Seeking Radical Solutions

In this country we have real problems that need real solutions. They are too many to enumerate here but I will make a few generalities.

• The middle class is under immense pressure. There has been no real wage growth for a decade or more. The second earner in most families in the workforce, is yet the real standard of living has not moved appreciably except that perhaps we have bigger houses, which is not necessarily a good thing in the long run.
• We continue in the shadow of a boom bust cycle with unemployment and underemployment running somewhere in the 16-20% range.
• Interest rates are at all time lows and yet the Fed can only think to stimulate the economy by further purchases of financial assets.
• Markets are no longer trustworthy. In the stock market, program trading dominates volume. I heard recently that 70% of trade positions are held for an average of 11 seconds. These trading algorithms are in a cut throat competition to trade on information a fraction of a second before other computers. The retail investor is at the mercy of these traders and has lost confidence that the markets are fair. The bond markets are not fair either. The junk that makes up Commercial and Mortgage Backed Securities is subject to all kinds of risks. Rates are suppressed by the Fed and a rebound would burn bond investors. The rating agencies can’t be trusted. There is little retirement security. Low rates on bank deposits are suppressing income for savers.
• The United States, state, and local governments are in a pickle and are looking to reduce spending, which will further suppress aggregate demand at a time when the economy is weak.
• We are stuck in expensive foreign wars that appear to be endless.
• The global economy favors developing nations and emerging markets. Labor cost differentials are suppressing middle class employment in the United States.
• The nation is divided politically. Neither major party has much leeway to even implement their preferred policies.
• Small business is struggling while economic power becomes more concentrated in the hands of mega corporations and the super wealthy.
• The Fed’s efforts to stimulate policy by creating inflation appear to be creating inflation in the cost of living for families but not in the value of their assets. Food and energy costs are on the rise, yet the government excludes these from their core inflation measures. Health care costs continue to be out of control and the population is aging.

So does anyone have any ideas? Here is one. Let’s create a wave of entrepreneurship that begins to rectify some of these imbalances. How can we do that? There is tremendous talent and knowledge locked up in our biggest corporations, those that are prospering while giving paltry wage increases, passing more health care costs back to their employees, moving many jobs to other nations, paying massive bonuses to executives. Why should the people support this?

A little over a century ago, the foundations of corporate power were laid with a series of legal decisions that weakened the position of the skilled employee vis a vis the corporation. This paper by Duke University professor Catherine Fisk examines these legal decisions. Here is the Abstract:

A legal ideology emerged in the 1870s that celebrated contract as the body of law with the particular purpose of facilitating the formation of productive exchanges that would enrich the parties to the contract and, therefore, society as a whole. Across the spectrum of intellectual property, courts used the legal fiction of implied contract, and a version of it particularly emphasizing liberty of contract, to shift control of workplace knowledge from skilled employees to firms while suggesting that the emergence of hierarchical control and loss of entrepreneurial opportunity for creative workers was consistent with the free labor ideology that dominated American thinking on the subject of work.

Today, corporations own virtually all intellectual property. They choose to develop and market some products and ideas, and others lie fallow for lack of attention and frankly motivation among increasingly disenfranchised corporate workers. The lack of any wave of major new innovation that can carry employment and personal income levels higher is exacerbating all the problems listed above. The government’s efforts to solve economic problems only serve to entrench existing corporate interests. They pass stimulus efforts through the financial markets, supporting “systemically important” institutions by shielding them from the consequences of their actions and pumping up the value of assets that are primarily institutionally and corporately held. All this is supposed to trickle down to the benefit of the employees. I can tell you, it is a trickle.

This suggestion is radical. The whole legal basis of company/labor relations would be challenged. But is not a shaking up of the status quo what is needed in order to get change of any magnitude? Well intentioned as they may be, are efforts to make change without actually hurting entrenched interests having any material effect? Take the health care bill. By building a coalition of the existing entrenched interests, the bill does little to affect cost. Cost is the problem my friends. If you want stimulus, cut health care costs back to 10% of GNP! That means some companies go under. So what? The prosperity that would result would dwarf these effects. But, then no campaign contributions, no?

Here is an issue for the Tea Party. Free the worker! Free market for intellectual capital! Decentralization of power! Pro Small Business!

Perhaps some of this intellectual capital would be used to revolutionize our health care. Perhaps some would be used for experimentation with new agricultural techniques. Perhaps some would be used in the energy business. The only problem is that the tables would be turned on the poor corporations, with their rising stock prices and billion-dollar war chests.

Anyone have any other ideas?

Of course, to get these businesses going we would need banks with decentralized judgment based decision-making. Good luck with that.