Political Book Summaries, Reviews and Opinions

Political Book Summaries, Reviews and Opinions

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Book Summary: The World Is Flat by Thomas Friedman


The World Is Flat by Thomas Friedman

The World Is Flat by Thomas Friedman

Chapter One – While I Was Sleeping

As we are introduced to Friedman’s theory that the world is flat, we accompany him on a journey to the various locations around the globe that led him to this conclusion. We start off in Bangalore, India, where he finds himself surrounded by advertisements of traditionally American companies such as Pizza Hut, Epson, HP and Texas Instruments during a round of golf. Traveling with a crew from the Discovery Times channel, he encounters Indian workers and businesspeople working for American companies, speaking in American accents and even adopting American names in their own country. A visit to Infosys Technologies Ltd leaves Friedman in wonder at the massive conferencing system they have created that allows people from around the globe to congregate and collaborate in one giant room via satellite and teleconferencing technology.

Friedman guides us through the different eras of globalization as he has defined them in an historical narrative from the days of Columbus to our present day state. We see the ever increasing pace of globalization through his encounters with people such as Jaithirth “Jerry” Rao, an outsourced businessman in India, and others. Through Jerry, we learn about the process of information exchange online and the effect it has on businesses to perform various duties from remote locations with everything from tax preparation to hair appointment scheduling to hospital bookings cited as examples of outsourcing.

As Friedman travels through Japan, China and back to America, we study various examples of the business outsourcing phenomenon and its impact, positive and negative, on the players involved. Homesourcing and military outsourcing are explored as Friedman explains the sheer prevalence of outsourcing in our society.

Chapter Two – The Ten Forces That Flattened the World

We are introduced to Friedman’s interpretation of the ten influencing factors that led to globalization and world flattening, the first being the falling of the Berlin Wall in 1989, which tipped the balance of power across the world towards democratic free market and away from authoritarian rule. A second flattener is identified as our ability to not only author our own content, but to send it worldwide with the 1995 launch of the Internet. Subsequently, free workflow software was developed, allowing people from around the world to collaborate and work together on projects using a shared medium. As Apache and Wikipedia came into play, we became able to develop and upload web content and community collaboration became another flattening force. Preparations for Y2K required resources beyond those available in the United States and as a result, we see that India became responsible for a huge portion of these preparations. Offshoring, using the Chinese manufacturing sector as a prime example, has forced other developing countries to try to keep up with their low cost solutions, resulting in better quality and cheaper products being produced worldwide.

The seventh flattening factor is our introduction to supply chaining, which is discussed in much greater detail later in Chapter Fourteen. Rounding out his list with insourcing, in-forming and “the steroids”, Friedman examines his flattening factors, their origins and the effect they will have on the way we do business in the future.

List of Ten Forces

  1. Collapse of Berlin Wall–11/89: The event not only symbolized the end of the Cold war, it allowed people from other side of the wall to join the economic mainstream. (11/09/1989)
  2. Netscape: Netscape and the Web broadened the audience for the Internet from its roots as a communications medium used primarily by ‘early adopters and geeks’ to something that made the Internet accessible to everyone from five-year-olds to eighty-five-year olds. (8/9/1995)
  3. Work Flow Software: The ability of machines to talk to other machines with no humans involved. Friedman believes these first three forces have become a “crude foundation of a whole new global platform for collaboration.”
  4. Uploading: Communities uploading and collaborating on online projects. Examples include open source software, blogs, and Wikipedia. Friedman considers the phenomenon “the most disruptive force of all.”
  5. Outsourcing: Friedman argues that outsourcing has allowed companies to split service and manufacturing activities into components, with each component performed in most efficient, cost-effective way.
  6. Offshoring: Manufacturing’s version of outsourcing.
  7. Supply-Chaining: Friedman compares the modern retail supply chain to a river, and points to Wal-Mart as the best example of a company using technology to streamline item sales, distribution, and shipping.
  8. Insourcing: Friedman uses UPS as a prime example for insourcing, in which the company’s employees perform services–beyond shipping–for another company. For example, UPS itself repairs Toshiba computers on behalf of Toshiba. The work is done at the UPS hub, by UPS employees.
  9. In-forming: Google and other search engines are the prime example. “Never before in the history of the planet have so many people-on their own-had the ability to find so much information about so many things and about so many other people”, writes Friedman.
  10. “The Steroids”: Personal digital devices like mobile phones, iPods, personal digital assistants, instant messaging, and voice over Internet Protocol (VoIP).

Chapter Three: The Triple Convergence

Acknowledging that the ten factors he discussed in Chapter Two could not have flattened the world all on their own, Friedman explains that as each of the factors came together, they had to spread and take root to create the environment rich for flattening. He credits this spread, the creation of complementary software and the internet, and political factors that caused several developing countries, including China, Russia, India and Latin America, to open their borders at this time with the creation of the perfect storm that led to the rapid-fire pace of globalization.

Through interviews with U.S. Embassy officials in Beijing, we explore the desperation of Chinese students to study and work in America. For the first time in history, we see that talent has become more important than geography in determining a person’s opportunity in life. We follow the path of a Boeing jet as components of its manufacture are outsourced to Russia and then India, allowing for faster and cheaper development of more planes as Friedman demonstrates the need for individuals and businesses to be able to compete in a global marketplace.

Friedman works to dispel common myths about globalization as we explore the dot.com boom and bust, the American government’s misinformation of the public as the triple convergence took place and the IT revolution we have heard so much about in the last 20 years.

Chapter Four – The Great Sorting Out

Friedman calls for a reality check as we explore the manner in which countries and societies will cope with and adapt to the dramatic changes that globalization brings to the way we do business, as individuals and entities. His comparison of the Industrial Revolution to the current IT Revolution leads us to believe that the world flattening we see today could have been predicted by Karl Marx.

An interview with Harvard’s noted political theorist Michael J. Sandel discusses whether or not exploitation is globalization; are the outsourced people from India being exploited or given opportunity they would not otherwise have had? In search of an answer to this question, Friedman examines the India-Indiana story from 2003, where an Indian company was outsourced to upgrade Indiana’s unemployment computer system, effectively taking work from people in Indiana in order to provide more work for people in India. We examine the blurring boundaries between companies and different groups of workers, as well as the relationships between communities and the businesses that operate within them. Friedman demonstrates that as little people begin to act big, so too are big people able to connect on the smallest level. Identities become harder to define, which will also need to be sorted out. The traditional roles of consumer, employee, citizen, taxpayer and shareholder have all become blurred and intertwined.

Friedman summarizes the chapter with an examination of intellectual property law and means that must be put in place to protect it, as well as the death of the human bond in the online world.

Chapter Five – America and Free Trade

Does free trade still exist in a flat world? As he sets out to explore this dilemma, Friedman considers the banning of outsourcing, an action called for by many, to protect our country’s workers and the effect such an action would have on globalization. He concludes that erecting borders and walls would be detrimental to our goals and that Americans must instead be prepared to compete on a global playing field.

Friedman encourages better education and training, as Americans now compete not only with other Americans, but with the most brilliant minds around the globe for positions. We explore the “lump of labor” theory and new job creation in a global economy. He identifies the workers that will suffer most, should they be unable to keep ahead of the globalization trend, and offers large-scale suggestions to remedy this problem. Using the history of the American agricultural industry as an indicator of future trends in various industries today, he stresses the importance of an ability to adapt and specialize where there is a need. We learn that fear stimulates change and that this is a good thing.

Chapter Six – The Untouchables

Friedman addresses a concern shared by many Americans: what do we tell our kids? As the competition for jobs stiffens, how do we prepare them for the increased competition? His suggestion that we must make ourselves “untouchables” is explored in detail as he identifies three broad categories of workers who will have job security in the flat world. Synthesizers, explainers, leveragers, versatilists and more are identified and explained as viable career options, as well as strategies for preparing for these positions.

Chapter Seven – The Right Stuff

In a frank discussion of the fear amongst Americans regarding competition and education, Friedman explores the “right stuff”; the educational requirements needed to survive in the flattened world and more importantly, the availability of said education in our current system. Stressing the importance of self-learning and learning to learn, Friedman offers valuable advice to parents unsure of their children’s educational and professional futures. He recommends building right-brain skills, or those that cannot be duplicated by a computer, and explores different vehicles to higher learning, including music. Friedman examines the factors necessary to create the right environment for this learning and contemplates methods of achieving this in modern day America.

Chapter Eight – The Quiet Crisis

We begin by examining the U.S Olympic Basketball Team’s unexpected loss at the 2004 Games as an example of our complacency as the rest of the world is learning and catching up in areas we are used to dominating. An interview with Shirley Ann Jackson, 2004 President of the American Association for the Advancement of Science, demonstrates that a quiet crisis is happening slowly but surely as multiple and complex forces are at work creating the perfect storm; demographic, political, social, cultural, economic, etc., that could lead to America falling behind in innovation, science and technology. We explore the dirty little secrets that no one is talking about – a lack of highly skilled scientists and engineers, disinterest in math and science by our younger population, lack of ambition as television and video games take over, an outdated basic education system, lack of funding for research, lack of infrastructure as we focus on war and other countries focus on developing sustainable and innovative business. Friedman explores the differences between different country’s educational systems with Bill Gates and ultimately poses the question, why are we so focused on idolizing Britney Spears when competing countries are idolizing Bill Gates?

Friedman contemplates The “Innovate America” Report, a well-meaning document ignored by the President as he chased his own agenda – and wonders whether China will beat us to the implementation of our own innovation. He sums up the chapter with a call to action to kick-start the long process of preparing ourselves for the future into motion before we are literally left behind.

Chapter Nine – This Is Not a Test

In a call to action, Friedman stresses that we simply cannot do things the same old way anymore and people must be willing to change and adapt. He compares our current crisis to that we faced in competing with the Soviet Union and the launch of Sputnik; the main challenge then came from those who wanted to put up walls while we now have to face those who want to tear them down. Now, as then, we must change our strategy to overcome these issues. He discusses the difficulty in getting America to stand up and take notice of the importance of this issue in a supercharged society where hype and terror are needed to get the public’s attention and support.

Friedman stresses the importance of shoving political barriers aside in what he calls “compassionate flatism” to prepare our country for what lies ahead. He questions leadership and education; who will lead us into the forefront of this new globalized economy? The necessity for lifelong learning and benefits to allow workers to remain mobile and adaptable is very real, though it seems to be at the bottom of our to-do list.

Finally, Friedman examines how companies such as Capital One are working on the lifelong learning objective by providing training and upgrading to employees, increasing their own productivity and bottom line in the process, as he calls for social programs that encourage workers to be creative and hardworking.

Chapter Ten – The Virgin of Guadalupe

We see the Chinese manufacture of statuettes of The Virgin of Guadalupe and their subsequent importation into Mexico as an example of the problem created when one developing country competes with another, as China replaced Mexico as the U.S.’s number two importer in 2003. Friedman discusses the need for developing countries to put policies in place to create the right environment for their companies and entrepreneurs to succeed in the flat world. He states that countries must be brutally honest with themselves in determining their place in the world market if they are to adapt and survive. A comparison of countries who have opened their borders and adopted free trade policies versus those who have not and been left behind illustrates his point.

The concept of reform retail and wholesale is introduced as we explore changes in education, infrastructure and governance. Ireland becomes a case study for financial success as their per capita GDP has risen to second highest in the European Union. Friedman contemplates a society’s ability and willingness to sacrifice for the purpose of economic development and leaders with vision as vehicles of change and conversely, the reason some countries will not.

Chapter Eleven – How Companies Cope

Friedman opines that companies willing to change and accept change are more likely to do things than have things done to them. In profiling Jill and Ken Greer, creators of Greer & Associates multimedia company, we learn of their experience with the rise of freelancers as their competition, as well as the fact that technology that should have simplified their operations made it more difficult by requiring more of them.

We look into commoditization in a wide range of industries, where everything is the same and supply is plentiful. Clients are flooded with options and everyone becomes the same. Each company is driven to be more creative and innovative, or risk falling between the cracks. At this point we meet Fadi Ghandour, cofounder and CEO of Aramex, a home-grown package delivery service. His web-based global network cut costs and allowed him to compete with the biggest in the business and come out ahead. We see through other business models that globalization forces the big to act small: case in point, Starbucks learning from their customers to use soy milk in their coffees. We learn that companies must be willing to collaborate and focus on niche markets, doing themselves what they need to do to stay in front of their customers and outsourcing the rest. The best companies use outsourcing as a method of growth, not to shrink their workforce. Outsourcing allows them to provide more and better services more efficiently.

We also explore socially responsible outsourcing; giving the outsourced workers a good wage and opportunity within their own country that they would not have otherwise.

Chapter Twelve: The Unflat World

Friedman shares stories of the world flattening but humbly announces that he does indeed realize the world is not yet flat. He wants to draw attention to the flattening and the ever-increasing pace at which it is occurring. Part of this understanding must come from a recognization of factors that are preventing globalization from occurring in some people.

Friedman examines different groups of people he believes are disadvantaged for one reason or another and the way that this keeps them from moving forward into a flattened world. The AIDS epidemic affects people who are too sick to hope they will ever make it to middle class. Disempowered people are those who live in areas touched by the flattening of the world but lack the means, knowledge and infrastructure to benefit from it. For example, in India only 2% of the entire population are involved in the high-tech and manufacturing for export sectors.

Different societies and cultures are coming into contact with each other more frequently and more quickly than ever before, leading to great frustration. Using the Arab-Muslim world and his journalistic encounters with their youth as an example, Friedman explores the impact of freedom of thought and expression that world flattening has created and its impact on a traditionally closed society. He warns of a potential threat lurking in the not too distant future: a depletion of our natural resources as people compete to have more and better.

Chapter Thirteen: Globalization of the Local

In this examination of the impact of globalization on world cultures, we learn that globalization came to be seen by many as Americanization, creating a backlash by those who felt that they would be steamrolled and homogenized into being mini-Americans.

But as new forms of communication and innovation create a global platform for the sharing of work, entertainment and opinion, Friedman believes that globalization serves more to enrich and preserve culture than to destroy it, as each person is given their own voice and vehicle of expression through podcasts, websites, etc. The nature of the beast is such that the bad will always be there with the good. As humanitarians and businesses connect online to share ideas, so too do terrorists and predators.

Chapter Fourteen: The Dell Theory of Conflict Prevention

We begin with an in-depth study of the supply chain, using the purchase of Friedman’s own computer as a case study. This leads to an examination of how geopolitical conflicts could derail or slow globalization.

Friedman’s theory is that two countries invested in a business together by being part of the same global supply-chain are less likely to go to war, as they are now heavily invested in the success of the business venture. Any interruption to that supply chain would be critical. As we reflect on the evolution of supply chains and the effect they have had on politics and the stability of countries they affect, we remember that Asia, as opposed to much of the Middle East, has become more stable because they are part of many supply chains and therefore more interested in doing good business. Overall, the price of war is higher than it used to be and countries will have to consider the effect of a war on their place in the business world. Friedman explores both the China-Taiwan relations and India-Pakistan as examples of how the flattening of the world and supply chain have a calming effect and cause countries to think rationally about the true cost of war, making diplomatic solution more likely.

As we explore the darker side of the supply chain phenomenon, we understand how Al-Qaeda and other terrorist networks form mutant supply chains for the purpose of destruction, not profit. In a flat world, the transmission of terror is much easier. We must examine our abilities to derail the nuclear threat by using our capabilities to disrupt the terrorists supply chain.

Chapter Fifteen: 11/9 Versus 9/11

We begin by examining two significant dates in world flattening: 11/9 as an example of creative imagination and 9/11 as destructive imagination. 11/9, with the destruction of the Berlin Wall, was the door opening to a freer, flatter, and more democratic world, where 9/11 saw our world try to snap shut against outside threat. This is Friedman’s call for positive creativity and giving people the tools to do positive things with what is available through the opening of so many doors.

We see the innovation and creativity that Bin Laden put into his 9/11 plan, as horrible as it was. Friedman concludes that the forces that flatten the world can be used to bring everyone up to the same level, or to bring them all down to the same level. Those of us who live in free and progressive societies must lead others to use their imaginations without allowing their imaginations to get the best of them – or us. Technology cannot protect us; we must harness that technology and decide how it will be used. This requires us to define the line between precaution and paranoia to keep things in perspective in a flat world. We are called to remember who we are to avoid losing our identity in a flat world. In exploring eBay as a virtual community, India as the second largest Muslim country where the context and imagination are different than in other parts of the Arab world, and the curse of oil and how it keeps countries from moving forward in other ventures, we learn about different types of creativity.

Friedman reflects on his story of Aramex from Chapter Eleven as an inspirational closing thought; one of a small Arab company that made it big in the world platform.

Book Summary: Freakonomics


Book Summary: Freakonomics

Book Summary: Freakonomics

Introduction: The Hidden Side of Everything

In this introductory chapter, co-author Stephen Dubner offers an overview of the diverse and seemingly unrelated topics that renowned economist and co-author Steven Levitt has addressed in his body of research. The authors state that there is no unifying theme of the book, although the aim throughout is to explore the hidden side of things and the subtle relationships that link everyday phenomena. Read more of this post

Book Summary: The Conscience of a Liberal (part 2)


The Conscience of a Liberal by Paul Krugman
The Conscience of a Liberal by Paul Krugman

Part 1 of 2 | Part 2 of 2


“Chapter 8: The Politics of Inequality”

This chapter seeks to identify the cause of partisan divide. Some claim that such a divide is abstract, yet reality crushes any such claims. Bipartisanship is clearly demonstrated by Presidential tax policy; Republicans decrease tax on the wealthy and Democrats increase tax on the wealthy. This is just one example, but party lines are clearly drawn. Republicans endorse cut cuts for the wealthy, minimization of government, and elimination of welfare programs. Democrats support tax increases on the wealthy, and government enhancement of a welfare state.

Inequality arose through many channels. Radicalization of the right wing, rooted in Movement Conservatism, drove such inequality. Reagan’s radical policies were constrained by strong Democratic presence in the legislative branch. After Reagan, Republicans sought to revoke the policies of the New Deal; some policies going as far as to annul the estate tax. As there have been no equivalent radical acts by the Democratic Party, one can assume that Republican radicalism has driven bipartisanship.

Today, various think tanks and foundations incentivize Republicans to be extremists. They found campaigns, ensure posh post-political positions, and publicly scrutinize those who don’t endorse far right-wing antics. These foundations also aid in influencing the general public with skewed, pro-conservative facts and partial truths. The institutions have also established the permanence of movement conservatism, as Republicans across generations share the same beliefs.

Bipartisanship is now the norm, but the true causation is unclear. Krugman attributes this to the growth of Movement Conservatism, aversion towards welfare, anticommunism, and racism. However, this is not the complete answer. As will be discussed in the following chapter, Krugman thinks that Republican antipopulist economic agenda may be the missing piece of the puzzle.


Chapter 9: Weapons of Mass Distraction

In chapter 9, Krugman discusses the microeconomics of voting and dispells a long standing myth in that voters have been duped by the GOP. Particularly, voters must experience a utility to vote that exceeds their utility of not voting, and Krugman says that a candidate’s promotion of voter self-interest is not enough to create this utility shift. While he states that the GOP has used linguistic chicanery in building their support base, especially in regards to national security, Krugman argues that issues such as class and race have divided American voters more than other issues, such as war and religion, have.

In regards to race, Krugman revisits Reagan’s rhetoric that he employed to win the White House. For instance, he discusses Reagan’s contrived story of a “welfare queen” in Chicago. Additionally, he note the significance of Reagan choosing Philadelphia, Mississippi, the site of a 1964 lynching of three civil rights workers, as the opening location for his 1980 presidential campaign. As we have seen from other chapters in the book, Reagan also openly supported discrimination by private landlords based on race or other immutable individual characteristics. Accordingly, Reagan’s and Johnson’s social positions helped shift the Southern white vote to the Republicans. However, due to the 2008 voter turnout of African Americans and younger voters, Barack Obama’s election appears to have reversed this trend.

Other enumerated factors that have shifted voter support in favor of the GOP are patriotic rhetoric, the evolution of the Christian evangelical neoconservatives and their rising political impact through voting and policymaking, the growing numbers of immigrants, illegal or otherwise, who are not able to vote, and vote blocking, such as what occurred in the 2000 election when Katherine Harris purged a large number of African American voters from the voting rolls who were misidentified as felons.


“Chapter 10: The New Politics of Equality”

The chapter opens with discussion of the 2006 Democratic victory in Washington. What would come of a Democratic House and Senate? Was it a signal of changing times or a response to Bush “strategery.” In the summer of 2007, 74% of Americans were dissatisfied with the overall performance of the United States. Despite strong national economic indices, the majority of citizens frowned upon current economic conditions. Strong national numbers did little to decrease growing inequality or improve average living conditions. Nor did they hide the fact that corporate profits and executive salaries were reaching record highs.

Will future policies focus on correcting economic inequality and insecurity? And if so, will history repeat itself? Krugman argues that this is unlikely. First, Clinton’s failure to popularize his health care reform could have been salvaged through improved communication and leadership. Additionally, current economic frustrations are increasing the call for government interference. Lastly, Movement Conservatives have lost the ability to distract and persuade the general public. Iraq and policies on national security have negatively contributed to conservative credibility.

However, national security is likely to play a major role in shaping future policy. Republicans have worked long and hard to establish an identity as being tough on national security. Bush and his counterparts were able to intensify and extenuate coverage of his “war on terror.” This effectively minimized coverage on economic conditions. Bush’s schemes were effective for quite some time, but today aversion with the management of the Iraq War is the norm. Krugman argues that this will likely have long-term effects on American politics. Bush’s failure in Iraq can be accredited to mistakes common to movement conservatism. Dedication to decreasing taxes on the rich led to insufficient funding in Iraq. Corruption and lack of accountability were also prevalent throughout the war. Therefore, it is unlikely that Republicans will be able to rely on their policies on national security to win elections. However, historically Republicans have won without a focus on national security. This was accomplished by a focus on race. Will conservatives continue to use race as a source of strategy?

Today, race is not a strong point of movement conservatism. Krugman first states that America is becoming less white, specifically non-Hispanic white. Growth of the immigrant population usually shifts political control to the right; however, immigration is an issue which has long divided the party. Movement Conservatism is grounded in those who favor white dominance over blacks. As stated by Krugman, it is difficult to be anti-black without also discriminating against immigrants. Republicans have fought this trend with attempts to keep minorities disenfranchised. Additionally, it appears that racism does not carry the same weight it has in years past. (We just elected the first black President) This lessens conservative’s abilities to gain votes associated with racial tension.

 It seems today that voters are looking for answers.  Voters are no longer naïve and are willing to question the government.  Based on the facts stated above, Movement Conservatism is at a halt.  Liberals need to find solid ground to sustain control and influence.  They can’t simply be the lesser of two evils.

Chapter 11: The Health Care Imperative

Krugman begins this chapter by discussing the argument against guaranteed health care for Americans. He writes that opponents of guaranteed health care argue that while life is unfair and gives certain people bad breaks in regards to their health and their access to health care, others, who do not suffer these misfortunes, should not be burdened with subsidizing the corrections of other peoples maladies. However, Krugman asks, “Is this the right thing to do?” Well, according to some polls that Krugman discusses, it is not the right thing to do. In fact, a majority of Americans support guaranteed health care for all Americans. Furthermore, politicians, i.e. movement conservatives, recognize this and do not publicly admit that they do not think everyone is entitled to health care insurance. Instead, the simply deny that there is a problem with health care in America; they play to fears that guaranteed health care will diminish individual choice and the quality of care; they claim it is not possible, or they amalgamate portions of all of these arguments to fight against universal health care.

Sadly, these arguments are just another attempt to promote economic inequality within our health care system, so approximately 45 million Americans go uninsured every year while another 16 million are underinsured. Moreover, nearly forty percent of private bankruptcy filings are attributable to burdensome medical bills. Since I worked in the health care industry for nearly twelve years before attending grad school, the following paragraphs are based on my observations and perspectives; however, it was encouraging to see that Krugman supports every one of them in this chapter.

While there is a moral hazard involved with making one person pay for the health care of another person, especially when the needy person created his or her health condition, there are worse moral hazards at play in supporting private health insurance. Private health care insurance programs generate profits in two ways: by selecting the least risky clients and by finding ways to deny coverage for the clients that they have selected. By allowing insurance companies to select the least risky clients, our society allows these insurance companies to profit from denying health care coverage to other individuals based on profit motivations. Second, our current system allows private health insurance companies to violate their contracts with their insured by trying to find loopholes to deny coverage despite the fact that these insureds may have paid every single premium on time.

In addition to the moral hazard mentioned above, people frequently state that they do not trust the government and a bunch of bureaucrats to run their health care. I have one simple question for these people. Do they trust CEOs to make those same decisions? If so, why? Private insurance is more likely to deny coverage for health care than a bureaucrat because the private insurance is driven by personal financial motivations where a government agency will likely not reimburse its employees with financial incentives.

Doctors often complain that they do not want bureaucrats telling them what treatment that they can and cannot offer. However, doctors are told what treatments that they can and cannot offer every day by people at insurance companies. I do not believe that the doctors fears are well-founded anyway. Medicare denies claims far less frequently than private insurance companies do ([[5]]). Additionally, I believe that doctors will be able to operate with less stress under a government system because they will know what one payer provides instead of trying to discern the payment policies of multiple payers. Therefore, the economic condition of medical offices will improve because they will not need to spend time trying to obtain authorizations for coverage or appealing reimbursement denials. This of course will allow doctors to see more patients and generate more revenue. Cost of care analysis will be simple and straightforward. Finally, it will facilitate business planning because physicians will be able to employ demographics to analyze how their patient base will change over a certain number of years. After all, do physicians really believe that the government wants them to go out of business?

Do you ever wonder why new pharmaceuticals gain approval faster in European countries than they do in America? Sure, different regulatory standards dictate the approval process, which by no means argues that European standards are less stringent than ours, but they are different. Another reason is that the government is involved in the pharmaceutical process from an early stage because European governments pay for medications. Therefore, the European governments approve drugs on safety and economical issues nearly simultaneously. For instance, if a European government finds that a drug is safe but determines that its cost outweighs its marginal benefits so decides not to pay for it, then the pharmaceutical industry will not develop the drug. This should be good news for pharmaceutical manufacturers because it will allow them to allocate research and development costs more predictably and efficiently. Of course, some people would say that the government is not in a position to decide the costs and benefits of pharmaceuticals. Is a private insurance company in this position because the do it all the time? Furthermore, it seems from data in Krugman’s chapter that the government is in a better position to do this than insurance companies because the average life expectancy in Western European countries is far greater than America’s life expectancy is.

At this point in my discussion, I just want to say that private health care entities are creating their own demise. They continuously increase costs, which leads people to seek alternative solutions, sort of like the recent hike in gasoline prices. I imagine in a few years that we will have a number of health care companies asking Congress for a bailout like the automakers are doing now.

Even though people argue that the private sector must do a better job than government at providing care, many studies demonstrate the superiority of government systems. First, for every dollar spent on health care, fifteen percent of that dollar is consumed in administrative costs under private plans on average versus five percent consumed by government plans on average. Is this any surprise considering the disparity in salaries between the two? Additionally, as my previous internet link and Krugman’s book shows, insureds consistently choose government plans over private plans when given the option. On a personal note, my step-father has been a Medicare beneficiary for fourteen years. During the beginning of this process, he elected to let Medicare provide his benefits. After a couple of years, he went with a private Medicare HMO. After the first year, he reelected Medicare and has remained with Medicare ever since. By the way, he is a Republican. The reason that people choose government plans over private plans is not only because of the greater efficiency with which government programs operate, but because they have greater choice with government plans. While private plans have a certain number of doctors, hospitals, outpatient clinics, etc., that people can choose, Medicare patients can go virtually anywhere. Finally, if the government actually operates hospitals and employs physicians as well as administer the plan, then tort litigation will decrease because the government can dictate how, when, where, and why it is sued and who sues it. Therefore, health care costs will decrease for this reason as well.

Another excuse that people offer for the impossibility for guaranteed health coverage is the inability to pay for such a system. Interestingly, my families employer-sponsored health insurance premiums have consistently cost over $300 per month. Since government health programs, such as Medicare and the V.A., typically operate more efficiently than private health programs, I imagine that we will notice an increase in our real income because we will be paying less in taxes to support a government health plan than we do in premiums to run a private health plan.

As Krugman’s book and the above demonstrates, guaranteed health care is possible in America and should be implemented immediately. It will improve the quality of life of every American and improve the economic prosperity of the country itself due to greater productivity and decreased economic burdens that require bankruptcy. Of course, the plan must be comprehensive in that it must not only cover physiological conditions, but mental health issues as well.


“Chapter 12: Confronting Inequality”

In this chapter, Krugman discusses methods to reduce economic inequality. He first states the following reasons why equality is vital: lack of economic progress for lower and middle class Americans, and the American dream of being able to better yourself from the class you were born into. Great inequality has negative effects on society and politics.

Income inequality is problematic if it leads to social inequality, and it has. The wealthy live extravagant lifestyles filled with life’s luxuries. While the lives of the rich seem unfair to many, the damaging aspect is that many simply cannot afford to meet basic needs. To finance common needs such as housing and education many Americans are forced to take on large sums of debt. This results in more and more families and individuals declaring bankruptcy. Many attribute the rise in bankruptcy to more and more people trying to mimic the luxurious lifestyle of the wealthy. Studies however show that this is not the case, as many Americans are spending to provide opportunities for their children. It has been proven that the more opportunistic ones upbringing the more likely he or she is to succeed. Chances of upward social mobility are much lower in the United States, but why? To begin, we lack the national health care and other amenities provided by most developed nations.

The impact of inequality goes beyond the average family and leaks into our political system. As Krugman has repeatedly stated, abundant financing goes a long way in politics. Particularly damaging is the how income in politics tends to support Movement Conservatism ideology.

Lastly, inequality breaks the bonds of society. A society in which people are labeled “us” and “them” doesn’t support policies for the greater good. We need to be the “United” States of America.

So how do we decrease income inequality? Krugman first points out two forms of income inequality: market Inequality and inequality of disposable income. Market inequality is continuing to increase and is nearing the rates of the 1920’s. Market inequality generates taxes for the government which is then redistributed to various entities. Inequality of disposable income, income after taxes, is less than market income but greatly affects the living conditions of many. Krugman states that one way to reduce inequality is to distribute a larger percentage of market income. This appears to be an absurd concept to Republicans, and many claim this would disincentivize people to work. Krugman states that lower GDP in France is a reflection on French work ethic instead of a negative impact of greater income distribution.

If the United States elected to adopt such policies, what impacts would we see? To begin, we would need to revise many existing tax policies, particularly tax cuts for the elite. Adopting progressive taxation would generate the capital needed to finance many national welfare programs. Existing loopholes must also be identified and eliminated. A particularly damaging loophole is taxing capital gains at a lower rate than ordinary income and the ease with which one can declare income as capital gains. Again, it would be difficult to gain support for these concepts.

The government should also take initiative to reduce market inequality. The first step was taken when Congress increased the minimum wage in 2007. Krugman disputes the popular argument that increasing minimum wage will increase unemployment rates. Additionally, increasing the minimum wage will put upward pressure on wages for employees at the bottom of the food chain. Lastly, an increase in union membership would help to reduce inequality. Countries with high unionization rates do not have nearly the same income inequality as the United States. Unions work to assure that members enjoy the same wage increases as most middle-class Americans. They also promote same pay for the same job. As stated in previous chapters, unions also spread information and encourage members to vote and become actively involved in politics. Having more union members, typically middle-class, involved in politics will increase support for Democratic policies.

If we as a society don’t take measures to reduce vast inequality, are we setting ourselves up for yet another Great Compression?


Chapter 13: The Conscience of a Liberal

Krugman ends his book, and I end this discussion, by demonstrating an interesting paradox, which is that while Republicans have invoked patriotism and conservatism, Democrats have become conservative in trying to preserve nearly seventy years of history while the Republicans have tried to dismantle these institutions. Democrats have become the true patriots in trying to protect all Americans while Republicans have pushed for inequality. Democrats have tried to extend Democracy by affording rights to people imprisoned in the “War on Terror” while Republicans have tried to horde Democracy at the expense of America’s global credibility. In fact, it seems that movement conservatism has tried to create the same type of government found in Iraq: an authoritarian theocracy.

Krugman closes the book with the call to be liberal, which means being simultaneously progressive and conservative. Krugman argues that this is not a paradox because to be conservative, we should complete the New Deal and move it forward, which will progress America. I will add one thing to Krugman’s argument, and that is that not only health care should be guaranteed, but college education should be as well. As recent numbers have shown, the rising cost of college education has outpaced health care, food, and energy over the last twenty years. If we are to remain competitive on a global stage, this must change.

And finally, since no one has yet answered one of my initial questions, I will reintroduce it here: how can middle class Americans who claim that they support the middle class embrace a party that wants to destroy the very policies that created the middle class?

Return to part 1


This is a Summary from Wikisummaries available under GNU Free Documentation License 1.2

Book Summary: The Conscience of a Liberal by Paul Krugman


The Conscience of a Liberal by Paul Krugman

The Conscience of a Liberal by Paul Krugman

Page 1 of 2 | Page 2 of 2

Chapter 1: The Way We Were

 

In opening his call for new social welfare infrastructure in America, Krugman describes how he joined many Americans in protesting the country during one of its greatest times, the 1950s and 60s. Krugman does not discount the necessity and importance of the Civil Rights and anti-war protests, but in academically-developed hindsight, he illustrates that America transitioned from a pre World War II era of economic disparity to a post-war era of vast economic equality. Krugman contends that Roosevelt’s New Deal policies, coupled with unprecedented bipartisan cooperation throughout American governmental institutions, blessed the country with these pecuniary fortunes, thereby creating the middle class. After discussing America’s bounty during the 1950s and 60s, the author begins to develop his theory regarding its collapse: movement conservatism.

Krugman defines movement conservatism as a radical force that possessed the Republican Party with the drive to regenerate the pre World War II inequality in America by repealing the New Deal measures that created the middle class. The author asserts that movement conservatism’s seeds were planted in the 1960’s with Reagan’s governance of California and William F. Buckley. The seeds took root with Nixon, and then movement conservatism blossomed when Reagan entered the White House. While Bill Clinton wilted the conservative tree somewhat, Krugman hold’s that George W. Bush perfectly embodies movement conservatism’s ideologies and that movement conservatism blossomed fully with Bush’s re-election in 2004 when Bush attacked the New Deal at its fundamental base, Social Security.

Krugman not only explains the evolution of movement conservatism, but the 2008 Nobel Laureate in Economics engages in economic heresy by stating that economic trends do not establish the political order. To the contrary, Krugman states that the economic environment lags political developments. He lists four pieces of evidence to support his argument. First, the pre World War II economic inequality did not reemerge following the removal of wartime controls. Instead, New Deal prosperity reigned for thirty years in America. Second, the staying power of New Deal prosperity did not retreat until after movement conservatism had captured the political helm for over a decade. Third, economists have begun to understand that technological innovation was not the cause of the new economic inequality because even the most highly educated Americans have not realized appreciable financial gains unless they reside in the top one percent of the American population. Fourth, the rightward shift in politics and the resulting economic inequality is unprecedented among advanced countries. Krugman explains that the Democratic Party in America has remained steady since the time of Roosevelt. Instead, Republicans have shifted right significantly. Krugman supports this contention by analyzing how Clinton’s policies were often to the right of Nixon, while Bush’s policies far surpassed the conservatism of Gerald Ford.

Krugman closes the chapter with the idea that Americans have had enough of movement conservatism and its concomitant disparity in income. Krugman believes that America began the transition in 2006, when Democrats regained control of the House and Senate. However, he cautioned that one election does not make a trend. After the election of Barack Obama as president and the further strengthening of the Democratic position in the House and the Senate in 2008, Krugman appears politically perspicacious.

Chapter 1 left me with two questions, one rather conspiracy theorist and one legitimate. First,is it possible that George Bush, at the behest of movement conservatism, went to war in Iraq to preserve his post September 11th popularity and retain control of the White House for four more years? Next, how can middle class Americans who claim that they support the middle class embrace a party that wants to destroy the very policies that created the middle class?


“Chapter 2: The Long Gilded Age”

Chapter two opens with comparisons of Bush era inequality of income to that of pre New Deal America. In 2005, distribution of wealth to the top ten and one percent of Americans mirrors the average for the 1920’s. One must remember, however, that while distribution reflects the past, the standard of living has drastically increased thanks to the development of social programs.

Before expanding upon resemblances, Krugman breaks to name the era between the 1870’s and the 1930’s as the Long Gilded Age. This period is characterized by great economic inequality.

This chapter reveals a main theme of the text. Krugman argues that middle-class societies must be created via political persuasion. In other words, middle class societies are not the natural sequence of events of a developing society.

So why did Americans allow for such prolonged inequality? Why did they not demand a political structure which addressed their needs? Other countries had developed welfare states, and America had the knowledge and resources to make changes. To begin, voting rights were a privilege of the upper class and were not extended to all. Next, the Republican Party was dominant and had three times the funding to devote to campaigning, which essentially assured a spot in the White House. Additionally, election fraud was abundant. As one gentleman stated, it’s not the vote it’s who counts the vote.

Cultural and racial tensions split the nation. Americans were classified as rural or urban, immigrant or national, and by race. Such issues inhibited groups from joining together to overcome inequality. American’s needed a transformational leader to establish the middle class. Such divides are still prevalent today, but to a far lesser extent.

Further extenuating conservative dominance is the phenomena that popular opinion was accepted as fact. It was widely accepted that taxation was detrimental, attempts to alleviate poverty were wrong, and those who opposed pure capitalism were radicals.

Though Federal legislation rejected any movement towards a welfare nation, states began to take smaller steps. States began to develop workers compensation and age-based pension laws. However, such steps were slow and small and it took the Great Depression to unite the nation.

The topics of this chapter are an eerie reflection of today. Throughout the early 2000’s Americans willingly accepted the ideology of the conservative party. Many Americans simply refused the challenge the extravagant behaviors of the reigning party. I often wondered what it would take for Liberals to gain accreditation. It now appears, after the election of a Democratic president, that it required another great financial crisis.


Chapter 3: The Great Compression

After summarizing the history of the Long Gilded Age in Chapter 2, Krugman continues to develop his thesis that political changes have led economic changes throughout America’s history. Thus, Krugman discusses “The Great Compression,” a term first coined by the economic historians Claudia Goldin and Robert Margo. “The Great Compression” refers to the time between the 1920s and the 1950s when America’s economic inequality narrowed significantly. While Krugman relies on his earlier statements that New Deal bipartisanship contributed to “The Great Compression,” he becomes specifies some other reasons as well.

Krugman states that America’s wealthiest citizens exercised far less buying power than they did in the 1920s. The author attributes this decrease in buying power to one main factor: taxes. America’s wealthiest citizens relinquished up to ninety percent of their income to taxes by the 1960s. Interestingly, America’s economy did not collapse, and the wealthy did not substantially change their investing habits. For instance, Krugman illustrates that in the corporate sector, sixty-seven percent of pretax income was invested in labor and thirty-three percent was invested in capital in 1929. By 1955, those numbers remained essentially the same at sixty-nine percent for labor and thirty-one percent for capital.

At the same time that America’s wealthiest citizens were contributing more of their income to the country, America’s emerging middle class recognized an explosion in purchasing power. Members of the middle class earned higher wages, and they received greater social welfare benefits, either from work or from the government. Specifically, retirement benefits, health care benefits, and unemployment insurance programs solidified during the New Deal and became the expected way of life during the 1950s and 1960s. The middle class enjoyed these benefits do to the rise in unionized labor, increased employment and wages, and governmental bipartisanship previously mentioned.

Krugman illustrates that the decrease in economic inequality was apparent throughout America in the 1950s and 1960s. For example, Long Island’s Gold Coast transitioned from an environment dominated by mansions to an environment dominated by tract housing and charitable or social organizations. Furthermore, the ease and popularity of automobile ownership facilitated this neo-suburban lifestyle. (This following statement is not in this chapter; instead, I took Krugman’s arguments to the next logical step.) Finally, Eisenhower’s interstate highway system, another form of government spending by the way, aided the growing middle class by providing a means to use their new automobiles. As a result, the economy improved because corporations sent workers to new geographic locations with greater ease and decreased costs and tourist destinations blossomed due to the ease of taking family vacations.

More information raises more questions. If the wealthy will not invest their after tax earnings in the face of higher taxes, why did this not happen in the 1950s and 1960s? If taxes are bad for the economy, why did higher taxes help lead America out of an economic depression? Finally, is government spending not good if it creates jobs and serves as a source of labor competition for the private sector, which will increase wages and working conditions?


“Chapter 4: The Politics of the Welfare State”

In 1948, the fear of change named Harry Truman the 33rd President of the United States. Americans had watched a Republican controlled Congress diminish the progress of the New Deal, and feared the outcome of a Republican White House. Political progress was at a standstill throughout the Long Gilded Age, but an increasingly privileged lower-economic class embraced liberal ideals. By the early 1950’s, policies and programs associated with the New Deal were enduring and conventional.

Many factors contributed to a nation more inclined to endorse a welfare state. To begin, naturalized immigrants, usually Democrats gained the right to vote. The South, a place of explicit discrimination, also shaped the political landscape. Still demoralized by the loss of the Civil War, Southern Democrats could win via effectively campaigning against Lincoln. Additionally, the South stood to reap great benefits from the New Deal for the South was predominately poor. Potential gains associated with a welfare state swayed southern, whites to vote liberally. (Remember, the South still held deeply rooted beliefs on equality and abandoned ship as Democrats promoted civil rights. This explains why the Southern states are traditionally Red States.)

Unions also provided leverage for the Democratic Party. The Democratic Party is characterized as unorganized and the unions provided the structure the party needed. Unions also provided financing and willing supporters. They were also a means of informing blue-collar workers and influencing them to get out and vote.

So how were Republicans able to gain votes? Throughout the late 1950’s and the 1960’s it was difficult to distinguish between the economic policies of each party. Therefore, voter’s income played a smaller role in their decisions. Consequently, many low and middle income individuals voted for Republican candidates.

While I agree with Krugman’s statements on change, it is interesting to note that change was the motto for of recent President-elect Barack Obama.


Chapter 5: The Sixties: A Troubled Prosperity 

Krugman captures the subject of this chapter with its title. Accordingly, Krugman dichotomizes America by juxtaposing America’s prosperity with America’s rising social and political tumult in the Sixties. Specifically, Krugman discusses the civil rights movement, the explosion of crime, the growing welfare rolls, the Sixties’ counter culture, and Vietnam.

Despite the social upheaval that occurred during the Sixties, middle class Americans continued to realize economic growth. In 1966, the federal minimum wage equaled approximately $8.00 per hour in today’s wages, which is twenty-two percent higher than today’s federal minimum wage at the time of this writing. Additionally, Americans enjoyed greater coverage under health care, unemployment, and disability insurance than they do today. However, movement conservatism and neoconservatism learned how to exploit the Sixties’ climbing social unrest.

Krugman explains that a good portion of the Sixties’ disquiet resulted from issues surrounding the civil rights movement, especially Johnson’s push for enactment of the Civil Rights Act and the Voting Rights Act. Krugman touches on the gross violence and the recalcitrant rejection of federal intervention with Jim Crow laws.

Urban disorder and rising crime became another factor that soiled the Sixties’ historical legacy. While crime rates are hard to predict, and later, to describe, Krugman illustrates that the African-American migration from the agricultural South to the urban North and West contributed to the urban unrest that struck during the Sixties. For instance, while African-Americans were moving into the inner cities in the Northeast and on the West Coast, American jobs were moving from the inner cities to the suburbs. Therefore, African-Americans did not enjoy the boon in economic prosperity that white Americans did. Furthermore, police brutality plagued cities across the country, but African-Americans did not fear authorities in cities outside the South like they did in the Southern cities. As such, African-Americans felt emboldened to act against social injustice. This, coupled with African-Americans’ frustrations with the ineffectiveness of peaceful demonstration to effect change, led to more violent behavior in the face of racial atrocities.

In regards to welfare rolls, Krugman states simply that this government program grew because people began feeling comfortable with its function and due to new civil rights laws, they were not negatively persuaded from pursuing this help. However, Krugman cautions that many facts and figures surrounding welfare were grossly exaggerated. For example, Krugman notes that AFDC (welfare) payments totaled $4.9 billion in federal spending while Social Security payments accounted for $39 billion in federal spending in 1970. While this chapter does not list these statistics, federal spending totaled $195.3 billion. This demonstrates that AFDC payments consumed only 2.5 percent of all federal payments.

For all the notoriety that hippies and Vietnam garnered, Krugman shows that these forces may not have had the impact that people attribute to them. In fact, Krugman states that one possible reason for the rise in the Sixties counter culture was the economic prosperity. In other words, the cost of experimenting with unemployment and social acceptance was low because jobs were plentiful. As the author demonstrates, the unemployment rate soared from 3.5 percent to 6 percent near the end of the hippie movement. Krugman highlights that a number of technological changes also contributed to the social change in the sixties, such as birth control and an entire generation that had watched television since birth.

Finally, Krugman debunks the myth that Vietnam killed the Democrats. For instance, Krugman shows that the Democratic composition of the House of Representatives and the Senate fluctuated, but ultimately grew from 1967-68 to 1975-76. As Krugman scribes throughout the chapter, and the book, movement conservatism killed the Democrats.

Krugman writes that the explosion of “intellectual” movement conservatism blossomed in the Fifties and began to mature in the Sixties with Reagan’s election as Governor of California. While this ties into the next chapter, Reagan captured the well-funded “scholarship” of conservative think-tanks, and he articulated in a message that the new conservative base could understand. Furthermore, with the Democrats alienated the South with civil rights legislation and the Republican Party courting them with alternative rhetoric, Democrats lost their faithful, southern constituency.


“Chapter 6: Movement Conservatism”

A young, brash, and media savvy group of well financed conservatives, headed by William Buckley, led movement conservatism. Among their objectives was the continued disenfranchisement of Blacks. They viewed this as acceptable, for Whites were the majority and therefore entitled. Their ideology was echoed in Buckley’s novel God and Man at Yale. Unlike Generalissimo Franco, the new conservatives needed to find a broad, popular base to take control of the Republican Party.

Goldwater proved to be a false glimmer of hope, but Reagan soon captured the spotlight. In 1964 Ronald Reagan delivered a speech later called “the most successful national debut.” Reagan’s rant filled the minds of listeners with unfounded claims and statistics. His antics appealed to the outlook of many.

Although a genuine threat, the fear of communism further aided movement conservatism. Many American’s felt that communism should be eliminated and not contained. Following the ideology of McCarthy, some viewed containment as an indicator of weakness. Movement Conservatism took advantage of rampant paranoia to attract followers.

The movement also caught the eye of the business sector, first attracting mid-sized business owners. Throughout the 30’s and 40’s organized labor greatly increased employee benefits, posing a substantial threat to mid-sized businesses. Big business could handle the increased costs and small businesses were not a target of unions. Movement Conservatism gained the support of such owners, and hoped to expand to regions not yet dominated by organized labor.

Increasing its scope, Movement Conservatism was also backed by neoconservatives. The Great Depression drove support for government involvement in economic affairs, but as the air cleared many reverted back to old conceptions. Respected Chicago economists, although perhaps dishonest, called for separation of government and economics. Additionally, sociologists spoke out against liberal ideology. Both groups were supported with generous financing, which later went to the development of conservative-minded organizations. These foundations only endorsed and printed material which met rigid conservative ideology.

Reagan’s advancement of the movement was later eclipsed by Richard Nixon. However, Nixon was a transitional leader leading the exploitation of Republican politics. Movement Conservatives disliked Nixon’s policies. However, the movement regained strength due to foreign affairs and perceived economic crisis.


Chapter 7: The Great Divergence

Krugman opens this chapter by focusing on a major debate among modern economists, which involves whether a majority of Americans have fared better financially since 1973, the year generally accepted as the point that the post WWII economic boom ended. Of course, Krugman recognizes the big picture surrounding this debate and that is that economists must entertain this debate at all. However, Krugman does not avoid the debate by arguing that by having the debate, Americans must suffer worse financially than they did in 1973. Instead, Krugman confronts the debate fully and fairly by discussing both sides of the controversy.

First, Krugman explains that complex issues of measurement surround the debate. He explains that while Americans enjoy greater prosperity on average, median income has deteriorated significantly. He accomplishes this through a “Bill Gates-in-a-bar” analogy. For instance, if Bill Gates walked into a bar, then the average wealth of the people in the bar would increase dramatically; however, the median income of the bar’s patrons would not fluctuate at all. Krugman argues that the bar represents an accurate microcosm of America financially, not because Americans are impecunious drunkards, but because only a small portion of the American population has benefited from an increase in income despite our steadily increasing level of production. In fact, median household income, adjusted for inflation, has grown by only sixteen percent from 1973 to 2005. Although Krugman does not numerically state the increase in the number of dual income households over this time, he argues that the increase in dual income households accounts for the sixteen percent rise in median household income. According to the U.S. Department of Labor, Krugman’s argument is valid. The Department of Labor’s website states that the number of dual income households had nearly doubled between 1980 and 2005. In an attempt to strip away the impact of dual income households on the rise in median household income, Krugman shows that the median wages of men aged thirty-five to forty-four have actually decreased by twelve percent. Considering that this is the demographic that typically would have supported a household in the early 1970s, it appears that Americans face tougher financial times now than they did in 1973, which of course signals growing financial inequality among Americans over the last three decades.

Returning to the Bill Gates-in-a-bar analogy, Krugman explains why average income has risen dramatically while median income has grown phlegmatically, if at all. Krugman illustrates that only the top one percent of American earners has realized greater economic gain since 1973 than it did during the postwar boom. Moving up the income scale, the top tenth of one percent of American earners has witnessed a fivefold increase in income, and the top one hundredth of one percent has realized a sevenfold increase in earnings. Therefore, the growth in the members of the super wealthy classes have driven the climb in Americans’ average income.

To demonstrate the reasons for this widening inequality, Krugman evaluates arguments offered by two groups of economists. One group states that growing international trade and immigration have depressed the wages of unskilled labor in the U.S. while technology has driven the demand and compensatory rewards for skilled, educated workers. Krugman certainly acknowledges that immigration of unskilled labor into a market will depress the wages of that market’s indigenous labor force; however, he demonstrates that the rise in immigration has not warranted such a dramatic decrease in unskilled wages across the board. Similarly, Krugman asserts that imports have not been of the scale to explain such an effect. In fact, the economists that posit this argument admit that this is the case because they use technology to fill the gaps that are unsupported by immigration and imports. As a matter of fact, technology has become a religion to these economists in the way that societies throughout history have referenced God when no other cause manifested to describe an otherwise unknown occurrence. Since technological advances demand highly skilled workers, these economists contend, then these skills dictate higher salaries. Krugman disposes of this argument as well by comparing CEOs and schoolteachers. Both may hold master’s degrees, yet schoolteachers have benefited from modest gains in income while CEOs have enjoyed salary increases from thirty times that of the average worker in 1970 to over three hundred times that amount today. As such, Krugman attributes the expanding American income inequality to changing institutions and norms.

As discussed in previous chapters, unionized workplaces have diminished dramatically since the 1970s. Unions advocated for wages that increased with productivity as well as health and retirement benefits. Since the decline of unionized workplaces, wages have not continued to keep pace with productivity. To illustrate, Krugman compares GM in 1969 to Wal-Mart today. In 1969, GM production workers earned the equivalent to a little more than $40,000 per year in today’s money. In contrast, Wal-Mart’s non-supervisory employees receive about $18,000 per year. Additionally, Wal-Mart’s employees do not experience the same non-wage benefits that GM employees did in 1969 despite an institution such as Wal-Mart, with no foreign competition, being a better candidate for unionized labor than a manufacturer such as GM. Finally, unions and political and social institutions no longer stigmatize the Brobdingnagian compensation packages lavished upon CEOs. As such, CEO salaries have increased at the expense of many corporate constituencies, including employees and corporate shareholders. Furthermore, this increase in CEO compensation has not been accompanied by an increase in CEO productivity. Instead, the market has accepted extraordinary CEO compensation as a positive signal that the company is paying to recruit and retain superior executive talent, and the market punishes the stock of companies who do not comply with this new paradigm.

Can shareholder activism fill the void of unions and refocus attention on undeserved CEO compensation? Will clawback provisions offer an effective mechanism to align the interests of CEOs with the interests of the shareholders they supposedly serve?

One transcendental theme of Krugman’s book is how income inequality has increased over the last thirty-five years. Krugman offers the decline of unionized labor as a reason for this. In this chapter, Krugman states that rising CEO pay and celebrity pay has contributed to this inequality as well. Interestingly, and I did not see this in Krugman’s discussion, celebrities have relied on unions to increase their pay over the years, e.g. Additionally, even corporate leaders are somewhat united in compensation practices, e.g.  If celebrities and corporate directors should be allowed to unite, why should the average American worker be denied the same freedom?

Continue on to Page 2 of 2


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Book Excerpt: 23 Things They Don’t Tell You About Capitalism by Ha-Joon Chang


I found this while suring today. It was the most interesting opening chapter I’ve read of a political book in a long time. The guy is a Korean economist from England making the essential argument that the Free Market is anything but.

 

Book Excerpt: 23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

Book Excerpt: 23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

Thing 1: There is no such thing as a free market

What they tell you

 Markets need to be free. When the government interferes to dictate what market participants can or cannot do, resources cannot flow to their most efficient use. If people cannot do the things that they find most profitable, they lose the incentive to invest and innovate. Thus, if the government puts a cap on house rents, landlords lose the incentive to maintain their properties or build new ones. Or, if the government restricts the kinds of financial products that can be sold, two contracting parties that may both have benefited from innovative transactions that fulfill their idiosyncratic needs cannot reap the potential gains of free contract. People must be left “free to choose,” as the title of free-market visionary Milton Friedman’s famous book goes.

What they don’t tell you

The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How “free” a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined “free market” is the first step towards understanding capitalism.

Labor ought to be free

In 1819 new legislation to regulate child labor, the Cotton Factories Regulation Act, was tabled in the British Parliament. The proposed regulation was incredibly “light touch” by modern standards. It would ban the employment of young children – that is, those under the age of nine. Older children (aged between ten and sixteen) would still be allowed to work, but with their working hours restricted to twelve per day (yes, they were really going soft on those kids). The new rules applied only to cotton factories, which were recognized to be exceptionally hazardous to workers’ health.

The proposal caused huge controversy. Opponents saw it as undermining the sanctity of freedom of contract and thus destroying the very foundation of the free market. In debating this legislation, some members of the House of Lords objected to it on the grounds that “labor ought to be free.” Their argument said: the children want (and need) to work, and the factory owners want to employ them; what is the problem?

Today, even the most ardent free-market proponents in Britain or other rich countries would not think of bringing child labor back as part of the market liberalization package that they so want. However, until the late 19th or the early 20th century, when the first serious child labor regulations were introduced in Europe and North America, many respectable people judged child labour regulation to be against the principles of the free market.

Thus seen, the “freedom” of a market is, like beauty, in the eyes of the beholder. If you believe that the right of children not to have to work is more important than the right of factory owners to be able to hire whoever they find most profitable, you will not see a ban on child labor as an infringement on the freedom of the labor market. If you believe the opposite, you will see an “unfree” market, shackled by a misguided government regulation.

We don’t have to go back two centuries to see regulations we take for granted (and accept as the “ambient noise” within the free market) that were seriously challenged as undermining the free market, when first introduced. When environmental regulations (e.g., regulations on car and factory emissions) appeared a few decades ago, they were opposed by many as serious infringements on our freedom to choose. Their opponents asked: if people want to drive in more polluting cars or if factories find more polluting production methods more profitable, why should the government prevent them from making such choices? Today, most people accept these regulations as “natural.” They believe that actions that harm others, however unintentionally (such as pollution), need to be restricted. They also understand that it is sensible to make careful use of our energy resources, when many of them are non-renewable. They may believe that reducing human impact on climate change makes sense too.

If the same market can be perceived to have varying degrees of freedom by different people, there is really no objective way to define how free that market is. In other words, the free market is an illusion. If some markets look free, it is only because we so totally accept the regulations that are propping them up that they become invisible.

Piano wires and kungfu masters

Like many people, as a child I was fascinated by all those gravity-defying kung fu masters in Hong Kong movies. Like many kids, I suspect, I was bitterly disappointed when I learned that those masters were actually hanging on piano wires.

The free market is a bit like that. We accept the legitimacy of certain regulations so totally that we don’t see them. More carefully examined, markets are revealed to be propped up by rules – and many of them.

To begin with, there is a huge range of restrictions on what can be traded; and not just bans on “obvious” things such as narcotic drugs or human organs. Electoral votes, government jobs and legal decisions are not for sale, at least openly, in modern economies, although they were in most countries in the past.

University places may not usually be sold, although in some nations money can buy them – either through (illegally) paying the selectors or (legally) donating money to the university. Many countries ban trading in firearms or alcohol. Usually medicines have to be explicitly licensed by the government, upon the proof of their safety, before they can be marketed. All these regulations are potentially controversial – just as the ban on selling human beings (the slave trade) was one and a half centuries ago.

There are also restrictions on who can participate in markets. Child labor regulation now bans the entry of children into the labor market. Licenses are required for professions that have significant impacts on human life, such as medical doctors or lawyers (which may sometimes be issued by professional associations rather than by the government). Many countries allow only companies with more than a certain amount of capital to set up banks. Even the stock market, whose underregulation has been a cause of the 2008 global recession, has regulations on who can trade. You can’t just turn up in the New York Stock Exchange (NYSE) with a bag of shares and sell them. Companies must fulfill listing requirements, meeting stringent auditing standards over a certain number of years, before they can offer their shares for trading. Trading of shares is only conducted by licensed brokers and traders.

Conditions of trade are specified too. One of the things that surprised me when I first moved to Britain in the mid-1980s was that one could demand a full refund for a product one didn’t like, even if it wasn’t faulty. At the time, you just couldn’t do that in Korea, except in the most exclusive department stores. In Britain, the consumer’s right to change her mind was considered more important than the right of the seller to avoid the cost involved in returning unwanted (yet functional) products to the manufacturer. There are many other rules regulating various aspects of the exchange process: product liability, failure in delivery, loan default, and so on. In many countries, there are also necessary permissions for the location of sales outlets – such as restrictions on street-vending or zoning laws that ban commercial activities in residential areas.  

Then there are price regulations. I am not talking here just about those highly visible phenomena such as rent controls or minimum wages that free-market economists love to hate.

Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the “free” labor market, which, if left alone, will end up replacing 80–90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined.

Following the 2008 financial crisis, the prices of loans (if you can get one or if you already have a variable rate loan) have become a lot lower in many countries thanks to the continuous slashing of interest rates. Was that because suddenly people didn’t want loans and the banks needed to lower their prices to shift them? No, it was the result of political decisions to boost demand by cutting interest rates. Even in normal times, interest rates are set in most countries by the central bank, which means that political considerations creep in. In other words, interest rates are also determined by politics.

If wages and interest rates are (to a significant extent) politically determined, then all the other prices are politically determined, as they affect all other prices.

Is free trade fair?

We see a regulation when we don’t endorse the moral values behind it. The 19th-century high-tariff restriction on free trade by the U.S. federal government outraged slave-owners, who at the same time saw nothing wrong with trading people in a free market. To those who believed that people can be owned, banning trade in slaves was objectionable in the same way as restricting trade in manufactured goods. Korean shopkeepers of the 1980s would probably have thought the requirement for “unconditional return” to be an unfairly burdensome government regulation restricting market freedom.

This clash of values also lies behind the contemporary debate on free trade vs. fair trade. Many Americans believe that China is engaged in international trade that may be free but is not fair. In their view, by paying workers unacceptably low wages and making them work in inhumane conditions, China competes unfairly. The Chinese, in turn, can riposte that it is unacceptable that rich countries, while advocating free trade, try to impose artificial barriers to China’s exports by attempting to restrict the import of “sweatshop” products. They find it unjust to be prevented from exploiting the only resource they have in greatest abundance – cheap labor.

Of course, the difficulty here is that there is no objective way to define “unacceptably low wages” or “inhumane working conditions.” With the huge international gaps that exist in the level of economic development and living standards, it is natural that what is a starvation wage in the U.S. is a handsome wage in China (the average being 10 per cent that of the U.S.) and a fortune in India (the average being 2 per cent that of the U.S.) Indeed, most fair-trade-minded Americans would not have bought things made by their own grandfathers, who worked extremely long hours under inhumane conditions. Until the beginning of the twentieth century, the average work week in the U.S. was around 60 hours. At the time (in 1905, to be more precise), it was a country in which the Supreme Court declared unconstitutional a New York state law limiting the working days of bakers to 10 hours, on the grounds that it “deprived the baker of the liberty of working as long as he wished.”

Thus seen, the debate about fair trade is essentially about moral values and political decisions, and not economics in the usual sense. Even though it is about an economic issue, it is not something economists with their technical tool kits are particularly well equipped to rule on.

All this does not mean that we need to take a relativist position and fail to criticize anyone because anything goes. We can (and I do) have a view on the acceptability of prevailing labour standards in China (or any other country, for that matter) and try to do something about it, without believing that those who have a different view are wrong in some absolute sense. Even though China cannot afford American wages or Swedish working conditions, it certainly can improve the wages and the working conditions of its workers. Indeed, many Chinese don’t accept the prevailing conditions and demand tougher regulations. But economic theory (at least free-market economics) cannot tell us what the ‘right’ wages and working conditions should be in China.

I don’t think we are in France any more 

In July 2008, with the country’s financial system in meltdown, the US government poured $200 billion into Fannie Mae and Freddie Mac, the mortgage lenders, and nationalized them. On witnessing this, the Republican Senator Jim Bunning of Kentucky famously denounced the action as something that could only happen in a “socialist” country like France.

France was bad enough, but on 19 September 2008, Senator Bunning’s beloved country was turned into the Evil Empire itself by his own party leader. According to the plan announced that day by President George W. Bush and subsequently named TARP (Troubled Asset Relief Program), the U.S. government was to use at least $700 billion of taxpayers’ money to buy up the “toxic assets” choking up the financial system.

President Bush, however, did not see things quite that way. He argued that, rather than being “socialist” the plan was simply a continuation of the American system of free enterprise, which “rests on the conviction that the federal government should interfere in the market place only when necessary.” Only that, in his view, nationalizing a huge chunk of the financial sector was just one of those necessary things.

Mr. Bush’s statement is, of course, an ultimate example of political double-speak – one of the biggest state interventions in human history is dressed up as another workaday market process. However, through these words Mr. Bush exposed the flimsy foundation on which the myth of the free market stands. As the statement so clearly reveals, what is a necessary state intervention consistent with free-market capitalism is really a matter of opinion. There is no scientifically defined boundary for free market.

If there is nothing sacred about any particular market boundaries that happen to exist, an attempt to change them is as legitimate as the attempt to defend them. Indeed, the history of capitalism has been a constant struggle over the boundaries of the market.

A lot of the things that are outside the market today have been removed by political decision, rather than the market process itself – human beings, government jobs, electoral votes, legal decisions, university places or uncertified medicines. There are still attempts to buy at least some of these things illegally (bribing government officials, judges or voters) or legally (using expensive lawyers to win a lawsuit, donations to political parties, etc.), but, even though there have been movements in both directions, the trend has been towards less marketization.

For goods that are still traded, more regulations have been introduced over time. Compared even to a few decades ago, now we have much more stringent regulations on who can produce what (e.g., certificates for organic or fair-trade producers), how they can be produced (e.g., restrictions on pollution or carbon emissions), and how they can be sold (e.g., rules on product labelling and on refunds).  

Furthermore, reflecting its political nature, the process of re-drawing the boundaries of the market has sometimes been marked by violent conflicts. The Americans fought a civil war over free trade in slaves (although free trade in goods – or the tariffs issue – was also an important issue). The British government fought the Opium War against China to realize a free trade in opium. Regulations on free market in child labour were implemented only because of the struggles by social reformers, as I discussed earlier. Making free markets in government jobs or votes illegal has been met with stiff resistance by political parties who bought votes and dished out government jobs to reward loyalists. These practices came to an end only through a combination of political activism, electoral reforms and changes in the rules regarding government hiring.

Recognizing that the boundaries of the market are ambiguous and cannot be determined in an objective way lets us realize that economics is not a science like physics or chemistry, but a political exercise. Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined, but this is incorrect. If the boundaries of what you are studying cannot be scientifically determined, what you are doing is not a science.

Thus seen, opposing a new regulation is saying that the status quo, however unjust from some people’s point of view, should not be changed. Saying that an existing regulation should be abolished is saying that the domain of the market should be expanded, which means that those who have money should be given more power in that area, as the market is run on one-dollar-one-vote principle.

So, when free-market economists say that a certain regulation should not be introduced because it would restrict the “freedom” of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law. Their ideological cloak is to pretend that their politics is not really political, but rather is an objective economic truth, while other people’s politics is political. However, they are as politically motivated as their opponents.

Breaking away from the illusion of market objectivity is the first step toward understanding capitalism.

FairTax reforms Immigration


So I finished the FairTax book and have just finished reading a new book “What Sex is Republican” by Terri McCormick. That summary will come soon (been meaning to do it the past two or three weeks, sorry) but here’s one last little thought about the FairTax. Read more of this post

Panic baby, panic


The oil spill in the Gulf of Mexico has made everyone panic, from Democrats (who are genetically programmed to panic on environmental issues) to Republicans (who are genetically programmed to panic about losing elections), everyone is panicking- but what’s changed? There was a risk before, there’s a risk now. If we stop drilling now for this reason, it’d be like a kid refusing to ever fly in a place because they heard about a plane crash. Read more of this post

“Common Sense Solutions” don’t exist


Common Sense is a farce. In terms of political discourse and the “great debate of ideas,” it is a meaningless valueless word intentionally used to describe a something purely subjective while insulting the intelligence of anyone that doesn’t agree instantly. Much like “Family values” and “Core moral values” everyone wants to vote for someone who has “common sense,” but none of those terms means or proves anything. While Family Values ad Moral Core Values are often used merely as a smokescreen to hide the immoral and unethical behavior, people claiming “common sense” is on their side can lead to horrible and far reaching policy disasters. Read more of this post

FairTax the Truth: Book Summary (Chapters 11, 12)


FairTax: The Truth

By: Neal Boortz and Congressman John Linder with Rob Woodall

Index

Quotes

Chapter Eleven: The FairTax Grassroots Army and its Victories

“Casting your vote for a candidate for economic change and growth is a good first step, but implementing the principles of the FairTax is going to require more.” Page 195

“The FairTax is just such a phenomenon, and we’re grateful to all who participate. ” Page 203

Voting is a good first step. But more is needed. We need citizen Co-Sponsors, citizens willing to fight for the FairTax. Write letters to newspapers, show support for the FairTax at rallies. Explain the FairTax to your friends and neighbors. Hold training seminars to teach others about the FairTax. Volunteer to help candidates who’ll stand up for the FairTax ideals. There are many examples of Citizens all over the country doing just that.

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Fairtax The Truth: Book Summary (Chapter 10)


FairTax: The Truth

By: Neal Boortz and Congressman John Linder with Rob Woodall

Index

Chapter Ten: The Good and Worth Answering


1. What is the rate? 23% or 30%

The problem here lies with the confusion between two perspectives of taxation, inclusive and exclusive. Right now, you pay an inclusive income tax and an exclusive sales tax. The difference between the terms is purely one of mathematic perspective. If you earn $1,000 per pay day and pay 20% taxes, $200 is deducted from your paycheck and you get an $800 pay check. That’s called in inclusive. Now pause a moment, and realize that $200 in taxes is 25% of $800. That’s exclusive. If you divide the tax paid out of the take home pay, you get 25%. If you divide it by the total amount, it’s 20%. They’re both legitimate numbers and opponents try to confuse people about what the FairTax does. Since the FairTax is replacing Income and Payroll Taxes (which are always discussed in inclusive terms) we use inclusive terms to discuss the FairTax. We are trading the current inclusive income tax brackets of 10-35% and the inclusive 15% payroll tax with an inclusive sales tax of 23%. If you want to talk exclusive rates, then we’re exchanging the current exclusive income tax brackets of 11-54% and the inclusive 18% exclusive tax with an exclusive 30% sales tax.

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Fairtax The Truth: Book Summary (chapters 7 – 9)


FairTax: The Truth

By: Neal Boortz and Congressman John Linder with Rob Woodall

Index

Quotes

Chapter Seven: The Criticisms: How to Judge them

“These professionals responded by saying that we should evaluate tax reform based on the following principles/criteria: Simplicity, Fairness, Economic Growth and Efficiency, Neutrality, Transparency, Minimizing Noncompliance, Impact on Government Revenues, Certainty, and Payment Convenience.” Page 83

We’re not prepared to move into the real and substantial attacks on the FairTax. To confront them, we’ll set three ground rules.

  • We’ll evaluate the FairTax as conceived, not as some would modify it.
  • We’ll evaluate the FairTax in light of it’s praise.
  • We’ll evaluate the FairTax in light of the criticism leveled against it.

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FairTax the Truth: Book Summary (Chapters 4-6)


FairTax: The Truth

By: Neal Boortz and Congressman John Linder with Rob Woodall

Index

Quotes

Chapter Four: Taxation: The Who, What, and How

“The progressive income tax we currently follow was made popular by none other than Karl marx. In Marx‘s list of ten necessary precursers to Communist worker’s paradice, the progressive income tax sits proudly at number two” Page 49

“Can you imagine what would happen to the sacrosanct forty-hour workweek in the United States if American workers could suddenly work (and get paid for) more than those forty hours- free of federal taxation?” Page 52

The question of who what and how to tax is an incredibly important question. People argue about what taxes should be paid, by whom and how we should collect those taxes, but no one argues to remove taxes, they are unavoidable and the FairTax accepts that truth. In recent years other countries around the world have been moving away from highly progressive taxes to flat consumption taxes. 29 of the 30 OECD countries use VAT (a version of consumption tax). Ireland initiated massive job growth by cutting corporate taxes and attracting corporate investment in their country. France initiated economic growth by not taxing workers income past the first 35 hours of labor.

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