Thursday, June 26, 2014

Cooley and the Gang

Crying about ‘regulation’ is quite popular among industry leaders and politicians. Yet, compared to the restrictions faced by medieval merchants, they’ve got it quite easy indeed.

Want to sell meat or other types of food? The plant or factory where it’s processed needs to be inspected (at least sometimes). Want to refine oil? Got to keep emissions beneath standard allowances.

If that seems overly onerous to you, consider the following:

In the year 805, Charlemagne demanded:
"Be it decreed that it is of importance that none should transact business at night in gold vessels, silver vessels, slaves, gems, horses, and animals, except for food and fodder necessary for those making a journey. But let everyone transact his business by day in the presence of all and before witnesses"[i].
Or this ‘Farmer’s Law’, a regulation from the 7th or 8th century:
“A shareholder’s portion in nine bundles, the grantor’s one: he who divides outside these limits is accursed[ii].”
Imagine that ratio applied to a modern wage!

Another aspect of regulation is to ensure that the economic activity of one libertarian does not damage either the economic activity or the quality of life of another libertarian. That’s why there are limits to what kind of industrial waste can be dumped in a river, and how much. 

Such rules, as you can see, have been around for centuries. While it’s true these rules didn’t speak of mercury, for instance, because industry hadn’t evolved technologically enough for people to understand the harmful aspects of such harsh chemicals, nor did they possess the ability to detect them in the first place.

But our ancestors clearly understood that one person’s activity can impact another:
“If the water which comes to the mill leaves dry cultivated plots or vineyards, let him make the damage good; if not, let the mill be idle[iii].”
Today, we call this the 'Tragedy of the Commons'.

Regulation in Times Past

Politicians, particularly those acolytes of Randian neuroses, enjoy denying those less fortunate the benefit of public assistance, and will often cite, as justification for their pettiness, tradition. The following is from the ‘Capitulary of Charlemagne (AD 764-814) and discusses the rights and obligations of the Imperial Estates:
“That good care be taken of all those who belong to us, and that they be not reduced to pauperism by any one.”
Can you hear the murmuring coming from Galt's Gulch?

Obligations of the Ruling Class

Centuries ago, men knew the importance of treating workers right. In the age of serfdom, the Lords of the manor took it upon themselves to see that their serfs were well taken care of, and instructed their stewards to consult with the serfs on a regular basis:
“Let each steward frequently hold audiences in his district and do justice and see to it that our serfs live rightly.”
Failure of Leadership

The weak character of Louis the Pious (AD 814-840) permitted holders of benefices possessions hereditary and allowed immunity from certain taxes. The weak character of too many of our elected officials has allowed the same thing to occur in the modern era. Pressure groups demanding continually lowering tax rates are a prime example. Another is when other groups (sometimes comprised of the same people) strong-arming the EPA into allowing greater amounts of pollutants into the environment.

Distribution of Taxes
“As to the coloni…the steward sees to it that each gives according to what he has…”
Isn’t that wealth redistribution? Shouldn’t a tax be fixed at the lowest possible rate? Damn socialists!

Minimum Wages

There are those, like Charles and David Koch, who wish there to be no minimum wage at all. Even our crude ancestors knew better. An account given in Walter of Henley’s Husbandry[iv] lists various acts of labor and the wage to be paid accordingly.

Foreshadowing the Earned Income Tax Credit by nearly 1400 years, we have Pope Gregory’s standard price for grain:
“We have learned that the serfs of the Church are grievously burdened in the matter of prices of grain, so that the purchase price fixed for them is not observed in time of plenty. And it is our desire that the standard purchase price be observed in their regard at all times according to the official prices, whether the harvest be great or small.
Imagine that! A guaranteed income for a standard amount of output.

Worker Organization

The Count of Holland, Theodore, decreed in AD 1200 that:
“our townsmen of Dortrecht may enjoy in their own right the following freedom in the said town, namely, that it is permitted to no one in Dortrecht to cut cloth for retail sale except to those who are designated by this trade, being called cutters of cloth…”
Apparently, unions (gilds, or Hanse) were good enough for royalty, but not good enough for American businessmen. Grants of gilds to tanners, fishermen, cordwainers, carpenters, butchers, weavers, goldsmiths, barbers, and shearers were all acknowledged. Calm down, Grover, it was a long time ago.

Regulations Regarding Transportation
"The highway should be wide enough for two wagons to meet and pass there, and for herdsmen to be able to make contact, with their goads at full length, and for sixteen knights, armed, to ride side by side. That is called a royal highway which is always open, which no one can close or divert with walls he has erected, which leads into a city or fortress or castle or royal town"[v].
Repairing Infrastructure
"For the repair of the city wall and bridge the reeve called up 1 man from each hide in the shire. The lord of any man whose man did not come paid a fine of 40s to the king and the earl; this forfeiture was over and above the farm"[vi].

To hear some speak about the size of government, particularly that of the federal government and its vast bureaucracy, one might get the impression that regulation is a new invention of government, created by people within the government to justify their existences. There may be some truth to that statement, but it’s certainly not anything new, and most often there’s a good reason for it.

Below is a description of ‘men of credit’, whose purpose was to witness various sales, a precursor ‘consumer rights division’:

"men of credit"
"We perhaps see here an early expression of the concept of probi homines as a distinct group within urban society. The requirement for credible witnesses to commercial transactions can be traced as far back as a Kentish law of the seventh century. King Edmund had, in the 940s, recognized the chief officer of a town (portireva) as one empowered to witness sales of cattle, but a law of Edgar (ca.963/63), again with cattle particularly in mind, had required each borough and rural hundred to designate a body of standing witnesses – 36 for larger towns and 12 for smaller ones – before two or three of whom every commercial transaction had to be made. Upon appointment to this role (or, in the time of Canute, in the course of individual trials), witnesses were to swear never to lie about any transaction they witnessed nor give any hearsay evidence. Purchasers were instructed to inform their neighbours, upon returning home, of the names of witnesses to their purchases"[vii].
The More We Know

In our modern age, regulations have become more technical because our knowledge has increased, and we now know much more than our predecessors did about the dangers of, say, improper food handling. And because we harness forms of energy not available to merchants in medieval times, like electricity, our regulations by necessity require that they address those concerns.

Modern regulations are more technical because modern technology is more...well, technical, including our legal technologies. The language of regulations has become so much more precise because so have our legal definitions, of negligence, for instance.

This is, apparently, something that Tea Party 'thought-leader' and Wisconsin Senator Ron Johnson fails to grasp. In the video below, we see him giving an interview with Laurie Rice of the Atlas Society in which Ron discusses the trauma of how his company was forced to acquire UL approval for a newly purchased machine:

Johnson isn't able to say who exactly required the UL approval. For all we know, it could have been his own insurance company. But he does allude to it perhaps being a state entity, yet we just don’t know.

What I find most troubling is that the good senator and supposed business leader never gives thought as to why the machine would need this certification in the first place. Even worse, he seems to have not been aware of the requirement until after the machine was installed. Could it be that it was needed to determine if the device met current best practices of machine design: mechanical, electrical, hydraulic, and pneumatic – not just for the safety of the operator, but for the safety of the machine itself, to make certain that the builder met all the criteria as specified in the build contract? You know, to make sure that Ron got his money's worth?

He does mention the cost of the machine: $2.5 million. Its obvious Mr. Johnson is more concerned with the costs of purchasing the machine than whether or not his employees will be harmed in its operation, or that the builder didn't subcontract the work out to someone working out of his garage.

Never mind all that. What gets me is that testing the machine seems to never have occurred to him, as if it simply didn’t matter. Johnson thought that the required testing was extraneous, frivolous. He mentions the cost of the testing - $70,000 – because of his intellectual myopia, that’s the limit of his vision.

This self-proclaimed 'leader' fails in basic operations management. Good leaders know that no problem was ever solved by running away from it and pretending it didn't exist or wasting time seeking blame.

All Johnson can see is an artificial hoop – a regulation - set up by government to make his life harder – to put a damper on his ability to profit. The government, he laments, is forever stripping away the rights of individuals and interfering with his property rights. Like the proverbial frog in a pot of slowly heating water. So, that's two things he's wrong about.

Thomas Cooley, a pre-Rand Randian, considered to be an expert in administrative law, wrote:

“The laws pf property are in themselves regulations, and the rules which give remedies for the invasion of rights are what render civilization and orderly society possible.”
It’s worth mentioning that Cooley was no lilly-livered left-leaning liberal. He mistrusted governmental economic regulation yet he opposed the ‘arrogance of wealth’. He also felt that laborers and such only needed laws that ensured “Free Speech, Free Schools, Free Trade and Free Labor”[viii].

It is law itself which creates private property in the first place. In Cooley’s words:
“If industry creates, it is the law which preserves.”
“Indeed, every item of individual property, real or personal, every kind of business, every movement of the living person where he may come in contact with others, the conduct of the living and the disposal of the dead, are all brought within the control of regulations established by the state, or by customs which the state adopts, and which thus become its regulations. Men cannot escape from these if they would, and they would fall back into a state of savagery if they could and did[ix].”
Cooley goes on to caution us against capricious and excessive regulations and the importance in establishing limits and to whom the authority to establish regulations lie: there can be too many authorities stabling regulations, that would pit neighbor against neighbor, each creating their own regulation to achieve an unfair personal advantage.

“Today the unpopular interest may be the professional or mercantile class, tomorrow it may be corporations, and the day following the laborers upon railroads or in mines. Security can only be found in general principles, and the same general principle that will protect one must protect all.”
We know Mr. Johnson would have liked to forego the testing required to establish that the machine was designed properly, conforming to known ‘best practices'. Without such testing, any Joe could throw together a Rube Goldberg contraption and sell it on the market to unsuspecting folks not as smart or savvy as the good Senator.

While the argument against regulation is almost always that of the ‘nanny’ state encroaching on the liberties of individuals, what it’s really about is money. What opponents of regulation (law) really seek is to remove any legal encumbrances to profit, something like complaining about the obstacles that banks throw up against walking in and then away from the bank with a bag of money.

The larger problem with regulation, as with any other type of law (though it could easily be argued that all laws are regulatory) is that they don’t evolve symmetrically along with society – in fact, they can’t - before there can be a prohibition against a thing, the thing needs to first exist.

Because our technology evolves at a faster rate than we can fully assimilate it into our daily lives, there will always be lag time between the offense and its remedy. This we know, and it’s also the reason why regulations have become ‘busy’ and may seem to some to be far-reaching – they are attempting to foresee the future and possible future problems.

Johnson, and many others, cry juris privati – that their private rights are being trampled, ignoring, most often, Cooley’s determination of the four types of business that are "affected with a public interest" and thus subject to some form of regulation.

Johnson and his cronies, it seems, think that the country was founded so that business owners could do as they pleased, that the government would step aside if found to be in the way at all. They forget, or maybe never understood, that the country was founded by “We, the People”, plain and simple. Apparently, not plain or simple enough for the good Senator from Wisconsin to grasp readily.

Even 'primitive' people of yore understood the need for regulations. Yet, here we have good ‘ol Ron, now a U.S. Senator, who fails to think long-term even for a relatively small expenditure, when compared to line items on the U.S. Federal budget, as his 2.5 million dollar machine, proposing a moratorium on regulations, because he doesn't understand the need.

Even Cooley knew that poor working conditions (like those that arise from improperly designed and tested machinery) and low wages were antagonistic to long-term profits and the health of a firm. He also felt that employers had a moral responsibility to their workers. Yet, he was ever-weary that the government was to be the instrument, feeling that the moneyed-class would subvert whatever remedy that government came up with for their own benefit. 

In that regard, he accurately predicted the American political landscape of the early 21st century, and someone like Sen. Ron Johnson.

[ii] “A Sourcebook for Medieval Economic History”. Roy C. Cave and Herbert H. Coulson. The Bruce Publishing Co., Milwaukee, 1936
[iii] Ibid.
[vi] Ibid.
[vii] Ibid.
[viii] Carrington, Paul D. “Law and Economics in the Creation of Federal Administrative Law: Thomas Cooley, Elder to the Republic” Iowa Law Review (1998) 363-390.
[ix] Cooley, Thomas M. "Limits to State Control of Private Business." Princeton Rev. 1 (1878): 233-71.

Friday, June 20, 2014

Rum. And Koch.

Special-interest groups and their propaganda are not new but since the advent of the internet, not only has the manner of information dissemination changed, but so has the way the information is consumed.

Where once a pressure group only had the printed medium, when radio came along, they went with it. Same with television. And now, the Internet and in particular social media like Twitter, Facebook, and the rest.

Pressure groups take on all sorts of personas. Mothers Against Drunk Driving (MADD) is a pressure group. But so are television networks, for that matter. Each tries to get the media consumer to consume their media.

The hope, the expectation, is that by osmosis, you’ll get the message and start seeing things their way. If there’s an interest, there’s a Twitter account for it.

Four Phases of Interest Group Development

Pressure, Interests, and Ideas

Just about any ‘grouping’ of people can be construed to fit the definition. Some try to get you to change your behavior; some to make you aware of something you may not have been aware of, and others to share a little or as yet unknown idea. And some want to make money.

All of them wish for you to believe them to be the new, relevant ‘thought leaders’. And each group's arguments make better sense that the other’s. And, they all produce policy papers, analysis, statistics, and endorsements to prove it.

Much has been discussed regarding the Koch brothers and their many-faceted effort to influence the body politic of late. Many, especially from the left, have decried the massive amounts of money they pump into their efforts, some even accusing the Machine of trying to buy elections.

It’s hard not to agree with this argument, considering the Machine seems to have a product available to slake a wide variety of political thirsts.

If it’s Right-to-Work, there’s ALEC, U.S. Chamber of Commerce, National Right to Work Committee and others.

If Minimum Wage is your bag, there’s the American Enterprise Institute, the Heritage Foundation, the National Association of Manufacturer’s and others.

Reince and repeat for tax reform, voter rights, segregation, and on and on.

Types of Interest Groups

These days, it not unusual at all to learn that a particular businessman belongs to any number of associations, involving a variety of industries, and in an array of functions. When criticized for this, they will mention that many if not all of the Founding Fathers belonged to business associations.

What they don’t mention is that before the modern era, a business man usually belong to only one association, if any[1].

What’s more, in the modern era, a particular association or think tank may serve several functions such a trade association and as a type of ‘chamber of commerce’ for a segmented market, as well as a social group.

Similar-Issue Politics

The Koch brothers aren't the first moneyed-interest to employ multi-pronged marketing as a way of affecting the tone and direction of political discourse, just the biggest. And they may be the best at it.

They have been linked to no less than an oodleplex[i] of think tanks, policy institutes, advocacy groups, etc. All of which concern themselves with the same issues, have incestuous staff arrangements, receive funding from the same sources, and are all independent and non-partisan. According to them, anyway.

Yet, the Koch brothers didn’t invent this scheme. Before them, there was the John Birch Society, who claimed, when discussing their approach to ‘educating the public’ (I forgot to mention all the educating going on), to have gotten the idea from the Communist Party, no less.

Great Expectations

But they didn't really. Years before the JBS was even a small tingly glioma in Robert Welch Jr.’s brainstem, a group calling themselves the American Liberty League (ALL), an organization that espoused Ayn Rand’s philosophy earlier than she did, operated in much the same way. Like Koch, they embraced the idea of the uncommon man.

Obviously, they didn’t use Twitter or Facebook. But they did issue a slew of pamphlets, leaflets, radio ads, and press releases. Led by prominent businessmen, politicians, and academics, the group sought to defend the “American Way”.

As Frederick Rudolph in The American Historical Review said this about the ALL:
“The cloak in which the Liberty League dressed itself in order to promote its position and its program was made of respectable generalities, partial self-delusion, intense sincerity, and frequently embarrassing hypocrisy. It supported with worshipful intensity the Constitution of the United States; it placed itself on the side of the individual and of liberty in opposition to an encroaching government bureaucracy; it respected the judgment of the founding fathers who had so wisely incorporated the separation of federal powers and the rights of the states into the great national document.”
Sound familiar? How could a group who held the Constitution and (gasp) the Founding Fathers in such high regard be anti-American?
The League’s main opponent: The President of the United States of America, Franklin Roosevelt. The group was determined to do all they could to push back on the affront to liberty and individualism that was the New Deal.
When one member of the group referred to the depression as a ‘healthful tonic’, the public, still reeling in the depression caused by the rugged individualism of uncommon men, wasn’t too receptive to their message.
One would have thought that such accomplished men, scholars some, would have been a bit smarter about their public comments. Really, they should have known better. Harold Ickes, Roosevelt’s Secretary of the Interior called the ALL a coalition of “industrialists, constitutional lawyers, and captains of finance who drove our good ship onto the rocks[ii]
Captain’s Rum

Years earlier, many of the same men involved with the American Liberty League had come together to form the Association Against the Prohibition Amendment (AAPA), founded in 1918 by Captain William Stayton.

It’s not hard to understand what this group was about. And once their objective was met, they disappeared.

There is one similarity between the old and the new: The various Koch groups, with their tendency to cross-pollenate ideas and leadership personnel, a throw-back to the AAPA, constitute a locus of ideology driven by one ever-present goal: Money.

There is also one huge difference: From time to time we hear from the Koch brothers, Charles, in particular, who says that the two have had their names dragged through the mud simply for trying to be good citizens by providing information and educational materials to the public. They claim it is fundamentally unfair for the public to link their good name to such nefarious aims such as ‘trying to buy elections’, citing that other players are afoot, and their names aren’t mentioned in the same context.

There are reasons for this. One is that no one else is involved in so many areas and no one else is as committed as they are or are willing to spend so much of their fortunes to see that public issues are resolved to their liking. The other reason is that the Koch brothers, more than the others, make their contributions so selective that each dollar given is done so with the objective of putting even more money back into their own pockets. The Koch’s don’t really makes donations, they make investments, tax free.

Romancing the Stonecutters

In opposition to the businessmen’s groups were those with different 'interests', namely, the trade associations. Since Roman times up to the present day, guilds, or unions, acted as a counterweight to seek decent wages and otherwise improve working conditions for craftsman.

Back then, as with the informal business associations, guilds and unions were local affairs. Today, keeping pace with the industrial organizations, the unions have taken to social media as well. See: Fire, fighting with.
The guilds came to America along with industry.

There were Baker’s Guilds, Ship-Builder’s Guilds, and even Banker’s Guilds. Following close behind them were the employer, or owner groups such as The Employers’ Central Executive Committee (against unionization and the eight-hour day), the Law and Order League, and the Railroad General Managers’ Association, which worked in opposition to the Knights of Labor.

The power of the Koch Machine to apply pressure on elected officials, often through their special-interest associations, has only been rivaled by the British East India Company. The laws the Koch Machine fights against are designed to protect ordinary people, working class people, from predators like the Koch’s (and others, of course) who would exploit their lives for their own profit.

Because of social media, the Koch Machine is even more powerful when it comes to foisting its propaganda upon the public. The lessons from previous groups is not lost on the Koch Machine. Instead of issuing bold, yet honest, statements, the various front groups disguise their objectives in terms of ‘personal liberty’, ‘protecting the constitution’, and the ever popular ‘freedom’, i.e., protecting America, and its Constitution. Who could oppose such efforts?

In a review of “You Are the Government[iii]”, Lane W. Lancaster writes:
“If the words he (Shouse) uses in describing such matters as our Bill of Rights, the Federal system, and the system of checks and balances, are to be given their usual meaning, no such government ever existed anywhere.”
Divide Et Impera

When responding to critics, spokesmen for the various issue advocacy groups claim that the founding fathers’ also belonged to such groups. There is truth to this. Well after the war for independence, special interests played an active part in influencing legislation. Wool, tobacco, hemp, and sugar producers successfully petitioned the government in favor of their financial interests.

However, in the era of the founding fathers, businessmen typically belonged to only one such group, if any[iv]. These days, it’s not at all unusual to see a member of one special interest group belong to a number of other groups at the same time. There are now people whose only source of income comes from involvement in such groups

Point in fact: the Koch Machine employs 240 full-time staff in 32 states. And, that’s just for Americans for Prosperity. That’s a big difference from the guys raising a pint at the Green Dragon.

Pressure groups such as Club for Growth, American Legislative Exchange Council, and the CATO Institute are surrogates for Koch Industries. Their purpose is to persuade you (or your elected representatives) to buy their product, which may range from changes in tax structures and rates to regulatory reform, all meant to line the pockets of Charles and David Koch.

Heads They Win, Tails You Lose

Because contributing to these organizations is tax exempt, the actual tax payers (the 98%) foot the bill, in the same way that taxpayers subsidize Walmart and McDonald’s profits.

Maybe what we need is a limit on the amount of tax-exempt money spent on these groups. Not a limit on what can be given to them, just a limit on how much the rest of us have to cover.

Murray Edelman points out that a policy adopted through special interest groups produces two types of rewards: 1) tangible rewards to those doing the lobbying; and 2) symbolic rewards to the rest. For those who won’t receive financial gain, there’s the satisfaction of knowing that there are others who feel the same as they do. That’s often enough, for some. For example, some non-membership organizations have thousands of pledged supporters on Facebook, thousands of followers on Twitter, and thousands of subscribers on email lists[v].

Some interest groups are spin-offs from other groups. Some are born in opposition to existing groups. Moral victories are hollow. To win, to make the effort (and money) worthwhile, the group must convince government to act:
“Government continues to respond to groups that clearly communicate their interests and have the funding to convey their message effectively. Still, representation is not simply a matter of responding to specific interests or citizens. Government must also respond to society’s collective needs, and responsiveness to particular interests can reduce overall responsiveness.[vi]”
It’s when government stops responding to the interests of all its citizens and focuses on satisfying a small handful of certain citizens that inequality grows. Make no mistake, the Koch brothers aren’t the only concern in this matter. There’s the Walton, Bradley, Richardson, DeVos, Schaif, Cargill, and MacMillan families. But they are the most in-your-face actors on the stage.

That’s why they get so much press.

The difference in treatment between the Koch Machine and say, Walmart? Because unlike Walmart (who came under fire recently because one of its stores held a food drive for its own employees, basically asking their customers to chip in even more beyond the public assistance money spent on Walmart's needy employees, because the company sure as hell wasn't going to), isn't so bold as to fund a medusa's head of issue groups that basically claim the government is picking on them.

Doing so while failing to mention the tax breaks, low extraction fees (another government giveaway), and publicly paid-for subsidies that Koch Industries and its subsidiaries receive.

What the Koch Machine is doing is the same that many others are doing - only they are doing so much more of it. The Koch's are taking advantage of the fact that change is not uniform and coordinated among the many aspects of life. that is to say, technology changes at a a faster rate than our overall society does, and the Koch Machine takes advantage of that fact.

[1] See “The Evolution of Business Groupings”, Clarence E. Bonnett, published in “Pressure Groups & Propaganda” – The Annals of the American Academy of Political and Social Science – Thorsten Sellin, Ed.

[i] An “oodleplex” could be defined as a ‘very big number’.
[iii] Written by Jouett Shouse, who served as President for both the AAPA and the ALL.
[iv] See “Pressure Groups and Propaganda”, published by the American Academy of Political and Social Science, Harwood L. Childs, Ed. Philadelphia, 1935.
[v] “The Not-So-Special Interests”, Matt Grossman. Stanford University Press, Stanford, 2012.
[vi] “Interest Group Politics”, Allan J. Cigler and Burdett A. Loomis, Ed.s. CQ Press, Washington D.C. 2002