The Self-Made Myth, Part II: The Built-Together Reality

Saturday, May 12th, 2012

(By NCrissie B)

This is the second of three posts looking at Brian Miller and Mike Lapham’s new book The Self-Made Myth. In the first post, I considered how the “self-made man” myth of the Horatio Alger stories morphed into the “makers vs. takers” meme of Ayn Rand and her followers. Today we see stories that illustrate what Miller and Lapham call “The Built-Together Reality.” In the third post, I conclude with how “The Build-Together Reality” calls for different policies to support innovation and entrepreneurship.

Brian Miller is the executive director of United for a Fair Economy. Over the past 20 years, Miller has worked to build cross-class alliances of citizens from all walks of life – business leaders, workers, family farmers, seniors, students, and others – to work together for change, promoting healthy communities and an economy that works for all Americans.
 Mike Lapham is the founding director of Responsible Wealth, a project of United for a Fair Economy. Responsible Wealth amplifies the voices of more than 700 progressive business leaders and other affluent individuals in public policy debates to promote progressive tax policy and greater corporate accountability in Congress, in the media, and in corporate boardrooms.

Peter Barnes – The Value of the Commons

Peter Barnes’ father was the son of immigrants. Like his father, Barnes attended New York City public schools before attending Harvard University. He worked in journalism for 15 years before opening “a socially responsible investment firm” called Working Assets. The firm began by offering credit cards and then telephone services, and is now Credo Mobile.

At one point, Barnes and his partners almost decided to make Working Assets a publicly-traded company. Although they decided to keep the firm private, simply exploring a public stock offering led Barnes to to a surprising discovery:

What we, the private shareholders, learned was that our business was worth a whole lot more as a public company than as a private company. What added this extra value? It wasn’t that we’d make more sales or profit – these numbers would be the same either way. The extra value came purely from the fact that our stock would be liquid – we could sell it to any Tom, Dick, or Harriet, any day of the week. According to our investment banker, liquidity alone would add 30 percent to the value of our stock.

It seems counter-intuitive that a publicly-traded company would be worth more – almost one-third more – than a privately-owned company with the same balance sheet. Yet it makes sense. Buying into a privately-owned company usually requires a large investment and a long-term commitment. If the company goes under, its owners will rarely be able to get even a portion of their money out. But anyone can buy into a publicly-owned company, often for only a few hundred or a few thousand dollars, and they can sell that stock the next day if they change their minds. More important, if they sense the company is failing, they can sell their stock and recoup at least some of their initial investment. That makes a publicly-traded company less risky, and more valuable, than if it were privately-owned.

Barnes’ own talent and hard work – nor even the combined talent and efforts of he and his partners – would not have added that value to his business. That 30% – another of the entrepreneurs Miller and Lapham interviewed estimated it as high as 50% of a publicly-traded company’s value – exists in what economists call the commons, resources and institutions that are shared by all. But the value of our financial markets is not merely liquidity.

Amy Domini – The Value of Regulation

Amy Domini’s mother was a public school teacher. Her father owned an eggplant processing plant in Connecticut. She wanted to work in the financial industry and, with the help of her grandfather, got a job as a clerk in a brokerage firm. There were almost no female brokers in the industry at the time, but Domini arrived early at work and for meetings, did more than was asked, and rose through the secretarial ranks. Finally she asked her boss if she could take the training to work as a broker, and to her surprise he agreed. She later learned that four women had just sued Merrill Lynch for gender discrimination, and realized that case may have colored her boss’ decision.

In the mid-70s, Domini explained, stock ideas came “over a squawk box from some smart person in New York,” and brokers would then pass them on to clients. But she noticed something as she made those calls: some clients were offended when she called to offer them stock in weapons manufacturers, or tobacco companies, or other activities that conflicted with their values. So Domini added a new question to her call script: “Is there something you don’t want me to talk about, something you have deep commitments to, or something you don’t want to be an investor in?”

To her amazement, almost everyone said “Yes.” Although their preferences differed, almost every client wanted to avoid some industry or another. She began developing and teaching classes in Ethical Investing, wrote a groundbreaking book on the topic, and eventually founded Domini Social Investments. She quickly recognized that her clients needed reliable information about the companies she began listing in her mutual fund, and found almost all of that available in the reams of disclosure forms required by federal regulations:

I could not have started my business without federally mandated disclosures. For instance, if I am trying to evaluate a company, I look to the company’s own reporting. [...]

How many people died in the workplace last year? That is federally mandated disclosure, so that is available to me in most cases. Are there any environmental liabilities? I look to the 10K, which must by law reveal this (although it is admittedly under-reported). Further, the Toxic Release Inventory [is a] federally mandated data source.[...]

Not only do my investors know that the product I offer has robust federal oversight, but the data I rely upon to create that product does as well.

The Value of Government

This transparency – a direct product of federally-regulated audits and filings – adds to the value of our financial markets. When people lose trust in that transparency, that value evaporates … as happened after the Enron scandal in 2001 and even more painfully in 2008 when the housing bubble exposed the risks of arcane derivatives.

Miller and Lapham offer several other stories of entrepreneurs who acknowledge the importance of other hard and soft infrastructure in the commons: roads, public schools and college financial aid, water and other utilities, food safety rules, intellectual property and contract laws, scientific research, and of course the internet. But I found the interviews of Barnes, Domini, and others who talked about regulation to be both the most surprising and the most compelling. Far from “strangling the economy,” as conservatives so often complain, effective regulations create much of the wealth in our economy. We can measure that by what happens when a privately-held company goes public, and by what happens when key regulations are repealed or not enforced and people lose confidence in our markets.

No individual can claim credit for that 30-50% of our nation’s wealth that exists in the Built-Together Reality of our regulated markets. As Warren Buffett said, “If you stick me down in the middle of Bangladesh or Peru, you’ll find out how much this talent is going to produce in the wrong kind of soil.”

Acknowledging that Built-Together Reality has dramatic policy implications, which I’ll discuss in my next post.


(Crossposted from Blogistan Polytechnic Institute (


A Tale of Two SOTU Speeches – Obama 2012 and Clinton 1996

Tuesday, January 24th, 2012

Suppose you are a Democratic President of the United States.  The voters sent you to the White House with a large electoral college victory and large Democratic majorities in the House and Senate.  Two years later, the voters rebuked your party in mid-term Congressional elections, creating a divided government in which Republicans control at least one house of Congress.  As President, you are now gearing up for your re-election campaign and are preparing to offer your State of the Union speech that is perhaps the best opportunity to frame the debate in re-election battle.   What would you do – triangulate or offer a progressive vision?

If you were President Clinton, the answer was to triangulate between the conservative Republicans and more progressive Democrats in Congress by offering a State of the Union speech filled with mostly conservative themes and small bore ideas.  President Clinton offered a few progressive proposals, such as raising the minimum wage, ratifying the START II anti-nuclear proliferation treaty, and protecting Medicare and Medicaid.  But the overarching theme of the speech was that “the era of big government is over,” which Clinton said three times during the speech.  The three biggest proposals in the speech were balancing the budget, welfare reform, and cracking down on illegal immigration.  And the rest of the speech was filled with minor ideas like requiring V-chips in TV sets, school uniforms, and voucherizing job training programs.

President Clinton’s 1996 State of the Union speech was not horrible. But at a time of strong economic growth and low deficits, President Clinton had the opportunity to set forth a strongly progressive vision for reducing poverty, making health care more affordable, rebuilding our cities, improving the environment, and shoring up Medicare and Medicaid.  Instead, he decided to tack to the center, criticize government, and offer small bore proposals like V-chips and school uniforms. Some of the individual ideas may have been worthwhile, but President Clinton certainly did not offer the type of strong defense of progressive governance that we should expect by a Democratic President.

By contrast, President Obama’s 2012 State of the Union speech offered a far more progressive vision to launch his re-election campaign.  Sounding some of the same themes that were in his December 2011 speech in Osawatomie, Kansas, President Obama focused largely on economic fairness and how it can be achieved, starting by posing the following choice:

We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by.  Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.

After outlining how financial shenanigans and deregulation caused the economic collapse of 2008, President Obama noted that he would not go back to those failed policies:

But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.  No, we will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits.

Next, President Obama proposed to help stop jobs and tax revenues from going overseas by, among other things, proposing a basic minimum tax for multinational corporations:

First, if you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it.  That money should be used to cover moving expenses for companies like Master Lock that decide to bring jobs home. Second, no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.  From now on, every multinational company should have to pay a basic minimum tax.  And every penny should go towards lowering taxes for companies that choose to stay here and hire here.

Our President also reiterated his call for the DREAM Act and comprehensive immigration reform that helps law-abiding immigrants get on a path to citizenship:

Let’s also remember that hundreds of thousands of talented, hardworking students in this country face another challenge:  The fact that they aren’t yet American citizens.  Many were brought here as small children, are American through and through, yet they live every day with the threat of deportation.  Others came more recently, to study business and science and engineering, but as soon as they get their degree, we send them home to invent new products and create new jobs somewhere else.

That doesn’t make sense.. . . . We should be working on comprehensive immigration reform right now.   But if election-year politics keeps Congress from acting on a comprehensive plan, let’s at least agree to stop expelling responsible young people who want to staff our labs, start new businesses, and defend this country.  Send me a law that gives them the chance to earn their citizenship.  I will sign it right away.

Pushing back on the largely baseless conservative attacks about government loans for the Solyndra solar company, Obama next offered a defense of renewable energy investments and called for paying them by eliminating tax breaks for the oil industry:

I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.  We have subsidized oil companies for a century.  That’s long enough.  It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising.   Pass clean energy tax credits and create these jobs.

Noting the significant amount of spending we are avoiding by ending the war in Iraq and gradually winding down the war in Afghanistan, the President proposed to use half of that money to invest in infrastructure here in the US:

Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.

President Obama then offered a lengthy defense of smart federal regulations and calling for an increased enforcement effort against abusive financial practices:

We’ve all paid the price for lenders who sold mortgages to people who couldn’t afford them, and buyers who knew they couldn’t afford them.  That’s why we need smart regulations to prevent irresponsible behavior.  Rules to prevent financial fraud, or toxic dumping, or faulty medical devices, don’t destroy the free market.  They make the free market work better.

There is no question that some regulations are outdated, unnecessary, or too costly.  In fact, I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his.  I’ve ordered every federal agency to eliminate rules that don’t make sense.  We’ve already announced over 500 reforms, and just a fraction of them will save business and citizens more than $10 billion over the next five years.  We got rid of one rule from 40 years ago that could have forced some dairy farmers to spend $10,000 a year proving that they could contain a spill – because milk was somehow classified as an oil.  With a rule like that, I guess it was worth crying over spilled milk.

I’m confident a farmer can contain a milk spill without a federal agency looking over his shoulder.  But I will not back down from making sure an oil company can contain the kind of oil spill we saw in the Gulf two years ago.  I will not back down from protecting our kids from mercury pollution, or making sure that our food is safe and our water is clean.  I will not go back to the days when health insurance companies had unchecked power to cancel your policy, deny you coverage, or charge women differently from men.

And I will not go back to the days when Wall Street was allowed to play by its own set of rules.  The new rules we passed restore what should be any financial system’s core purpose:  Getting funding to entrepreneurs with the best ideas, and getting loans to responsible families who want to buy a home, start a business, or send a kid to college.

So if you’re a big bank or financial institution, you are no longer allowed to make risky bets with your customers’ deposits.  You’re required to write out a “living will” that details exactly how you’ll pay the bills if you fail – because the rest of us aren’t bailing you out ever again.  And if you’re a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can’t afford with confusing forms and deceptive practices are over.  Today, American consumers finally have a watchdog in Richard Cordray with one job: To look out for them.

We will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments.  Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender.  That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing.  So pass legislation that makes the penalties for fraud count.

And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.

Finally, President Obama called for the wealthy to begin paying their fair share again by ending the Bush tax cuts for the wealthy and instituting a Buffett Rule that ensures that millionaires pay a tax rate of at least 30%.  While Obama’s accompanying proposal to rein in the long term costs of Medicare and Medicaid could create some peril, it is important to keep in mind that we can and should rein in such costs by rationalizing health care spending rather than by cutting benefits:

I’m prepared to make more reforms that rein in the long term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.

But in return, we need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes.  Tax reform should follow the Buffett rule:  If you make more than $1 million a year, you should not pay less than 30 percent in taxes.  And my Republican friend Tom Coburn is right:  Washington should stop subsidizing millionaires.  In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions.  On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn’t go up.  You’re the ones struggling with rising costs and stagnant wages.  You’re the ones who need relief.

Now, you can call this class warfare all you want.  But asking a billionaire to pay at least as much as his secretary in taxes?  Most Americans would call that common sense.

President Obama’s speech did include a few conservative ideas that we aren’t excited by such as opening up more than 75% of our potential offshore oil and gas areas to drilling.  But the clear focus of President Obama’s speech was an aggressive presentation of a progressive vision of economic fairness, smart regulations, the wealthy paying their fair share, clean energy development, immigration, and infrastructure investment.  The contrast with President Clinton’s 1996 triangulation could hardly be clearer.

While President Obama’s speech provides us progressives with an opportunity, it also presents a risk.  Clinton’s triangulation was harmful to the progressive cause as a matter of policy, but it succeeded in what it was intended to do – get President Clinton re-elected. With President Obama taking a far more progressive approach in a fairly similar political situation, we progressives must do what we can to make sure that Obama is re-elected with a Democratic Congress (and then hold their feet to the fire in 2013) so that we can show that the progressive vision is a better approach not only as a matter of policy but also as a matter of politics.

To do your part, write a letter to your local newspaper editor in support of the proposed Buffett Rule and sign up to volunteer for Obama’s re-election campaign.

Where the Tea Party Has Taken Us…

Friday, September 30th, 2011

(By Bruce Schmiechen, cross-posted at The Titanic Sails at Dawn)

It’s not likely we’ll ever again have the opportunity to use a news item from the Oil And Gas Financial Journal, but here’s their piece on Kentucky’s Tea Party Senator, Rand Paul, and his fight to end government regulation of business:

Republican Senator Rand Paul of Kentucky is single-handedly blocking federal legislation on pipeline safety that the pipeline industry overwhelmingly supports. Paul says he opposes the regulation on “philosophical grounds.” He was elected to the Senate in 2010 with Tea Party support, and Paul and that group are committed to reducing government regulations and “downsizing” the federal government.

Paul is the lone member of the US Senate who opposes a bill that would strengthen safety rules for oil and gas pipelines, a measure that some of the largest trade associations in the pipeline industry, including the Interstate Natural Gas Association of America (INGAA), the American Gas Association (AGA), and the Association of Oil Pipelines, support.

The bill has managed to gain the support of 99 members of the Senate, including Senate Minority Leader Mitch McConnell, who also represents Paul’s home state of Kentucky. The only dissenter is Paul, who like his father and fellow libertarian, US Rep. Ron Paul (R-Texas), has long opposed federal regulation of private businesses. Paul even opposes safety regulations for coal mines and says they should manage their own safety requirements.

A deadly gas pipeline explosion near San Francisco last year [pictured above], along with various other incidents, has created a rare consensus in Congress among Republicans and Democrats that current federal regulations need to be strengthened. The Senate Commerce, Science and Transportation Committee approved the bill in May without opposition.

Responding to criticism, Paul commented that if companies don’t make good rules to protect their people, no one will apply for those jobs.

We have the Tea Party and it’s anti-government hysteria to thank for the election of Rand Paul who proclaimed upon his victory, “There’s a Tea Party tidal wave and we’re sending a message…”  He’s merely applying the Tea Party fringe’s viscerally anti-government logic in a “consistent” and “principled” way – “Get the government off of our backs.”  Paul is also notorious for opposing the Civil Rights Act as intrusive of private business in outlawing racial discrimination.

Ironically, this anti-regulation fervor is a bridge too far even for the oil and gas industry itself. Thanks to a tiny-but-vocal minority of people in funny hats carrying crazy signs calling for return to an imagined past, an empowered crackpot is “single-handedly blocking” legislation to increase public safety in a critical area.  Hopefully Rand Paul’s demonstrable craziness and lack of even the most minimal sense of responsibility as a legislator will be a wake-up call to Kentucky voters and this Tea Party crank won’t be rewarded with a second term for his weird “principles.”

GOP’s Misguided War Against the Life-Saving U.S. EPA

Friday, August 19th, 2011

As the New York Times reported yesterday, virtually every Republican Presidential candidate has taken to attacking the U.S. Environmental Protection Agency (“EPA”) as a purported example of government  excess.  According to the Times:

Representative Michele Bachmann of Minnesota wants to padlock the E.P.A.’s doors, as does former Speaker Newt Gingrich. Gov. Rick Perry of Texas wants to impose an immediate moratorium on environmental regulation.

Representative Ron Paul of Texas wants environmental disputes settled by the states or the courts. Herman Cain, a businessman, wants to put many environmental regulations in the hands of an independent commission that includes oil and gas executives. Jon M. Huntsman Jr., the former Utah governor, thinks most new environmental regulations should be shelved until the economy improves.

Only Mitt Romney, the former Massachusetts governor, has a kind word for the E.P.A., and that is qualified by his opposition to proposed regulation of carbon dioxide and other gases that contribute to global warming.

Bachmann may be the most radical of the bunch on this issue, as she was quoted recently as having the following to say about how she would treat the EPA if, god forbid, she became President:

I guarantee you the E.P.A. will have doors locked and lights turned off, and they will only be about conservation. It will be a new day and a new sheriff in Washington, D.C.

While this kind of red meat rhetoric might work well among GOP primary voters and the conservative media, these attacks are nonsensical as the EPA and the environmental regulations it enforces provide massive economic and public health benefits to our country that far outweigh the costs of complying with those regulations.

There have been at least two major analyses released this year that show just how beneficial the EPA is to our society.  First, in its 2011 annual report to Congress regarding the benefits and costs to society of regulation, the Office of Management and Budget found that the EPA provided by far the largest economic benefit of any regulatory agency.  In particular, environmental regulations established between 2000 and 2010 are estimated to have cost $23.3 to $28.5 billion to comply, but to provide $81.8 to $550.7 billion in economic and public health benefits to society.  In other words, the benefits of EPA work outweighed the costs by a margin of between three and twenty to one.

The EPA reached a similar conclusion in a recent report evaluating the benefits and costs of the 1990 Amendments to the Clean Air Act.  That report found that:

* Total annual costs to comply with the law were $20 billion in 2000, $53 billion in 2010, and $65 billion in 2020

* Total number of premature deaths avoided per year was 110,000 in 2000 and 160,000 in 2010, and will be 230,000 in 2020

* Total economic value of the law (including value of avoiding premature deaths and non-fatal health impacts, increased visibility, and reduced impacts on agriculture and forestry) were $750 billion in 2000, $1.2 trillion in 2010, and $1.9 trillion in 2020.

* Over the 30 year period of 1990 to 2020, the 1990 Amendments to the Clean Air Act are expected to save a total of 4.2 million lives, with an economic benefit that outweighs costs by approximately 30 to 1.

As we’ve reported here previously, EPA is in the process of finalizing additional environmental standards that are projected to save tens of thousands additional lives at a cost that is far outweighed by those benefits.  Predictably, Republican Presidential candidates and Congressional members are launching attacks on EPA against those beneficial rules.

In order to keep reaping the significant public health and economic benefits of common sense environmental regulations, we need to fight back against the anti-EPA rantings of the GOP Presidential candidates.  Help do so by writing a letter to your local newspaper editor and contacting your Congressperson and Senators to make the following points:

* EPA’s common sense environmental regulations have provided society with between three and thirty dollars in economic benefits for every one dollar in costs

* More can and should be done to reduce the tens of thousands of premature deaths caused by air pollution and other environmental hazards every year

* U.S. EPA scientists and experts should be allowed to do their job of protecting public health without outside meddling from Congress