Capitalism: An Elizabeth Warren Story
I recently re-watched Capitalism: A Love Story, and saw Elizabeth Warren's parts in the movie, and so since she's popping up on all the US progressive blogs lately, I wanted to post something about her. But first, after watching Michael Moore's latest film again, I saw it in a slightly new light.When I first saw that movie last year I didn't completely grasp how radical what Michael Moore is proposing in that film, how he created a mainstream artifact which didn't only talk about the evils of capitalism (which any film about big corporations as bad guys does), but he also called on something to replace it. And in coming up with his replacement he places under the wholesome signifier of democracy plenty of old and new socialist imagery. Things which you can invoke as the bad guys of action films or straw-men-nations of economist fantasies, but never as something offering much to the world (remember what Francis Fukuyama said, history is over, it ended with the fall of the Berlin Wall and those who lost and what they represent have close to nothing to offer us anymore).
In a way Moore is attempting to overcome the mental block which so many progressives and leftists bump against when they stop merely chanting that another world is possible and actually begin to try to plan it or make it possible. That even if so many people can agree that capitalism is a system built on exploitation and turning people into commodities, and one which has led to horrid atrocities just in the same way as every other possible economic system has, people pause and hesitate when it comes to conceiving of something else. The passion begins to fade, resignation sets in, and they sigh that even if capitalism is bad, imperfect and not all that it is cracked up to be, it is still the best possible system and so there really isn't anything that can be done to change it. Leftist politics becomes bogged down because it can go beneath that perceived capitalisitc foundation in society, it lives in fear of messing with it, and therefore refuses to attempt to articulate any project which would challenge it. As a result Democrats and liberals can offer promises to fix certain economic problems in peoples' lives, but cannot actually fix them, can't do anything to change them, because such acts would require tampering with and disrupting that perceived capitalist foundation.But the funniest part in any discussion about things such as capitalism, socialism or communism is that most people who are talking about them have no idea about any of the these concepts, and you can tell that based on which countries they say are capitalist and which are socialist and then whether they talk about them as being such in good or bad ways. The US is in name a capitalist society and has a capitalist economy, but it only has such because for most of the 20th century, socialist programs and reforms were put in place, to keep workers from revolting and keep the country together. And one thing that I love to talk about with my business major or political science students at UOG is how China is probably the greatest capitalistic country ever.
Returning to Elizabeth Warren, she is now under consideration to be in charge of the new Consumer Protection Financial Bureau, something which she was instrumental in planning and proposing. Warren has become a favorite of the more progressive wing of the Democratic party because unlike Barack Obama and most of his economic flunkies, who merely give lip service to the ideas of "making Wall Street pay" or "reforming the system to protect average Americans" but have no problems protecting and prioriziting the interests of the rich, Warren is not interested in that. She is hardly socialist or radical, but simply appears to be someone who is principled and fair, and sees the current US economic system as corrupt, imbalanced, unsustainable and preys on the weakest and poorest and lets the rich get away with economic murder.Below is an article discussing about whether or not she'll get picked and what it might mean (a further eroision of the the Democrat's much needed progressive base. Beneath it however is a very funny video from Funny or Die, which features the inner monologue of Secretary Treasury Tim Geithner when he is discussing how perfect Warren is for the CPFB leadership role.
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Somebody really, really doesn't want Elizabeth Warren to run the new Consumer Protection Financial Bureau, or "CFPB," which she first envisioned and proposed. Who? The big banks, for sure, as well as others who don't want their misbehavior brought to light. And Tim Geithner, whose vision of Wall Street and its problems is fundamentally different from Warren's. There are others, too -- ideologues like Megan McArdle of the Atlantic, who has made something of a cottage industry out of attacking Warren on specious grounds.
The President's attempting to split the baby when it comes to appointing Ms. Warren, but the facts and public perception are aligned and present him with a stark reality: He must choose between appointing Ms. Warren or placating the big banks. There is no Third Way. Unfortunately for the President, Elizabeth Warren is a yes or no question.
The ideological opposition to Warren's appointment is usually grounded in the false notion that the relationship between, say, a bank and a lender, is a symmetrical exchange between equals taking place in a mythical "free market." They've failed to heed the lesson taught by Freud in Civilization and its Discontents: "Civilization ... obtains mastery over the individual's dangerous desire for aggression by weakening and disarming it and by setting up an agency within him to watch over it, like a garrison in a conquered city."
An agency outside the individual is necessary to a well-functioning civilization, too, especially when confronting an oligopolistic banking system with a history of fraud and predation.
There have been at least two empty and ineffective lines of attack against Elizabeth Warren: The first is that she's opposed to "financial innovation," and the second is that she lacks the necessary "managerial experience." Ms. McArdle attempts to open a third: That Prof. Warren is a bad scholar. McArdle fails miserably, misquoting or misunderstanding other academic papers and Warren's own work while failing some basic analytical challenges. She does succeed, however, in showing the lengths to which some will go to block this appointment.
Despite the fact that McArdle is " the business and economics editor for The Atlantic," numbers don't seem to be her thing. She infamously miscalculated the effect of repealing Bush's tax cuts for each American by a factor of 10, arriving at $25 instead of $250 per person, and then blithely explained: "The calculator on my computer won't go into the billions, and I truncated incorrectly. The main point stands; even a very optimistic set of assumptions doesn't yield huge net benefit." Actually, $250 for every man, woman, and child in the US -- and that's only for the next two years -- is serious money. And as for that calculator problem, Ms. McArdle, there's only one word for that: spreadsheets. You've heard of them, I trust.
Spreadsheets are particularly handy when you're making statements like this: "Does it matter if we have a regulator that can use data consistently?" In this piece McArdle leans on an old Wall Street Journal anti-tax screed by Todd Wysocki. "More weird metrics for Elizabeth Warren," her headline quavers. McArdle eagerly repeats Wysocki's suggestion that family living expenses are actually less than they were in the 1970s. But Wysocki's stacking the deck (and making a completely different point) by using pre-tax rather than after-tax figures. Warren's point is that two-earner families have less disposable income today than one-earner families did in the seventies, even with both adults working.
She's right. I used a spreadsheet (highly recommended) to look at the increases in expenses, using the figures Wysocki (and the McArdle) cites. Here's what I found: Mortgage costs increased from 18% to nearly 20% of after-tax income. Health insurance premiums increased from 3.5% to 3.63%. (That doesn't include increases in out of pocket expenses like copays and deductibles.) And there was a whopping new expense of nearly 20% for day care, which wasn't needed with a one-earner family. Add in car payments and the expenses Wysocki cites went from 39% of after-tax income to 62.3% -- which pretty effectively underscores Prof. Warren's point, don't you think?
McArdle saves her real "firepower," such as it is, for a piece she calls "Considering Elizabeth Warren, the Scholar." It's a blend of deception, misdirection, and poor analysis, chock full of comments like this one about Warren's book on two-earner families: "... Warren simply fails to grapple with what her thesis suggests ... Admittedly, I don't quite know what to say, but at least I can acknowledge that it's a pretty powerful problem for the current family model. Warren kind of waves her hands and mumbles about social programs and more supportive work environments. There is no possible solution outside of a more left-wing government."
Got it? McArdle says Warren's book is a failure because a) Warren fails to solve one of the problems she identifies, b) not that McArdle knows what the answer is, but c) "Warren kind of waves her hands" (get me a rewrite!) and "d) mumbles about social programs etc." -- which means she does propose solutions, but they're ones that involve e) "more left-wing government." Which McArdle doesn't think is the solution, even though she acknowledges that she doesn't have a solution.
Does it matter if we have a "business and economics editor" who can use data ... and logic ... consistently?
McArdle then suggests that Warren doesn't understand numbers because Warren asserts that (says McArdle) "housing consumption hasn't increased much ... by less than a room per house." McArdle conclues that this is a "twenty percent" increase, given a starting size of five rooms per house, although if consumption's gone up by less than a room per house it's less than twenty percent per house (no calculator needed for that one!) And that's with two people working full-time instead of one.
"The square footage of new homes has increased dramatically since 1960," writes McArdle. But how much of that is McMansions and other high-end homes? She doesn't say, presumably because she doesn't know. Since we're talking about housing consumption among middle- and lower-income working families, a basic understanding of "mean," "median," and "average" would make that kind of information critical to McArdle's argument.
But McArdle's main line of attack is on the papers that Warren has co-authored on medical bankruptcy. Yet at times she's not criticizing the paper itself, but what Warren's co-authors may or may not have told the press. As for the article itself, it's entitled "Illness And Injury As Contributors To Bankruptcy," and comes replete with appropriate cautions like these: " We cannot presume that eliminating the medical antecedents of bankruptcy would have prevented all of the filings we classified as 'medical bankruptcies.'" Yet McArdle repeatedly claims Warren et al. suggested medical bills were the sole cause of these bankruptcies, then beating this nonexistent claim to death.
McArdle also makes the analyst's most basic mistake -- fallacy based on anecdote -- by repeatedly saying that by definition "Patty Barreiro" is a "medical bankruptcy" case. Barreiro is the wife of Edmund Andrews, the financial writer who wrote about their own bankruptcy. She's become a bete noir for all of those who believe that bankruptcy is most commonly a character defect, not an unfortunate combination of circumstances. McArdle's fixation on her isn't just bizarre. It's also bad analysis. The definition Warren et al. use for "medical bankruptcy" is $5,000 or 10% of income, and those are appropriately high figures for anyone familiar with the real world.
(McArdle also grossly mis-states the contents of another academic paper, but fortunately this piece does the heavy lifting on that misrepresentation - hat tip Atrios.)
For those who argue that Warren lacks managerial experience, I have three words: "Chief Administrative Officer." Warren understands the mission better than anyone, and she'll be able to hire someone to handle the logistics. And, as for her alleged hostility to "financial innovation," there's no sign of that. Some "financial innovations" destroyed the economy, and she's right to be a little "hostile" to them.
Elizabeth Warren's view of what needs to be done to fix Wall Street is fundamentally different from Tim Geithner's or Larry Summers'. Her view is correct -- and it's also more popular politically. The President's attempt at a "nuanced" solution -- that Elizabeth Warren will "play a role" even if she's not appointed to lead CFPB - is a nonstarter. The banks, and the public, would see that decision for what it is: A surrender to financial interests at the expense of the American consumer.
The Megan McArdles of this world will wail and gnash their teeth If Elizabeth Warren is appointed, but that doesn't matter. What does matter is that if Warren doesn't run CFPB, the same regulators who mismanaged the economy in general - and consumer protection in particular - will still have the upper hand. Any answer but "yes" to the Warren question would be a disaster, both on its merits and politically. You don't need a spreadsheet to figure that out.
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
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