Friday, February 8, 2019

Time To Drown Out The Current Reich Wing Socialist Hysteria - With Actual Education!

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Socialists from two different eras: Milwaukee Mayor Frank Zeidler (left) and Alexandria Ocasio -Cortez

The Right wing media hail storm of anti -Socialist venom and rhetoric has by now reached the hysterical stage with very little signal amongst the substantial noise. In The Wall Street Journal just in the past two weeks (coincidentally as the new progressive wave of women  have taken their seats in the House of Representatives)  the following editorials, columns have appeared:

'Socialists of the World, Unite!'  - WSJ editorial  (Jan. 28)

'The Left's Idea of Generosity' - Bobby Jindal, WSJ   Feb. 4, p. A17

'The Crippling Cost of 70 % Tax Rates' - Edward Conard, WSJ   (Jan. 21)

'Ignore My Socialism, Please!'  - Holman Jenkins, Jr.  (WSJ Feb. 6, p. A15)

'Trump Flipped The Opposition'-  Daniel Henninger (WSJ, Feb. 7, p. A15)

'Who's Afraid Of Socialism' - WSJ Editorial,  Feb. 7

Only two articles had any degree of intelligence, insight and cohesion concerning socialism:

'A Star For The Left As Doubts Grow Over Capitalism' - Gerard Baker (Jan. 12-13, p. C2)


'Parsing the Lessons of True Socialism'  - by Greg Ip, Feb. 7, p. A2

I suppose what one can glean is that if one is looking for education on socialism in the pages of  The Wall Street Journal it will be pretty much like searching for an oasis in the Arabian desert.

But let's acknowledge the two "antidotes" in black bold cited above more than neutralize the twaddle emitted in the earlier citations.

For example, in counterpoint to the yelping that anti-capitalism or control of capitalism resides only on the Left, Gerard Baker writes:

"Faith in the American model of capitalism has been crumbling for a decade - and not just on the left. Both wings of the partisan divide are challenging the existing order."


"Ms Ocasio - Cortez may be the perfect complement to President Trump."

I'd say light years beyond that, given "AOC" is at least capable of honest brokering of her positions on capitalism and its detrimental effects on the nation's welfare, unlike Dotard.

Greg Ip's piece also bears attention as it rips to shreds the nonsense in the same day's WSJ editorial  which claims the Dem 'Medicare for All plan is tantamount to control of the means of production - the standard criterion for any total socialism.  But as Mr. Ip puts it:

"Medicare for All wouldn't  nationalize doctors and hospitals, though it might drive private insurers out of business- putting the U.S. where many industrial countries already are."

Indeed, and we already know all the insurance companies do is continually raise their rates each year, even as they render hospital pricing for various procedures  almost totally opaque. A single payer system would by contrast do what the Japanese health care system already does, i.e. in deciding how much to pay doctors and hospitals for each procedure - by setting out a standard pricing list, ss well as a standard formulary for drug costs.  This is not "control of the means of production" as the WSJ editorial barks, but an end to Wild West capitalist pricing schemes.

In regard to the same editorial's bitching about the Green New deal, one might suggest the editors again refer to Mr. Ip's column in the same issue, especially where he writes:

"If the federal government ends up financing significant expansion of renewable energy under a Green New Deal, it wouldn't be unprecedented.  It created the Tennessee Valley Authority ijn the 1930s and the Interstate highway system in the 1950s."

So once again, we aren't talking about a radical takeover of the means of production, just a redirection of capital for the common good.  Moreover as author Naomi Klein has noted ('This Changes Everything: Capitalism Vs. Climate Change'  ), we now know the extent to which capitalism's growth dynamic has stoked global warming.  To wit, capitalism is unable to affect or alter  the course of climate change due to its dependence on fossil fuels and need for continuous growth. Also,  the time for marginal fixes has expired, thus forcing us to now make radical changes in how we live. 

 We simply don't have the luxury of using all the carbon that lies in the Earth. Yet capitalism's never ending growth engine would demand we do so to support the expansion of new markets for exploitation.   We have roughly 550 gigatons (gT) left of carbon we can extract  and inject anthropogenically into the atmosphere before the first phase of earthly Hell is unleashed. As rising sea waters, hellish temperatures and heat waves, prolonged droughts and dozens of superstorms. 

The threshold for earthly hell? Exceeding 2, 750 gT. Once we cross this, we will usher in the maw of the runaway greenhouse and be on our way to converting the Earth to another Venus. The problem? The energy- and fossil fuel empires that govern most of our economic system don't see it that way. CO2 consumption gadfly Bill McKibben  (350.0rg) cites the fact that Exxon's share price, for example, is based on a total carbon deposition of at least 2,800 gT - which also conforms to expectations set by hedge funds, et al including Peabody Global.

So yeah, a "Green New Deal' is emphatically needed and the sooner, the better.
As for Henninger,  he's hostage to the usual Trump twaddle as he scribbles that Trump - in his SOTU spiel "put the Democrats on the defensive".  Hardly! He merely confirmed what a brainless, feckless asshole he is - especially with his schoolyard threat about we can have either "legislation or investigation".    Henninger then confirmed his own mutt ancestry and delusion by writing:

"Ever since the 'socialism' wave began building inside the party's ranks, professional Democrats had to wonder how long they'd be able to get away with this hooey.:"

Actually, son, the only "hooey" is cowboy capitalism which since the credit crisis has been in its death throes. We know it, most sane and sensible Americans know it, and most serious economists and commentators.  Certainly, Henninger's WSJ compadre Greg Ip knows it as he writes:

"Where Democrats may actually remake capitalism is in corporate governance. Ms. Warren would have workers select at least 40 percent of directors and demote shareholders to just one of ,many stakeholders to which corporations are responsible. Mr Sanders and Mr. Schumer would prohibit companies from buying back stock unless they also pay workers at least $15 an hour and provide various other benefits."

Thereby concluding:

Image may contain: text that says 'Democratic propos- als conscript private capital in the pursuit of social prior ities much as President Trump already has by threat ening companies that shift production out of the U.S., raise the prices of drugs or publish critical news.'

All of which shows Greg Ip is vastly more educated on the version of Socialism (actually a form of Rhine capitalism) the Democrats are actually about, as opposed to a hatched up miasma of the reactionary Right's basest fears.  Indeed, Ip in his last paragraph exposes these baseless fears by clearly arguing what the Dem progressives have proposed is nothing compared to "true" (i.e Marxist) socialism.  In other words, showing up his WSJ colleagues for the ignoramuses and dunderheads they really are.

And as I had already pointed out, e.g. in my Sept. 5, 2018 post:

"In the case of Marxist socialism or Marxism (as manifested in the old USSR) one beheld  total state control of ALL goods and services. This was to the extent nearly all jobs were created by the state, wages set by the state and pseudo-markets created where there were no genuine needs to fulfill and others (especially for growing food) left under-developed. In addition, no such entities as stock markets or commodities exchanges existed."

In the same post, I also exposed how Oprah herself was as brainwashed about what constitutes socialism as the WSJ scribes identified above, when even she raised the misbegotten fear of socialism and the welfare state.e.g.

As Oprah rambled on  about "socialism" with a fearful expression, a Danish citizen on Skype quickly informs her: "We think of it as being civilized. As taking care of each other...the elderly, the sick."   The Danish woman had clearly exposed Oprah's brainwashing - and Oprah is not a dumb American.
Now, let's take on the bogey of high (70 percent) tax rates,  as trotted out by Edward Conard - a more or less typical drone at the American Enterprise Institute (where is Norm Ornstein where you need him, to set his colleagues straight?)

Anyway, we still have Grep Ip to deliver a measure of sanity as he writes (ibid.):

"Ms. Ocasio -Cortez has proposed a top income tax rate of 70%. It stood there as recently as 1981."

Good point! And also it was as high as 91 percent in the Eisenhower years. And i don't seem to recall anyone jumping out of windows but rather decent bank savings rates and an economic situation where only one parent needed to work as opposed to two. Also where most middle or even working class folk could afford to own their own homes.   What was this, magic, practicing the dark arts?

Not at all. As economists James Medoff and Andrew Harless observed in their excellent book, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake', 

"High tax rates are associated with higher productivity growth"

There is a consistent and strong relationship. By contrast, for the years when Arthur Laffer's supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold. The classic example was the Reagan era, i.e. from 1981 on - with the 70 percent tax rate abolished-  for which Medoff and Harless note (p. 23):

"For the health of the economy, Reagan's policies turned out to be just about the worst thing that could have happened: investment did not increase, growth continued to stagnate, and the federal deficit ballooned to new dimensions."

Meanwhile, a more recent Financial Times Analysis of the Bush tax cuts (9/15/10, p. 24) passed in 2001 and 2003, showed they engendered "the weakest decade in U.S. postwar history for real, non-residential capital investment".

The FT analysis also observed that during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%

Last but not least there is the inimitable Holman Jenkins Jr. who tried to roast Bernie Sanders and Chuck Schumer for their proposal to make corporations that do stock buy backs accountable to workers, not just investors. You want to do stock buybacks, fine. Then you also extend full benefits to your workers, as well as pay a minimum of $15 an hour.  Jenkins tries to defend the status quo by writing in disingenuous fashion:

"Let's correct some misconceptions: In a buyback a company exchanges one asset (cash)  for another at the market price, so it should have no effect on the share price except it signals a credible commitment by management not to waste shareholder resources on low return assets."

But can we not agree that the ultimate waste of shareholder resources would be in a company's  liquidation? Enter the "net profit test"  by which investors can ascertain whether companies are resorting to buybacks and thereby "self liquidating" or having positive assets exchanged - as little Holman claims. 

According to Gary Lutin - a former investment banker who heads the Shareholder Forum:

"The test cuts through to the essential logic of comparing a process that grows a bigger pie - reinvestment - to a process that divides a shrunken pie among fewer people: share  buybacks."


"It's pretty obvious that even mediocre returns from reinvesting in the production of goods and services will beat what's effectively a liquidation plan."

This negative view of buybacks or "repurchases" is underscored by Robert L. Colby a retired investment professional and developer of Coequity, an equity valuation service. According to Colby (ibid.):

"The simplest way to evaluate a company's asset allocation decisions over the years is to see whether its net profit growth is close to its earnings per share growth."

What about little Holman's claim that share price is not affected in buybacks, while conceding his qualifying factor about "a credible commitment not to waste shareholder resources"?

Let's say company XYX shows earnings per share over eight quarters increasing at the rate of 1 percent per quarter. This translates to 8 percent earnings per share growth over 2 years while its net profit growth over the same period is 7.8%.  Not exactly the same but close. . The company is also sound enough to be able to pay dividends.

Consider also company ZZZ, whose earning per share growth is computed to be (-0.1%) per quarter over the same time period. Over two years this marks a loss of -0.8% but its net profit growth is actually -4%. The company is in trouble, its net profit growth is out of whack with its earnings per share growth. In an effort to right the ship the company uses stock buybacks which artificially inflate the price of its shares - say from $10 each to $11.50 but only because a proportionate amount of shares have been taken out of circulation via the buybacks.

Ten million shares of ZZZ initially have a market capitalization of $10 x 10,000,000 = $100 m. But after buying back nearly 200,000 shares the share value is jacked up to $11.50.  What's going on? According to Messrs. Colby and Lutin ZZZ is liquidating.

Let's take specific examples. It turns out Mr. Colby actually ran his net profit test for pairs of companies in the same industries from 2008 through 2015. In each case, he contrasted a company that "bought back loads of shares" with one that did not.  One specific pair entailed two restaurant chains, Cracker Barrel and Jack in the Box. 

Cracker Barrel bought back $160m worth of shares over the period while Jack in the Box bought back $1.2 billion worth. This buyback reduced its share count by 37 percent. It saw an earnings per share increase of 6 percent over the period (7 years) but its net profit declined by 0.5 percent per year. In other words a loss of (-0.5 %/yr) x 7 yrs. = -3.5 %   By contrast, Cracker Barrel earning per share growth was 13. 6 percent while its net profits grew by approximately 14 percent. So it passed the test.

Target and Costco were also compared in a similar paired analysis. Costco spent $2.8 b to repurchase shares over the period while Target spent $11.4 b thereby reducing its share count by 20 percent (in effect liquidating a fraction). Costco's annual earnings per share gains were 9 percent over the period almost identical to its 8.9 percent net profit growth. By contrast Target's earnings per share rose by 7.3 percent while the net profit growth was only 4.3 percent.
The buyback craze, make no mistake is one big reason for the comparatively low levels of business investment since companies emerged from the 2008 financial crisis. This is also likely tied to the anemic annual growth rates if so many companies are doing it.   As noted at the end of the piece:

"Investors may be dazzled by the earnings per share gains that buybacks can achieve but who really wants to own a company in the process of liquidating itself?"

Seems to me Sens. Sanders's and Schumer's proposal to make corporations more accountable in stock buybacks is more than overdue, and quite justified. It sure as hell isn't "socialism"  as the WSJ's screecher reactionaries try to portray it.  And it more than skewers little Holman's rant that it is all about "promoting another  unfunded mandate"  so that "private companies have to pay off a constituency so politicians can take credit without having to work for it."  In fact, it is about putting safeguards in place to ensure investors, shareholders, employees  -   all stakeholders - don't get hosed under the pretext of a company liquidation. But Holman will never admit that.

As for Milwaukee under its last Socialist Mayor, Frank Zeidler - a member of the Socialist Party of America - the city prospered during his reign. Jobs proliferated, especially in major manufacturing (Allis –Chalmers etc.) while the Breweries hired thousands with excellent pay and benefits, including health care. Housing abounded as well, affordable housing off of Greenfield Ave. and Teutonia and in other suburbs to the north and west. Parks, meanwhile, were the envy of many other cities for their beautiful layouts, amenities and services. I can still recall going to Washington Park (across the street from where my family lived on 48th and Cherry Streets) on the 4th of July for band performances and later fireworks. I also enjoyed going to the Washington Park Zoo as often as I could, especially to visit the denizens of the Reptile House.

Crime was almost non-existent, despite Milwaukee reaching a population of 747, 000 by 1960. Zeidler also provided health care through the city, so no one needed to go broke to get any treatment. Like all REAL Socialists, Zeidler believed health care was a right, not merely having health insurance!. Education also benefited, and Milwaukee’s schools became some of the finest – not just Catholic but public schools as well, thanks to a higher local taxation rate, and not merely property taxes, which Zeidler knew would hit the elderly hardest.
Was any of this "communistic"? Of course not! It actually represented the ideal of what an American city ought to be about - as opposed to citizens subject to the law of the jungle and every man for himself.

In the Economic Bill of Rights, published by the Democratic Socialists of America (DSA), it is interesting to see:

1.. The right to a useful and remunerative job
2. The right to sufficient and nutritious food
3. Safe, healthy, secure and affordable housing
4. Free, accessible health care to all
5. Free, high quality public education
6. The right to organize to form unions, as well as community organizing

All of these were evident in Frank P. Zeidler’s Milwaukee, and one hopes the New Progressives and Socialists of the Democratic Party will be bold enough to take pages from his book, his principles. In particular, don't let the snide and hysterical attacks of the Right subdue your efforts at reform of the entrenched capitalist market economy.

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Miles Mogulescu's picture
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"What Americans who support “socialism” actually want is what the rest of the world calls social democracy: A market economy, but with extreme hardship limited by a strong social safety net and extreme inequality limited by progressive taxation. They want us to look like Denmark or Norway, not Venezuela.

And in case you haven’t been there, the Nordic countries are not, in fact, hellholes. They have somewhat lower G.D.P. per capita than we do, but that’s largely because they take more vacations. Compared with America, they have higher life expectancy, much less poverty and significantly higher overall life satisfaction ."


Ron Gruner said...

Greg Ip's "Parsing the Lessons of True Socialism" in the Feb 7, 2019 WSJ paper edition is, by far, the most balanced discussion of socialism I've read recently. Yet it was not provided in the digital version so got little exposure. Was this intentional on the editors' part? If so, it's shameful.

Copernicus said...

I tend to concur the Journal's editors "sanitized" it prior to digital exposure. Sad...and yes, shameful.

Darrin Rychlak said...

Another great piece. I remember extended family members at family parties would blame Zeidler for 'letting all the niggers in to Milwaukee...'. Racism and bigotry are so ingrained into this country that it stains all our social endeavors.

It was Einstein's 'Why Socialism?" that I read as a kid that made me into a Socialist. Rapacious Capitalism resembles cancer. In form, it is tyrannical and in effect it is predatory. Neither of those values ever interested me.

Copernicus said...

Excellent point made!