Theory of Capitalism collapses

[_Kevin Graham]

What is your response to Christy Romer's study that I linked to above? What mistakes did she make?

There is nothing wrong with the Romer's paper.

The Romers focused only on tax changes that they categorize as "exogenous." They did not focus on endogenous tax policy changes. And there is a reason they did this. Exogenous tax changes are defined in the paper as those "that are not systematically correlated with other developments affecting output." And this makes sense because endogenous tax changes are legislated tax policy changes made "in response to other factors likely to affect output growth in the near future." Only exogenous tax changes can be used to reliably determine the effects of a tax policy, and that is why they focused on this type of tax change only. As Greg Mankiw once said, if a tax policiy is changed in response to some external event (i.e. war, recession, deficit) then it becomes difficult to determine whether the results (whether increased or decreased GDP) were a result of the tax policy, or the event it was responding to. So for this reason they excluded those examples of tax increases/decreases, which are generally the kind of tax changes that end up in political debates such as these.

The Romers were isolating certain types of tax changes, and they spent a lot of time reading Presidential speeches to determine which ones fit the "exogenous" kind. So for example, tax changes made during recessions, weren't even included.

No offense intended, but you might want to read the study beyond the first paragraph, from which your citation originated. I see that several Right Wing blogs are citing this same paper, and it seems they misunderstand it as well.

[_Kevin Graham]

The prime example of this is probably Wal-Mart. Wal-Mart has succeeded because it has competed and won and continues to win. This is not anti-competitive, but liberals seem to view it that way.

It is anti-competitive when a company breaks away from the pack and becomes so wealthy that it can afford to cut corners, take risks, buy politicians, milk the government for subsidies, and then sell products below cost, just to get rid of the competition and establish a monopoly. That's Wal-Mart my friend. That's the goal of many a corporation. They are not interested in remaining competitive by selling better products or providing better service. No. They want to pummel the competition to such a degree that they don't have to worry about competing any more. Does anyone in their right mind think the customer service or the quality of product is superior at Wal-Mart? No, of course not.

The beauty of the free market and the principle of fair competition is that it is supposed to guarantee for the consumers that the best provider will win out. Meaning, the one that provides better and cheaper products along with superior customer service. The reason Wal-Mart is winning the battle is three-fold: 1. The price factor. In a down economy especially, people will sacrifice value for lower prices. 2. Wal-Mart runs sweat shops in third world countries, which means it can sell their products at a much lower cost to the consumer. 3. Wal-Mart has unfair advantages that no Mom and Pop business could ever hope to have. Particularly the subsidies from our tax dollars. Did you know that Walmart receives billions in tax subsidies each year?

I've talked about this elsewhere, but it deserves repeating. WalMart will march into a small town, hold a meeting with the town commisioners and negotiate the terms of their presence. Frequently small towns wil pay for the construction of these super centers, because they believe Walmart's presence will provide a boon to their local economy. They're licking tehir chops just thinking of all the sales tax that will be headed their way after the grand opening.

But what happens is sometimes Wal-Mart will close up shop and move just outside the town's jurisdiction. Sometimes only a few miles down the road. Why? Because they'll pay lower property taxes, and the town that built their super center is stuck with it and a 25 acre parking lot. Of course this was the plan all along, but these naïve po-dunk commisioners thought the Wal-Mart attorneys were honorable. The papers they signed never guaranteed that WalMart actually had to STAY there after Walnut Grove just forked out a few million dollars to build what will become an abandoned building that is larger than all their schools put together.

Yes, Walmart has a reputation for being evil, for good reason. To say they are pro-competition is silly. But like many companies like them, folks on the Right think they are upright examples of divine capitalism at work. They based this on one metric alone: their success.

[_CaliforniaKid]

Is the following a gross caricature of your position?

No, that's an out-of-context quotation.

[_Kevin Graham]

That sure sounds like corporations are full of bad and government is full of good.

Both government and corporations are full of the same thing, human beings. The main difference is that government is not generally interested in the profit motive. If it were, then it wouldn't hand over every single innovative thing it creates to the private sector.

It is the corporate structure that I have a problem with. Whenever ownership is divorced from management, the stakeholders generally get screwed. The managers are legally obligated to make sure the shareholders turn a profit, otherwise they could be out of a job. So this places a lot of pressure on the CEOs to take risks, and frequently break laws in order to gain an edge in the market so to keep the shareholders happy. The corporate structure is designed so that the owners are not liable for anything the CEO does. Now compare this to a Mom and Pop business, where the owners are the managers, and as a result are accountable for the actions taken by the company. What is especially sickening is the Supreme Court decision to make Corporations "legal persons," which means the 14th amendment applies to them.

Only in America!

"I hope we shall... crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country" - Thomas Jefferson 1816

[Guest]

The Romers were isolating certain types of tax changes, and they spent a lot of time reading Presidential speeches to determine which ones fit the "exogenous" kind.

Yes, but this doesn't mean their findings are non-generalizable. By isolating exogenous tax increases, the Romers were essentially controlling for other variables. This was done precisely in order to make the findings generalizable.

What does suggest non-generalizability is the radically different results they got when they tested tax increases intended to reduce an inherited budget deficit. These tax increases actually had a positive effect on output. Apparently the investor- and consumer-confidence generated by reducing a budget deficit outweighs the contractionary effect of raising taxes. (Which suggests that in the present circumstances, extending the Bush tax cuts would be the wrong move.)

I'm actually glad I took the time to look through the study. It appears to be better designed than the studies I cited earlier in the thread, and the results are quite striking.

[_Fifth Columnist]

As I've already stated, corporations are much more accountable to consumers than the government is to its constituents.

Oh really?

Someone who just watched a youtube clip of a Milton Friedman rant will tell me the market gets rid of the bad companies, therefore government regulation isn't needed.

Do you agree with this?

For the most part.

Then riddle me this... Monsanto is a corporation that is working to obtain a monopoly on the world's food supply. They are responsible for creating pesticides as well as chemical weapons such as Agent Orange, which was used in Vietnam/Cambodia, resulting in the deaths and mutations of thousands of innocent civilians. They are currently working on genetically modified organisms (GMOs) and manipulating genes of current crops so the food the grow produces no seed. This means farmers cannot buy seed once a year and rely on future seeds produced by the fruit/vegetables. No, it means Monsanto's efforts force Farmers to buy seed from them every year.

It also means that when cross-pollination results in a Monsanto product being produced in other parts of the country, or even other parts of the world (as it is happening in Mexico and India), those farmers will need to pay Monsanto since they are now growing a patented life form owned by Monsanto. Of course the idea of patenting life might sound absurd, and it is. But thanks to Conservative efforts, along with some idiotic Right Wing judges, the Supreme Court decided that companies can patent life.

Even worse, when farmers abroad are caught growing Monsanto corn, if they want to continue growing it, then they'll also need to purchase the necessary fertilizers/pesticides which are only sold by, you guessed it, Monsanto.

I recently heard a very, very good response to your comments provided by Kevin Folta of the University of Florida. He addressed almost every point you made. Listen to the February 16, 2011 episode of the Skeptics Guide to the Universe. Kevin Folta's interview begins at 38:45. The first five minutes are about mapping the entire genome of the strawberry, but after that they discuss Monsanto and GM food in detail. Here is a link. http://www.theskepticsguide.org/archive ... aspx?mid=1. As you will see, the woman on the show, Rebecca Watson, seems sympathetic to your points, although much less radical about them. Kevin does a nice job of countering her misinformation with the facts.

As for your comment about patents, you have no clue what you are talking about. Your comment about "patenting life" and it being some kind of conspiracy cooked up by right wing judges and blessed by the Supreme Court is exceptionally ignorant.

Plants (or "life") have been patentable for a long time. Congress enacted the first Plant Patent Act in 1930. The main section of the statute was last amended in 1954 and can be found here. http://www.uspto.gov/web/offices/pac/mp ... _C_161.htm.

The idea that this was all cooked up by right wing judges and blessed by the Supreme Court is beyond ridiculous. I'm issuing a CFR for you to cite the conservative efforts, right wing judges, and the Supreme Court decision that show this is all a big conspiracy.

There is currently a huge controversy about whether someone should be entitled to a patent for identifying the function of already existing genes. However, unlike Monsanto who is creating new plant varieties that never existed before, these guys (Myriad) have identified already existing genes that are responsible for some trait.

Now tell me. What can I do as an consumer to hold Monsanto accountable?

The market for Monsanto's products are primarily farmers. They can choose not to use Roundup Ready seeds, but they won't. Why? Because seeds that are resistant to Roundup provide a huge advantage over the other seeds.

Do you think for a second that we could go to the grocery store and buy anything edible, that is not either a direct product of Monsanto or one of its subsidiaries?

Probably, but then I don't care about whether foods are "organic" so I can't say for sure. I suspect, that Whole Foods and other similar companies don't sell anything made by Monsanto.

If a politician pisses me off, I can vote against him and hope he leaves when his term is up. Corporations do not have automatic term limits.

Yes, but if RIM's new Blackberry playbook sucks, no one will buy it and RIM will immediately scramble to come up with a new strategy. If the government's policies suck, you have to wait until the next election. In the meantime, the politicians have free reign to do things people don't like (the healthcare overhaul is a good example).

American corporations absolutely adore tyrannical and corrupt governments in third world countries. It is why American oil companies went to Ecuador and Nigeria, causing some of the most polluted environments on the face of the earth, resulting in the deaths of many of the indigenous folk.

Environmental damage is a situation where there is negative externality, which requires government intervention. In other words, we have to tolerate the inefficient and sometimes corrupt management by the government because the alternative is worse. Ecuador and Nigeria are so corrupt that they don't have a functional regulatory system.

They don't give a damn about anything except profit.

There is nothing wrong with the profit motive. Everyone acts in his or her self-interest.

Now how can I as a consumer hold Exxon Mobile or Shell oil accountable?

As a single consumer you have little to no power, just like I as a single voter have little to no power. However, if a large number of consumers decide not to purchase gasoline from Exxon, or a large number of voters decide to vote for someone different, then you will see change. The difference is that the former can happen very fast, but not so with the latter.

Milton Friedman's silly explanation applies to much smaller markets, not to our current world of Corporate America. So for example, two ice cream shops competing against each other. One produces better ice cream at a cheaper price, thus the consumers punish the other shop by refusing to purchase its product. That is essentially the theory of how the free market weeds out the bad suppliers. But in the corporate age the capitalists have figured out ways to avoid the problems presented by competition.

That is the goal of every business. One of the best ways to do this is to lobby the government to create barriers to entry for everyone else (Kevin Folta made this very point in the SGU podcast when discussing GM foods). We need to do everything we can to create robust free markets that encourage competition.

The irony here is that the people crying about the glories and power of free markets, are precisely the same people who are doing everything to make sure free market principles aren't given a fair chance. They offer "free market" lip service without really wanting it to work out the way it is supposed to. Everyone now wants to take short cuts, as corporations are learning through time how to rig the systems.

I agree. General Electric is one of the biggest hypocrites when it comes to this. Like I said, we need to do everything we can to reduce barriers to entry and, in many cases, that means eliminating burdensome government regulations.

When corporations are given huge tax breaks, for example, the Conservatives say this will boost employment. But we know corporations are sitting on record profits and aren't hiring anyone. This in and of itself dispels that Right Wing myth. But they don't care. They'll still repeat this myth to justify further tax cuts.

I favor eliminating the corporate tax, but I won't go into detail why since it will take me too long to explain. As for corporations sitting on records profits and not hiring anyone, the corporations need a reason to hire someone. If the demand for their products is increasing they will be hiring people (Google pledged to hire something like 2000 people this year). But they can't just hire people to make stuff that no one will buy. The way to solve this problem is through expansionary monetary policy, but the economics profession still thinks in terms of the last great malaise (the 70s with its high inflation) so that won't happen. I realize that I have expressed some very specific and somewhat controversial views right here without explaining why, but this is a whole 'nother story that I don't have time to get into.

What corporations are doing nowadays is investing in technology which makes low-skilled labor superfluous. What amazes me after coming back into the country after a near decade, is how corporations have mastered this technique. Hell, even grocery stores have started implementing automatic registers where customers scan their own items. Pretty soon they will use some form of robotic bagging system.

So I guess you are angry that since the turn of the 20th century the percentage of workers in the U.S. economy that work on farms has dropped from something like 38% down to the low single digits. All those tractors and things ruined the jobs for all those low-skilled laborers. Right?

Actually, what you are decrying is productivity gains - the amount of goods and services that can be produced per individual. We no longer employ 38% of our workers to plow fields because we can do it with a fraction of those people. Does that mean all of those people drift into poverty and it ruins our society. No. What it means is that a huge chunk of our labor force is free to pursue other things besides growing food. They can turn their efforts to making computers, cars, houses, etc. Productivity gains are an essential requirement to increase everyone's standard of living. The more productive we become, the more time and effort we can spend on other things like increasing our standard of health care.

Ever wonder why those drive through restaurants have two windows, but only use one? That's because ten years ago they would hire two people to serve the customer as to provide better and efficient service. One employee would take your money and the other would hand you your food. Nowadays they have decided to make one person do both, and after ordering your food you're told to pull up to the "second window." On many occasions I've seen the store manager doing all the work, making the food, taking the orders with a head set, and handling cash at the register.

Perfect. More productivity per person per hour is fantastic.

Does this result in better service? Of course not, but if all the other stores are doing it too (and they are) then the competition element has been removed. It is all about selling as much food while paying the lowest labor cost possible.

As it should be.

I suspect that within fifty years, technology will be so far advanced that the only jobs available will be in IT related fields. That is, until they figure out a way to make computers program themselves. At that point, how will the Conservatives address the unemployment problem when the nation is at 30+% unemployment? I mean this is inevitable, whether it is fifty or a hundred years from now. Capitalism will have failed the people, and a revolution will take place.

In the year 1900, would you have also predicted a revolution given that: (a) 38% of all workers labored on farms and (b) 50 years later that number would drop by two thirds due to the develop of tractors, fertilizer, etc? http://www.agclassroom.org/gan/timeline ... s_land.htm

[Guest]

What is your response to Christy Romer's study that I linked to above? What mistakes did she make?

There is nothing wrong with the Romer's paper.

The Romers focused only on tax changes that they categorize as "exogenous." They did not focus on endogenous tax policy changes. And there is a reason they did this. Exogenous tax changes are defined in the paper as those "that are not systematically correlated with other developments affecting output." And this makes sense because endogenous tax changes are legislated tax policy changes made "in response to other factors likely to affect output growth in the near future." Only exogenous tax changes can be used to reliably determine the effects of a tax policy, and that is why they focused on this type of tax change only. As Greg Mankiw once said, if a tax policiy is changed in response to some external event (i.e. war, recession, deficit) then it becomes difficult to determine whether the results (whether increased or decreased GDP) were a result of the tax policy, or the event it was responding to. So for this reason they excluded those examples of tax increases/decreases, which are generally the kind of tax changes that end up in political debates such as these.

The Romers were isolating certain types of tax changes, and they spent a lot of time reading Presidential speeches to determine which ones fit the "exogenous" kind. So for example, tax changes made during recessions, weren't even included.

No offense intended, but you might want to read the study beyond the first paragraph, from which your citation originated. I see that several Right Wing blogs are citing this same paper, and it seems they misunderstand it as well.

No offense intended, but I cited the abstract because it sums up their study. Are you finding fault with the fact that the Romers tried to isolate the effect of tax increases versus other events? They claim to have isolated the effects of tax increases and they were largely contractionary. You still haven't explained what they did wrong.

[_Fifth Columnist]

What does suggest non-generalizability is the radically different results they got when they tested tax increases intended to reduce an inherited budget deficit. These tax increases actually had a positive effect on output. Apparently the investor- and consumer-confidence generated by reducing a budget deficit outweighs the contractionary effect of raising taxes. (Which suggests that in the present circumstances, extending the Bush tax cuts would be the wrong move.)

A budget deficit could also be reduced by cutting spending. However, I am a good government type of guy so my preference in an inherited deficit situation would be to determine if the tax rate relative to GDP is too high or too low and then cut spending or raise taxes accordingly.

I'm actually glad I took the time to look through the study. It appears to be better designed than the studies I cited earlier in the thread, and the results are quite striking.

Christy Romer is very good and Obama would have done well to listen to her more. http://modeledbehavior.com/2011/03/26/b ... -disguise/

[_Kevin Graham]

No offense intended, but I cited the abstract because it sums up their study.

Right, but it doesn't contradict anything I've said.

Are you finding fault with the fact that the Romers tried to isolate the effect of tax increases versus other events?

Not at all.

They claim to have isolated the effects of tax increases and they were contractionary.

No, they said this only about "exogenous" tax changes. I explained the difference, and so did they.

Why don't you explain to me why you think I should disagree with them.

[_CaliforniaKid]

Contrary to Marx's predictions, studies of revolutions have generally found no correlation between income inequality and revolution. (A possible exception, according to a paper published a couple years ago, is when differential access to education falls along specifically ethnic or religious lines.)

Instead, the best predictor of revolution seems to be opportunity. Large-scale revolution only takes place when an opposition group gains a large amount of funding and power, and the government is too weak or ineffective to shut it down. For this reason, revolutions tend to come from disgruntled elites rather than the proletariat.