U. S. Supreme Court
U. S. Supreme Court




In the past few days since President Obama stated that he would use “empathy” as one criterion for selecting a candidate for the U. S. Supreme Court, negative responses have flooded the media.

            President Obama talking in press conference about selecting a Supreme Court Justice gave his criteria as: sharp and independent mind; honors the constitution; respects the judicial process; and holds the judicial values upon which the country was founded. Then he mentioned an additional consideration: empathy.

            Almost immediately political pundits on television screamed: “empathy is a codeword for social engineering.” Senator Orin Hatch said empathy is a codeword for “activist judge.” And Fox’s Laura Ingraham  even said “Empathy is a loopy qualification for a Supreme Court judge.”

            Comedians Colbert and Stewart gave the most penetrating perspective about the controversy on all of television this past week.      Stephen Colbert deduced from all the television verbiage that empathy must be code for “drug-addled evolutionist with swine flu.” And Jon Stewart on the Daily Show in essence concluded that loopy, conservative pundits wore hearing aids that only said “abortion, abortion, abortion” whenever Obama spoke about judicial appointments.

            Blogs and newspaper opinion pieces, at the rate of about 10 to 1, have dumped on empathy as an acceptable characteristic for a Supreme Court judge. Just like television, conservative politicians ridiculed the President in writing, claiming that empathy is a mere codeword for pro-choice and anti-guns. Writer after writer parroted the claim that empathy is the polar opposite of fairness and the rule of law.

            Nothing could be further from the truth.

            Look up empathy in the dictionary and you will find it defined as simply the awareness of the feeling and situation of others. In essence, it is “putting yourself in another’s shoes.”


An Empathic Community
An Empathic Community



Isn’t it reasonable to expect anyone making decisions that affect other people to use empathy as well as reason and law in their decision-making? Of course, it is what makes us human. Making friends and building community are not possible without empathy.

            If people don’t use empathy in their dealings with other people, we call them psychopathic, severely retarded, autistic, or in some other way impaired. Are those the kind of people the nation wants on the highest judicial bench in the land?

             Some opponents of empathy in the Court fear that fairness would be sacrificed because special interests (for example, the poor and oppressed) would be served. But empathy is like freedom, a fundamental value in its own right. Both freedom and empathy can be applied in the extreme. Valuing freedom to an excess might lead a judge to free all prisoners. By the same (politically conservative) logic, we should then not appoint a judge who believes in freedom.

            From our judges, no matter how high or lowly their position, we should expect not only great skill in interpreting constitutional law, but deep caring about both sides in a trial. We should expect not just deep respect for the original intentions of the law, but a thorough understanding of contemporary society.

            Every great spiritual leader has promoted empathy and compassion. Jesus Christ devoted his entire life to promoting his philosophy that conforming to the letter of the law was not nearly as important as “loving your neighbor as yourself,” “loving your enemies,” and “if anyone forces you to go a mile, go with him two miles.” The essence of the foundation of Christianity is empathy, compassion, and altruism. Without the reformation of empathy started by Jesus Christ, our judges might today still sentence an unfaithful wife to death by stoning.
            The rhetoric of those with antipathy toward empathy, when analyzed carefully, reveals a false dichotomy over the ideal of impartiality and the ideal of empathy for the disadvantaged. Empathy antagonists admit that pure impartiality is not attainable but striving for it is the ultimate attribute.

            This blind justice argument reveals “black and white” thinking. One flaw in their presumption is that there is always one right answer. The second flaw is that by blind folding our judges, we keep them from observing reality.

Blind Justice
Blind Justice







            If our chief justices are blindfolded, how can they see things like the fourth branch of government, the lobbying sector? This fourth branch, with budgets in the billions of dollars, writes legislation, shapes public opinion, and pressures every other branch of government. Read John Gresham’s The Appeal for a glimpse of how money and power buys not only influence but also actual judges. Yes, it is fiction but based upon actual situations. The authors of the constitution never envisioned this fourth branch. Robert Kaiser of the Washington Post in his 2009 book, So Damn Much Money, calls it the “The Scandal of our Time.” Shouldn’t our courts keep this extremely powerful force from undermining equal justice for all?

            The sad consequence of bashing empathy is that American children will learn that empathy is bad. They already learn to minimize empathy by competing in sports and electronic war games. If they also hear from America’s leaders and pulpits that empathy should be shunned, the fabric of American society will fray, perhaps irreparably.

            From the very beginning, this nation depended upon empathy and community as neighbors chipped in to build a newcomer’s house.  Without empathy, the American character erodes to self-centered insensitivity to others and their plight.

            People should debate Obama’s choices to the Supreme Court, but they should not blindfold themselves to the harm they create by debunking empathy.


Hoards of pundits and experts argue over what to call our current recession, which began as a crisis in finance. Arguments will continue because whether the recession is really a depression, cannot be determined until more time has passed.

            When I first heard our current recession referred to as “Great Depression II” and “GP II,” I thought “How apt but unacceptable.”  But today when I Goggled the phrase (in quotes), 56,000 hits appeared. Not surprisingly, the term “recession” appears 100 times more often. I will use the term recession and “deep recession“ even though history may eventually call it “Great Depression II.”

The typical comments on the web about the effects of the recession can best be described as stories of stress, pain, fear and suffering. Their missives are social tragedies because they are stories of parents struggling to find food for hungry children and of breadwinners getting laid off. They are stories of the inability to pay for medical treatment, which lays the pathway to early death, just like the third world.

            Early Americans believed that pain, hunger, and suffering lead to strong character and close communities. But now contemporary Americans seem to view “suffering” as eating at home rather than going out; or as taking a vacation by car instead of jetting to the Caribbean.  

time-the-new-frugality-cover_resize            Time Magazine splashed “The New Frugality” as its cover story this week. The story claimed that the “Great Recession” is transforming how we spend, whom we trust, where we save and what we really value.” Time had just conducted a scientific, nationwide survey that found half of the public admitting to feeling hardship in general. Nearly a quarter had been unemployed not by choice. And, of course, we are spending less, at least on the nonessentials.


         The most remarkable finding by the Time survey was that nearly two thirds “predict they’ll continue to spend less than they did before.” Even people earning more than $100,000 a year were talking about how they spent less, especially on luxury items.

            On the basis of all of these types of findings, journalists tend to claim that the recession is affecting everyone. The truth is that the lifestyles of the super-wealthy remain basically unchanged, while the middle and poverty classes are struggling with day to day subsistence.

New national survey findings by the Pew Research Center Trends project were released as Luxury or Necessity? The Public Makes a U-Turn.  Here is a synopsis of their discovery about how American adults are adapting to the economic depression:

·         Over the past few decades, Americans have been increasingly viewing all home appliances as necessities rather than luxuries. All of a sudden in the past 4 months that trend has reversed. Now we are less likely to view microwaves, home air conditioning, dishwashers, and clothes dryers as necessities. Already in 4 months these appliances have lost 10 years worth of growth in their perception as necessities.

·         Eight-in-ten adults have taken specific steps of one kind or another to economize during these bad times. Almost six-in-ten say they are shopping more in discount stores or are passing up name brands in favor of less expensive varieties

·         One-in-five adults say they are following the example of first lady Michelle Obama and are making plans to plant a vegetable garden to save money on food

·         Consumer reaction to the recession is being driven by specific personal economic hardships as well as by a more pervasive new creed of thrift that has taken hold both among those who’ve been personally affected and those who haven’t.

·         Nearly half say they or another household member has lost more than 20% in a retirement account or other investments.

·         About two-in-three American families have faced major economic problems such as loss of a job, major loss of investments, or trouble with mortgage payments in the past year.

·         Children, young adults, women and the less affluent are the most likely to have been troubled or to face tragedy.  


Taken as a whole these findings allow us to confirm that small shifts values have occurred within the American public, and perhaps around the world. That change consists of dropping or chipping away at materialistic, consumption values. high-price-of-materialism_resize

For those like Tim Kasser, author of The High Price of Materialism, this must be good news. Although the Pew survey’s discovered a drop in the perceived meaning and value of major consumer items, the small drop may be finicky rather than long lasting, and superficial rather than deep.

            Last month the Archbishop of Canterbury proclaimed that the recession had challenged the common belief that material possessions lead to contentment.  On Easter Sunday, he preached for voluntary limits on “human acquisitiveness and sexual appetite.” I don’t know how sex slipped into hissermon, but let’s not get into psychoanalysis.

            The important point he made is that contemporary society promotes harmful social values of excessive acquisition of a many nonessentials. These values have blinded us from observing the harm we do to the environment and our great insensitivity to the subsistence suffering of millions of people in American and around the world. This is a failing not just of Catholics, but also of people of every form of religion and non-religion.



            Have you noticed that people only give economic explanations for the current economic crisis? Well, actually a few people give non-economic explanations, like greed, for instance.

            Likewise, in trying to predict our economic future, have you noticed that mostly the arguments are grounded in economics, politics, and a little bit of psychology?

            Put on a lens of a sociologist or anthropologist for a few moments to see things a bit differently. Enter, Karen Ho, an anthropology professor at the U of M. Dr. Ho got a job on Wall Street in an investment bank for nearly a year in order to study the culture and organization of Wall Street, particularly with regard to dealing with financial crises.

            You can read some of her views in a Star Tribune interview, and a more in-depth analysis of her research in the academic journal, Cultural Anthropology (Vol. 20, #1, pp. 68-96, 2005). Or you can wait for her book to be published in July 2009.

            In her article, her interviews and public presentations, Karen Ho gives a compelling description of how Wall Street (the network of financial institutions) beginning about 1980, transformed and dominated American business by successfully campaigning for what she calls a “culture of liquidity,” by which she means organizational turnover and instability. A common tactic was takeover in order to liquidate a company’s assets. She concludes that Wall Street, with the control of capital, forced American businesses to continually restructure, downsize, outsource, and otherwise focus on short term planning, and the bottom line.

            Furthermore, Wall Street followed its own liquidity prescription for American business. In addition, Wall Street in its excitement took the primrose but deadly path of hedge funds, derivatives, securitizations, credit default swaps, and other elements of shadow banking.

            In her scenario, little by little the global economic system bought into the Wall Street model, seduced by the overvalued financial instruments and financial culture that appeared to be economic nirvana. Wall Street shadow banks marketed giant ponzi schemes and the remainder of the world didn’t want to lose out on the party.

            The tragedy of the culture of liquidity was the corporate sell off and neglect of organizational capital, human capital, research and development, and other resources with long-term value.

            Her view, and I subscribe to it, is that Wall Street has left us with a bankrupt financial sector and ailing manufacturing industries with greatly eroded capacity and value. Professor Karen Ho points out that companies like GM were the darling of Wall Street while they were downsizing, buying mortgage businesses, and designing bigger and bigger SUVs. GM and other such American businesses are now left with a relatively uneducated, poorly skilled workforce, and little capacity to innovate.

            The state of education and job training in American cannot be blamed on corporate America alone.  The politics of unequal, discriminatory financing of K-12 education have done much to hold it hostage, while the quality of learning in our trading-partner nations improves.

            Karen Ho does not argue this, but I think it follows that to compete in the global economy over the long-term, Americans and American businesses need a financial 12-step program to overcome addiction to self-centered consumption and investment growth-at-any-cost.

            Corporate America needs some time to reflect on what it can do best, do it with impeccable quality, and give good jobs and benefits to as many Americans as possible. Corporate America cannot do that with Wall Street breathing down its neck, so to speak. From their self-serving behavior in the past six months, it is clear that neither Wall Street nor Corporate America will reform on their own. It is up to the Federal Government to exert new leadership.

            Ironically, the Secretary of the Treasury for the first two years of the last Bush Administration, Paul O’Neill, holds a similar view of the Wall Street. On CNN’s GPS Program he recently called for truth and transparency on Wall Street. He would order the top 19 financial institutions to put the ratings classes of all their assets on the Internet for the public to see. He then would create quarantine accounts for the bad assets, only allowing public funds to be spent on the non-quarantined assets.

            Even if such reforms were made, the road to recovery will be rocky because we have come to expect the material comforts of living in financial bubbles. As millions of pensions have been converted to individual 401k accounts, the majority of Americans have a finger in Wall Street. Even if our daily moods don’t swing with the markets, we still pray for our retirement accounts to soar again.

            How then do we get out of the spiraling culture of corporate liquidity?  Establishing a modern, effective regulation system and other reforms in Washington DC will help. However, it is doubtful that we can successfully complete its financial addiction recovery program without learning to live with less, without accepting the need to sacrifice for the greater good. It is the perfect time to study Marc Lesser’s 2009 book, Less: Accomplishing More by Doing Less.

            Those with jobs and a retirement fund can afford to allow the economy to slowly recover from its ailments. But those unemployed, underemployed, or otherwise suffering from the lack of means to acquire necessities, cannot afford the luxury of a long, slow recovery. The rest of us must empathize with them and be generous, both personally and through public policy.

            For long-term prosperity, we need to work for the economy to stabilize itself without depending on another big bubble. This is the time to re-define patriotism to include sacrifice, modest lifestyles, and acting as a “Good Samaritan” to those around the world who are truly in pain and suffering.

            Should you be skeptical of my advice on returning to the ethics of the Good Samaritan, read the wonderful 2008 book by Deborah Stone, The Samaritan’s Dilemma: Should Government Help Your Neighbor? Professor of government Deborah Stone began advocating for an altruistic government long before the latest financial bubble burst. With the deep recession leaving so many jobless, hungry, and otherwise suffering, her powerful call for a moral awakening is even more urgent.




dsc_2214While writing this I am listening to the gentle ocean surf under a bright blue sky.  My wife and I are enjoying a lovely 2009 Valentine’s Day, along with hundreds of other Americans, some of whom came to get married on the sand to the gentle rhythm of the breakers and Reggae music in the distance.

        I heartily recommend a Valentine vacation in Montego Bay to every American, but don’t wait very many years because Jamaica may become something like a province of China.

        The headlines of the local papers in Montego Bay blasted the news of China’s Vice President Xi Jinping visit to celebrate China’s grants and loans of $140 million (USD) to Jamaica. Shovel in hand VP Xi announced China’s gift of a new convention center. China aid to Jamaica far exceeds American aid this year.

        At the very time that the USA cannot afford the luxury of lavish foreign aid, China steps in and helps out our trading partners, as if they were altruistic and just trying to help. China, like America, tends to attach strings to its aid. The strings are trade obligations and implied allegiance.

        Our current financial collapse stems from overdependence of the US economy on financial services rather than manufacturing and knowledge production. Financial services have, in turn, been over dependent on public addiction to needless consumption. Through all of this financial debauchery, China has been standing nearby like a bartender serving us drinks and taking our money.

As of this past November, China held almost $700 billion dollars in securities of the US government debt.  Foreign countries own $3 trillion of the U.S. treasury, but China owns more of that than any other country.

With our economy teetering on the brink, aid to developing countries inevitably will take a hit at budget time. It is a wonderful time for China to fill the gap and build “partnerships” with nations in our “backyard.” Jamaica is only a hundred miles from both Cuba and Haiti, and about 300 miles from Florida.

It would be a mistake not to note the long history of the Chinese in Jamaica. In the late 19th Century as thousands of slaves were shipped from Africa, a large number of Chinese were imported as indentured servants. Now Jamaica has an estimated Chinese population of 70,000.

China’s cozy foreign policy with the Caribbean since 1990 is no secret. Not only have the Chinese acquired important natural resources like asphalt from the region but they have had several military exercises there as well. China is Cuban largest trading partner apart from Venezuela. Caribbean nations see China as an alternative to heavy dependence upon the United States.

Fortunately, America sends more than tourists to Jamaica. The Peace Corps has sent 3,400 volunteers to Jamaica and over 100 are now stationed there. They continue to do wonderful things for the Jamaican economy, but they are not as visible as a convention center. Nor are they a match for the thousands of guns donated and sold by the United States to Jamaica and Haiti. In one year, 1999, alone, the USA sold Jamaica $5 million in military equipment.

If we want to preserve the beautiful vacation opportunities for Americans in Jamaica, we should stop the flow of guns and ratchet up the flow of Peace Corps projects ten-fold. Jamaica is in our own backyard, not China’s.



Moments ago President Obama announced several new rules for executive compensation for any corporations receiving “exceptional” amounts of public funds. One rule is that executive pay is capped at $500,000 and their stock options cannot be cashed in until every penny of public money has been repaid. Third, he said executive pay and perks would be public

            While the President did not describe the current executive culture as greedy, he did call it shameful in no uncertain terms. He also used the words “culture of narrow self-interest.” Is it not greed when executives pay themselves many millions and even billions while simultaneously their corporations implode financially and thousands of lower level employees are fired?

            The dictionaries generally agree: greed is an excessive desire to acquire or possess more than what one needs or deserves.  Last year’s book Richistan, which I reviewed in a earlier post, describes a greed-driven social class of the newly, ultra-rich. An estimated 10 million Americans belong to this social class, some of whom like Madoff ran billion dollar fraudulent schemes, unable to control addiction to money and ultra rich lifestyles.

            The lucky rich, as I dubbed them, are not the only greed-driven Americans. Greed appears to have clouded the judgment of millions of Americans who signed for mortgages they could not afford or put tens thousands of dollars on their credit cards.

            So, greed may be the most succinct lens to view the current financial crisis. Not only does it help to explain why it happened, but it suggests a way to get out of it. Continued acquisition of material goods and services that are not essential would stabilize the economy. It would not return us to the previous growth in GDP, but it would be the foundation for a culture and an economic foundation that emphasizes productivity and social well-being. It would be a society oriented toward the future not immediate gratification.

            This model of society is highly compatible with President Obama’s goals for our country. In his Chicago acceptance speech he advocated a society where we “look out for others as well as ourselves.” Now, that is a recipe to avoid falling into the pernicious pit of greed. And it applies equally to bailed out corporate executives as well as the rest of us.  

In the past week, three different people—a journalist, a former student and the PR director of a non-profit organization—contacted me seeking an expert opinion on investment clubs. This is terrific, but I’m slightly puzzled by this sudden, tightly-clustered burst of attention, because my book on investment clubs, Pop Finance (Princeton University Press) was published last April, meaning that the novelty factor is long gone.

Moreover, my experience—having followed the investment club phenomenon over a decade—was that the interest of both investors and the media waxed during boom times, and waned during economic downturns. Now that the market had well and truly cratered, I expected that popular attention would be focused for some time to come on the periodic clinkety-crash! sounds of skeletons falling out of financial institutions’ closets. From the demise of Bear Stearns through the collapse of Bernie Madoff’s Ponzi scheme, the noise has been deafening.

As for the fate of investment clubs during the meltdown, I hadn’t heard a thing. But that was the implied question behind all three queries I received, so I’ve been trying to figure it out. One thing that hasn’t changed since I conducted my study is that reliable data on investment clubs are really difficult to find. That’s because, while the term “club” understates the legal and organizational formality of these groups, they are just like book clubs in the sense that there is no one keeping track of how many exist at any given time. While investment clubs are subject to American securities laws and must file state and federal tax returns, just like miniature mutual funds, they can form or disband at will, like more casual hobbyist groups. This provides ample opportunity for erroneous speculation about what investment clubs are doing, as in this recent article from CNN.com.

We probably won’t know the real impact of the crisis on investment clubs until six to 12 months down the road, when the National Association of Investors Corporation (NAIC)—the only national organization to keep track of investment club participation in the United States—releases its 2008 member data. Right now, all we can say for sure is that as of 2007, NAIC (also known as BetterInvesting) claimed 9,500 member clubs. That’s certainly a precipitous drop from its high-water mark of just over 37,000 clubs in 1998, when an estimated 11 percent of the US adult population belonged to an investment club (not necessarily affiliated with NAIC). But it would be premature to conclude that this past Fall’s market crash sounded the death knell for investment clubs as a socio-economic phenomenon. In fact, I can think of three reasons to expect that most existing investment clubs will stay together through the crisis, and that enrollment may even increase.

1. Their 50-year track record

Investment clubs have existed in the United States for over a century, and participation has fluctuated in direct relationship to the market indices ever since NAIC first starting keeping records in 1952. As the chart below—excerpted from Pop Finance—shows, the ups and downs of investment club participation are much less extreme than those of the market. That’s partly because of “centripetal” social forces that act upon groups to maintain their cohesion despite disappointments, including poor performance in their stated task. Sometimes, failure can even increase group cohesion, as with some of the investment clubs I followed in my observational study (see chapters 3, 4 and 5 in Pop Finance; for a really extreme illustration of the phenomenon, I recommend the 1956  social psychology classic, When Prophecy Fails).

This means that downturns in the market, and the scarcity of profit-making opportunities, has little relationship to enrollments. Statistically speaking, we would say that the correlation between market indices and investment club enrollments is weaker for market declines than upswings.  Optimism seems to dominate among amateur investors, as it often does in the United States generally. Perhaps that’s one reason international news organizations like CNN maintain an interest in investment clubs as a sort of bellweather of Americans’  socio-economic attitudes—like a less-formal version of the Fed’s Survey of Consumer Finance.

From "Pop Finance," Chapter 1, page 16.
From "Pop Finance," Chapter 1, page 16.

So even when the market takes a nosedive, investment clubs hang in there, as they did following the crash of October 1997, near the height of club enrollments nationally. On October 27th of that year, when the Dow Jones Industrial Index experienced its largest single-day point drop to date (550 points), financial pundits and Wall Street professionals crowed that the mini-crash would finally allow the market to shake off all the pesky amateurs who had started buying stocks in the early years of the decade. These amateurs, including investment club members, were expected to do what their parents and grandparents had done in October 1929: sell their stocks and accept that investing was best left to the professionals.

These reports turned out to be greatly exaggerated. In fact, the post-mortem of the 1997 crash revealed that most amateur investors held firm and didn’t sell (which the experts said was the right decision). There was panic selling, but virtually all of it was done by professionals, like fund managers.  Unlike investment clubs, which are accountable only to themselves and tax authorities, fund managers have to report their performance to investors at least quarterly; this creates enormous pressure to make ill-considered trades based on short-term motivations—including the overriding fear many finance professionals express of being out of step with their peers. For many fund managers, it’s preferable to wrong in a group than right alone.

Investment clubs don’t experience those quarterly reporting pressures, plus most only meet once a month and have bylaws stating that portfolio transactions can be made only during a regularly-scheduled meeting with a quorum of members present. That rule creates a formidable structural barrier to quick trades,  including panic selling. So while economic downturns may reduce investment club enrollments somewhat, particularly among newly-formed clubs, existing groups tend to remain robust and stable in the face of economic adversity, both because of their structure and because of the social cohesion that often results from long-term group activity.


2) The betrayal of public trust by the finance profession

Investment clubs are, and have always been, premised on the notion of self-reliance. That’s one reason the clubs—which originated in Europe, and were brought over in the waves of immigration that occurred in the late 19th and early 20th centuries—flourished in the United States. There’s a Thoreauvian quality to the whole enterprise that resonates with, and is reinforced by, core values in American cultural life. Walden meets Wall Street, if you will.

In the publications of NAIC/BetterInvesting, the following is repeated with mantra-like regularity: the primary purpose of investment clubs is to educate members, who can then make independent, informed choices with their money. Enthusiasm for this grassroots  endeavor springs in part from the failure of formal, institutional sources of investment advice to respond to (or even acknowledge) the needs of the non-rich, non-white and non-male. As the Beardstown Ladies (an NAIC investment club that shot to fame in the 1990s with three back-to-back New York Times bestsellers) explained in their books, their club was formed out of necessity, when many of the women simply could not find a stock broker who would accept their money.

Strange as this may seem to those who don’t remember an era before online banking and brokerage services, once upon a time it was only possible to buy and sell stocks via the services of a licensed stock broker, who advised clients and invested their money in return for a commission. Since brokers made money on their clients’ transactions, they sought out people with lots to invest and a willingness to trade frequently, thus generating more commissions for the broker. Brokers, like sociologists and many others, knew that women on average had much less capital to invest than men, and that women were also more conservative investors: that is, they liked to “buy and hold” stocks rather than trading frequently. In consequence, many brokers practised a form of statistical discrimination, declining to accept any women clients on the basis of the poor-and-conservative stereotype. Several members of the Beardstown Ladies group tried to open their own brokerage accounts during this era, only to be met with a frosty “have your husband come back and talk with me” by the brokers.  Similar refusals of service have been reported among people of color, apparently on the same basis: brokers didn’t think non-whites had enough money to make it worthwhile to accept them as clients.

Brokers’ role as gatekeepers of the stock market effectively excluded any but a tiny (white male) elite from investing in the stock market prior to the early 1990s, when defined contribution pension plans (like 401ks) began to proliferate in earnest, and discount brokerages like Charles Schwab Inc. changed the industry’s business model, slashing commissions and minimizing the broker’s role in investing. Both of those factors were catalysts for the sudden explosion in investment club membership in the last decade of the 20th century, providing Americans with a means to invest as independently as they wished.

But until that time, investment clubs were the only means through which the financially-disenfranchised majority could accumulate enough capital and credibility to persuade a stock broker to accept their business. While brokers may have considered any individual woman unworthy of their time, their cost/benefit analysis was quite different when faced with 20 women pooling their money to invest together. Only by forming an investment club were the members of the Beardstown Ladies—and countless others—able to access the securities markets.

Thus, investment clubs have flourished largely in opposition to, or in spite of, business practices in the financial industry. The founding premise of educating members so that they can make their own investment decisions, independent of brokers, has only been reinforced by the ongoing revelations of corruption, self-dealing and incompetence among finance professionals and corporate leaders since the beginning of the new century. As I documented in Pop Finance (see chapter 5 in particular), distrust of market insiders and financial advisers has been on the rise for years. If anything, last autumn’s financial collapse administered the coup de grace to any remaining public confidence.

All the more reason to stay in an investment club, or to join one. As their history in America suggests, investment clubs are precisely the kinds of organizations that thrive when formal institutions are broken or non-existent. It’s the same reason that micro-finance and rotating credit associations flourish in countries with under-developed or dysfunctional economies; the table below, excerpted from Pop Finance, presents a comparison of the two  models of “financial self-help.” 

From "Pop Finance," Chapter 6, page 178.
From "Pop Finance," Chapter 6, page 178.

As this table suggests, people around the world have similar needs to save, trade and invest, regardless of whether a formal financial sector exists to serve them. When those needs aren’t met by banks and other institutions, we find grassroots collective action arising to fill the gap. If anything, the Third-World-ification of the American economy only solidifies the position of investment clubs as a enduring feature of the socio-financial landscape.


3) Social structural necessity

Most of the social structural conditions that led people to join investment clubs en masse in the 1990s are still very much with us. If anything, those conditions—which include declining real wages, and the shift of risk and responsibility for the provision of retirement wealth from employers and the government to individuals—are intensifying. Americans need to invest because they believe, with good reason, that there is no social safety net to keep them from falling into poverty if they become unable to work, whether through illness, layoffs or old age.  Thanks to fear-mongering about the alleged “inefficiency” of Social Security, and its purportedly imminent demise, retirement tops the list of financial anxieties in the US. More than 80 percent of NAIC members say that saving for retirement was their primary motive for joining an investment club.

One of Ronald Reagan’s most enduring achievements was to undermine the notion of public good in America, and to create intense hostility toward and suspicion of government. This provided the cultural and moral authorization to destroy generations’ worth of practices and institutions designed to provide the financial stability and security necessary for people to make long-term plans and prudent decisions—as opposed to the kind of panicked, crisis-driven decision making we see now, with Americans undertaking desperate measures to raise money for medical expenses or to prevent foreclosure on their homes. Even as Barack Obama sets about repairing our social fabric, it will be a long time before these “push” factors diminish significantly. And as long as Americans are economically insecure enough to perceive investing as a survival necessity, investment clubs will thrive.

As part of age-old confusion about correlation and causality, it may have seemed to some observers that the surge in investment club enrollments during the 1990s was driven entirely by rising stock prices. The implication being that people saw money to be made in the stock market, and joined investment clubs to get in on the action. But that may invert the real causal order, or at least obscure the reciprocal causality at work: as increasing numbers of people joined investment clubs (pouring hundreds of millions of dollars into the US stock markets every month), they drove up share prices, which in turn attracted more investment club members, and so on.

In ways I cannot document here without recapitulating large sections of my book, my research indicates that “pull” factors—like the get-rich-quick fantasy, or the status bump attendant upon joining a trendy social movement—had a relatively weak and temporary role in building investment club participation. While there certainly were people who joined clubs because it was “the thing to do” during the mid-1990s, or because they imagined that it was an easy way to make money, they probably are among the thousands who dropped out when the dot.com bubble burst, or Enron imploded, or the options backdating scandal broke…etcetera, ad nauseum. So those 9,500 investment clubs still on the rolls of NAIC/BetterInvesting as of late 2007  are a tenacious bunch, and I expect most of them will stick it out through the current crisis, adding to their numbers if conditions worsen still further.

Most view the current global economic crisis as simply an economic crisis, but the secondary effects may be much broader. As noted in my blog post “Social Loss for Job Loss,” loss of social capital (empowerment from participation in community and civic affairs) tends to follow job loss in early or mid-career. The unemployed person loses social capital, not so much from the community being weaker, but from personally dropping out of participation in community.  

            Sociological research among 99 randomly selected small towns in Iowa found that loss of social capital not only results from loss of jobs, but also a variety of other negative economic shocks. These economic crises in small towns may include a plant closing, a school closing, toxic environmental contamination, or a natural disaster.

            Sociologists Terry Besser, Nicholas Recker, and Kerry Agnitsch of Iowa State University studied nearly 100 small towns in 1993 and again in 2004. The results of their study were published in the academic journal Rural Sociology in December 2008 (73, 4, December, pp. 580-604). They documented the loss of social participation, and social capital more broadly, tended to follow negative economic shocks. Furthermore, they found that the loss of social capital was greater the greater, the stronger and more frequent the shocks.

            Besser, Recker and Agnitsch also found that economic crises were more detrimental when the shock exposed differences of values within the community regarding appropriate economic response. Examples of value conflicts include using tax incentives to attract a controversial factory or termination of welfare benefits for a given class of citizens. Perhaps most remarkable was their finding that a series of small shocks produced as much damage on a town’s social quality of life as did a single, large shock.

            Some make folk-wisdom claims that “hardship builds character” and “failure offers the foundation for success.” This occasionally may be true for individuals, but this research does not provide evidence that financial crises helps communities.

            What we face now is a gigantic national and global economic shock. This shock is a jolt of such mammoth proportions that the social effects may be best described as a sociological disaster or social tsunami. That does not mean that we cannot learn a great many things from it. Hopefully economists and political leaders will remember the implications of the current financial crisis for many generations to come.

One of the most important scientific findings by sociologists is that people who lose their jobs during the prime of their careers end up also losing a lot of social capital (less involvement in their communities). Such a loss is tragic not only for those unintentionally unemployed, but for their communities and societies as well.

            In my last posting, I asked the question: “Where are the sociologists in a time of financial crisis?” I found a major study that shows the type of research that can be done by sociologists to help us evaluate the full impact of the current economic crisis.

            Jennie Brand, assistant professor of sociology at UCLA, earned her PhD at the University of Wisconsin and carefully analyzed data from the Wisconsin Longitudinal Study. In her article with Sarah Burgard, which was published in the September, 2008 issue of Social Forces, she confirmed that job loss produced major drops in social capital, that is, the ability to use ties to other people to help them and others function more effectively.

            Specifically, this loss of social capital meant that people displaced from their jobs in early or mid-career became less likely to be able to network to get another job, but also to get and give social support in general.

            Jennie Brand’s study involved workers during the period of 1975 to 2004, so it does not include those unemployed during the 2008 economic crisis. And it also was limited to high school graduates, but despite these limitations, the study gives very generalizable findings because it was based upon systematically following and re-surveying many people for many years.

            The crisis in community involvement is more sociological than psychological. It consists of changes in people’s inter-connectedness to other people. Think of it as rips in the social fabric.

            During the past year, 1.9 million Americans lost their jobs, with 533,000 losing them last month. That is the largest loss of jobs in any one month since 1974, according to the BLS report. The percent underemployed now is 12.5%. The underemployed are those who are unemployed or working part-time but seeking full-time work, but not including those unemployed but no longer looking for work. Another way of looking at the situation is that one in eight American workers is partly or fully displaced from their jobs.

            The principal conclusion from all of these data is that not only will the period ahead be one of financial crisis but one of social crisis as well.

During the past year 1.9 million Americans lost their jobs, with almost a third of those losing them last month. When the U.S. Bureau of Labor Statistics (BLS) released these numbers this week, one of the Bureau’s commissioners said the report was probably the most negative report in BLS’s 124 year history.  

          Meanwhile this year over 2 million houses went into foreclosure. Many of those losing their homes did not lose their jobs; they were at least somewhat fortunate. But the firings and foreclosure together affected over 3 million workers.

          In the past year while the stock markets fell by nearly 50%, my retirement savings dropped 25%. I would imagine that most sociologists felt equivalent personal financial losses this year. Even those putting their savings in “fixed income” retirement funds have lost money because of the collapse of the bond markets.

          Despite the huge magnitude of this economic trauma, sociologists appear to be silent about the financial crisis. The American Sociological Association’s newsletter, Footnotes, has not mentioned the crisis nor is it a special topic of the forthcoming annual convention. It is even scarcely mentioned in Contexts magazine’s blogs. Isn’t there a big enough hurt yet to talk about?

          This month, after economists have begun comparing our current financial crisis to the great depression, the government finally admitted that the United States economy was in a recession. Ironically, they also added that we had been in a state of economic recession for 12 months.

          Sociologists, like the American government, have not told the public anything about the financial crisis. Wait, isn’t that criticism a bit unfair? After all, it takes at least a year or two, if not three, to conduct a thorough study. But have we not learned what social effects resulted from previous economic recessions and depressions? Maybe. It is difficult to find discussions in the sociological literature on this topic.

          About the only one discussing the sociological effects of the current recession is David Brooks, a journalist who writes Op-Ed Columns for the New York Times. Last month in “The Formerly Middle Class”, he wrote that those on the low rungs of the middle class are those for whom the recession is the most catastrophic. “Recessions breed pessimism,” he wrote, and he claimed that millions of Americans, to say nothing of the billions in the developing world, are “facing the psychological and social pressures of downward mobility.”

          Career reversals and job loss yields serious self-doubt, he argued. For the formerly middle-class, housing reversals mean returning from suburban dream homes to run-down apartments, to paraphrase David Brooks’ message.

          Brooks’ most interesting theories have to do with social capital and social identity. Quoting Robert Putnam, he argues that economic depression yields social isolation because people have to stay home more and their community bonds break up. In fact, the history of our great depression shows that suicide rates and divorce rates went up while birth rates went down.

          These predictable trends yield alienation and social protest, and therefore Brooks predicts that the next big social movements will start from the formerly middle class.

          Much of this analysis is conjecture, but isn’t it more relevant than any other sociological topic these days? Economic forecasters share the hunch that the economy will continue to worsen for at least a year. It is very likely that most of us in the middle class will have lost half of the value of our assets before the recession is over. Few will not face sacrifices, struggles and maybe even suffering during the years ahead. What can sociology say now, not next year, to help us understand better what is happening so that we can get through this with greater understanding, and compassion for ourselves as well as for others?




The $700 billion bailout for “financial institutions” requested by Treasury Secretary Henry Paulson amounts to $6,300 per household. Fortunately, we will not have to pay it off this year, but the amount with interest will be spread across several years.

            Many expert economists question whether the bailout will solve the economy’s problem. An even larger share, believe the bailout should not be approved without a variety of constraints on how the money is spent. Many also question the degree of urgency and the need to act right away.

            Not surprisingly, Secretary Paulson claims the sky is falling and he needs the $700 billion this week. Two years ago he made $37 million a year as CEO of a now-vulnerable investment bank. Then President Bush asked him to head the nation’s Treasury Department.

            On the other hand, some economists argue that the economy would be better off  without unregulated investment banking, and that real estate values would settle down faster without a bailout of the type demanded. After all, investment banking has become a collection of unregulated casinos that keep coming up with new games investors can play.

            In a political system such as ours that asks individuals to stand on their own and pay for their own welfare, shouldn’t corporations be allowed to fail if they take huge risks without insurance or collateral?

            For the sake of argument, let’s assume that the economy really has to be bailed out by the government. In a democracy like ours shouldn’t the people rather than Congress be asked to pull out their check books and pay for the bailout? They are asked to pay for our society’s social charity, why not economic charity?

            Individual Americans already write checks for charity for about $230 billion a year according to Giving USA. And according to the Independent Sector, last year American volunteers gave 8.1 billion hours of free labor worth $162 billion dollars  through formal organizations. On the basis of the American Time Use, I estimate that that Americans volunteered an additional $345 billion worth of free informal community service. Compare this huge value of charitable donations to last year’s United States Federal budget allocation of $294 billion for unemployment and welfare.

            Americans could do the same for the Investment Banking  industry if they thought it was important enough. Why should the  American people be given the option to be charitable to their fellow human beings, but forced to be charitable to the financial sector? Why should charity to businesses be determined by Congress and lobbyists but charity to the people left largely to private donations?

            Rather than buying assets of failing banks at inflated prices, the economy would be better served by loans to small as well as large businesses, and to home owners facing foreclosure as well as to businesses facing bankruptcy.

            Then the public should be asked to double their charitable donations this year and write checks to funds for ailing businesses. People should be given the choice as to which type of business receives their donation. This would be true economic democracy.

            The Bush administration’s enacted concept of democracy continues to be freedom for economic institutions with little regard to freedom for individuals. What is your conception of how democracy should deal with financial institutions?