was a friend of common men that was only men of his kind. I am embarrassed that we honor him considering his treatment of the Cherokee, not to mention his disregard for the Constitution when ignoring the Supreme Court ruling.
As to money in general, it should be viewed the same as corporations; useful but dangerous and in need of firm control. Democracy did not defeat communism so much as money killed it. It was only partly the felt need for political freedom that brought down the wall. (That was suppressed as long as the rulers had the capability of doing so.) Mainly the leaders of Russia and some satellites threw in the towel because they were broke. If they had not had to compete economically, or rather, if we were not so obviously rich there would have been less dissatisfaction in conditions.
Money perpetuates itself by concentrating, and it easily takes over politics when allowed. A Darwinian view would be that dispersed money is unable to maintain a sustaining environment when concentrated money sucks up resources, so big money will eliminate the spread-out version. I don't recall Hamilton arguing against inheritance taxes. Perhaps I'm wrong on that; fill me in if so.
In any case, the remedy for concentrated money's power would be inheritance taxes and significant capital gains taxes (higher than on manufacturing income). A strongly progressive income tax does not preclude commercial success, and it does not reduce ambition to succeed. That is fueled by comparison with others.
The absolute value of one's holdings matter less, personally, than whether one has more than someone else, so changing the "dynamic range" of wealth would have little effect on productivity and innovation.
Since we were hardly in decline when the top income tax rate was around 90% it seems obvious that the tax cuts have to be rolled back, not only for revenue and fiscal responsibility but for social health.
May 17, 2006 9:41 AM | Reply | Permalink
J. McCutchen "JmacSF"
San Francisco. CA
No instinct for the capillaries here!
Bravo!!!
May 17, 2006 9:46 AM | Reply | Permalink
I'm a huge fan, but I'll have to admit the post came close to losing me, by focusing too much on who is allied with whom, not enough on, say, what's wrong with Weisberg's sadly breezy write-off in Slate. I'd love to hear more from Kevin Phillips on specifics, including a reply to the review now in TNR, which peddles right-wing populism, with the claim that the left is condescending to ordinary Americans.
Tom Wright had some good points about concentrations of wealth that don't fit into free-market ideology and about Hamilton, who definitely deserves the praise here. I doubt he had a position on inheritance taxes, which (like income taxes) lay in the future, I believe. However, he believed in the power of taxation as part of building an effective national government with projects we might almost call public works in our current framework, so certainly neither hostile to quote unquote big government or a defender of government as an extension of private enterprise.
Of the taxes at issue at the time, such as tarriffs, excise taxes (most famously extending to whiskey), and property taxes, perhaps the last comes closest to Tom's point that Hamilton was not a blind defender of the rich, and one of his greatest triumphs was participating in putting down a rebellion against such. Of course, Hamilton's ardent opposition to slavery comes far closer than Jefferson to distancing him from Phillips's early advice to the "emerging Republican majority"!
John
http://www.haberarts.com/
May 17, 2006 11:01 AM | Reply | Permalink
I would not exagerate differences, however real.
When Bill Clinton and Robert Rubin were stewards of American economy, we had budget balance, quick growth, and one of the very few period in the last 30 years with wage growth across the spectrum. It was a tide that lifted all the boats.
One conclusion is that progressive social goals are compatible with balanced budget, and robust economic growth is compatible with top income tax rates of 40% with no special preferences for unearned income like capital gains and dividend.
This we can share with people like Rubin.
The second issue is that of free trade. With advances of transportation, communication and international finance, it is harder and harder to overcome "comparative advantage" of low wages. We have, on the face of official statistics, robust economy and very anemic wages. People keep consuming on credit, and USA as the whole keeps consuming on credit, with enormous deficit. Protectionist ideas have to be seriously considered.
I would be afraid to rely on Kevin Phillips as an economist, but economists who were before in Rubin's camp, like Krugman or DeLong, have second thoughts on free trade. I would feel better if there would be some cooperation and compromise between experts on finance like Rubin or Krugman, and progressive social thinkers like Phillips.
One of my conclusions is that a preferable Presidential candidate would have some degree of neutrality here, people like Dean, Feingold and Gore come to mind. I view them as true centrists in Democratic spectrum. DLC-like candidates are bad for one set of reasons (however fine Senators or Governors they may be), and an outright progressive candidate would have hard time convincing people like me that he or she knows what to do with the economy.
May 17, 2006 11:11 AM | Reply | Permalink
Citibank, formerly, First National City Bank, and before that, National City Bank of New York, entered its international lending career in 1902 and has looked to the government of the United States to enforce its loans ever since. Smedley Butler, you da man! You too, Robert Rubin, what with your World Bank and International Monetary Fund.
The resulting financialization of the American economy -- capital goes where returns are maximized and that means toward high risk underdeveloped economies but only if the returns are insured by the home government -- implies the withdrawal of capital from the home economy and the loss of manufacturing jobs at home.
The question for the electorate is, then, whether this government subsidization of international lenders is broadly productive of national economic welfare.
Anybody got any idea?
May 17, 2006 12:17 PM | Reply | Permalink
Cheap bananas used to be our national policy, now its cheap oil. Investment is moving from the Americas to the former USSR republics. People may complain about our foreign policy (both government and commercial) but they aren't ready to give up their SUV's yet.
--- Policies not Politics
Daily Landscape
May 17, 2006 12:46 PM | Reply | Permalink
You guys can hash out the economics of all this - I'm more interested in the the connections. It seems to me that Weisberg's shilling for Reubin is just one more example of a lot of the beltway crowd being more interested in growing their own portfolios by hanging onto power than they are about policy.
The Clinton crowd are the most obvious practioners of this, and it's why they are so hell bent on attacking bloggers and Dean's direction of the national party. Now, don't get me wrong, I've been in and around this business for 30 years, and I recognize Dean's and the bloggers' weaknesses as well as their strengths. But when this crowd (also supported in other ways by Emanuel and Schumer other parts of the Congressional power structure)launches these attacks on Phillips, Dean, Kos, and by broad-brush implication, this site, they are attacking in order to defend their positions on the food chain. I find it more than a little interesting that many are also perfectly willing to work at cleaning up WalMart's reputation for large sums of money.
These people, Hillary included, can not be trusted to do right: I don't know who can, but it ain't these guys.
May 17, 2006 1:04 PM | Reply | Permalink
I don't disagree with your "food chain" theory of politics; hell, even IR wonks -- not to mention politicians -- gotta make a living. But your peroration isn't good enough. (No; don't ask, even snark-ly. I don't have a better one)
Phillips argues that the condition of a falling manufacturing component and a rising financial component is self-evidently -- economically and/or politically and/or socially -- damaging.
Is it?
And, in the event, is there anyone out there who claims to know how we could turn it around?
May 17, 2006 1:21 PM | Reply | Permalink
I don't know anything about Rubin, but that's a pretty unfair characterization of Hamilton. Let's not forget, his economic policies (having a strong central bank, borrowing money in order to build infrastructure, etc.) were the right ones, and his belief in a strong Federal government---and his belief that government could be used as a positive force---echoes the beliefs of Democrats. He was also an abolitionist.
As for Jefferson, for all his with-the-common-man rhetoric, he basically stood with wealthy slave-holding plantation owners. His policies wouldn't have helped non-monied people rise in the world. Just because someone says they stand for the common man, it doesn't mean they do---just look at the Republican party.
None of this is to say that Jefferson didn't do some good, or that Hamilton was right on everything, but it would be wrong to say that Jefferson was "progressive" or that Hamilton was "conservative". Really, neither of their views matched entirely with either of today's political parties.
May 17, 2006 1:47 PM | Reply | Permalink
IF, after 6 years of Bush administration rule, you still cannot see how a Democratic administration would be different from a Republican one, I guess you may never see it.
There would be vast differences in foreign policy; domestic economic policies of all kinds, including no tax cuts for the rich, no Medicare Part D w/o negotiation for lower drug prices and w/ private distribution, no bankruptcy bill; domestic policies, including enviro: no clean skies or healthy forests; no Alito or Roberts on the Supreme Court, etc., etc.
May 17, 2006 2:19 PM | Reply | Permalink
I think the big question is how does the Finance based system create middle class jobs for the majority of Americans.
If we just let the free market do its thing the end point is an elite 10-20% who are very wealthy and a whole bunch of people getting paid lousy wages in service sector jobs.
I think even the Milton Friedman free-marketeer extremists recognize that you need people making middle class incomes to buy all the TVs and DVD players that the Chinese are making to return the profits to drive up the stock values for the finance guys.
One approach is to put more things under government control not less. Basically Make all blue-collarish service jobs where monoplies make sense (ie garbage men, etc) essentially paid like firemen and cops. Of course the libertarians will scream "that the private sector is more efficient" Well even if absolute market effiency were the best for every situation (which it obviously is not) Squeezing every last dime out of the system is penny wise and pound foolish and shoudln't be the goal anyway. Ever higher levels of economic activity are needed to drive the Finance based economy; Bill Gates et al having an extra billion in the bank is basically dead money, it is better for the overall economy to get that back into circulation.
May 17, 2006 2:37 PM | Reply | Permalink
I've always enjoyed Kevin Phillip's writing and appearances on TV. I missed the Colbert stint, but he was great on Maher's Real Time recently. His book on the Bush dynasty was dynamite, as far as it went (further than most). It's always easy to spot someone with a "leftist" problem or an otherwise poor understanding of economics, however, when one sees the gratuitous attack on Alexander Hamilton as an elitist and a royalist. And the inevitable lionization of Jefferson and Jackson.
Hamilton was our seminal and greatest political economist. He understood that the revolution was fought against not only the English crown, but more importantly, against the British East India Company and the philosophy of "Free Trade". He understood that we could not hope to survive as a nation in a sea of colonial/imperial powers without our developing a manufacturing base. That the key to the looting schemes of Britain, et.al., was having weak colonies that were resource exporters to the Borg empire.
His legacy to us was to have developed, with his allies in the young nation, a wholly new system (The American System, as this Dirigist policy came to be known in the 19th century) not seen before on earth, and unfortunately, not replicated elsewhere as of yet (and of which most vestiges have been obliterated in the U.S. in the last 40 years). This Dirigist policy has accounted for all the real economic gains in U.S. history, employed as it has been, off and on, with varying degrees of distortion, by the Federalists, Jefferson oddly enough somewhat in his presidency, the Whigs, Lincoln and some of the late 19th century GOP'ers, most emphatically FDR, and as a weak echo-like impulse under JFK.
What Hamilton and allies created was a system of credit controlled by the sovereign government (not the central banks, as in Europe) that could be directed for investment in "the Common Good", that is, broadly speaking, in manufacturing and infrastructure that would lift all boats. FDR took this policy to its greatest expression in rebuilding our nation's industries and infrastructure into the greatest agro-industrial system ever, after the corrupted, Free Trade GOP led us into a depression which destroyed by HALF the economic activity of the U.S. Besides a credit policy, tariffs, taxation, regulation of transportation, energy, health care and suppression of usury, real estate, financial and currency speculation are the tools used by a U.S. government to protect our industries and to level the playing field for the greatest number of Americans.
This same Free Trade/Globalization insanity, which has gripped our republic for 40 years, of which the greatest expression is Bush economics, but which has been embraced also by the Dems, especially since Carter, will lead us into an even greater depression than the 30's. Something which will need another definition other than "depression", since it will be an order of magnitude more horrific than our imperfect recollections of the bread lines, hobos, Oakies and whatnot. At least FDR had an industrial base to resuscitate. He didn't have to deal with 40 years of internal looting of our own wealth by Wall Street, the wild speculation, the IT and Real Estate and Derivatives bubbles of Greenspan, etc. But an FDR orientation could work again, indeed, it is the ONLY thing that will work, if we can somehow find the concensus to employ it again before it is too late.
As for Rubin, he probably has a better understanding of this than almost anyone. His chumminess with Wall Street, that den of thieves and traitors, is problematic. He has to find the courage that FDR found, in confronting the "Economic Royalists" in the defense of the Common Good. Accomodating them or otherwise compromising with them leads to ruin. They give not a whit about the fate of the common man, whether he is middle class American, Third World peon or whatever.
UA
May 17, 2006 2:37 PM | Reply | Permalink
In response to Republican Secretary John Snow's attacks on the Hamilton Project, which by it's very progressive nature, disparages Hamilton's name, liberal Economist Brad DeLong writes;
"Does John Snow really have no clue that Hamilton believed that a big, activist government--regulating the financial system, supporting science and industry, encouraging manufactures, assuming the national debt--was essential for the health of the American economy? Is it really the case that nobody in John Snow's entourage knows that Hamilton was always on the "big government" side in his fights with Jefferson? That Jefferson believed that a big government was a threat to liberty, but that Hamilton did no--Hamilton was not interested in either big government or small government per se but rather in effective government?
Let’s also recall what Sec. Hamilton said in the First Report on the Public Credit, 1790:
"Persuaded, as the Secretary is, that the proper funding of the present debt will render it a national blessing, yet he is so far from acceding to the position, in the latitude in which it is sometimes laid down, that "public debts are public benefits" - a position inviting to prodigality and liable to dangerous abuse - that he ardently wishes to see it incorporated as a fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of extinguishment. This he regards as the true secret /or rendering public credit immortal."
Sec. Robert Rubin understood this fundamental maxim, but Sec. Snow seems to have forgotten it – alas! Sec. Snow also seems to not understand two facts. The share of GDP going to government spending is higher today than it was in 2000 and the share of GDP captured by investment spending is lower than it was in 2000. The lack of fiscal responsibility embedded in the Bush Administration’s phony claim that they are “giving us our money back” clearly has something to do with the reduction in national savings. It is too bad that our current Treasury Secretary fails to understand what Secretary Hamilton and Secretary Rubin realized."
This is courtesy of the fantastic progressive economists at the Angry Bear. They, along with Bred DeLong and Robert Rubin, know more about economics than does Kevin Phillips.
May 17, 2006 2:41 PM | Reply | Permalink
Talk To Action : Professional Expertise on the Religious Right
I hadn't encountered Jacob Weisberg's attack on "American Theocracy".....
Weisberg's critique efficiently showcases an unfortunate degree of ignorance in a very short span of text.
First, Weisberg's acceptance, hook line and sinker, of the popular "Tom Frank" School of thought on the Christian Right - which holds that the GOP is manipulating the movement - misses the well documented takeover, by the Christian right, of large sectors of the GOP. The Christian right is not synonymous with the GOP but it has become the dominant force in the party which is why - I would assume - Kevin Phillips has distanced himself from his former party affiliation.
That takeover of the GOP was covered at the time it was happening by Joe Conason, Frederick Clarkson, and others.
- Joe Conason, writing for Plaboy Magazine, 1993From The Christian Coalition: On The Road To VICTORY? A Special Report From Inside The Pat Robertson Political Machine By Frederick Clarkson, for Church and State, 1991
Alright, that covers Weisberg's first egregious error....
Second, Weisberg seems oblivious to the scope of the Christian right, to the fact that the movement has created a profusion of parallel institutions from which to advance into mainstream American culture.
I have to wonder about such displays of Belt-think in the context of the recent pandering to the Christian right by two politicians who really should know better,John McCain and Howard Dean.
[ see: Courting Intolerance: Dean and McCain Pander To Christian Right ]
Is the Clinton-era Democratic Party establishment still so painfully unaware of the rise of Christian nationalism and the Christian right and religious right movements ? Or it simply not care ?
The Clinton Administration was notorious for triangulating tio the right, coopting the political center, and in the process distracting the American left from the religious right's concerted political advance and Kulturkampf that has culminated in its dominance of the US federal government.
Now, the DNC ( or Howard Dean at least ) has traded Stephen Carter for Jim Wallis - a moderate improvement - but the triangulation seems to go on.
Meanwhile, billions of "faith based" dollars ( no one is quite sure exactly how much, as record keeping is rather slack on this ) flow out the federal and state sluicegates every year and fatten Christian theocratic instutions that - no doubt if George W. Bush is hounded from office and the GOP deflated a bit - will simply get on with the job of transforming American culture, to get ready for the next major political push, in 2008, 2010, or 2012.
It's worth noting that - back in the mid 1980's - many in the US mass media were loudly proclaiming the demise of the religious right.
Well, a scant few years later the Christian right was the main force in the '92 GOP takeover of Congress. Eight years later, the GOP holds Congress, the Senate, and The White House.
May 17, 2006 2:42 PM | Reply | Permalink
Presumeably - also - this would involve the Democratic Party further sidling up to the Christian right. I have to assume, with the Dean/Robertson - McCain/Falwell entente of last week that the process is already underway.
Notably, many elements of Kevin Phillips' analysis dovetail rather neatly with ideas espoused in William Greider's Who Will Tell The People ? :
______
Talk To Action : Professional Expertise on the Religious Right
May 17, 2006 2:53 PM | Reply | Permalink
Also provide some incentive for retirement funds to invest in such manufacturing investments.
May 17, 2006 2:56 PM | Reply | Permalink
See my earlier coment. We need to reduce the return of foreign investments, which can be done by taxing income from foreign and financial sources at a rate higher than returns from American-located manufacturing concerns.
Investors prefer to invest in the lowest risk investment that will provide the necessary return. Investors in an already industrialized society can to some extent predict the likely development in less industrialized countries, so the risk for them is lower than investing in the already industrialzed societies that have a totally unknown and unknowable future.
Since capital investment in today's globalized world is highly mobile I'd be willing to bet that a large percentage of the funds returned to the wealthy by lowering taxes is reinvested in foreign investments. The risk for the equivalent return from am industrailizing nation is lower because the advances of less industrialized nations are somewhat more predictable. It's not precisely predictable, but the science of measuring risks and comparing them is highly developed.
An investment tax on returns from less industrialized nations would make the return higher for taking the greater risk of investing in American-located firms.
Similarly, a higher tax on returns from investment sources as opposed to manufacturing sources could probably be designed to direct investors to invest in home-grown manufacturing firms rather than financial firms.
Of course, legitimate financiers will scream mightily as they watch their less legitimate competitors make money by laundering money so that it seems to come from low-taxed manufacturing firms. Both the legitimate financiers will be very unhappy.
The banks and Insurance companies would scream bloody murder. But Americans generally would have a stronger economy, and might survive the coming global shakeout.
May 17, 2006 3:30 PM | Reply | Permalink
A Democratic administration would be better, but would it tackle the military-industrial complex, military Keynesianism, & try to take the corrupting effect of money out of the political process? I don't think so. I guess pro-choice imperialists are better than anti-choice imperialists. However, wouldn't it be nice to have pro-choice anti-imperialists? I don't see Hillary having the courage to do that given her pathetic performance on Iraq.
Tom
May 17, 2006 4:34 PM | Reply | Permalink
The left,the right and the centrist folks all have their own agendas. It doesn't involve lifting this nation out of the mess created by the current administration, it involves filling their resume's for their post-politico life as Kevin said. I feel neither party and none of the current crop of politicians can be trusted to develop an agenda that brings the country back to the center and creates an atmosphere where a comfortable life for everyone that seeks it and is willing to work for it can be had. I am tired of all sides pandering to specific bases that they think will help get them elected. I found this article enlightening and I want to thank Mr.Phillips for writing it.
May 17, 2006 9:21 PM | Reply | Permalink
I'd watch a debate on economic policy between Bob Rubin and Kevin Phillips. I want Brad DeLong to moderate and then weigh in with his thoughts at the end.
For that matter I'd like to hear Krugman, Sperling, Kuttner, Faux, Soros (on international finance issues), others weigh in and respond to one another's points.
Phillips to my way of thinking needs to get off the dime and say what he would do instead of his colorful trashings of, well, pretty much everyone.
Kevin, how, specifically, would you have responded or not responded at the time of the financial crises in Thailand, Indonesia, South Korea, Russia, and Brazil? Your counter-reply, Rubin (which he gives in his book but I'd like to hear Phillips rebut on point)?
Kevin, are you for protectionism or not? Just say it. And say what, specifically, you mean by it. Otherwise you lose credibility with me.
Rubin, do you think there is too much, not enough, or just about the right amount of influence of money on politics? Do you believe that influence skews political decisionmaking against the interests of the broad middle class? Is the status quo on campaign financing acceptable to you or would you favor a different approach?
There's room for rich and useful debate here. The trick is to get the heavyweights talking to one another and responding to one another on point rather than just giving their own views, unchallenged, which amounts to talking past one another. Perhaps tpmcafe could play a role in making that happen?
May 18, 2006 7:44 AM | Reply | Permalink
A Democratic administration would be (vide Clinton) great respite from the truth of where we're going, but not the boulder in the path of corporatization subscribed to by Democratic administrations no less than Republican. A Democratic administration formed from the center of the party would at most be anodyne, not cure.
That's why so many of us have become drop-out Dems and have gone looking for a leadership which will attack the real problems, not offer us an aspirin and a day off. Serious, vigorous opposition from the Democrats would have prevented the ascendance of at least one if not both new Supreme Court justices. Didn't happen. Didn't get the job done. Watch the Dems' approach to Hayden even as the hearings go on.
May 18, 2006 12:48 PM | Reply | Permalink
Ellen, first, I think you are asking the most important question.
You wrote: "...capital goes where returns are maximized and that means toward high risk underdeveloped economies but only if the returns are insured by the home government"
As I understand it that is not quite accurate. Returns are in effect "insured by the home government" where, but only where, there is IMF or government intervention.
Investors lose money on particular investments all the time in developing countries where there is no looming threat of hard currency depletion that leads to intervention.
In a couple of the cases in the latter 1990s (South Korea was one) private sector investor "bail-ins" were utilized as a way of insisting that private, and not just public, investors contribute to alleviating the currency crashes. This basically meant stretching out repayment terms to reduce further outflows of hard currency in the short run.
Rubin evidently supported "bail-ins" in cases where there were relatively few investors in question and they could be contacted readily--as where they were banks. Where the number of investors was huge and their type varied, and they were therefore difficult to locate and negotiate new terms with quickly--private and corporate bondholders spread out around the world, for example--this strategy was not employed. But in principle Rubin supports having private investors wait longer for payment as part of the recovery effort.
"Bail-ins" seem to be somewhat in favor among those proposing reforms to the "international financial architecture". I do not understand why changes to the system's rules could not be put in place which would make it possible to identify and locate all private investors readily, along with specifying a mechanism to negotiate with a subset of them on payment terms during these sorts of crises, so that this strategy could be utilized in all situations of this type.
The stuff written here is derived from Paul Blustein's book, The Chastening (single best source I've come across for a lay person trying to understand some of the basics on this international financial stuff) and Rubin's book, In an Uncertain World. If I've garbled what either of them said, my apologies.
Phillips might believe there simply should be no intevention in order that the investors be disciplined and take a bath; maybe they'd decide to, say, invest in the US instead of abroad, his reasoning might go. Rubin points to massive suffering by people in defaulting nations absent intervention. Phillips might say the US government rarely intervenes to ensure investors in the US domestic economy get their money. And millions of workers in the US have suffered enormously from losing their jobs as a result of outflows of capital. So would he argue for restrictions on capital flows? Of what nature? With what likely consequences?
May 18, 2006 2:40 PM | Reply | Permalink
Employing gunboats, Marine regiments, and now, IMF threats, all in support of collecting loan arrearages, has a lengthy history. And since the outcomes generally benefit the elites in the underdeveloped countries as well as David Rockefeller and his admirers at the expense of the common people, there is a bit of an odor arising from the arcane process.
That said, such interventions probably do protect world trade, and assuming world trade does add to (is a component of) world GDP, then, overall and overtime, these interventions can, I suppose, be justified. [And of course, we wouldn't want Citigroup, an institution too big to fail, to go belly up]
On the other hand if taxpayers are insuring these loans, then, perhaps they should have the power to decide what these loans are being used for [pace market idolators].
May 18, 2006 5:08 PM | Reply | Permalink