Puerto Rico’s Colonial Legacy and its Continuing Economic Troubles

When Puerto Rico was hit by Hurricane Maria, the island was ill-equipped to handle the storm that claimed thousands of lives and devastated most of the island’s infrastructure, leaving it in the dark for months. Prior to the storm, Puerto Rico’s economy had already experienced two decades without economic growth, a rare occurrence in the history of modern capitalism. Neither a sovereign country nor a US state, Puerto Rico has had constrained ability to respond to negative economic shocks, while only receiving limited federal support. The island’s prolonged economic failure resulted in the accumulation of an unsustainable debt burden, and Puerto Rico’s bankruptcy.   

Puerto Rico became a territory of the United Stated in the aftermath of the Spanish-American War of 1898. While residents of Puerto Rico were given US citizenship in 1917, they still cannot vote in US presidential elections on the island and have no voting representation in the US Congress. The UN officially removed the island from its list of colonies in 1953 after the US Congress approved a new name, the “Commonwealth of Puerto Rico,” along with a constitution that granted the island authority over internal matters.

Despite this semblance of autonomy, Puerto Rico continued to be subject to the Territory Clause of the US Constitution, which grants the US Congress “power to dispose of and make all needful Rules and Regulations.” Recent developments have shown beyond doubt that Puerto Rico continues to be a colony, with the island now effectively ruled by a Federal Oversight and Management Board (the Board), created by the US Congress, which supersedes the authority of the island’s elected government.

After Puerto Rico defaulted on its $74 billion debt in 2015, the US Supreme Court struck down a bankruptcy law passed by the island. In 2016, the US Congress then passed the “Puerto Rico Oversight, Management, and Economic Stability Act” (PROMESA), to create a framework for Puerto Rico to restructure its debt. While many attribute Puerto Rico’s accumulation of unsustainable debt to irresponsible government spending, this narrative ignores the fact that much of what led to Puerto Rico’s prolonged economic failure was out of the island’s control.

During the last two decades of the twentieth century, Puerto Rico’s economy more than doubled in real terms as it became an attractive destination for US manufacturing, offering strong legal protections and relatively cheap labor. As the rules of the global economy were rewritten with the creation of the World Trade Organization and the passage of trade deals such as the North American Free Trade Agreement, Puerto Rico became much less attractive as a manufacturing hub.

The island’s economy has not registered any growth since 2005. Puerto Rico did not have the policy tools available to sovereign nations that could have allowed it to more effectively address the shifting global trade environment, e.g., by adjusting its exchange rate. Between 2005 and 2016, Puerto Rico’s economy was shrinking at an annual real rate of 1 percent per year. Investment, which was over 20 percent of GDP in the late 1990s, fell to less than 8 percent of GDP in 2016.

Furthermore, Puerto Rico did not receive the same federal support that US states do, meaning that as the economy worsened, its government had to foot the bill for a large share of social programs. Just in terms of health care, it is estimated that the Puerto Rican government has had to spend more than $1 billion per year more than it would have had it received the same reimbursements from the US federal government that states do.

By 2016, before Hurricane Maria, Puerto Rico had a poverty rate of 46 percent, and 58 percent for children, and had already lost 10 percent of its population to migration. With higher overall living costs than the mainland US, and lower incomes, many Puerto Ricans have chosen to leave the island and seek better opportunities on the mainland. In Maria’s aftermath, Puerto Rico is predicted to lose another 14 percent of its population by 2019.

As Puerto Rico’s economy declined, so did the revenues of the government, which increasingly financed operations through borrowing. Puerto Rican bonds were part of US municipal bond markets, and carried special tax exemptions that made them sufficiently attractive that buyers ignored the island’s macroeconomic reality ― something explicitly mentioned in Puerto Rico’s credit assessments. The bonds were only downgraded to “junk” in 2014 after Puerto Rico could no longer make interest payments on its debt.

PROMESA established a process to reach a consensus with creditors, and, were that to fail, it created a legal path to access bankruptcy court, where the Board would also represent Puerto Rico. As part of the consensus process, the board was tasked with certifying a 10-year fiscal plan that would keep the government operational, provide essential services to residents, adequately fund public pensions, and set funds aside for debt repayment in agreement with creditors.

The Board has taken an austerity approach that fails to address any of Puerto Rico’s long-term economic problems and is likely to exacerbate the downward spiral of economic decline and outmigration. In the aftermath of Maria, despite inadequate relief, the Board is using the increase in liquidity provided by relief funds to set aside more funds for creditors.

Yet many creditors continue to demand even harsher austerity, and the bankruptcy case is currently being heard by a bankruptcy judge in the New York District Court. Ironically, many of the most aggressive creditors are hedge funds that bought bonds at a steep discount after the default, and in the aftermath of Hurricane Maria.

To add insult to injury, the undemocratically appointed Board is setting aside $1.5 billion of the island’s budget for its own expenses, including legal and consulting fees for the next five years. Many of the advisors and lawyers now profiting from the bankruptcy process are the same actors who were involved in issuing the unsustainable debt. Meanwhile, island residents face pension cuts, layoffs, benefit freezes, and school closures. Given that the people of Puerto Rico have no democratic representation or say in this process, it is not surprising that their colonial rulers are ignoring their needs.   

This article was originally written for the UN Conference on Trade and Development (UNCTAD) and INET YSI Summer School 2018.

Victorian despite themselves: central banks in historical perspective

Central banks have not always been independent, inflation targeting bodies, and to treat them as such is to obscure their complex histories and alternative institutional constellations

Central banks have not always been independent, inflation targeting bodies, and to treat them as such is to obscure their complex histories and alternative institutional constellations. By Pierre Ortlieb.

Donald Trump’s most recent feud with the Federal Reserve reached a new peak late last week as the U.S. President lambasted the institution’s policy stance. “I don’t have an accommodating Fed,” he noted. Commentary on Trump’s outburst is perhaps even more alarming than his words themselves. For instance, The Week noted that Trump’s encroachment on Fed independence was “essentially unprecedented”; imperiling the central bank’s status as a guardian of price stability was reckless, foolish. This reading of the history of central banks is misguided, however. Our current paradigm of independent central banks deploying their tools to maintain low inflation is a deeply contingent historical phenomenon and obscures central banks’ frequent role as publicly-controlled institutions and fiscal buttresses throughout their centuries of existence.

The contemporary notion of independent, conservative central banks was enshrined gradually over the 1990s, a decade in which over thirty countries – developed and developing – guaranteed the legal and operational independence of their monetary authorities. This institutionalization of inflation-averse central banks has come hand-in-hand with an aversion to “inflationary” deficit financing and fiscal expansionism, which has been restrained by an exclusive focus on price stability. This has come to be treated as the best practice approach to central banking, a paradigm which, until recently, was rarely questioned among policymakers. Reaction to Donald Trump’s comments has been emblematic of this.

Yet the history of central banks shows them to be far more intertwined with states and treasuries than current commentary or policy would suggest. At their founding, central banks frequently served not as constraints on the state, but rather as fiscal agents of the state. The inception of the Bank of England (BoE) in 1694, for example, was the result of a compromise that granted the state loans to finance its war with France, while the BoE was granted the right to issue and manage banknotes. As a result of this bargain, the market for public debt in the United Kingdom exploded in the 18th century, and government debt peaked at 260 percent of GDP during the Napoleonic wars. This both facilitated the expansion of Britain’s hegemonic financial position and enabled the industrial revolution, as borrowing at low risk made vast industrial development possible.

Direct state financing was, however, not the only means through central banks fostered favorable monetary conditions and growth during this era. The use of various “gold devices” to manage credit conditions from within the straitjacket of the gold standard was commonplace. The Reichsbank, for example, granted interest-free loans to importers of gold and inhibited gold exports to establish de facto exchange controls and some degree of exchange rate flexibility.

Various central banks also pursued sectoral policies, lending government-subsidized credit at lower real interest rates to key developmental industries. The 1913 Federal Reserve Act, for instance, was designed such that it would improve the global competitiveness of New York financial institutions. It is important to note that at the time, these central banks were largely established as private institutions with government-backed monopolies; yet this did not alter the fact that, in practice, they served as crucial instruments for the expansion and development of Western economies. Beyond the US and the UK, central banks across Western Europe, such as the Banque de France (1800), the Bank of Spain (1874), and the Reichsbank (1876), served a similar initial function as developmental agents of their respective states.

Nevertheless, this was not a uniform or constant system. The existence of the gold standard itself constrained the use of monetary instruments to foster growth across developed economies during the late 19th century. Furthermore, Victorian-era British policy came to revolve around sound finance and fiscal discipline, as the use of a central bank to finance the national state was increasingly in tension with Britain’s central position in the international trading system. Inflationary fiscal deficits were seen as inhibiting growth and dampening international investment. This “Victorian model” focus on price stability produced a paradigm shift in the UK away from expansionary deficit financing towards more restrained policy.

Despite interludes, the use of central banks as macroeconomic instruments endured and emerged reinforced in the aftermath of the Great Depression and the Second World War. After 1945, governments across the Western world adopted full employment objectives as part of the consensus of “embedded liberalism,” a practice which often also involved nationalizing central banks, so they could serve as tools of macroeconomic policy. Credit allocation came to serve social goals, and central banks were given additional tasks such as managing capital flows to maintain low interest rates. In France, the Banque de France was brought under the umbrella of the National Credit Council, the institution charged with managing financial aspects of government industrial and modernization policies. While other countries employed different mechanisms in implementing this consensus, the overarching aim of monetary institutions serving social goals was broadly shared across developed countries in the postwar era, as it had been during the 19th century during the infancy of central banks.

This consensus of central banks undergirding fiscal policy fragmented and fell apart from the 1970s onwards. The experience of stagflation, the increasing influence of financial institutions in policymaking, as well as a growing academic consensus on the dangers of central bank collusion with governments, dismantled both the expansionary fiscal state and the subservient central bank. The “Volcker revolution” in the United States was a first step in the gradual, post-Nixon institutionalization of a price stability-focused, independent central bank. The Bank of England was granted operational independence in 1997 by Labour Chancellor Gordon Brown, while the ECB has been independent since its inception in 1998.

The current paradigm of independent, inflation targeting central banks thus obscures the messy history of central banks as public institutions. Since their inception, monetary authorities have performed various different roles; while they served as guardians of price stability in Victorian England, they have originally served as developmental and fiscal agents for expansionary states, and have frequently continued to do so in the centuries since. Treating central bank independence as an ahistorical best practice approach is misleading, and we should recall that there have been alternatives to the current framework. As some have heralded the end of the era of central bank independence, while others have underscored the benefits of re-politicizing monetary policy, it is worth bearing this history in mind.

About the Author: Pierre Ortlieb is a graduate student, writer, and researcher based in London. He is interested in political economy and central banks, and currently works at a public investment think tank (the views expressed herein do not represent those of his employer).

Is the falling wage share simply a statistical phenomenon?

Economists have suggested several competing theories to explain the phenomenon of the declining wage share, as it has been falling globally for several decades. In the case of the US, two specific factors can explain a significant part of the decline:  The increase in economy-wide depreciation and the rise of imputed rents as a share of total GDP.

A number of economic studies in recent years have documented the declining wage share in many countries around the world. The wage share is the part of GDP that can be attributed to labor income (wages) and is usually assumed to fluctuate around 60% while most of the remaining part of GDP is accounted for by capital income, such as rents from housing, income from Intellectual Property Products, capital gains and stock dividends, etc.

The chart below shows that the US wage share has fallen from almost 58% two decades ago to just 53% as of today, a decline of about 5 percentage points. This phenomenon is concerning insofar as the majority of the population derives most of their income from wages whereas capital income only accounts for a small share for most people. The reason is, of course, that capital ownership tends to be highly concentrated: About 75% of the US total wealth being owned by the top 10%. While home ownership tends to be much more dispersed, it can actually vary quite significantly from country to country. In the US, the home ownership rate exceeds 60%, but it is significantly below what it was before the financial crisis when it almost hit 70%.

 


Source:BEA

There are several competing (but not mutually exclusive) hypothesis that have been put forward to explain the trend of the falling wage share. Some authors have focused on the decline of the bargaining power of labor, either as a result of eroding labor unions, or the result of globalization as a number of low-wage countries like China entered the global economy during the late 1980s.

Alternatively, some papers have suggested that monopoly power in many industries has increased, thus putting downward pressure on the wage share as markups are rising. Finally, some post-keynesian economists have emphasized increasing financialization as a possible cause.

In what follows, I will focus on yet another explanation that might explain part of the downward trend of the gross wage share. While GDP is usually defined as the sum of all the income streams in the economy, there are several categories that national statistics offices include in the GDP calculation, but technically there is no income stream flowing at all. There are two items that stand out in particular because they are quantitatively the most important: Depreciation of capital and imputed rents.   

Depreciation of physical assets is included in the GDP calculation because it is counted as a cost of production to firms. From an accounting point of view, depreciation is the allocation of cost of an asset over its useful lifespan. Since depreciation expenses can be offset against a firm’s taxable profits, firms might actually have an incentive to overstate annual depreciation expenses.

US tax law allows firms to depreciate all kinds of assets that are used in the production process, ranging from nonresidential structures to all kinds of industrial equipment, and even Intellectual Property Products (IPP). Over the last few years depreciation as a share of GDP has increased mostly as a result of two factors.

First, more and more companies increasingly rely on modern technologies that tend to depreciate at a fairly rapid pace. Equipment like computers, smartphones, software, etc. tend to become obsolete within just a couple of years: According to the BEA, each of these items has a lifespan of only two to three years when it must be replaced. Compare this with other industrial equipment, which has an average lifespan of half a decade at least, with non-residential structures easily approaching a lifespan of two decades.

Second, US corporations have produced an increasing amount of intangible products in recent decades (IPP). This could be a patent, for example, which is basically a monopoly right granted by the government for a specified time period, usually 20 years in the US. As companies can depreciate all cost expenses of their patent over its useful or legal life, companies might also have an incentive to overstate their expenses because they can be offset against their tax liabilities. As the share of intangible assets has increased significantly over the last few years, so have depreciation expenses caused by the production of IPP.

The chart below shows that depreciation as a share of GDP has increased from about 6% in the postwar period to almost 13% as of today and this significant rise can account to some extent for the decline in the gross wage share. Most of the increase in depreciation can be explained by the rise of modern technologies, which tend to have a significantly lower lifespan and thus become obsolete much more quickly, as well as the increasing importance of IPP in today’s economy.

 


Source:BEA


The second large item that might have put downward pressure on the wage share is the increase in the rent share of GDP. In the case of the US, it is mostly imputed rents, the rent-equivalent a house owner would pay to himself in rent, that have risen significantly.

 


Source:BEA

 

Imputed rents are included in the GDP statistics even though there is technically no income stream flowing to anyone because otherwise a country that consists for the most part of renters (like Germany) would have an “inflated” GDP figure. Consider two countries, A and B, which are equal in every aspect with one single exception. Let’s say that in country A, I live in your house and pay rent to you and you live in my house and pay rent to me, whereas in country B we both live in our own houses. If we exclude imputed rents, country A would have higher GDP than country B simply because we pay rent to each other even though the two countries are equally productive (by assumption). Imputed rents are obviously derived from the value of the underlying dwelling.

As most advanced economies have experienced spectacular house price appreciations over the last couple of decades, mostly a result of supply-side restrictions rather than “speculative bubbles”, imputed rents surely have increased more or less in tandem. In the case of the US, imputed rents have actually surged from about 6% of GDP in the 1960s to about 8% of GDP as of today. The increase in the rent share of GDP, mostly a result of rising house prices being accompanied by increasing imputed rents, thus also puts some downward pressure on the gross wage share.

 

Source: Jorda, Schularick and Taylor (2016) Macrohistory database

 

We have therefore two items, economy-wide depreciation as well as imputed rents, which account for an increasingly large share of total GDP despite the fact that both categories actually do not represent any income streams in the classical sense.

It is exactly for that reason that some economists have argued that from an inequality point of view we should rather focus on the net wage share, meaning net of depreciation. Furthermore, as I have explained above, there is an argument to be made that such a net measure should also net out imputed rents (and potentially other imputed income streams that are included in the GDP calculations), thus focusing entirely on actual income streams instead. Doing so cancels out most but not all of the downward movement of the wage share one can observe across countries in recent decades. For the US, the graph below shows that the “net wage share”, adjusted for depreciation and imputed rents, is not significantly lower today than what it was from the late 1960s onwards.

 


Source:FRED

 

About the Author: Julius Probst is a Phd student at the Economic History department of Lund University in Sweden. His main research area is long-term economic growth with a special focus on economic geography.

 

Basic Income’s Politics Problem

The rising interest in Basic Income, and its being put on the political agenda in countries ranging from Canada to South Africa to to Finland, is driven by a number of economic and political factors. There remain the old concerns about the administrative costs and paternalism of welfare bureaucracies, and these have been joined by observations about the increasing precariousness of the labor market, caused in part by increased automation, the growth of the informal labor sector in both the Global North and Global South and the sense that, at least at a global level, the old problem of economic scarcity may have been overcome.

Basic Income, from this perspective, represent a potential way of dealing with the fallout of massive changes within the economic structure of countries whilst also allowing individuals to retain autonomy and acting in contrast to the often-homogenizing biopolitical structures of the post-World War II Western welfare states. It is also argued that its very simplicity imbues the program with a flexibility which would allow it to work in a wider variety of economic and political contexts. Recently, both the province of Ontario in Canada and the nation of Finland have experimented with welfare delivery reforms in the direction of basic income, whilst in South Africa there is wide-ranging social push for implementation of a basic income grant program.

This rising interest has, however, led to a number of questions from both skeptics of basic income and those open to it. A number of such concerns could be classified as practical matters which are particular to the political and bureaucratic systems of each particular government concerned with implementation. There is also another set of questions which concern the basic income project at a more general level, which could be classed as pertaining to the philosophical and ontological underpinnings of such a policy.

 

The Subject Complication:

To begin with, there is the problem of exactly whom the basic income will apply to; in other words, what is the subject for claims to social justice in the world of basic income. In most formulations, from Thomas Paine forward, a basic income is conceived of as having a condition of citizenship attached to it. Though this would be a relatively straightforward in a world of limited interstate migration, the reality is that individuals and families currently exist in a wide variety of positionalities vis-à-vis the state in which they physically inhabit. In addition to citizens, there are permanent residents, refugees, students on visas, temporary foreign workers and more. The danger with a citizenship-conditional basic income, as it is unlikely that every country would implement such a policy at the same time, and certainly not at the same monetary level, is that it would further deepen the divide between citizen and non-citizen inhabitants of particular countries.

There is, of course, a  counter-proposal, of opening basic income to all living within a country, regardless of status. However, given the already fraught nature of immigration and integration policy, this would most likely prove politically damning of both the government who implemented the policy and Basic Income itself.

 

The Scarcity Complication:

This points to another potential issue with basic income, namely, that of scarcity. The compulsion to work in order to receive income, either within the market in a capitalist society or in some other arrangement, such as a communal obligation or kinship system in a non-capitalist one, has traditionally been justified on grounds of resource scarcity. In essence, the idea that one must contribute one’s labor or resources, adding to the overall “pie” of the society, in order to make a claim on taking resources out later on.

However, in practice, societies tend to exempt certain classes of people from the labor compulsion, such as the elderly and children, if sufficient resources exist to allow these populations to exist as “free riders” of a sort. The argument for basic income, in relation to the scarcity question, is that, at least at the global level, scarcity has been overcome by technological advances, productivity gains and automation, such that a labor compulsion is no longer strictly necessary.

At the national level, however, even setting aside questions of effective governance and level of citizen trust in government which affect many states, governments may be capable of deploying resources, but not all governments have the same level of resources to deploy. Given the citizenship-focused nature of most basic income projects, the scarcity question will continue to trouble such proposals absent a mass nation-to-nation wealth redistribution or the establishment of a level of transnational government capable of effectively taking on the task of administering such a program.

 

The Sustainability Complication:

Finally, there is the question of whether or not a basic income program would be sustainable in the political sense in the manner in which the growth of the social democratic welfare state was in the 20th century. The key to this growth of the welfare state, and the notion of decommodified consumption (via free-at-point-of-use services such as health care) was the mobilization of working-class political power resources, primarily trade unions and left-wing parliamentary political parties usually associated with them. By contrast, until very recently, basic income tended to be a subject of interest to academics and policymakers rather than a concrete demand made by a mobilized political power grouping, either in the traditional sense of trade unions and political parties, or in more modern social movements.

To some degree, this may be legacy of libertarian strands of support for basic income which were explicitly aimed at taking down aspects of the welfare state that such movements viewed as their major achievements. With the exception of South Africa, where there was a broad social push for the BIG, that even those social justice movements which exist outside of the traditional social democratic framework have not yet made basic income into a clearly articulated demand. Organizations explicitly concerned with labor issues, such as Fight for 15, have placed emphasis more on rights-at-work and raising wages, rather than a right-to-not-work implicit in at least the progressive, as opposed to libertarian, interpretation of basic income. In a way, this indicates that such organizations may still be stuck, to greater or lesser degrees, in the old social democratic model, with its emphasis on labor rights, albeit with some new elements.

 

A Way Forward:

With that said, the notion of basic income continues to express a certain truth about the collective stake in the commons and the ability to demand a just share of social wealth, free of restrictions or paternalistic impediments, and without the, increasingly unnecessary, compulsion to engage in the formal labor market. With both the increasing interconnectedness of global economic production, and the increasing precarity of many forms of work, the case for basic income on both moral and practical grounds has rarely been more compelling than it is now.

However, in order for basic income to be implemented in a progressive fashion, a recognition and a concrete convergence of action (as opposed to a notional convergence of interest) must be had between basic income advocates and political movements both of the precariat and the traditional working class. Just as the welfare state of the 20th century was largely built on the political muscle of the workers of its time, if basic income is to be the welfare cornerstone of the 21st, it will need a similarly strong mobilization behind it.

By Carter Vance

 

Carter Vance has a Masters of Arts from the Political Economy program at Carleton University in Ottawa, Canada. He has also published his work for Jacobin on water rights protests and has written on a variety of topics for publications such as Truthout and Inquires Journal.

 

Why Left Economics is Marginalized

After the 2009 recession, Nobel Prize winner Paul Krugman wrote a New York Times article entitled “How did economists get it so wrong?” wondering why economics has such a blind spot for failure and crisis. Krugman correctly pointed out that “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” However, by lumping the whole economics profession into one group, Krugman perpetuates the fallacy that economics is one uniform bloc and that some economists whose work is largely ignored had indeed predicted the financial crisis. These economists were largely dismissed for not falling into what Krugman calls the “economics profession.”

So let’s acknowledge there are many types of economics, and seek to understand and apply them, before there’s another crisis.

 

Left economics understands power

Let’s take labor as an example. Many leftist economic thinkers view production as a social relation. The ability to gain employment is an outcome of societal structures like racism and sexism, and the distribution of earnings from production is inherently a question of power, not merely the product of a benign and objective “market” process. Labor markets are deeply intertwined with broader institutions (like the prison system), social norms (such as the gendered distribution of domestic care) and other systems (such as racist ideology) that affect employment and compensation. There is increasing evidence that the left’s view of labor is closer to reality, with research showing that many labor markets have monopsonistic qualities, which in simple terms means employees have difficulty leaving their jobs due to geography, non-compete agreements and other factors.

In contrast, mainstream economics positions labor as an input in the production process, which can be quantified and optimized, eg. maximized for productivity or minimized for cost. Wages, in widely taught models, are equal to the value of a worker’s labor. These unrealistic assumptions don’t reflect what we actually observe in the world, and this theoretical schism has important political and policy implications. For some, a job and a good wage are rights, for others, businesses should do what’s best for profits and investors. Combative policy debates like the need for stronger unions vs. anti-union right-to-work laws are rooted in this divide.

 

The role of government

The left believes the government has a role to play in the economy beyond simply correcting “market failures.” Prominent leftist economists like Stephanie Kelton and Mariana Mazzucato, argue for a government role in economic equity and shared prosperity through policies like guaranteed public employment and investment in innovation. The government shouldn’t merely mitigate product market failures but should use its power to end poverty.

On the other hand, mainstream economics teaches that government crowds out private investment (research shows this isn’t true), raising the wage would reduce employment (wrong) and that putting money in the hands of capital leads to more economic growth (also no). As we have seen post-Trump-cuts, tax cuts lead to the further enrichment of the already deeply unequal, equilibrium.

 

Limitations to left economics: public awareness and lack of resources

History and historically entrenched power determine both final outcomes but also the range of outcomes that are deemed acceptable. Structural inequalities have been ushered in by policies ranging from predatory international development (“free trade”) to domestic financial deregulation, meanwhile poverty caused by these policies is blamed on the poor.

Policy is masked by theory or beliefs (eg. about free trade), but the theory seems to be created to support opportunistic outcomes for those who hold power to decide them. The purely rational agent-based theories that undergird deregulation have been strongly advocated for by particular (mostly conservative) groups such as the Koch Network which have spent loads of money to have specific theoretical foundations taught in schools, preached in churches and legitimized by think tanks.

There have been others who question the centrality of the rational agent, the holy grail of the free market, believe in public rather than corporate welfare, and the need for government to not only regulate but to make markets and provide opportunity. This “alternative” history exists but is less present – it’s alternative-ness defined by sheer public awareness, lack of which, perhaps, stems from a lack of capital.

Financial capital is an important factor in what becomes mainstream. I went through a whole undergraduate economics program at a top university without hearing the words “union” or “redistribution,” which now feels ludicrous. Then I went to The New School for Social Research for graduate school, which has been called the University in Exile, for exiled scholars of critical theory and classical economics. In the New School economics department, we study Marxist economics, Keynesian and post-Keynesian economics, Bayesian statistics, ecological and feminist economics, among others topics. There are only a few other economics programs in the US that teach that there are different schools of thought in economics. But after finishing at the New School and thinking about doing a PhD there, I understood this problem on a personal level.

There’s barely any funding for PhDs and most have to pay their tuition, which is pretty unheard of for an economics doctorate. Why? Two reasons – 1. Because while those who treat economics like science go on to be bankers and consultants, those who study economics as a social science might not make the kind of money to fund an endowment. And 2. Perhaps because of this lack of future payout, The New School is just one of many institutions that doesn’t deem heterodox economics valuable enough to warrant the funding that goes to other programs, in this case, like Parsons.

Unfortunately, a combination of these factors leaves mainstream economics schools well funded by opportunistic benefactors, whether they’re alumni or a lobbying group, while heterodox programs struggle or fail to support their students and their research.

 

The horizon for economics of the left

Using elements of different schools of thought, and defining the left of the economics world, is difficult. Race, class, and power, elements that define the left, are sticky, ugly, and stressful, and don’t provide easily quantifiable building blocks like mainstream economics does. Without unifying building blocks, we’re prone to continuing to produce graduates from fancy schools who go into the world believing that economics is a hard science and that the world can be understood with existing models in which human behavior can be easily predicted.

Ultimately the mainstream and the left in economics are not so different from the mainstream and the left politically, and there is room for a stronger consensus on non-mainstream economics that would bolster the left politically. It’s worth exploring and strengthening these connections because at the heart of our economic and political divides is a fundamental difference in opinion regarding how society at large should be organized. And whether we continue to promote wealth creation within a capitalistic system, or a distributive system that holds justice as a pinnacle, will determine the extent to which we can achieve a healthy, civilized society.

Fortunately, the political left in many ways is upholding, if not the theory and empirics, the traditions and values of non-mainstream economics. Calls from the left to confront a half-century of neoliberal economic policy are more sustained and perhaps successful than other times in recent history, with some policies like the federal job guarantee making it to the mainstream. After 2008 the 99 percent, supported by mainstreamed research about inequality, began to organize.

There’s hope for change stemming from a new generation of economists, in particular, the thousands of young and aspiring economists researching and writing for groups like Rethinking Economics, the Young Scholars Initiative (YSI), Developing Economics, the Minskys (now Economic Questions), the Modern Money Network, and more. But ideas and policies are path dependent, and it will take a real progressive movement, supplemented by demands by students in schools, to bring left economics to the forefront.

By Amanda Novello.

 

A version of this post originally appeared on Data for Progress’ Econo-missed Q+A column, in response to a question about the marginalization of leftist voices in economics.

Amanda Novello (@NovelloAmanda) is a policy associate with the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation. She was previously a researcher and Assistant Director at the Schwartz Center for Economic Policy Analysis at The New School for Social Research.

 

The CFA Franc Zones: Neocolonialism and Dependency

French geopolitics in Africa is interested in natural resources. Initially, the franc zone was set as a colonial monetary system by issuing currency in the colonies because France wanted to avoid transporting cash. After these countries gained their independence, the monetary system continued its operation and went on to include two other countries that were not former French colonies. At present, the CFA franc zones are made up of 14 countries. The fact that even today the currency of these regions is pegged to the euro (formerly French franc) and that reserves are deposited in France shows the subtle neocolonialism France has been pursuing unchecked. It is a currency union where France is the center and has veto power. This is supported by African governing elites who rely on the economic, political, technical, and sometimes military support provided by France. It is no wonder then that these former colonies are not growing to their full potential because they have exchanged development through sovereignty for dependency on France. This article investigates the set up of the CFA franc zones, its ties to French neocolonialism and its ability to further breed dependency in the former colonies of West and Central Africa.

 

The CFA Franc Zones

The first franc zone was set up in 1939 as a monetary region with a  the French franc as its main currency. In 1945, the Franc des Colonies Francaises d’Afrique (CFA franc) and the Franc des Colonies Francaises du Pacifique (CFP franc) were created. After independence, Morocco, Tunisia, Algeria, and Guinea left. The Central African Economic and Monetary Union (CEMAC) and the West African Economic and Monetary Community (WAEMU) are known as the two CFA franc zones. WAEMU has eight members: Benin, Burkina Faso, Cote D’Ivoire, Guinea-Bissau (a former Portuguese colony joined in 1997), Mali, Niger, Senegal, and Togo. Their common currency is the “franc de la Communaute Financiere de l”Afrique (CFA franc), which is issued by the Central Bank of the West African States (BCEAO) located in Dakar, Senegal. CEMAC has six members: Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea (a former Spanish colony joined in 1985) and Gabon. Their common currency is “franc de la Cooperation Financiere Africaine”, which is issued by the Bank of the Central African States (BEAC) located in Yaounde, Cameroon. It is worth mentioning that the BCEAO and the BEAC were headquartered in Paris until the late 1970s.

Since 1948, the two CFA francs were pegged at the rate of 50 CFA francs per French franc. In 1994, the CFA francs went through devaluation, 50 percent to be exact. At present, the arrangement of France to the two unions are a fixed peg to the euro, a convertibility guarantee by the French Treasury and lastly, a set of legal, institutional and policy requirements. The CFA franc zone links three currencies: the two unions and the euro. The CFA franc is fixed at 655.957 per euro. WAEMU and CEMAC each have their own central banks that are independent of each other. The CFA francs can be converted to the euro, but cannot directly be converted into each other. The money is sent to France as an operations account in the French Treasury by the two central banks. Furthermore, “at least 20 percent of sight liabilities of each central bank must be covered by foreign exchange reserves, at least 50 percent of foreign exchange reserves must be held in the operations account and increasing interest rate penalties apply if there is an overdraft. France is also represented on the board of both institutions.” In “Colonial Hangover: the Case of the CFA”, Pierre Canac and Rogelio Garcia-Contreras explain,

“The functioning of the Operations Accounts is critical to maintaining the convertibility of the CFA francs at the official exchange rate while, at the same time, allowing the regional central banks to maintain some monetary autonomy. The Operations Accounts are credited with the foreign reserves of the BCEAO and the BEAC, but can be negative when the balance of payments of the CFA zone members is unfavorable. When this is the case, the French treasury lends foreign reserves to the two central banks. This special relationship with the French treasury allows the two African central banks to maintain the fixity of the exchange rate while allowing them to have some limited control over their monetary policy. The amount of borrowing allowed is unlimited although subject to several constraints in order to limit the size of the debt. First, the central banks receive interest on their credit in the Operations Account, while they must pay a progressively increasing interest rate on their debit in the account. Second, foreign reserves other than French francs or euros may have to be surrendered – a practice called ‘ratissage’, or additional reserves may have to be borrowed from the IMF. Third, the French treasury appoints members to the boards of the BCEAO and BEAC in order to influence their respective monetary policies and to ensure their consistency with the fixed parity. The autonomy of both African central banks is curbed by the French authorities, thereby prolonging the colonial relationship between France and its former colonies.”

Apparently, representatives from France fill important positions in the Presidency, Ministry of Defense, Central Bank, Treasury, Accounting and Budget Departments, and Ministry of Finance, which allows them to have oversight and influence policy decisions. One French scholar observed that ministries from Francophone African states make around 2000 visits to Paris in an average year. Adom shows the money kept at the French treasury earns no or very low interest for the franc zone nations. In 2007, the former Senegalese President, Abdoulaye Wade had stated that the funds can be used to boost investment, economic growth and alleviate poverty in the member countries instead of sitting in France.

After the 1994 devaluation, the two CFA francs were pegged at the new rate of 100 CFA francs per French franc. The reason for the devaluation was accounted to loss of competitiveness as the French franc appreciated against the currency of major trading partners. These zones competitiveness was in the French market, but not to world markets. In the 1980s, there was a fall in the price of raw materials and a depreciation of the dollar. As a result, the growth and export of these nations were impacted. The governments of these zones were facing budget deficits, which they financed by borrowing from abroad until the IMF refused to lend them any more money in 1993. As for trade between the unions, it is low due to an external tariff. Capital flows between these unions is highly restricted. The hope that a monetary union would increase trade among the CFA franc zones never materialized.

 

Neocolonialism and France 

Kwame Nkrumah stated, “…imperialism… claims, that it is “giving” independence to its former subjects, to be followed by “aid” for their development. Under cover of such phrases, however, it devises innumerable ways to accomplish objectives formerly achieved by naked colonialism. It is this sum total of these modern attempts to perpetuate colonialism while at the same time talking about “freedom”, which has come to be known as neo-colonialism.”

In “Government accounting reform in an ex-French African colony: The political economy of neocolonialism”, P.J.C. Lassou and T. Hopper state, “colonialism does not cease with the declaration of political independence or the lowering of the last European flag. Decolonization is a formal facade if former colonies cannot acquire the socio-economic base and political institutions to manage themselves as sovereign independent countries. The modern manifestation of colonial and imperialist traits is commonly labeled neocolonialism, which is sometimes linked to ‘dependency’. Neocolonialism occurs when the former colonial power still controls the political and economic institutions of former colonies.”

France is carrying out neocolonialism by disguising this arrangement as a monetary union. These nations gave up their sovereign right to France. Neocolonialism is an impediment to development within African nations. France’s intervention was carried out through economic, political and militaristic ways. The ‘Accords de Cooperation’ was signed by African leaders who gained power with France’s help at independence. On the other hand, the ‘Accords speciaux de defence’ provided France power to intervene militarily to protect African leaders who protected France’s interests. Lastly, the economic accords require former colonies to export their raw materials such as oil, uranium, phosphate, cocoa, coffee, rubber, cotton … etc to France while importing industrial goods and services primary from France. Furthermore, these nations reduce or ban their raw material exports when French defense interest require.

Lassou and Hopper stress that accounting is a neglected part of development policies, especially in Francophone Africa. They share that “market-based reforms when applied in the South generally and Africa specifically…promote neocolonialism, enabling former colonial powers to retain control over political and economic institutions of former colonies to the advantage of multi-national corporations and trade whereby ‘Southern’ countries export cheap raw materials to ‘Northern’ countries and import high value-added goods and services in return.”

According to the Human Development Index, out of 187 countries, the last three and seven of the worst ten countries are from Francophone Africa. France’s neocolonialism approach is extremely subtle and paternalistic. The former French President, Jacques Chirac, said, “ We forget one thing: that is, a large part of the money that is in our [I.e., the French’s] wallet comes precisely from the exploitation of Africa [mostly Francophone Africa] over centuries.” In 2008, he went on to say, “without Africa France would slide down into the rank of a [third] world power.”

 

Dependency Theory and Francophone Africa

Africa, Asia, and Latin America have pursued sustainable development since gaining independence. However, a few countries succeeded in actually developing their economies. In the 1950s, Raul Prebisch and other economist came up with the dependency theory, which explains why “economic growth in the advanced industrialized countries did not necessarily lead to growth in poorer countries.” Prebisch suggested that poor countries (periphery nations) exported raw materials to the developed countries (center nations) and imported finished goods. Moreover, there is a dynamic relationship between dominant and dependent states. Andre Gunder Frank claimed that the capitalist world system was divided into two concentric spheres: center and periphery. The advanced center countries need cheap raw materials from the underdeveloped periphery as well as a market to send their finished products.

It has been decades since African countries gained independence. However, this independence was replaced by a dominance-dependence relationship known as post-colonialism. A dominance-dependence occurs “when one country is able to participate in a definitive or determining way in the decision-making process of another country while the second country is unable to have the same participation in the decision-making of the first country.” Furthermore, the foreign and domestic policies of the independent African nations continue to be influenced by outside powers, especially their former colonizers. The post-colonial relationship when it came to former French colonies is the dominant role held by France.

French colonialism was one of state colonialism. It was one of direct rule where native chiefs assisted French administrators, which led to the rise of local elites who were educated in the French system. The former colonies were indoctrinated with French culture, language, and law. In the time of independence, sub-Saharan colonies decolonized in a non-violent way while former British colonies gained their independence through war, a violent way that loosened the relationship towards Great Britain. Because freedom from France was carried out through non-violence, it came naturally for local elites to take power and continue their strong ties with France.

Through the CFA franc zone, France is able to control the money supply, monetary and financial regulations, banking activities, credit allocation, and budgetary and economic policies of these nations. In addition, it breeds corruption and illegal diversion of public aid between France and its former colonies. For instance, conditional French public aid has forced these African states to spend the ‘aid’ money on French equipment, goods or contracts with French firms, especially construction and public work firms.

S.K.B. Asante points out that regional integration approaches do not remove the neocolonialism and dependency the African continent faces. He states, “none of the regional schemes have adequate provisions for attacking the all-embracing issue of dependency reduction nor have the efforts made towards this objective had any significant impact…the problem of dependency poses difficulties for African countries attempting a strategy of regional integration. Dependency serves as an obstacle to de-development it not only limits the beneficial effects of integration in both national and regional economy.”

 

Economic Performance of the CFA Franc Zones

France is the main trading partner of the CFA franc zones. CFA franc zones, unlike other African nations, have avoided high inflations due to France. The two zones between 1989 and 1999 had 33 percent of imports and 40 percent of Foreign Direct Investment from France. These regions are highly dependent on France. Despite their ties to France, these CFA franc zones remain extremely poor. The two regions had a population of 132 million in 2008 where 70 percent are in WAEMU and 30 percent are in CAEMC. Their total GDP is equal to 4 percent of the French GDP. These regions are “producers and exporters of raw materials, including oil, minerals, wood and agricultural commodities, and agricultural commodities, they are highly sensitive to world price fluctuations and the trade policies of their trading partners, mainly the EU and the US. Their industrial sectors are rather underdeveloped.” Non-oil producing nations within the CFA franc zones have very low GDP per capita.

According to Assande Des’ Adom, even after the currency was devalued, the CFA franc zones still suffer from currency misalignments. Adom points out, “the current monetary arrangements between the former colonies and France were designed based essentially on the economic interest of the latter. A prominent Ivorian economist goes even further to explain how franc zone’s member countries indirectly finance the French economy through these peculiar monetary arrangements.”

The CFA franc zone is challenged by globalization, volatile oil and raw material prices in addition to regional security problems. It can be argued that the “dependency and neocolonial practices surrounding the relationship between France and former colonial possessions in Africa is the inability of CFA countries to build up monetary reserves.” In today’s world, control of a country is carried out through economic and monetary ways. Nkrumah had warned

“The neocolonial state may be obliged to take the manufactured products of the imperialist power to the exclusion of competing products elsewhere. Control over government policy in the neo-colonial state may be secured by payment towards the cost of running the State, by the provision of civil servants in positions where they can dictate policy, and by monetary control over foreign exchange through the imposition of a banking system controlled by the imperial power.”

In conclusion, the CFA franc zones continue to be dominated by the political will, economic interest, and geopolitical strategy pursued by the French republic. It seems some elite leaders do not wean away from France’s influence. President Omar Bongo of Gabor said, “France without Gabon is like a car without petrol, Gabon without France is analogous to a car without a driver.” The previous quote can be applied to almost all of the franc zone nations. The set up of the currency unions benefits France more than its members. French colonialism is preventing the development of these nations and causing them to be dependent.

 

There Is No Such Thing As Low-Wage Competitiveness

By Daniel Olah and Viktor Varpalotai. 

An old myth

Moderate labor costs serve as the basis for the international economic success of a country – this has been the approach favored by policymakers and academicians since the eighties. Still today, most analyses and definitions of competitiveness refer primarily to cost and price factors since these are easy to measure. If you keep your wages down, foreign capital will find you – as the overly simplistic approach suggests, which is a very dangerous narrative.

Countries on the peripheries of the richer Western economies often tried to follow this path and it may indeed have been a crucial step towards attracting the much needed capital inflow into developing economies. Think of post-socialist countries which had to achieve what no one managed to do before: to transform their economies from a centrally planned one into a well-functioning market economy in just a few years without an adequate amount of capital, savings, technology, and know-how. A typical win-win situation: developing countries were offered a chance to integrate into global value chains, while companies outsourced production processes with low added value into these economies.

But there is a crucial problem with that: this is just the first period of childhood. To say so, the role of a low-wage model in an economy is similar to that of parents in human life: it is difficult to grow up without them in a healthy way, but once you are an adult you have to realize that you need to live your own life. This means commitment and efforts to move out from the parental nest. Although the low-wage model may be needed to grow up and acquire the potential for an own future life, every economy should move on. But this depends on willingness and ability as well since nothing comes for free. Becoming a successful adult is the most challenging transformation of our lives.

This story is exactly about being able to overcome the low-wage model. When the economy is growing in its childhood period it is key for economic development, but once it turns 18 it suddenly becomes an obstacle to it. The low-wage model conserves inefficient production methods and means no incentive for companies to innovate and invest in the future. A low-wage model is never truly competitive in the long-term: it is a necessary evil in the development process. Nicholas Kaldor already showed this decades ago.


It’s nothing new: Nicholas Kaldor already said that

Kaldor, the famous Hungarian economist of Cambridge University, claimed in 1978 that countries with the most dynamic economic growth tended to record the fastest growth in labor costs as well. The renown “Kaldor-paradox” may be confusing for policymakers influenced by the neoclassical mainstream. It tells us that keeping costs low may not lead to competitive advantages and faster economic growth. So let’s resurrect the Kaldorian ideas and see whether the relationship has changed at all (hint: it has not).

An Econ 101 course would tell us that there is no causality here, and it’s true. But another thing is valid as well: that average annual real GDP growth and the annual growth of unit labor costs per person employed are not negatively related in developed countries.

But let’s examine an even better measure, the export share of an economy, which is the best indicator to grasp export competitiveness in an international context. It shows us that in the case of OECD countries it is hard to find a negative relationship between unit labor costs and export market shares. (If we created two groups of OECD countries based on GDP per capita in international dollars we would find no relationship in case of the richer but strong positive relationship for the poorer countries.)


Increasing labor costs: a sign of economic success?

In fact, outside the pure neoclassical framework, the Kaldor-paradox is not a paradox anymore. A wide literature suggests that increasing real wages result in higher productivity: better quality of customer service, lower incidence of absences and higher discipline inside companies. Corporations gain on increasing labor productivity thanks to better housing, nutrition and education opportunities for workers. It is no coincidence that increasing wages improve mental performance and self-discipline as well (Wolfers & Zilinsky, 2015).

As for the companies, a main mechanism for adapting to increasing wages is to improve management and production processes and bring forward new investments. What is more: the often extremely large costs of fluctuation and that of recruiting workers may also be greatly reduced. And finally, the most important aspect: the increase of wages result in greater capacity utilization on the supply side, which results in growing capital stock in the economy (Palley, 2017). Could the Kaldor-paradox imply that most of the examined countries are wage-led (or demand-led) economies?

Several empirical results validate that export-competitiveness is nothing to do with depressed labor costs. Fagerberg (1988) analyzed 15 OECD countries between 1961 and 1983 – more thoroughly than this article does – and found the same results. He states that technological and capacity factors are the primary determinants of export competitiveness instead of prices. Fagerberg (1988) argues that the Japanese export successes are due to technology, capacity, and investments while the US and the UK lost market shares because they allocated resources from investing into production capabilities towards the military.

Storm and Nasteepad (2014) argues that the German recovery from the crisis is not primarily due to depressed wages but to corporatist economic policy, the key reason which focuses shared attention of capital, labor and government towards the development of industry and technology. As for Central-Europe, the case is the same: Bierut and Kuziemska-Pawlak (2016) finds that the doubling of Central-European export share is due to technology and institutions, and not due the cost of labor. In fact, unprecedented wage growth and dynamic export increases go hand in hand in many Central European countries nowadays.

And if we consider the new approach to competitiveness by Harvard-researchers then we come to the conclusion that economic complexity instead of wages is the key driver of future economic and export growth. Their competitiveness ranking seems much different from the traditional measure of the World Economic Forum, having the Czech Republic, Slovenia, Hungary and the Slovak Republic among the first 15 countries in the world. This shows that peripheric countries of the developed West may become deeply embedded in global value chains, becoming more and more organically complex and this complexity of their economic ecosystem has the potential for future growth – even despite forty years of communism.

This evidence shows that policymakers should be careful and conscious. Economic relationships or the adequate economic policy approaches may change faster than we think. Economies are just like children: they grow up so fast that we hardly notice it. That is what the stickiness of theories is about.

 

About the authors:

Daniel Olah is an Economics editor, writer and PhD student.

Viktor Varpalotai is the Deputy Head of Macroeconomic Policy Department at the Ministry of Finance, Hungary.

Neoliberalism in Action

Book Review: Democracy in Chains: The Deep History of The Radical Right’s Stealth Plan for America

How did a network of libertarian influencers mobilize ideas and resources to restructure American society to reflect their radical “free market” perspectives? In her recent book, Democracy in Chains: The Deep History of The Radical Right’s Stealth Plan for America, historian Nancy MacLean strives to provide an answer to this question.

MacLean views the radical right as a group of “true believers” in freedom, an idea they associate with market freedom, aiming to remove public services and replace them with privatized schools and prisons that respond the market, not voters within a democracy. In doing so, MacLean argues that the radical right will eventually reduce freedom for the majority while privileging the propertied minority. The more power the propertied minority has, the less democratic society becomes. The ultimate target of the radical right, which has gained control of the modern Republican Party, is to change American society to privilege capitalism over democracy even more than it does now.

For libertarian economist James Buchanan, the market mechanism was the most efficient method of allocating resources, which he views as a form of democracy. Educated at the University of Chicago under Frank Knight and Milton Friedman, Buchanan played a significant role in the “stealth plan” of changing the rules of American society, not just people who make the rules. MacLean argues that Buchanan was radicalized at Chicago, where he earned a PhD in economics and learned the “science to support his existing “antigovernment feelings” (p. 36). Buchanan spent most of his teaching and research career in Virginia where he co-authored The Calculus of Consent: The Logical Foundations of Constitutional Democracy with Gordon Tullock.

In extending the market rationality to American politics, Buchanan and Tullock argued that politicians only pursued their own self-interest rather than any broad interests of society. Given that public institutions are led by officials that only pursue their own interests, public governance should be based on the principles of the market. They called this public choice theory, a framework that focused on non-economic decision making and served as a basis for awarding Buchanan the Nobel Prize in Economic Science in 1986. The Cato Institute, a libertarian think tank that was funded by billionaire Charles Koch, viewed The Calculus of Consent as a form of protection for capitalism against government, while MacLean argues that “[i]t might more aptly be depicted as protecting capitalism from democracy” (p. 81).

As a Nobel Laureate, Buchanan created an influential research program at George Mason University, which gained the attention of the Koch Network, which funded and later controlled Buchanan’s program, aiming to leveraged the legitimacy of economic theory to produce a society that was governed by the market, not by democracy. The “stealth plan” of this radical right was to mobilize ideas and resources to change the rules of American society to reflect its free-market perspective, not just who rules. To do so, they had to change the way the rules were rationalized. Buchanan’s public choice theory offered a way to re-conceptualize American law and politics.

On the surface, MacLean’s book offers a critique of libertarianism, although, it could perhaps better be understood as a critique of public choice theory—or neoclassical economics more generally—as a way of thinking and rationalizing society, which became dominant through powerful libertarian social and economic networks. By examining these nuanced power dynamics, MacLean offers a brilliant look at neoliberalism in action. She reveals the real-life experience of neoliberalism by showing us how and why the radical right extended the principles of the market rationality to areas outside conventional limits of the economy.

In her discussion of law and economics, a field of law that draws on the principles of economics, MacLean frames the entire field—rather than elements of it—as an attempt to undermine the broader public interest, while privileging the corporate language of profit, which uses cost-benefit analyses to make decisions. While MacLean makes a very persuasive argument, she overlooks the idea that cost-benefit analyses can be useful, depending on the context and purpose for which they are used.

Beyond this and other minor issues with MacLean’s book, such as her conspiratorial tone, Democracy in Chains offers an excellent look at the American political process and how seemingly marginal ideas, can become powerful enough to radically alter it.

About the Author: Johnny Fulfer received a B.S. in Economics and a B.S. in History from Eastern Oregon University. He is currently pursuing an M.A. in History at the University of South Florida and has an interest in political economy, the history of economic thought, intellectual and cultural history, and the history of the human sciences and their relation to the power in society.