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Thursday, July 28, 2016

Economic, Democratic Subsidiarity and local democracy

Greece in 2015, Puerto Rico Now, What to do?

Almost a year ago I blogged a series on the Eurozone and what was happening to the Greeks and what that means for us:

"The privateers give a Broadside to the Greeks",
Privateering through Banks and the EuroZone and
Going Greek on the Whole World
And I showed that neo-liberalism is not Bill Clinton, us Democrats and Company. It is our Republican movement:
Neoliberalism versus Economic Policy that Really works

We liberals have been influenced by Neo-liberal ideas because from the 1940s to the present there have been powerful interests selling them to us, pushing them on academia, and starting in the 80s controlling the economics profession and its main organs. I've talked about this James Galbraith has talked about this. For him it was personal. His father was laughed into undeserved obscurity before he died, but had the last laugh with his book "Innocent Fraud" (see post "Not so Innocent Fraud") which demonstrated the bankruptcy of neoliberal ideas -- before the implosion of the Great Recession in 2008. Neoliberal ideas got their currency because the folks who push these ideas have money, power and prestige, not because they make any sense. They were a con, but most of us didn't know it, including many politicians who went along with the ideas thinking they'd actually work as promised. We were victims of the kind of con men depicted in the story "The Emperor's New Clothes." (see post)

Neoliberalism is an outgrowth of Neo-Colonialism

You could fairly predict what was going to happen to Puerto Rico this year by what has happened to Greece. Neo liberal ideology is also baked into our government and it's relationship to the people. The GOP may be its primary avatars but we've been dealing with it since the 1600s. We have a privateering banking system that loans the people's money back to them at interest while our central bank gives the bankers it interest free. At one time bankers controlled the supply of silver and gold and made their loans based on their ability to print notes backed by silver and gold. These bankers and merchants had power world wide because countries had no power over their own money supply. A money supply that printed copper coins could find it could not get foreign exchange. The terrorist idea that foreign debt is sacred and that "free trade means you must pay your debts or else" goes back to our own country's early days. It was the nightmare of Alexander Hamilton and why he wanted to establish a national bank, issue Federal notes, monetize State and Federal Debt -- and ensure we paid our bills to countries like the Netherlands and the Germans in Gold or Silver. International debt has been the "switch" of the free trade bait and switch since the middle ages.

The Driver of Neo-liberalism is International Debt

It also was the driver in the transition from classical colonialism to neo-colonialism. In the days of President Thomas Jefferson debt was the tool by which Haiti was reconquered by the West and reduced to abject poverty. The European world's relationship with revolutionary Haiti in the 1790s (see: involved forced debt. They forced Haiti to re-enslave their own people in order to pay reparations to the slavers and slave bankers who they had just freed themselves from. It was the theme sixty years later when Emperor Maximilian invaded Mexico in 1861 because Mexico couldn't pay its neo-colonial bills. The French cynically justified their conquest in the name of "free Trade."

"In 1861, the liberal Mexican Benito Juarez became president of a country in financial ruin, and he was forced to default on his debts to European governments. In response, France, Britain, and Spain sent naval forces to Veracruz to demand reimbursement. Britain and Spain negotiated with Mexico and withdrew, but France, ruled by Napoleon III, decided to use the opportunity to carve a dependent empire out of Mexican territory. Late in 1861, a well-armed French fleet stormed Veracruz, landing a large French force and driving President Juarez and his government into retreat."

That the French did this stupidity is probably part of the reason the South never got the military aid they needed to destroy the Union. But that is a digression. The French invaded Mexico in the name of "free enterprise" and that would be the excuse for nearly 100 years of second generation colonialism in Africa, the Middle and Far East. At the same time the South's inability to control it's currency and economy did more to do in the Confederacy than McClellan and Abraham's lincoln's own feckless Generals. Secretary of the Treasury, and later Chief Justice of the Supreme Court, Samuel Chase was able to secure the North's economic might with an unchallenge-able paper currency, still known as a Greenback. And that allowed more able and ruthless Northern Generals like Sherman and Grant to finish off the Confederacy. A country that cannot control it's own currency and exchange with other countries, cannot survive. And the USA was, because it finally got control over it's own currency and exchange, was able to dominate the world because of it.

So while Debt slavery predates and post dates black slavery and is the energy behind both neo-colonialism and current economic inequality and inequity, control of one's own currency and trade exchange is also the answer to both the problem of neo-colonialism and debt slavery. The USA reigned in it's oligarchs, in the early 20th century, not with guillotines or property seizures, but with fair taxation, taxation of unearned income and taxation of unearned wealth through inheritance taxes. The cure for economic neo-colonialism and neo-liberalism -- is real FDR liberalism. The cure for bad government is good government. And the cure for our bad banking system is to take our current money creation and trade system out of the hands of Sea Dogs modeled on J.P. Morgan and Henry Morgan and to put it in the hands of the people. [see Justice and Oligarchs]

Pirates and Economic Instability

While I may have contributed to the cynicism of some progressives with my talk about the age of our pirate based economic traditions. That discussion also points to the answer. If pirates like J.P. Morgan look back on their pirate ancestors like Henry Morgan with Nostalgia, it's because technically Henry Morgan was a privateer. Private war and looting was perfectly legal as long as there was a war. And to the sea dogs who became pirates and privateers, the distinction between the two behaviors was whether one would get prosecuted if one got caught. There was always a thin line. And sea captains were the energy behind "free trade" because much of it was free-booting from the beginning. To the Spaniards and Portuguese, almost all English and Dutch ship captains were criminals because they were smuggling goods, slaves, and robbing their ships in controvention to their laws. When the East India company operated in India and China, most of it's activities were in the pirate tradition. We fought the Opium wars alongside the Brits to force the Chinese to buy Opium!!!

Neo-liberalism ideology has a pedigree that dates back to the dark ages, to our piratical European tradition and colonialism. And of course since nearly everyone claiming a noble pedigree got there through ancestral theft, war, usurpation and/or conquest as a thief or murderer, what we did to most of the world was rehearsed by our ancestors on our ancestors. The Germans who rampaged their way across Europe followed Romans who had rampaged their way across Europe and ages of people doing the same thing world-wide.

The ideas were pure piracy, and when enshrined in law; usurpation and privateering. Privateering is just legal piracy, and the consequence of letting the pirates write the laws. Neo-liberalism has been a fraud from the beginning. But they could not come out and sell you air. They had to sell it as fine clothe with magical properties as I mentioned earlier See "The Emperor's New Clothes." ). Con men on both the left and the right like to sell invisible cloth. They'd rather sell you unicorns than give you six acres and a mule. So they'd spin a long narrative of conspiracies and utopias and pretend to be spinning a future out of thin air. When someone is selling fine clothe that only a fool can't see, and it doesn't seem to be much, they are conning you. Don't walk down the street naked. Take some lotion for that bern! But the answers have been available all along. We just need to listen to them, evaluate which ones have worked in the past and why (or why not) and apply them in updated form.

The Alternative to Neoliberalism is the Real (new) Deal!

There is an alternative to neo-liberalism. Neither neo-liberalism nor its more progressive alternatives are new. They've been around in one form or another for centuries. Some of the alternatives were only theoretical at one time. But they've been around for years too. And when applied they worked!

The key to the answer comes from analyzing what Joseph Stiglitz noted last year about Greece's deficit:

"The real deficit in Europe, said Stiglitz, is a “democratic deficit.”"[Senate]

The reason this deficit exists is that the State and Nation-State system is already too centralized to provide the properties of commonwealth or to properly represent people under principles of Democratic Republicanism. Small Countries like Greece don't have the power to control their own monetary system. Don't have the correct checks and balances to ensure that debt is backed by production and that those with power have proper accountability. Democratic Republicanism depends on people being accountable for their actions. If the banks can loan money recklessly and officers can borrow recklessly, that is reckless government. Moreover, countries should have the power to issue notes as money and retire those notes as taxes are paid and orders are delivered. A Centralized government can be republican, can be a commonwealth -- only through the principles of just representation. To ensure democracy, you have to ensure that the subdivisions of a country have sufficient independence of financial resources and self rule to be governed by the local people. After all the people who know best what is going on are the ones who should be in charge. And in most cases that is the people closest to the project or program, and that is usually the locals. Democracy, or people rule, can be successful locally.

The principle of Democratic subsidiarity, is that locals should be responsible for delivery and local functions, have a right to participate and be held accountable for their participation in a general government. Elinor Ostrom wrote extensively about the importance of setting up frameworks and rules so that local people can well govern their own local systems. A Federation can only succeed in having the attributes of democracy if its subdivisions do. And that only works if the most local subdivisions (neighborhoods, workplaces, homes) have the attributes of self rule/democracy. I talk about Federalism and subsidiarity in this post: [Principles of Federalism] And Stiglitz notes that localities that get into trouble financially should have access to equitable courts:

“A major global problem, Stiglitz observed, is a lack of bankruptcy laws that apply to countries — no legal framework for putting them on a sustainable path. This situation has enabled big, powerful countries like the United States and Germany to bully smaller countries into accepting economic policies that may be detrimental to their societies.” [Senate]

Dokimasia δοκιμασία; Vetting/Testing

The other problem is that we need structures that will perform what the Greeks called Dokimasia and Euthenia. Dokimasia means that local governments should have access to investment at non-interest (through notes (paper currency)) when a project is initiated after the project has been vetted for worthwhilness and practicality. The principle of subsidiarity means also that while local folks have specific knowledge that should let them make the best and wisest decisions. It also means that central authorities who usually have more abstract wisdom and general experience, should have a role in keeping an eye on them. A modern version of Dokimasia can ensure that local officials don't act like Boss Hogg.

Settling Accounts: euthune, normally pl. euthunai · Lit. “the action of setting straight.”

Officers who handle money should be vetted and bonded. And when the projects and their term of office is complete they should be subject to an accounting review (Euthenia) and nobody should be getting bonuses who has bilked his customers or converted public money. Jury Like structures should be responsible for doing these things. This is one of the smart things ancient Athens did. In our modern world it is also important to prevent government officials from committing legal theft.


To have genuine democratic economic subsidiarity you have to have both local power and general power, and an intelligent allocation of who is responsible for what -- with checks and balances ensuring that everyone is checked, balances and has the authority and responsibility to do his/her job. It takes vetting to say that a project is beneficial to a locality or to the system. But once that is determined any project that is beneficial to the whole country (or world if we ever scale it) is a project of the United States and worth funding. The other side of that argument is that when local government has a guaranteed source of income no private persons should be allowed to turn that into permanent rent opportunities. The opposite of Democratic Subsidiarity is privateering, which in its essence is the commandeering of revenue sources for personal wealth. Currently we let the wealthy commandeer our money supply and issue it at interest, thus stealing payrolls and tax receipts alike. This has been a twofer swindle as it gets advertised as public debt and "deficits."

More to come

Now, James Galbraith, Joseph Stiglitz, Robert Reich and a whole new generation of economists are now able to come out of the closet because neo-liberal, libertarian and other 'conservative' principles were revealed as cons. This post is based on a meeting that Bernie had on Greece a year ago, and material I've been working on since then. It is also based on a lot of debates and reading of various people with ideas that are good in the abstract but not practical, and also based on after action analysis of sometimes half baked but pragmatic ideas. One can learn from failure too.

My Chartalist friends are on the right track, but the Solution has to balance principles or it won't work. Moreover Chartalism usually doesn't offer any insights on relations between states. Economic subsidiarity offers some suggestions on who to use a general/global money system to keep accounts and balance centralization. I believe that democratic subsidiarity is an answer to centralization. I believe that if a bank wants to have 500 branches -- each branch has to have its own independent purpose or they might as well be teller machines. Economic subsidiarity principles suggest that the treasury should have a presence in every town and neighborhood -- as Hamilton envisioned. My socialist friends sometimes have their hearts in the right place -- but as long as we need officers socialism is always a fiction. Democracy, direct democracy, is possible locally. More to come.

Post Script: Greece And Puerto Rico

Last year the European Union was picking on Greece. But even then there was a warning out that Puerto Rico would be next. This year we are picking on Puerto Rico. Last year Joseph Stiglitz noted that:

"the ability [of the European Bank] to deny liquidity to the banking systems of nations, and, in so doing to crash their banking systems, undermine their governments, and perform, essentially, coups d'etat rendering elected governments of democratic nation states powerless to enact policies they were elected to pass."

The Centralization that created the European Union denied local government the ability to deal with it's own financial issues or control it's own destiny. Economic centralization over-ruled the right to self rule of at least some of the countries in the Union. Basic instruments of just and equitable economic governance thus came to be denied.

Stiglitz and the others who convened on Greece didn't really have a clear solution. But He concluded:

Puerto Rico in 2016

When I started this article last year it was part of a series of articles culminating in one that was a review of a book by Joseph M Firestone:

"Austerity, Greece’s Debt Crisis, and the Death of Democracy: A Book about Greece and Much More" by Joseph M Firestone [See My Post]

That book in turn was based on a conference that Bernie convened on Greece in July 2015 [Senate] where Bernie assembled a panel of people who talked about the problem and potential solutions then. I wasn't satisfied with their reports but it was a lot of material to wade through.

The headlines were designed for clickbait, but the subject isn't that much of an exaggeration. The current system favors economic elites, but more importantly is unstable, unfair and harms most of the people worldwide. I was interested in diagnosing the problem and since then I've made some progress on that.

86.17 billion PPP dollars (2013)! (Puerto Rico's debt)

Signs are everywhere that the government’s finances are freezing up: The territory’s agriculture department has suspended subsidies to farmers. The treasury has withheld tax refunds. Many suppliers, unpaid and unwilling to extend commercial credit, now demand to be paid on delivery by a government that owes them a total of $2 billion. Building contractor Ariel Ferdman said that one government agency owes his company more than $1 million and that he received two large checks — for a total of $164,030 — from the Government Development Bank (GDB) that bounced.

“We’re businesses trying to get the economy moving, and we’re not able to do it,” Ferdman said. “The government doesn’t pay debts to us, let alone bondholders. The government owes billions to contractors. That’s killing us in the economy. We’re choked. I owe some of that money to others. There’s a chain that goes down. It’s a mess.”

Puerto Rico and Greece both got in trouble because they borrowed money that didn't generate an income stream (profits) to pay itself back. In both cases that was caused on the debit side by conversion of the funds. But on the credit side it was caused by excessive debt load. The perversity of our system is that when a state can't pay back a debt, the banks double down with higher interest rates and penalties. This suggests that we need a system with accounting credits but not easy privateering.

Further Readings and Sources

Sources and further reading:
"The privateers give a Broadside to the Greeks",
Privateering through Banks and the EuroZone and
Going Greek on the Whole World
And I showed that neo-liberalism is not Bill Clinton, us Democrats and Company. It is our Republican movement:
Neoliberalism versus Economic Policy that Really works
Emperor Maximillian and Mexico
Washington Post Article on Puerto Rico:
Senate Hearing July 30 2015:
Principles of Effective Federalism:

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