The Fed's Declaration of Independence is in Trouble

Katharina Pistor, Professor of Comparative Law at Columbia, wrote a really good book, Code of Capital, about the history of laws written to suit capital and the rich going all the way back to the origins of Limited Liability Companies (LLCs) in England in the middle ages. She offers a historical take on the independence of the Fed question:  

"If central banks don’t serve the people but are more beholden to finance, what can be done? Destroying central-bank independence is not a good idea, because it is more likely to cause another crisis than to solve the underlying problem. But this does not mean that we should preserve the existing system instead of seeking a new monetary settlement. It is high time to rethink how money should be managed in ways that benefit the people and how to ensure that whoever is tasked with this role is not captured by finance."

Pistor @ Project Syndicate

Claudia Sahm, Economist, Fed insider and credible big booster for the "independence" of the Fed: 

"Independent technocrats, not political operatives, setting interest rates is widely viewed as crucial for controlling inflation. Throughout history and around the world, there are examples of politicians advocating for lower interest rates to stimulate economic growth or reduce the government's borrowing costs. Such policies can increase demand beyond the economy’s productive capacity, leading to inflation. An independent central bank offers a bulwark to those political tendencies."

Stay-At-Home Macro 

Matt Stoller, Anti-Monopoly advocate and author of the great muckraking history, Goliath: The 100-Year War Between Monopoly Power and Democracy, begs to differ:

"It was only in the late 1970s, when Jimmy Carter picked Paul Volcker to promote a strong dollar abroad, that Wall Street developed modern thinking around “independence.” The idea was to kill this populist sentiment ["union power"/living wages], which was successful. Fed independence, along with the consumer welfare standard, cost/benefit analysis, and deficit-based fiscal analysis, structures neoliberalism." 

BIG

Mike Konczal, Economist, wrote Freedom from the Market, more sympathetic to labor and/or political claims than most economists, makes an additional case for an independent Fed: 

"No administration, and especially not the Trump administration, is eager to announce, "We need to cut rates because the labor market is weakening on our watch." Politically, that's a tough headline. Independent Fed officials, however, can cite labor market weakness to justify rate cuts in ways that communicate clearly to financial markets without political baggage.

It isn’t the most dramatic rationale for central bank independence.... But it is a feature. Losing transparency about what truly informs policy decisions is another potential cost of increased White House influence over Fed policy."

Mike Konczal on Substack

Krugman, Economist, journalist, he who breaks down the wonky side of economics as well as anybody, weighs in on the independent Fed question with some history and opposition to Trump's power grab:

"The important thing for the rest of us to understand is that while there are legitimate arguments for (but also against) modest rate cuts later this year, there is no reasonable case for the mega cuts Trump is demanding.

Which does not, unfortunately, mean that he won’t eventually bully the Fed into giving him what he wants."

Krugman

My theoretical sympathies lay with the historians and populist protesters. The Fed is rigged for Wall Street and against labor and taxing the rich. Always has been. There has to be a better way. 

But the prospect of Grump at the helm of the Fed is unnerving, and triggers my residual Econ 101 conservatism. What can I say: it sounds correct and plausible to me that a careful, deliberate, predictable approach to Fed monetary policy encourages business planning and growth. And, by contrast, impulsive, self-serving, unpredictable monetary policy, like Trump's tariff wars, would make business planning and growth more difficult. How big a difference this would make I don't know but steady as she goes goldilocks growth is over half the battle with monetary policy, as far as I can tell. And as we all know steady as she goes is anathema to Trump's melodramatic performative spectacle politics. 

The Fed needs reform but does not deserve the destruction Trump brings to everything he touches. 

But my guess would be markets are pulling for Trump, he lacks discretion but is neoliberal to the bone like them. They like tax cuts for the rich and cost-cutting austerity politics for everybody else. But Tariffs and forced deportations, especially the way Grump is going about them, do appear to be wildly inflationary and deflationary at the same time, stagflationary, which most business people know can't be good for business in the long run. 

The word is Trump wants to lower interest rates, which would make it easier for regular people to buy cars and homes and would presumably be quite popular. Economist Ha-Joon Chang argues much higher inflation than the Fed target of 2% encourages higher growth rates but higher prices hit workers and the bottom half first and hardest and governments, especially ones like this one, are slow, if not condescendingly opposed, to helping workers and consumers keep pace with an inflationary economy. 

Krugman contends cutting interest rates by 3%, as Trump has bragged in the press he would do, would be wildly inflationary. But the bigger risk with Trump, I think, is he yanks rates up and down as market swings fail to deliver the results he wants. 

Big Tech Loses on AI Regulation Ban in Big Butt-Ugly Bill

"So what do we learn from this episode? First, we need public financing of elections. It’s become increasingly clear that financial dependencies make it almost impossible to make good policy. There were probably two dozen Republican Senators who would have opposed this provision openly if they didn’t have to rely solely on corporate funds for elections. In truth, this provision never should have been proposed in the first place, let alone have a bitter fight waged to block it. But the financing for elections creates awful incentives.

Finally, don’t be fooled by the lopsided vote, this AI regulation ban was much closer to being enacted into law than that. The attempt to eliminate the regulation of automated decision and AI systems will return. Big business is going to have an open checkbook going forward, amounts of money that are unfathomable, to enact their agenda. Ultimately, money buys time on TV, but it can’t buy votes. And that’s the reason that this AI regulation moratorium went down."

Matt Stoller @ Big

Weird to think of Bannon, Blackburn, and Hawley as heroes in any story but need to take wins where we can get them. Everybody, hopefully, has heard the repub BBB bill savagely cuts health care for poor seniors like my parents to justify renewing big tax cuts for the rich. I don't know if the cuts will in fact reach my parents, they're in hospice now and very close to the end of their lives. But they are people who could be hurt by these cuts. People who worked their whole damn lives and I think deserve health care that they cannot afford, and I cannot afford, until they pass away. Call me a socialist but this is how I see things. You know that part in the Declaration of Independence about how government's derive their powers from the consent of the governed? These are the kind of government powers I consented to. But there are rich people in congress still screaming for bigger cuts, without any suggestion maybe they ought to give up some of their tax cuts. There's also billions in this bill to expand ICE and support more forced deportations. Building their fascist police state. It slashes green energy investments to boost fossil fuel production. And like the WTO, like all neoliberals, they were trying to keep state governments from enacting regulations to protect citizens from any negative impacts of AI that might turn up. And I'm pretty sure these are more or less the same people that were warning us about the unintended consequences of AI only a few short years ago, primarily it would appear now to secure more state funding, but now think states shouldn't be allowed to regulate whatever they want to do with AI for ten years. Anyway, they lost that one, for now.  

Is bringing Fordism back even possible?

"At its core, the promise of Trumpism, at least in its idealized forms, is supposed to be all about the idea that working people have gotten screwed by a rigged economy for a half-century, and that to rectify this, Trump will end the elite gaming of it. But the new tax break for wealthy investors smuggled into the GOP bill—the same one that takes a hatchet to programs benefiting working people—perfectly epitomizes exactly this sort of elite rigging." - Greg Sargent, The New Republic

"The model used to be that of Henry Ford, mass production and ruthless efficiency to create high quality cheap cars with low profit margins, underpinned by machine tooling. You’d get rich by deploying a lot of capital, selling a lot of units, and being ruthless about productive efficiency. Today, the model is to do something that doesn’t require a lot of investment, so software or advertising or finance, essentially leveraging someone else’s capital. To do something like make screws for a low margin, you can just go to China, which seeks lower returns on capital. Indeed, we’ve been leveraging China’s capital for a long time.

There are many downsides to our model, but one of them is that high profit margins without discipline ends up causing bloat. Procurement consultant Rich Ham described the dynamic in corporate America, which is wildly inefficient, masked by excessive and persistent profit margins.

All of these dynamics are a result of law. I’ve gone over this dynamic many times, the basic idea is that a lot of the policies we implement, like strong patent rights, financial deregulation, and low corporate tax rates, are designed to ensure very high profits on any dollar of invested capital. Just having skilled labor and machine tooling around doesn’t fit in that model...."

Matt Stoller @ BIG

From a Fordist manufacturing economy to financial speculation economy, a process hastened by neoliberal financial deregulations during the 1980s and '90s. This really happened. 

But I'm much less sure about the possibility of any big revival in manufacturing. Some manufacturing in chips, weapons production, medications, stuff like that will be revived, a process that was already started by Biden. Big corporations have been offshoring their cheap labor needs since the 1980s and now it turns out some of that manufacturing should be done here for national security reasons. That will increase manufacturing jobs some. But manufacturing jobs as a percentage of all available jobs appears to be falling everywhere, like agriculture before it. Thomas Friedman talks about the development of dark factories in China, so automated they operate without lighting. Bringing back the motor city manufacturing boom of the mid-20th century is probably not realistic.  

Nonetheless, the neolib rationales for NAFTA and the rest of the globalizing free trade agreements were always bad. Basically, stiffing the working classes, wage workers, laborers, to goose corporate expansion in global trade. Move American labor up the value chain, offshore cheap manufacturing labor for better jobs in global trade and the financial sector, the free trade economic rationale went. It sounded good if you didn't think about it too much but it didn't pan out, unfortunately. One job in trade and finance was added for every four living wage union jobs in manufacturing were lost; and a Great Lakes rust belt grew to eventually engulf nearly all the flyover states. 

And, sure, blame the Dems for NAFTA. They contributed to this corporate fascist mess we're in for sure. Weak, dithering, sold out, Lucy and the football, all there, but still never as cravenly bigoted and corrupt as the repugs. Or not since Nixon at least, anyway. 

I've heard a Trump voter insist that Trump may do some bad stuff, hurt people's feelings, but he's not as bad as the Dems. My own view could not be more polar opposite of this Trump voter; another example of the extreme political polarization Ezra Klein talked about in his last book. The cruelty may be popular but not with me and, I'd argue, it does not promote economic prosperity or law and order and will never make America great again. 

At any rate, to believe Trump or the republicans will revive living wage jobs or reduce the cost of living for working people even if they could is preposterous and so oblivious to the actual historical record or positions republicans have taken on jobs and wages and reducing the cost of living for workers since, I don't know, forever?! 

Workers have been screwed by a rigged economy over the last half century. But to imagine Trump as someone who is going to end the elite-gaming of the economy?! He is the aristocratic progeny of the elite-gaming of the economy. He is a Frankestein creation of the neoliberal rigged-economy. 

He promised to drain the swamp but that isn't even his biggest hit, either. His greatest hit is obviously blaming the rigged economy on an invasion of non-white immigrants and foreigners ripping us off. The Christian Nationalists and rural bigots love scapegoating people, immigrants, LGBTQ+, women, the poor, and Grump is the bigot insult artist as Reality TV POTUS. These regular skits they're doing now with foreign dignitaries are talk show grotesques but, apparently, playing well enough with his X/Fox base. 

And the anti-DEI stuff is pathetic. White supremacists always have to be punching down at somebody to reassure themselves that they're above somebody else. This might be the essence of the paranoid style in conservatism. It goes way back in American history but has perhaps never been so popular or so big of threat to democracy and the rule of law. 

Jeff Bezos and WaPo Teach About Billionaires

"What makes this moment important isn’t that it swung any votes, but that normal Democrats must finally reckon with the political danger of concentrations of wealth and power.

"Amazon,” wrote pundit Matt Yglesias [corporate rule apologist], “as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.” Bezos liked that line so much he quoted it in an investor letter.

From Elon Musk’s takeover of Twitter, to Hollywood’s refusal to distribute a pro-union documentary, to Google’s censorship of negative information about Republicans, Democrats are going through the same process Republicans did over the 2010s when they realized that the cultural power centers of America are hostile to their political vision. Democrats are realizing that market power is political power."

Matt Stoller @ (Too Damn ) BIG!

I'm just a poor retired school teacher, on the sidelines, fringy margins, out of it, but seems like the Dems have known this or should have known this since the 1980s, at least, when the political establishment, of both parties, more or less capitulated to corporate rule. 

What's changed now is the Dems have assumed their own inclusive, civil rights expanding, globalizing values aligned it with corporate growth and expansion goals in a way the GOP's exclusionary culture war bigotry never could. Corporations, Dems could reason, want bigger markets, want to reach more consumers, not smaller markets or fewer consumers, excluding those consumers the GOP doesn't like. 

But what the Dems did not anticipate, apparently, is that when it came to facing serious democratic pressures for more taxes and regulations on the rich and on the wealthy, an increasingly likely outcome of democratic majorities in government since 2020, corporations and their Billionaire donor class leadership would align with Grump/MAGA's violent bigotry and Handmaid's Tale morality over whatever "woke" Green New Deal and worker prosperity plans the Dems come up with. 

What's most surprising or even galling to me is the Lucy and the football routine familiarity of all this and how something like it has been incrementalizing towards the current crisis for decades. Every time environmental reforms or worker protections or health care affordability reforms have been squelched because of their so-called "anti-growth" implications over the past thirty or forty years has been a political surrender to market power and the austerity economics TSEBC is calling for now again, should Trump be elected and he take an official role in the government.  

We know the economic model Grump stands for, TSEBC continues to promote, and Yglesias defends, generates Billionaires, what we haven't fully come to grips with yet is the corrosive and obstructive effects unfettered market power has on public infrastructure, sustainable technological innovations, and the environmental crisis pushing the earth's life support systems to the brink.  

Or, perhaps most galling of all, we haven't even come to grips with the fact this "free market" fundamentalist model isn't even the most pro economic growth; for that, see the New Deal order, 1930-1980, much higher taxes on rich corporations, better growth rates, and more widely shared prosperity. Corporate rule doesn't promote widespread economic prosperity but instead monopolizing, wealth hoarding, Billionaires. 

Lina Khan and Antitrust Enforcers: "The Rent Is Too Damn High!"

"In fact, there was no mystery behind the inflation that Americans were experiencing, inflation in everyday items paired with skyrocketing corporate profits. There was a conspiracy, orchestrated by some of the richest men in the country. Median asking rents had spiked by as much as 18% in the spring of 2022, and that was outrageous. Moreover, rents are just out of control more broadly. As the Antitrust Division notes, "the percentage of income spent on rent for Americans without a college degree increased from 30% in 2000 to 42% in 2017."

Matt Stoller at BIG

Russia and Conservative Economics Behind Why You Can't Buy a Car Right Now

Had to take my car in for service at a dealer the other day and found all the software systems were down and they were doing everything by pen and paper. The service guy said they'd been down for over a week and likely could be down for a few weeks more. A Russian hacker group called BlackSuit is behind the attack, apparently, it's nation wide, no doubt part of Russia's ongoing attack on our economy and elections, and also as it turns out part of the monopolizing private equity termite economics Matt Stoller has been chronicling for awhile now: 

Monopolization and vulnerabilities to hacking go together, because monopolies produce poor quality software. And that’s the story with CDK Global and Reynolds [the auto industry data software firms recently hacked and shutdown]. The whole crisis was avoidable, because there were possible entrants into the market that could have forced them to offer better software at cheaper prices. “Anybody who knows anything about the conduct of American business,” historian Richard Hofstadter noted in 1964, “knows that the managers of the large corporations do their business with one eye constantly cast over their shoulders at the antitrust division.”

That’s no longer true. And Wood and Easterbrook, dancing to the tune of Scalia, butchered antitrust law, which led to CDK Global’s investment in lawyers instead of quality assurance engineers. And so now people can’t buy cars.

Bigger backdrop to this monopolizing private equity nightmare we find ourselves in: 

Schumpeter hated antitrust law, arguing in his 1942 book Capitalism, Socialism, and Democracy that antitrust was foolish for two reasons. First, monopolists were inherently checked by the ever present potential of disruptive new technology. “A monopoly position is in general no cushion to sleep on,” he wrote, defending then-monopolist Alcoa in its ongoing antitrust litigation. “As it can be gained, so it can be retained only by alertness and energy.” And second, monopolies were the entities who delivered innovation precisely because their market power afforded them the luxury of long-term planning and investment. Big business is “the most powerful engine of progress… not only in spite of, but to a considerable extent through, this strategy which looks so restrictive when viewed in the individual case.”

The logic from Schumpeter to Trinko is direct. And yet, it’s also quite obviously wrong. From Boeing to Too Big to Fail banks, many examples, far beyond the CDK Global and Reynolds situation, where incumbents used their consolidated position to hinder innovation and lower quality, shows that Schumpeter’s thinking about commerce is both old and odd.

In other words, again, it is not the case that free markets, unfettered markets, maximize technological innovation but in fact in an effort to gain and secure market share often discourage or undermine innovation. 

A Conservative SCOTUS is why you can't buy a car right now, @ Big by Matt Stoller 

The Harvey Weinstein of Antitrust

Weinstein of Antitrust, Matt Stoller

Okay, so both sexual predators, very bad, but as I recall Weinstein's Miramax did actually make some good movies: Pulp Fiction, No Country for Old Men, City of God, etc. This guy, Joshua Wright, on the Federal Trade Commission, Head of Antitrust at George Mason University, is actually a power broker paid millions to thwart any antitrust reforms or prosecutions that might be directed at his clients, some of the biggest corporations in the world. 

In other words, he's an antitrust guy who defends and encourages monopoly. This is not how it is supposed to work. 

Also, surprise, more vivid evidence of the really-existing rot in the so-called Deep State: conservative business corruption. Government captured by industry lobbying. The parts of the Deep State that stopped or are still trying to stop TFG's lawless financial corruption, violence, treason, and insurrection are the best parts of the Deep State, deserving of our gratitude. Guys like Wright our scorn. 

Monopoly or oligopolistic collusion, price fixing, etc, promote economies of scale growth up to a point and then act like a kind of glorified hoarding, bottlenecking wider diffusion of spending, production, and wealth. 

After reading this story I can't now look at this picture without thinking Wright is probably sexually harassing the woman swearing him in. Sorry. 

Corporate Rule is Inflationary

"It’s time to declare the debate over [i.e., the debate over the causes of the post-pandemic inflation]. In 2021, the total corporate profit increase was $730bn, or a little over $2,100 a person. That’s a large chunk of the inflationary increase in costs. "

Matt Stoller, The Guardian 

Also, note Russia and Saudi Arabia, Dump's besties, have already discussed goosing gas prices again this election season; figuring, of course, inflation works against Biden and for their rich creep. 

And Stoller, by the way, wrote a very good history called Goliath: The 100-Year War Between Monopoly Power and Democracy (2019).