In the U.S., television and movie writers remain on strike. One of the best writers perspectives appeared this week in the Santa Barbara Independent. James Kahn does not mince words, and among other things he says that "Writers collectively get 55 million bucks a year in residuals. If the studios gave us everything we were asking for, that would go up to $75 million. Just one company —Viacom — has annual revenue of $18 billion, and its top execs make about $60 million apiece annually." In other words, one Viacom exec can make as much in one year as all the members of the writers' guild put together.
What is the possible justification for this kind of inequality? It's monarchical, where one person earns as much as tens of thousands. It's worse than the middleman strangleholds that started the Grangers' revolt on behalf of food producers against the food brokers, who, then as now, take the lion's share of the final revenues. American business leaders have used global changes to undo the post-World War II middle-class revolution, which I define as income advances that are the same or greater for the majority than they are for the top. Society was starting to advance as a whole. That common advance has stopped. And these business leaders are the reason why.
Most of the business press has slept through it. It's hard not to assume it's because writers don't want to be too rude about the self-serving beliefs of the top execs that control their outlets. Maybe this explains James Surowiecki's terrible piece, "Striking Out," ostensibly about the writers strike in the November 19th issue of the New Yorker. In general Surowiecki never met a boardroom theory he didn't like, but he is even more of the front-row teacher's pet this time around, taking the opportunity to sigh about how strikes never raise wages and to make the writers seem as self-interestedly deluded as any billionaire exec. Economics, history, sociology, personal stories all disappear in Surowiecki's likening of both sides to fans in a 1950s study of a Princeton-Dartmouth football game, players of "ultimatum" and capuchin monkeys who are rewarded for working together. Anything to avoid talking about the grotesque inequality between execs and writers.
Surowiecki is a longtime ideologist of the middle-class: he spent the 1990s selling the New Economy and its market forces to the white-collar working stiffs who in the great majority of cases were going nowhere in it. But for Jim's faithful readers it seemed both glamorous and inevitable, and he asked us to identify with the masters of the universe who were making the high-tech future for us, ready or not. Entrepreneurs wrestled with the market gods and won: from their loins sprang infinite riches which we gratefully received. This mighty union of entrepreneurs and markets was the highest, the most glorious, and the only road to the wealth and plenty that is America's alleged birthright.
Unfortunately, when you put down the writings of middle-class admirers of capitalists and read the work of the capitalists themselves, you discover the admirers were lying to you about markets.
Look at these sayings from investment books:
- I'm a 40% fundamentals / 60% technicals trader
- buy the company, not the stock price
Let's start with these two. The first is from some young guy with an MBA from NYU who trades currency for a living. His work is neither interesting nor socially valuable - he practices "scalping" and holds positions for about 15 minutes at a time, but he does note that he cannot make money by regarding markets as snapshots of economic reality - the "fundamentals" view. The behavior of market traders is "60%," and these folks are exploiting market spreads - gaps, holes, that is market inefficiencies and market failures, to make their numbers.
The second is a saying of Warren Buffett's. It means don't look at the market measure of a company, look at the company. Buffett's famously successful investment strategy in effect invests in specific social institutions and relationships with names like Coca-Cola. You invest in people, products, and financial measures of those things. You don't invest in market prices.
Such sayings imply that major capitalists do not believe that markets are self-managing systems that return to equilibrium if you don't let governments money with them. This flatly contradicts the wisdom of TV hosts and politicians, who celebrate the "free enterprise system" and the "efficient market hypothesis" as though it is always the 1950s in America, not to mention the 1920s. Capitalists make money by seeing markets for what they are - social institutions with all sorts of problems that can be mended and milked, often at the same time.
Most of them find it convenient for the masses to believe otherwise - that markets must be left alone.
The blanket buy-in to this ideology may explain odd facts like how no disaster - Enron for example - ever actually gets us to reform our corporate governance system. Paul Krugman points out in his column today that this undone reform is the source of the ongoing "subprime" credit crisis, which sounds like it was caused by shady small-time mortgage brokers when it was caused by buying and selling asset-based securities by the wealthiest bankers in the world, they of the $40 million a year minimum paychecks. Congress may not reform the corporate world because the latter owns Congress - that's a big part of the story - but they also don't reform because business, B-schools, etc. have trained us to think that markets are wiser than all democratic intervention - that it is indeed undemocratic for the people to steer economies.
One last example of insider debunking of this Americanism. George Soros is one of the most successful currency traders in history, and in 1987 published a book called The Alchemy of Finance. I will say more about the overall theory of "reflexivity" in markets some other time. But my point here is simply to note that Soros rejects self-regulating markets categorically as what he calls "market fundamentalism." On page 52 he says, "I replace the assertion that markets are always right with two others:
- Markets are always biased in one direction or another.
- Markets can influence the events that they anticipate."