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tv   Part 2 Center for Study of Responsive Law Conference  CSPAN  November 9, 2018 1:53pm-6:45pm EST

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and the post-tax data show that the argument that it would pay for itself, you remember that, the tax cut would pay for itself, more production, more labor, more taxes, work, hasn't done that. not surprisingly for people who study reality instead of myth. one of the major claims of market fundamentalism is that there is, quote, no such thing as a free lunch, unquote. well, today, there is such a thing as a free lunch and you're welcome to it out there. and we will be back with the rest of the program. thank you.
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>> we will be getting under way. we are a bit late. i hope you enjoyed your lunch and the conversation even more with other people. our next speaker is russell mokhiber, he is the editor for over three decades of the corporate crime reporter, a weekly newsletter based in washington, d.c. he writes internet articles exploring corporate crime, and he is the founder of single payer action.org. that's full medicare for all. single payer action.org, if you want updates on what is going on in this important field. he also founded and runs morgan county usa.org in west virginia. works at the local level as well. like jim henry.
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morgan county usa.org is the author of corporate crime and violence. big business power and the abuse of the public trust, as put out by an environmental group. he lives in berkeley springs, west virginia, and he's probably interviewed more people than anyone you've ever met over the years. he once actually put out a daily newspaper, five days a week, and had interviews in each one, and the corporate crime reporter, which is not enough -- well, corporate crime is not exactly a major feature of the curriculum,
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he -- >> welcome, russell mokhiber. >> law and order, get tough on crime, crack down on criminals, support your local police, no more lenient plea deals, prosecute the criminals to conviction, thee strikes and you're out, bring back the death penalty. this type of law and order talk makes the opposition party uncomfortable. why? because the opposition party is funded by corporate criminals.
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and because law and order talk is politically incorrect. question. why would the democratic party, funded by corporate recidivists, support a corporate death penalty for corporate recidivists? crime and corruption are arguably the issues that got donald trump elected. the only way trump was able to capitalize on a law and order theme was to portray his opposition as the party of corrupt money. or to quote trump, during the campaign, i know the guys at goldman sachs, they have total, total control over hillary clinton, the wall street banks own her, unquote. during the campaign, trump repeated, over and over again, drain the swamp, rigged system,
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crooked hillary, lock her up, and you can yell and scream all you want about trump hypocrisy, but that doesn't get you into the red zone. that doesn't address the rigged system america was voting against. we're talking about a failure of an organized opposition to confront market fundamentalism as the controlling ideology of the ruling cleptocaray. another phrase for market fundamentalism is laissez faire capitalism or translated from the french, let the corporations do as they wish. move away from law and order. and that is what we have under this system. call it trump/clinton, trump/biden, trump/book eer or trump/harris go down the list of corporate democrats. a new book out, the title "capitalism, a crime story."
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under laissez faire capitalism or market fundamentalism, corporations get to be the architects of the legal system under which they operate. instead of police, corporations get regulators. instead of criminal prosecution, corporations get regulatory enforcement. instead of conviction, corporations for the most part get sweetheart deals known as deferred and nonprosecution agreements. instead of probation, corporations get monitors and corporations get to nominate the monitors. and guess who pays the monitors? the corporations. instead of jail time for their executives, corporations get slap on the wrists, neither admit nor deny consent decrees with minimal fines. the great divide between the powerful and the powerless in this country is best understood through this lens of the criminal justice system. and four recent books shed light on this double standard in criminal justice.
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the divide by tyebi, why not jail, by rina stinzer, who will be speaking later, the chicken club, and too big to jail, by brandon garrett. richard prior, who comedy central lists as the all time greatest standup comic put it best when he defined justice and "just us." what is the reality of corporate crime in america today? here is the twitter version. corporate crime inflicts far more damage on society than all street crime combined. corporate crime is often violent crime. corporate criminals are the only criminal course in the united states that have the power to define the laws under which they live, and corporate crime is underprosecuted, and corporate crime police are underfunded. even corporate criminal defense lawyers, many of whom were corporate crime prosecutors in a previous life, will stipulate to these facts. and if you wish to confirm the
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facts for yourself, go back and read the last 32 years of corporate crime reporter, which is printed 48 times a year. week in and week out, we cover major corporate crimes, from pollution, to corruption, to bribery, to price fixing, to death on the job, to false claims and fraud. wondering why that can of tuna fish costs you so much? just yesterday, starkist pled guilty to conspiracy to fix the price of canned and ready to eat tuna, and now faces $100 million penalty. criminal fine, excuse me. $100 million criminal fine. last year bumble bee pled guilty to the same charge and was fined $25 million. every week, in corporate crime reporter, you will read about these and other crimes of the powerful. every week, we run a question and answer format interview, and many of those interviews are with former federal prosecutors, turned corporate defense attorneys. or, check out the public databases of corporate crime, including phil matera's "good
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jobs first," violation tracker, spectacular database, and brandon garrett's "corporate prosecution registry." but don't get lost in the weeds. focus in on this question. why, given this crime wave, haven't we seen a political movement against corporate crime? answer one is what i mentioned earlier. the two major political parties are funded by corporate criminals. well documented. and 15 years ago, corporate crime reporter put out a study showing the top 100 corporate criminals in the united states donated more than $9 million during the 2002 campaign to both parties. and it has obviously gotten worse since. and the second answer is that activists and third parties are hog-tied by a political correctness that prohibits them from taking a strong law and order stance. but there are rays of light at
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the ends of this corporate crime tunnel. and here are two from my home state of west virginia. richard ojeta is a 24-year army veteran paratrooper who is running as a democrat for congress in west virginia's third congressional district. that's the southern part of the state, coal country. trump won it three to one, in some areas 80/20. when ojeta returned from afghanistan, his service in afghanistan, and iraq, he said he found kids in his west virginia district worse off than the children in iraq and afghanistan. and he ran for office, local office and was elected to the west virginia senate. upon taking office, he was immediately visited by drug industry lobbyists. and this is in a state ravaged by the opioid crisis. ojeta says he threw the drug industry lobbyists out of his office and a reporter asked him why did he do that, and he said,
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quote, he found big pharma, quote, no different than the taliban and the al qaeda that i fought in iraq and afghanistan, unquote. second example. is sara chase, a former npr reporter, who writes about corruption around the world. in 2015, chase wrote a book about corruption titled "thieves of state, why corruption threatens global security." in thieves of state, chase argues that the violent religious extremism is actually related to government corruption, not religious ideology. thieves of state came out in 2015. she says that she didn't expect the version of an extreme reaction to corruption so quickly right here in the united states. but that's what we got in 2016. she says that much of the vote for bernie sanders and the vote for donald trump was one of
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these wrecking ball, smash the system, anti-corruption votes. sara chase is now our neighbor in paw paw, west virginia. she moved from afghanistan to west virginia. and if you read the interview in the current issue, she tells you why. she is currently writing a new book about corruption in the united states. going around the country, interviewing people, as alex did when he wrote "democracy in america" and title of her new book "cleptocarcy in america." i interviewed her in the current edition which i have been passing around. she said one of the things she learned from studying corruption overseas is the criminal elite often use political correctness and identity politics to keep the public from rising up against their corrupt overlords. quote, this is what she said. what distresses me so much is our polarized politics, the
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fault is on both sides. why is it that we can't get environmentalists and deer hunters together? they both adore our west virginia wilderness, our landscape. our cultural divides as much as possible to make sure that environmentalists are unable to speak with and sit in the same room with west virginia hunters. in my research, sara chase still talking, in my research on anti-corruption movements worldwide, what i discovered is that the best tactic, clepto-crattic networks use to stay in power and defeat legitimate uprisings against them is to deliberately activate identity divides next do this very cynically. usually they don't care much about the sunni shia divide or about guns or gay rights but they lean hard on these issues because they know these people
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rile people up and keep them divided in angry opposing camp, incapacitated to rise up against the clepto-crattic network that is abusing them all. unquote. in west virginia, we have a race for senator that could tip the balance of the senate. it is our corporate republican attorney general, patrick morrissey, against our corporate democrat senator joe manchin. i asked chase, with the senate in the balance, will she vote to re-elect the democrat joe manchin? i will not vote for senator manchin, she said. i intend, and this is taken off, and people are getting on this bandwagon, i intend to write in no more manchins, and everything he represents, which is somebody who puts a d label on their shirts, takes people's votes for granted, and behaves as the
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happy to the private sector members of the clepto-crattic network that is running this state, and running this nation. that means big pharma and big fossil fuels, unquote. chase and ojeda in west virginia are pointing the way toward a law and order rhetoric that could lead to a populist challenge to the corporate criminal status quo and the market fundamentalism that underpins the ruling cleptocarcy. may this forum serve as a launching pad for a law and order movement to combat market fundamentalism and the corporate crime and violence it has unleashed. thank you. >> thank you very much, russell. in our continual quest for
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liberating reality, in place of controlling mythologies, our next speaker is robert weissman, who, when he was an undergraduate at harvard, sponsored studies, showing how much control corporations had over harvard university. and i remember in a particular event there, he impressed me so much that i said, well, i think he is going to be a future civic leader nationally. and so he has become. when he was working with us, he was working with jamie love on bringing big pharma to accountability, because at that time, they were charging $10,000 per person, per year, in africa, who suffered from aids. $10,000. and because of what jamie love and robert weissman and others, very few others, did, they broke
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that price, they found a manufacturer in india who said he would do the same thing for $300 a year. and it is even lower now. he also was a leader in the international tobacco control movement. and spent a lot of time in other countries and in the u.s., trying to foster an international treaty on the subject. he is now president of public citizen. and he has written many articles, especially when he was editor of the multi-national monitor. and that was the only really magazine reporting on global corporations exclusively. and the issues which are still pertinent, including the interviews, are on the web site, multinational monitor.org, i
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believe. he's also a person who has kept off a lot of tv and radio, more than some of his counterparts, like grover norquist and bill kristol and others, but he continues to fight the good fight, and he will bring to us another perspective on the myths of market fundamentalism and their uses to block needed regulation in congress, and to try to counter-act any kind of public accountability of these global corporate institutions. robert weissman. >> so when i was working on the publication that ralph talked about, multinational monitor, we
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talked about market fundamentalism a lot. which is i think where context in which the term was first used which is much more international economic debates than domestically. and then reflecting upon the words in advance of this forum, it struck me that it is actually kind of a misnomer. the market part is like a fiction. the fundamentalist part is real. but it is not as if the proponents of market fundamentalism believe in markets. that's what greg's presentation was about. it is what burt's presentation was about. it will be in part what mine's about. the existence of the corporation, it is really corporate fundamentalism. the existence of the corporation itself as an affront to a pure form of free markets, certainly concentrated corporate power. i wanted to talk primarily, and maybe exclusively defending on
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how fast i talk, about market fundamentalism and politics. and then maybe secondarily about an emerging issue in the law that's related. so it is the case that the core idea of markets that money is all that matters is now the central animating element of the law of campaign finance. and there are two main pillars of contemporary campaign finance law from the supreme court, the first is the 1976 decision, buckley v vallejo, that's the one that you may colloquial know held that money equals speech, is more or less what the case held. this sort of operative conclusion of the case was that a restriction on the amount of money a person or group can spend on political communication during a campaign necessarily
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reduces the quantity of expression by restricting the number of issues discussed. and therefore, if you limit what anyone can spend on an election, you're limiting their speech, and basically you shouldn't be able to do it. so that's principal number one. and then, and you can see where that is sort of a market fundamentalist principle. principle number two comes from citizens united. it brings, it reminds us of the money equals speech element, but of course, it was not about the speech, it is human beings, it is about the speech of corporations. so in that regard, it is a divergence from market fundamentalism, as it might be abstractly but is an expression of it as it actually exists as corporate fundamentalism. if you read citizens united, from 2010, which you should, even if you are not in the habit of reading supreme court cases, it's got a lot, it is unfortunately very long, but it
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says some pretty remarkable things. so here are two excerpts which if i was using power point you could read but i will read it to you that get to the heart of it. speech is an essential, and they're moving, is so just want to get you ready, this is emotionally moving. this is the best of american democracy. speech is in the central mechanism of democracy for it is a means to hold officials accountable to the people. the right of citizens to inquire, to hear, to speak, and to use information to reach consensus is a pre-condition of enlightened self government and a necessary means to protect it. that's good. and the other, even more, actually more moving and insightful from justice kennedy, wrote, the majority was to connect speech with protection from minority interests, and society. so the government may commit a constitutional wrong, when by law, it identifies certain preferred speakers. by taking the right to speak from some, and giving it to others, the government deprives
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the disadvantaged person or class of the right to use speech to strive to establish worth, standing and respect for the speaker's voice. so if you think back on our history of racial oppression, or exclusion of women from voting and not to mention native americans, this is very compelling language. and you understand the importance of the first amendment connected to the rights of minorities, and the fundamental purpose of the constitution, and protecting disadvantaged minorities. >> until you recognize that the disadvantaged minority they're talking about are not african-americans, or women, or native americans, it is exxon, and walmart, and goldman sachs. that's the decision. so that's where the thinking, this rigid ideology of corporate fundamentalism takes you, to the
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most outlandish conclusions that have dramatic effect. if you want to understand the corruption that russell is talking about, it is deep, it is pervasive, it is not explained by any single factor, in our politic, but the central feature of it is corporate and elite spending on our elections and the impact that has. so translating those two decisions, into practice, here are some of the things that have happened in the subsequent years. and i should say, to be clear, it was not like a good world for campaign spending before citizens united was decided. but it is a dramatically worse world afterwards. so the first thing that happened was that outside spending has dramatically soared since the decision. it is going to set a record for midterms in this election cycle
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by far. you can talk about the absolute amounts of money, but the absolute amounts of money actually understate the importance of outside spending. because the outside spenders don't spread their money equally among all the races going on. they focus on the close race, where they can make a difference. as a result, we are seeing a surge in number of races where outside spending, the outside spenders collectively are spending more than the candidates themselves. we are going to have, we have about 42 races going on in this current election cycle where the outside money is more than the candidates are spending. which means that the outside interests, which is proxy for corporate interests by and large, are defining the race. more than the candidates themselves are. who contributes to these outside groups? well one problem is we don't know. so the actual, the corporate money, it is not trackable, it is not disclosed and there is a
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whole apparatus to protect their secrecy but the money that goes to super-pacs, that is disclosed and we know something about that. more or less in every election since citizened united the top individual donors are responsible for three quarters of the money that goes to super-pacs. so top 100 people. so multinational monitor, we used to write about banana republic, oligarchs, quality ma la, whatever, 100 people dominating the central part of the election system in the united states. the outside groups spend overwhelmingly on negative ads, which everybody hates but people spend on, because they work. the outside groups are not constrained by any kind of accountability so they do it much more than the candidates themselves do. the candidates of course still have some role in this operation, but ever more than before, they have to, as competing with this, they have to spend all their time
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fundraising. in the 2012 election, for example, barack obama over the summer of 2012, did 221 fundraisers, and 101 campaign rallies. so he was spending twice as much time with super-rich people asking them for money as he was tending mass rallies. during that same period, "new york times" reported for long stretches of the summer and fall, mr. romney was so busy with fundraisers that he often did no more than one public event a day. he was just full-time fundraising. squeeze in an event every now and then to tell people why they should vote for him. so the aggregate effect of all of this is a kind of deep corruption which people accurately perceive as russell was saying. it has to do with who the candidates consort with, who they spend their time, rich people, who they are obligated to, what they can think about doing when they're in office,
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what they might actually try to do when they're in office and depending on their district if they try to do things that are too bold, they will be held accountable by the corporate interests that can spend a ton of money taking them out in the next election. now, there is a narrative in the united states that we're a highly polarized country and that is of course entirely true on some dimensions. but it is totally untrue on a whole bunch of other dimensions. there is actually a stunning consensus around a aggressive progressive agenda, when it comes to minimum wage or medicare for all, fair trade deals, breaking up the big banks, supporting investments in our schools. 87% of the americans want to protect and improve, not just protect social security and medicare. but there is a huge difference between what regular people want and what the super-rich want. so in one study that was able to identify the class of the top 1%
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and poll them, it found that 58% of the top 1% favor cuts in medicare, education, and highways, to reduce budget deficits but only 27% of regular people. actually more than, slightly more than half of the top 1% think the government has a rule in regulating marks but three quarters of regular people do. 23% of the top 1% think the government should provide a decent standard of living for the unemployed. half of regular people do. this one is pretty stark. 8% of the top 1%, so less than one in ten of these people, think the government should provide everyone, should provide jobs to everyone who can't find one in the public sector. but more than half of americans agree with that statement. so obviously, our policies follow the interests of the 1%. not the 99%. and actually, that's a little
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bit misleading, too. because most spending is not by the top 1%. about 40% of all election spending comes from the top .01% of the population. so it is incredibly, incredibly concentrated. the solutions to this aren't very hard to identify. within the constraints of the supreme court legal framework, we can have public financing of elections. let people make small dollar donations and have it matched by government contributions five to six to one as done for example in new york city. that will make a big difference. it will not solve the problem so as citizens united exist or the law of the land and we can't control outside spending and that may have been overturned had merrick garland, may be entrenched with this supreme court for 30 years absent some unforeseeable developments at the court, so the solution there would have to be a
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constitutional amendment to overturn the decision, for which there is actually quite a bit of support. these issues are unlike the idea of myths that we have to sort of unveil for people. this is completely transparent to everyone in america. something like 98% of americans support significant campaign finance reform. the only debate among americans over campaign finance reform is between whether it should be fundamentally changed or completely rebuilt. 39% favor fundamental change. 46% favor completely rebuild. i myself am not sure which one is more fundamental or complete, but it is pretty close call on that one. so the people are there. but of course, the impediment to fundamental campaign finance reform is the same as the impediment to any other significant policy reform which is the money and politics system itself. as entrenched, as em bed and
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entrenched in the supreme court decisions that really reflect the corporate fundamentalists ideology. so i am probably doing okay on my time, right, ralph? i should stop. all right. i am going to do part two of the talk. and try to do it in how many -- a few minutes? okay. so ralph and i have some responsibility for a second problem, as relates to market fundamentalism, and the law, which is protections for first amendment rights of corporate speakers. and in 1977, public citizen brought a case at the supreme court which is known in virginia pharmacy which was the first to establish the right of the first amendment protection for commercial speech. now, in defense of ralph and public citizen, our idea was not to protect the right of corporate speakers. it was to protect the right of consumers to get information,
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including price information in that case. but the doctrine, and in the case, and had we not bought that case, the it would have been vented anyway. but something more from protecting consumers to protecting the rights of corporations to speak, and to speak about anything, and this is a genie now out of the bottle that is going to become increasingly pernicious in all kinds of issues that we have to deal with including some of the regulatory issues that a couple of our speakers are going to get to soon. so where as our case was about making information available, corporations now use this claim of commercial speech protections to explain why they should not have to disclose information. so they have claimed, for example, that the first amendment should be used to block laws limiting -- >> they want to block laws about gmo disclosure. they are opposing different kind of zoning limitations.
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there was recently a case where they succeeded with the first amendment challenge to a rule requiring a disclosure whether products were made with conflict minerals. and then in a really ironic twist of things, the trump administration has just proposed that it is going to require pharmaceutical companies to advertise, if they do advertisements, to include the price of the products that they're advertising. it is actually not a very important reform but pharma doesn't like it and pharma says, hey, that is a violation of our first amendment rights. so where as our case was about forcing the disclosure, or at least permitting a disclosure of pharmaceutical prices, now, big pharma says, if you mandate that we disclose our prices, that, too, would be a violation of our first amendment rights. i'm raising this because it is going to get much worse than what i just described. so brett kavanaugh wrote an important decision on the appeals court relating to net neutrality in which he made clear that he thought that net
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neutrality regulations should be blocked for multiple really striking reasons but one of them was the first amendment. so you may recall net neutrality is the rule that isps, internet service providers, have to permit things to flow through their channels, without discrimination. no extra charges based on who is providing the material, no right of the isp to slow things down if they prefer and so on. what's the first amendment issue? you have to think pretty lard to invent it. well, what judge kavanaugh said, then judge kavanaugh said, was well, if comcast wants to make netflix pay to let their programming come through and appear, or if at&t wants to slow it down, or block it all together, that is not a business decision, which is what you might think it is, that is an editorial decision. that is an editorial decision. just like whether "the new york times" is going to publish an op-ed that i submit, or if cnn is prohibiting me from appearing
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on tv, which ralph is excessively worried about. so that, that is a market fundamentalist ideology, but of course it is not really markets, it is totally corporate fundamentalists. so that is a big problem for net neutrality which is a nontrivial issue but it will get worse than that because the supreme court has also held that speech is embodied in data. there is a case involving transmission of prescribing data for doctors in vermont, and the supreme court held that that was an unconstitutional infringement on the right of the data miner to collect the data about how doctors prescribe, and then use it, sell it to pharmaceutical company advertisers. that was kind of a big deal in its own right, if you care about drug prescribing issues. but the big legal issue is, okay, if data now has first amendment protections, and everything the economy is moving to the internet, sort of embodied in the term of the internet of things, then all
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kinds of things that we might view as traditional regulation, are now data regulation. and data regulation has to potentially overcome a first amendment hurdle. we're going to -- we potentially finding, and likely on our way to experiencing a world in which lots of things that we traditionally thought were permissible regulation are now going to be viewed as speech affronting actions that are going to have to overcome the high bar of limitation on the first amendment rights of corporations who never should have had such rights in the first place. so that's i think an extreme indication of where the corporate fundamentalist ideology can take us. it is going to be a huge challenge to overcome, given the configuration of the court we have. but as with everything, the only solution to all these things is to mobilize people and make things happen in the streets, to offset the money, power, whether
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it is in congress, or at the supreme court. >> thank you very much, rob. by this time, some people viewing this on c-span might be experiencing injustice fatigue. and one of the characteristics of resilient citizen advocates is they don't allow themselves to be subjected to injustice fatigue. indeed, justice mobilize, injustice mobilizes them to advance justice. what kind of doctor would he or she be if they had disease and injury fatigue, when you went to the hospital? that's part of the work. and i tried to address that in my little paperback, called "breaking through power, it's
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easier than we think" and as rob just pointed out, most of the problems you hear today, 340e9 most of the injustice could have been prevented or remedied by 535 people, a majority of them in the u.s. congress. that's how much power this little branch of congress has compared to the other two. it's the progenitor branch of power under our constitution. and fortunately, we know, or could know the names of all of them. senators and representatives. and we could organize in the congressional districts. to have as much fervor with congress watchdog groups as our friends who organize bird watchers group. and the book shows a lot of examples of where far less than 1% of the people representing a majority of public opinion turned the congress around and redirected our country in more just pathways.
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i want to clarify something. when i said the big drug companies want to charge $10,000 per person per year for aids medication, that was in africa. where most of the people earn less than $1,000 a year. and the indian drug company that brought it down to $300 a year was the result of bill haddad, jamie court, and rob weissman, they were the key people, and that doesn't even come close to 1% of the people changing congress. you can see, knowledge, accuracy, drive, stamina, strategy, tactics, and going right to the decision-making fulcrum. sometimes it is congress. sometimes it is an indian pharmaceutical company. and they got it done.
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against the efforts of the big drug companies, all kinds of taxpayer subsidies to them, and the clinton/gore administration, which wanted to defend the patent rights of these drug companies. and by the way, those who are watching on c-span know, or should know, that there was no c-span covering congressional proceedings in the '60s and in the '50s. and now there is. the market would not provide it. it wasn't something that paid, the television industry, and the radio industry, to cover. and so the cable companies for pragmatic reasons, and other set-offs, created c-span and support c-span. but you see, if there is a market test, there would be no
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c-span. but there is a very important civic test that was very, very crucial to bring the proceedings of the senate and the house to the american people. again, if you're looking for the web sites of these presenters and their groups, just go to csrl.org, and you can get the contact numbers. our next speaker is dennis kelleher, he has an interesting background in finance. he's now the president and executive officer of a group called better markets. he was featured in front line's award-winning inside story, the global financial crisis, called "money, power and wall street and breaking the banks" which is on pbs. as well as other profiles and documentaries. and why? because before founding "better
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markets," about several years ago, he worked in senior positions in the u.s. senate, as well as legislative director and leadership adviser, to another senator, who was also secretary to the democratic caucus, and in addition to a lot of congressional testimony, he speaks frequently in the u.s. and europe on these matters of conference, seminar, symposiums, as well as on all media platforms. he served four years of active duty in the air force. and he has a business background as well. and so when he broke ground with better markets, they immediately, in "the wall street journal" and other publications took notice and now you will see when dennis speaks why they took notice.
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dennis kelleher. >> thanks, ralph. thank you for that introduction. and thank you for inviting me. and thank you for putting on an unbelievably great agenda with some really outstanding experts who bring a perspective of many years of experience and knowledge that you just don't hear, partly due to who controls the media, and who gets heard and who doesn't get heard, whether it is robert on cnn or not. but we all know they're filtered so there aren't a lot of places where you can get this many high quality people who spend a lot of time thinking about the most fundamental issues facing the country. so ralph, thank you for bringing us together again. better markets is often referred to as a wall street watchdog. but we are also a regulator watchdog. we're basically a kind of way to wall street. you think goldman sachs, citi group, morgan stanley, the biggest of the big, when they're in washington trying to bend law, policies, and rules their
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way, we are on the other side of the table, fighting back to push them toward the public interest. that's what better markets does. and i will pre-empt a little bit and say our web site is www.better markets.com. so and there is a lot of information there. today, i want to talk a little bit about inequality. you can't about inequality today without talking about the 2008 financial crash. it was the worst financial crash since 1929. it caused the worst economy since the great depression of the 1930s. better markets did the first study on the actual cost of that crash, and it showed that it is going to cost just the united states more than 20 trillion dollars, with a "t," $20 trillion. the study available on our web site details those costs from coast to coast. others have done studies like that, since then, including recently, the san francisco fed, which actually confirmed that it is going to cost more than $20
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trillion. however astronomically high numbers are, dollars don't tell the real story of the human cost, which were far-reaching and tragic. by october of 2009, just 13 months after the collapse of lehman brothers, just ten years ago, but just 13 months, the real unemployment rate in the united states was 17.2%. that meant there were 27 million americans either out of work, or forced to work part-time, because they couldn't find full-time work. because many of those people were heads of households, that unemployment tsunami actually hit more than 50 million americans. think about that. there were also more than 16 million foreclosure filings, and more than 40% of the homes in the united states were effectively under water. meaning they were worth less than the amount of mortgages they were paying. this and so much more is
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detailed in our report. so yes, there were lots of bad long-term trends regarding inequality before the crash. but they were all made worse, much worse, due to the crash. unfortunately, many were also made worse by the policies undertaken in response to the crash. now, we could talk about lots of them. some of them you heard about. like the taxpayer tarp bailout force wall street. although nothing for victimized home owner. however, i want to focus on a key institution that gets referenced a lot, but is little understood. the federal reserve board. so my title of my talk is "feds policies make main street pay, after funding wall street parties." there is an old saying that the job of the federal reserve board is to take away the punch bowl once the party really starts going. the argument is that the fed should not allow the economy to grow so much that it overheats, and results in an inflationary spiral. to prevent that, it is supposed
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to increase interest rates and slow down the economy, supposedly for a soft landing to benefit everybody. thou those disarmingly bee mine if not frivolous metaphors obscure who the fed's policies really help and who they hurt. these unmentioned distributional impacts are critical because the fed's actions affect the wallets, wages, wealth and economic well-being of every single american. and the consequences of those policies, including much greater inequality, much less opportunity, and tremendous economic anxiety, also had dramatic social and political implications. just turn on your tv if you want to know what i'm talking about. the bottom line is that the fed's policies since the 2008 financial crash have ladled out the punch in the bowl to the richest americans and wall street's biggest banks. however, now that the painfully slow economic recovery from the
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crash is finally starting to reach main street, the fed is changing policies, which is a costly punch in the gut, to every hard-working american. that is illustrated in summary by the facts that the stock market, wall street bonuses, ceo compensation, and the wealth of the top 10%, are at all-time highs. in fact, wall street, which caused the crash, which we also detailed in the cost of the crisis report, has profited every year since 2009. and salaries on wall street in 2017 rose to their highest levels since the 2008 financial crash. think about this, though. the bottom 90% are still poorer today than they were in 2007. by between 17 and 34%. think about that.
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so we have 52% of the nation's 50 million public school students qualifying for free or reduced price lunches today. there are 44.2 million americans today receiving food stamps. it was 28 million in 2008. and more than 40 million americans today are being crushed by 1.5 trillion dollars in student loan debt. the result is that 90% of americans are still in a deep hole, just trying to get back to where they were, before the 2008 crash, while wall street and the top 10% break records for wealth, income, and bonuses. by changing policies and raising rates now, taking away the punch bowl, the fed is making it much harder, if not impossible, for the 90% of americans to dig out of that hole. but they didn't get any of the punch in the bowl, and they didn't get the party.
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that's where the distributional impact comes in that nobody wants to talk about. raising interest rates not only makes it more expensive to borrow new money, but it also increases the cost for all the old money you borrowed before and haven't paid back yet. so what are the concrete results on main street of the fed's actions? americans today are paying around $70 billion more than they were just two years ago in increased interest payments due to the fed rate increases. 70 billion. assuming the fed continues to increase rates as it is projecting to do, americans are going to pay a total of about $330 billion more from late 2016, to 2020. and then after that, they are going to be paying close to 200 billion each and every year thereafter, assuming rates don't go up.
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that's $330 billion through 2020, $200 billion every subsequent year, moved out of the pockets of hard-working americans, into the pockets of banks, credit card companies, payday lenders, and other financial institutions. and this is the kicker. the sad fact of fed rate increases is that those americans will get no additional goods or services for that money. it is a pure transfer of wealth from main street to wall street, because the fed's raising rates to slow the economy, after ten years of wall street partying. it is really noteworthy that enriching the already rich on wall street, corporate executive suites and the rest of the 10% didn't cause the fed to change policies. for ten years. it was only when the other 90%, who haven't even got back to their economic level of 2008, only when they started to do just ever so slightly better,
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that the fed decided to change policy, and slow down the economy sbi raising rates. and that's why i say the fed ladled out the punch in the bowl to the richest while giving the other 90% a punch in the gut. so what did the fed do to give wall street and the richest the punch bowl? well, in response to the 2008 crash, the fed took two dramatic policy actions. it dropped interest rates to an historical level of zero, and launched an unprecedented policy of what they called quantitative easing or qe, where by the fed purchased trillions of dollars of bonds. those policies dropped the cost of borrowing to zero, and ignited a dramatic increase in asset prices. now, assets, particularly financial and real estate assets, are disproportionately owned by the already rich and are traded by wall street's biggest banks which were not
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only bailed out in 2008, but were also among the favored few who were allowed to actually borrow money at zero or near zero. the result? the wealthiest 10% saw the value of their assets skyrocket, due to the fed's post-crash policies. for example, given that 84%, 84% of all stocks -- >> the inspect index, since 2009 -- the s&p index, since 2009, made the rich much, much richer. wall street also gorged on fed policies which enabled them to pay themselves, get this, pay themselves $20 billion in bonuses in february of 2010. they have now returned to pre-crash bonus levels, and in 2017, paid themselves more than
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$31 billion. now, february 2010, when wall street was paying themselves $20 billion, should ring a bell, because i just mentioned, if february of 2010, was the very same month the real unemployment rate on main street caused by the crash, caused by wall street, the unemployment rate went to 17%, throwing 27 million americans out of work. the fed's policies were of no help to those americans who were losing their jobs, homes, health care, retirements, savings, and so much more. simply put, fed policies funded a wall street party for ten years, while the american dream was being crushed on main street. as one observer noted, the fed policies were designed to enrich banks. it worked remarkably and tragically well. in contrast, it has taken almost ten years for the incredibly slow and uneven recovery from the 2008 crash to finally start
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to reach the nonrich. evidenced by the lowest top line unemployment rate of 3.7%, since 1969. however, real, after inflation wages and productivity, remain largely stagnant. meaning that more americans are working and often working harder and longer, but they simply aren't getting ahead. in fact, the fed itself did a study that showed almost 50% of all americans couldn't come up with $400 for an emergency. for an emergency. on top of that, americans have more debt now than ever before. 13.3 trillion, with a "t," trillion dollars. it simply can't be denied that main street continues to go pay check to paycheck, borrowing to make ends meet, stretched to the
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limit and worried about the future. nevertheless, the fed has interpreted this nascent and minimal main street recovery, the drop of the top line unemployment rate, as a reason to drop as a reason to subverse the post-crash policies. i love the euphemisms. if you don't love euphemisms, you can't deal with finance. normalize is the same way of saying raising them on everybody else. and at the same time they're going to unwind their q-e bond purchases. the unemployment rate is going down, and it's worried that employers, god forbid, might at some point raise wages to workers if they need. that the fed fears might cause prices to increase as those wage costs might be passed along in
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rising prices. i mean they worry a lot about things that haven't happened. these policy changes are going to make everything worse for the 90% of struggling americans. that's because wage growth both real and nominal is sluggish by historic standards and on one measure real wages for typical workers has actually fallen recently. moreover, conventional wisdom and the fed's own views and projections over the last ten years about employment, unemployment, wanls and the growth have been consistently wrong. wrong over and over again. and thaetsz why some noted scholars have postulated that under unemployment today seems to influence wage pressures more than the unemployment rate does.
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but the fed's not paying attention to that. the fed's changing policies, so let's look at how and how much that's going to cost americans. since the fed began raising rates the average credit card rate has jumped from 15.1% at the end of 2016 to 16.9% today. the average equity home line of credit has jumped to a little over 6%. and adjustable rate mortgages are expected to reset up to 5.5% or more. given institutions funds or cost have been zero, those rates even before the increases, they were 15.1%. they were already incredibly high, extracting massive amounts out of mainestream pockets. now that the fed are raising rates, those very same
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institutions are raising the rates they charge, but they're super slow in raising the rates they pay on your deposits. so they're taking more of your money coming and going. it's no wonder nonreal estate personal debt in the united states has hit a historic high of $4 trillion. so credit card balances are now at an all-time high with average balances of non-store credit card cards of $6,348. americans pay more than $100 billion in credit card interest and fees just last year. and as rates go up, payments are harder to make, which means more people are carrying larger balances, more people are missing payments more often, and more are paying not just higher rates but higher fees. and the first quarter of 2018 consumers held about $2 trillion in interest rate sensitive debt. and the fed has raised rates a quarter percent seven times.
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remarkably that's exactly how much your credit cards have gone up. if you assume all the interest rate prices at the same amount that's an additional 35 a year. you don't have a more or better couch. it's the same couch. it's just more money coming out of your pocket, going into the pocket of the credit card companies. and the fed is forecasted to raise their rates another 1% in the the next year and another half a percent in 2020. it's going to result in a total increase of $160 billion. the same thing for student loans. those rates have also increased. from the start of the 2016, 2017 academic year rates for
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undergradwits have increased to 4.6% a year. and for this academic year they're expected to go up to over 5%. given that students generally borrow money for four years, that's an additional $5.4 billion. and rates are forecast to increase again and by the start of the 2021 academic year it's going to start costing students an additional $16.7 billion in extra interest for their degree. interest. same thing on fixed rate mee mortgages. over the last two years there's been about $3.5 trillion in one to four family sized homes. there's going to be a similar amount originated through the end of 2020. those loans are going to carry higher interest rates. mortgage rates have increased from 3.45% in mid-august of 2016
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to 4.53% in mid-august of 2018, and they're expected to go up again. since august 2017 the cost of consumers just to their rates going up on mortgages, $25 billion. when you add it all up it's $152 billion. and with rates going up thereafter, consumers who get new mortgages after august of 2016 will be paying an additional interest of more than $90 billion a year because the fed's raising interest rates to take the punch bowl away from the people who didn't get the punch or the bowl. so that means on an average mortgage the rate is going to go up and average family is going to pay almost $1,500 a year just on their mortgage. and with rates approaching levels not seen in eight years, that rate is actually going to increase by about $2,000 a year.
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same thing on corporate debt. you know, when rates go to zero if you're a corporation you want to start borrowing like crazy. so the corporation's borrowed like crazy. corporate debt is at all-time highs and sooner or later somebody's going to pay for that. that's going to be consumers. on top of paying the increased on personal debt consumers are going going to be paying the co corporate rates on corporate debt. the annual average deficits are going to trillion. well, that's going on the debt. that has to be financed. who's paying for that? not the rich who got the tax cut. so let me conclude, the combined cost of resolving debt and new
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mortgage originations to american consumers are already $70 billion a year. on the current forecast that's going to add an additional $334 billion through the end of 2020 and will then increase consumer's cost $200 billion a year every year thereafter. the fed's policies since 2008 have made inequality and gnawing economic insecurity much worse, which contribute to the social and political upheavals that have rocked the country over the last few years. after ten years this is just starting to improve -- this is just starting to improve for tens of millions of americans who are beginning to recover lost jobs home savings. this is no time to start taking tens and hundreds of billions of dollars out of the pockets of maine street and making inequality much worse.
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if the fed would not take away the punch bowl away from wall street and the wealthy, allowing them to recover virtually immediately after the crash, it shouldn't be taking away what little recovery maine street is now experiencing. thank you. [ applause ] >> listening to dennis reminds me of the point i made on yardsticks. if you control the yardsticks for economic performance you control the agenda, you control what's discussed in elections and what's reported on npr, pbs and the networks. and you see dennis provided us with other yardsticks, which paint quite a different picture than the daily drum beat punctuated by trump, npr, pbs and the news media that we're in a booming economy. well, we are in a booming
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economy for the 1% at the top. also, notice -- visualize the glutt gluttonous profits and bonuses of wall street, the corporate greed and in new york city one out of every ten students is homeless. the world center for philanthropy, the world center of the greatest profits of hedge funds and the "the new york times" reports 110,000 students are homeless. they either live in shelters or run around trying to find a bed or a caught or a neighbor. this is what greed and power are all about. people making $10,000, $20,000 an hour on wall street and there are 110,000 students who are
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homeless. i recall also, dennis, you've been giving me a lot of memories. when i was a law school at harvard we had a class called creditors rights. it wasn't called better remedies. you see the bias? you see what they graduated out of law school? people say i just want to represent creditors. they don't even have an understanding of debtor's remedies, the history of debt, the crushing destabilization beyond the injustice of it, of a debt-ridden economy. our next speaker -- speakers. they're going to be in supplementary tandem, tom and rena. there are few people in this country who know more about government regulation and business. tom is a leading scholar in the
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fields of administrative law and environmental law. he's a full professor of law at the university of texas. and he's written six really good books by good publishers, which in their totality have sold less than one book on morris the cat. but then the worst is first and the best is last in a decaying culture. and these are really great books. clear, documented. one was the preemption war, when federal bureaucracy trump local injuries, yale university press. the second, bending science, harvard university press. workers at risk, prager, coauthored the long environmental protection and reinventing rationalities, the role of regulatory analysis in a
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federal bureaucracy. the one i think was so necessarily a popular best-seller should have been it's called "freedom to harm." freedom to harm. and you can imagine whose freedom it is and who is being harmed. and he's going to speak on regulatory activities, and rena, whom i'll introduce will supplement it so they don't overlap. both are in a group that deals with professors of progressive reform. in fact, rena was one of the founders of that. and their title is quality the assault on regulation and the case for it." and just so we're clear here
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when you get rid of government beneficial regulation you're not getting rid of regulation. you're just shifting regulation by government to regulation by corporations. the corporations regulate us. and the inverted example of that is the drug companies. they do not have prices for drugs regulated, one of the few countries in the world. sky's the limit. some drugs are going now for $100,000 a year per patient. and because they don't have government regulation for reasonable price provisions for pharmaceuticals it's the drug companies who are regulating us, and we have the highest drug prices in the world by drug companies that have been given tax credits in the billions, new york treasury, complements to
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taxpayers. free clinically tested drugs such as azt, et cetera. and drug companies that in their quest for even greater profits have outsourced over half of the drug production to china and india under inadequate fda regulation, coming back into this country one drug a blood thinner has killed at least 130 americans on the operating table, coming in from china. so it isn't a matter of regulation or no regulation. it's a matter of do you want to be regulated by government that's a little bit more open and displaceable and challengeable, accountable, so on? supposed to be to congress. or do you want to be regulated by giant corporations? welcome to professor mcgarity.
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>> thank you for inviting me to be here. it's really an honor and a privilege. i do want to correct one thing in my bio. i am not the immediate past president of the center for progressive reform. rena steinger is. i was the president before her. and we did together with sid shapiro put together this presentation which i'm very proud of. i want to talk about market regulation. you've seen some definitions of it. my definition would include kind of five basic tenants of market fundamentalism, ensuring economic liberty. that's this dualistic idea that the only alternative to economic freedom is government that's controlling us all.
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distrust of government, of course follows as a corollary. protecting private property is a very strong tenant. enforcing private contracts, whatever they say and however unequal the bargaining power. and privatizing public goods, which we've talked a little bit about but needs more discussion. now, in the context of government regulation like environmental protection agency, occupational safety and health administration, i'm going to talk mostly about health and safety regulation. wave had a lot of talk about financial regulation. in the context of that sort of regulation, the market fundamentalism really comes down to a presumption against regulation. the jim buchanans on the world
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public choice folks have a hard presumption against regulation. but that's really the heart of it all. and interestingly, historically and probably the most influential advocate of this presumption against regulation was steve brier when he wrote a report for the american bar association way back in the late 1970s. the fundamental problem with this presumption against regulation is that that's not what the statutes say. they say pretty much the opposite. if there's a presumption at all in a statute, these were enacted in response to crises, in response to people demanding action because economic freedom was causing so much harm. so we have the statutes of the 1960s that ralph played a great
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role in getting enacted. those didn't start with the proposition that, oh, we have a market failure here and we need to just fix this market failure. it was that corporations are ruining lives of people. they're killing people. particularly in the workplace and through environmental degradation. and we need to fix that, right? so the presumption really was more of a precautionary presumption in favor of regulation. that's what's in our statutes. and because that's the fact, we've had in the interim period of time, five assaults on these regulatory protections. the first assault came with the election -- well slightly before, about 1978 as the carter administration was -- was struggling with stagflation. we had the first assault that went through the first three
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years or so of the reagan administration, where we cut back on regulation, put into effect executive orders that were quite constraining on the regulatory agencies. some of which had just gotten started, really. the second assault came during the gingrich congress, the 104th congress of 1996 and 1997. there we came within one vote on the senate of enacting a massive om omnibus reform that would have put all agencies under the thumb of the regulatees, and that didn't happen. the third came under the bush administration, that one had a great deal of success but stumbled in the courts. as we had courts that were
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willing to look at the laws and interpret them to say what they clearly weren't meant to say. and then came the financial melt down. that wasn't the only crisis. there was a confluence of crises in 2008, 2009, while we were going through the 2008 elections. we had a food safety crisis. we had miners, if you recall, several mining accidents. we had incredible opportunity. this was the opportunity to do a new deal over again like we did after the great depression. and really sadly we blew it. it didn't happen. we decided to bail out the banks, first of all. and we've had plenty on that so i don't need to elaborate on
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that. but we pulled back on the agencies. we put a fellow in charge of the office of information and regulatory affairs who really was trying to constrain these agencies. we had good people at the tops of these agencies wanting to do things, but had them pulled back to at one point in the white house president obama told epa administrator jackson, look, don't amend the ambien air quality standard foro ozone like we said we were going to do. we had an election coming up, and what had happened in the interim of course was the 2010 election. now what happened during that 2010 election is that because we had done nothing really visibly at that point about wall street and didn't just focus in like a laser on wall street, said our first thing is going to be not
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even global warming, we put that aside. we're going to do health care, and we're going to do obamacare. it needed doing, but the first thing we should have done was focused like a laser on wall street and showed how regulation, how a lack of regulations, amending the regulations during the clinton administration to -- we needed to get back in the business of constraining the banks. there was a golden opportunity there, and instead we just bailed them out and went onto the next thing. so corporate america and in particular the think tanks were able to refocus the national attention. and the problem suddenly wasn't wall street anymore, it was government again. and we had the tea party came in and rena is going to talk more about the tea party and that whole movement.
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and finally we now have fifth assault during the trump administration -- well, i forgot to mention the fourth assault. the fourth assault was that tea party in 2010 but it didn't accomplish much in the way of deregulation. in fact, that's when the obama administration finally kicked in and started doing some things. all of which now are the targets of the fifth assault during the trump administration. their very first order of the business in all of these agencies, the people that president obama put in charge was first thing, whatever it was, don't care what the benefits, don't care what the cost, get rid of whatever obama did. that was -- and as in all of the agencies, that's got to be your first order of business. after that, now we're ordering the agencies to go look back and see all the past regulations, see how many of those now going
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all the way back to ralph nadir and the late 1960s, we can repeal, revise, revoke. in the meantime, of course, the agencies aren't promulgating any new regulations, any new protections although we have certainly seen the need for some additional preces. we have an executive order that says for every one regulation you put out, you've got to repeal two of them. i don't know how that works. it's a strange thing, but it really hasn't proved much of a limitation on the major agencies out there that are at least protecting health, safety and the environment. because they weren't promulgating regulations anyway, so it didn't really -- repealing two to one really didn't matter. i want to describe more about
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the fallacies. the first is markets of course fail. we had an ample demonstration of that all morning and in the afternoon. privatization also fails. okay, that doesn't work so well either. and i love what bob said about we need to pull back some of that we've privatized. we need to reanalyze that and limit the scope of markets. a point i want to make that hasn't been made is markets are embedded in the legal system and in society. they're not apart from, they're not separate from. no, they're very much a part of our society. individual preferences expressed in the marketplace are not in social and political context. churches, schools, the
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entertainment industry, mass media, advertising in a very good way and the marketplace itself shapes preferences. public sector shapes preferences, and those are reflected in the marketplace. and the private sector through lobbyists, legal maneuvering shapes the legislation and exercises of public power. powerful economic actors in the marketplace can limit human freedom, individual rights just as effectively as government can. if not more so. and that's something i think people understand deep down inside, but every time they hear from fox news or the heritage foundation that it's government, they forget that or it somehow gets lost. the legal system can protect individual rights and preserve freedom from arbitrary exercises of government of power while at the same time regulating the
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marketplace to protect consumers from swindlers, workers from irresponsible employers, minorities from bigots, the environment from polluters, vulnerable people from the consequences of unfettered marketplace power. it has a role to play in bringing about a just society because political actions shape the rules about the injustices. a couple of other points to make about the fallacies. one is that freedom and efficiency are not meta values. they don't trump other values. they are values, they're important. but there are other values like altruism, fairness, decency, neutrality, loyalty, tolerance,
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equality of opportunity, empathy, concern for vulnerable populations and species, and respect for future generations. these are all values. it's not -- they're not subordinated to economic freedom or efficiency. market fundamentalism is morally obtuse, i think. it's fundamental defining virtue is -- you hear the seven virtues, so i googled that. they're in christianity and the catholic church and other places and in the 400s a.d. , chastity,
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diligence, patience, kindness and humility, and avrist, it turns out is one of the seven deadly devices. as i mentioned market fundamentalism is as the statute are written today, and that's the one thing they haven't been able to do is change these fundamental protected statutes. and market fundamentalism remains inconsistent with those statutes. and finally it's profoundly undemocratic. and we've talked about that a bit. but limited government by definition means that elected legislators can't expand government to address social problems. by promising to reduce the role of politics in public life and expand the role of
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self-regulating supposedly rational markets, market fundamentalists offer a path -- carl pointed that out years ago. nancy mcqueen in democracy and change has pointed it out more recently. so what we need to do is uproot this market fundamentalism, do what we can to do that. we need to dissembed it, and that's going to take an idea infrastructure. that's one of the reasons rena and sid and i put together this idea. there's ideas out there, good scholarship out there, but we need to get it off the shelves and into the public and the people in power. we need compelling narratives. i think we need to shift the
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market fundamentalist's focus to a focus on corporate accountability. at a broader level i think we need to weave a narrative out of shared values of economic security for all americans that is easily as compelling, i think, as the market fundamentalist narrative that economic freedom is the essence of maintaining individual freedom. finally, i want to end on a depressing note and that is james buchanan's dream was to write a constitution that limited the power of the majority to regulate the minority, the people in economic power. he accomplished that in helping write the constitution for
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chile. it of course didn't happen in the united states, but it may not need to. as the republican party well knows what's important, such an important thing is who controls the courts. and as president trump fills the courts with activist market fundamentalists like neil gorsuch and brett kavanaugh, lawyers for regulated companies may find it easier to persuade reviewing courts that protective agencies actions in some future administration because they're not going to happen in this one. but protective actions are inconsistent with the authorizing statutes or that they're arbitrary and capricious, which the courts are empowered to do. at the same time lawyers for public interest groups will find it more difficult to persuade courts to force agencies to fulfill their statutory
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responsibilities. worse, the federal courts are likely to employ expansive definitions of property rights, and as we heard a moment ago, corporate free speech rights that market fundamentalists had been advocating for a long time, these expansive notions. courts dominated by expansive fundamentalists, in their hands it may ultimately by their trump card. one line of attack we might use is simply to challenge the legitimacy of decisions in the supreme court supported by five justices, four of whom, thomas, suleto, gorsuch and kavanaugh, were confirmed by senators who represent a minority of the popular vote and were actually
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opposed by senators who represented a majority of the popular vote. the political situation -- and this is in conclusion -- the political situation for progressives today is far worse than it was in 1996 when i suggested in an article in the chicago law review that it would take one or more crises brought on by economic or physical disasters to inspire voters to elect a sufficient number of elective candidates to rebuild government institutions. that was 1996. we had that, and it didn't happen. the tea party has taken over the republican party. market fundamentalism has put us on the road to oligarchy or autocracy. there are ways to get off this road, but none of them seem plausible in the current political environment where too many voters are swayed by trumpian appeals to fear and bigotry. it will probably take another
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confluence of crises to demonstrate once again that market fundamentalism is a deeply flawed ideology that causes far more harm than the modest benefits it provides to society. as the trump administration's demolition crew succeeds in its efforts to deconstruct the administrative state, that was steve bannon's words, we should be preparing to use those crises that are inevitable, they're going to follow as teaching moments to persuade the american public that excessive economic freedom is freedom to harm. thank you. [ applause ] >> thank you very much, tom. excuse me. thank you very much. i want to point out that the
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second assault on regulation, which was the so-called regulatory reform drive, the leader against that who won the battle is joan claybrook. where's joan? she led the fight in congress in representing city groups, public citizen, got them more aggressive against it, who was defeated. that would have been a real disaster. a very clever procedural obstruction so-called reform. in addition to its substantive diminishment of consumer health and safety rights. tom, you might be interested if you don't know already in the work of edgar khan, who is as you know a professor at udc law school but he was a dean many years ago.
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he developed the market economy, the core household economy, the trillions of dollars that people in-house hold in-households, in terms of the values that you listed had been insubordinated by the value of avrist or greed. our next speaker on the same subject, an assault regulation is rena and has taught administrative law, food safety law and advance courses on
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malfeasance and governments in action. she's a former founder and president on the member center for progressive reform in which professor mcgarity played a prominent role in as well. from 1987 to 1993 she practiced law representing cities, counties, states and public agencies in the environment, energy, communication, transportation fields. so she didn't work at a corporate law firm.
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>> i also appreciate being invited. i have to tell you that nine times out of ten i find myself at some conservative meeting where there are one or two people who are representing the whackos, as president trump would say. and i always introduce myself as saying i'm going to be the skunk at the picnic and they better duck before i spray them. but today i'm going to actually try and be upbeat and peppy, at least in the beginning. half a century ago as tom was discussing, congress passed a torrent -- a torrent of
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legislation to protect public health, worker and consumer safety and the environment. of course, ralph was there as were the disaffected young people in the wake of vietnam, the vietnam war and watergate. and all those laws which were in their own way notable -- as notable in some ways as the great society and the new deal, they never had a name. the period never had a name. why? because there wasn't a single president who announced them as an agenda. instead they were passed by congress and then handed off to the executive branch, and there were so many parents and foster parents and step parents in the room that they never had a name. and i'm going to call them the
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precautionary era. in my mind we don't spend enough time conceiving for people that that happened and that for the most part these laws are still on the books, the infrastructure is there. they haven't been gutted in any significant respect, and they've gone perhaps dormant now because we're not updating them, we're not writing regulations and we're not most important of all, we're not enforcing them. but there they stay, and they're something to be proud of. they're there for a president to use when more progressive forces take back the white house. so it's true that corporations
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have fought these laws tooth and nail. in the beginning i don't think they ran to congress and spoke out against them. they were instead playing an inside game, and they started very early to go to the white house. there were various counsels established of businessmen to make sure that the agency leadership didn't get out of control. that was later institutionalized in the office of information and regulatory affairs, which ironically now plays a pretty small role from what i can tell because the agency heads themselves. and this is really one of the first times we've seen this so across the boards. the agencies that head themselves don't believe in the missions of the agencies. but industry sort of tried to do
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subverted sabotage, and i'll talk ability those tactics in a minute. but it's worth saying that things are much better than they have been. we have much cleaner air and water. we have for the most part, they may be over priced but prescription drug system that works largely even though it depends on foreign imports, which come from unregulated countries. we have a start on making lending fair through the cfpb even though it is now dormant. so things are better than they were before all these things passed. and that's the end of my peppy talk, so i'll sit down.
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no. but as rob said, as other people discussed today, american corporations spend $2.6 billion a year on lobbying expenditures. that's about $4.6 million for every member of congress. with that amount of money you could send a falynx of good-looking young lobbyists of either sex to sit in the lobby of an office of a member of congress and literally follow the person around every time he or she is in washington, which is less and less often these days. there are ten to one spending on climate change legislation, which because no one has said it yet i will say it now, is by far the most urgent problem that we
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face. it's -- for all the human pain and suffering that i've acknowledged that comes from financial problems, climate change is going to do us in at the rate we're going. and i spent a lot of time apologizing to my children who are now in their 20s because they are going to reap the whirl wi wind of this. and if that wasn't clear before, it should be clear after this most recent report from the ipcc. so ten to one spending on that. what are the tactics that are used? because after my peppy talk and now my depressing talk, i am going to be controversial. so i want to rush through the depressing part since we've had so much that today. the subtle underground sabotage of these agencies, which has
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persisted for the last 20 years, and it disappointments me to say because he probably was the best president in my lifetime. i wasn't alive for, frankly, roosevelt. and i can't forgive linden johnson for vietnam. i just can't bring myself to do it and i try. we had barack obama who ignored government. he did not defend his government. he did not articulate to people why the government was playing an important role in their lives, and this was in retrospect as we take an objective look at his legacy was in some ways disappointing in some ways what he did. he did not educate people about
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why they needed protection and why all these laws were so important. and what ended up happening was the first tactic was very successful. that's the let's get the government down to the size where i can drag it in the bathroom and drown it in the bathtub. the agencies, most of them are operating at the same level of funding as they had in the mid-1980s before so many laws were passed and the population was several tens of millions smaller than it is today. star of them, second, bash bureaucrats. i spend a lot of time of course as tom does, too, around young people. every year i teach administrative law and i ask my class how many of you would like to work for the government. and then i have to really lean over and peer to see the two or
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three hands that go up. attacked, demeaned, having their pay cuts, all designed to make government seem as if it is the enemy, not the protection for the american people. and we've gotten to the point now where congressmen literally sit -- and if you haven't seen this, i refer you to chaffetz, if that's you pronounce his name -- i can pronounce other names but i won't get into them because we're being filmed -- yelling at the administrator of
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the epa. literally shouting at the top of his lungs at her, not letting her finish a sentence. the topic ironically was the water supply in flint, which is a terrible tragedy, but if i remember correctly it was a republican governor who was in charge of the state at that point and municipal officials who were ultimately prosecuted criminally for poisoning those children, which did happen. but gena mccarthy could have done more to be sure but does not deserve to be screamed at as if -- well, i'll move on. the third tactic is cross cutting statutes that engender paralysis by analysis. and we've seen this across the board. my friends in the financial sector have been running around waving their arms about the
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court decision that requires financial agencies under dodd/frank to do cost benefit analysis of regulations. and we sort of smirked ourselves a little bit because we've been living in that world for 20 or 30 years. and all the stuff that goes on with cost benefit analysis, at its best it is churning out hundreds of thousands of paper per rule that don't make much sense and don't make much difference because the rules are killed for political reason. and at its worst it is impressing in the whole idea of structure that you have to monetize life. the going rate now is about $10 million. but it's discounted. so if you get exposed to a chemical today, you don't get cancer for 20 years. our question is how much you have to invest today to end up
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with the $10 million in 20 years. think to yourself what's going to happen with climate change. the need to protect future generations is going to be discounted to zero before you've even taken out your texas instruments calculator, that if you had a gun to my head i couldn't use. so that's where we are, and of course the election of donald trump, tom covered that so i'm not going to backtrack other than to say that when trump was first elected he mounted a blitzkrieg. i actually think, i try to imagine to put myself in the place of all the lobbyists on k street, and i think they were probably sitting in their conference rooms the day after the election pinching thenselves. they didn't know what to do.
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they didn't have an agenda for this whole thing, but they rapidly recovered, jumped to their feet and started organizing a campaign that three months after congress convened, three or four months but certainly by may, 14 rules had been killed with barely a word of debate on the floor under the congressional review act. now, things have slowed down since then. there have been a lot of sloppy efforts to revoke rules that are failed in the courts because we still do have some good judges. but it's an example of how absolutely determined all these folks were. so now let me get a little controversial. i think as i listen to us today that we're very corporation
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focused. and i want to be the first to admit that in close to 45 years in washington that's all i've thought about, too. corporations, they suck. oh, excuse me. they're bad. they're disgusting, and they're the cause of all of our problems. and i understand why we all feel that way. but i don't think it is the solution the figuring out what's going on with the american people today. it's not the only solution. think about the kinds of things that happen that corporations can't possibly support. they're not in favor of failing to raise the debt ceiling. they're not in favor of shutting down the government. they're probably not even that
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enthusiastic about sabotaging the affordable care act, big companies are not, because without it they have restalize employees, small companies are. not clear if big companies are. and attacking the civil service is amusing perhaps, but when they want to get a permit through or they want to get a license done, they're not in favor of dealing with anyone who can't find another job absolutely at all. they're not in favor of that. they want the government on some level for those things to work. not saying they're not in anti-regulation, just saying that some of the things that are happening that are the most damaging are not what they want. so something else must be going
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on. and if we take a careful look at this what we find are that the biggest chunks of voters in the republican party today are the tea party. that's true, although it's a wing that is amorphous. it's not as well organized as it may think it is. there's certainly the freedom caucus in the house. there are races where there are self-identified tea party people running. and what they believe is that it really isn't necessary to help vulnerable people. most tea party members are white. most of them are in their late 50s, early 60s. they're relatively affluent, and they have no sympathy for people
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of color, immigrants, the disabled and other vulnerable groups. no sympathy at all. and they say that. i mean, they announce that. they believe that they deserve medicare, but they don't think that anyone else deserves a hand from the government because they didn't quote-unquote earn it. and one of the most seditious things is that this conveys the children of everyone who is not a child of a tea party member to having no equal possibility because the tea party also believes in very small government including at the local level so there's no hope of education. there's no hope even of head start, even as basic as that.
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second block that's even much better organized than the tea party and that is ignored for the most part by all of us is white evangelicals. they voted 81% for president trump. they represent 30% of the membership of the republican party today. why do i worry about them? because they're not just concerned about abortion and cultural issues like that. their ideas about what should be happening in the country have moved far beyond that because they have supported and been so enthusiastic about the republican party for so long. there's even a group of them who are actually the favorites of donald trump. they're called the prosperity gospel. and what they say is if you are
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a devout christian and you worship in the way that the evangelical church tells you, you will be rich because god will reward you on this earth. and he has appointed one of these pastors, who is one of the very few to be the head of his advisory council. members of the white evangelical community, and i say that very clearly because i'm not talking about african-american or hispanic evangelicals who are a very different group. members of this movement believe in small government. they believe that if people need a hand or need protection the church will provide it. and most importantly they believe we don't have to do a single thing about climate
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change because they don't believe it's happening. but even if it is, even if they can see that the hurricanes are getting worse, they write that off as a sign that the end of days being flippant or sarcastic at all. i have spent a lot of time reading about all this and i can cite chapter and verse. the final group that is very important for us to pay attention to are -- is so-called sovereign citizens. this is the group that took over the wildlife refuge and -- over social media organized hundreds of their followers to bring their guns to this facility and proceeded to occupy it for 41 days. now, why are they important? first of all, the cops could do nothing because they did not want to repeat waco.
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i do want to mention that the people that bombed oklahoma city in oklahoma city the murrah building one of them was a self-identified sovereign citizen. so this level of violence from a relatively small group of people when the police seemed to be so nervous about interfering with them is a threat in the west, which is red country. but the message that it sends is that if you are an employee of the department of interior, which is -- who are responsible for 47% of the land in the west where we have all sorts of things going on, national parks. wildlife refuges. a whole series of things, you can not be comfortable that you will not find yourself
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confronting people who believe that you cannot interfere on any basis with their right to be arranged and their -- armed and their right to do as they please. all of this is to they i think we need to broaden our perspective, understand more in a more sophisticated way who the bodies are that are voting for far right candidates, especially because we have this constitutional problem that tom mentioned. he pointed out very good point that most of the people on the supreme court were going -- the conservative wing now was confirmed by senators who did not represent most of the
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country and that is our problem. dare we open up the constitution? no. this is why we have had a spate of books talking about whether american democracy can survive. and unless we pull the camera back and look at the ideologies that have come up or been pushed down because certainly the koch brothers, the scaife foundation, they have all funded the groups in the past. unless we develop a more sweeping perspective on what our problem is, we won't be equipped to deal with it. so thank you very much. >> thank you very much. yeah, we're talking again about the voters and about congress as
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a fulcrum for change. our next speaker is damon silvers the director of policy for the afl/cio. the largest labor federation in the country by far. and he's had a lot of experience with advisory committees to the treasury and working on the congressional oversight panel, the collapse of wall street in 2008 and '09, which is why his topic is within his purview, although he could talk about the need for raising the minimum wage. labor union laws that need to be reformed like taft hartley, but today he's going to speak on the subject of the inadequacy of the financial regulation. damon?
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>> thank you, ralph. good afternoon. as -- it's a pleasure to be here. it's a apropos that his introduction ralph mentioned the minimum wage. one of the reasons i wanted to be sure to be here is because a few years ago i heard from ralph nader who said it was -- he was insistent to me that what we had to do is demand a much higher minimum wage and confess that this was before anybody had ever heard of a fight for 15. and so i sort of took as a lesson of that experience it's a good idea to hang around ralph a little bit. he has good ideas so i'm going to take the opportunity that's
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been offered to me to talk about the market fundamentalism in part of security regulation and in part of history and i'm going to try in the course of doing so to make an argument for a very specific way of understanding the threat that market fundamentalism poses to the future of prosperity of the united states and the globe. since a number of people who have spoken before me have talked about sort of larger political dynamics, i just want to point something out to begin with about market fundamentalism. i think it's important to remember. because a number of people have pointed out or have asked, including several of the prior speakers, how is it -- how is it that you see in the course of modern history so often market
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fundamentalists or libertarians, people who believe there should be a minimalist state, how is that it they end up being associated with political constructs like the pinochet dictatorship which are not minimalist states. like an absolute monarchy that murders the opponents is not a minimalist state. it doesn't appear to be libertarian so why do they have libertarian advisers? this is the paradox of libertarianism and i think it's worth saying at this particular moment because it explains what goes on in washington that you have to put down as simple bribery which is not. they're the product of ideas. let's go through this paradox and then i'll turn to the main subject. market fundamentalist or libertarian ideas have
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underneath them an older idea. an older idea of natural rights. the idea that -- in particular, the idea of natural property rights. that there is something -- that there is something called the ownership of property which precedes politics. and many people think this way, see it as somehow tied to religion. it's an absolute claim and then their libertarianism comes from their belief that if you own property, you're entitled to do anything you wish with it. regardless of what the impact on others is. now if you believe that you start off as being convinced of each of our ability to do whatever we wish with our own property, subject to minimal limits similar to what john locke may have laid down. enforced contracts, no violence, that sort of thing. the problem with that regime as has been shown over and over again in human history is that
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it produces very quickly accumulations of wealth and power in private hands that are really inconsistent with ordinary understanding of freedom. all right. that very quickly those who have lots of property end up with all of the power. and all the freedom and those who have little property end up with no power and no freedom. in that regime if you have a democracy which is of course a value that we all embrace, the democracy will be used to seek to right those power imbalances. now people -- eventually, sometimes they'll be fooled for a while, but eventually they will vote to elect people who will seek to right that power imbalance. a number of favorable references in this meeting today to the new deal, to the roosevelt administration, to the great
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society, to the affordable care act. these are examples of what i'm talking about. and those exercises involve essentially constraining natural property rights. now, if you really believe that there is some absolute right to property, independent of democracy, independent of what my property ownership might do to you, if you really believe that then a democratic government is stepping on my fundamental rights. and if that's what you believe, then you believe in my -- in your entitlement to use violence to stop the democratic government from doing so. if you follow what i'm saying, you have gotten yourself to the presidential palace in santiago, chile, in 1973. all right, to the use of tanks and airplanes to murder
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democratically elected leaders in the name of property rights. we should understand that's the game. not everyone on that side of the became is prepared to go that far, but that's the game. to bring it a little closer to home, this is the beginning of my discourse. we in the united states have lived through a number of different regimes in relation to market fundamentalism. a number of different political orders. it's really quite remarkable that for reasons having nothing to do with this we're gathered in a building that is the physical embodiment of the first order. all right. this is the carnegie institution for those of you watching on tv. we are in the carnegie institution which is a lovely, humane organization that does many good works here in washington, but it was not always thus. all right, this building was paid for by the vast wealth accumulated by andrew carnegie
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who was essentially the monopoly owner of the steel industry in the late 19th century. at a time when market fundamentalism was at a high water mark. this is the era -- a lot of talk about the supreme court, this is the era of the lochner court. this is the era in which the constitution of the united states was interpreted to say that the democratically elected government of the united states could not regulate the economy, even to the modest effort of prohibiting child labor. this building was paid for by money earned in substantial part through the use of state power. to ensure that andrew carnegie would not have to pay a living wage. and what do i mean by state power? i mean that the deployment of the united states army in the steel towns outside of pittsburgh to fire artillery shells at people who wanted a higher wage.
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now, that's the living embodiment -- i'm talking about the homestead strike by the way, a footnote. that's the living embodiment of where market fundamentalism ends up in american history. that era was replaced by another era in american history. the era in which this building became the home of a lot of very humane, enlightened efforts. that era was the era in which market fundamentalism was challenged fundamentally at every level. all right, politically, socially and intellectually and legally. that -- in the new deal era, the fundamental critique, the fundamental thing that was said in this country by both ordinary people and intellectuals and lawyers was that there is no such thing as a market separate and independent from society.
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markets are the product of political social decisions. there are rules to markets, markets come into being by the creation of those rules. this is the fundamental insight of the law of the legal school called legal realism and it underlays the creation of our system of regulating our financial markets and our securities laws. before the new deal, there was kind of this assumption that you could do whatever you wanted in the securities laws. and that in some sense, people -- they were always men, like andrew carnegie, all right, could use the securities markets to raise money from the public for whatever reasons they wanted. they could tell people the truth or lies. let the buyer beware. the new deal and the concept of legal realism in law and the
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fundamental idea that we regulate markets created a different system in this country. a system in which -- has been under sustained attack during most of our lifetimes. but which is the underlying system of government -- of modern government in the united states. now, i think it's worth noting that that system, that system that fundamentally discarded market fundamentalism and said we have to make intentional choices as a democratic society, how we'll structure and govern our markets. i'll be clear, i'm not talking about, you know, a command economy. i'm talking about the fact that there is no such thing as a market apart from these types of decisions. all right. i'm saying that this was a rec -- this is what is called a recognition of reality. it's not a question of should we interfere with the market. because that's not how the world
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works. it's the only question that is meaningful in public policy is how do we build markets. and for what purposes and to whose benefit? the notion that there is something over here called the government. and something over here called the market. and they're separate. government might want to interfere with the markets but that's not a good idea. that is all a lie from start to finish. it's like describing a world -- like saying, well, how do we feel about gravity? gravity is a good idea, should we have gravity or not? all right. talking about the question of should we have government interfere with markets is like talking about should we have gravity. governments always interfere with markets. markets don't exist without government. and in certain respects vice versa. now -- by the way, anybody who disagrees with that, ask them how you'd feel if you didn't
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whether the scale was any good, or when they take your credit card payment what would happen next, whether they'll steal your credit card number. when you handed somebody a $10 bill and asked for a couple of pounds of apples, whether they would give you the apples back or not. take your $10 bill and walk away. all -- you don't think about those things when you go to the market because we have a government. that's the only reason you don't think about those things. now -- so you can just imagine for a moment, no government, no market. they are completely intertwined. now, when we are here as the guests of public citizen, public citizen came into being of during the first kind of political crisis of the new deal order. and the return -- and the beginnings of the return of market fundamentalism. we should be clear in the united states in the 1950s and 1960s
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market fundamentalism was an extremist idea. all right? and the -- it was an idea that you would hear -- john birch society perhaps. it was an idea you might hear at a few very, very conservative academic settings but it was not a mainstream idea. you could not find a caucus in congress that supported it. market fundamentalism returned into american politics in the late 1960s and 1970s. people talk about the louis powell memo. there was a conscious political effort to resurrect radical right wing economic ideas during this period. in part and in response to the fact that new deal oriented ideas appeared to have taken over both political parties in that period. but the new deal order that took over -- the new deal order that appeared to have taken all the
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oxygen out of the room was not the fully progressive new deal order of the new deal itself. but it was a political order that had evolved over time. and evolved alliances between big business, big government. big labor. and it was quite susceptible. that order was quite susceptible to critiques it wasn't really serving the public interest. what was going on at that time were debates about could we improve that order? meanwhile, there were a group of people with a lot of money, the koch brothers among them by the way that long ago conspireing to destroy it. i once heard andrew young say about this period that as economic adviser to martin luther king, the man -- andrew young was responsible for trying to persuade business leaders they should not support violent resistance to -- to business.
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and so he would go around talking to business leaders. and he said years later that what and dr. king were trying to do was to open the door for african-americans to the new deal order. but what they did not realize while they were trying to get that door open was that meanwhile, someone else was taking the house apart. so that when they got through the door, there was nothing there. he was reflecting on that when he was talking about the financial crisis of 2008 and the destruction of the african-american home ownership that was associated with it and the false promise of financialization for the african-american community. now, the return of market fundamentalism occurred in both political parties. and was so successful and
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integrated so neatly with some other things that were happening in the world in 1970s and 1980s that by the 1990s the kind of fantasy notions of public policy, economics and finance that i was just describing, the notions that -- the notion that there was something called the market independent of public life. the notion that markets are the best way of allocating resources in every circumstance. these notions had become as totally widespread as the new deal ideas in the 1960s and 1970's but the events of 2008 -- 2007, 2008 the financial crisis and the subsequent economic crisis revealed that truly the emperor -- the emperor of market fundamentalism had no clothes. it was not true. markets were not efficient. markets were not independent of government.
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the most quote market friendly institutions, the united states' major financial institutions were completely dependent on government for their very survival. what this history should teach us is not that -- is not that there is something called a market and we need -- whether it's a financial market or a labor market. and the task of policymakers is to clean up the mess associated with the edges of it. that's the wrong lesson. too many progressives in the united states over the last 30 years have fundamentally had that paradigm in mind. markets are efficient but they create inequality. let's clean it up on the back end. as musicians say, let's fix it in the mix. that is not the right way to
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think about this problem. the task that confronts policymakers and i'm going to speak now about this in the context of security regulation. the task is how to shape markets and to what end. it is not how to clean up externalities at the back end. it's how to shape markets and to what end. the progressive paradigm of redistribution and regulation is simply not enough. and it's particularly not enough when we face the challenges that we face both in the national and global level. when we think about challenges like the rising degree of economic inequality, the fact that 10% of the population seems to capture all of the wealth creation, the challenge of climate change. the challenge of maintaining a
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broad based middle class society in which there are many other powers and many are growing. that it is simply not enough. we need -- we need to think about how to shape markets with a strategy for long term wealth creation for all americans. and for that matter for all of the world's population. now, nowhere is this more important than in securities regulation. because securities regulation is about the regulation of capital marks that allocate the -- markets that allocate the resources of the united states and of the global economy. that's what capital markets do. they allocate resources. and they allocate resources on a huge scale. now, today we have what -- we have in my view a weakened system of securities regulation in particular. our bank regulatory system is somewhat strengthened as a
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result of the post 2008 system. and the dodd/frank act and the wise regulators following dodd/frank and that is being weakened by the trump association. on the securities side major problems in securities regulation have gone unaddressed now for decades and they have created two fundamental problems that go to the question of shaping markets. they have consequences not just for the securities markets, and for the fairness with which investors are treated in the markets. but they have consequences for the health of our economy and the health of our society because so much is being allocated through those markets and because we consistently try to allocate through those markets -- to make decisions through the securities markets as a society that we should never make. i'll give one example. for 30 years we have tried unsuccessfully to get infrastructure structure made through the securities markets. the consequence of that 30-year
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decision is that we have fallen from the world's premier nation in terms of the strength, sophistication and comprehensiveness to somewhere in the second rank. when we did it the right way, by spending public dollars on public goods, we led the world. and the moment that we decided that private securities markets was the way to fund our roads and our bridges and our telecoms and aspects of the telecom system and aspects of the electrical grid that have done through the public provision, our world leadership in all of these things collapsed. now, there are aspects of the securities -- there are aspects of asset allocation in our economy that should never be allocated to the securities markets. but those that are, we are making two very fundamental mistakes and we are allowing
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private actors to essentially bleed our capital stock to their benefit. as a result of these two decisions. and they're somewhat technical in the way they're defined but not in the outcome. so the first problem -- the first problem is the set of issues that the author michael lewis has addressed on a number of occasion we has to do with the fundamental fairness of the securities trading markets. we have allowed through technology privileged actors who have more money, more mathematicians to gain the securities of our working markets. they do so through trading pools that are opaque called dark pools. they do so by literally putting their computers in front of yours and mine through a process called -- through something called colocation which is
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taking a computer and paying the exchange to put it closer to the exchange's computer than where your or my broker's computer is. these processes taken as a whole have fundamentally tilted our markets against all but the most formidable institutions. and fundamentally undone the promise of the 1933 and 1934 securities laws that we would have a level playing field for all investors. nobody believes we have a level playing field for all investors in today's securities markets. and the s.e.c. has allowed this to happen since the adoption of something called reg mms in the early 2000s and it should have been fixed a long time ago and the consequence is to make our markets into a rigged casino rather than a source of investment. the second problem is the problem of private equity and hedge funds.
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the problem of private equity and hedge funds is that we have changed the regulatory system since the 1980s to incentivize leverage investing. leveraged investing is well known by anybody with a first year course in finance. you can always jack up your apparent returns by taking your investment and borrowing against it. but when you do you jack up the risk. all right? you're not really creating value by doing that. you are simply adding both risk and reward at the same time. the problem is it's asymmetrical. the equity investor gets the upside, but not the downside. who gets the downside? all of us. the people who work for the companies that get leveraged up. the people who -- all of us who live and depend on the health of our overall economy and financial system. something like this occurred in a large scale in the housing markets. the challenge for securities
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regulation today and it has been an open challenge at least since 2006 and more -- in reality, since the late '80s when the leverage buyout scam became visible is three things. and here i'm going to close. it's three things. but i hope you'll follow. as i come to the three things that this whole thing ask abo about -- is about understanding that markets are not fundamental. they are created. we had securities markets that were designed to create real investment in the new deal era and we substituted them -- the ones that were designed to encourage speculation and insider gains. so there are three things. one is the level playing field in the trading markets themselves. the second is the sustainable finance for actual investment in
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real companies. not quote capital formation. capital formation just means gathering up money for whatever purpose you'll use that money for. actual investment. part of that story is what i said about leverage and part of it is the use of leverage to extract money at the back end. to pull the money out on the other side through stock buy backs and dividends. and the final point which is growing in importance every day is the problem of getting actual transparency around the key problems facing our public corporations and our economy that are very large scale but where all the data is secret. what i'm talking about is climate change, political spending, human capital. these issues -- and systemic risk which comes back to 2008. these issues are opaque in our securities markets and yet they are dominant. they will become more dominant. not dominant in terms of social justice.
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dominant in terms of corporate performance. so finally, in conclusion, markets, even sophisticated markets are designed for purposes. and in the age of globalization, in the age of the rise of emerging market powers and strategic actors like china and russia, to pretend that market design is neutral, to pretend that there is something called a market separate and aside from politics. you can -- it's all about letting it find its own level. that is to choose as a society and perhaps as a planet to be on the menu rather than to be at the table. thank you so much. >> thank you, damon. he gave the example of the pinochet dictatorship in chile. but the extension of market -- natural rights and property in
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our country was slavery. they turned human beings into property. so that's what happens when you don't have boundaries to the commercial instinct which every major religion has warned and not to give too much power to the merchant class knows no boundaries. because we're running late and some of the schedules here -- we're going to switch lori wallach to be next before joel rogers and lori speaks very fast. and unfortunately we are quite a bit late. but she's a director of public citizens global trade watch. you have probably seen her and heard her on television and radio. for over a quarter of a century has been up on capitol hill battling over nafta. she was named to the 50 list of thinkers, doers and visionaries, changing american politics in 2016 for her leadership in the
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transpacific partnership debate. she's had experience with the trade issues and other -- in other countries and testified in foreign parliaments and resorted to the courts and other agencies. she'll explain why it's not free trade. very vividly. lori? >> ralph is tall, i am not. thank you, ralph, for organizing this and for inviting me. and i will be short not only in stature, but how much time i will take. i what start by saying that the -- i will start by saying that the story of the hijack of so-called trade agreements could be exhibit number one of the market fundamentalism theme.
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that today's conference is exploring. today's so-called trade agreements have very little to do with trade. as damon and our friends in the labor movement, our friends in the environmental movement, our friends in the family farm movement, our friends in the consumer movement, basically everyone who works in everything but moving physical things about borders to sell them could tell you everything that all of us have fought for and care about, all of our domestic policies have nothing to do with trade. is what these agreements are now largely about. and the fundamental myth behind this is one that has been propagated with the very clever branding campaign by largely u.s. companies, but in conjunction with their counterparts, large multinational companies based in europe, based in japan, other
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parts of the world. so just to step back a little bit the u.s. constitution the framers, they were very worried about the notion of trade being hijacked by foreign interests. as it turns out, that was not necessarily the most important focus. because domestic corporate interests have done a hell of a job in causing the kind of anti-public interest havoc that the founders were concerned about in framing article 1-a to the constitution which intentionally if you go back it actually reads some of the history of the writing was set up intentionally so that congress -- the body closest to the people and including the house because these aren't treaties, the house members who have to stand election every two years have to vote. congress article 1-a has exclusive authority over the terms of the trade and the idea was to keep the king, the
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president, from unilaterally currying favor with foreign interests. so jump to the future and you have a set of factors in the 1970s. part of which includes richard nixon, a fount of things undemocratic, coming up to delegate away congress' checks and balances into the mechanism that literally created hundreds of official economic trade advisers who have a seat at the table in writing the policies. after a lot of lawsuits by public citizen to environmentalists and one consumer group. so we have seen trade agreements basically used as delivery mechanisms for the most crass notion of market fundamental but so is the brand free trade.
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something that all smart people must be for. trade, it's a good thing. the result that we have gotten is something that is equivalent to a slow motion coup d'etat. quiet against democratic governance. and the policies that put people on the planet first. that emerge when people have the rights to make the decisions to govern their own affairs. so we have so-called trade agreements. myth number one that our free trade, yet all of our modern trade agreements have classic rent seeking protectionism. at their heart. they have chapters that explicitly require the sitting thattory -- signatory governments to provide monopoly rent seeking instruments to pharmaceutical and seed firms and now 20-year plus
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exclusivelies through requiring governments to give patents and patents on life forms and on seeds. so that we have a scenario where the world trade organization became the venue where india's -- gets challenged as a trade barrier. a constitutional provision aimed at ensuring very impoverished people in the country have access to food and medicine. becomes characterized through the switcheroo of market fundamentalism through trade agreements of becoming an illegal trade barrier. except wouldn't a monopoly patent license given by government to one special interest to seek rents be the trade barrier? not the absence of providing that to the special interests. india had to change the terms in its constitution.
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it goes all the way to the level of the constitution. the trade agreements are packed with these provisions that have nothing to do with trade. so having listened to damon some of the biggest financial deregulatory moves made during the clinton era actually were also locked in place in an agreement at the wto called the financial services agreement. imagine people's shock going through the schedule of the trade commitments we find a reference to the class steagall breaking up of the different kinds of services that a bank that can provide. the financial institution can provide and phasing out that obstacle to trade. an obstacle to the trade is the firewalls put in place to avoid financial crises. it has nothing to do with physical things crossing borders to be sold and removing border taxes on them. there is an encyclopedia of these sorts of extreme market
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fundamentalist ideas which aren't actually market fundamentalist given the ip rights. free trade agreement is the brand. where we are now in this fight is after really a transformation of our trade agreements that occurred in the early '90s where there was a creeping market fundamentalism in agreements like the u.s./canada agreement which ralph is one of the first people in the u.s. to realize was not about trade. he got with the citizens movements in canada to warn all of this nontrade garbage had been stuffed into the agreement. since then, we have seen -- i don't know if you call the high water mark or the low water mark that started with nafta. the north american free trade agreement which went into effect
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on the 1st of january, 1994. the world trade organization in 1995 that transformed the business of trade, cutting border taxes and getting rid of quotas, limits on how much stuff you can sell. instead, became these delivery mechanism, for what people frequently describe as the new liberal agenda. now, again, it's not actually market fundamentalism because the new liberal agenda -- these guys are good at branding if nothing else, including things like the rent seeking protections on intellectual property. so things at the kato institute and the libertarian wing says should this never be in the trade agreement. we have now in place nafta and a whole set of agreements in the u.s. that modelled it. unfortunately, other countries took on this model as well. so under different names in europe they call them economic partnership agreements, talk about branding and epa. we have heard of trade and partnership agreements. there was the one tpp that could
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not get a majority in congress. a year after it was signed. and was a moldering corporation that donald trump ceremoniously buried while saying he had killed it but he had not. there was the t-tip, they're the species of the same critter that nafta had hatched and the outcome over the 25 years and the repeated sneak attacks and different cherished policies and concepts has started around the world to awaken people to the fact that at least this piece of market so-called fundamentalism and misbranding is just flat against their interests. movements around the world have done enormous amounts of work. the labor movement. the family farm movement.
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environmental movement. to teach people country by country about how the outcomes that are undermining their lives and their future and the planet's well-being are actually misbranded trade instruments. which gets us to the strange moment at which we have arrived. around the world there's growing push back against this agenda. so we have seen this play out in numerous countries extracting themselves from agreements that have the infamous investor state dispute settlement system at their heart. those are the rules that give foreign investors extraordinary protections and rights that extend beyond any country's domestic laws. things like compensation for any regulation that undermines the expected future profits that they intended to earn. totally speculative estimation of that. but for a policy,
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nondiscriminatory that requires here's an egyptian case the raising of the minimum wage across the economy. the foreign country says we have a contract, you can't raise the wage. we're a foreign investor. in canada, the application of an environmental impact statement to a mining project as is done with every mining project. here also. no u.s. company can't have that done. you're a nafta investor, you'll get compensation. where they're made by three private sector attorneys by being a judge and then suing and that's a dire conflict of interest under any country's judicial system, these three private attorneys one of whom is actually picked by the company suing the government and by the way under the system the governments can't see the companies. it's just one way rights.
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and can award unlimited damages to the companies to be paid by taxpayers for any violation of what the investor claims is an inhibition of the privileges and rights they got under a trade agreement. so this regime has resulted in billions being stolen from taxpayers and given to corporations for nondiscriminatory public interest policies that would not have been subject to any compensation in any domestic court. and then in the case of nafta almost $400 million has been paid out in a tax on water, timber, toxics, zoning policies. so south africa led the way and started by withdrawing from all of the investor state agreements five years ago. indonesia, india have joined.
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brazil never got into this. they have the good sense to say this does not seem like a good idea. so around the world the isds pull back has started. as well some big, bad agreements not the least of the expansion of the world trade organization to add the investor rules and get even more overreaching has been fought back with a doha round expansion that was launched almost 15 years ago, derailed by a decade plus of really powerful citizen activism. really started in the developing world. we have been saved by the fight back in the developing world to that agenda. and we have come to a situation where the largest, latest version of the nafta style market fundamentalist neo liberal environment crushing democracy smothering agreement, the transpacific partnership,
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found itself basically without a majority in congress for an entire year after it was signed. despite being pushed by a u.s. president, the entire u.s. corporate lobby and the majority holding republican leadership. because the lived experience of the agreements as well as a lot of work to educate people has made these agreements politically toxic. unfortunately, an undo love of this agenda, not related to the agenda but the campaign contributions of its sponsors, by both political parties but mainly the republicans at the congressional leaders and presidents at the democratic and -- of the democratic and republican parties, has resulted in a situation where people across the country furious about the agreements.
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but the presidential level of democratic and republican brand looked just the same. in favor of these agreements. and that was a grieves you opening for donald trump to ride right into the white house. hit's the case -- it's the case he has been against nafta since before he was against nafta. he's wrong headed about the critique, mexico did not stick it to the u.s. workers with nafta. nafta is made in america. it was a brain child of ronald reagan. it was negotiated by george bush the father and signed. it was implemented by bill clinton after beating the stuffing out of numerous unions and his political base. it's a made in america catastrophe that has been equal opportunity devastating for workers in the u.s. and in mexico. that agreement and all of those that came after and the painful
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push to implement tpp by the obama administration right through october of the last election helped a lot of folks apparently think it was worth going for the crazy guy who said he was going to do something about nafta. as much as you don't want to expose your kids to him, or any other fears you may have about, and i spent quality time in the midwest with obama, obama, trump voters who really dislike the guy. who are not the deplorables and who voted for him over these classic populist economics and trade issues. and of course the man being a walking, tweeting multinational corporation himself has no notion of how one ought to fix it. however, and his notion obviously of mexico being the problem is so wrong headed that
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if that were the approach that would premise the fix, you'd only get the wrong outcome. however, interestingly, he chose as his trade representative a robert lighthizer, a very conservative republican, but one who is in that camp from way back in the nafta fighter, who stood back and fought against the entire party and said, why would this be in our interest? like i may disagree with ralph nader about whether there should be a lot of environmental and food safety laws but shouldn't we have that out domestically? why should we have all countries should -- to the administrative procedures and you can't change a comma unless all the signatories agree. that's the implementing clause of the wto.
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so the fact that robert light hiezer -- lighthizer is in place is right where we are. we have seen the outcoming agreement which is released on september 30th. it's not the transformational replacement of the corporate rigged model that we have all demanded. there's plenty of the old framework still in there. but it is fundamentally different. and in ways that progressives have long demanded. from every past u.s. free trade agreement. now, there is also as well as progress new bad stuff and there's a lot of unfinished business. however, if what are improved labor standards were made subject to swift and certain enforcement which they are in the text that was released but it's something that can be fixed, if certain other pernicious provisions were removed, other changes were made, the resulting agreement could stop some of the ongoing
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serious damage. nafta does still every week of more jobs that are good jobs being turned to sweatshop jobs, by being outsourced from the u.s. to mexico, mexico with no independent unions. where jobs that paid workers more per hour than a mexican worker gets per day are locked into a system where companies relocate, pay workers less. dump their toxins and come back to sell the products here because the mexican workers aren't making enough to afford what they make. we're talking about $1.50 wages. they are the level of coastal china. so if a revisited nafta which does not get the new name, no one should call it whatever
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crazy new brand trump has put it. it's not a messianic arrival, it's nafta 2.0, but if the gaps are bridged it can stop the ongoing damage and the most important thing and where i will close is extracted from nafta is almost all of the investor state dispute system. and that is something for which people who are fighting against market fundamentalism should celebrate. whatever happens with the final of the final of the deal and i myself hope it can be improved to the point where it's worth actually implementing because stopping that ongoing damage to people's lives that is occurring every week in the u.s., mexico and canada under nafta now with more isds attacks, with more jobs turned from good jobs to bad jobs with more people in mexico paid so little they can't afford the basic necessities working very hard at modern
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plants just like their counterpart in the u.s., that immoral situation must be countered. so maybe we will get there. the fight will be in 2019 in congress. but what we know today is that the isds system has largely been whacked and we should celebrate that and we should build forward from that. because we have a long fight to get the progressive model of trade agreement even if what ends up as nafta 2.0 the final deal is worth supporting. we have a long way to go to get the progressive model that truly dust bins the market fundamentalism of the old model an puts people on the planet first. thank you. >> see, this is what happens when lori reads the fine print of the agreements which nobody
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in congress ever did, of nafta and wto. hundreds of pages showing that the true impact is to subordinate labor, environment, consumer, new process, democratic procedures to the imperatives of the commercial corporate trade that's the agenda. the focus is always on tariffs and quotas. that's very much of a distraction compared to the real damage that these pulled down trade agreements do on countries that have higher standards pulling down the countries that have lower standards. that's the agenda of global corporations. by the way, you want to get more information on this, it's global trade watch.org. tremendous website, very helpful because all of this turn around that lori talked about started with people back home protesting the whole industries being shipped to china and to mexico. it all started with the focus on congress and the turn around in
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congress is what blocked the transpacific partnership. until the 2016 election and then trump withdrew from it. our next speaker is joel rogers. you can spend half a day talking about this academic professor of law, ph.d. in politics at the university of wisconsin now. heading the center on wisconsin strategy and a national think and do tank that promotes high road solutions to social problems all over the country. he has applied two statements that i always -- i always speak about. cicero defined it as power and that's rogers' work. democratic participation in
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power and the 14th century ming philosophy said to know not what to do is not to do. he applied that in the hands on work with groups all over the country. and emerged as one of the main challengers if not the challenger to alec, the notorious partnership between corporate lobbyists and corporate state legislatures. funded by the koch brothers. he is also written a huge amount of material and books and articles. but without further ado, joel rogers. >> so hi, everybody. it's getting late in the day and we're running behind. i'm going to try to be
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relatively brief in the interest of getting to maybe some discussion if there's still time left after the next few speakers. and i'm very pleased and aided in my brevity to follow tom mcgerty and damon earlier and lori of course. because -- well, you'll see why. i first met ralph i think in the early '90s. clinton was already in, nafta was a way to get -- on the way to getting signed and ralph pressed into my hands the powell memorandum. much to my shame i had never read before. the powell memorandum being the famous memo from louis powell to his good buddy at the chamber of commerce education committee. powell of course is running the
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virginia chamber at that point. prominent corporate lawyer, this is well before he went on the court. under richard nixon. and powell called for a full spirited, full throated, very disciplined disciplined, almost with military dedication, real civic grit from the elites, full scale attack on the offered in defense of the sanctity of the free market system, free market capitalism. and 19 -- that was, what, 1969, i guess, and that was when i was entering school and basically i think of most of my adult period as the -- marking the period of long-term decline of american democracy, so when i reach maturity was, i guess, 1973.
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i was born in '72 so i was 21 in '73 and by that point -- it's been more or less downhill ever since. so you can blame me or you can blame the success of business mobilization. anyway, on, i think the success of powell -- and i don't want to overstate powell's influence or the influence of the powell memorand memorandum, but what it does very clearly lay out are the elements needed in any functioning progressive or reactionary movement, any social movement that actually wants to govern and do so with, you know, sizable majorities for some period of time, and it's worth recalling what the elements in that are that are laid out pretty clearly in powell. one is you need very clear channels of communication of whatever it is that you're
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putting out there. these need to be open to -- they need to be to the mass public, of course, but primarily and first to your own base and then the leadership of your own secondary leadership. you need to make, secondly, extremely vigorous, sustained efforts to recruit, train, mentor, place, award, encourage, discipline, blah, blah, blah, the young, because any social movement, if it's going to have any lifetime has to begin to replace itself more or less from the beginning and the young people have to be brought in. and then, of course, you need the four rs. you need a message, a relatively straightforward message that can be understood with a -- with an accompanying program, the steps in the program need to be within reach but also cumulatively getting you some sort of
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momentum over time so that each further step becomes a little bit easier to take because you've got the progress of the first step taken. so, a message. then you need a lot of members of the jury -- messengers. and these messengers have to look like and talk like and be immediately recognizable by other people. they have to be as averse, probably, as the population that you want to reach. why? because we're still, you know, we're very slow, very early still in our evolutionary advance as animals. we still have the four fs -- this is what i learned in high school, the four fs of fight, flight, food, and the sex, you
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can understand what the "f" was that we used in high school. and those are very, you know, very basic built into our animal creatures. we still have this big reptile brain, the amygdala and the whole limbic system which is still governing a lot of our behavior. we have this frontal cortex and we've made tremendous advance over the last 200 years or so that homo sapiens has dominated but we are still fairly primitive creatures. anyway, we digress. and we respond to any phenotype that doesn't look identical to our own with some curiosity, maybe, but mostly fear and distance and so on. the bottom line of which is people like people like themselves first. they can be trained a little bit and they can, over time, through the -- through discovery, come to appreciate others and even love others, et cetera, but in
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general, your messengers, you want to look like and feel like and smell like the most of the population you want to get to. messengers. and then you need some models. you need examples of stuff that you have done, maybe not quite at the program scale that you want to get to nationally, but that's been done and that can be replicated elsewhere. for the right, well, i'll go through how the right filled in all these things but that's also something i think any progressive movement would need as well. and then you need some money. you don't need a huge amount of money because you're advantaged by the fact or we're advantaged by the fact, as rob was pointing out, that the public is basically on our side. it's just the public is not in any way organized or certainly in control of our government. but we do not have a lot of work to do to persuade people it would be a good thing to take
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the income cap over social security -- off of social security or enable medicare to use its buying power to bargain prices down. it doesn't take a lot of energy on our part to persuade people to be nice to pay people something closer to a living, real wage, a very entry level wage. doesn't take a lot of time to persuade people it would be good to have a super abundant supply of quality public goods in america, including higher education and public parks and areas of public recreation and decent, clean drinking water and clean air and a variety of other things that ralph and many of the people in this room have devoted their lives to struggling for in one way or another. the public would like to have high quality public transit and a variety of other things. i don't think the public is really our problem.
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the real problem is with a variety of elites who have bought into -- either been bought off, bribery, or bought into in ideology this market fundamentalism and a variety of other ideas. let me just speak to the market fundamentalism thing if i could for a second and then talk about what i think it would mean to actually fight against it in a serious way. the reason why i wanted to give a shoutout to tom and damon at the outset is that i think the -- he's leaving already, just before i praised you. okay, run away. all right. what? all right, well, let's do you first. in terms of the politics, i think damon has it exactly right. we'll get to the theory here in a second. but at the level of political argument, the idea that, well, should we give it to the market, should we give it to the government, how much government intervention or regulation of the market do you need, is, i
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think, very exactly as damon said, the absolutely wrong discussion to be having. and that is a discussion that has completely preoccupied, still, our politics. so getting to our positive program, one thing that we should do is just massive education in the elements of what's a legal realist and everyone since have given us in terms of understanding the dependence of markets, the constitution of markets by public authority. every politician should be able to redo bob reisch's routine, markets are just bundles of rules and they cannot make those rules themselves so the question is, i think damon posed it absolutely correctly, the question for public policy is what sorts of markets, to what end do we want to devise. what are the rules that we want to get. but we should really defeat the idea of markets as these initially -- these subjects of immaculate conception or something. all right. that's the thing. you can go now.
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it's okay. all right. and to tom, the shoutout is the remark about endogenous preferences. in the back and forth between, i don't know, let's start with adam smith, between the idea that the self-regulating markets could actually deliver the wealth of nations could actually get you a social optimum in which no one could be made better off from the standpoint of efficiency, not equity, not religion, not morality or anything, but just economic efficiency, no one could be made better off without someone being made worse off, that's been the back and forth, and that -- that's gone on for, well, at least 250 years now. and it seemed that smith and the classical liberals had sort of won. smith, of course, was a much deeper thinker than the people from, i don't know, milton freedman and others, carrying around little pictures of adam smith on their ties.
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smith had a much more -- a much de deeper view of human nature than suggested by many of his alleged acolytes and he understood the great limit on markets but let's leave that aside too. the smithian argument has been refined over the years through neoclassical economics, the successive revolutions in economics, et cetera, and we do know that markets can produce that sort of efficient equilibrium outcome under very stringent conditions, though. first of all, you have to have markets in everything. markets need to be complete. second, markets have to have complete information. everyone needs to know everything about everyone else and everything that is to be known at that point in time. and third, markets need to be independent. there can be no public goods, no externalities, no increasing
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returns anywhere because the whole point of the appeal of markets was that no one is able to impose any costs on anybody else. and all those things interfere with that, either directly or through the tax or other provisions needed for those public goods. and that was an extremely appealing ideal, and i think very, very important in development of political thought, particularly in the west but then it spread, you know, all over the world because it enabled you to think, at least, about the tasks of government as not dealing with the substance of actually running the economy. you could leave that increasingly to the market. and out of that came the classical liberal view of, well, a natural right to private property and its accumulation, of course. self-regulating markets as to take care of the economy once you respected that natural right, and then a commitment to very limited government because
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you did not need much work in government and then also the freedom stuff, the civil rights and civil liberties, universally supplied. and that was an extremely attractive idea and it was importantly liberating, certainly from the previous constraints of different sorts of feudalisms. but over time, people understood that that perfectly functioning market was, in fact, anything more than an ideal and then that led to various, let the market do its work and we're going to clean up afterwards, let's make some rules, let's do some regulation. in the cases of increasing returns, natural monopolies, et cetera, let's do a little bit of regulation, yada, yada yada. let's call that the social accommodation to market capitalism. the famous program, the german social democratic party
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renouncing aspirations of actual socialism. they said, well, we are a pro-capitalist but a social capitalist or, you know, more benign capitalist party. markets were never possible, state action where necessary. that was sort of the boundary for much of the new deal and, you know, that period. and then there was a counterattack made on all this, and here is where buchanan and the whole public choice movement, i think, has really, i don't know, struck something of a heart into liberal conscience and confidence in taking action regulating markets. and the essential point of public choice, of course, you know, it's a complicated view, but the essential point is very simple to understand, that there's no particular reason to believe that the people operating the government are going to have anything better -- any better motivations or better capacities than the people
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higgaling and piggaling around these markets that their regulation tries to constrain or as richard posner, the famous judge now retired and defending poor people, observed, we understand that markets can do -- that government can do things much better than markets, but we have no reason of any confidence you'll stop just there. and you can overreach in different ways. and i think in the same way that liberals or progressives or whatever we call ourselves should recognize that markets do have that innate, you know, blood letting, commercial drive, which is, of course, a large part of their dynamism, but that that is insatiable and will not respect any boundaries unless it is really contained. similarly, we have to respect the fact that the state per se is not going to respect any boundaries unless it's constrained. i'm going to some sort of way to persuade a bunch of peopleme.
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so, round one, adam smith, classical liberalism wins. discovery of market imperfections, monopolies and a variety of -- and externalities above all, then social democracy wins, public choice comes in, next round of public choice. but the fourth round, which i don't think most journalists who are not here or college professors, unfortunately, or certainly college students or certainly our political leaders quite understand is the strength of what tom garrity was pointing to. in the last 30 or 40 years, we've recognized that it's not just that markets have these imperfections which are subject to some correction, but pervasive failures and there's absolutely no reason to believe that an actually functioning market, even under relatively ideal competitive conditions, is going to give you anything more in terms of an efficient outcome than some other set of
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institutions will. the reason is that -- part of it is the thing that tom noted, that all preferences are endogenous, markets rely on exogenous practices for the market magic to work, purposes all have to be exogenous but virtually all preferences are endogenous and the reason why that's intrinsic to any market is that active people in the market are looking around and of course their view is shaped in different ways in the ways that tom inventoried not just by advertising but by the behavior of other people. but the other thing is that all markets are incomplete. they're incomplete because we know now about transactions we want to do in the future but that we cannot make or secure right now. and so there's a built-in incompleteness in any market as well. and the -- and then markets, of course, suffer from more familiar failures and asymmetries in information available to different people, et cetera. and the combination of
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endogenous preferences, widespread asymmetries in information, the fact that externalities, positive or negative, inhabit virtually all of our economic action, all leads to a point which is very different than the old social democratic view of markets as, you know, having -- you know, being this ideal but running off the rails occasionally but subject to correction. it's a world which is so far from what was imagined that it's sort of defeats the initial claim about market efficiency. it's a world in which wuonce yo take those things into account and this is why akalov and spence and a variety of other people have gotten nobel prizes for pointing this out, it's a world in which supply and demand may not meet at all, even at equilibrium, in which prices may not really reflect opportunity costs at all, in which
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inequalities in bargaining power are literally pervasive and power is pervasive. et cetera, et cetera, et cetera. and i don't think that's widely recognized by our politicians either. all we have to do, as humans, as these very imperfect sapiens, you know, with our limbic system and our reptile brains and our big frontal cortex, is to make -- have deliberation among ourselves about the question that damon was talking about. what do we want to do? well, if we're like our ancestors, there's only really one question. how do we build a society fit to live in? that's the question. call that the question of justice, if you will. and then to what degree do we want to have markets as parking lot -- part of that or other sorts of institutions for producing and exchanging value. that's the basic question. but smith and market fundamentalism is a fantastic distraction or i don't want to blame smith anymore. market fundamentalism is a
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complete distraction from that because it has no foundations, it's intellectually incoherent, it's been debunked with great authority, and we shouldn't worry about it. but we should worry about ourselves, because we are, even as we have most of the public agreeing with us on an awful lot of what we all hold dear, and even if we are -- we have, you know, the intellectual arguments on our side, as just briefly reviewed for you, we are, ourselves, incredibly disorganized. so i would suggest that we go back to something of what the powell memorandum was talking about and update it and think about what are the communication channels we need, what are the mechanisms of recruiting, training, et cetera, which targeted people we need to do and how can we recruit and train a ton of messengers? they're coming over the transom
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right now so i don't know how much we need to worry about their recruitment but we certainly need to know about their training and where on earth are we going to find the money. i don't think it's a lot of money, but it's certainly more than -- and it's certainly probably less than the collective budgets of all the people in this room, but still, a certain pot of money, which would be embarking upon, you know, our equivalent of that sort of project. if we're going to really get this country making intelligent decisions about itself as a democracy or would-be democracy, whatever, this is a long-term play, i think. most of the people on our side but the institutions are certainly not there. we should be lifting up those models, we should be training those kids, we should be doing all sorts of lectures, i hope more well attended than this one, seminars, whatever, whatever in terms of popular
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education. and then we should try to eventually get that to the point that we can be having these discussions with elected officials. it might actually start with some of them right now because they assert, at least, that they're on our side. what is our basic message? i think in terms of program, you know, rob gave an initial inventory for it. i would have put a little bit more emphasis on the global warming thing but we can work out what the demands are. but essentially, it boils down to a ton of high quality public goods, and here, tom, i hope i'm not offending folks at cpr, i'm including regulation and law among those essential public goods, not just the substantive public goods of education and clean air, et cetera. a bunch of quality public goods, reasonably paid for, and, you know, with the general end of encouraging and, you know, enlivening and rejuvenating, et cetera, the conditions of
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human flourishing. on the ideological -- on the stuff that ralph asked us all to think about a little bit, we haven't talked much here really about fighting back. we've inventoried all the failures but i'm talking about the fighting back stuff. on the fighting back on the ideology, i would think that two basic points ought to be hammered home again and again and again and would -- i don't know how to get this organized but i would suggest we all try to show a little collective wisdom in at least making these points, which i think all of you would agree with. one is, there's no reason to believe that markets are, in fact, efficient. the story i just went through. and second, markets did not exist independent of the state and they all depend on state power and what we want from state power is a ton of public goods, partially but certainly not exclusively, anywhere near exclusively, securing the
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conditions of the market operation themselves. so in terms of pushing back on politicians, i would say markets are inefficient, the idea of separating markets from -- keep it simpler still. markets cannot be separated from the state power. boom. and then we need a ton of public goods. oh, and public goods are good, not just for equity reasons but for improving the productivity of the overall society. those are my two cents. >> thank you, joel rogers. you know, listening to joel reminds me when we flipped the dial on all those radio stations, you ever hear anything like joel on all those hundreds and hundreds of radio stations that you flip fm, a.m., never mind tv, 600 cable stations, licensed by local government, the cable stations, and so on,
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and these corporations have expropriated our comments. they've expropriated the public areas. we own the public areas, we're the landlords, they're the tenants, they pay us no rent thanks to the congress and the federal communications commission and they decide who says what and who doesn't 24 hours a day. how about that for surrender. that's what happens when we grow up corporate, when we don't educate children to grow up civic. civic values have to subordinate corporate values of commercialism if we're going to have any kind of functioning democracy and system of justice. it's always good to go back and say, biggest wealth in this country is owned by people. they own the pensions, trillions of dollars, mutual funds. they own the public lands. they own the public air waves. they own trillions of dollars of research and development, which built all these companies who
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put ads in newspapers, bragging that they did it themselves, like silicon valley. and the people control nothing. so, if you start with, they already own it, that's a big asset, right? you don't have to argue for it. we already own the commons. and it all comes back to congress. congress, congress, congress, congress, congress, congress, 535 people. we outnumber them. we have the sovereign power and are we the people in the constitution, they don't say, we the congress, starting the preamble. and it's always start congress watchdog groups, it can start with ten in every congressional district, 20, 50, you get to 1,000, you get to opening up offices, you support redirections that are supported by majority of the people as joel and others have said, majority polls, again and again, on full medicare and living wage
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and cracking down on corporate abuses and fair tax system and debloating the military budget, hasn't been much talk about the distortion, grotesquely, of the public budgets for military empire and destruction that is increasing our own insecurity and devastating so many innocent people around the world. but now, we come to something very interesting, a new mutation in terms of capital accumulation by corporations, which belong to shareholders, mutual funds, pension funds, and which have originally come from consumers, spending dollars. apple just announced a few months ago they were going to spend $100 billion for stock buybacks. they don't have anything better to do with that money? how about dividends, more dividends, how about better worker training, how about r&d,
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how about public investments, how about putting money, cleaning up all the recycling of all this electronic production. what do they do with used apple computers? they're terribly toxic and they're taken apart by workers who are getting sick and die because of the toxic and then it's dumped and it gets into the water or it's burned and gets in the air. for $3 billion a year, apple could revolutionize that in terms of recycling. $3 billion out of $100 billion and that's just part of what they're doing with the shareholders' money without any approval by the shareholders, without any request for advice. two men, tim cook and his buddy at the top, make that decision. you want to talk about concentration of power in government compared to big corporations. william lazenek is the pioneer
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in exposing the devastating effects of dictatorial stock buybacks. he had the original article in the harvard business review, which shook up the business establishment, as he took it apart piece by piece. he could have taught anywhere and did at some other universities, but he's a professor of economics at university of massachusetts lowell, a deindustrialized town, cofounder and president of the academic industry research network. his recent research has been funded by the institute for new economic thinking, ford foundation, and european commission. his most recent papers include "stock buybacks from retained and reinvest to downsize and distribute," "innovative
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enterprise or sweatshop economics?" that's the question. and other many, many good articles. but what he's going to show is how the ceos and the officers authorized by a rubber stamp boards of directors who are appointed by these ceos and officers and wined and dined and given incredible per diems and benefits just for showing up a few times a year, have developed the most intricate way of conflicting interests against their own company. they're damaging their own company, reducing investment, reducing treatment, better treatment of workers, pension funds stability, et cetera. it's the ultimate example of supreme corporate executive greed and you'll get an elaboration of this right after that by steve clifford, who wrote the seminal book, "the ceo
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pay machine," which he knows a lot about because he was on a lot of compensation committees of corporations. so, we have very important material coming up. let's start with william lazonick. >> hello. so, it's great to be here, and one slight correction. i'm now professor emeritus at umass lowell. i went there in 1993 from -- i was at barnard college, columbia university, in a tenured position and i went there to build a program in regional economic social development which was totally successful, and then, however, there was a
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change in regime. a politician came in, his name was marty meehan, and he destroyed our program. but he didn't destroy the intellectual capability, because i had some really good students in that program. it was a masters program. they're still working with me, and they're why i have an organization now. it's a 501(c)(3) organization called the academic industry research network, which i started in 2010 because i thought, okay, the university opportunity want me to do this research, and to have a critical view of what's going on in the economy, well, we'll to it another way, and fortunately, the institute for new economic thinking came along and has generously funded our research over the years. we wouldn't be able to exist without their funding. and i recently, last may,
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retired. my three daughters held unretirement party for me because they knew what it was really about. it was so that i could spend all my time research and writing and keeping up with all these great researchers i have working with me to get the research out on a variety of issues that i'm going to talk about. okay, now, what i'm going to talk about today is going to deal with really five issues, but the four issues i'm going to deal with fairly quickly because i want to get to the question of market fundamentalism, which is fundamental. so, i'm going to talk about what buybacks, what they are, very briefly, how big they are. i'm going to talk about why they are a problem, who benefits from them and ralph's already said a few things about that and why they are permitted. and then i'll get to, really, the crux of it is how they are legitimized, why you can have this phenomenon going on, which
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really nobody can defend. tim cook, when he was asked about these buybacks last may in an interview he said, well, you know, some people are going to pay capital gains taxes on the money they make from the buybacks. that was his only answer after getting all those tax breaks including apple from the republican tax cuts which was a cynical or idiotic or ludicrous argument. i called it a quarter baked argument and it was probably not even a hundredth baked. it was nothing. so, buybacks that we're talking about, there are different types of buybacks but we're talking about open market repurchases where a company just tells its broker to go into the market and buy back its stock and create a demand for stock. that's the vast majority of buybacks that are being done that are measured in the economy
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reported by companies as stock repurchases, and they are generally done, the purpose, not in every case, but usually just to boost stock prices and they're generally done when stock prices are high, not when they're low, so the company isn't getting a bargain in doing the buybacks. that's not the way it works. in fact, if this company was to do that, then they would be signaling that the price of the stock is overvalued so it doesn't work that way. it's actually a competitive process where companies are getting in there and trying to keep up and boost the stock price and it's -- what it is is a manipulation of the market. i'll come back to that when i come back to issue number four of why they permit it, why the s.e.c. permits it because basically it says that you can permit the market to be manipulated and in the process, sub title of my -- i gave to my talk, the free market ideologies, a license to loot,
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is that that's what the s.e.c. basically has given companies since 1982. i'll come back to that. so just to take some of the more recent data for the last half decade, 2013, 2017 for 492 s&p 500 companies listed over those years, they were $6.2 trillion so average about $1.1 billion per year per company in buybacks and that's not instead of dividends. that's over on top of dividends. dividends were about $2 trillion, about $800 million per company per year of those 492 major companies. that was 56% of their net income as measured and another -- and buybacks, 42% in dividends. okay. so they're not actually stinting on dividends. they're paying a pretty reasonable amount of profits out as dividends. okay. so, they're big.
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why are they a problem? they're a problem because retained earnings, the company -- the money that a company makes out of profits are the foundation of reinvestment in the economy. it's not the stock market that is reinvesting. the stock market is not an institution. it never has been an institution for putting money into the economy. it's a way of getting money out of the economy. the reason you have the managerial corporation, beginning of the 20th century, is because of the need for separation of ownership and control and it wasn't because a lot of people put money into companies and because the companies got so big that you had to have a lot of capital. the companies that grew had internally generated funds, they could use the bond market to leverage them. the reason why you had a separation of ownership and control is that because of if you wanted to build a company, you had to have people in power and hopefully you do and hopefully you did, it's not always the case, but you needed to have people who understood how to manage those complex organizations. and that's what we call the managerial revolution and i worked closely with the business
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historian, alfred chandler, if you haven't read his work, you should. 1977 book in particular. and that was complete by about 1920. and so we had employees by the 1920s in charge of major companies. and so where are the shareholders? the shareholders are buying and selling shares by that point in time. okay. i'll come back to that. okay, so it's a problem because you're taking the money that needs to be reinvested in the company. now, it's not just physical capital. what differentiates a company, one company from another, is not the plant and equipment they put in place because anybody can buy the plant and equipment. if you develop unique physical capability, new machines, well, you're doing that with people. you're doing that with engineering. you're doing that by investing in the productive capabilities of people. so you might call this capital formation. i call it investment in productive capabilities and what differentiates companies, allows them to grow, is when they invest in the productive capabilities of people.
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now, some of those things are fairly simple. a productive capabilities that are just doing administrative work, opening the doors, closing the doors, turning on the lights, but if someone isn't there to do it, a lot of things can grind to a halt. but a lot of it's very complex productive capabilities. okay, so, that's -- that's why you need to have this money reinvested and of course doesn't mean that it's going to be reinvested well. you need to have good management. you need to have -- understand good management and one argument i would make more generally is that top executives who are thinking about how they can give away money to people who don't matter, to boost their stock price, are not really thinking about how to run their companies now and they're certainly not thinking about how they can create the competitive products of the future. okay, so that's a big problem. it's a problem of distribution because in fact, when we see rising wages, rising standards
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of living, it's because companies are profitable. the profits aren't bad. it's what they do with the profits that's an issue. they're not sharing the gains with their employees. now, they're not giving out the money to employees just because they like to give out the money to employees. it's part of a productivity pay dynamic when it works. employees are incentivized, they return to work, just little turnover, i call it collective and cumulative learning. it's a lot going on that goes way beyond economics or finance that makes our economy prosperous and that's undermined once you start doing buybacks. there's a more general perspective that comes out of this, and it's just one example of it, which is being raised in this context of market fundamentalism, this discussion, and i'll come back to it but i'll just mention it here, is that when we -- if we want to understand markets, we have to understand that organizations
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create markets. markets are outcome. this is very much in keeping with the work of carl, for example, but it's basically while developed markets historically, and i get this just from doing historic comparative industrial development over the last 40 years, looking at different countries, different places, different times, labor markets, capital markets, finance markets and product markets, they're there because you have successful organization and it's not just states and governments. it's companies. and so these companies are basic. the businesses are basic units and some of them are bigger than whole states when they really grow big. amazon now employs probably close to 600,000 people worldwide. that's up from about 88,000 in 2012. so, when these companies grow, they become very big and how they grow and how they distribute the gains is very consequential. okay. so, that's why it's a problem, because you're actually eating
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the seed corn, you're not supporting the organization, you're doing just the opposite and that's -- i use these terms which ralph mentioned as a sub title of an article that brookings put out in 2015, you're going from retain and reinvest to downsize and distribute. and i think it's a good description of the change that occurs once you -- and buybacks are emblematic of that. okay, why do they do them? well, and steve clifford is going to talk more about this, but if you look at executive pay, the bulk of it is stock based, particularly in the companies that do lots of buybacks. so, we have measures such as for 2015, the 500 highest paid executives in the united states averaged over 33 million. 2016, it's about 27 million. about 80% of that is stock based pay. stock options, stock awards, and by the way, almost every number you read in the media about what
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executive gets paid is a phony number. it's based on grant date prices of options and awards, not on what they actually get, and we know what they actually get, but that's a whole longer discussion about how the s.e.c., privileged, what's called estimated fair value measures of stock are worth but it's actually related to this because it's based on bad economics. really, nonsensical economics called black scholls options pricing models which prefers to put forward to in 1973 to try to estimate a price for gambling on an option that you did on the actual market ten days out where no one knows what the outcome is going to be, and it basically assumes a log normal distribution of stock prices which is not what happens when you get a big stock price boost that allows you to get high realized gains, and that's where stock buybacks is.
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that's part of the name of the game. there's other things related into it like in the pharmaceutical industry, price gouging, but you price gouge and you do the buybacks and the executive get the pay. but it's not just the executives. the hedge fund activists have become extremely more powerful in doing this. they have been enabled by a proxy voting system, which is corrupt because it basically gives pension fund managers, mutual fund managers, not just the right to vote shares but the obligation to vote shares and so now a hedge fund activist is going on with nelson pelts at ge, proctor and gamble, can get less than 1% of the shares in some cases and determine who's on the board even without a proxy fight by lobbying the proxy advisory services, iss and glass lewis, and getting enough alignment from pension funds, et cetera. and that's a whole other
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discussion. i don't think the pension funds gain from buybacks. they would gain from more dividends or from dividends but that's another discussion. but it's basically now, there are these very powerful individuals, sometimes they lose money, like william ackman with valiant. a lot of times, they make tons of money and paul singer, you know a lot of these names. okay. why are they permitted? okay. this, we start getting into the market fundamentalism issues. it's, on one level pretty schisschis simple, i'm here with ken jacobson, we're finishing a paper, we've been working on it for about three or four years, on the adoption of rule 10b18 in november of 1982 by the securities and exchange commission and, which basically is the license to loot. it enables companies, encourages companies, in fact, to do
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buybacks. it says, you can do it up to 25% on any day of your average trading volume over the previous four, and it's a safe harbor so even if you go over that amount, you won't necessarily get charged with manipulation of market. and in fact, the s.e.c. does not collect data on this because the chair of the s.e.c. at the time thought this would be too burdensome on companies and companies, we heard this before, will self-regulate and don't worry about it. but by 1984, so this is not something new, that's when stock buybacks started. now, they've escalated. they've gotten greater. but it's not something that just happened in the last few years. okay. the reason 10b18 was adopted was simply ronald reagan got elected on a platform of deregulation and he then chose chad, who was the first guy from wall street
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to come to be the head of the s.e.c. since joseph kennedy, you know, at the outset of the s.e.c. in '30, '34 and '35 and he had been the head of the first person on actual street to come out for reagan in 1980 and the campaign and had been the head of his new york campaign and so this was his reward. and he immediately brought in chicago commissions and they really drove out the regulators and captured the s.e.c. and adopted this rule under the radar without public comment, 10(b)18. i'm going to come to the last question and that is what is the -- what is that ideology that legitimizes this? now, when rule 10b18 was adopted in 1982, if you had gone to some place, i was around there at the time, i was at harvard university, i wasn't hearing shareholder value from anybody.
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and in 1984, i became a research fellow at harvard business school, right across the river, it's not really the same universe as both sides of the river, but no one was talking about shareholder value. but then, with the urging and the help of the president of harvard university and the dean of harvard business school, they recruited michael jensen to be a professor there and then it was on the agenda. now it wasn't just created by jensen. there's all this stuff that we know about the rjr nabisco stuff. there's a very good article that was in the "wall street journal," mentions of shareholder value only starts around 1985. but then it really takes off and becomes a dominant ideology, and it comes out of neoclassical economics, which i call the theory of the market economy, and it basically is an argument that of all the participants in
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the corporation, only shareholders take risk. everybody else gets a guaranteed return. why? you get a guaranteed return because it's all determined by the market. okay, but that's false. we, as taxpayers, when we pay money that goes into infrastructure and knowledge that companies use f , if we do get a decent tax rate or the companies don't make money, we don't get our tax revenues as households back through the government. if they then use a political process as we know they have in the name of shareholder value, to say, we need more money to invest, then we get screwed by this ideology. and okay, the other people who are messed up by shareholder value ideology, left out, are workers. if we just had companies that hired workers and paid them the going wage today and didn't care about whether they turned up tomorrow or their incentives or developing the products of the future or cooperating with the
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company not only over months and years but over decades and at all levels of the organization, we would not have a productive economy. we would not have productive enterprise. we would not have productive economy. but as a worker, we know we take risks so among the few who don't take risks are people like me who got tenure and at least couldn't got fired, even if they had liked to do that so i ended up retiring with a nice pension, but that's unusual. but actually, coming into the 1980s, people who worked for large corporations had a career with one company. companies did not fire people. and that all changed with shareholder value ideology and the risk that workers were bearing was borne out. and we can see that in stagnating wages and in even in a company like amazon, which says they're paying $15 minimum wage, that's just over $31,000 a year. that's still, for one of the most successful companies in the world, owned by the richest man in the world now, that's not much of a wage.
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okay. so, it's an ideology of who takes risk but it's wrong. now, do shareholders take risks? no. public shareholders do not take much risk because they only buy shares because there's a liquid stock market and you can sell them any time you want and you have limited liability and you don't need to know anything about the companies. of course the pension funds and mutual funds are holding thousands of shares and that's why you have the proxy voting system because they say they vote the shares but they don't have any idea how to vote the shares. okay, now, the part of this which then goes somewhat deeper and which only -- because i only have a couple minutes, and you can read some of the papers, including you can find them on the website of the institute for new economic thinking, most of these papers, is that the theory, the economic theory underlying shareholder value has a theory of the firm, which is taught to millions of people every year by tens of thousands of ph.d. economists and has been done this way since paul
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samuelson wrote his 1948 economics textbook, which says, i can't explain this all, but you can read my papers, that the most inefficient, the most unproductive firm is the foundation of the most efficient economy. and it's called perfect competition. and the way you get perfect competition is by having a small, unproductive firm. a u-shaped cost curve goes up at a very low level of output. now, once you do that, you have the market is relied upon to allocate resources and i say the market's omnipotent and the firm is impotent. and if we have impotent firms, we don't have a productive economy. we need to have firms that actually invest in productive capability and paul samuelson had no conception of this. neither did someone who was not that different from paul samuelson. i always argue this because i grew up in an era when the two
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gurus were paul samuelson and milton freedman and milton freedman had an article in "the new york times" which is seen as the collaron call for maximizing shareholder value which is called the only social responsibility of a company is to increase its profits. i want to tell you something about this because this is actually related to something that ralph nader wrote about, which you all know, "unsafe at any speed." general motors. that article, and i only learned about this relatively recently because the article is cited everywhere, you know, you could read the text but you didn't necessarily see the original as it appeared in "the new york times" so a guy who did some good work on stock buybacks sent it to me. the original shows a picture of james roach, the chairman of general motors, at the shareholders' meeting in may of 1970. the article appeared in september of 1970.
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and then there's some editorializing from the "new york times." it says, milton freedman doctrine and it has the title about the only social responsibility, et cetera, and then it says that in this article, milton freedman shows that the author, milton freedman, i'll read this out, calls such drives for social responsibility in business as unadulterated socialism. adding, businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society. okay. that's his argument, and then creates the profits. now, the context is important. that article appeared, there's absolutely no doubt about it,
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because of a shareholder proposal in may of 1970 to put three public interest people on the board of directors of general motors because they wanted more fuel efficient cars and safer cars. okay. and this was what they were arguing for. then we go ahead and we look at subsequent history of the automobile industry. what did not -- didn't general motors do? as the japanese came up with more fuel efficient cars, it did not come up with more fuel efficient cars. as the swedes and others come up with safer cars, it did not come up with safer cars. it did try to learn from the japanese, but then it killed saturn where it would have cost it $5 billion to go from a small size car to a mid size car but it didn't want to cannibalize its business model and the unions were involved in this too in the rest of general motors. from 1986 to 2002, where -- and they were supposedly competing against the japanese, the
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general motors did $20 billion in buybacks. it was a lot. and i guess they had no other use for the money. i did a calculation when general motors went bankrupt that if they had just gotten a 2.5% after tax rate of return on those $20 billion, given when they had spent the money, they would have had about $35 billion in 2009 when we, the tax paypay put in about $49 billion to bail them out. the unions put in a huge amount as well. tax -- 20,000 layoffs, all kinds of wage cuts, et cetera. a billion dollar loss on their pensions, $11 billion loss in the pensions. we then, actually, lost money about $11 billion when general motors sold our -- the shares that it had -- when general motors went back on the market in 2010, sold the shares in
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2013, and we lost the money. then, 2015, a guy named harry j. wilson came in, had a secret meeting with the head of general motors, that they wanted $8 billion stock buyback and a seat on the board. he was representing a bunch of hedge funds. harry j. wilson was a guy appointed by steven ratner to be on the task force to bail out the auto industry and in his book, ratner says, called "overhaul," written after the bailout, he was running the bailout for obama, he said that he hired him because he was a republican and that looked good, but he got them -- he insisted that it be in equity, not in debt. so we, the taxpayers, then, would not be made whole if it had been debt, we lost the money when it was equity. the hedge funds would have put no money into the bailout, came in demanding this money. general motors have now spent,
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2015, since then, 2015, 2017, about $10 billion on buybacks, about 68% of their shares, plus dividends. okay. let me just get back to the last thing i'll say. milton freedman. when you look at milton freedman and you understand where he was coming from, there's two things. even before i saw this connection with general motors, i would say, milton freedman, if you read his works, didn't know the first thing about a business organization. he didn't know the first thing about corporations. he was a fraud. paul samuelson was a fraud. they're all frauds. they do not understand business organization. they do not understand, as a result, the relationship between organization and market. so when you look back at milton freedman's article in this context, what was he telling you? he wasn't just saying, don't deal with social responsibility. he was saying, don't be innovative and don't put people on your board who want you to be innovative. now, the last thing i'll say is there is a movement now to put workers on boards. there's tammy baldwin, in large
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part, i think, encouraged by the research that we had done on buybacks, has the reward works act which was put forward in march of this year, calling for rescinding of rule 10b18, a third of all corporations' board members be represented, elizabeth warren has the cannibal capitalism act introduced in august. 40% of their workers be board members. and the last thing i'll say is, it's likely that, you know, obviously, that's not going to happen any time soon, but if it does, we want those worker representatives and maybe even taxpayer representatives, to be educated in how a business organization operates and performs or else i wouldn't have great confidence that they would go in and do the right thing as they were trying to do back in 1970 when this group of people inspired by ralph nader's work, clearly, were trying to get
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general motors to build safer and more fuel efficient cars. thanks. >> thank you, professor lazonick. in the late '60s and early '70s, all these speakers would be in great demand at college campuses, the auditoriums would be jammed and now doesn't seem to be any demand in a cell phone culture on campus. unfortunately, that's where a lot of social movements got their momentum, if not their gestation, was on campuses, so anybody listening or watching, keep in mind these people can make very, very wise presentations to young students who need it pretty badly. by the way, paul samuelson, i took his 1948 textbook, along with millions of other students
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at that time, and in the early '80s, i think he wrote me a letter and he said, you know, i'm revising again my economics textbook, and i'm going to have a little space for consumer rights and protections. you want toto have a little space for consumer rights and protection, he wanted to send me some information. it was adam smith who said the purpose of all production and consumption and that is the ideological orientation for millions of students. our next speaker is steve clifford who has written this book as i mentioned and he has been on core for conversation committees in seattle, one of the more progressive television companies when he was there and he is going to talk on the
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subject, the lack of a free market for executive compensation. this is where the ideology really becomes absurd in selecting corporate bosses. >> thank you roff. i would like to thank all the speakers that went before me because i really think they were great, great warm-up acts. so. i served on probably a dozen corporate courts and some of them asked me to chair the compensation committee. that is not much of an honor in corporate america, it is well- known that the second dumbest director chair is audited because they want to save the dumbest for chair compensation. i quickly learned that these were not fortune 500 companies
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but they used the same compensation system, the same ceo system and the same consultants at the fortune 500. incidentally, from now on when i mentioned ceo, i will be talking about ceos so it will be only then. those ceos make a lot of money, depending on how you define it, somewhere in between 18 and $26 million a year they average. but, athletes and movie stars also make a lot of money, so why am i picking on ceos? well, athletes and movie stars make their money in a supplied demand auction market. sports teams, movie studios bid further services and they do this because their skills are portable. lebron james is going to
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improve any nba team he goes to. meryl streep is going to improve any movie she is in. that's not the case with ceos. most ceos would not improve another company. their confidence rests largely on a very detailed knowledge of a single company. in his personnel, it is culture, and his finances, it is distribution, and a supply chain, etc. this knowledge is absolutely critical for managing that one company, but it is almost no use outside that company. corporate directors understand this and that is why, 75 percent of all ceos are internal promotions.
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companies don't bid for other companies ceos. less than two percent of all ceos were previously a ceo of another publicly traded corporation. ceos jumping from one company to another happens about once a year. when they jump, they usually fail. they usually fail because they don't understand the new company they are going to. outside ceo hires are twice as likely as inside hires to be fired. so, a company i was thinking it doesn't really have a market, there is no market. in place of a market, what they have done, is they have adopted
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a system developed by compensation consultants that turns out to be a very very rigged system. it is guaranteed to escalate ceo pay. some of the look at the independent parts and somehow available surface logic to them. when you put them altogether, you will see it is simply a guarantee for runaway ceo pay. so, the first step in this kind of regime that the consultants designed is something that is the pay of your ceo should be based on what other ceos make. the first step of this process is the company has to decide on
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what its peer group is. i know you will be shocked, shocked to learn that virtually every company stacked its peer groups with companies that have very high pain ceos. this is the first step, your pay is going to be set by the highest-paid ceos that they could find. second step is the company has to decide where in this peer group, the company belongs, and you belong, because the idea here is that well, a superior company should pay a little more. high-performing companies to pay a little more. every company believes in a superior and a high-performing company. every ceo on average is targeted at the 75th percentile. so, let's say you start out
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with these high paid ceos in your peer group, $20 million as the average pay. and you target your 75th percentile up to 30 million. but, the underlying key is pay- for-performance. so, how is that implemented? you are given a whole bunch of largely financial measures for bonus metrics. and, if you hit those metrics, you can make two, three, four times your target. talk about the highest-paid people in my book for each year from 2011 two 2014. one of them had a target of 9 million, he made 102 million, another had a target of 20 million, he made 145. now, here is the beauty of the system. those humongous numbers go back
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into the peer groups of all the people who were in his peer group. they next year get a raise. they got a raise because one of the peers made $145 million. they get raises next year, they go back into his peer group again. he gets a raise because he got a raise before. that is the way the mathematics works. what you've got is this ceo leapfrog. every year there are rounds and rounds of it, and that is what has caused ceo pay to increase 10,000 percent. this game started in the mid- 80s. now, this game from the starting it was a peer group,
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you can see that it is completely illogical, it makes no sense. this is a peer group for one of the people i read about, people who make over $100 million. he had worked only for united health group in the county, that was it, to firms his entire career. his peer group, american express, apple, bank of america, coca-cola, cosco, general electric, and i am only a quarter through the alphabet. he had absolutely no experience that would make any of these companies ever consider hiring him so whatever they pay their ceos is completely irrelevant to what the sky should make, yet it was this peer group that started off as the basis for his pay which ended up at $100 million. interestingly enough, the
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adoption of this whole system in the adoption of peer groups and targeting was not based on any coherent theory, or any compelling philosophy, or evidence that it was somehow more effective or lead to better results. it was never blessed by any academic studies or interesting conferences. it quickly became ubiquitous because they paid the ceo a lot more money and it gave the boards coverage they can hide behind the consultants and say we higher independent unbiased experts looking at objective data and that is what we base our number off of. so, the ceo the ceo bonus
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system, the bonus and the multiples of targets that you can hit by hitting those bonuses, the ceo is very very well-placed to negotiate on those bonus targets. could be a bonus for earnings or all sorts of different financials. you read the proxies for all financial measures in their. now, the ceo controlled the company's entire information system and its financial planning system. he knows a whole lot more than the board does about whether a certain earnings per chair is going to be a tough goal or any
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legal. so, that is why in about 80 percent of the time, in my experience, about 80 percent of the time, ceos eat their target often doubling and tripling. ceo pay is one of the very few costs that the board directly controls. is about the really important cost that they set themselves. now, why don't they control costs and just say well, it doesn't look like anyone is out to hire this guy so we will give the same treatment we give everybody else. no one is after him. it is simply not in their interest to control ceo pay.
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that is why the ceo pay level in this country has risen from 26 21, that is the average, this changed today. this is using numbers around 500 but they are very hard to get. that is not a consequence of a modern globalized society. in japan today, that number is 16 to one, denmark it is 48 21. and the most respected institution in the united states, u.s. military is less than five 21.
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it is not in the boards interest to control ceo pay. they are not paying out of their own pocket, they are just paying with shareholder money, as a matter of fact it is kind of an incentive to pay them a lot but 95 percent of these people are men and given what i have to say about them i hope everyone will forgive me. board compensation and ceo compensation are recommended by the same consultants. the average boardmember is making about $300,000 a year for eight or 12 meetings, it is a nice perk.
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also, if it is known that you have been difficult on ceo pay, you are not likely to be asked to be on any other boards. also, you can never be held liable, no matter how much you pay your ceo because this is such a rule of protection. also there is safety in numbers. you can say this is what everybody does, this is considered a best practice this. even if you consider it, it is insane how much you are paying your ceo, you can rationalize it is not my fault, and is all the other boards that were irresponsible and they paid there is too much so now i am stuck with it and i've got nothing to do. directors would deny their shells for the ceo, they would say oh no, we have to pay them that much for motivation and we do pay for performance.
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but ceos are intrinsically motivated. you don't get to be a ceo if you are not motivated. the pay system can only channel this motivation and when you have bonuses, big bonuses for achieving certain things, it will cause the ceo to concentrate very sharply on the bonus, surprise. that is what the system is supposed to do, that's why you do it. however, it has its downside because at the same time that focusing on bonuses and rigging the numbers, it makes them quite a bit less curious, creative, innovative. may become much less motivated by a job well done and these are the things that make people
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perform at their best. incentives for anything above simple repetitive tasks hinders performance. they also say we pay per performance and this is not true, it has been studied time after time and i think the best study no matter how you do it is correlated, the worst for the shareholder. now, this has an outside ceo pay, and has a lot of cost to the company beyond the 40 or 70 million waste on paying a ceo. the big problem is more out. a ceo is making more than you make any year, it's hard to
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listen to him say, we are all in this together and there is no i in team, etc. the bigger part is how it focuses on very short-term measures. the average ceo says only 4.7 years and 80 percent of pay is equity and casted out very quickly. i think ceos are going to cash out quickly as the stock price itself is often a bonus measure. if you get them to say 92 by the end of the year you get an extra bonus, ceos have a very compelling reason to keep their share price. if they do just what the
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logistics say, they take half their earnings, buy back their stock, don't reinvest, and they are eating the seed. in fact since 1980, a percent of revenue and profits has been cut by about two thirds of corporate america. the worst consequence of excess pay is one that goes to income equality in this country. it is one of the prime drivers of the rise in income we have seen since 1980. you can have all sorts, economists will come up with all sorts of reasons, shareholder values, etc. for any quality.
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it is all true but the cause is very simple. a small amount of people made a large amount of money. that small number of people are in the 0.1 percent. the 0.1 percent, their share of the income has quadrupled since 1980. and, they have captured, you talk about 150,000 households here, they have captured 40 percent of all economic gains. these people are not athletes and movie stars, 70 percent are business executives. the people driving any quality business executives, many of whom compensation is highly asserted or partially influenced by what ceos make.
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finally, and ultimately, this rise in income equality has impeded economic growth severely. i don't have time to make that argument. the system has been corrupting, and harms companies, the economy, it basically enriches the 0.1 percent and swing but everyone else. other than that, in closing, i would like to address quickly, the larger political issue. i used to read a humor column in a blog and in 2011 i proposed simple solutions to really all of our political problems and that was simply to prohibit
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straight my nails -- white males from voting. i think i was a little ahead of my time but i think it is a cause we can all get behind now. >> thank you very much. his point on curiosity is the damage they are doing to the economy, the lead article in the harvard business review today is an article that says, why curiosity is important for corporate officials. this is where we are at instead of being right into their whole being of curiosity. they have to be urged to be curious by the harvard business review. the reason why we are rest is the building will shutdown at 530 and i am the last speaker
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and i have to abbreviate it in order to meet that demand and i am talking about institutionalizing lawlessness systemically and the articles i have written on this are in the harvard law record websites. you go to hlrecord.org and you will get pete davises report as a third-year law student unchanging harvard law school's priorities from producing corporate lawyers to start producing lawyers who represent the rest of the people. as it fits the model of harvard law school which is not properly observed to develop leaders and
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justice in our country. the first thing i want to say is, lot is always in collision with the raw power. the whole purpose of law is to restrain direct and reshape power. so that it observes important values of society that we often summarize as justice. corporate power in the last 30 or 40 years, so much of it started with ronald reagan. this drop from the 60s and 70s inattentiveness to the necessities of the people. corporate power is running over the rule of law and where it isn't running over the rule of law is violating it with systemic lawlessness, it is enacting the laws that exempt them from behaving properly. these are not just loopholes, they are all kinds of laws where
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the corporate lobby is going up to congress and cutting off the criminal penalty. even if they willfully and knowingly violate auto safety standards that killed people, they can't be prosecuted criminally because they will get the criminal law provision that we were fighting for in 1966 cut out of legislation in congress before it was sent to lyndon johnson for signing. there still behaving criminal genetically but they are not technically criminal because that gives them immunity. very briefly, i wrote this article called harvard lawlessness school and you. this is the harvard law school student. there should be a split in the curriculum where the traditional law school curriculum they talk about statutes and traditional decisions and how things are
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supposed to be, a little criticism once and a while of the judges or the statutes to sharpen their accuracy, but they almost never study math lawlessness is very hard to find much curriculum on corporate crime. when i was in law school, there was no curriculum. didn't exist as part of the curriculum even though it existed everywhere. landlords against tenants, companies against consumers, auto companies against buyers, etc. this shows you that the determinant of the law school curriculum and this could be applied to a county school curriculum is the job market and that is not representing lucrative lee ordinary people, it is representing corporations. the government is no exception to this. lawlessness is in the government look what is happening now
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under trump, they are systematically violating congressional mandates and pesticide control and control of missions and other mercury releases, there scripting with impunity on the half of their corporate paymasters and future employers. they are stripping the mandates of congress. they are violating the law of profit fusion lot enforcement. ellis's prosecution law enforcement. this is pulling back litigation that is maturing in courts, letting student loan brackets off the hook and so on. here is something that law schools don't even spend much time on, look at the national security state.
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our national security government has given up, just imagine, this is in the usa land of the free home of the brave, rule of law u.s. constitution. here's what they have given us. secret wars, laws, secret evidence, secret prisons, unauthorized secret budgets, unlawful surveillance of attorney communications stooping, snooping on all- americans as a violation of the fourth amendment and on auditable expenditures and even this should shock law professors, retracted published judicial decisions. so they open up these judicial decisions and casebooks or in research i have whole lines blacked out. unheard-of. years ago. these are public judicial decisions. what's next? the corporations with the
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architecture of corporate law firms, whatever you say about corporate lawyers, they are really brilliant and concentrating in power and brokering for their corporate clients, all because of harmful activities, and in our of listening, i listed 25 areas that corporate lawyers representing companies they are not going to look back on with pride. they will look back on 420,000 deaths a year, represented by corporate lawyers who developed the whole architecture corporate bankruptcy that allows them to come back in, retention payments to executives who developed the grounds for the bankruptcy, corporate lawyers. here is also what they've done.
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for huge retainers, they have destroyed our freedom of contract with fineprint, that is lawlessness. that is complete lawlessness. they have done it in ways that it is very hard to circumvent and it destroys any negotiation powers for all consumers to whatever capacity they are. they are systematically obstructing access to justice, for example millions of wrongfully injured people and our country obstructed the right to have their day in court with a trial by jury. the jury trials are on their way to extinction, right-wing judges pressure lawyers to settle mercilessly, just to say you want to come before me next time, you better get down and settle. corporate attorneys by the split plaintiffs saying they will negotiate apart from the
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settlement, putting a lawyer and a conflict of interest with their own clients, the corporate crime wave has trivial budgets, law enforcement budgets, there is a street crime wave in new york city with 100 place for the whole city. the environmental crime section of the department of justice last time i checked didn't have more than 70 lawyers. their corporate law firms have 2000 lawyers representing corporations. is never subjected to much by the media, we have the prison industrial complex, total lawlessness in these prisons. they don't like the look of a facial expression, they will put you in solitary confinement, you can't appeal, that is a horrific cruel and
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unusual punishment that psychological studies are now coming forward with to try to make a constitutional issue out of it. corporate crime is pervasive because they get away with it, it pays, they do not have to deal with much power, the prosecuting attorneys are looking for lucrative jobs, they go from 125 or 150,000 jobs a year for the justice department to $1 million a year with law firms like burling, etc. they are in a conflict of interest in terms of future lucrative careers. it just goes on in one area to another. to illustrate statistically the
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lawlessness, johns hopkins university school of medicine put out a report two years ago saying that the rock on an estimate that they have come up with is that 5000 people a week die from preventable problems in hospitals. not clinics or doctor offices, just in hospitals. let that sink. 5000 human beings have hospital induced infections, hospital malpractice, understaffing, all kinds of various negligence. many of which can be prevented. but, how many lawsuits? probably not one or two percent file any lawsuits. there are lots of obstructions to filing these lawsuits. let's switch to and that is not the only study harvard school of public health has put studies on medical malpractice. about 2000 a week dying from that.
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level of competency all you need is 5 to 10 percent of physicians who are incompetent or incapacitated from practicing safe medicine and you've got hundreds of thousands of patients who can be harmed. the second is, fraud in the healthcare industry. both the accountability office and the expert on this had said 10 percent of all healthcare expenditures are drained away by computerized billing fraud and abuse. this year is $350 billion of which not 10 billion is recovered. by litigation or law enforcement. medicare says that $60 billion is defrauded every year and they recover maybe two or $3 billion, why? the department of human services
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doesn't have the investigators, their budgets are not adequate even though one dollar of law enforcement can bring in $15 of recovery because congress won't give them the budget. congress is aiding in corporate crime. congress is also aiding in massive tax evasion and not just with tax loopholes or global tax permissions that jim henry talked about. they have cut the irs budget by 25 percent since 2011. the irs has even more duties because of obama care than ever before. the irs calmly said, we don't collect $400 billion a year uncollected taxes because we don't have the personnel to do it and that is one reason why you can never get anybody on the phone because they are totally overloaded with customer service and it is
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extremely damaged as a result. and, republicans really have the blame for this in congress are doing it every year. marinating and embedding packs of asians. not tax avoidance, tax evasion. lawlessness, all over the country. in this area. there are a lot of other examples and i really don't have that much time. but i would like to point out that billing fraud is a massive problem and we need young litigators to start class actions and all kinds of litigation, they would make a ton of money in this area. in the securities area, the broker area, the billing of supplies, wage theft, $60 billion in wage theft according
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to the economic policies and a pretty reliable think tank in this country. what happens when you have mass lawlessness that is institutionalized? you have mass immunity, mass impunity and you have a level of recklessness that is not adequately reported and disclosed that damages the health and safety of economic well-being of 10 of millions of americans. even in the area of child protection, just routine child custody payments, etc. there is rampant violations of law. ongoing myths about the law serve to camouflage or protect those truly dominant acts of
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power that is an important reason for regular compliance reports by regulatory agencies to congress and the public. isn't the duty of a regulatory agency going to tell you to what degree's companies are complying with the standards? water, air, food safety standards, there's not a single agency and the federal government that baton and annual compliance report. the last one i saw was in the labor department years ago in wages and standards practices. isn't that reviewing? one reason they will say is we don't have the budget, it takes quite a bit of work to develop compliance reports that are reliable. the other reason for it is the merry-go-round going into government, they go out and get good jobs and corporations and then they go into government at higher levels. the military budget is ripe
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with lawlessness. how about this one? a federal law in 1992 affected every government department agency has to present an audible budget to the government accountability office of the u.s. congress. one department has violated this since 1992. is the defense department. here you have a 700 billion+ dollar department a year, over half of the entire federal government's operation exponentially is in the military industrial complex. they don't have an audible budget. this is not a technical accounting matter, that is why the pentagon admitted it could not locate and explain the loss of $9 billion in the first year of the criminal invasion of iraq which killed over 1 million iraqis and u.s.
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soldiers. as dirk once said, a billing here and a billionaire, pretty soon it adds up to real money. the air force admitted they had to buy billions of dollars of supplies because they couldn't locate the supplies and warehouses around the country and there is no inventory, no budget control. i was just told by a high official in the air force, when i told him about the pentagon violating federal law, every secretary of defense said give us another five years. they are all gone in five years, isn't that funny they say five years? they are all gone. i told them about this problem. and he starts telling me stories and one of them he said he was in charge of a program in the pentagon and the first thing he looked at was the managing manuals. so, what about the
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budget for what we are going to spend? there is no budget? he said well how are we going to know what we are going to do and how to do it? his subordinate civil servant said to him, that's right. institutionalized cynicism. the df 35 is $100 million per plane you could almost multiply that by two on the stage. that is two times more than the auto safety budget of the department of transportation and the national highway traffic safety administration. have highway support budgets and driver education but the auto safety standard, one plane that has never flown in combat is vastly overrun and we are trying to get other countries to buy some of it because it is
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breaking the bank and it will be the first trillion dollar weapon system the way it is going. the government keeps buying fewer and fewer from lockheed martin because of the price per plane that is going bigger and bigger. this is a glimmer of systemic lawlessness and something that is not studied at our law schools which is a pretty serious indictment. what are they? high-priced trade schools, or are they professions? building professional people? that is one reason why people are so cynical. when they see the privatizations that this is a government of the law, this is a country under the rule of law and ac is in their daily experience. they can't even use small claims cores which are designed
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for consumers and now it is controlled by creditors against consumers. now, in my state of connecticut, they charge $100 to use a small claims court and if you win, they will refund it, but $100? just to get into a small claim score? they are already raising the claim score. you are presumed to know the law, the judge likes the ordinary citizen standing before the judge, you are presumed to know the law, why don't they teach the rudiments of the lot in high school or college? why don't they teach us about contract law? young people are awfully injured from street crime, young people have to sign these agreements, fineprint agreements or click on facebook, insta graham, it's
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not like it is foreign to their experience and we don't teach them. i think we have got to make lawlessness a political issue on an election year issue because in the state of lawlessness, the people who have the most money, the corporations who have the most raw power are going to run the country into the ground as they already are. half the country's poor. forget all the other statistics. half of the country's families are told to make it under 50,000 a year growth for a family of four. that is poor. for deductions. to parents, two children. in the land of the free and the richest land in the world. when you heard all these executive compensation figures by steve and bill and others, break it down in terms of hours.
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some of them are making the head of u.s. healthcare, this is a company that mitigates health insurance for aarp. last year he made $60 million. that is over $30,000 an hour, eight hours a day. people in the company are making maybe 15 bucks an hour, the head of walmart is making 11,000 an hour. we have two quicken the people's sense of injustice. if they don't develop a cultivated sense of injustice, other than tax on houses, if you don't develop a cultivated sense of injustice, how they
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are obstructed in underinsured how they are underpaid. how they are disrespected. they will never have a popular movement for justice. i want to thank you all for you -- coming and i hope you all stay in touch with one another, one of the problems we have with great fighters for justice in this country as we often don't know each other. i hope the people who saw this on c-span and real news networks out of baltimore will go to the website to get the contact numbers for any of these subjects and speakers who you have seen or heard today.
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as far as my concern with congress, i can put two books out. one has a summons and citizens turn the dynamic around. town meetings art choreographing what they are excluding, the people reverse course and they summon the public auditoriums who clearly delineated their legible address occupation profession. a majority of the people are
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together, whether they label themselves conservative or liberal on major ecological and children policies to turn this country around for starters. not that many people bought that book breaking through power, i had to resort to humor. my forthcoming book is how the rat performed congress. that is a record high for the city government to do something in congress is no exception. in this fable, the rats come up from the catacombs and they get into the toilet bowls of the lawmakers, you can imagine the frenzy, the fear, the cover-up. the overreaction and then the expose by an intrepid reporter
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who could have come out of damon and that led to hughes division which led to huge public attention towards congress which is a rarity and that led to active citizens mobilizing a strategic movement to take congress back instead of the rubric of wall street's corporate state. i hope that you will have sufficient interest to read one or the other of the two books and how the rats reformed the congress can be obtained by going to direct reform congress.org. rats reform congress.org and the website goes into great detail on how you can develop these congress watchdog groups in every congressional district
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based on practical experience we and others have had over half a century. so, we close this conference and this material, we will try to advance in multiple ways and amplified by those who couldn't be at the stage because they had conflicting schedules and i want to thank all of you who watched it and who listened to it from around the country as well as people who came here in washington dc and above all, the wonderful presentations that we have had my people who should be nationally known, who should be on national public radio and pbs. and our public airway stations who get public comments for free and art trivializing it and sensationalizing it and letting the intelligence of the nation he continually suppressed
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under the almighty power of commercialism corporatism, and the false ideology of market fundamentals and with that, we close this conference on the myths of market fundamentalism, thank you very much.
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>> it occurred to me that they were forgotten but perhaps they were significant in some way. >> this week, a university
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professor talks about two of his books. the forgotten presidents and impeachment.>> i think that bill clinton did a lot to merit his own impeachment. i think members are looking for him to make mistakes and when he makes them he was later held in contempt for perjury
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now, vice chairman donovan, se

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