Amor Mundi 2/24/13
Hannah Arendt considered calling her magnum opus Amor Mundi: Love of the World. Instead, she settled upon The Human Condition. What is most difficult, Arendt writes, is to love the world as it is, with all the evil and suffering in it. And yet she came to do just that. Loving the world means neither uncritical acceptance nor contemptuous rejection. Above all it means the unwavering facing up to and comprehension of that which is.
Every Sunday, The Hannah Arendt Center Amor Mundi Weekly Newsletter will offer our favorite essays and blog posts from around the web. These essays will help you comprehend the world. And learn to love it.
Clocking in as the longest article ever in Time (h/t Dylan Byers), Steven Brill’s cover story is the single-best account of the insanity and corruption of our current medical system. Why do we accept the skyrocketing costs of medical care? “Those who work in the health care industry and those who argue over health care policy seem inured to the shock.” Brill shows us why the bills are really way too high. Hint: it is not because the care is so good. There are so many excess costs in the system, that reforming it should be easy, if it weren’t so corrupt.
David Goldhill wants to give all working Americans $1,800,000, the amount he calculates a 23 year-old beginning work today at $35,000/year will pay, directly or indirectly, in health care insurance benefits. Goldhill argues that our health care system wastes most of that money because people have no incentive to attend to costs. He suggests a dual system. Give every American health insurance for truly rare and unpredictable illnesses. But for regular costs and smaller emergencies, he would refund workers the money they are losing and let them pay for healthcare themselves.
Oliver Sacks walks through his past and, with the help of his brother, discovers that a memory he had believed his own had actually been that of another. Starting from there, he gives a short account of the weakness of individual remembering, which allows us to take in something we've heard or seen and make it our own. He concludes, finally, that "memory is dialogic and arises not only from direct experience but from the intercourse of many minds."
The Subtlety of the Dole for the Rich
Michael Lewis writes of the rise of an unapologetic business class in the 1990s and early 2000’s, that they enjoyed the “upside to big risk-taking, the costs of which would be socialized, if they ever went wrong. For a long time they looked simply like fair compensation for being clever and working hard. But that’s not what they really were; and the net effect was… to get rid of the dole for the poor and replace it with a far more generous, and far more subtle, dole for the rich.”
Five women. “Two are wives and daughters in ordinary families unable to comprehend why such misfortune has overtaken them. A third is a young bride living in the household of a high party official. The last two are wives of the Master’s executioners. These stories are based on their memoirs—some written by themselves, others by close friends or by their children. These five women put a human face on the terror of Stalin’s purges and the Gulag in the Soviet Union of the 1930s.”
“Debt doesn’t look like much. It has no shape or smell. But, over time, it leaves a mark. In Spain, it manifested itself, first, as empty buildings, stillborn projects, and idled machines.” So writes Nick Paumgarten. To see how debt looks and smells, look at Simon Norfolk's surreal photographs of Residencial Francisco Hernando, an unfinished development near Seseña, Spain. Working his way through a half-finished city with few people in it, Norfolk's photography suggests that even beginning construction was an act of hubris; "everyone," he says, "wanted to get rich doing nothing."
The Arendt Center’s 2012 conference “Does the President Matter?” asked whether political leadership is still possible today. Guatam Mukunda believes that we can measure the value of a particular leader based on their behavior at the margins—what did that person accomplish over and above what another would have been able to do? In the accompanying video, Mukunda argues that leaders can only be great or terrible when the people selected for such roles are relatively unknown to those making the selection. In an age of information, the chances are slim.
This week on the blog
This week on the blog, we argued that American reformers should shift their efforts at reforming education towards high school and pointed towards Richard Kahlenberg's recent piece in The Chronicle of Higher Education, adding that "poverty, more than race or gender, is increasingly the true mark of disadvantage in 21st century America." We also continued the inquiry into the growing threat that entitlements pose to the next generation, highlighting Geoffrey Canada and Peter Druckenmiller's argument that entitlements are a generational theft that must be arrested. Elsewhere, Na'ama Rokem quotes from Arendt's only Yiddish-language article to explore the philosopher's language politics and her Jewish identity. Jeff Champlin looked at some similarities between Habermas and Arendt in their understandings of power. In the Weekend Read, Roger Berkowitz argues that we need to free federalism from its present partisanship and recall the important connection between federalism and freedom. Finally, if you didn't get around to our remembrance of Ronald Dworkin, you should take some time and give it a read.
Until next week,
The Hannah Arendt Center
The Great Divide
In this week's Chronicle of Higher Education, Richard D. Kahlenberg lifts (or rips) the band-aid off a wound that has been festering for decades. For much of the 20th century, class animated campus Marxists. Since the 1970s, race and gender have largely supplanted class as the source of youthful protest. But the pendulum is swinging back. Studies find that "being an underrepresented minority increased one's chances of admissions at selective colleges by almost 28 percentage points, but that being low-income provided no boost whatsoever." Will racial and gender politics give way to a renewed interest in class? Will there be a divide on the left between class and identity politics? In either case, the debate is beginning.
Here is Kahlenberg:
Long hidden from view, economic status is emerging from the shadows, as once-taboo discussions are taking shape. The growing economic divide in America, and on American campuses, has given rise to new student organizations, and new dialogues, focused on raising awareness of class issues—and proposing solutions. With the U.S. Supreme Court likely to curtail the consideration of race in college admissions this year, the role of economic disadvantage as a basis for preferences could further raise the salience of class.
This interest represents a return to an earlier era. Throughout the first half of the 20th century, class concerns animated Marxists on campus and New Deal politicians in the public sphere. Both groups papered over important dimensions of race and gender to focus on the nation's economic divide. Programs like Federal Housing Administration-guaranteed loans and the GI Bill provided crucial opportunities for upward mobility to some working-class families and students.
Colleges, meanwhile, began using the SAT to identify talented working-class candidates for admission. But FHA loans, the GI Bill, and the SAT still left many African-Americans, Latinos, and women out in the cold.
In the 1960s and 70s, that narrow class focus was rightly challenged by civil-rights activists, feminists, and advocates of gay rights, who shined new light on racism, sexism and homophobia. Black studies, women's studies, and later gay studies took root on college campuses, along with affirmative-action programs in student admissions and faculty employment to correct for the lack of attention paid to marginalized groups by politicians and academics alike.
Somewhere along the way, however, the pendulum swung to the point that issues of class were submerged. Admissions officers, for example, paid close attention to racial and ethnic diversity, but little to economic diversity. William Bowen, a former president of Princeton University, and his colleagues reported in 2005 that being an underrepresented minority increased one's chances of admissions at selective colleges by almost 28 percentage points, but that being low-income provided no boost whatsoever. Campuses became more racially and ethnically diverse—and all-male colleges began admitting women—but students from the most advantaged socioeconomic quartile of the population came to outnumber students from the least advantaged quartile at selective colleges by 25 to 1, according to a 2004 study by the Century Foundation.
Read the whole article here.
Kahlenberg’s inquiry into the return of class to debates on campus cannot be seen outside the context of rising inequality in the U.S. Just this week Anne Lowrey reports in the New York Times that incomes are rising briskly for the top 1% but are actually stagnant or falling for everyone else:
Incomes rose more than 11 percent for the top 1 percent of earners during the economic recovery, but not at all for everybody else, according to new data.
It may be true that prices are declining and the middle class, despite its wage stagnation, is still living well. But we cannot ignore the increasing divide between the rich and the middle class. Not to mention the poor.
This was the topic of an op-ed essay in Monday’s New York Times by Nobel Laureate, Joseph Stiglitz, who writes, “The gap between aspiration and reality could hardly be wider.” Stiglitz, like Kahlenberg, sets the question of class inequality against increasing racial equality:
While racial segregation decreased, economic segregation increased. After 1980, the poor grew poorer, the middle stagnated, and the top did better and better. Disparities widened between those living in poor localities and those living in rich suburbs — or rich enough to send their kids to private schools. A result was a widening gap in educational performance — the achievement gap between rich and poor kids born in 2001 was 30 to 40 percent larger than it was for those born 25 years earlier, the Stanford sociologist Sean F. Reardon found.
Many on the left will respond that race and class are linked: minorities, who are poor, they say, suffer worst of all. That may be true. But race, gender, and identity have dominated the conversation about equality and oppression in this country for 50 years. That is changing. This will be hard for some to accept, and yet it makes sense. Poverty, more than race or gender, is increasingly the true mark of disadvantage in 21st century America.
-RB
Shadow Dance of the Fiscal Cliff
The Hannah Arendt Center has followed the shadow dance of the fiscal cliff less for its fiscal than for its political lessons. While a deal was struck, it is hard not to be impressed by the breakdown of our political class. Like the Europeans, we are now officially kicking the can down the road, refusing to address our meaningful problems. There is, in short, no political will and no political leadership with the courage and willingness to act in ways that might help us imagine a new way out of our predicament.
One could say it is the fault of voters. But there is a funny thing happening in politics. The House of Representatives, which is supposed to be the most populist of the major branches of government, is the one branch of government that is calling loudly for painful spending cuts and resisting the rise of our out-of-control debt. True the House is calling for tax cuts, but so too did the Senate and the President. What distinguishes the House now is its insistence on cutting spending. The Senate and President—imagined to be more protected from popular will—are instead combining now to cut taxes, increase spending, and keep the gravy train of government-subsidized stimulus flowing. In a strange way, it is the political body most responsive to voters that is at least calling for change—even if the House Republicans refuse to be honest about what those changes would be or what they would mean. Why or how has this political inversion happened?
One of the few Senators who voted against the compromise is Michael Bennett, the Democratic Senator from Colorado who was supposed to be cliff jumping in Vail (it’s nice here!) but stayed in Washington to vote “No.” Interviewed by Maureen Dowd in The New York Times, Bennett says: “Going over the cliff is a lousy choice and continuing to ignore the fiscal realities that we face is a lousy choice.” Bennett, a free thinking Democrat, knows that things have to change.
"The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same,” he said. “I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn’t accrue, you might be surprised at how far we can move this conversation.
But what is it about the system that needs to change? Some see this as simply a matter of policy. Nouriel Roubini, writing today in the Financial Times, thinks taxes need to go up for all Americans to help support a welfare state that is drastically underfunded and yet ever-so necessary:
Neither Democrats nor Republicans recognise that maintaining a basic welfare state, which is right and necessary in our age of globalisation, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich. A deal that extends unsustainable tax cuts for 98 per cent of Americans is therefore a pyrrhic victory for Mr. Obama.
Roubini may very well be right. But as he himself recognizes, the political will to exercise this transformation is simply not there. What that means policy wise, I do not know.
-RB
Corruption Takes Root
What is the essence of corruption? This is a question raised by the recent Supreme Court jurisprudence around Citizens United v. FEC. For Justice Kennedy and the Court has concluded, as a matter of law, that only quid pro quo corruption is corruption. An out and out bribe is corrupting, but throwing a congressman a $100,000 party or treating them to fancy meals and trendy restaurants, that is just exercising the right to freely speak with one's elected representatives. That such lavish expenditures come with expectations is, the Court insists, improvable and simply part and parcel of our democratic system.
In Republic, Lost: How Money Corrupts Congress—and a Plan to Stop It, Lawrence Lessig explores fully the impact of such "soft" corruption. He writes that the enemy we face today is not a Hitler or even the good Germans who would enable a Hitler. "Our enemy," Lessig writes, "is the good Germans (us) who would enable a harm infinitely less profound, yet economically and politically catastrophic nonetheless. A harm caused by a kind of corruption. But not the corruption engineered by evil souls. Indeed, strange as this might sound, a corruption crafted by good souls. By decent men. And women." Such a crime, he insists, is banal, but "not the banal in the now-overused sense of Hannah Arendt's The Banality of Evil—of ordinary people enabling unmatched evil (Hitler's Germany). Our banality is one step more, well, banal."
Lessig is right to worry that Arendt's phrase is overused, but what is more banal in the banality he so penetratingly describes in his book? In any case, his book better describes the kind of endemic corruption that infects our political system than any other. It should be read.
It is also important to remember that real corruption still exists in our world. It may be more a rarity at a time when one can accomplish so much corruption through legal means, but examples of bold and brazen corruption remain.
Lance Armstrong's web of corruption that silenced and intimidated dozens of his colleagues for over a decade is one example of how corruption can succeed, against all odds, but only for a time. Rumors of Armstrong's drug use floated around for a decade, and yet he still denies it. It took years for the web of deceit to break. As the NY Daily News wrote in an excellent review of the scandal:
The Armstrong myth was so lucrative that suppressing the truth came to require an endless behind-the-scenes campaign to bully and intimidate people into silence. Some of it bordered on gangsterism. Some of it was dressed up in the respectable wardrobe of elite law firms. But mostly it was just hot air - a fact that by 2010 had become clear enough to Floyd Landis that he stepped up and burst the bubble, blowing the whistle on the whole big fraud.
We tend to ignore corruption because it seems so inconceivable in our age of transparency. Corruption requires that the truth be kept hidden. This is extremely difficult and possible only through force and violence and even terror. But eventually, the truth comes out. As Hannah Arendt wrote in another context, "holes of oblivion do not exist." Eventually, the truth will emerge, no matter how many interests and how much money and violence is spent in the futile effort to prevent that from happening.
What brings to mind these brief reflections on the continued efficacy of corruption as well as its eventual failure is an article recently published in The Nation on the Hershey Trust. The author of the story is Ric Fouad, who is also a member of the Arendt Center's Board of Advisors. He is a graduate of the Milton Hershey School and together with a handful of other activists has been fighting a lonely battle against what he sees as the corruption of the Hershey Trust's Board, a fight that for him is inspired by Hannah Arendt's insistence on both truth, courage, and public action.
A little background. Milton Hershey was not just a brilliant chocolatier who had a radical vision of making chocolate—previously marketed only to the wealthy—available to the masses. He was also profoundly philanthropic. Unable to have children, Hershey left his entire personal fortune to the Hershey Trust, whose mission was to administer The Milton Hershey School, a school that Hershey founded to help and educate orphaned boys—the school is now coed and serves children with living parents. That fortune is now worth nearly $8 billion.
By his own account, Milton Hershey's life work would be to help orphaned children, whose plight touched him deeply. Hershey wanted his school to bring orphans into a revolutionary new kind of school, free from industrial buildings common to orphanages. The children were to live in beautiful homes in a bucolic paradise on 12,000 acres of land. They were to work on farms to learn character and attend a school that includes a vocational curriculum as well and have great teachers. It had all the potential to be an extraordinary facility set in truly magnificent settings.
So what is not to like? Well, for one thing, the Hershey Trust has been under investigation for six years, with no resolution and amidst plenty of accusations and charges about misspent funds and broken trust. The bucolic community-wide children's home was telescoped into a crowded centralized campus; the farms were all closed; the vocational program barely survives; and the poorest children, wards of the court, and foster care children came to be rejected in favor of what the administrators deemed a "better" class of child. Local developers made tens of millions in the process.
Tasked with administering the Milton Hershey School, the Trust's incredible resources enabled it to do much else besides. This could be an amazing opportunity to do good. It could also and become a magnet for powerful and connected people who finagled their ways onto the Hershey Trust board in order to access and control the vast wealth the Hershey Trust possessed. And that is what the article in The Nation, as well as numerous investigative articles here, here, and here, in The Philadelphia Inquirer, have alleged. You can also watch Ric Fouad's Harvard Law School lecture "Hershey's Broken Trust" here.
In Republic, Lost, Lessig writes:
The great threat to our republic today comes not from the hidden bribery of the Gilded Age, when cash was secreted among members of Congress to buy privilege and secure wealth. The great threat today is in plain sight. It is the economy of influence transparent to all, which has normalized a process that draws our democracy away from the will of the people. A process that distorts our democracy from ends sought by both the Left and the Right: For the single most salient feature of the government that we have evolved is that it discriminates against all sides to favor itself.
As true as that is about government, it is also true for cycling legends and political clubs. When corruption of all kinds pervades institutions throughout our society, it is only natural that cynicism abounds and we lose faith in the process of government as well as in the integrity of business. It is time to take corruption seriously in this country, and not explain it away as something that happens elsewhere in less civilized and less democratic countries.
You can read an excerpt of Lessig's Republic, Lost... here, at Amazon.com, where you can also buy his book.
-RB
New Book from the Hannah Arendt Center
The Hannah Arendt Center's latest book, The Intellectual Origins of the Global Financial Crisis, is now shipping. We had forty advance copies at the conference last weekend and they all were sold. As the financial crisis lumbers into its fifth year, this book looks at the deeper cultural, philosophical and moral foundations for the crisis.
Here is a short excerpt from Roger Berkowitz's Introduction:
When this crisis hit, I happened to be teaching Hannah Arendt’s The Origins of Totalitarianism. Two of Arendt’s insights struck me as having particular relevance to our present situation. First, Arendt confronted a similar phenomenon in which the crisis of totalitarianism was being normalized. The world has long known dictators. Hitler and Stalin, so it was said, were proof positive of the continuity of human frailty. Against this view, Hannah Arendt argued that it was mistaken to understand totalitarianism as simply the latest form of tyranny. Indeed, one should not understand totalitarianism, for to understand it is to normalize it and to desensitize ourselves to the fact of its extraordinary evil.
Against the effort to understand, Arendt counsels comprehension. By comprehension, she means, “the unpremeditated, attentive facing up to, and resisting of, reality—whatever it may be.” The factual reality of totalitarianism, as Arendt comprehended it, was that in our world today any and every evil is possible and can even be rationally justified by otherwise well-meaning people. What is needed, she argued, was that we face up to the fact that totalitarianism, genocide, and administrative massacres were now ever-present dangers in our times. Originally titled “The Burden of Our Times,” Arendt’s book The Origins of Totalitarianism seeks not to explain totalitarianism but to face up to its singular actuality. Arendt’s passion was, as she later wrote, “to think what we are doing.”
Crises offer particularly good opportunities to think what we are doing. A crisis “tears away façades and obliterates prejudices” and thus allows us “to explore and inquire into whatever has been laid bare of the essence of the matter." When she discusses the crisis of education, Arendt affirms that the essence of education is natality—the fact that, born into a preexisting world, human beings must be educated both to fit into and also to remake that world. What we need to ask amid our contemporary crisis is: What is the essence of economics today that the crisis lays bare?
Surprisingly, since she is rarely cited as an authority on economic affairs, Arendt offers an original and thoughtful road map to think through the financial crisis, one that begins with the insight that the essence of economics is unlimited growth. In her telling, the seeds of the financial crisis are not in economics itself, but in the importation of economics into politics, or rather the dominance of infinite growth—an economic principle—in the realm of politics, where it does not belong.
Arendt develops her thesis about the dangerous subordination of politics to economics in The Origins of Totalitarianism. She argues that imperialism is the most important intellectual foundation of totalitarianism. At the root of imperialism is the transfer of the economic principle of unlimited growth to politics. Imperialism has its economic roots in the “realm of business speculation”—specifically the bursting of an investment bubble in the 1870s. As national entrepreneurs sought new markets, they enlisted state support for economic expansion. “Expansion as a permanent and supreme aim of politics is the central idea of imperialism.” The rise of imperialism, Arendt argues, means that politics becomes subservient to economics.
Arendt fears the confusion of economics and politics and especially the elevation of economics over politics. Since politics demands the imposition of limits and “stabilizing forces that stand in the way of constant transformation and expansion,” she argues that imperialist expansion brought with it a grave and destabilizing threat to the political order. When politics under the sway of economic imperatives is forced to expand on the world stage, political leaders must offer ideologies that give meaning to an ever-larger, undefined, disconnected, and homeless mass, a population that replaces a citizenry. Under the economic imperatives of growth, politics becomes world politics.
The book contains essays by Tracy Strong, Jerome Kohn, Antonia Grunenberg, David Callahan, Alex Bazelow, Sanjay Reddy, Hunter Lewis, Dimitri Papadimitriou, David Matias, Sophia Burress, Liah Greenfeld, Robyn Marasco, Olivia Custer, Miguel De Beistegui, Drucilla Cornell, Taun Toay, and Roger Berkowitz, as well as fascinating interviews with Paul Levy, Vincent Mai, and Raymondo Magliano Filho.
The Crisis of European Politics
Greece voted on Sunday and the headline account shows that the right of center moderates won. This was presented as good news, for it means a continued embrace of the Euro and years more of austerity. But there are other lessons to glean from the Greek election.
1. Extremism is rising quickly in Greece. As the Financial Times reports,
The parliament, for the first time in Greek history, will be full of extremists. Besides the neo-nazis and a Stalinist communist party there is Syriza, whose leader is a fan of Mao Zedong, Fidel Castro and Hugo Chávez. How did Greece, the birthplace of democracy, come to have a parliament full of hammers, sickles and swastikas?
2. The Greeks are being asked to suffer for years more, but with little or no hope in sight. Here is what the NY Times reports today, an opinion from one of the most knowledgeable commentators on the Greek crisis:
“Greece will be forced to return to the drachma and devalue, and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bets,” he declared the day before Sunday’s Greek elections, irrespective of which party would win. “Greece will default because there is no other choice regardless of anyone’s politics.”
Almost all of the loans that Greece receives from Europe go directly to pay off the interest on loans to banks in Germany and elsewhere. Greece is neither paying down its debt nor investing in its future. The result is that the Greeks will suffer through years more of austerity and will likely be in no better position in a few years than they are now.
3. The combination of 1 and 2 above do not bode well for European politics in the coming years.
When Hannah Arendt looked to the Origins of Totalitarianism in the 20th century, she began her analysis with the financial speculation and subsequent crash of 1870. The ensuing crisis led to a weakening of nation-states and the rise of imperialism, all of which dissolved the traditional political and moral limits that had for centuries formed the structural foundation of European civilization.
As Europe struggles now to overcome national political limits as a response to the financial and banking crisis, it faces once again a political crisis mixed with an economic crisis. Europe is in trouble and they are not alone. But in Europe, unlike in the U.S. or in Japan, the financial crisis is inextricable from a crisis of nationalism and sovereignty. The potential for nationalist extremism on the one hand is real. On the other hand, there is also the potential for a weakening of national political traditions and the rise of technocratic and bureaucratic rule that, for all its rationalism, weakens moral and ethical restraints.
-RB
The New Class War: Public vs. Private
Occupy Wall Street focused attention on one conception of class conflict-the super wealthy against the 99%. As successful as OWS was in spreading its message, almost no legislative agenda emerged.
The Tea Party focused its attention on the tax burdens faced by the middle classes and the upper middle classes. The villain for the Tea Party is not the .5% who earn over $3 Million every year, but the firefighters and policemen and teachers who protect us and educate our children. The battle the Tea Party is fighting is against a vision of big government that is part reality and part fantasy.
The Tea Party's battle goes to the heart of who we are as a nation and it is less a battle between rich and poor than between progressives and conservatives. The Tea Party has given laser-like focus to what will now be a defining battle of the decade: Is the government going to continue to play a leading role in providing our health care, protecting the environment, and supporting our industries.
After Tuesday, one must face the facts that the Tea Party is winning in the democratic forum. Four votes Tuesday make this clear.
•Scott Walker's victory in the recall election in Wisconsin proves that even in democratic states with a historically pro-union electorate, the anger against public unions is palpable.
•Voters in San Diego and San Jose approved referendum that not only cut future pension benefits for public workers but more radically cut pensions for current workers as well.
•The City Council in Stockton, California granted the City Manager authority to declare bankruptcy—Stockton would be the largest city ever in the US to have done so.
It is important to note that the battle is not over welfare or even over healthcare. Scratch beneath the surface and the Tea Party is not anti-welfare. In The Tea Party and the Remaking of Republican Conservatism, Theda Skocpol and Vanessa Williamson, Harvard scholars who have interviewed adherents of the new insurgency in different regions of the country, report that:
83% of South Dakota Tea Party supporters said they would prefer to “leave alone” or “increase” Social Security benefits, while 78% opposed cuts to Medicare prescription drug coverage, and 79% opposed cuts in Medicare payments to physicians and hospitals…. 56% of the Tea Party supporters surveyed did express support for “raising income taxes by 5% for everyone whose income is over a million dollars a year.
While the Tea Party activists are eager to shrink government, they do not seem to welcome a decimation of the welfare state. If the battle is not over a minimal welfare state, it is a battle over public sector unions.
Why are public sector unions so important?
My colleague and Arendt Center friend, Walter Russell Mead, articulates an answer. At the core of the democratic left for decades has been the "belief in a strong, well-funded state." The many diverse environmentalists, egalitarians, and progressives have various agendas, but all depend on a vibrant bureaucracy to guide and rationalize public and private life. Some want government to fund schools and universities; other want government to save the environment; another group wants government to guarantee racial, sexual, gender, and religious equality; many want government to provide universal healthcare or guarantee a college education to anyone who wants it. In all these cases, what progressives want, in Mead's words:
Is control of the progressive, bureaucratic government machinery of the 21st century [which] is both the prize for whose control they struggle and the agent they hope will make their dreams real.
Mead encapsulates why the battle over public sector unions is so crucial at this juncture:
A Democratic Party dominated by its public sector unions is a party married to government and to bureaucracy. To the degree that the public unions shape its agenda, the Democrats become a lobby for the servants of the state. For the unions who represent its employees, the bureaucratic, civil service state is a solution permanently in search of new problems to solve and new worlds to conquer. The power of the public unions within the party pulls Democrats much farther to the left than they would otherwise go.
This is one reason the Wisconsin reforms stimulated such a powerful and united emotional wave of push back from virtually every section of the left. The threat to the public unions isn’t just a threat to a powerful source of funding for left-liberal candidates and to strong organizations with political experience and muscle; it’s a threat to the heart of the left coalition and to the structures that give the left much of its power in Democratic and therefore in national politics.
But the dominance of the public unions in the left had consequences for the left itself — bad ones. In contemporary America, the public sector unions are essentially a conservative constituency. That is, their core goal is to get more resources in order to fight all but superficial change in the structures their members inhabit. They want ever growing subsidies to the postal service, the public school system, the colleges and universities, even to health care — but they do not want the kind of reforms that could make these institutions more efficient, more productive, more serviceable.
Illustration by Sean Delonas
Mead offers wise counsel. One can of course believe that the reason for the victories in Wisconsin, San Jose, Stockton, and San Diego is simply the deep pockets of the Koch brothers. And those pockets are deep and deceptive. But money alone does not explain the voters' abandonment of public unions and the progressive model. The nation is seriously rethinking the role of the state and the public in our lives. We should be thinking with them. You can read more of Mead's post here.
The Euro-Crisis, Seyla Benhabib’s Cosmopolitanism, and Arendt’s Defense of Politics
From Athens to Madrid, the European crisis has entered yet another of its "decisive" phases —how many decisive phases can one crisis have? Reflecting on Europe has brought to mind Seyla Benhabib's 2004 Tanner Lectures on cosmopolitan universalism, which itself was inspired by Hannah Arendt's comments on international law in the epilogue and postscript to Eichmann in Jerusalem. The sovereign debt crisis in Europe might seem to have little to do with Benhabib's discourse ethics or Arendt's affirmation of the limits of international law, but it does. Let me explain.
The debt crisis in Europe is not an economic crisis. It is a political crisis. The Euro-zone created a common currency without a common political system. This worked great for a while as countries benefitted from integration and stability of the Euro. But now that debt and recession plague Europe, indebted countries like Greece, Ireland, and Portugal are losing control of their politics.
The typical response to over-indebtedness in democratic countries is to devalue one's currency. This causes massive inflation, allowing the debts to be paid. It is painful in the short term and everyone's buying power decreases and the standard of living suffers. But devaluation resets the economy and allows for growth free from the straight-jacket of debt.
It is of course possible to achieve the same effect of devaluation within the Euro zone. The Euro zone could issue Euro bonds, which would be inflationary and allow the indebted countries to pay off their Euro-debts with plentiful and cheap Euros. This is the solution that French President Francois Hollande and others are pushing.
The problem in the Euro-zone is that countries without debt problems don't want to devalue the Euro and thus lower their purchasing power. Without the political sense of a common fate, Germans do not want to suffer for the sake of the Greeks. What is more, the Germans have no faith that if they bail the Greeks out now, the Greeks will reform their profligate ways and not come back for another bailout in a few years. The result is the current crisis of austerity. Or so it seems.
Behind the scenes there is another debate that few are paying attention to. Amidst the repeated rejection of Euro bonds by Germany's leaders is the insertion of a caveat. Euro bonds would be possible if they came with treaty reform, say Germans like Joshcka Fisher and economic leaders like European Central Bank President Mario Draghi. In essence, Germany is willing to bail out Europe, but only if the countries in the Euro zone agree to give up a substantial amount of their sovereignty over economic policy. What Germany wants is for decisions about budgets and deficits and tax policy to be set by European bureaucrats not by democratically elected leaders. If the struggling Euro zone countries agree to those conditions, there is a good chance Germany will agree to bail them out with Euro bonds. And Europe will move closer to a United States of Europe, but one dominated by economic bureaucrats rather than a democratic legislature.
The connection between European politics and Hannah Arendt is important. What Germany is demanding is that Europe abandon its decentralized political control over economic matters and cede decision-making to an apolitical centralized European bureaucracy. Behind such a desire is the subordination of politics to economics that Hannah Arendt saw as one of the defining features of the modern age.
In The Origins of Totalitarianism, Arendt argued that the transfer of the economic principle of unlimited growth to politics underlies imperialism. Imperialism has its economic roots in the “realm of business speculation”-specifically the bursting of an investment bubble in the 1870s. As national entrepreneurs sought new markets, they enlisted state support for economic expansion. “Expansion as a permanent and supreme aim of politics is the central idea of imperialism.” The rise of imperialism and the spread of economic thinking in the political sphere means, Arendt argues, that politics becomes subservient to economics.
Arendt fears the confusion of economics and politics and especially the elevation of economics over politics. Since politics demands the imposition of limits and “stabilizing forces that stand in the way of constant transformation and expansion,” she argues that imperialist expansion brought with it a grave and destabilizing threat to the political order. When politics under the sway of economic imperatives is forced to expand on the world stage, political leaders must offer ideologies that give meaning to an ever-larger, undefined, disconnected, and homeless mass, a population that replaces a citizenry. Under the economic imperatives of growth, politics becomes world politics.
It is an open question today whether politics can return to a political activity that sets moral, ethical, and economic limits on human action. The reason is that we are increasingly suspicious of action, which is, by its nature, free, spontaneous, surprising and unpredictable. Whether we are Germans seeking economic stability, Americans demanding that the Federal government limit the states in their right to deliver (or not deliver) education or healthcare, or human rights activists insisting that individual states conform to international cosmopolitan norms of behavior, the liberal and centralizing demand that people behave well according to cosmopolitan standards rubs against Arendt's democratic insistence that politics must leave space for local, bounded, and undisciplined action.
And here we can return to Seyla Benhabib's call in her Tanner lectures for a new cosmopolitan universalism. Benhabib has initiated an important engagement with Arendt and human rights, one that embraces Arendt's formulation of a "right to have rights" but also resists Arendt's efforts to limit the scope of that universal right. We should all be grateful for the clear-sighted way Benhabib raises this crucial question.
Arendt seeks her bearings in reformulating human rights from her experiences of the Jews and other minority peoples during and preceding the holocaust. The true “calamity of the rightless” in the middle of the 20th century, Arendt writes, is “not that they are deprived of life, liberty, and the pursuit of happiness, or of equality before the law and freedom of opinion... but that they no longer belong to any community whatsoever.” Human rights reflect the legalized exclusion of human beings from civilized communities and these human rights are “much more fundamental than freedom and justice, which are the rights of citizens.” The rights of man, in other words, are not revealed by the deprivation of specific rights, but by the plight of those who are expelled from all rights; the truly rightless are those who are so oppressed that they are deprived of legal status so that no one will even oppress them. It is this total deprivation of rights that makes manifest the one truly human right, what Arendt calls the “right to have rights.”
In thinking about Arendt's enigmatic formula, Benhabib has worried that Arendt simply does not offer a full and philosophical elucidation of the right to have rights. The "right to have rights" partakes of a "philosophical perplexity"; to invoke the "right to have rights" is to give certain rights "a binding power over and beyond the moral obligation that they impose on moral agents." The rights in the "right to have rights" are not mere "oughts," but are universal, cosmopolitan norms. Or at least that is what Benhabib wants to argue, with and against Arendt.
If Arendt remained suspicious of international norms that would be applied in international courts, Benhabib argues that the last 50 years have witnessed an "evolution of global civil society that is characterized by a transition from international to cosmopolitan norms of justice." She embraces the term "cosmopolitanism," which she argues has rightly become one of the key words of our time. What cosmopolitanism means, for Benhabib, is the "carrying of universalistic norms" of a common truth that is inter-subjective rather than metaphysical. In short, Benhabib argues that cosmopolitan norms are emerging in our times that give basic human rights to individuals and can even bind state actors.
Benhabib’s interpretation of the "right to have rights" is appealing, especially in the face of, for example, the ongoing inhumane treatment of Shiites in Syria. Yet, as Benhabib herself recognizes, her reading complicates Arendt’s hard-minded characterization of the right to have rights as “a right to belong to some kind of community.” Arendt means the right “to live in a framework where one is judged by one’s actions and opinions.” In doing so, Arendt excludes the traditional civil rights of life and liberty that Benhabib wants to read into Arendt’s formula. Arendt is careful to distinguish human rights to the rights to be treated humanely that Benhabib seeks to encode in a newly emerging cosmopolitan institutionalization of human rights. For reasons at the core of Arendt’s thinking, Arendt clearly limits the right to have rights and thus human rights to only two rights, the right to act and the right to speak.
The only truly human rights, for Arendt, are the rights to act and speak in public. The roots for this Arendtian claim are only fully developed five years later with the publication of The Human Condition. Acting and speaking, she argues, are essential attributes of being human. The human right to speak has, since Aristotle defined man as a being with the capacity to speak and think, been seen to be a “general characteristic of the human condition which no tyrant could take away.” Similarly, the human right to act in public has been at the essence of human being since Aristotle defined man as a political animal who lives, by definition, in a community with others. It is these rights to speak and act—to be effectual and meaningful in a public world—that, when taken away, threaten the humanity of persons.
Benhabib has good reasons to want to expand the cosmopolitan basis of Arendt's "right to have rights." It is important to see, however, that the desire to strengthen a cosmopolitan foundation for human rights places stability and security above action in much the same as the present German desire to subordinate Greeks and Spaniards to a pan-European regime of responsible citizenship. Both are motivated by a desire for security, stability, and standards. And both elevate the institutional application of cosmopolitan universal norms (economic norms in Europe, human rights norms internationally) over the messiness of local political action.
At a time of economic crisis and humanitarian crises, the great uncertainty of our world will militate toward ever more centralization and thus ever less space for action. Benhabib is certainly alive to these tensions and has answers to many of them. You can read her account here. It is your weekend read.
The Technocrats to the Rescue, Part 4
How many times can we watch the latest European movie? Once again Europe is buckling under the weight of debt and austerity. And once again, Greece, the birthplace of democracy, has led the democratic leaders of Europe to shun their responsibilities and beg for technocratic saviors.
As the Financial Times reports, European leaders are as bankrupt as their economies and they are seeking to be bailed out politically and economically by Mario Draghi, the unelected President of the European Central Bank.
To the frustration of Mario Draghi, its president, the European Central Bank is once again being eyed as a possible saviour of Europe’s monetary union. Since he became president last November, Mr Draghi has urged bolder action by politicians to strengthen public finances and build effective “firewalls” against spreading crises. Earlier this month he scolded governments for creating a European Financial Stability Facility that “could hardly be made to work”. He saw the unelected ECB’s role as strictly limited. Instead, eurozone politicians, led by François Hollande, France’s new president, have sought to turn the tables, demanding action from Frankfurt.
As one person the FT quotes says, “There is a constant frustration at the ECB with politicians.” Sounds familiar. It is not only in Europe that politicians have refused to lead and take responsibility for solving our growing and increasingly insoluble problems.
It is easy to blame politicians. But keep in mind, they are elected. And that may be the problem. For it is we, those self-interested and apparently spoiled folks who elect them, who refuse to consider tax raises or austerity, or both, which would actually be necessary to bring our financial houses into order. This is especially true in Greece where voters have repeatedly refused to honestly and pragmatically accept the reforms needed to right the ship of the Greek state.
Which is why Amartya Sen's Op-Ed in the NY Times Tuesday sounds so shrill. Sen rightly sees that democracy in Europe is being replaced by technocratic fiat, and this understandably bothers him. He writes:
Perhaps the most troubling aspect of Europe’s current malaise is the replacement of democratic commitments by financial dictates — from leaders of the European Union and the European Central Bank, and indirectly from credit-rating agencies, whose judgments have been notoriously unsound.
But Sen's response is out of touch. If the Greeks would just be given an opportunity to publicly discuss the matter and engage in a rational public discourse, they would be able to take appropriate steps. In his own words:
Participatory public discussion — the “government by discussion” expounded by democratic theorists like John Stuart Mill and Walter Bagehot — could have identified appropriate reforms over a reasonable span of time, without threatening the foundations of Europe’s system of social justice. In contrast, drastic cuts in public services with very little general discussion of their necessity, efficacy or balance have been revolting to a large section of the European population and have played into the hands of extremists on both ends of the political spectrum.
This is of course a good point. It would be best if the Greeks were to engage in. It would be best if the Greeks were to engage in participatory public discussion leading toward appropriate reforms. But this doesn't seem to be happening, resulting in the draconian cuts, which, yes, are revolting to a large section of the European population. Unmentioned is the fact that other Europeans are revolted by the fact that Greeks for years have worked pitifully few hours in comparison to other Europeans, have paid significantly lower taxes, and supported a political patronage system that creates an untouchable class of political bureaucrats who live well for doing very little. The New York Times reports, today, on the class of Greek plutocrats who for years have avoided taxes and now, when times are tough, are abandoning philanthropies in Greece and secreting their money to tax havens. If the Greeks won't help Greece, why should the Germans?
The point is not simply to punish the Greeks for their past transgressions (although that too is not out of place), but that Germans also no longer trust the Greeks and refuse to go on paying for their profligate ways. And since the Greeks have not and seemingly will not democratically make the changes to their lifestyles that are required by their economic position, they are putting their hopes in undemocratically elected technocrats at the European Central Bank to save them.
The Greeks are not alone in seeking to trade democracy for technocracy. As I have written here and here and here over the past months, the trend toward technocratic governance is growing as people around the world lose faith not simply in democratic leaders, but in democracy itself. Around the world, democracies are electing politicians who are handing off power to non-democratically elected technocrats. This is happening in Europe and also here in the U.S. I am sure some of "the people" disagree with this. But more and more seem fine with it.
It is easy to blame the politicians, just as it has been easy for years to blame the press. But as Edward Luce writes in his recent book Time to Start Thinking, the real problem with democracy is us. He focuses on America:
Americans reflexively single out Washington, D.C., as the cause of their ills. As this book will explore, however, Washington's habits are rooted in American society. Blaming politicians has turned into a lazy perennial of modern American life.
The problem as Luce sees it is that left and right are caught in a thoughtless nostalgia for a golden age that no longer exists. The left, he writes,
yearns for the golden age of the 1950s and '60s when the middle class was swelling and the federal government sent people to the moon. Breadwinners worked eight hours a day in the factory and could bank on "Cadillac" health care coverage, a solid urban or suburban lifestyle, and five weeks' vacation a year.
On the other side, the right is nostalgic for
the godly virtues of the Founding Fathers from whom their country has gravely strayed. People stood on their own two feet and upheld core American values. It was a mostly small town place of strong families, where people respected the military and were involved in their community churches.
Luce understands not only that both these visions are nostalgic, but that they are preventing us from thinking honestly and seriously about our present. The problem is that thinking honestly today requires accepting sacrifice.
The wealthy and the upper middle classes (not just the 1% but the top 20%) will have to pay more in taxes. The poor and the middle classes will have to receive smaller pensions, work longer, and get fewer governmental services in return. Maybe citizens will have to do public service. Standards of living across the board will be hit. This is the payback for decades of debt-infused living that we all need to confront. Luce is right, it is time to start thinking.
-RB
Is College Worth It?
Student debt is suddenly spurring the once unthinkable debate: Is college necessary? Of course the answer is no. But who needs it and who should pay for it are complicated questions.
Arendt herself had an ambivalent relationship to academic culture. She never held a tenure-track job in the academy and she remained suspicious of intellectuals and academics. She never forgot how easily professors in Germany embraced the rationality of the Nazi program or the conformity with which Marxist and leftist intellectuals excused Stalinism. In the U.S., Arendt was disappointed with the "cliques and factions" as well as the overwhelming "gentility" of academics, that dulled their insights. It was for that reason that she generally shunned the company of academics, with of course notable exceptions. A free thinker—she valued thinking for oneself above all—she was part of and apart from the university world.
We plan to keep the discussion about college and debt going on the Arendt Center blog. Here are a few thoughts to get the debate going.
First, college is not magic. It will neither make you smart nor make you rich. Some of our best writers and thinkers somehow avoided writing five-page papers on the meaning of Sophocles. (That of course does not mean that they didn't read Sophocles, even in the Ancient Greek.) And many of the most successful Americans never graduated or attended college. On the other hand, many college grads and Ph.D.'s are surviving on food stamps today. Some who attend the University of Phoenix will benefit greatly from it. Many who attend Harvard squander their money and time. Especially today, college is as much a safe path for risk-averse youth as it is a haven for the life of the mind or a tasseled path to the upper classes.
Second, College can be a transformative experience. As I prepare to say goodbye to another cohort of graduates at Bard, I am reminded again how amazing these students are and how much I learn from them every year. I wrote recently about one student who wrote a simply stunning meditation on education. Today I will be meeting with two students about their senior projects. One is a profound, often personal, and yet also deeply mature exploration of loneliness in David Foster Wallace, Hannah Arendt, and Martin Heidegger. The other is a genealogy of whistleblowing from T.E. Lawrence to Bradley Manning, arguing that the rise of whistleblowing in the 20th century is both a symptom of and a contributor to the lost facts in public life. Both are testaments to the fact that college can inspire young adults to wrestle meaningfully and intelligently with the world they must confront.
Third, Most students do not attend college because they want to. Of course some do and I have enormous respect for those who embrace the life of the mind that college can nurture. I also respect those who decide that college is not for them. But the simple fact is that too many college students are here thoughtlessly, going through the motions because they are on a track. College has become a stepping stone to a good job which is a stand in for a good life. Nothing wrong with that, but is it really worth hundreds of thousands of dollars and four years of your time simply to get a credential? College students are young and full of energy. Too often they spend four of their most energetic years studying things they don't care about while they sleep late, drink a lot, and generally have a good time. This cannot be the best use of most young people's time.
Fourth, it is not at all clear that college is a good investment. There is no limit of students who tell me that taking out debt for an education is always a good investment. This is usually around the time they want to apply to law school or graduate school. And I can only repeat to them so many times that they are simply wrong. Finally, the press is catching up to this fact, and we are treated to a daily drumbeat of stories about the dangers of student debt. College debt in the U.S. now exceeds $1 Trillion, more than credit card debt (although far smaller than mortgage debt). The problem is widespread, as 94% percent of those who earn a bachelor’s degree take on debt to pay for higher education — up from 45 percent in 1993. And the problem is deep: The average debt in 2011 was $23,300. For 10% of college graduates, their debt is crippling, as they owe more than $54,000. Three percent owe more than $100,000.
The most egregious debt traps are still the for-profit colleges, which serve the working classes who cannot afford more expensive non-profit colleges. These schools prey on the perception, partly true, that career advancement requires a college degree. But now even public universities and private elite colleges are increasingly graduating students with high debt loads. And then there are law schools and culinary schools, which increasingly graduate indebted and trained professionals into a world in which does not need them.
he result is as sad as it is predictable. Nearly 1 in 9 young graduate borrowers who started repayment in 2009 defaulted within two years. This is about double the rate in 2005. The numbers vary: 15% of recent graduates from for-profit schools are in default. Also 7.2% of public university graduations and 4.6% of private university graduates are defaulting. Each of these groups requires a separate analysis and discussion. And yet overall, we are burdening way too many young people with debts that will plague them their entire lives.
Fifth, to defend college education as a good investment is not simply questionable economically. It also is to devalue the idea of education for its own sake and insist that college is an economic rather than an intellectual experience. One unintended consequence of the expansion of college to a wider audience of strivers is that a college education is decidedly an economic and bourgeois experience, less and less an intellectual adventure. Was college ever Arcadia? Surely not. For much of American history college has been a benefit reserved for the upper classes. And yet to turn education into a commodity, to make it part of the life process of making a living, does further delimit the available spaces for the life of the mind in our society.
Sixth, college is not necessary to make us either moral or enlightened citizens. College education does not make us better people. There are plenty of amazing people in the world who have had not studied Aristotle or learned genetics in college. The United States was built on the tradition of the yeoman farmer, that partly mythical but also real person who worked long days, saved, and treated people honorably.
Morality, as Hannah Arendt never tired of pointing out, is not gained by education. Or as Kant once pointed out to a certain Professor Sulzer in a footnote to his Groundwork of the Metaphysics of Morals, morality can only be taught by example, not through study. Arendt agreed. She saw that many of those who acted most honorably during WWII were not the intellectuals, but common people who simply understood that killing neighbors or shooting Jews was inhuman. What is more, it was often the intellectuals who provided themselves and others with the complex and quasi-scientific rationalizations for genocide. To think rationally, and even to use a current buzzword, to think critically, is no barrier to doing evil. Critical thinking—the art of making distinctions—is no guarantee of goodness.
Seventh, college cannot and should not replace a failed primary and high school system. Our primary schools are a disgrace and then we spend a fortune on remedial education in community colleges and even in four-year colleges, trying to educate people who have been failed by their public schools. We would do much better to take a large part of the billions and billions of public dollars we spend on higher education and put them towards a radical restoration of our public grammar and high schools. If we actually taught people in grammar schools and pushed them to excel in high schools, they would graduate prepared to hold meaningful jobs and also to be thoughtful citizens. Maybe then a college education could then be both less necessary and more valuable.
Bard College, which houses the Hannah Arendt Center, has been engaged for years in creating public high schools that are also early colleges. The premise is that high school students are ready for college level work, and there is nothing to prevent them from doing that. These Bard High School Early Colleges are public high schools staffed by professors with Ph.D's who teach the same courses we teach at Bard College. In four years, students must complete an entire four-year high school curriculum and a two-year college curriculum. They then receive a Bard Associates Degree at graduation, in addition to their high school diploma. This Associates degree —which is free— can either reduce the cost of graduation from a four-year college or replace it altogether.
Early colleges are not the single answer for our crisis of education. But they do point in one direction. Money spent on really reforming high schools and even primary schools will do so much more to educate a broad, racially diverse, and economically underprivileged cohort of young people than any effort to reform or subsidize colleges and universities. The primary beneficiaries of the directing public money to colleges rather than high schools are Professors and administrators. I benefit from such subsidies and appreciate them. But that does mean I think them right or sensible.
We would be much better off if we redirected our resources and attention to primary and secondary education, which are failing miserably, and stopped obsessing so about college. Most college graduates, wherever they go, will learn something from their four or more years of classes. But the mantra that one only becomes a full human being by going to college is not only false. It also is dangerous.
-RB
The Best and the Brightest
Ina Drew has resigned. Why wasn't she fired?
Drew is the executive at JPMorgan being asked to fall on her sword for the $2 Billion+ loss in hedging trades. Jamie Dimon, who for four years has taken credit for running a tight ship in which he was responsible for steering JPMorgan through the financial crisis, will of course soldier on, beaten but not broken.
Aside from allowing her the dignity of not being fired, the resignation also, I have to imagine, preserves what must be a very generous severance package. All present reports refuse to disclose Drew's severance package. She was paid $15.5 million last year and almost $16 million in 2010. What justification is there for now allowing her to resign and potentially keep a severance?
The answer seems to be that Drew, like all the executives on Wall Street, deserves their stratospheric compensation. This of course was Dimon's point in his announcement of her resignation. He writes:
Ina Drew has been a great partner over her many years with our firm. Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events.
In other words, Drew is brilliant and has been valuable. She should not be blamed for losing $2 Billion. She still deserves what is reported to be a severance package of over $14 Million in equity rewards, according to the Wall Street Journal.
The canard of the best and the brightest is one we hear over and over. The basic fallacy here is the belief that these executives are so smart and so valuable that they can't be angered or let go.
The fact that these blow-ups keep happening has done little to quell the applause for the bankers. All the incentives are for the executives to take on risk. What happens when they lose? They resign. I am sure Ina Drew is smart and capable and no doubt she will be back at a hedge fund or a new firm as soon as she wants.
The bigger issue, however, is that there is still the feeling around that these executives deserve to be making tens of millions of dollars every year. Recall that back in 2009 after the best and brightest brought the country's best (i.e. biggest) banks to their knees at the federal taxpayers' dole, Ken Feinberg was appointed to oversee bonuses and compensation at those banks. He has told how the big banks decided that every single one of their executives had performed above average and deserved extravagant bonuses. In an article about Feinberg from 2009, Steven Brill writes:
To take a near-comic example, the firms did not present a single executive as meriting a pay grade below the 50th percentile of their supposed peer group.... In fact, all 136 of the executives (the 25 top earners for each of the seven companies, less 39 who left during the year) were depicted as well above average, typically in the 75th percentile or higher. And the peer groups they were supposed to be in were often inflated; for example, someone running a unit might be portrayed as a chief executive because, the argument went, he ran a really big unit.
Citigroup and Bank of America, Brill writes, "concluded that everyone in their executive suites was above average when compared with peers at other giant banks that didn’t need a bailout." The banks then proposed that their average executives deserved bonuses of between $10-$21 million. After months of negotiating and cajoling, Feinberg talked them down, so that in the end, the average banker received a year-end bonus of $6.5 million at Bank of America and $6.2 million at Citigroup.
Those paltry $6 million bonuses were in a year that the banks went bankrupt and had to be bailed out. No wonder the best and the brightest like Drew deserve $14 and $16 million when times are good. Of course, the incentives to take risks are still there. If your risks work out, you make a fortune. When your risky trades go bad, you resign and take your winnings and your severance.
These bankers have nothing at risk and everything to gain by taking risks. Four years after the financial crisis, it seems that little if anything has changed.
-RB
The Morality of Tax Cuts
As I wrote on Friday, the election this year presents a challenge of moral leadership on debt, taxes, and entitlements. This is neither a Republican nor a Democratic position, but a moral argument that claims the center. The point is that we have a moral obligation to keep our debt at manageable levels. And given the sacrifices that now will entail, we have a further moral obligation to spread the sacrifice around, making the wealthy suffer along with the middle classes and the poor.
A similar argument has been made by Pete Peterson, founder of the Blackstone Group and Chairman of the Peterson Foundation. Peterson has been fighting a lonely battle to support the idea that tax cuts for the wealthy are immoral at a time of heavy debt and that we have a moral obligation to leave our children a world without excessive debt. Here is an interview from Mother Jones describing his failed attempt to convince George Bush of this point a few years back. The takeaway:
And I said, "Sir, I didn't say tax cuts were immoral. I said tax cuts for people like us, before you've solved the costs you're going to be passing on to your kids, is in my judgment immoral. But you could just tell by his steely response that tax cuts are part of the [Republican] theology.
-RB
Pension Crisis Primer
I have been trying to understand our pension mess for years now, and I will tell you that the numbers and acronyms are at times baffling. But help is here.
Two of the nation's Federal Reserve Banks (the Cleveland and the Atlanta Federal Reserve Banks) have joined together to form a "Financial Monitoring Team to study pension funds and municipal finance with an eye toward implications for the wider economy and financial system." In other words, these two banks are seeking to shine a light on the dark and difficult to understand corners of municipal finance. Chiefly, the banks are interested in learning about Municipal Pensions.
The Cleveland Fed publishes a newsletter, "Forefront", and the latest issue contains a number of incredibly helpful articles about the state of municipal pensions. The main article is: Public Finances: Shining Light on a Dark Corner. This is a clear and helpful article, with a glossary and helpful sidebars. It also comes with a video primer on the pension crisis that is sober, clear, and helpful.
One question the article addresses is just how big the pension shortfall actually is. According to government numbers, the shortfall is $800 billion. The government estimates are based on assumptions of an 8% rate of return, which inflates the assumptions about the present value of pensions. In all likelihood, the return will be somewhere between the 8% historic average and the painfully low return offered by persistently low interest rates. Thus, many private economists estimate the shortfall at around $4 Trillion. Here is what the Cleveland and Atlanta Feds say:
Some economists, however, have come up with a $4 trillion shortfall. They have pointed out that for most state and local plans, promised pension benefits are protected by constitutional, statutory, or common law guarantees. (See related article, “Navigating the Legal Landscape for Public Pension Reform.”) By definition, this ought to make them riskless obligations to the pensioners. Thus, the appropriate valuation methodology should discount promised benefits using the risk-free interest rate, usually calculated as the yield on long-term U.S. Treasuries. This method, argued cogently by Jeffrey Brown and David Wilcox in “Discounting State and Local Pension Liabilities” (2009), has the virtue of being supported by both economic and legal principles. It also produces substantially higher estimates of the present value of pension liabilities. Given the currently low yields on Treasury bonds, this approach implies a present value of accrued obligations as high as $6.7 trillion, leaving an unfunded liability of $4 trillion.
In other words, the actual size of the pension shortfall is probably somewhere between $800 Billion (the size of the 2009 stimulus package) and $4 Trillion. The likely shortfall, as the Fed says in its video on the site, is in the $3-$4 Trillion range.
So what does this mean? The Cleveland and Atlanta Feds offer a few conclusions:
1. At this point, it seems unlikely that any major pension fund will run out of cash in the next few years, barring a general worsening of economic and financial condition.
2. But we are not out of the woods yet. Many funds will require significant reforms to reduce underfunding levels, with painful new contributions from employers and employees.
3. Another concern is that some states’ legal protections may be too strong to give reforms enough time and flexibility to put plans on sustainable paths. In that case, states would ultimately be on the hook for covering pension benefits out of general revenues. This scenario, by creating crisis conditions in those states, could stress economic conditions more generally.
The real problem is the combination of #2 and #3. For if state laws make it too difficult to cut or reduce pensions, the only option is "painful new contributions from employers or employees." It may be that we cut the guaranteed pensions of pensioners, making them less well off in retirement. That would hurt the workers. Or, if legal protections prevent that option, we the taxpayers will have to dig deep to pay their pensions, probably as we at the same time cut other essential services. And that will not be pretty. Either way, the state and local government crisis is shaping up to be one of the most important challenges of our generation.
For more on the pension crisis, you can revisit our other posts on the subject here.
—RB
New York Times Pension Crisis
My colleague Walter Russell Mead has also been covering the entitlements problem that pensions pose. He has an excellent post on the current dispute over pensions at the NY Times. The Times staff is considering a strike to defend its defined benefit contribution plan—a plan that guarantees a certain yearly payment until death. These pension plans are the best of the best for workers, but as workers still retire at 65 and live longer, they are bankrupting the companies that offer them.
Thus, the Times, like many other companies, is seeking to switch over to a defined contribution plan, one that pays out a pension that is somehow related to what one actually puts into it. These plans risk reducing a worker's standard of living in retirement, as do 401k's. Mead's essay is clear in addressing the entitlement of the Times' staff, which insists on protecting its benefits even if it destroys the paper for which they work. You can read Mead's post here.
You can also read additional posts about the pension crisis here, here, here, and here.
-RB
Who Killed the Middle Class?
John Cassidy over at the New Yorker has an excellent article that clarifies some of the basics about the debate over inequality. In Inequality 101, Cassidy reproduces a chart "Who Killed the Middle Class?" an article he published in 1995. The chart is fairly clear. It shows how from 1947-1973, the wealthy, the middle class, and the poor in the United States all saw their incomes rise at about the same levels. From 1973-1993, however, this equality disappeared. While the poor saw incomes decrease, and the middle-class stayed the same, the wealthy saw incomes rise, although not as much as earlier.
This chart is similar to the one I described in my Friday Post, The Way Forward. As I wrote there:
We see that until 1982, the wages of workers and the income of non-wage earners (thus the higher-paid supervisory workers) was largely equal. Beginning in 1982, however, the earnings of non-wage earners began to rise significantly faster than the income of wage workers. This is at least one original source of the increasing inequality of the American populous and it is exacerbated by an increasingly less-progressive tax code and also by the increasingly profitability of capital investments in the global economy.
Since the 1990s, the rate of inequality in our society has skyrocketed, especially for the very highest earners in the 1% and even the .1%. Cassidy provides this chart as well to make this clear.
I will be speaking with John Cassidy on May 10 in New York City. The event is part of the Hannah Arendt Center NYC Lecture Series. You can learn more about the event and RSVP here, as seating is limited.
-RB
The Way Forward
It is a fallacy to think that political thinking can exist separately from economic thinking. Hannah Arendt, no economist, saw clearly that the origins of totalitarianism were, in large part, traceable to the importing of economic thinking (unlimited growth) into the political realm, where politics is concerned with geographical, social, and moral limits. The economic victory over politics at that time went under the name of imperialism. Today, under the rubric of globalization, economic thinking continues to subsume political thinking to economic calculations.
The economic crisis of the last four years has brought with it a particular challenge to politics. The crisis is so large and so devastating and it so completely threatens to undermine our ways of life that there is a feeling of political futility. What possibly can be done to address this crisis? From out of this futility arises a kind of head-in-the-sand approach that denies the crisis instead of addressing it. One end point of such an approach is the kind of technocratic governance by bureaucrats now holding sway in Greece and Italy, as well as in a selection of American cities and counties. If we are to avoid giving up our political self-determination and if we want to engage the crisis rather than submit to it, we must first understand it, something that few politicians have been willing to do.
To confront the depth of our ongoing crisis, it is helpful to look at a new report out from the New America Foundation, authored by Daniel Alpert, Robert Hockett, and Nouriel Roubini. This report was sent to me by a long-time supporter of the Arendt Center. It is well worth reading in full. A few basic facts to set the stage:
•Four years into the Great Recession, more than 25 million working-age Americans remain unemployed or underemployed;
•The employment-to-population ratio lingers at a near-historic low of 58.3 percent;
•Consumption expenditure remains weighed down by massive private sector debt overhang left by the bursting of the housing and credit bubble a bit over three years ago (even if debt levels are coming down, as Floyd Norris argued today in the NY Times.)
The basic argument that Alpert, Hockett, and Roubini make is that economists and politicians have misunderstood the nature of the financial crisis. As a result, our responses have been ineffective. As they write: "The principal problem in the United States has not been government inaction. It has been inadequate action, proceeding on inadequate understanding of what ails us. "
So what is really the problem? Alpert, Hockett, and Roubini argue that the crisis is a conjunction of an extreme a credit crisis along with two other long-term trends that exacerbate that crisis. While most commentary and political response has focused on the credit crisis, the importance and impact of the two long-term trends have been largely overlooked. The two trends are:
First, the steady entry into the world economy of successive waves of new export- oriented economies, beginning with Japan and the Asian tigers in the 1980s and peaking with China in the early 2000s, with more than two billion newly employable workers.
Second, the "long term development that renders the current debt-deflation, already worse than a mere cyclical downturn, worse even than other debt-deflations is this: The same integration of new rising economies with ever more competitive workforces into the world economy also further shifted the balance of power between labor and capital in the developed world. That has resulted not only in stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depression 1920s."
The upshot of these two trends is that wage labor in developed countries is under continuing downward pressure. Whether the limpid economic recovery continues or not, the wage levels of the pre-crisis period will not return and those workers who earn wages for their performance will continue to experience lower real wages and thus a deteriorating standard of living.
What many still have not wanted to see is that the crisis itself was a response to these trends. For the last 20 years, the decreasing wages of workers in developed countries was hidden and compensated for by increasing debt, both private and public. As the report sees,
Easy access to consumer credit and credit-fueled rises in home values – themselves facilitated by recycled savings from emerging economies’ savings – worked to mask this widening inequality and support heightening personal consumption.
There is a chart in the report that itself shows the problem with crystal clarity. In Figure 2, we see that until 1982, the wages of workers and the income of non-wage earners (thus the higher-paid supervisory workers) was largely equal. Beginning in 1982, however, the earnings of non-wage earners began to rise significantly faster than the income of wage workers. This is at least one original source of the increasing inequality of the American populous and it is exacerbated by an increasingly less-progressive tax code and also by the increasingly profitability of capital investments in the global economy. As the report concludes,
Because many workers were no longer sharing the fruits of the economy’s impressive productivity gains, capital was able to claim a much larger share of the returns, further widening wealth and income inequality which by 2008 had reached levels not seen since the fateful year of 1928.
For anyone concerned with politics in the 21st century, understanding our current economic predicament is essential. That is why reading such a lucid report as this one from the New America Foundation is so important. It is, this weekend, your weekend read.
New America Foundation Article, The Way Forward
-RB
Saving Pensions: “Technocrats, Not Grandstanding Idealists”
Public pensions are a mess. Ok, where is the hope? Yesterday Gillian Tett offered a rare glimmer of good news in a story about Rhode Island treasurer Gina Raimondo. But the good news comes with a bitter aftertaste.
Rhode Island is a small state, but it had one of the worst public pension deficits in the country. Forced to act, it has cut pensions for its workers, raised the retirement age from 62 to 67, and replaced the defined benefits pension (which guarantees a certain amount every year) with a partial defined contribution scheme (which pays out a pension based on how much the retiree has saved). These actions have angered many workers and unions, who are suing the state, but they have also saved the state pension system; one result is that the workers will be receiving some pension, even if it is less than they were promised.
The solution, as Raimondo articulates it, is above all to focus ruthlessly “on the math and facts, to come up with a solution.” Technocrats, not grandstanding idealists, are required.
The preference for technocrats over idealists illustrates a common approach to our extraordinary economic problems around the country: to hand over difficult political judgments to technicians. The same approach is leading the people to hand over the levels of government to technocrats in Greece, Italy, Suffolk County, and now Detroit. Dissatisfied with democratically elected leaders, the people are increasingly craving a government run by businessmen and accountants. It seems that the ruthless calculation of profit and loss is the last refuge of truth in our age.
Read more about what is going on in Detroit here. Read more about the pension crisis here and here.
The End of Democracy in Detroit?
It was Winston Churchill who said that democracy was the worst form of government, except for all the others. We have been living in passive agreement with Churchill's witticism for half a century. But slowly, harrowingly, fatalistically, people around the world are giving up on democracy.
Greece, the birthplace of democracy, and Italy (well, it's Italy) are now both governed by unelected technocratic governments charged with carrying out austerity programs that democratically elected leaders would not or could not bring about.
According to Gillian Tett, the Financial Times columnist, "the situation calls for very firm, forward-looking action that is almost impossible in a rowdy democratic political system at the moment." Tett is not alone in seeing the failure of democratic leadership in crises and the inability of democratic politicians to allocate pain and sacrifice amongst their constituents.
We in the United States are showing a similar predilection to trade democracy for technocratic management. Michigan is at the forefront of this trend. Governor Rick Snyder has been aggressive in appointing emergency managers to take control of city finances. In Pontiac, Flint, Benton Harbor and other Michigan cities, the mayors and town councils have been fired and rendered obsolete, replaced by a manager appointed by the governor.
In New York, Nassau County is now under the rule of an "oversight board" that controls its budget and finances. In Michigan, financial managers have the power to void labor contracts, privatize public services, and dismiss elected officials. These managers serve at the will of the governor, but they have no set term.
Tomorrow we may learn whether Detroit, Michigan's biggest and once proudest city, will also succumb to an emergency manager. The only alternative, it seems, is a consent decree with the State that will turn the city over to a manager jointly selected by the city and the state from a slate of candidates approved by the governor. The problem, once again, is that democratic governments have simply been unable to make the hard decisions needed. The result is that Detroit is bankrupt and in need of a state bailout and the state is treating Detroit like the spoiled child it is, just as the European Union treats Greece and Italy. Money will come, but only if the children agree to be treated like children.
I can only point out so many times that Wall Street bankers also acted like spoiled children, but they received their bailouts and undeserved bonuses without the demeaning financial oversight. Hypocrisy, however, is not an argument for or against such oversight, even if it does reveal that there are issues beyond simple economic calculation at play. In Europe, there are prejudices against the laziness of southern peoples, and here in the U.S. racial prejudices are no doubt active, as can be seen by one commentator's likening Detroit's citizens to addicts:
As those of us in surrounding communities watch the ongoing tragedy unfolding in Detroit, we really need to hope that this once great city can stop its decline, and begin to recover. But just like with an alcoholic, the city's so-called leaders must first admit they have a problem, and that they are unable to fix it on their own. Unfortunately, they do not appear to have reached that point yet. I guess a nice way of putting it would be to say that they are in denial.
Patronizing rhetoric aside, the basic problem is that the people of Detroit—like the people of Greece and Italy—are unwilling to govern themselves and are welcoming technocrats to take over that task. We witness once again how easily people will abandon democratic freedoms for the promise of a bailout. The current argument in Detroit is less about whether to give up self-government—a foregone conclusion—but how much money Detroit can extract in the deal for doing so.
The Romans had a provision in their law for the appointment of a dictator during emergencies, especially at war. A dictator, as Andreas Kalyvas reminds us, was not a tyrant. A dictator in Roman law was a 'temporary tyranny by consent' while a tyrant was a 'permanent dictator.' The Roman Republic recognized that crises required decisive action that a sprawling democracy was frequently unable to muster. The dictator was not illegal, but was a constitutionally approved office that was appointed for a set term, after which time power would revert back to the people. In other words, a dictator was a constitutionally regulated and democratically agreed upon safety valve for the failures of democracy.
Modern democracies have largely avoided such emergency powers, and for good reasons. It seems, however, that such resistance is fading. Will it be until we have no choice but to appoint an emergency financial manager to do the job we won't do for ourselves? But then again, who would appoint such a person?
For Hannah Arendt, this was and remains a crucial question. For human beings are political beings who actualize their freedom in public action with others. The entire premise of what Arendt once called the "dictatorial intervention" is to replace politics with the temporary tyranny of the educator. It is to admit our immaturity and call for a tyrant who will treat us as children. And yet that is, precisely, what it seems we want.
-RB
Legal Doesn’t Make it Right – Jack Blum
Jack Blum, Chair of Tax Justice Network USA, is a longtime friend of the Hannah Arendt Center. He participated in the Center's 2009 Conference, The Burden of Our Times: The Intellectual Origins of the Financial Crisis. One of the national experts on tax evasion, Jack recently collaborated on the film, "We're Not Broke," in which he helps shed light on the tax system in the United States. We reached out Jack to shed some light on Mitt Romney's tax returns for 2010-2011. We found him at the Sundance Film Festival in Utah where he is promoting "We're Not Broke," and he agreed to share with us his thoughts.
Mitt Romney’s tax returns show us just how rotten the American tax system has become. He is right when he says that his returns are correct and that he followed the law – but what a law! His work allowed him to call his salary a “carried interest.” Under current tax law he can to decide when to take the income, and when he decides to declare it, to pay tax on that income at the capital gains rate of 15%.
Making matters worse, his line of business, venture capital, relies in large part on tax breaks. Venture capitalists more often than not buy their target companies on borrowed money. They convert the capital in the target business from equity to debt and take deductions for interest payments on the debt. Capital is after tax money – debt is before tax and thus tax favored. Call it capitalism without real capital.
All of this is perfectly legal, but that doesn’t make it right. After all, slavery was legal for hundreds of years. So was preventing women from participating in the political process.
Beyond the case of venture capital, the tax code is riddled with privileges for the few, and for the multi-national corporations. Senator Carl Levin D-Mich. Has just introduced legislation that tries to close many of the most egregious loopholes. But, he is not on the tax writing Finance Committee, and that Committee is looking at ways to make the situation worse, not better.
The question every citizen should ask is how the Internal Revenue Code got this way. Certainly a government prepared to cut the budget for education, research, and infrastructure should be looking at the way it is subsidizing “free market” financial engineering business activity – activity that is usually not terribly productive. The answer lies in the campaign finance system. Seats on the tax-writing committees are the most coveted in Congress because the members are showered with contributions from lobbyists, political action committees, and employees of corporations wanting favors.
As a result, it should come as no surprise that many of the largest corporations have a negative tax rate.
The latest insult to the political system is the Citizens United decision that gives corporations the right to contribute to political campaigns. Corporations are not people. They are not citizens. They will invert one of the slogans the country was founded on. The new slogan will be “representation without taxation.”
Mitt Romney thinks that what he has done to take advantage of the loopholes without comment on the inherent injustice is normal and justifiable.
It does not seem to occur to him that the tax code that made him rich has shifted the burden of providing for the funding the common good to average citizens who are being told that they should expect nothing from government.
Finally, the people who are most favored by the tax system are the leaders and funders of the incessant drumbeat that social security and Medicare are bankrupting the country. The Mitt Romney’s of the world who make their money from “carried interest” don’t pay social security and Medicare taxes and won’t need the benefits.
The debate over the economy and the budget must include corporate tax subsidies. America cannot provide for its needs if the likes of Google, Apple, and Pfizer pay no tax. It cannot provide for its needs if the very rich can turn real income into capital gains and time their decision on when to take the income. The silence on this subject is deafening.
The Sport of Politics
This weekend's suggested read is an interview with Lawrence Lessig, author of Republic, Lost: How Money Corrupts Congress—and a Plan to Stop It. For years Lessig has advocated for the freedom of information and helped to found and establish the Creative Commons. Recently, Lessig has set his sites on freeing politics from corruption, and his book has been claimed as one of the intellectual foundations of the Occupy Wall Street movement. In this vibrant conversation, Lessig discusses finance reform, the Occupy Wall Street rallies, and how to rehabilitate the public sphere.
Lessig’s recent work addresses how the corruption pervasive in modern institutions is corrosive to public confidence and hence the arena of politics. What he terms “invidious, systemic wrongs” has led to a total loss of authentic civic trust: “the financial collapse is the most astonishing of these examples, “ he states, “not so much because of what happened before 2008, but because of what happened after.” As bad as the crash was, the bailout of bankers was an unparalleled giveaway, a transfer of money from taxpayers to the wealthiest denizens of the financial world.
Lessig encourages the current Occupy Wall Street movement to tap into this exasperation, focusing not on wealth, but fraudulence: “if [OWS] can say, whether or not you believe in capitalism, nobody believes in crony capitalism, and crony capitalism is what we’ve got, it would stand a greater chance of success.” Lessig’s emphasis on corruption is a reminder that it is the perversion of the facts and the rewarding of failure at the highest levels that that is responsible for the weakened state of our political world.
A provocative thinker, Lessig proposes several solutions to restore the political space he sees as dangerously thinned in the era of C-SPAN. These include the establishment of constitutional conventions—‘citizen juries’ where people could come together to debate the issues of the hour. “It would demonstrate something that I think people forget,” Lessig remarks to David Johnson of the Boston Review, “which is that politics is the rare sport where the amateur is better than the professional.”
Click here to read the interview.
Sign of the Times – Part II
The second installment of a two part blog post about Occupy Wall Street by Hannah Arendt Center Associate Fellow, Kieran Bonner.
On the website of Occupytogether is the following statement:
“The beauty of this new formula, and what makes this novel tactic exciting, is its pragmatic simplicity: we talk to each other in various physical gatherings and virtual people’s assemblies … we zero in on what our one demand will be, a demand that awakens the imagination and, if achieved, would propel us toward the radical democracy of the future … and then we go out and seize a square of singular symbolic significance and put our asses on the line to make it happen.”
There is much in this statement that coheres with the spirit of Arendt’s work and mission, the focus on talking to each other, a demand that awakens imagination.
While she would welcome the interest in radical democracy, she would be very suspicious of the language of ‘propelling,’ as though moving forward was subject to an inhuman force rather than the result of persuasion through human speech. My Arendtian ambivalence is located in the need to separate social concerns from political concerns and economic matters from matters of democracy.
If the focus of the protest is primarily on economic inequality and not on reviving democracy, on political economy and not politics itself, then it is in danger of being absorbed by the social. Arendt distinguished between life concerns and political concerns and said that politics, and therefore democracy, become at best corrupt and at worst disappears when dominated by urgent life concerns.
It is precisely for this reason that Arendt saw the American Revolution as politically far more successful than either the Russian or French. She admired the American Revolution because it put political matters, especially democracy, first. An act of citizenship, in Arendt’s sense, is more than voting for someone else to act and speak on one’s behalf. It requires the full experience of acting and speaking; it is this criterion that Arendt would use to assess whether acts were either social or political and so acts of citizenship.
The Boston Tea Party was not a rebellion against taxation per se, as the contemporary Tea Party tends to emphasize. It was not a movement to ‘get government of the backs of the people.
It was against taxation without representation. It was against government without participation and not government per se. That the American Revolution led not to a completely fair taxation system but rather to the first modern democracy is its great achievement. The promise in OWS, therefore, is not just whether correct economic legislation is enacted, but whether a re-invigorated democracy can be re-imagined. This is the hard work of envisioning alternatives, a work that has become unimaginable despite a consumer culture that always invites us to imagine the impossible. Is it not paradoxical that today we can easily imagine the end of the world but not the end of capitalism, as Slavoj Zizek stated to the occupiers last Sunday. That is the promise of the OWS initiative, the beginning of the hard struggle to restore a lived experience of political freedom to America and to the world.
-Kieran Bonner
Common Sense
A friend of mine posted this sign and asked for responses:
Images like these provoke strong emotional responses. As much as I share this student's point of view, it is crucial to remember the larger context of consumerism, excess, and irresponsibility that forms the background for these protests. Instead of understanding Occupy Wall Street divisively as the 99% against the 1%, we should see it as a common sense movement opposed to the rampant greed and selfishness of the last 10 years.
I remember where I was on Dec. 29th, 2009. I was on vacation with my extended family. We were having a great time. And I was fuming.
The cause of the steam emanating from my ears was Steven Brill's superb cover story of that weekend's NY Times Magazine, What's a Bailed-Out Banker Really Worth? This article made me livid—I can remember grabbing a red pen and underlining it, commenting on it, and then forcing everyone in my family to read it. When I look at the Occupy Wall Street protests now, what I think about is Steven Brill's article.
Brill exposes the corruption and hubris of what might be called a pervasive if not ubiquitous Wall Street mentality. His window into that moral morass into which parts of Wall Street sank was Ken Feinberg, the man in charge of reigning in excessive compensation at the companies that we—the United States tax payers—bailed out. He cites evidence from Feinberg to show that when calculating their bonuses in 2009, the year after they were saved from bankruptcy by American taxpayers, the big banks decided that every single one of their executives had performed above average and deserved extravagant bonuses:
To take a near-comic example, the firms did not present a single executive as meriting a pay grade below the 50th percentile of their supposed peer group.... In fact, all 136 of the executives (the 25 top earners for each of the seven companies, less 39 who left during the year) were depicted as well above average, typically in the 75th percentile or higher. And the peer groups they were supposed to be in were often inflated; for example, someone running a unit might be portrayed as a chief executive because, the argument went, he ran a really big unit.
Citigroup and Bank of America, Brill writes, "concluded that everyone in their executive suites was above average when compared with peers at other giant banks that didn’t need a bailout." The banks then proposed that their average executives deserved bonuses of between $10-$21 million. After months of negotiating and cajoling, Feinberg talked them down, so that in the end, the average banker received a year-end bonus of $6.5 million at Bank of America and $6.2 million at Citigroup.
Where was the young student above in 2009? Where were the bankers who didn't use leverage, who didn't reward themselves with million dollar commodes? Where were the responsible people on Wall Street and off? It would have been nice if someone might have said:
I currently have cash in the bank and live comfortably in my nice house or apartment, send my kids to public school, take vacations, enjoy my family, and have everything I want. I don't pay $49,000 for each of my three kids to attend tony private schools, I don't have a private jet or four houses or 5 babysitters and two chefs. My bank is solvent and so am I. I would not blame "the financial system" for my own bad decisions. I live within my means and my company makes money without greedily seeking to maximize profits by taking outsized risks. I expect nothing to be handed to me and I expect to work my @$$ off for every dollar. That is how it is supposed to work. I am not the 1% who expects to reap astronomical profits in good times and get bailed out and reap astronomical profits in the bad times too.
Where was such anger at the time of the bailouts? Possibly it was submersed in fear. But the bald truth is too many good people were silent.
Now, it seems, everybody is angry. Many people who are in the 1% are angry as well—and they are not only angry at having to pay more in taxes. Many, many people who are in the 1% are angry at the corporate bailouts, and not only Warren Buffet. This fight is not between the 99% and the 1%. I think that is a mistake. It is between those who understand that capitalism for profits and socialism for losses is wrongheaded, for the wealthy as well as for the middle class. In other words, the fight really is between all of those with common sense and those without it—at least if we understand common sense as Hannah Arendt does, as that shared concern with what is common.
While I have sympathy for the young person who expressed the sentiment above and while I agree we all need to take responsibility for our actions, we cannot simply ignore the fact that we have in the last four years bailed out some of the richest Americans and let the poorest Americans suffer. Why do the wealthy get bailed out while the middle class gets locked out? Why is it that in a country famous for its patriotism, public feeling, and pursuit of the common good, we have somehow lost touch with our sense of what we share in common?
The worst of the worst offenders during the last decade was the giant insurance company A.I.G.
Brill tells the story of one trader at A.I.G., "a mild-mannered math whiz who worked at a unit of A.I.G. Financial Products that, he says, had nothing to do with the small London-based credit-default-swaps group that sank the company." In the 1990's and 2000's, this trader made millions, even tens of millions of dollars, every year—bonuses based on a bonus pool that was artificially inflated because of the outsized risks and profits from the Financial Products group that eventually lost hundreds of billions of dollars. When the crisis hit, he and his colleagues negotiated "retention contracts" that would guarantee them large bonuses even though the firm was losing hundreds of billions of dollars and was only being kept alive by, in the end, $180 billion of tax payer bailouts. When word leaked that taxpayers were paying for multi-million dollar bonuses, these executives defended themselves.
"Why should I simply walk away from a contract?” he now argues. “I earned that money, and I had nothing to do with all of the bad things that happened at A.I.G.
The arrogance and deafness of such arguments is hard to believe. These contracts would be worthless if we taxpayers didn't save this man's company. We came to the rescue. The least these bankers could have done was to thank us and renegotiate their contracts. If they had any decency or common sense, they would gladly offer to cut their pay today in solidarity with people who have lost their jobs or are being foreclosed upon and losing their homes. But no, they insist that when these people make bad decisions, they should suffer the consequences.
Compare the defense of contractual integrity by bankers to the current debates over public employee pensions. As with the bankers' bonuses, the pension deals signed between policemen, fireman, and teachers with municipalities through the 1990's and 2000's were based on inflated expectations and irresponsible risk assessments. Many of these municipalities are now currently being bailed out by the Federal Government, which is subsidizing their poor choices. No serious economist thinks that these pensions will ever be fully paid. And on Wall Street, the assumption is that these contractually guaranteed pensions will be reduced. They may be right, but what hubris! When bankers have contracts guaranteeing them a 7 or 8 figure bonus, the taxpayers should pay it, but when public employees who teach our children and protect us have contracts guaranteeing a comfortable retirement, we should tell them we are broke and can't honor those contracts? This is risible arrogance and self-centeredness. It is a total abandonment of common sense.
The point is, people are angry. They are angry partly because they are realizing their dreams for a comfortable life are collapsing around them. But also because they see that the dreams of many of the super wealthy (mostly in the financial industry) are being held together by taxpayer-funded bailouts. And they are angry because the super wealthy—not the 1% but the .1% who make on average $5.5 million every year or the .01% who make on average $24 million every year—are so wealthy that they seem to be divorced from the reality most Americans face.
It is true that not all wealthy Americans were bailed out. It is not an accident that the protesters aren't picketing at Apple or Microsoft and they are not picketing Alcoa or Johnson & Johnson. I am sure we can complain about the tax strategies, outsourcing, and off-shore accounts such companies use, but they are running businesses that have not failed. These companies produce products. Their executives live well, often very well, but they don't ask for bailouts when they lose. Similarly, hedge fund investors did not take bailouts in 2008. These managers should pay income taxes on their income rather than the much lower capital gains rates, and Occupy Wall Street should make this a core of its message. But most hedge fund managers have large parts of their personal fortune in their funds, giving them a huge incentive to manage risk well, and thus distinguishing them from bankers who typically risk only other people's money. It is a mistake to lump the wealthy into one boat, just as it is a mistake to personally target individuals simply because they are wealthy.
It is also true that many of the so-called 99% are guilty of irresponsibility. Many middle class people bought houses they couldn't afford, put two gas-guzzling SUVs in the driveways of their McMansions, and sent their kids to private colleges by borrowing upwards of $50,000/year. It is hard to have sympathy for these folks. That is why the student above has a point. To bail out all those who are suffering is clearly unfair to those who did not partake in the narcotic of easy credit. The student is right.
Finally, it is true that the problems we now face do not all stem from the failings of the 1% or the 99%. Middle-class jobs are threatened by globalization, which provides millions of educated workers willing to do the same jobs for significantly less money. Middle-class jobs are also threatened by automation and intelligent robots that can work faster, longer, and often better than humans can. The problems facing our nation's future are profound and persistent, and no amount of protest will make them go away.
But to ignore the justifiable anger at the hypocrisy and entitlement of many in the wealthiest classes is simply to ignore fundamental facts about what has happened in the last 4 years. We are in danger of losing our common sense, and if that goes, the country will be in trouble. For how can people live, sacrifice, and celebrate together if they do not share a common world?
As long as bankers and other representatives of the wealthiest classes continue to say that asking them to pay more in taxes is class warfare, the anger against them will only grow. This is the anger that fuels the Occupy Wall Street protesters. I have problems with their tactics and with the fuzziness of their message. I have questioned their thoughtfulness and worried about their scapegoating. But boy do I understand their anger.
-RB
Sign of the Times
The first installment of a two part blog post about Occupy Wall Street by Hannah Arendt Center Associate Fellow, Kieran Bonner.
“Action and speech are so closely related because the primordial and specifically human act must at the same time contain an answer to the question asked of every newcomer: ‘Who are you?’ This disclosure of who somebody is, is implicit in both his words and his deeds; yet obviously the affinity between speech and revelation is much closer that that between action and revelation, just as the affinity between action and beginning is closer than that between speech and beginning, although many, and even most acts, are performed in the manner of speech.” (Hannah Arendt, The Human Condition)
I went down to check out the Occupy Wall Street Protest on the Saturday of Columbus Day weekend. I was surprised by how small the group was, the casual and diverse activities being engaged in, and the relatively open way one could move through the square. As a child of the sixties, the similarities between the relaxed and ‘do your own thing’ atmosphere of many demonstrations back then and the diverse activities going on in Zuccotti park were apparent to me. I was also struck by the interest in cardboard sign politics, or as is posted on the occupywallst.com, ‘sign language.’ The criteria for participation seemed to be the possession of a grievance that points in some way to the top 1% of the socio-economic elite, a marker and a piece of cardboard. Aesthetics seemed secondary to having a sign that visitors could read and the media could pick up on. There was a note of reflexivity in the relaxed melee with one cardboard sign reading: “This is a sign.”
The protesters are being compared to the Tea Party in their challenge to the elites, as well as to the ‘Arab Spring’ movement in terms of its use and reliance on social media. There is truth here, for all of these different movements espouse is the need for a better democracy.
Hannah Arendt advocated a conception of democracy invented by the ancient Greeks, in which humans could come together for the sole purpose of speaking and acting with each other - without being driven by needs, and without being mediated by things. Provocatively, the true essence and purpose of politics was neither security nor justice, but rather the opportunity for unique human identity to appear in a shared and common world:
“Action would be an unnecessary luxury, a capricious interference with general laws of behaviour, if [humans] were endlessly reproducible repetitions of the same model,.. Plurality is the condition of human action because we are all the same, that is, human, in such a way that nobody is ever the same as anyone else who ever lived, lives, or will live.”
So we should ask: who are the OWS protesters? How do they appear in the world? There can be no simple answer. Above all, however, the protesters have acted and begun something new. Their deed is not a brute violent deed that seeks to terrorize. It is a peaceful protest and the activists in all their diversity are explicitly encouraged to speak their concerns. Yet, the fact that they seem more interested in the deed itself (the occupation) than in words speaks to Arendt’s nuanced distinction that the emphasis is more on beginning than in revelation.
There are complaints about their lack of specific demands. Many on the right and left say, “What do you want to change”? And the replies are varied, vague or suspiciously utopian. In a sense, this initiative highlights what Arendt says about the affinity of action with new beginnings.
Their most persistent refrain in response to ‘who are you’ is, “We are the 99%.” What does this answer reveal? Clearly this slogan has identified a grievance that the struggling poor and middle class can identify with.
Others have defended the protesters. An otherwise critical New York Times editorial last weekend argues that specific demands are “the job of the nation’s leaders, and if they had been doing it all along there might not be a need for these marches and rallies.” The editorial quickly summarizes what action is needed to respond to the situation OWS is protesting. “There are plenty of policy goals to address the grievances of the protesters – including lasting foreclosure relief, a financial transactions tax, greater legal protections for workers rights, and more progressive taxation.” (Link to NYT piece)
Many in the political center and left of center can easily agree with this response to the OWS act. On Tuesday night at a ProPublica talk at the Tenement Museum, Eliot Spitzer more or less said the same – the protesters are doing what protesters do and it is up to the politicians to develop policy. While this is a response to which I am very sympathetic, I am also aware that it buries or renders superfluous the fundamental question “who are you?’ That is, it treats the act of occupation as solely about the economic crisis. Does such a response, sensible as it is, not risk undermining the action OWS began?
It is crucial to bear in mind two essential elements of action that Arendt draws our attention to and that humans need to come to terms with: irreversibility and unpredictability. It is of the essence of an act, she tells us, that once it is begun it cannot be reversed. It also cannot be fully controlled. Just as the OWS initiative was not predicted, neither can the response to the initiative be predicted. The experience of irreversibility and unpredictability (a lived reality for most contemporary parents) is the experience of human limitation: of what we cannot undo and what we cannot control. The OWS action is a beginning and many note that it is not clear where this beginning will go. It is precisely the response to the action that will determine whether it is a beginning that is a true establishment, like the Founding Fathers actions in the 1770s, or one that will suffer the fate of most human initiatives and fade into oblivion in the midst of time.
-Kieran Bonner
Weekend Reading
In the wake of Roger Berkowitz's piece on Occupy Wall Street a few days ago, Jeff Nall's article "Hannah Arendt: The Trouble With Representative Government in the US" offers a valuable perspective on the nature of representation and the political sphere.
Nall gets to the heart of Arendt's interest in revolution:
"Before we set out to remake or even just reform our nation, let's have a clear vision of what we want it to look like when we're done. Let's not aim to bring an end to government; let's not aim to use government to care for others; let's aim to reclaim the very idea of citizenship and make each person part of the decision making process, part of a government. It's time for the American public to revolt and take back the power to decide for itself."
Don’t Be Afraid to Say “Revolution”? Post is Generating Interesting Feedback
The Arendt Center's, Roger Berkowitz posted a piece yesterday about the Occupy Wall Street protests which is generating some interesting dialogue.
Steve Maslow offers:
"Reading Roger Berkowitiz’s piece saves one the trouble of going down to the protests AND having to re-read ON REVOLUTION by Hannah Arendt. In fact, watching the video clip gives me enough detail so that I can position myself as an authority, when I go back to work and “sell” my story to my colleagues and friends and maybe even seduce lovers who find it dreamy that they might be dating someone “radical” enough to join a protest and still have a table and order a bottle of Stoli Cristal at the club.
Now are you nauseated?
For this idea IS the culture of Wall Street: voyeuristic, full of puffery, semi-literate and non-accountable. Does it really sound so far from that of our own outside of Wall Street? [Full disclosure: the author is the chairman of the board of the Hannah Arendt Center at Bard and a Wall Street investment banker by profession]..."
Maslow continues further on:
"As Arendt pointed out in the opening passages of ON REVOLUTION, this is the touchstone of a genuine revolution, the desire to return to where we began, to come full circle(the ‘revolve’ in revolution)–resorting to radical methods (nonviolent street protests) in order to achieve conservative ends (to go back to where we were before.) The spirit of free enterprise tempered by shared sense of purpose (what Roger called ‘the public happiness’) are the substrate of concepts such as unemployment insurance, social security and even class-action law suits, but also, at the other end, things like profit sharing, pay raises, dividends and maternity leave. Attacking the former, while keeping the latter for themselves, Wall Street and its allies have made a mockery of fairness and democracy. The protesters have not articulated this yet, but they know what they do not know: something in rotten in the United States: income inequality, and it is threatening the very foundations of our republic. As Justice Louis Brandeis once said “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
Read Maslow's full response here.
Prosthetic Gods: Finance and the Future
The new issue of Lapham's Quarterly is out and one of the highlights is "Buying Tomorrow", by Jennifer Szalai. Amidst a tour de force rehearsal of the history of risk and speculation, Szalai writes of the parade of speculative-driven crises over the past three decades. The 2007 crisis was neither unexpected nor unpredictable—in spite of the protestations of shock and surprise by those speculators who cried wolf and begged for a bailout. Also in 1997, the bailout of Long Term Capital Management caught the market unawares.
As one risk manager at Merill Lynch put it then,
"We had no idea they would be in trouble—these people were known for risk management. They had taught it; they designed it. God knows, we were dealing with Nobel Prize winners!"
Szalai's insight goes deeper than simply a lambasting of Wall Street and speculators. What she sees is that the modern art of speculation is itself a progressive faith, one that believes in a quasi religious and mystical way in our ability to peer into the Future, to predict and to control the unknown. We have, she shows, an ever-greater belief in our technological and technical abilities to prepare for and thus improve our fate. As a result,
"Finance has given the future over to mathematics and supercomputers, which, like any other prosthetic god, bring with them the temptations of both recklessness and complacency. Our technologies belong to us; we create them, and they amplify our abilities and our reach, yet we exhibit a strange eagerness to relinquish our dominion over them, endowing them with a monstrous authority that demands our accommodation and surrender."
In the ambivalence toward technology that we both create and submit to, one hears Arendt's own insight that we humans possess a deep desire to overcome our human limitations. What Arendt worried about—already in in The Human Condition in 1958—was that we were finally nearing the stage of technological development when we seek to replace our human fallibility with an inhuman rationality. Clearly we have not yet reached that stage—if we ever will. Arendt did not think we would ever live in a fully inhuman world.
And yet, the desire to perfect ourselves persists, along with our human shame at our imperfections. We yearn to control and master the future, and one corollary of that is our deep wish to cede control over our lives to the hyper-rationality, objectivity, and reliability of machines. Machines do not get tired and do not make sloppy mistakes. Machines are not biased, and they don't cloud their judgments with emotions. It is for this reason that we are increasingly turning to machines to make our most important judgments—drive our cars, diagnose our illnesses, and write our news articles. Not only finance has "given the future over to mathematics and supercomputers," but also love and death are now to be subject to risk analysis, algorithmic prediction, and computer predictability.
As we give over our future to machines, do we, as Marshall McLuhan wrote, give ourselves over to our inventions, and thus become slaves to ourselves? This is Szalai's conclusion. And yes, we are succumbing to our machines, the very machines we design and build. In doing so, we abandon our human freedom to our equally human desire for security and certainty. In Szalai's words, we give ourselves up to our "perverse urge to lose our uncomfortable selves." In doing so, in abandoning our human faculty of judgment to machines, we gain a measure of control, but we risk losing the activity of judgment that is the core of humanity.
-RB
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