The Myth of A Meritocracy

A recent “Letter from Washington” in The New Yorker profiles Obama’s Director of the Office of Management and Budget, Peter Orszag. Mostly a ponderous piece describing fairly Byzantine policy machinations, it does reiterate nevertheless a common assumption about Orszag’s rise to power. Pronounced throughout is the conviction that this climb is the result of sheer brilliance, just one more reflection of the US as meritocracy.

In the opening section of The New Yorker piece, Orszag's resume is listed: Exeter, Princeton, London School of Economics, Clinton White House. This article promotes this rather recognizable track as extraordinary, a feat of great intellectual achievement. Born and raised in Britain I take a different tack. I see Orszag as yet another privileged person following a well-connected circuit. Neither The New Yorker or indeed the many articles on the new Budget Director think it worthy to note that Exeter is a very elite school where fees are now almost $40,000 a year for boarders and a feeder school for top universities in the US. Neither does the article mention that Orszag’s father Steven Orszag was a professor at Princeton, yes the same Princeton that Orzag the son attended. So, if I get this right, this guy attends an incredibly expensive private school, goes on to an incredibly expensive elite private university where his Dad is a professor, and then uses his many connections to hustle up the Democratic hierarchy. This is not to say that Orszag is neither bright nor hardworking. There are lots of people with his background that do not end up as Budget Director. But there are also lots of hard working and bright people who do not end up as Budget Director.

What all the recent pieces on Orszag seem to share is an assumption of meritocracy: that where you get to in the US is through hard work and smarts. The unspoken contrast is with the old Europe with its supposed entrenched class and hierarchy where merit is not rewarded. In fact, as many recent studies attest, social mobility is not any greater in the US than in Western Europe. Now there are enough “outlier” narratives in the US--and of high profile outliers at that--take the cases of Clinton and Obama, for example, that tell of meteoric rises. These narratives feed the illusion that we live in a pure meritocracy. In fact the US is only mildly meritocratic. The best way to ensure success and wealth, in the US as in most countries, is to be born to successful and wealthy parents. And as long ago as 1956 C. Wright Mills reminded us of the dominating influence of what he called “the power elite”.

Wright’s ultimate conclusion of a permanent power elite was never popular in the US; it does not jibe with the ideology of an aspirational society or the bedrock of individualism that assumes we are where we are in the society because of our own efforts. Sadly, we are where we are largely through the accident of birth and fate. We are not prisoners of our life circumstances, but neither are we freed from them. Success does have a recipe: brilliance and hard work are the dough but the yeast that raises the dough is the added mix of being born to wealth and privilege with advantageous family connections.

We are not all to blame

There is an article in today’s Washington Post by the columnist Michael Kinsley. Under the title "Where This Buck Stops", he tackles the torture issue. Under the guise of a critical thinking piece, 'I am not a mere journalist more a deep thinker' kind of piece, he ends up with the conclusion that "If you’re going to punish people for condoning torture, you’d better include the American citizenry itself”. We, the American people, it seems, are the real culprits. I must have had a hand in those torture memos from the Justice Department. Funny, I cannot remember doing that.

This is a recurring theme in sloppy op-ed pieces. They slide from specific issues--torture, the subprime fiasco, the financial meltdown--to the general conclusion that the real fault lies with us all. Baloney. This spurious argument, all the worse for pretending it is a profound analysis rather than a tired old argument, is wrong in two respects. First, we are not all responsible. We did not all write memos justifying torture, we did not all ok risky mortgages or all gamble shareholders savings in dubious enterprises. We are not equal actors in these dramas. There are specific people responsible for specific things and to make the ‘we are all to blame’ argument’ is to reassign blame from those responsible to the general public. Second, it rests on the mistaken assumption that since we are citizens of the country we have an equal part in making decisions. Citizens do not have the same degree of economic power and political access. The ‘we are all to blame argument’ works to make us believe that we all have equal shares, equal responsibility and hence equal culpability when things go wrong. No. Let’s have less blather parading as profound criticism and a sharper focus on who did what. That way we get a much better sense of the distribution of power and a more accurate understanding of the distribution of responsibility.

Thank you Barbara Ringer

Our lives are bound by complex ties that connect us to people we never know or never meet. I did not know this woman who died on April 9 at the age of 83. I only realized our connection when I read her obituary in the Washington Post on Sunday April 26.

Barbara Ringer, you see, was the main architect of the Copyright Act of 1976. This Act affects my life as a writer and academic on a near daily basis. The law it enacted allows fair use whereby scholars can quote short extracts from copyrighted work, and it also extends copyright for an author’s lifetime plus fifty years. Before Ringer’s bill revised copyright, it only lasted for 28 years from the date of publication unless renewed. Every year I receive small--very small--royalty checks. My royalties offer little purchasing power but enormous satisfaction. They are manna from heaven, small but wonderfully unexpected gifts and cheering reminders that my work continues to be read and used.

Barbara Ringer worked at the Library of Congress most of her life. She crafted the basis for the 1976 Act, thus assuring me the ability to quote other writers as well as securing the copyright of my work for a long time. She defended the rights of creative people to have their work protected. Receiving her law degree from Columbia University in 1949, Ringer had to battle a sexist world, and she successfully won a discrimination suit in 1973 after she was passed over unfairly for promotion. She gave her collection of books and movies to the Library of Congress. Furthermore, she placed the land she owned in conservation easements so that the property remains wild in perpetuity. Her many good deeds will live on long after she has gone.

So thank you Barbara Ringer.

Finance Capitalism and Public Policies

In the early 20th century, the Austrian economist Rudolf Hilferding proposed that a new form of capitalism was taking hold. In his book of 1910, Finance Capitalism (Das Finanzkapital), he ventured that the increasing concentration of economic activity and banking into larger and larger combines was effectively producing a new form of capitalism, the finance capitalism of the book’s title. Because this new form of capitalism controlled the flow of investment, he suggested that it was displacing competitive industrial capitalism while creating a demand for a centralizing and “privilege-dispensing state.” According to Hilferding, finance capitalism was always on the lookout for state intervention to prop up its wealth and privilege. Sound familiar?

Here is a photograph of a scary looking Rudolf Hilferding.

Fast -forward almost 100 years and we can see the full unfolding of Hilferding’s prediction. It is evident in the massive amounts of money being made. Lloyd Blankfein, the CEO at Goldman Sachs, received compensation of around $43 million for fiscal year 2008. Lots of people make lots of money in this sector, and as we now know it is neither connected to their skill in assessing risk or foresight in managing change and economic uncertainty. The compensation reflects itself: people get paid a lot, not necessarily because they are any good, but because they are in this sector. And the sector binds government to its needs and requirement through the slick passages of individuals who move effortlessly and often from finance to government and back. These moves transcend party affiliation: Paulson moved from Goldman Sachs to Treasury Secretary under Bush: Rubin moved from Treasury under Clinton to Citibank after deregulating the banking system; and more recently Rubin’s colleague at Treasury, Larry Summers, moved from a lucrative hedge fund gig to advising Obama. In the May issue of The Atlantic, the former chief economist at the IMF writes of a quiet coup in which the US government was hijacked by the finance industry (http://www.theatlantic.com/doc/200905/imf-advice).

Public policies are not only shaped to suit finance capital--and these include the promotion of free movement of capital across borders, the repealing of regulatory frameworks and the overturning of oversight regimes--but also are taken for granted as “the right and only things to do” in the name of general welfare. While change is currently afoot for reregulation, be on the lookout for how the resultant systems will be shaped by financial interests.

In the fall of 2008, the US Congress could not move fast enough to prop up the banking system. The $750 billion TARP (Troubled Asset Relief Program) bailout was exactly the “privilege-dispensing” Hilferding was writing about in 1910. And compare the political response to the banking crisis with the meager, parsimonious reaction to the problems of the automotive industry or even of the housing crisis. Cars and housing are important, but not nearly as important, in this new form of capitalism, as finance and banking. Paulson and Bernake managed to frighten politicians into accepting the package by painting a scenario that the world was going to collapse if nothing was done. This may or may not be true. My argument is that this conclusion comes less from a fully formed economic analysis than from the contemporary ideology that fixates on banking and finance. The power of finance capitalism is such that this ideology is now viewed by the US government as the only the way to see and understand the world. Current policies and beliefs clearly reflect the interests of bankers and not the general welfare or common good.

Interview

Click on the above title to see me being interviewed by Professor Steve Braude about two of my recent books. It is a short 12 minute clip.

New infrastructure spending demands new thinking, oversight

This is a slightly revised and updated version of an op-ed piece that first appeared in the electronic journal Stateline.org. Click on the title above for the link.

Much has been made of the need for infrastructural investment to stimulate the economy. Traditionally, economists advise against large-scale infrastructure investments because they take too long to inject increased spending into the system. But this recession is likely to be so long and deep that long-term investments will play an important role in getting us to the other side of this mess.

The states and the feds have a huge backlog of things they need to build and repair, from schools and bridges to airports and mass-transit systems. Recent years have highlighted the costs of not tending to infrastructure. The collapse of New Orleans’ levees in the wake of Hurricane Katrina was the main reason for the flooding of the city. The collapse of the bridge over the Mississippi River in Minneapolis on Aug. 1, 2007, was a deadly reminder of the full costs of delaying repairs and maintenance.

According to the American Society of Civil Engineers the backlog of infrastructure now exceeds $2.2 trillion, yes trillion with a t. In their report card for 2009 the Society gives the nation a D for its infrastructure provision and maintenance.

Photo: John Rennie Short

We are in a crisis. But it is useful to recall that the Chinese word for crisis consists of two letters: One signifies danger, the other opportunity. This crisis affords us an opportunity to both stimulate the economy and tend to our much-needed infrastructure backlog. And many of these jobs cannot be outsourced. The work is done in this country, adding to effective demand and providing a basis for sustained growth.

There are two potential hazards associated with large-scale infrastructural investments. The first is that the money will be allocated in the usual pork-barrel fashion with powerful U.S. House and Senate committee personnel steering funds to their districts and states irrespective of the benefits.

In order to short-circuit the possibilities of future bridges to nowhere, we need a bipartisan commission that evaluates objectively the cost and benefit of major infrastructural investment. We already have a model that works. The recommendations of the Defense Base Closure and Realignment Commission (BRAC) cannot be cherry-picked by members of Congress. The recommendations are voted up or down in a block so that individual members cannot influence the fate of individual bases. A similar procedure for a National Infrastructure Commission is essential to reducing wasteful spending.

A second potential problem is that, just like with wars, we tend to fight the next one with the strategies of the last one. We must avoid building new infrastructure geared towards the needs of the last economic growth wave.

A National Commission on Infrastructure would need a mandate to build for the future, not just for the short term and the present. The interstate system was perfect for the car age coming into its own in the 1950s. What we need now is infrastructure that promotes smart growth and long-term sustainable economic growth. Building more bridges or motorways just because that is what we always have done is to build for the 1950s, not the 2050s. New and improved infrastructure should be directed toward more creative use of mass-transit systems, refurbishing our aged inner cites and inner suburbs and improving citizens’ lives, and laying the basis for a greener economy.

We are in a crisis. From the nation’s last great crisis we created the New Deal. We need a New ‘New Deal,’ one that appropriately funds and fairly distributes infrastructure projects to states that lay the foundation for a smarter, greener, more competitive economy. We need a Metro Green Deal for a new infrastructure commission that allocates investments so that we can link public and private, city and suburb, rich and the poor in an America of and for the future.

A moral economy

The great historian, E. P. Thompson, first raised the issue of the moral economy of the crowd in a paper published in 1971. He was referring to the food riots, which occurred every ten years or so in late eighteenth-century England. He demolished the old belief that the riots were spasms of hunger, suggesting instead that they represented a ‘highly complex form of direct popular opinion’. They were about establishing the moral price of food rather than the going market rate.

We have witnessed the moral economy of the crowd last week in the US with the public outcry over the $165 million retention payments to workers in the bailed-out insurance giant AIG. The company had followed some very risky practices, jeopardized the entire US financial system, lost a great deal of money and was eventually bailed out by the federal authorities.

On the surface, the retention payments are small compared to the $170 billion that the company received. With more to come. And many of the people responsible for the risky behavior had long left the company. But the popular sentiment was not a calibrated public policy response; it was a restatement of a moral economy in the face of a market economy out of step with current realities and popular concerns.

Crowds in Washington DC. Photo: John Rennie Short

The financial service sector at the top level is over rewarded. The system of bonuses and retention packages originated when both profits and risks were borne by partners in trading companies. Now, in large public companies, the upper executives overpay themselves, a practice authorized and condoned by compliant, collusive boards, while the risks and costs are socialized and paid by the shareholders or eventually the government and the public. The former CEO of Countrywide, a mortgage company that specialized in risky subprime mortgages, made out very well in the last six months of 2007. Angelo Mozilo, who looks like a lizard in an expensive suit, was paid almost $2 million in salary, given $20 million in stock and sold $121 million in stock. The company meanwhile lost $1. 6 billion while the share prices fell 80 percent. Bad luck for the shareholders, but no problem for Mozilo.

It is against the background of the widespread appreciation of privatized benefits and the public nature of the costs that people responded to the AIG bonuses. What is surprising is how quickly the political system responded to peoples’ anger: within a week of the bonuses becoming public, the House introduced a measure to tax the benefits up to 90 percent.

The close connection between the public mood and federal response is rare. The founders were distrustful of a full and functioning government by all the people. The Congress and the other two branches, the executive and the judicial (an oligarchy of lifetime appointees whose ideology always seems half a century behind the general public), limit and blunt the expression of the popular will into policies and politics. Policies in Washington DC are shaped by interest groups who hone regulations to meet their needs. The political system listens to the power of money. Politicians desperately need money to stay competitive, win races and stay in power. Those with most money have the best access: they have the power to influence and advise. Ordinary people exercise political choice at elections but those with money exercise real political power.

So the events last week in Washington were highly unusual. The consequent legislation may not stand up. Already experts are pointing to its haste and questioning its legality. The proposed legislation was not well thought out, and it was done in haste and anger. But so are much of US federal policies. It was a raw expression of a true democracy. It was the moral economy of the crowd armed with blogs and emails rather than pitchforks and street demonstrations, reaffirming values of fairness and community over greed and self. The moral economy expressed against an amoral economy.