F Financial Sector Induced Systemic Instability of Economy

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Financial Sector Induced Systemic Instability of Economy

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that  growth of financial sector represents a direct threat to the stability of the society. Positive feedback loops creates one financial crisis after another with the increasing magnitude leading up to a collapse of financial system like happened in 1927 and 2008.

News Casino Capitalism Recommended Links  Stability is destabilizing: The idea of Minsky moment Corruption of Regulators Quiet coup
Neoliberalism as a New Form of Corporatism Principal-agent problem Numbers racket Criminal negligence in financial regulation Corruption of FED Invisible Hand Hypothesis
The “Too Big To Fail” Problem In Goldman Sachs we trust Citi - The bank that couldn’t shoot straight JPMorgan AIG collapse Lehman
Free Markets Newspeak as Opium for regulators Derivatives Lobby Corrupts Congress Lobbying and the Financial Crisis Control Fraud
(crisis of corporate governance)
Stock Market with buybacks as a Ponzi scheme Derivatives
Small government smoke screen Financial Bonuses as Money Laundering Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Corporatism   Financial obesity
Webliography of heterodox economists HFT Aleynikov vs. Goldman Sachs Casino Capitalism Dictionary Financial Humor Etc
  "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera

The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”

Uncle Billy Cunctator
In comment to Economic Donkeys

 
  Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure !  
  The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.  
  Unfortunately, many countries go broke pursuing war, if not financially, then morally (are the two different? – this post suggests otherwise).

I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?

 

Introduction

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that growth of financial sector represents a direct threat to the stability of the society (Keynesianism and the Great Recession )

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.

Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic), brought political power to the financial oligarchy deposed after the New Deal. Deregulation naturally followed, with especially big role played by corrupt Clinton administration.  Positive feedback loops creates one financial crisis after another with the increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of  2000, which in turn followed by the collapse of financial system in 2008, which looks somewhat similar to what happened in 1927.  No prominent financial honcho, who was instrumental in creating "subprime crisis" was jailed.  Most remained filthy rich.

Unless the society puts severe limits on their actions like was done during New Deal,  financial firms successfully subvert the regulation mechanisms and take the society hostage.  But periodic purges with relocation of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke screen of "free market" promotion does not solve the problem of positive feedback loops that banks create by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy dominates the society thinking (via brainwashing), with universities playing especially negative role -- most of economics departments are captured by neoliberals who censor any heretics. So year after year brainwashing students enter the society without understanding real dangers that neoliberalism brought for them.  Including lack of meaningful employment opportunities.

Of course, most of high level officers of leading finance institutions which caused the crisis of 2008-2009 as a psychological type are as close to  gangsters as one can get. But there is something in their actions that does not depend on individual traits (although many of them definitely can be classified as psychopaths), and is more related to their social position.  This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing Russia by this ideological sect.  And in this sense quite coupe of 1980 is also irreversible in the same sense as Bolsheviks revolution was irreversible:  the "occupation" of the country by a fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian claims.

Bolshevism which lasted 75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th, if not after the WWII).  But only  when their ideology was destroyed both by inability to raise the standard of living of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their last General Secretary, they probably could last more. In any case after the ideology collapsed, the USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of the pie).

The sad truth is that the mere growth of financial sector creates additional positive feedback loops and increases structural instability within both the financial sector itself and the society at large. Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable. As a result banks and other financial institution periodically generate a deep, devastating crisis. This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".

In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which succinctly describes aspects of our situation today) drive the country off the cliff because they do not have any countervailing forces, by the strength of their political influence and unsaturable greed. Although the following analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial sector can be viewed in  biological terms as cancer.

Cancer, known medically as a malignant neoplasm, is a broad group of diseases involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also spread to more distant parts of the body through the lymphatic system or bloodstream. Not all tumors are cancerous; benign tumors do not invade neighboring tissues and do not spread throughout the body. There are over 200 different known cancers that affect humans.[1]

Like certain types of cancer they depend of weakening "tumor suppressor genes"  (via "Quiet coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying healthy cells (and first of all local manufacturing).   

The other suspicion is the unchecked financialization always goes too far and the last N percent of financial activity absorbs much more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination of financial oligarchy.  Significant vulnerabilities  within the shadow banking system and derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power grab by financial oligarchy  (Quiet coup).

Again, I would like to stress that this problem of the oversized financial sector which produces one devastating crisis after another   is closely related to the problem of a positive feedback loops. And the society in which banks are given free hand inevitably degrades into "socialism for banks"  or "casino capitalism" -- a type of neoliberalism with huge inequality and huge criminality of top banking officers.  

Whether we can do without private banks is unclear, but there is sound evidence that unlike growth of manufacturing, private financial sector growth is dangerous for the society health and perverts society goals.  Like cult groups the financial world does a terrific job of "shunning" the principled individuals and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university departments and press),  so self-destructing tendencies after they arise can't be stopped within the framework of neoliberalism. In a way financial firm is like sociopath inevitable produces its  trail of victims (and sociopaths might be useful in battles exactly due to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).

This tendency of society with unregulated or lightly regulated financial sector toward self-destruction was first formulated as "Minsky instability hypothesis" -- and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 – October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views were different from  orthodox (and false) neoclassic economic theory which dominates US universities, Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then their medieval counterparts; the only difference is that they do not burn the literally, only figuratively ;-)

Minsky financial instability hypothesis

Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the Great Recession decades before it happened.  Hyman Minsky was a real student of the Great Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in reality was a charlatan, who just tried to explain the Great Depression from the positions of neo-classical economy. That's a big difference.

Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from his analysis of the Great Depression was based on intellectual heritage of three great thinkers in economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis). We can talk about three source of influence, there authors writing of which touched the same subject from similar positions and were the base of Hyman Minsky great advance in understanding of mechanics of development of financial crisis under capitalism and the critical role of financial system in it (neoclassical economics ignores the existence of financial system in its analysis): 

  1. Karl Marx influence
  2. Irving Fisher influence
  3. Joseph Schumpeter influence

Karl Marx influence

Minsky didn't follow the conventional version of Marxism  . And it was dangerous for him to do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years.  McCarthy and his followers in academy did not understand the difference between Marx great analysis of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish hegemony of neoclassical economy in economic departments in the USA.

While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his thinking was definitely influenced by Marx’s critique of  finance. We now know that he read and admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that rejected the idea of launching the socialist revolution in Russia --  in their opinion Russia needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.

And probably the main influence on Minsky was not Marx's discussion  of finance in Volume I of Capital with a "commodity" model of money, but critical remarks scattered in   Volumes II & III (which were not edited by Marx by compiled posthumously by Engels), where he was really critical of big banks as well as Marx's earlier works (Grundrisse, Theories of Surplus Value) where Marx was scathing about finance:

"A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pocket* (whereby, however, they help to determine the rate of interest  for all) and meanwhile they live in grand style on anticipated profits. 

Irving Fisher influence

The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to explain the crash and published it in his book  "The Debt Deflation Theory of Great Depressions". His main points are:

According to Fisher two key disequilibrium forces that push economic into the next economic crisis are debt and subsequent deflation

Joseph Schumpeter influence

Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory of creative destruction as a path by which capitalism achieves higher and higher productivity. He capitalism as necessarily unstable, but for him this was a positive feature -- instability of capitalism the source of its creativity. His view of capitalism was highly dynamic and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous order and create a new one):

Unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  gradual absolute impoverishment of workers), Minsky assumed that the key source of that instability of capitalist system is connected with the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high leverage and overproduction and thus to eventual debt crisis (The Alternative To Neoliberalism ):

Minsky on capitalism:

The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries.  In other words, marker players are no rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.

That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because  fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

Steve Keen is probably the most well know researcher who tried to creates model of capitalist economy based on Minsky work (  http://www.debtdeflation.com/blogs/manifesto/ )

John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis: 

The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.

The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.

Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.

The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.

I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.

We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.

While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes also understood this dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.  The key driver is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:

This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last.  The only way to counter this is to throw sand into the wheels of financial mechanism:  enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.

Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop.  Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.

Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose.  Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system.  With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.

Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend  and replaces all other goals of the financial organization. This is the essence of  Martin Taylor’s, the former chief executive of Barclays,  article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth?

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.

Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and   cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.

As Minsky noted long ago (sited from Stephen Mihm  Why capitalism fails Boston Globe):

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke: 
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.

As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing (Too late to learn?):

In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:

The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".

According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state  a sand pile.  All this pile of  stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a  pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".

The late Hunt Taylor wrote, in 2006:

"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.

"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."

This is a gold age for bankers as Simon Johnson wrote in New Republic (The Next Financial Crisis ):

Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.

In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.

Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.

What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.

Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith [1776], the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com.

The concept of Minsky moment

The moment in the financial system when the quantity of debt turns into quality and produces yet another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka financial crash). The existence of Minsky moments is one of the most important counterargument against financial market self-regulation.  It also expose free market fundamentalists such as "former Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was he, who was the "machinist"  who helped to bring the USA economic train off the rails in 2008 via deregulation  and dismantling the New Deal installed safeguards. 

Here how it is explained by Stephen Mihm in Boston Globe in 2009 in the after math of 2008 financial crisis:

“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago.  He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”

Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.

 

Some important albeit random (and overlapping) points about instability of financial system

The first thing to understand is that attempt to weaken positive feedback looks via regulation, approach that can be called  “regulation as a Swiss knife” does not work without law enforcement and criminal liability for bankers, as there is an obvious problem of corruption of regulators. In this sense the mechanism of purges might be the only one that realistically can work.

In other words it’s unclear who and how can prevents the capture of regulators as financial sector by definition has means to undermine any such efforts. One way this influence work is via lobbing for appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure that he will be reappointed. That happened with Greenspan.  After such process started it became irreversible and only after a significant, dramatic shock to the system any meaningful changes can be instituted and as soon as the lessons are forgotten work on undermining them resumes.

In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president of the USA as one can get.  As such Fed Chairman serves the elite which rules that country, whether you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected official in the USA. If you compare this position to the role of the Chairman of the Politburo  in the USSR you’ll might find some interesting similarities.

In other words it is impossible to prevent appointment of another Greenspan by another Reagan without changes in political power balance.  And the transition to banana republic that follows such appointment is irreversible even if the next administration water boards former Fed Chairman to help him to write his memoirs.  That means that you need to far-reaching reform of political system to be able to regulate financial industry and you need to understand that the measures adopted need vigilant protection as soon as the current crisis is a distant history.

Additional reading

Several other source of financial instability were pointed out by others:

There are some outstanding lectures and presentation on YouTube on this topic. Among them:

See an expended list at Webliography of heterodox economists

Dr. Nikolai Bezroukov


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[In casino capitalism] financial institutions make a living screwing over their customers so their biggest concern is how to avoid losing lawsuits when they get sued

Why Wall Street Ignores Real Risk
And Why History Will Repeat Itself

[Aug 19, 2017] Vassal Aristocracies Increasingly Resist Control by U.S. Aristocracy by Eric Zuesse

Notable quotes:
"... The MIC is their collective arm, and their collective fist. It is not the American public's global enforcer; it is the American aristocracy's fist, around the world. ..."
"... The MIC (via its military contractors such as Lockheed Martin) also constitutes a core part of the U.S. aristocracy's wealth (the part that's extracted from the U.S. taxpaying public via the U.S. government), and also (by means of those privately-owned contractors, plus the taxpayer-funded U.S. armed forces) it protects these aristocrats' wealth in foreign countries. Though paid by the U.S. government, the MIC does the protection-and-enforcement jobs for the nation's super-rich. ..."
"... So, the MIC is the global bully's fist, and the global bully is the U.S. aristocracy -- America's billionaires, most especially the controlling stockholders in the U.S.-based international corporations. These are the people the U.S. government actually represents . The links document this, and it's essential to know, if one is to understand current events. ..."
"... This massacre didn't play well on local Crimean television. Immediately, a movement to secede and to again become a part of Russia started, and spread like wildfire in Crimea. (Crimea had been only involuntarily transferred from Russia to Ukraine by the Soviet dictator Khrushchev in 1954; it had been part of Russia for the hundreds of years prior to 1954. It was culturally Russian.) Russia's President, Vladimir Putin, said that if they'd vote for it in a referendum, then Russia would accept them back into the Russian Federation and provide them protection as Russian citizens. ..."
"... The latest round of these sanctions was imposed not by Executive Order from a U.S. President, but instead by a new U.S. law, "H.R.3364 -- Countering America's Adversaries Through Sanctions Act" , which in July 2017 was passed by 98-2 in the Senate and 419-3 in the House , and which not only stated outright lies (endorsed there by virtually everyone in Congress), but which was backed up by lies from the U.S. Intelligence Community that were accepted and endorsed totally uncritically by 98 Senators and 419 Representatives . (One might simply assume that all of those Senators and Representatives were ignorant of the way things work and were not intentionally lying in order to vote for these lies from the Intelligence Community, but these people actually wouldn't have wrangled their ways into Congress and gotten this far at the game if they hadn't already known that the U.S. Intelligence Community is designed not only to inform the President but to help him to deceive the public and therefore can't be trusted by anyone but the President . ..."
Aug 14, 2017 | www.unz.com

The tumultuous events that dominate international news today cannot be accurately understood outside of their underlying context, which connects them together, into a broader narrative -- the actual history of our time . History makes sense, even if news-reports about these events don't. Propagandistic motivations cause such essential facts to be reported little (if at all) in the news, so that the most important matters for the public to know, get left out of news-accounts about those international events.

The purpose here will be to provide that context, for our time.

First, this essential background will be summarized; then, it will be documented (via the links that will be provided here), up till the present moment -- the current news: America's aristocracy controls both the U.S. federal government and press , but (as will be documented later here) is facing increasing resistance from its many vassal (subordinate) aristocracies around the world (popularly called "America's allied nations"); and this growing international resistance presents a new challenge to the U.S. military-industrial complex (MIC), which is controlled by that same aristocracy and enforces their will worldwide. The MIC is responding to the demands of its aristocratic master. This response largely drives international events today (which countries get invaded, which ones get overthrown by coups, etc.), but the ultimate driving force behind today's international news is the aristocracy that the MIC represents, the billionaires behind the MIC, because theirs is the collective will that drives the MIC. The MIC is their collective arm, and their collective fist. It is not the American public's global enforcer; it is the American aristocracy's fist, around the world.

The MIC (via its military contractors such as Lockheed Martin) also constitutes a core part of the U.S. aristocracy's wealth (the part that's extracted from the U.S. taxpaying public via the U.S. government), and also (by means of those privately-owned contractors, plus the taxpayer-funded U.S. armed forces) it protects these aristocrats' wealth in foreign countries. Though paid by the U.S. government, the MIC does the protection-and-enforcement jobs for the nation's super-rich.

Furthermore, the MIC is crucial to them in other ways, serving not only directly as their "policeman to the world," but also indirectly (by that means) as a global protection-racket that keeps their many subordinate aristocracies in line, under their control -- and that threatens those foreign aristocrats with encroachments against their own territory, whenever a vassal aristocracy resists the master-aristocracy's will. (International law is never enforced against the U.S., not even after it invaded Iraq in 2003.) So, the MIC is the global bully's fist, and the global bully is the U.S. aristocracy -- America's billionaires, most especially the controlling stockholders in the U.S.-based international corporations. These are the people the U.S. government actually represents . The links document this, and it's essential to know, if one is to understand current events.

For the first time ever, a global trend is emerging toward declining control of the world by America's billionaire-class -- into the direction of ultimately replacing the U.S. Empire, by increasingly independent trading-blocs: alliances between aristocracies, replacing this hierarchical control of one aristocracy over another. Ours is becoming a multi-polar world, and America's aristocracy is struggling mightily against this trend, desperate to continue remaining the one global imperial power -- or, as U.S. President Barack Obama often referred to the U.S. government, "The United States is and remains the one indispensable nation. That has been true for the century passed and it will be true for the century to come." To America's aristocrats, all other nations than the U.S. are "dispensable." All American allies have to accept it. This is the imperial mindset, both for the master, and for the vassal. The uni-polar world can't function otherwise. Vassals must pay (extract from their nation's public, and then transfer) protection-money, to the master, in order to be safe -- to retain their existing power, to exploit their given nation's public.

The recently growing role of economic sanctions (more accurately called "Weaponization of finance" ) by the United States and its vassals, has been central to the operation of this hierarchical imperial system, but is now being increasingly challenged from below, by some of the vassals. Alliances are breaking up over America's mounting use of sanctions, and new alliances are being formed and cemented to replace the imperial system -- replace it by a system without any clear center of global power, in the world that we're moving into. Economic sanctions have been the U.S. empire's chief weapon to impose its will against any challengers to U.S. global control, and are thus becoming the chief locus of the old order's fractures .

This global order cannot be maintained by the MIC alone; the more that the MIC fails (such as in Vietnam, Iraq, Afghanistan, Syria, ), the more that economic sanctions rise to become the essential tool of the imperial masters. We are increasingly in the era of economic sanctions. And, now, we're entering the backlash-phase of it.

A turning-point in escalating the weaponization of finance was reached in February 2014 when a Ukrainian coup that the Obama Administration had started planning by no later than 2011, culminated successfully in installing a rabidly anti-Russian government on Russia's border, and precipitated the breakaway from Ukraine of two regions (Crimea and Donbass) that had voted overwhelmingly for the man the U.S. regime had just overthrown . This coup in Ukraine was the most direct aggressive act against Russia since the Cold War had 'ended' (it had actually ended on the Russian side, but not on the American side, where it continues ) in 1991. During this coup in Kiev, on February 20th of 2014, hundreds of Crimeans, who had been peacefully demonstrating there with placards against this coup (which coup itself was very violent -- against the police, not by them -- the exact opposite of the way that "the Maidan demonstrations" had been portrayed in the Western press at the time), were attacked by the U.S.-paid thugs and scrambled back into their buses to return home to Crimea but were stopped en-route in central Ukraine and an uncounted number of them were massacred in the Ukrainian town of Korsun by the same group of thugs who had chased them out of Kiev .

This massacre didn't play well on local Crimean television. Immediately, a movement to secede and to again become a part of Russia started, and spread like wildfire in Crimea. (Crimea had been only involuntarily transferred from Russia to Ukraine by the Soviet dictator Khrushchev in 1954; it had been part of Russia for the hundreds of years prior to 1954. It was culturally Russian.) Russia's President, Vladimir Putin, said that if they'd vote for it in a referendum, then Russia would accept them back into the Russian Federation and provide them protection as Russian citizens.

On 6 March 2014, U.S. President Obama issued "Executive Order -- Blocking Property of Certain Persons Contributing to the Situation in Ukraine" , and ignored the internationally recognized-in-law right of self-determination of peoples (though he recognized that right in Catalonia and in Scotland), and he instead simply declared that Ukraine's "sovereignty" over Crimea was sacrosanct (even though it had been imposed upon Crimeans by the Soviet dictator -- America's enemy -- in 1954, during the Soviet era, when America opposed, instead of favored and imposed, dictatorship around the world, except in Iran and Guatemala, where America imposed dictatorships even that early). Obama's Executive Order was against unnamed "persons who have asserted governmental authority in the Crimean region without the authorization of the Government of Ukraine." He insisted that the people who had just grabbed control of Ukraine and massacred Crimeans (his own Administration's paid far-right Ukrainian thugs, who were racist anti-Russians ), must be allowed to rule Crimea, regardless of what Crimeans (traditionally a part of Russia) might -- and did -- want. America's vassal aristocracies then imposed their own sanctions against Russia when on 16 March 2014 Crimeans voted overwhelmingly to rejoin the Russian Federation . Thus started the successive rounds of economic sanctions against Russia, by the U.S. government and its vassal-nations . (As is shown by that link, they knew that this had been a coup and no authentic 'democratic revolution' such as the Western press was portraying it to have been, and yet they kept quiet about it -- a secret their public would not be allowed to know.)

The latest round of these sanctions was imposed not by Executive Order from a U.S. President, but instead by a new U.S. law, "H.R.3364 -- Countering America's Adversaries Through Sanctions Act" , which in July 2017 was passed by 98-2 in the Senate and 419-3 in the House , and which not only stated outright lies (endorsed there by virtually everyone in Congress), but which was backed up by lies from the U.S. Intelligence Community that were accepted and endorsed totally uncritically by 98 Senators and 419 Representatives . (One might simply assume that all of those Senators and Representatives were ignorant of the way things work and were not intentionally lying in order to vote for these lies from the Intelligence Community, but these people actually wouldn't have wrangled their ways into Congress and gotten this far at the game if they hadn't already known that the U.S. Intelligence Community is designed not only to inform the President but to help him to deceive the public and therefore can't be trusted by anyone but the President .

It's basic knowledge about the U.S. government, and they know it, though the public don't.) The great independent columnist Paul Craig Roberts headlined on August 1st, "Trump's Choices" and argued that President Donald Trump should veto the bill despite its overwhelming support in Washington, but instead Trump signed it into law on August 2nd and thus joined participation in the overt stage -- the Obama stage -- of the U.S. government's continuation of the Cold War that U.S. President George Herbert Walker Bush had secretly instituted against Russia on 24 February 1990 , and that, under Obama, finally escalated into a hot war against Russia. The first phase of this hot war against Russia is via the "Weaponization of finance" (those sanctions). However, as usual, it's also backed up by major increases in physical weaponry , and by the cooperation of America's vassals in order to surround Russia with nuclear weapons near and on Russia's borders , in preparation for a possible blitz first-strike nuclear attack upon Russia -- preparations that the Russian people know about and greatly fear, but which are largely hidden by the Western press, and therefore only very few Westerners are aware that their own governments have become lying aggressors.

Some excellent news-commentaries have been published about this matter, online, by a few 'alternative news' sites (and that 'alt-news' group includes all of the reliably honest news-sites, but also includes unfortunately many sites that are as dishonest as the mainstream ones are -- and that latter type aren't being referred to here), such as (and only the best sites and articles will be linked-to on this):

All three of those articles discuss how these new sanctions are driving other nations to separate themselves, more and more, away from the economic grip of the U.S. aristocracy, and to form instead their own alliances with one-another, so as to defend themselves, collectively, from U.S. economic (if not also military) aggression. Major recent news-developments on this, have included (all here from rt dot com):

"'US, EU meddle in other countries & kill people under guise of human rights concerns' – Duterte", and presented Philippine President Rodrigo Duterte explaining why he rejects the U.S. aristocracy's hypocritical pronouncements and condemnations regarding its vassals among the world's poorer and struggling nations, such as his. Of course, none of this information is publishable in the West -- in the Western 'democracies'. It's 'fake news', as far as The Empire is concerned. So, if you're in The (now declining) Empire, you're not supposed to be reading this. That's why the mainstream 'news'media (to all of which this article is being submitted for publication, without fee, for any of them that want to break their existing corrupt mold) don't publish this sort of news -- 'fake news' (that's of the solidly documented type, such as this). You'll see such news reported only in the few honest newsmedia. The rule for the aristocracy's 'news'media is: report what happened, only on the basis of the government's lies as to why it happened -- never expose such lies (the official lies). What's official is 'true' . That, too, is an essential part of the imperial system.

The front cover of the American aristocracy's TIME magazine's Asian edition, dated September 25, 2016, had been headlined "Night Falls on the Philippines: The tragic cost of President Duterte's war on drugs" . The 'news'-story, which was featured inside not just the Asian but all editions, was "Inside Philippine President Rodrigo Duterte's War On Drugs" , and it portrayed Duterte as a far-right demagogue who was giving his nation's police free reign to murder anyone they wished to, especially the poor. On 17 July 2017, China's Xinhua News Agency bannered "Philippines' Duterte enjoys high approval rating at 82 percent: poll" , and reported: "A survey by Pulse Asia Inc. conducted from June 24 to June 29 showed that 82 percent of the 1,200 people surveyed nationwide approved the way Duterte runs the country. Out of all the respondents, the poll said 13 percent were undecided about Duterte's performance, while 5 percent disapproved Duterte's performance. Duterte, who assumed the presidency in June last year, ends his single, six-year term in 2022." Obviously, it's not likely that the TIME cover story had actually been honest. But, of course, America's billionaires are even more eager to overthrow Russia's President, Putin.

Western polling firms can freely poll Russians, and do poll them on lots but not on approval or disapproval of President Putin , because he always scores above 80%, and America's aristocrats also don't like finding that confirmed, and certainly don't want to report it. Polling is routinely done in Russia, by Russian pollsters, on voters' ratings of approval/disapproval of Putin's performance. Because America's aristocrats don't like the findings, they say that Russians are in such fear of Putin they don't tell the truth about this, or else that Russia's newsmedia constantly lie about him to cover up the ugly reality about him.

However, the Western academic journal Post-Soviet Affairs (which is a mainstream Western publication) included in their January/February 2017 issue a study, "Is Putin's Popularity Real?" and the investigators reported the results of their own poll of Russians, which was designed to tap into whether such fear exists and serves as a distorting factor in those Russian polls, but concluded that the findings in Russia's polls could not be explained by any such factor; and that, yes, Putin's popularity among Russians is real. The article's closing words were: "Our results suggest that the main obstacle at present to the emergence of a widespread opposition movement to Putin is not that Russians are afraid to voice their disapproval of Putin, but that Putin is in fact quite popular."

The U.S. aristocracy's efforts to get resistant heads-of-state overthrown by 'democratic revolutions' (which usually is done by the U.S. government to overthrow democratically elected Presidents -- such as Mossadegh, Arbenz, Allende, Zelaya, Yanukovych, and attempted against Assad, and wished against Putin, and against Duterte -- not overthrowing dictators such as the U.S. government always claims) have almost consistently failed, and therefore coups and invasions have been used instead, but those techniques demand that certain realities be suppressed by their 'news'media in order to get the U.S. public to support what the government has done -- the U.S. government's international crime, which is never prosecuted. Lying 'news' media in order to 'earn' the American public's support, does not produce enthusiastic support, but, at best, over the long term, it produces only tepid support (support that's usually below the level of that of the governments the U.S. overthrows). U.S. Presidents never score above 80% except when they order an invasion in response to a violent attack by foreigners, such as happened when George W. Bush attacked Afghanistan and Iraq in the wake of 9/11, but those 80%+ approval ratings fade quickly; and, after the 1960s, U.S. Presidential job-approvals have generally been below 60% .

President Trump's ratings are currently around 40%. Although Trump is not as conservative -- not as far-right -- as the U.S. aristocracy wants him to be, he is fascist ; just not enough to satisfy them (and their oppostion isn't because he's unpopular among the public; it's more the case that he's unpopular largely because their 'news'media concentrate on his bads, and distort his goods to appear bad -- e.g., suggesting that he's not sufficiently aggressive against Russia). His fascism on domestic affairs is honestly reported in the aristocracy's 'news'media, which appear to be doing all they can to get him replaced by his Vice President, Mike Pence. What's not reported by their media is the fascism of the U.S. aristocracy itself, and of their international agenda (global conquest). That's their secret, of which their public must be (and is) constantly kept ignorant. America's aristocracy has almost as much trouble contolling its domestic public as it has controlling its foreign vassals. Investigative historian Eric Zuesse is the author, most recently, of They're Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010 , and of CHRIST'S VENTRILOQUISTS: The Event that Created Christianity .

Recently from Author

America's Top Scientists Confirm: U.S. Goal Now Is to Conquer Russia Why Readers Shouldn't Trust Staff Reporters Why Sanders Supporters Should Vote for Trump

Fidelios Automata > , August 19, 2017 at 2:22 am GMT

Fascism is defined as a system that combines private monopolies and despotic government power. It is sometimes racist but not necessarily so. By the correct definition, every President since at least Herbert Hoover has been fascist to some degree.

exiled off mainstreet > , August 19, 2017 at 4:21 am GMT

One bit of silver lining in the deep-state propaganda effort to destabilise the Trump regime is the damage to the legitimacy of the yankee imperium it confers, making it easier for vassal states to begin to jump ship. The claims of extraterritorial power used for economic warfare might confer a similar benefit, since the erstwhile allies will want to escape the dominance of the yankee dollar to be able to escape the economic extortion practised by the yankee regime to achieve its control abroad.

WorkingClass > , August 19, 2017 at 4:43 am GMT

Good news – The beast is dying. Bad news – We Americans are in its belly.

Wally > , August 19, 2017 at 6:00 am GMT

"America's aristocracy" = lying Israel First Zionists. Why doesn't Eric Zuesse just say the truth? What is he afraid of?

Must read:

jilles dykstra > , August 19, 2017 at 6:31 am GMT

" America's aristocracy has almost as much trouble controlling its domestic public as it has controlling its foreign vassals. "

These foreign vassals had a cozy existence as long as the USA made it clear it wanted to control the world. Dutch minister of Foreign Affairs Ben Bot made this quite clear whan the Netherlands did not have a USA ambassador for three months or so, Ben Bot complained to the USA that there should be a USA ambassador.
He was not used to take decisions all by himself.

Right now Europe's queen Merkel has the same problem, unlike Obama Trump does not hold her hand.

Grandpa Charlie > , August 19, 2017 at 6:38 am GMT

Fidelios,

Yes, of course. I don't know about before Herbert Hoover, but certainly during the 50s, business -- monopolistic or oligopolistic (like the old Detroit auto industry) -- and government (including the MIC) were closely integrated. Such was, indeed, as aspect of progressivism. It was considered by most to be a good thing, or at least to be the natural and normal state of affairs. Certainly, the system back then included what amounted to price-fixing as a normal business practice.

On the other hand, the "despotic" thing is less clear. Some assert that since FDR was effectively a dictator during World War II, that therefore the Democratic Party represented despotism ever since FDR (or maybe ever since Wilson).

Having lived through that period of time, I have to say that I am not so sure about that: if it was despotism, it was a heavily democratic and beneficent despotism. However, it is evident that there was a fascist skein running through the entirety of USA's political history throughout the 20th Century.

jilles dykstra > , August 19, 2017 at 6:40 am GMT

@Fidelios Automata

Fascism originates from Mussolini's Italy. It was anti socialist and anti communist, it of course was pro Italian, Italy's great deeds in antiquity, the Roman empire, were celebrated.

One can see this as racist, but as Italy consisted of mostly Italians, it was not racist in the present meaning of the word at all. Italy was very hesitant in persecuting jews, for example. Hitler depised Mussolini, Mussolini was an ally that weakened Germany. Hitler and Mussolini agreed in their hatred of communism.

Calling Hitler a fascist just creates confusion. All discussions of what nowadays fascism is, our could mean, end like rivers in the desert.

Priss Factor > , August 19, 2017 at 7:52 am GMT

Come on

'Aristocracy' and 'fascist' are all weasel words. (I'm the only true fascist btw, and it's National Humanism, National Left, or Left-Right.)

US is an ethnogarchy, and that really matters. The Power rules, but the nature of the Power is shaped by the biases of the ruling ethnic group.

It is essentially ruled by Jewish Supremacists.

Now, if not for Jews, another group might have supreme power, and it might be problematic in its own way. BUT, the agenda would be different.

Suppose Chinese-Americans controlled much of media, finance, academia, deep state, and etc. They might be just as corrupt or more so than Jews, BUT their agenda would be different. They would not be hateful to Iran, Russia, Syria, or to Palestinians. And they won't care about Israel.

They would have their own biases and agendas, but they would still be different from Jewish obsessions.

Or suppose the top elites of the US were Poles. Now, US policy may be very anti-Russian BUT for reasons different from those of Jews.

So, we won't learn much by just throwing words like 'fascist' or 'aristocrat' around.

We have to be more specific. Hitler was 'fascist' and so was Rohm. But Hitler had Rohm wiped out.

Surely, a Zionist 'fascist' had different goals than an Iranian 'fascist'.

One might say the Old South African regime was 'fascist'. Well, today's piggish ANC is also 'fascist', if by 'fascist' we mean power-hungry tyrants. But black 'fascists' want something different from what white 'fascists' wanted.

It's like all football players are in football. But to understand what is going on, we have to know WHICH team they play for.

Jewish Elites don't just play for power. They play for Jewish power.

Priss Factor > , August 19, 2017 at 8:01 am GMT

GooDL -- Google + ADL -- purges Alternative Right. This is why Alt Right needs to support BDS.

The Alarmist > , August 19, 2017 at 9:13 am GMT

Don't worry about Prez Trump as the signing of the sanctions bill and the firing of Bannon show, he is getting his thinking "right."

Even if the Dems take both houses of Congress in 2018, they won't impeach Trump because they would lose their chief justification for fund-raising and they would have no "easy to beat opponent" in 2020 or 2024.

zzzz > , August 19, 2017 at 10:27 am GMT

"Crimea had been only involuntarily transferred from Russia to Ukraine by the Soviet dictator Khrushchev in 1954; it had been part of Russia for the hundreds of years prior to 1954. "

Sure, sure from 1783 to 1954, there were many hundreds years!

Regards

jacques sheete > , August 19, 2017 at 11:42 am GMT

Good summary of where we're at, but please don't call the ruling goons aristocrats. The word, "aristocrat," is derived from the Ancient Greek ἄριστος (įristos, "best"), and the ruling thugs in this country have never been the best at anything except lies, murder and theft.

I realize that calling them violent bloodthirsty sociopathic parasites is a mouthful, and that "plutarch" doesn't have quite the appropriate sting, but perhaps it's more accurate.

Or maybe we should get into the habit of calling them the "ruling mafiosi." I'm open to suggestions.

"Goonocrats"?

Anon > , Disclaimer August 19, 2017 at 12:56 pm GMT

and that threatens those foreign aristocrats with encroachments against their own territory, whenever a vassal aristocracy resists the master-aristocracy's will.

They also -- through the joint action of Rating Agencies, the Anglosaxon media, the vassal vassal states' media, make national debt's yield spreads skyrocket.

It's been the way to make entire governments tumble in Europe, as well as force ministers for economics to resign.
After obeisance has been restored -- and an "ex Goldman Sachs man" put on the presidential/ministerial chair, usually -- investors magically find back their trust in the nation's economic stability, and yield spreads return to their usual level.

jacques sheete > , August 19, 2017 at 1:42 pm GMT

@jilles dykstra

These foreign vassals had a cozy existence

No doubt about it.

That's how thugs rule; there are plenty of quivering sell outs to do the rulers' bidding. Look at the sickening standing ovations given to Netanyahoo by supposed "US" congresscreeps.

Jake > , August 19, 2017 at 1:46 pm GMT

@Fidelios Automata Abraham Lincoln's economic policy was to combine private monopolies with the Federal Government under a President like him: one who ordered the arrests of newspaper editors/publishers who opposed his policies and more 'despotic' goodies.

Joe Hide > , August 19, 2017 at 1:47 pm GMT

While the article favorably informs, and was written so as to engage the reader, it lacks reasonable solutions to its problems presented. One solution which I never read or hear about, is mandated MRI's, advanced technology, and evidence supported psychological testing of sitting and potential political candidates. The goal would be to publicly reveal traits of psychopathy, narcissism, insanity, etc. Of course, the most vocal opposition would come from those who intend to hide these traits. The greatest evidence for the likelyhood of this process working, is the immense effort those who would be revealed have historically put into hiding what they are.

Michael Kenny > , August 19, 2017 at 2:04 pm GMT

Eric Zuesse is a rather shadowy figure who describes himself as an "investigative historian" but does not appear ever to have held an academic position. I've read a lot of his articles on another website and he systematically supports Vladimir Putin. The arguments he puts forward are thus, unsurprisingly, the standard pro-Putin arguments that have been put forward many times by many authors over the last few years. Re-hashing them yet again, particularly in this rather polemical style, suggests increasing nervousness on the part of Putin's American supporters. A side effect of Charlottesville perhaps?

Brabantian > , Website August 19, 2017 at 2:24 pm GMT

This Eric Zuesse who has recently been insinuating himself as an 'alt media star', is a known Israeli propaganda agent who mixes some truth with big lies, Wikipedia-style, in Trojan Horse service for Zuesse's intel agency masters Zuesse tries to sound trendy-critical of the USA, but like other fakers he kicks the ball to Mossad at the key moments

Zuesse earned his Israeli-agent privileges long ago with a book attacking holocaust deniers, & Zuesse regularly pipes up supporting other intel agent shills in the media, always touting himself as 'fact-based' while disparaging others, Zuesse trying to paper over real truth with his too-many links

A big con game Zuesse performs along with others, is trying to sell the fairy tale that 9-11 was done by the evil 'Saudis', & that Israel had zero zilch nada to do with 11 Sep 2001 & the neo-con war aftermath Zuesse avoiding evidence such as rabbi's son & US Homeland Security chief Michael Chertoff, releasing the arrested 'dancing Israels' of 9-11, & quickly putting them on an aeroplane back to Israel

And Zuesse breezily dismisses, the New York Times photo article on the 'art student project' inside the World Trade Center a couple of months before they were exploded, where the 'students' were photographed with a set of boxes there in the NYC tower innards the boxes had a commercial stamp on them they were boxes with components of bomb detonators

http://www.newnationalist.net/2017/03/02/world-trade-centers-infamous-91st-floor-israeli-art-student-project/

SolontoCroesus > , August 19, 2017 at 2:55 pm GMT

@jilles dykstra

All discussions of what nowadays fascism is, our could mean, end like rivers in the desert.

Poetic, jilles dykstra, but as an Italian given to bluntness, I'd state it somewhat differently:

Most people who sling the epithet "fascist" do not know what the hell they are talking about.

I suggest they read Giovanni Gentile's Origins and Doctrine of Fascism

http://www.lancasterlawoffice.com/Media/Gentile,%20Origins%20and%20Doctrine%20of%20Fascism.pdf

It's going to require a bit of effort -- a lot of effort, in fact to fully understand Gentile and what he/Mussolini hoped to achieve through Fascism- The effort will likely tax the most ambitious of our stenographer/journalist class: you'll have to take on board an understanding of Italy's fragmented history, and especially of Italy's relationship to Catholicism: it's easy for me, I lived it, but Brian Lamb was absolutely flummoxed when Maurizio Viroli tried to explain to him that Italians incorporate within themselves holy-joe pious Catholic practices with utter disdain for Church strictures -- https://www.c-span.org/video/?160904-1/niccolos-smile

As an Italian, I would, of course, play some beautiful music in the background. Tchaikovsky gathered charming Italian folk music and composed the dynamic Capriccio Italien:

PS Our Jewish/zionist friends might find it intriguing that Jabotinsky centered his "spiritual being" in Rome, and greatly admired Mussolini and sought to incorporate his ideas in Revisionist Zionism.

SolontoCroesus > , August 19, 2017 at 3:04 pm GMT

@jacques sheete

"ruling mafiosi."

No way. How about Jewish terrorists ? Very few Italians in the ruling "aristocracy." Lots of Jews.

Jake > , August 19, 2017 at 3:05 pm GMT

Eric Zuesse is a nasty, hardcore leftist in the senses that matter most. Often, he reveals his Leftism to be based on his hatred of Christianity and his utter contempt for white Christians.

But there is that dead clock being correct twice per day matter. In this article, Zuesse gets a good deal right.

First, he delineates the American Elites well. The USA forged by Abe Lincoln is not a real democracy, not a real republic. It is the worst kind of oligarchy: one based on love of money almost exclusively (because if a man does not love money well enough to be bribed, then he cannot be trusted by plutocrats) while proclaiming itself focused on helping all the little guys of the world overcome the power of the rich oppressors.

It is the Devil's game nearly perfected by the grand alliance of WASPs and Jews, with their Saudi hangers-on.

Second, it is fair to label America's Deep State fascist , Elite Fascist. And we should never forget that while Jews are no more than 3% of the American population, they now are at least 30% (my guess would be closer to 59%) of the most powerful Deep Staters. That means that per capita Jews easily are the fascist-inclined people in America.

The most guilty often bray the loudest at others in hope of getting them blamed and escaping punishment. And this most guilty group – Deep State Elites evolved from the original WASP-Jewish alliance against Catholics – is dead-set on making the majority of whites in the world serfs.

Third, the US 'weaponization of finance' seems to have been used against the Vatican to force Benedict XVI to resign so that Liberal Jesuit (sorry for the redundancy) Jorge Bergolgio could be made Pope. The Jesuits are far and away the most Leftist and gay part of the Catholic Church, and the American Deep State wanted a gay-loving, strongly pro-Jewish, strongly pro-Moslem 'immigrant' as Pope.

Fourth, that America's Leftists of every stripe, America's Neocons, and America's 'compassionate conservatives' all hate Putin is all you should need to know that Putin is far, far better for Russia's working class, Russia's non-Elites, than our Elites are for us.

Ilyana Rozumova > , August 19, 2017 at 3:14 pm GMT

Brilliant Bird-view.

jacques sheete > , August 19, 2017 at 3:34 pm GMT

@Michael Kenny

but does not appear ever to have held an academic position.

So what?

jacques sheete > , August 19, 2017 at 3:36 pm GMT

@Brabantian Good comments.

They apply to a few others around here as well, particularly this

who mixes some truth with big lies

SolontoCroesus > , August 19, 2017 at 3:37 pm GMT

@SolontoCroesus PS Gentile is 3 syllables, gen TIL eh, not GEN tile.

Priss Factor > , Website August 19, 2017 at 3:44 pm GMT

Charlottesville, Occupy Wall St And The Neoliberal Police State.
Charlottesville was a Neoliberal ambush designed to crush the Alt Right once and for all. This story must be told.

https://altright.com/2017/08/19/charlottesville-occupy-wall-st-and-the-neoliberal-police-state/

jacques sheete > , August 19, 2017 at 3:46 pm GMT

@SolontoCroesus

"ruling mafiosi."
No way. How about Jewish terrorists ? Very few Italians in the ruling "aristocracy." Lots of Jews.

Very few Italians in the ruling "aristocracy."

Another common misconception is to associate the mafia with Italians mostly. The Italian mafiosi are pikers compared to the American ones of Eastern European descent. The real bosses are not the Italians.

Bugsy Siegel, Louis "Lepke" Buchalter, Longy Zwillman, Moe Dalitz, Meyer Lansky and many many others.

Even the Jewish Virtual Library admits to some of it.

http://www.jewishvirtuallibrary.org/jewish-gangsters-in-america

New York, Chicago, Las Vegas, LA, Miami, and many others all dominated by non-Italian mobsters, not to mention the US government.

[Aug 18, 2017] Steve Bannon goes as the military takes over the Trump administration by Alexander Mercouris

Notable quotes:
"... Bannon's removal does not just remove from the White House a cunning political strategist. It also removes the one senior official in the Trump administration who had any pretensions to be an ideologist and an intellectual. ..."
"... n saying I should say that I for one do not rate Bannon as an ideologist and intellectual too highly. Whilst there can be no doubt of Bannon's media and campaigning skills, his ideological positions seem to me a mishmash of ideas – some more leftist than rightist – rather than a coherent platform. I also happen to think that his actual influence on the President has been hugely exaggerated. Since the inauguration I have not seen much evidence either of Bannon's supposed influence on the President or of his famed political skills. ..."
"... The only occasion where it did seem to me that Bannon exercised real influence was in shaping the text of the speech the President delivered during his recent trip to Poland. ..."
"... I have already made known my views of this speech . I think it was badly judged – managing to annoy both the Germans and the Russians at the same time – mistaken in many of its points, and the President has derived no political benefit from it. ..."
"... As for Bannon's alleged political skills, he has completely failed to shield the President from the Russiagate scandal and appears to me to have done little or nothing to hold the President's electoral base together, with Bannon having been almost invisible since the inauguration. ..."
"... The US's core electorate is becoming increasingly alienated from its political class; elements of the security services are openly operating independently of political control, and are working in alliance with sections of the Congress and the media – both now also widely despised – to bring down a constitutionally elected President, who they in turn despise. ..."
"... The only institution of the US state that still seems to be functioning as normal, and which appears to have retained a measure of public respect and support, is the military, which politically speaking seems increasingly to be calling the shots. ..."
Aug 18, 2017 | theduran.com

The announcement of the 'resignation' of White House Chief Strategist Steve Bannon represents the culmination of a process which began with the equally forced 'resignation' of President Trump's first National Security Adviser General Michael Flynn.

Individuals who were close to Donald Trump during his successful election campaign and who largely framed its terms – people like Bannon and Flynn – have been picked off one by one.

Taking their place is a strange coalition of former generals and former businessmen of essentially conventional Republican conservative views, which is cemented around three former generals who between them now have the levers of powers in their hands: General Kelly, the President's new Chief of Staff, General H.R. McMaster, his National Security Adviser, and General Mattis, the Secretary of Defense.

In the case of Bannon, it is his clear that his ousting was insisted on by General Kelly, who is continuing to tighten his control of the White House.

Bannon's removal – not coincidentally – has come at the same time that General H.R. McMaster is completing his purge of the remaining Flynn hold-overs on the staff of the National Security Council.

Bannon's removal does not just remove from the White House a cunning political strategist. It also removes the one senior official in the Trump administration who had any pretensions to be an ideologist and an intellectual.

I n saying I should say that I for one do not rate Bannon as an ideologist and intellectual too highly. Whilst there can be no doubt of Bannon's media and campaigning skills, his ideological positions seem to me a mishmash of ideas – some more leftist than rightist – rather than a coherent platform. I also happen to think that his actual influence on the President has been hugely exaggerated. Since the inauguration I have not seen much evidence either of Bannon's supposed influence on the President or of his famed political skills.

Bannon is sometimes credited as being the author of the President's two travel ban Executive Orders. I am sure this wrong. The Executive Orders clearly originate with the wishes of the President himself. If Bannon did have any role in them – which is possible – it would have been secondary to the President's own. I would add that in that case Bannon must take some of the blame for the disastrously incompetent execution of the first of these two Executive Orders, which set the scene for the legal challenges that followed.

The only occasion where it did seem to me that Bannon exercised real influence was in shaping the text of the speech the President delivered during his recent trip to Poland.

I have already made known my views of this speech . I think it was badly judged – managing to annoy both the Germans and the Russians at the same time – mistaken in many of its points, and the President has derived no political benefit from it.

However it is the closest thing to an ideological statement the President has made since he took office, and Bannon is widely believed – probably rightly – to have written it.

As for Bannon's alleged political skills, he has completely failed to shield the President from the Russiagate scandal and appears to me to have done little or nothing to hold the President's electoral base together, with Bannon having been almost invisible since the inauguration.

In view of Bannon's ineffectiveness since the inauguration I doubt that his removal will make any difference to the Trump administration's policies or to the support the President still has from his electoral base, most of whose members are unlikely to know much about Bannon anyway.

It is in a completely different respect – one wholly independent of President Trump's success or failure as President – that the events of the last few weeks give cause for serious concern.

The events of the last year highlight the extent to which the US is in deep political crisis.

The US's core electorate is becoming increasingly alienated from its political class; elements of the security services are openly operating independently of political control, and are working in alliance with sections of the Congress and the media – both now also widely despised – to bring down a constitutionally elected President, who they in turn despise.

All this is happening at the same time that there is growing criticism of the economic institutions of the US government, which since the 2008 financial crisis have seemed to side with a wealthy and unprincipled minority against the interests of the majority.

The only institution of the US state that still seems to be functioning as normal, and which appears to have retained a measure of public respect and support, is the military, which politically speaking seems increasingly to be calling the shots.

It is striking that the only officials President Trump can nominate to senior positions who do not immediately run into bitter opposition have been – apart from General Flynn, who was a special case – senior soldiers.

Now the military in the persons of Kelly, McMaster and Mattis find themselves at the heart of the US government to an extent that has never been true before in US history, even during the Presidencies of former military men like Andrew Jackson, Ulysses Grant or Dwight Eisenhower.

The last time that happened in a major Western nation – that the civilian institutions of the state had become so dysfunctional that the military as the only functioning institution left ended up dominating the nation's government and deciding the nation's policies – was in Germany in the lead up to the First World War.

Time will show what the results will be this time, but the German example is hardly a reassuring one.

[Aug 18, 2017] What Bannon's exit might mean the end of even the pretense that Trumpist economic policy is anything different from standard Republicanism

To a certain extent Bannon symbolized backlash against neoliberal globalization, that is mounting in the USA. With him gone Trump is a really emasculated and become a puppet of generals, who are the only allies left capable to run the show. Some of them are real neocons. What a betrayal of voters who are sick and tired of wars for expansion and protection of global neoliberal empire.
Notable quotes:
"... So if Bannon is out, what's left? It's just reverse Robin Hood with extra racism. On real policy, in other words, Trump is now bankrupt. ..."
"... with Bannon and economic nationalism gone, he will eventually double down on that part even more. If anything, Trumpism is going to get even uglier, and Trump even less presidential (if such a thing is possible) now that he has fewer people pushing for trade wars. ..."
Aug 18, 2017 | economistsview.typepad.com

Christopher H. , August 18, 2017 at 01:24 PM

https://krugman.blogs.nytimes.com/2017/08/18/whither-trumpism/

Whither Trumpism?

by Paul Krugman

AUGUST 18, 2017 1:48 PM

Everyone seems to be reporting that Steve Bannon is out. I have no insights about the palace intrigue; and anyone who thinks Trump will become "presidential" now is an idiot. In particular, I very much doubt that the influence of white supremacists and neo-Nazis will wane.

What Bannon's exit might mean, however, is the end of even the pretense that Trumpist economic policy is anything different from standard Republicanism ! and I think giving up the pretense matters, at least a bit.

The basics of the U.S. economic debate are really very simple. The federal government, as often noted, is an insurance company with an army: aside from defense, its spending is dominated by Social Security, Medicare and Medicaid (plus some ACA subsidies).

Conservatives always claim that they want to make government smaller. But that means cutting these programs ! and what we know now, after the repeal debacle, is that people like all these programs, even the means-tested programs like Medicaid. Obama paid a large temporary price for making Medicaid/ACA bigger, paid for with taxes on the wealthy, but now that it's in place, voters hate the idea of taking it away.

So what's a tax-cutter to do? His agenda is fundamentally unpopular; how can it be sold?

One long-standing answer is to muddy the waters, and make elections about white resentment. That's been the strategy since Nixon, and Trump turned the dial up to 11. And they've won a lot of elections ! but never had the political capital to reverse the welfare state.

Another strategy is to invoke voodoo: to claim that taxes can be cut without spending cuts, because miracles will happen. That has sometimes worked as a political strategy, but overall it seems to have lost its punch. Kansas is a cautionary tale; and under Obama federal taxes on the top 1 percent basically went back up to pre-Reagan levels.

So what did Trump seem to offer that was new? First, during the campaign he combined racist appeals with claims that he wouldn't cut the safety net. This sounded as if he was offering a kind of herrenvolk welfare state: all the benefits you expect, but only for your kind of people.

Second, he offered economic nationalism: we were going to beat up on the Chinese, the Mexicans, somebody, make the Europeans pay tribute for defense, and that would provide the money for so much winning, you'd get tired of winning. Economic nonsense, but some voters believed it.

Where are we now? The herrenvolk welfare state never materialized, in part because Trump is too lazy to understand policy at all, and outsourced health care to the usual suspects. So Trumpcare turned out to be the same old Republican thing: slash benefits for the vulnerable to cut taxes for the rich. And it was desperately unpopular.

Meanwhile, things have moved very slowly on the economic nationalism front ! partly because a bit of reality struck, as export industries realized what was at stake and retailers and others balked at the notion of new import taxes. But also, there were very few actual voices for that policy with Trump's ear ! mainly Bannon, as far as I can tell.

So if Bannon is out, what's left? It's just reverse Robin Hood with extra racism. On real policy, in other words, Trump is now bankrupt.

But he does have the racism thing. And my prediction is that with Bannon and economic nationalism gone, he will eventually double down on that part even more. If anything, Trumpism is going to get even uglier, and Trump even less presidential (if such a thing is possible) now that he has fewer people pushing for trade wars.


[Jul 22, 2017] Trumps Warsaw Speech and the Real Clash of Civilizations by Steven Yates

Notable quotes:
"... The recently-deceased Mr. Rockefeller, whose elders turned to banking seeing in it a source of lucre far greater than what had been available in oil, who resided at the helm of Chase Bank, and chaired the Council on Foreign Relations for many years, had the wealth and contacts necessary to pursue a purposeful agenda beyond the needs of mere international trade. It is said he had a rolodex containing over 10,000 names. ..."
"... But globalism as an ideology long predates today's advanced technology. It has been around for close to 250 years ! at least since the five scions of Mayer Amschel Rothschild (1744 – 1812) were directed to found banks in four of the biggest cities in Europe (the fifth remaining in Frankfurt-am-Main ), all remaining in communication with Dad and with each other. ..."
"... "Give me control of a nation's currency," Mayer Amschel is alleged to have said, "and I care not who makes the laws." Kings and other political figures who in one way or another crossed a Rothschild found themselves in one of many (fomented) regional wars of nineteenth century Europe. ..."
"... Globalism piggybacked on the relative success of the mixed economy that grew out of the New Deal, post-war Keynesianism, and the understandable desire to avoid another world war. The idea of a mixed economy (private and public, profit-driven enterprises encircled by and sometimes assisted by politically-created regulations, are what is "mixed," after all) returns us to political economy , which is what Adam Smith and other classical writers considered their subject to be. There was no such thing, in other words, as nontrivial "economic law," comparable to physics, abstracted from political and related considerations particular to time and place. ..."
"... Globalist machinations have empowered a superelite ! whose members move capital across borders and cut deals that affect the lives of millions of people as easily as we cross the room. Their nemeses include the distrustful national footdraggers who loused up the Doha Round and "populists" like Trump who roused the rabble against, e.g., NAFTA and the (now dead) TPP, and who question the wisdom of open borders policies which, arguably, have caused chaos all across Europe ! outside the protected enclaves of EU banking titans and globalists such as Angela Merkel. ..."
"... Globalist political economy has left people behind, because in the globalist worldview, people are as disposable as cheaply made Chinese products. ..."
"... Mishra's key observation (my way of putting it): globalization created expectations around the world that have been thwarted by globalist reality : impoverishment of former middle classes; chronic instability; incompatible cultures thrown into involuntary contact, some of them refugees of wars of choice; and a loss of autonomy for all involved, amidst a massive and growing consolidation of wealth at the top. ..."
"... The real 'clash of civilizations' is thus between incompatible visions of the future of civilization: between that of globalists and those I will call localists . What I have in mind here incorporates nationalists and those who want still smaller forms of governance, because for them the nation-state is too large. ..."
"... Globalists want to dominate the world by dominating its financial systems and, through those, its political economy ! visible politicians being vetted and controlled, and a "mainstream" media owned by their corporations. They want a mass consumption monoculture, cultural differences being cosmetic rather than substantive. Education must be tailored to this, and not toward graduating students with thinking skills apart from the mass. ..."
"... Globalists sing the praises of "democratic capitalism," but there is no reason to believe their vision has anything to do with either democracy, conceived as a political system answering to its people, or free markets. For under the mixed economy it became a given that markets needed regulating if only to improve the health and safety of an often-uninformed public (unless you really believe, e.g., that cigarette manufacturers would put warning labels on their products voluntarily, this being just one example). It was then just one step to global markets needing regulators with global reach, and other global problems (e.g., alleged man-made climate change) requiring coordinated global solutions. "Free trade" has evolved considerably since Ricardo schooled us about comparative advantage. It is now freedom for billionaires to do as they please, often at the expense of the livelihoods of millions! ..."
"... Opposing globalism openly is risky in any event. An academic who defended economic nationalism would likely be forced from his job in the present environment. Independent commentators may have the Internet but can forget about being published in well-paying markets. ..."
"... Trump's campaign was self-funded, and this was one source of his appeal. His present travails are proof of how hard it is to oppose globalism even in one of the world's most powerful offices. ..."
"... The "swamp" is proving deeper, wider, and more venomous than I think he imagined in his worst nightmares! ..."
"... By a long shot, globalist ideology is driven by western nations, especially America. The west needs moral and philosophical reformations, new ways of thinking that respect identity without the paranoid screeching about bigotry. The alt-right, with its pure focus on whiteness, is not going to be able to do this. It takes a broader vision to create and propagate new ideologies that can be applied to society in general. ..."
"... As Socrates observed, many people who claimed to know about some particular thing erred–committed "original sin" in the Greek, not Old Testament sense–when they generalized, on the basis of their limited knowledge, and thinking that they knew a lot about a lot, talked authoritatively about that with which they were not familiar. ..."
Jul 22, 2017 | www.unz.com

The attacks came at once, as if on cue. Consider Eugene Robinson's op-ed in the ever-reliably Trump-hating Washington Post . Robinson asked snarkily, "Triumph over whom?"

Let's treat this as a fair question. Over ISIS? North Korea? Russia? Those being the villains of the moment, they are easy to single out. Trump did not name the real enemy in this speech: globalism (he did say, in his acceptance speech , "Americanism, not globalism, will be our credo!"). Despite struggling with allegations (still with the flimsiest of evidential support) that Russia interfered with the 2016 election and that his campaign staff now including his son Don Jr. colluded with them, Trump is still seen as a major threat to globalist interests.

As I use the term, globalism is not the same thing as globalization . In many respects, globalization goes back millennia. It emerged with explorers of ancient times wanting to know what was over the horizon, and who lived there. In modern times it involves advances in technology, especially communications, that facilitate cross-border trade. None of these need erase national borders or a people's cultural identity; through consciousness of differences it might even enhance them. Globalism is a more specific ideology holding that economies should integrate, that borders should be dissolved, culture is irrelevant, and that peoples can be moved around like chess pieces "reinventing themselves," merged into a monoculture of mass consumption and disposability. The process needs transnational regulation and so must culminate in a world state, de facto or de jure , with a single global currency ! digital rather than physical, so that all transactions can be recorded and monitored (even those involving cryptos!)

The global system would be ruled by an elite superclass (in my book Four Cardinal Errors: Reasons for the Decline of the American Republic I call this entity the superelite to distinguish it from more visible national elites) overseeing a hierarchy of administrators and technocrats. This superclass already controls most of the world's wealth. The "developed" world is easily four fifths of the way to this kind of system, referred to as the "liberal order" or the "international order" or with some similar euphemism. The Brexiteers, Donald Trumps, Geert Wilders, and Marine Le Pens of the world are dragging their feet. The first two of these succeeded ! at least for the moment. The latter lost major elections, placing their causes on hold.

Does globalism actually exist as I describe it, or is it a " conspiracy theory "? Let's consult two architects of globalist thought. Zbigniew Brzezinski stated in his 1970 book Between Two Ages: America's Role in the Technetronic Era (p. 56-62 of 1970 ed.):

The nation-state as a fundamental unit of man's organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state .

A global human conscience is for the first time beginning to manifest itself . Today we are witnessing the emergence of transnational elites composed of international businessmen, scholars, professional men, and public officials. The ties of these new elites cut across national boundaries, their perspectives are not confined by national traditions, and their interests are more functional than national. These global communities are gaining in strength and it is likely that before long the social elites of most of the more advanced countries will be highly internationalist or globalist in spirit and outlook

The new global consciousness, however, is only beginning to become an influential force. It still lacks identity, cohesion, and focus. Much of humanity ! indeed, the majority of humanity ! still neither shares nor is prepared to support it. Science and technology are still used to buttress ideological claims, to fortify national aspirations, and to reward narrowly national interests . The new global unity has yet to find its own structure, consensus, and harmony.

David Rockefeller Sr. read the above, contacted the author, and with Henry Kissinger they organized the Trilateral Commission to address the problem identified in the final paragraph. Rockefeller was quoted two decades later telling a Bilderberg assembly (June 1991):

"We are grateful to The Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now much more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries."

This is probably the most famous David Rockefeller quote. There's no hard proof he actually said it, though. He might have said it. We don't know. What it says is not foreign to his thinking. He did assert the following, in his Memoirs (2002, pp. 404-05), in the context of a riposte against "populists," and this time there is no doubt:

For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as "internationalists" and of conspiring with others around the world to build a more integrated global political and economic structure ! one world, if you will. If that's the charge, I stand guilty, and I am proud of it.

The recently-deceased Mr. Rockefeller, whose elders turned to banking seeing in it a source of lucre far greater than what had been available in oil, who resided at the helm of Chase Bank, and chaired the Council on Foreign Relations for many years, had the wealth and contacts necessary to pursue a purposeful agenda beyond the needs of mere international trade. It is said he had a rolodex containing over 10,000 names.

We can thus rest our case that globalism is a real phenomenon. Is it a conspiracy? Conspiracies, by definition, are hidden from you. As two of the above statements indicate, its leaders have hardly been hiding. Perhaps the reading public can be faulted for preferring glitzy bestsellers to books about reality.

The question before us: what is the alternative to it? One can almost hear the chorus: There Is No Alternative . Writers such as Robinson above are very good at invoking "economic theory" against "populism." He had previously said: "The speech Trump delivered had nothing useful to say about today's interconnected world in which goods, people and ideas have contempt for borders." He elaborated: "Industrial supply chains cross borders and span oceans. Words and images flash around the globe at the speed of light. Global issues, such as nuclear proliferation and climate change, demand global solutions. Like it or not, we are all in this together."

In this case, who laid down those supply chains, and why must they invite "contempt for borders"? Are these aspects of a natural, deterministic dynamic that a technologically advancing, creative-destruction driven civilization is bound to follow? It is easy to argue that there is such a dynamic, in which case globalists are being carried along with the rest of us and are identifiable only because they are smarter than we mere mortals and therefore more conscious of the process than we are ! not to mention better situated to profit from it.

But globalism as an ideology long predates today's advanced technology. It has been around for close to 250 years ! at least since the five scions of Mayer Amschel Rothschild (1744 – 1812) were directed to found banks in four of the biggest cities in Europe (the fifth remaining in Frankfurt-am-Main ), all remaining in communication with Dad and with each other. The coldly talented Nathan established himself as a dominant player in the City of London and succeeded his father as family patriarch as he built up N.M. Rothschild & Sons; his eldest son Lionel would succeed him. What ensued was not merely amassing wealth but accruing power, the power of private banking, international moneylending, and investment. "Give me control of a nation's currency," Mayer Amschel is alleged to have said, "and I care not who makes the laws." Kings and other political figures who in one way or another crossed a Rothschild found themselves in one of many (fomented) regional wars of nineteenth century Europe.

There is a longstanding debate over what drives history: material forces (economic ones, blood ties, etc.) or ideas and worldviews (e.g., Christianity ! or Judaism ! or materialism). I hold out for the latter, because most material forces of modern times would not exist without men of power putting them in place guided by an idea or worldview (and materialism is a worldview, not a fact established by any science).

Globalism piggybacked on the relative success of the mixed economy that grew out of the New Deal, post-war Keynesianism, and the understandable desire to avoid another world war. The idea of a mixed economy (private and public, profit-driven enterprises encircled by and sometimes assisted by politically-created regulations, are what is "mixed," after all) returns us to political economy , which is what Adam Smith and other classical writers considered their subject to be. There was no such thing, in other words, as nontrivial "economic law," comparable to physics, abstracted from political and related considerations particular to time and place.

But the mixed economy has been a mixed blessing. It created prosperity and the largest middle class the world had ever seen, but had numerous costs. One was that individuals, including those in that middle class, became increasingly dependent on its systems. This is a separate article; for now we will just observe that these systems, which over a period lasting more than a century intertwined the political economy of the changing workplace with advancing technology, mass media culture, and family dynamics, diminished real individual freedoms as people were encircled by its effects and its products ! their lives made less and less convenient if they did not cooperate and consume. Brzezinski foresaw the culmination of these changes:

Another threat confronts liberal democracy. More directly linked to the impact of technology, it involves the gradual appearance of a more controlled and directed society. Such a society would be dominated by an elite whose claim to political power would rest on allegedly superior scientific know-how. Unhindered by the restraints of traditional liberal values, this elite would not hesitate to achieve its political ends by using the latest modern techniques for influencing public behavior and keeping society under surveillance and control (pp. 252-53).

There can be no doubt this has happened. Globalist machinations have empowered a superelite ! whose members move capital across borders and cut deals that affect the lives of millions of people as easily as we cross the room. Their nemeses include the distrustful national footdraggers who loused up the Doha Round and "populists" like Trump who roused the rabble against, e.g., NAFTA and the (now dead) TPP, and who question the wisdom of open borders policies which, arguably, have caused chaos all across Europe ! outside the protected enclaves of EU banking titans and globalists such as Angela Merkel.

Globalist political economy has left people behind, because in the globalist worldview, people are as disposable as cheaply made Chinese products. Those left behind now have voices of various stripes across the ideological spectrum ! people like Trump and Le Pen on the right, Bernie Sanders on the left, and writers such as Pankaj Mishra who aren't easily classifiable but whose Age of Anger: A History of the Present is, in my humble opinion, a must read. Mishra's key observation (my way of putting it): globalization created expectations around the world that have been thwarted by globalist reality : impoverishment of former middle classes; chronic instability; incompatible cultures thrown into involuntary contact, some of them refugees of wars of choice; and a loss of autonomy for all involved, amidst a massive and growing consolidation of wealth at the top.

The real 'clash of civilizations' is thus between incompatible visions of the future of civilization: between that of globalists and those I will call localists . What I have in mind here incorporates nationalists and those who want still smaller forms of governance, because for them the nation-state is too large.

Globalists want to dominate the world by dominating its financial systems and, through those, its political economy ! visible politicians being vetted and controlled, and a "mainstream" media owned by their corporations. They want a mass consumption monoculture, cultural differences being cosmetic rather than substantive. Education must be tailored to this, and not toward graduating students with thinking skills apart from the mass.

Localists want autonomy: freedom from encircling forces they had no say in and no control over, whether created by "free trade" deals or open borders policies they did not sign off on. They want control over their lives, families, communities, economies, and nations.

Globalists sing the praises of "democratic capitalism," but there is no reason to believe their vision has anything to do with either democracy, conceived as a political system answering to its people, or free markets. For under the mixed economy it became a given that markets needed regulating if only to improve the health and safety of an often-uninformed public (unless you really believe, e.g., that cigarette manufacturers would put warning labels on their products voluntarily, this being just one example). It was then just one step to global markets needing regulators with global reach, and other global problems (e.g., alleged man-made climate change) requiring coordinated global solutions. "Free trade" has evolved considerably since Ricardo schooled us about comparative advantage. It is now freedom for billionaires to do as they please, often at the expense of the livelihoods of millions!

The globalists world state would answer primarily to their corporations because the latter have the money, having profited from those global supply lines and from having moved operations to where labor is cheapest ! before, that is, labor is replaced altogether by technology and thrown to the wolves.

The problem is again, many of these groups want nothing to do with one another. Readers of this essay may be antiglobalists but want nothing to do with most of them. Some are not even aware of others. This lack of any semblance of unity does not bode well for any strategy of opposition.

Opposing globalism openly is risky in any event. An academic who defended economic nationalism would likely be forced from his job in the present environment. Independent commentators may have the Internet but can forget about being published in well-paying markets. Candidates for public office who speak openly of globalism being an enemy of freedom in America can forget about being able to raise the money and gain the visibility necessary to run credible campaigns. Funding sources tend to be wired into globalist interests. They would not be where they are otherwise. As for visible figures who don't need the money, e.g., Trump, if his enemies should succeed in taking him down, whether via substanceless Russia allegations or by some other ploy, we might see how risky! We might see whether Trump's election was more than a speed bump on the road towards a global state. Things are getting late, after all! Were this a baseball game, we'd be starting the ninth inning!

Trump's campaign was self-funded, and this was one source of his appeal. His present travails are proof of how hard it is to oppose globalism even in one of the world's most powerful offices.

The "swamp" is proving deeper, wider, and more venomous than I think he imagined in his worst nightmares!

... ... ... ...

ABOUT THE AUTHOR

Steven Yates is a writer with a Ph.D. in philosophy. He is the author of the books Civil Wrongs: What Went Wrong With Affirmative Action (1994), Four Cardinal Errors: Reasons for the Decline of the American Republic (2011), approximately two dozen articles and reviews in academic journals and anthologies, and over a hundred articles of online commentary, especially on NewsWithViews.com . Dr. Yates taught philosophy at several colleges and universities in the Southeast. In 2012 he moved from South Carolina to Santiago, Chile, where he has taught periodically at two universities there, as well as having involved himself in teaching English and operating a small editing business, Final Draft Editing Service . He is married to a Chilean, and at present writes almost full time. He blogs about philosophy and the foibles of academia at Lost Generation Philosopher .

Priss Factor > , Website July 22, 2017 at 5:51 am GMT

Molyneux gets really passionate.

He(Yates) blogs about philosophy and the foibles of academia at Lost Generation Philosopher.

His Patreon donation page is here. Is Patreon reliable? Not to Lauren Southern. Speaking of endangering lives, it is globalist wars and the open borders policy that are leading to killings, rapes, violence, but never mind. Patreon is just a globalist corporation.

jilles dykstra > , July 22, 2017 at 6:20 am GMT

" The real 'clash of civilizations' is thus between incompatible visions of the future of civilization: between that of globalists and those I will call localists. "

This clash now is quite visible over new Polish legislation.
A new law creates democratic control over the nomination of judges, something the USA has for high court judges since the USA exists.
But Brussels opposes this, threatens with taking away Poland's voting right in EU decisions, stopping EU subsidies to Poland.

A similar clash is over Hungary, the country has enough of Soros' propaganda university.
But Soros visited Juncker and Tusk, Hungary was put under pressure, and now I'm not sure if Soros' institutions will be expelled or not.

Then there is the clash over immigration, the orthodox catholic E European countries refuse Muslim migrants.

And of course we see this clash over Brexit, the EU is of the opinion that the European High Court after Brexit still has jurisdiction in GB.
Brussels does not see that the Anglican Church was created to stop the pope interfering in British affairs.

utu > , July 22, 2017 at 7:01 am GMT

Rockefeller was quoted two decades later

Who quoted him and where? Or should I ask who made up this quote?

Wizard of Oz > , July 22, 2017 at 8:43 am GMT

Excuse me not having taken time to finish reading your article before responding to the stimulus of your (apprpriately) distinguishing globalisation and globalism. As one who generally supports the standard argłments for free trade despite also wanting to do a quality check on immigrants to my proserous and fairly law abiding country I would be pleased to see a study of the problems of small countries and what ordering of the world could and should mitigate them.

Establlished small countries seem to be OK. But what about the Greeces? Especially, what about an African small country possibly with only one major mineral deposit as a source of wealth and inevitable volatity in its commodity's price?

Anonymous > , July 22, 2017 at 10:30 am GMT

The super-elite are rapidly losing their grip on the hearts & minds of the populace. This will accelerate as they move to implement more coercive measures (already happening) so it's only a matter of time before some mass-depopulation program becomes desirable.

Hopefully, we'll stop them before that happens.

Charles Vok > , July 22, 2017 at 1:24 pm GMT

(((Globalists))

Jason Liu > , July 22, 2017 at 1:40 pm GMT

By a long shot, globalist ideology is driven by western nations, especially America. The west needs moral and philosophical reformations, new ways of thinking that respect identity without the paranoid screeching about bigotry. The alt-right, with its pure focus on whiteness, is not going to be able to do this. It takes a broader vision to create and propagate new ideologies that can be applied to society in general.

cliff arroyo > , Website July 22, 2017 at 2:31 pm GMT

@jilles dykstra

I live in Poland and the story with the legislation is different and a bit more complex.The problem is that it's basically putting judges under direct political control of the ruling party with no checks and balances in their choice or dismissal. Lots of people would be in favor of some reform of the judiciary which is fairly terrible but this is an obvious power grab (the government would also appoint those in charge of verifying elections).

Scuttlebut is that the purpose is to trump up legal charges against opposition candidates to keep them out of future elections.

ThreeCranes > , July 22, 2017 at 2:45 pm GMT

Wandering Jews have long been labeled "rootless cosmopolitans". Their culture is an adaption to their lifestyle, is this lifestyle. (Largely Jewish) Globalists take a model that works in the particular case of the Jewish people and try to generalize it to apply to the whole world. But what works as an exception is made possible by the existence of the base upon which it rests. The rule that governs the exception cannot in and of itself build or sustain the foundation upon which the exception rests.

Humans are personal animals who need an intimate connection with their environs and other people. A mathematic model based on the economic principles of banking cannot be the base upon which human societies are created.

As Socrates observed, many people who claimed to know about some particular thing erred–committed "original sin" in the Greek, not Old Testament sense–when they generalized, on the basis of their limited knowledge, and thinking that they knew a lot about a lot, talked authoritatively about that with which they were not familiar.

Bankers are ill equipped to construct the Ideal Society.

Anonymous > , July 22, 2017 at 3:55 pm GMT

@Michael Kenny You're wrong. The US (and the EU) is fully controlled by the supranational globalists. At least it was until Trump but that battle is still to be decided. The EU was not created to make the member nations stronger – it was designed to remove the sovereignty from the populace while they're being genocided. Open your eyes.

Anonymous > , July 22, 2017 at 5:10 pm GMT

The idea of globalism is much older. The ottoman empire was an example of globalism. The mongol empire before that, was globalism. Heck even the roman empire was globalistic in a way. Globalistic forces have always existed alongside localistic forces. And it was a form of globalism (colonialisation) that also helped make the west wealthy. It is also globalism that helped make the united states a super-power by helping its dollar become the global reserve currency.

Thats globalism right there.

But localism is also important because sometimes leaders of countries know whats best for their people better than some foreign person. Even if the foreign-persons have good intentions, they may not 'get it right' as native born leaders do. A lot of people in the world might not have achieved the living standards they have now ..if it was not for the development of 'nation-states' in the first place.

So i think a 'balance' of globalism and localism is better over one or the other.

Ace > , July 22, 2017 at 5:43 pm GMT

@Jason Liu By a long shot, globalist ideology is driven by western nations, especially America.

The west needs moral and philosophical reformations, new ways of thinking that respect identity without the paranoid screeching about bigotry. The alt-right, with its pure focus on whiteness, is not going to be able to do this. It takes a broader vision to create and propagate new ideologies that can be applied to society in general. Every minority pressure group out there is a reliable source of virulent anti-white hatred.

Diversity did not have to be but those who brought it about were unwise. The idea that America should be anything other than a white majority nation is absurd. Hosannas issue when hostile minorities and unassimilable foreigners talk about ethnic and racial interests but whites are just supposed to fade gracefully to khaki. And shut up about it. Reassert ourselves? The horror.

Economic collapse will flush a lot of stupidity from the system. It will be a giant game of 52 Pick Up but better chaos soon than certain degradation later.

[Jul 17, 2017] Hallucinating Banks Believe They Are Technology Start-Ups

Notable quotes:
"... And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem. ..."
"... In a digital world filled with choice ..."
"... choice, empathy and ease of use designed into every interaction they have with the bank ..."
"... For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions. ..."
"... It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech. ..."
"... There is no greater trojan horse to change an organization than design thinking,¯ said Stephen Gates, head of Citi Design. " Especially with something where there are lawyers, regulators Part of what we had to do was change thinking, not behavior. If it's new behavior on old thinking, we didn't really change anything.¯" ..."
"... lawyers, regulators "¯ ..."
"... Perhaps banking has killed off its most appealing aspects and left its minions filthy rich but with nothing stimulating to do. ..."
"... Automated decisioning has removed a lot of the skill and judgement for banks' credit officers. It has also removed a lot of credit officers! There's virtually no discretion available in retail credit policy and no-one empowered to override standard-model largely FICO derived lending decisions. As you say, a lot of local market knowledge helped banks and their lending teams make credit decisioning much more flexible in the past. ..."
"... It fascinates me how fascinated banks are with big data now. When banks were the first and ultimate big data company – just the data processors were people, not machines. Then they used the machines to streamline processes, seemingly w/o realisation that streamlining processes gets you commoditised (as its eminently copiable). So now banks are struggling to avoid a commoditization while working very very hard at it. ..."
"... I agree with Doctor Duck: the idea that because it's programmed, it's a better bureaucracy has really turned out to be a false promise. Just look at the financial crisis and reverse redlining (ie, predatory loans) was used as a financial weapon against minorities. ..."
"... Aside from racial injustices, it's pretty obvious that "the programming" is there to reify existing class divisions. There's no bureaucratic computer program that seeks to free people from the crushing bonds of class. Max Weber would have a field day. Bureaucratic technology ensures that there's no charisma appearing in the system. ..."
"... "On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset ..."
"... If you really want to get disgusted, look up "Learning Analytics". Venture capital is streaming into these startups that are aggressively data mining students. None of it ever passes through an ethics board and much of it violates FERPA, but the Department of Education seems to shrug their collective shoulders about it. Probably because many Dept of Ed personnel end up at those companies as advisors. ..."
"... And don't get me started on those tablets. Google hands out Chromebooks and swears up and down that they don't collect usage data. ..."
"... Well, see, arithmetic and maths and English and composition and Physics and Chemistry change so often that using paper textbooks would leave paper textbook students hopelessly behind students using tablets. OK, tablets cost on the order of 3 times what paper textbooks cost for the same usable time-span. But, hey! It's new! It's now! It's happening! (And also, too, rents.) /s ..."
"... One aspect you didn't cover, that I think may be more important than fighting off regulations (although that plays a role, I'm sure) is that I think execs are looking to get a piece of the silicon valley, techland infinite money-pile. They see Tesla worth more than Ford and they dream of where their stock price (and their stock options!) might go if they were thought of as tech companies instead of boring old banks. ..."
"... And part of it is fear. They are afraid of being the next Sears or local taxi company or whoever getting disrupted by the infinite silicon valley money-pile, either by the startups that can burn billions of dollars buying market share or by the big players who can leverage their entrenched monopoly positions in their core markets to spend billions trying to take over any market they feel like. ..."
"... The issue is that the banks have no incentive to address the 5 issues that you raised. They are a rent seeking cartel that does not care about the well being of the general populace at all. They certainly are not tech start-ups. I get the impression that most people think that tech startups are God, but in reality there are many bad start-ups too. ..."
"... Basically, their money is made screwing the general public over at this point. That's sad to say, but it is not far from the truth. What we need is a public bank and/or larger credit unions that can offer all the financial services of a big bank. ..."
Jul 17, 2017 | www.nakedcapitalism.com

The first paragraph states what may be obvious to those outside the finance industry bubble. Namely that users of financial services mostly do not want or need so-called innovative financial products or any new ways of using finance in their lives. Rather, they want banks to provide simple, easy-to-understand basic financial products that work. According to the copious data available from the Consumer Financial Protection Bureau which I've analysed, retail bank customers' top five sources of complaint are:

  1. Fees.
  2. Poor customer service.
  3. Unpaid checks or other bounced payments.
  4. "Gotcha's" hidden in product Terms and Conditions small print.
  5. Bank errors (which were either not corrected, took a lot of effort to get corrected or the corrections caused other knock-on issues).

I've worked in finance for nearly 30 years. The very first list I ever saw for complaints looked exactly the same as this.

And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem.

Customers, even if we are supposed to be " In a digital world filled with choice " don't need " choice, empathy and ease of use designed into every interaction they have with the bank "¯. We want to not be ripped off and for the banks to act competently in our dealings with them.

It is too much of a stretch to expect that the banks, unprompted or without being cajoled by regulators, will address structural issues around their business culture, executive conduct and outlandish profitability ratio expectations. However, we should expect continued wailing and gnashing of teeth from the banks about "innovation"¯ and the need to be "competitive"¯ in "the marketplace"¯. The latter is a complete and immediately disprovable canard though, because the top 5 banks control nearly half of the market .

So why, then, do the banks keep going, broken-record like, with their claims about the need to innovate?

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions.

It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech.

Lining up alongside a desire to do anything to relieve the monotony push, bank C-level leaderships then adds a pull all of their own. A preoccupation with trying to escape regulatory and legal constraints. For evidence, let's return to the Tearsheet post:

There is no greater trojan horse to change an organization than design thinking,¯ said Stephen Gates, head of Citi Design. " Especially with something where there are lawyers, regulators Part of what we had to do was change thinking, not behavior. If it's new behavior on old thinking, we didn't really change anything.¯" ( emphasis mine)

Superficially, this doesn't sound especially problematic. It could even be construed as plodding old legacy businesses like banks trying to adapt themselves to the modern knowledge economy era. Such superficial analysis would be wrong. Firstly, repeating a cliché of innovation and relying on invisible hands that ceaselessly drive any and all businesses to discard everything they've done historically and start afresh is just that, clichéd.

The notion that everything a business has learned and any intellectual property it possesses has suddenly, somehow, been rendered obsolete by some vague notion of an immense technological development is repeated so often that it's become part of our prevailing culture. But aside from a very small number of breakout products, such as the personal computer, the internet and the smartphone, most products you buy or services you use are only ever incremental improvements on what has preceded them.

The same applies to banking. Without getting too bogged down in the technicalities, a bank's only functions are to intermediate maturities and interest rates on deposits taken and loans made, plus to offer some money transmission services. Within financial services, the only two true innovations in the past 50 years or more which stand up to a scrutinizing of that term are the ATM and the credit card. Changes to how customers are serviced such as the migration from the branch channel to the telephone or the internet have shifted the "where"¯ and the "how"¯ banks interact with their customers, but not the "what"¯ of those interactions.

The line I highlighted in the Tearsheet article gave the game away. The participants who's thinking purportedly needs to change are not the accountants picking through expense reports stripping out costs (which usually means reducing headcount). Nor is it the thinking of executives to reduce their outsized compensation packages. Nor is it in boards who will only look at changes through the lens of a 5-year business case which must pay back within the shortest of short-term timeframes and satisfy outlandish Return on Investment (ROI) targets. These ways of thinking have been with us for at least 20 years or more, but apparently aren't in any danger of approaching a sell-by date.

No, the thinking that needs to change is that of " lawyers, regulators "¯ who are being exhorted to change to embrace the latest design trends and technological innovations. But regulators and lawyers are not and cannot be creative types who spend their time considering new colors for logos and typefaces for websites. Their jobs are to enforce or provide advice and guidance on the laws governing a corporation's products and services or to interpret regulatory frameworks which have been enacted by regulators and lawmakers. Creativity, design thinking and behavior doesn't come into it. Just because a bank wants to label a change as being innovative doesn't ! or shouldn't ! lessen the obligations on a bank's legal team or the regulators to comply with laws or existing regulations.

Gutting regulatory compliance and trying to side-step legal obligations aren't "design thinking". They're the same connivances which would have killed the entire banking industry 10 years ago, had we not all been coerced into bailing it out.

You can't blame the banks for trying it on. They are what they are and will continue to be so until they are forced to change. You can, however, fairly and squarely blame regulators and lawmakers for not pouring a lot of cold water on this craving for technological fervour. Making the banks tackle their long-standing issues as evident in the CFPB's complaint data before they can try anything fancy like fintech would be a start.

Banking industry , Guest Post , Ridiculously obvious scams , Technology and innovation on July 12, 2017 by Clive . About Clive

Survivor of nearly 30 years in a TBTF bank. Also had the privilege of working in Japan, which was great, selling real estate, which was an experience bordering on the psychedelic.

timotheus , July 12, 2017 at 7:09 am

A question from a total outsider: if modern banking is tedious and frustrating, could this be related to the (often-mentioned here) move away from servicing credit needs to algorithm-driven mechanics? If I think of the banker who sat in a front window of his bank on the main square of my home town, he was surely engaged in figuring out who was mortgage-worthy, what businesses might be good bets for loans, etc. It might have had its routine aspects, but it was engaged, integrated into the town's life, and required complex skills including how to say no to the guy who would sit next to your family at church. Perhaps banking has killed off its most appealing aspects and left its minions filthy rich but with nothing stimulating to do.

Clive Post author , July 12, 2017 at 7:42 am

Automated decisioning has removed a lot of the skill and judgement for banks' credit officers. It has also removed a lot of credit officers! There's virtually no discretion available in retail credit policy and no-one empowered to override standard-model largely FICO derived lending decisions. As you say, a lot of local market knowledge helped banks and their lending teams make credit decisioning much more flexible in the past.

I was though more referring here to the technology side of banks ! they are the antithesis of what many attracted to enter the sector think it will be like. There's so many internal bureaucracy hurdles, complexity constraints and cost-focussed management to work with, the people who unwisely buy into the hype the recruitment consultants proffer end up frustrated and disappointed. It is almost inevitable they go looking for glamour projects ! however unworkable they may be like a lot of fintech ! to try to latch onto.

Jim A , July 12, 2017 at 8:20 am

Of course the bad mortgages that were a big part of the RE bubble were approved by poorly thought out algorithms. As were the ratings on the bonds created from them. Algorithms are really only as good as the data that they are based on and the knowledge of the people who write them. And when it is profitable in the short term to ignore the long term, rest assured that somebody will figure out a way to make the algorithms do that.

EricT , July 12, 2017 at 9:19 am

Not algorithms, fraud. Mears, Countrywide and Goldman come to my mind.

Vatch , July 12, 2017 at 9:59 am

Who or what is Mears?

Tinky , July 12, 2017 at 10:20 am

Probably meant "MERS", aka "Mortgage Electronic Registration Systems, Inc."

Though "Mears" is an anagram of "reams", so

Vatch , July 12, 2017 at 12:16 pm

Oh, okay, that makes sense. Thank you.

MERS is the source of much trouble.

vlade , July 12, 2017 at 8:29 am

Amen.

That said, it's an interesting world out there, as banks do vary from country to country (having had experience in a number of them, on both sides of the fence).

Say in NZ, I had a bank manager, and he had some (reasonably) ability to vary the interest rate on my mortgage when I came asking. He could also offer special rates on deposits (over a certain amount).

In the UK, I also had a bank manager. Who wasn't even told by the bank's credit card department my CC application was rejected as I wasn't in the country for long enough, so he kep submitting it in the belief it got lost.. To modify an interest rate on anything was impossible. And, most recently it's even impossible to override the automated lending decision. Hurrah for automation!

It fascinates me how fascinated banks are with big data now. When banks were the first and ultimate big data company – just the data processors were people, not machines. Then they used the machines to streamline processes, seemingly w/o realisation that streamlining processes gets you commoditised (as its eminently copiable). So now banks are struggling to avoid a commoditization while working very very hard at it.

notabanker , July 12, 2017 at 8:50 am

Screams Utility, doesn't it?

programmer3 , July 12, 2017 at 8:43 am

On the flipside, removing personal discretion from credit judgement calls also makes the process more fair – less "redlining," and no denying credit based on personal prejudices (or approving loans for friends and family)

Clive Post author , July 12, 2017 at 8:54 am

That's a valid point ! it was too easy for a friends-and-family bias and even bribery to creep in to human decisions before model-based credit decisions became the norm. The happy-medium was when predefined scoring criteria were used as the foundation for a loan but you could appeal to head/regional offices for an over-ride if you had good extenuating circumstances or other reliable evidence to back you up.

The latter option is now no longer available, for the most part.

Doctor Duck , July 12, 2017 at 9:08 am

Your nick is 'programmer' and you think an algorithm couldn't be written to include a few "red lines"? Hmmm

Harry , July 12, 2017 at 2:46 pm

Exactly what I was thinking

Thuto , July 12, 2017 at 4:35 pm

Exactly, see my comment below

cocomaan , July 12, 2017 at 9:42 am

I agree with Doctor Duck: the idea that because it's programmed, it's a better bureaucracy has really turned out to be a false promise. Just look at the financial crisis and reverse redlining (ie, predatory loans) was used as a financial weapon against minorities.

Aside from racial injustices, it's pretty obvious that "the programming" is there to reify existing class divisions. There's no bureaucratic computer program that seeks to free people from the crushing bonds of class. Max Weber would have a field day. Bureaucratic technology ensures that there's no charisma appearing in the system.

We've created machines in our image, with all our prejudices and all of our assumptions in place, preserved in silicon forever.

Sue , July 12, 2017 at 3:54 pm

cocomaan,
very good points!

Mel , July 12, 2017 at 1:23 pm

Process more objective. The red lines are the ones written into the algorithms. I recall a Ted Rall post about Dayton OH that described them demolishing empty historic buildings to get their occupancy rate up. Banks algos wouldn't grand mortgage funds in areas with high un-occupancy rates. This is death to Jane Jacobs' recommended city environment, where a range of available rents, low-to-high, nourished every kind of development. A new-scale developer, blogging as Granola Shotgun has a lot to say about this ! the linked posts and a lot before.

Scott F , July 12, 2017 at 1:40 pm

Actually, a recent study took a classic psychology evaluation used on humans to detect bias and modified them to apply to so-called Artificial Intelligence and found that the same biases pop-up. The authors conjectured that the training data – compiled by humans – introduced the humans' biases into the system.

https://www.princeton.edu/news/2017/04/18/biased-bots-artificial-intelligence-systems-echo-human-prejudices

David Barrera , July 12, 2017 at 3:43 pm

This reminds me of the statistical gender discrimination algorithms used in the past. Some subindustries considered cost efficient to screen out women for employment because of the probability of maternity leave-apparently there were other "average gender biased considerations too"-. This excluded first, women who did not want to have any kids, and secondly-and independently from that- diverse, able, capable and willing labor participants. Have you ever asked yourself why some jobs which would not require a college degree by any stretch of the imagination screen out electronically the non-college degree applicants? "On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset. This way the enterprise leaves out that which the average does not include and which in certain cases could bring terribly needed different approaches to a job .Yet, no one ever said enterprises were democratic, truly inclusive and open to certain changes.

In regards to the financial theme, programmer 3 commented "removing personal discretion approving loans from friends and family". Anyone who worked for a lending company in the past knows it was a matter of policy that no employee could make loans to relatives or friends.

Remember that personal discretion-as opposed to personal arbitrariness-acts within written and unwritten guidelines and rules too. Also, what your stand alone algorithmic dictatorship does to how delinquencies are currently managed by the mortgage industry it just simply has no name.

HotFlash , July 13, 2017 at 2:09 am

"On average", a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset

.

These days, a college degree is also a prime indicator of life-controlling debt.

Thuto , July 12, 2017 at 4:34 pm

Not in South Africa, where race is big factor in determining the risk profile of the client. As you can probably guess, the machines have been programmed to grant punitive interest rates to black people

Mrs Smith , July 12, 2017 at 7:49 am

Someone just sent me this link, and it's a perfect example of the above.

Don't miss the "native negroni" complete with "chilled vibes" and "bonus badassness."

[A "nope" gif isn't nearly strong enough to constrain my gag reflex for this stuff.]

https://www.linkedin.com/pulse/time-something-new-james-haycock?trk=v-feed&lipi=urn%3Ali%3Apage%3Ad_flagship3_feed%3BT57ItR8S3HRsqyVGECS1vw%3D%3D

Clive Post author , July 12, 2017 at 8:00 am

That is the worst example of this kind of thing I've ever seen! And we've seen plenty here it deserves some kind of award, in the same vein as the anti-Academy Award "Golden Raspberries" does for motion pictures. It might, Clive says hoping, be some sort of parody. Unfortunately, I think it is for real.

Arizona Slim , July 12, 2017 at 8:35 am

And it's all too typical of the bovine manure that gets posted on LinkedIn Pulse. Consider the source.

Stephen Gardner , July 12, 2017 at 9:30 am

But was the gin in the negroni curated by a hipster in tight pants and an ironic mustache? If not I just am not interested. LOL.

John Wright , July 12, 2017 at 9:42 am

To show my disconnect from the modern world, the linkedin article closes with "PI-shaped people"

I had to search for that, first suspecting it meant a person who levers their abilities by 3.14159xxxx

From what I found, there are T-shaped, PI-shaped and Comb-shaped people and the symbol's shape is a sort of expertise indicator.

A T-shaped person has one area of expertise under their generalist/broad knowledge top hat, a PI shaped person has TWO areas of expertise under their generalist/ broad knowledge top, while a comb-shaped person has MULTIPLE expertise areas under their generalist/broad knowledge top.

Do people make a living coming up with this stuff?

NotTimothyGeithner , July 12, 2017 at 12:42 pm

"Do people make a living coming up with this stuff?"

Delta shaped people do.

cocomaan , July 12, 2017 at 12:16 pm

Is this satire? I know if I have to ask that I'm the negative negroni, but this can't be real.

Bill Smith , July 12, 2017 at 8:00 am

From the list, the first one, fees, aren't going away given that the interest margins are so narrow.

I've seen a number of banks partner with one of the non bank fintech's (even pre IPO fintech's) to make the bank fintech savvy. To get their computer driven credit system? It will take a while to see how that works out.

notabanker , July 12, 2017 at 8:37 am

The agile design led stuff reminds me a lot of the TQM programs I went through in the 80's / 90's. Independent thinking within the group, commitment to the group to do the work, rolled out in large scale. We're even moving away from the cube farm to the factory floor, with foosball, xbox's and (sometimes free) coffee for all.

Likewise, the whole spinoff/startup thing was in vogue back in the early 90's when banks were faced with e-commerce, this is just the 2017 version.

Legacy is, and in some ways should be, their issue. Systems of record for fin transactions should have a long shelf life. With that comes people, process, costs and profits, all major drags on change. They won't be able to have it both ways.

fajensen , July 12, 2017 at 9:18 am

Me thinks that this kind of hype reaching banks and even politicians (the Danish government has created a "Disruption-council") is a sign that things are not going so well inside the engine room on the mother ship of the technopocalypse. Governments and Banks are kinda the very last people on earth to discover anything. At All. When they are suddenly "getting the vibe" whatever "the vibe" was about, is absolutely over :).

I think that Silicon Valley is leaking flim-flam merchants and "evangelists" because the money is getting thinner, the sell is becoming harder, easy consulting opportunities are diminishing and fewer are being procured by the real operators (Apple, Google, Facebook, CISCO .) to provide their stunning insights and bold visions for the future. The accountants are ascending, ROI is being scrutinised, exponential growth is levelling off so now there is time to do that.

The visionaries and evangelists still like to be paid (and the travel), so instead of canvassing Silicon Valley harder with work better suited to the actual future, they spread out and seek new markets for the same old stuff, kinda like what happened when Monsanto poured PCB into everything plasticky when the market for oil-filled capacitors was tapped out.

I'd say, in only one-two years, there will be good "SPLAT!" in the .unicorn market.

HotFlash , July 13, 2017 at 2:17 am

Thanks, fajensen, I think you are quite right. Totally looking forward to the Big Splat!

SoCal Rhino , July 12, 2017 at 9:08 am

Keeping score from recent battles among local demi deities, currently turf beats innovation, and in a stunning reversal that may not last, cost cutting prevailed over turf. These battlefields rather than the PowerPoint campaigns being where I observe corporate culture.

vlade , July 12, 2017 at 9:14 am

I'd add one innovation to the list though – smart sweep systems. That is, something that optimises the costs of an account/accounts for a client. That could be just sweeps between saving/checking accounts (not talking US here), to queuing transactions as to minimize costs etc.

But the banks that implemented this found very quickly that it led to a significant drop in client profitability (namely overdraft fees collapsed, interest paid went up), so quietly canned it.

But the story doesnt' end there – the smart ones figured out that optimization doesn't care whether you do max or min, so used the technology to optimise the profit from the client – hence things like applying debits before credits (to take you into overdraft) etc. Forunately, this "innovation" went out too, but it took regulators to get it done.

Clive Post author , July 12, 2017 at 9:22 am

Yes indeedey. My TBTF stopped allowing new sweeps / pooling arrangements which was a great service for customers who wanted to keep money on deposit or even in a market-linked account but didn't want to have to worry about constantly keeping an eye on what was in their current (checking) account to make sure they weren't going to go overdrawn.

Simple to understand, easy to set up for both customers and the bank, worked flawlessly because it was just a nightly batch job with easy-peasy logic ! what was there not to like? Erm unfortunately for the customers, the hit on bank profitability.

flora , July 12, 2017 at 9:19 am

Gaaa. Let me fix a bit of the Tearsheet intro:
"In a digital world filled with choice, banks' customers need choice, empathy and ease of use need sound information, good customer service and accurate accounting designed into every interaction they have with the bank."

I use my bank as a utility, not as an exciting "experience."

Great post.

cocomaan , July 12, 2017 at 9:48 am

Hey Clive, loved this piece. This really caught my attention:

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity.

I've worked in higher education and you see the same thing going on right now. Education, to me, is a social process of imparting knowledge. Simple solutions to perennial problems in education are: (1)Smaller class sizes (2) Better pay/benefits for teachers (3) Support systems for parents to help them help their children do well.

But what happens in education? Well the same thing you mention above: technology is thrown at these kids a mile a minute. Suddenly, the solution to problems in the classroom is monitoring grades through centralized systems with their databanks on the cloud, where student's every move is considered and they are flagged technologically for not living up to expectations. There's a huge complex of technological charlatan/consultants infesting higher and primary education at the moment.

Before long, the "boring" solutions are impossible. Why? As you say above, the technology becomes ensnared in itself, taking on its own inertia. Before you know it, you can't afford to change anything for the better because you have several legacy systems running simultaneously and weighing down budgets.

Clive , July 12, 2017 at 12:24 pm

It takes a lot to shock me, nowadays, but I was genuinely taken aback when an educator friend of mine (in our equivalent of K-12) told me she'd been given a tablet with ! from what I could tell, I didn't see it in action ! proprietary software used by the chain academy (charter school as it would be called in the US) where she works which prompted her during lessons to capture certain metrics (numbers of students voluntarily putting their hands up when asked certain previously defined questions in class, time spent on a particular PowerPoint slide ! a PowerPoint slide I thought for cryin' out loud ! which had been similarly predefined and "tagged for follow up" versus the estimated "best practice" time slot for this classroom content, a teacher-subjective "score" for student "engagement" and similar).

As a bit of a data nerd, I was appalled not just by the intrusion into territory where, surely, experienced educators knew best what to do, how to pace lessons, how to make best use of classroom time and so on but ! more importantly ! by the risible quality of the data being gathered. It was what I call pseudo facts, things which sound like they might be telling you something worth knowing but don't actually prove anything.

It all reminded me of those animal behaviour studies, the ones which come to conclusions like "when a cat comes towards you and it has its tail upright, it is engaged with you and wants you to interact with it". Sufficed to say when I tried out the theories on my mother-in-law's cat, I got a scratched top of my hand for my trouble.

cocomaan , July 12, 2017 at 1:09 pm

Love the cat analogy. Glad, or rather not glad, to know that it's reached across the pond.

If you really want to get disgusted, look up "Learning Analytics". Venture capital is streaming into these startups that are aggressively data mining students. None of it ever passes through an ethics board and much of it violates FERPA, but the Department of Education seems to shrug their collective shoulders about it. Probably because many Dept of Ed personnel end up at those companies as advisors.

And don't get me started on those tablets. Google hands out Chromebooks and swears up and down that they don't collect usage data.

flora , July 12, 2017 at 2:05 pm

an aside, and off topic (apologies):

Well, see, arithmetic and maths and English and composition and Physics and Chemistry change so often that using paper textbooks would leave paper textbook students hopelessly behind students using tablets. OK, tablets cost on the order of 3 times what paper textbooks cost for the same usable time-span. But, hey! It's new! It's now! It's happening! (And also, too, rents.) /s

Clive Post author , July 12, 2017 at 2:45 pm

Yeah, it's not like those old fashioned printed text books wouldn't go out of date (unless there was a lot of needless curriculum churn) and not have a useable economic life, even allowing for students' not-too-careful handling, of 5 to 10 years or so. Oh wait a minute

PKMKII , July 12, 2017 at 1:55 pm

Example of what I like to the call the "If you want faster-than-light-speed travel tomorrow, you have to let us commit fraud today" argument. Question is, whose eyes are they trying to pull the wool over? Investors to be wooed by web 2.0 jibberish? The top brass, to justify their continued employment and/or promotions? The public, as a horse and pony show to distract us from the bezzle? Regulators, hoping that the innovation and tech talk will intimidate them from paying attention to the man behind the curtain?

Some Guy , July 12, 2017 at 2:01 pm

Good post Clive, as someone who's been in banking for a few decades now, the current moment is very reminiscent of the late 90's, even down to some of the details.

Was on a call with some senior folks a while back rhapsodizing about how cutting edge neural network models would revolutionize our business, and I turned to a colleague who also been around the block and said, 'yeah we tried all that in the 90's, it didn't really make a difference' (vs. the standard approach of using multiple regression for credit scoring), and he said to me, 'yeah we tried that at my bank too, same result'

One aspect you didn't cover, that I think may be more important than fighting off regulations (although that plays a role, I'm sure) is that I think execs are looking to get a piece of the silicon valley, techland infinite money-pile. They see Tesla worth more than Ford and they dream of where their stock price (and their stock options!) might go if they were thought of as tech companies instead of boring old banks.

And part of it is fear. They are afraid of being the next Sears or local taxi company or whoever getting disrupted by the infinite silicon valley money-pile, either by the startups that can burn billions of dollars buying market share or by the big players who can leverage their entrenched monopoly positions in their core markets to spend billions trying to take over any market they feel like.

DH , July 12, 2017 at 5:36 pm

Wells Fargo tried that where they made account creation essentially click-bait for their workers. It worked for a while until it didn't. It turned out that their account creation approach was just a retread of the 1999 dot.com model, so they really were a tech start-up after all.

Altandmain , July 12, 2017 at 6:29 pm

The issue is that the banks have no incentive to address the 5 issues that you raised. They are a rent seeking cartel that does not care about the well being of the general populace at all. They certainly are not tech start-ups. I get the impression that most people think that tech startups are God, but in reality there are many bad start-ups too.

Basically, their money is made screwing the general public over at this point. That's sad to say, but it is not far from the truth. What we need is a public bank and/or larger credit unions that can offer all the financial services of a big bank.

ScottS , July 12, 2017 at 7:09 pm

From http://m.builtinla.com/2017/06/30/4-la-startups-named-prestigious-fintech-list :

Manhattan Beach-based PeerStreet closed out 2016 with a bang, raising a $15 million Series A anchored by strong growth over the course of the year. The company developed a crowdfunding platform that gives real estate investors access to high-yielding loans, with individual investments starting from as low as $1,000.

What could go wrong?

Colonel Smithers , July 13, 2017 at 6:49 am

Thank you for this post and reader contributions.

Many of the examples cited apply (equally) to my former employer, Barclays. Having been shafted by shysters from Wall Street, the bank jumped into the frying pan of (pseudo-)techies (often from a particular part of the world). My current employer, the German twin of Barclays, is just the same as the blue eagle.

Clive , July 13, 2017 at 6:58 am

Mine too, they must be putting something in the water.

[Jul 12, 2017] Ever more official lies from the US government by Paul Craig Roberts

Notable quotes:
"... John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries. ..."
"... It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%. ..."
Jul 12, 2017 | www.unz.com

The "recovery" is more than a mystery. It is a miracle. It exists only on fake news paper.

According to CNN, an unreliable source for sure, Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, reports that about half of Americans report that their living expenses are equal to or exceed their incomes. Among those aged 18 to 25 burdened by student loans, 54% say their debts are equal to or exceed their incomes. This means that half of the US population has ZERO discretionary income. So what is driving the recovery?

Nothing. For half or more of the US population there is no discretionary income there with which to drive the economy.

The older part of the population has no discretionary income either. For a decade there has been essentially zero interest on the savings of the elderly, and if you believe John Williams of shadowstats.com, which I do, the real interest rates have been zero and even negative as inflation is measured in a way designed to prevent Social Security cost of living adjustments.

In other words, the American economy has been living on the shrinkage of the savings and living standards of its population.

Last Friday's employment report is just another lie from the government. The report says that the unemployment rate is 4.4% and that June employment increased by 222,000 jobs. A rosy picture. But as I have just demonstrated, there are no fundamentals to support it. It is just another US government lie like Saddam Hussein's weapons of mass destruction, Assad's use of chemical weapons against his own people, Russian invasion of Ukraine, and so forth and so on.

The rosy unemployment picture is totally contrived. The unemployment rate is 4.4% because discouraged workers who have not searched for a job in the past four weeks are not counted as unemployed.

The BLS has a second measure of unemployment, known as U6, which is seldom reported by the presstitute financial media. According to this official measure the US unemployment rate is about double the reported rate.

Why? the U6 rate counts discouraged workers who have been discouraged for less than one year.

John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries.

It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%.

Now, let's do what I have done month after month year after year. Let's look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is "ambulatory health care services," provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.

As I have emphasized for a decade or two, the US is devolving into a third world workforce where the only employment available is in lowly paid domestic service jobs that cannot be offshored and that do not pay enough to provide an independent existance. This is why 50% of 25-year olds live at home with their parents and why there are more Americans aged 24-34 living with parents than living indepenently.

This is not the economic profile of a "superpower" that the idiot neoconservatives claim the US to be. The American economy that offshoring corporations and financialization have created is incapable of supporting the enormous US debt burden. It is only a matter of time and circumstance.

I doubt that the United States can continue in the ranks of a first world economy. Americans have sat there sucking their thumbs while their "leaders" destroyed them.

(Republished from PaulCraigRoberts.org by permission of author or representative)

[Jul 11, 2017] Lee Camp Enjoy The Trump Show While Wall Street Pillages The Country

Notable quotes:
"... This is when the mainstream media did what they do best – they acted as the white blood cells attacking the infection in the system. (And I'm sure I'm not the first to use that analogy.) In this case the "infection" was activists calling attention to the full-blast destructive tendencies of capitalism. ..."
"... A small tax on all financial transactions would be a start in slowing down the crazy money-go-round that is strangling our real economy. ..."
"... At some point we need Wall Street ..."
"... just as truckers and pilots need to pass random drug and alcohol tests, congress kriters and strategic wall street participants should also be required to subject themselves to such monitoring and testing ..."
"... At some point we need Wall Street ..."
"... Gary Gensler's study, when he headed the CFTC, found that over 90% of so-called hedge trades were pure speculation. ..."
"... From 1914 to 1966, there was a transaction tax, begun with the Revenue Act of 1914, ended during the Johnson Administration. ..."
"... The media don't like Trump and they didn't much like Occupy either. So one should be clear about who is doing the distracting. While Trump certainly is a boorish person who rubs women in particular the wrong way, it's likely that's not what is motivating the rabid opposition. Commonsensical pronouncements about getting along with Russia or rolling back globalism strike at the heart of a plutocracy that seems to have the country in a death grip. Trump may not have been a very sincere or motivated reformer but clearly Sanders would have met with the same circus of distraction (the stories about his wife a shot across the bow). ..."
"... Consider the fate of Muammar Gadiffi. Ruler of the wealthiest an most socially progressive country in Africa. Liked to wear weird clothes and hang out in a tent in the desert with his harem. Made the mistake of meddling in regional power politics, and the fatal mistake of trying to organized a gold-based currency for trade in oil. His fate was to have his country torn apart with the active support of the CIA, NSA and other US spook agencies. And to die with a bayonet up his ass while Secretary of State Hillary Clinton watched on a live spy satellite camera and chortled madly. https://www.youtube.com/watch?v=dR45C6Vw8uM ..."
"... Getting people into debt is the whole point. If not willingly, by force if necessary. Debt keeps the mopes working. Debt works better than abject slavery because the oppressive nature of the practice is more easily rationalized by the perpetrators. Christianity once objected to usury for good reason. ..."
"... This dual arrangement, private elite money and Government need works so well for both parties because all the upside goes to the wealthy. The wealthy are shielded form the horrors of dishing out violence to achieve ones goals -- that task is relegated to the Government, while the Government is free from accountability- they can always get more "money" from the elite because they control all the wealth. ..."
"... That is the extreme tragedy of Privatization. The real wealth of the nation and potential of its people are squandered in a financial shell game. ..."
Jul 11, 2017 | www.nakedcapitalism.com

Donald Trump is the best thing to happen to Wall Street in twenty years. This is because since the moment he took the oath of office, no one has so much as uttered a word about Wall Street....

... ... ...

During the 2011/ 2012 Occupy movement, for the first time in years the entire country took a critical eye to the institution that was running our economy (by "running" I mean "dry humping"). The nation FINALLY cared that this institution was steadily extracting all of the wealth and resources and giving it (in an unmarked bag) to a tiny percentage of men and women (mainly men) who smelled impeccable. Even those citizens who were wrongly disgusted by Occupy still felt that Wall Street was exploiting the American people at a jaw-dropping pace. And they got angry. The country got angry. FINALLY – at long last – everyone got ANGRY.

This is when the mainstream media did what they do best – they acted as the white blood cells attacking the infection in the system. (And I'm sure I'm not the first to use that analogy.) In this case the "infection" was activists calling attention to the full-blast destructive tendencies of capitalism. The media piled on the protesters as if those activists were the ones sucking every last penny out of the American people. This, along with a healthy dose of militarized police and FBI infiltration , is how Occupy ended up maligned and imprisoned. The white blood cells then moved on to step three of Operation Protect Wall Street (step one is ignore the protests, step two is attack the protesters). Step three is the same as step one – "ignore," which is akin to silencing. We saw these identical steps with Standing Rock. Most protest movements don't get past step one; the mainstream media ignores them to see if they'll simply go away, and it usually works. In fact until social media came along, it almost always worked. But now the internet has allowed for an alternate path to public awareness (and an alternate path to AMAZING photos of cats partaking in a variety of very un-catlike tasks). And this is why crushing net neutrality is something the FCC and Wall Street are drooling over. But I digress.

Jim A. , July 11, 2017 at 8:10 am

At some level, we need Wall Street, just like we need a liver. But a swollen, bloated and inflamed liver is NOT a sign of health, and is indeed a dangerous. Wall Street has become a huge drag on the economy rather than an aid to it. Our economy is now structured to give Wall Street far more money than it can find actual, productive uses for. Instead of being used to build new plants and research new products, most of that money just goes into "financial products," that blow asset bubbles or stock repurchases, or leveraged buyouts, Low rates have fueled large levels of inflation in the monetary supply, but because little of that has been seen in wages, it hasn't had much effect on the prices of consumer products, Instead, it has pushed up asset prices, which in turn concentrates wealth every more. Which the wealthy, and their sycophants confuse with actual "growth" in the economy.

A small tax on all financial transactions would be a start in slowing down the crazy money-go-round that is strangling our real economy.

PKMKII , July 11, 2017 at 9:05 am

More like a tumorous liver, one that's come to see the other organs as superfluous. Heart, brain, digestive system, they're nice, but if sacrificing them means more for the liver, well TINA! We don't help the body perform, we are the body.

bdy , July 11, 2017 at 9:40 am

At some point we need Wall Street

Anyone care to elaborate? Cause me and mine do just fine down at the credit union. If Santa Monica wants to tunnel under downtown for the new Bio-Luminescent Fungus Park do they really have to borrow the funds from the vampire squids? Isn't Bank of Santa Monica just as capable of hitting the discount window after the fact to shore up reserves? What am I missing that makes an NYC clearing house for lottery tickets that profit the .1% so vital?

Vatch , July 11, 2017 at 11:08 am

The credit union won't be able to fund the construction of a new school or sewer system. They won't be able to fund a business that wants to expand. If you want to sell some of your stock to pay for your child's college education, you don't call your friends and neighbors and ask them to buy your stock. You sell it through a broker, who is part of the Wall Street network.

What we don't need is a lot of fancy options, elaborate asset backed securities like collateralized debt obligations, and credit default swaps. We certainly don't need high frequency trading. Wall Street is infested with those.

alex morfesis , July 11, 2017 at 11:47 am

the american credit union system is not much different than the german financial cooperatives and landesbank system except the germans get to use it to build a stable economic model, where here in the us, the credit union system is attacked as some form of "fidelismo"

http://www.abfjournal.com/articles/brave-new-world-community-banks-credit-unions-enter-syndication-market/

"in my hand I have a list of" .

https://www.bvr.de/About_us/Cooperative_Financial_Network

somehow, the whole euro thingee system only cheerleads for german use of its system and does not seem to encourage (other than perhaps the WIR in switzerland) anyone else being "european" enough to enjoy the "german advantage"

http://www.reuters.com/article/us-banking-germany-landesbanken-idUSBRE98G06720130917

there have been fannie/freddie type of conduits previously for credit unions to recycle capital lending capacities but those were the first to be shut down to eliminate competition with wall street

http://www.business.unr.edu/faculty/liuc/files/fin415/WSJ_01292009.pdf

http://news.cuna.org/articles/print/36683

credit unions can do all types of big projects

directly or via some form of syndication

they can also be formed for and by businesses to provide local capital they do not have to be just "consumer" deposit cycling organizations there are technically no restrictions on their growth

there is the acela vanity press which goes in a circle in respects to what a credit union is and what it does and how large a parcel of the citizenry in fact are members and have funds deposited and cycled through said credit unions

Vatch , July 11, 2017 at 12:38 pm

credit unions can do all types of big projects

directly or via some form of syndication

Wouldn't that syndication be something resembling Wall Street? (without all of the ridiculous derivatives, high frequency trading, and outlandish bonuses, of course)

alex morfesis , July 11, 2017 at 1:15 pm

just as truckers and pilots need to pass random drug and alcohol tests, congress kriters and strategic wall street participants should also be required to subject themselves to such monitoring and testing

can easily make a strong argument "for" derivatives, cds, cdo, squareds rectangulars and octoganals too even high frequency churning

the technical word is prudence within reason and for a small percentage beyond the market needs to keep market flows available and ready for moments of capital drying up

currency markets at trillions of dollars per day are perhaps just a convenient vehicle to "make bribery great again"

would argue there is now and has been for quite some time a very massive substance abuse problem in the capital markets which feed into the myopia of "allowable excesses"

more funds are given away to charities in this great american enterprise than is "thrown away/invested" in enterprise start ups

300 billion per year to charity vs less than 100 billion per year in start ups

the systems are all in place in this vast imperium for the small shmoes to do many things perhaps not enough transactional attorneys in the right places to make it work and happen in a consistent and sustainable manner, but the tools are all there however

we have our capital allocations all [family blogged] up

Hiho , July 11, 2017 at 1:06 pm

God, and why on the earth would someone agree with wall street funding schools or sewer systems. That is the duty of the government. Not even bondholders or private creditors are really needed once you understand that banks also create money from thin air.

Anon , July 11, 2017 at 1:37 pm

And the Wall Street route (selling Bonds), instead of using taxation, usually costs the locals a premium of 40% over the actual cost of the project. And the beneficiaries are the 1% who can afford to purchase those Bonds.

sgt_doom , July 11, 2017 at 1:50 pm

You need to have a serious question with the Clinton/Rodham family about this, since it really exploded under their watch.

Reagan did establish the Office for Privatization within the OMB, but he didn't do enough to suit the Heritage Foundation, which evidently loves their Clintons!

Vatch , July 11, 2017 at 2:00 pm

Hiho: City, county, and state/provincial governments can't create money, and sometimes there are necessary projects which require a lot more money than can be raise by taxes in just one year. Whether the money comes from bond sales or from bank loans, the governments will use taxes to pay the money back over a period of 20, 30, or 40 years. Since the local savings banks may not have the resources to make a lot of those loans, a bond market is needed.

Anon: It's not just the one percenters who benefit from buying bonds. There are also plenty of pension funds and mutual funds, and those benefit more than just the one percenters.

A vast amount of abusive behavior has occurred in the financial industry, but that doesn't change the fact that the industry does provide some value.

No Way Out , July 11, 2017 at 1:09 pm

At some point we need Wall Street

We need Wall Street to recycle back into the economy the huge sums of money that rise to the top of the human chain like crap rises to the top of a cesspool.

Either that, or we could reinstate the 90% marginal rate, properly tax capital gains in inheritances, and institute a wealth tax with a hard cap on how much a person could possess. We could also disallow the ownership of corporations by other corporations (since they are after all human beings), and make corporate officers indictable for any felonies their corporations committed which they did not report. And we could stop pretending that an economy needed more than 300 million people to function efficiently, and that human beings can pull themselves up by the bootstraps on $8/hour.

sgt_doom , July 11, 2017 at 1:53 pm

Recently read Survival of the Richest by Donald Jeffries, and he has a wonderful chapter there on the great American populist, Huey Long.

Long's tax reform program in his Share The Wealth project was most intelligent.

John Wright , July 11, 2017 at 10:04 am

While the country does need Wall Street to help allocate resources, a link I've posted before to NC has one observer (Paul Woolley) suggesting the US/UK financial industry is 2 to 3 times larger than optimum.

Essentially, the USA could downsize its financial industry by 50-66% and be better off

see: http://www.newyorker.com/magazine/2010/11/29/what-good-is-wall-street

See "I asked Woolley how big he thought the financial sector should be. "About a half or a third of its current size," he replied.""

But as we watch the Bush-Obama-Trump financial industry friendly administrations operate, the likelihood of "right sizing" the financial industry seems very remote.

In my view, only another financial massive crisis can precipitate any reform/resizing, it will not arise in the current financial industry fed political process otherwise.

justanotherprogressive , July 11, 2017 at 10:09 am

"to help allocate resources"????
Yea, they are good at that, aren't they? Oddly enough, that allocation seems to be to only a select few ..is that what allocation means?

Then bank robbers are also good at allocating resources

John Wright , July 11, 2017 at 11:15 am

It's a stretch, bu imagine you subtract the portion of Wall Street responsible for the Housing Bubble, Auto Bubble, Student loan bubble, Commercial property bubble, Internet bubble, LBO/Private Equity funding, and stock buyback funding, the remaining subset of Wall Street could be providing some societal value.

One could argue that crowd funding could lessen the size of even this residue.

So a portion of Wall Street may be useful for funding infrastructure and research/development in the future.

But rightsizing never seems to be appropriate for Wall Street.

Jim A. , July 11, 2017 at 10:58 am

Oh at this point I suspect that it is far larger than 2-3 times optimum size. I'd wager that the reason for that 2-3 estimate isn't so much that they get the optimum size wrong as that they underestimate the current size of Wall Street.

justanotherprogressive , July 11, 2017 at 10:07 am

"At some level, we need Wall Street"?
The biggest employer in my town is privately owned – it doesn't need Wall Street (and oddly enough, that company didn't suffer during the "recession", go figure .). There are many many small businesses in this country – they don't need Wall Street
I don't need Wall Street

Wall Street has been putting out its propaganda for so long that people are buying into it without thinking. Actually Wall Street needs us to keep buying and going into debt to survive but they've somehow convinced us that they are doing us a favor by keeping us in debt .

Hiho , July 11, 2017 at 1:10 pm

Exactly.

On top of that and contrary on what many people think, wall street does not fund industry. Industry funds wall street.

Thor's Hammer , July 11, 2017 at 10:14 am

"At some level we need Wall Street–" like we need a metastatic cancer. A neutron bomb that destroyed its core and sought out all its tentacles would be more appropriate.

What we need is an actual marketplace that evaluates asset allocation from the standpoint of how well it serves the citizens of the world and how well it supports the biosphere and ecosphere within which they live. Capitalist markets serve or evolve into casinos for the ultra-rich who control them. Central planned economies without the guiding hand of markets become calcified skeletons that are every bit as dysfunctional as capitalist markets.

in order for a market system to be sustainable it would have to be based upon a generally accepted wisdom about the human role in the ecosphere. And it would have to reflect a systemic decentralization of power that prevents the drive to domination that characterizes all of human social history.

Are humans smarter than yeast?

Thor's Hammer , July 11, 2017 at 2:49 pm

When this post was submitted there were only three posts before it. Why is is now 2/3 of the way down the list of 48?

Outis Philalithopoulos , July 11, 2017 at 3:19 pm

Look at the time stamps. The post order is a tree order (node, then branches), with posts on the same tree level ordered by time stamp. That means that if originally there are two posts, and then twenty people respond later to the first post, the second post will become the twenty-first.

Alex Morfesis , July 11, 2017 at 12:58 pm

The new york state stock transfer/transaction tax exists & has existed but has been handed back as a 100% tax refund since felix the Cheshire car crushed the municipal govt unions in the late 70's

TSB-M-82-(6)M

Depending on who you ask, the amount not collected each year is ten to twenty billion (yes with a B)

10 to 20 billion per year rebated to wall street for 25 years

well be reasonable

Times square is still a mrss and the abandoned piers on the west side of Manhattan and all those empty factory buildings that faith hope consolo just can't seem to get any retail enterprises into

Half a trillion bux

you can't have nice things

Because because

just because

RickM , July 11, 2017 at 8:43 am

Why a small tax on financial transactions? How about a flat 1%, instead of the 0.1% I read about in the usual sources? That sounds about right. Besides, I hear flat taxes are the best!

Vatch , July 11, 2017 at 10:56 am

I believe the thinking behind a small transaction tax is that it will not impede legitimate securities transactions, such as the purchase of some shares of stock for retirement. If the transaction tax is too large, it affects people on main street. But even a small transaction tax will have an effect on the high frequency trading that hedge funds and giant banks indulge in thousands or even millions of times per day. Ordinary investors have no possibility of beating the algorithmic high frequency traders, so to make things a little more fair, the high frequency traders should pay a tax on every transaction. This tax should not be large enough to harm the ordinary investors.

Jim A. , July 11, 2017 at 11:01 am

And if that HFT was just dueling algorithms in a cage match, it would be a zero-sum game. But the reason that it is profitable is that much of it constitutes automated "front running."

Anon , July 11, 2017 at 1:50 pm

This tax should not be large enough to harm the ordinary investors.

Who are these ordinary investors? What percent of transactions do they make? How do their transactions fare when their trades only have to be made within 48 hours of placement. (Arbitrage anyone?!)

sgt_doom , July 11, 2017 at 2:00 pm

Bulltwacky!

Gary Gensler's study, when he headed the CFTC, found that over 90% of so-called hedge trades were pure speculation.

From 1914 to 1966, there was a transaction tax, begun with the Revenue Act of 1914, ended during the Johnson Administration.

Vatch , July 11, 2017 at 2:07 pm

Right. So a small transaction tax will either inhibit the speculation, or raise money for the government. Either way it's a good thing.

José , July 11, 2017 at 4:55 pm

There's this interesting proposal on transaction taxes to stabilize the financial system – by Professor Marc Chesney from the University of Zürich (I translated from the original German):

"Micro taxes on electronic payments – This would also be a technically simple solution to stabilize the system. In Switzerland, there are about one hundred thousand billions of Swiss francs in electronic payments per year. That is, one plus 14 zeros. This is about 160 times the Swiss GDP. Taking 0.2 percent of this, one would have had in tax receipts two hundred billion francs a year, more than all present-day taxes in Switzerland, that do not exceed 170 billion Swiss francs per year.

That is, theoretically one could, in place of all other taxes, of almost all other taxes, just pay this micro tax every time that you get a bill electronically paid. Like, every time you go to the restaurant, to the hairdresser. Every time you go to the ATM, for example, to get 100 francs, you could pay 20 Rappen (cents) in taxes. It would be a simple measure and we would have much less of a headache with the annual tax declaration. In fact, we could also, in theory, use this micro tax for – quite simply – abolishing the annual tax declaration. So, it would be a simple, and cheap, measure. And yet we do not talk about this possibility."

Carolinian , July 11, 2017 at 8:51 am

The media don't like Trump and they didn't much like Occupy either. So one should be clear about who is doing the distracting. While Trump certainly is a boorish person who rubs women in particular the wrong way, it's likely that's not what is motivating the rabid opposition. Commonsensical pronouncements about getting along with Russia or rolling back globalism strike at the heart of a plutocracy that seems to have the country in a death grip. Trump may not have been a very sincere or motivated reformer but clearly Sanders would have met with the same circus of distraction (the stories about his wife a shot across the bow).

It's really the power of the media that is Fight Club, the thing nobody is allowed to talk about. Camp himself has come under attack from the NYT. Doubtless Trump understands this which is why he still clings, however ineptly, to Twitter. One can only wonder how long before the web itself comes under assault.

neo-realist , July 11, 2017 at 10:03 am

The mud heaping on Sanders wife, I suspect, is about destroying his credibility for 2020. With all their influential capability, TPTB still believe themselves very threatened by Sanders.

perpetualWAR , July 11, 2017 at 12:49 pm

It's actually enfuriating me the FBI has enough time to investigate Jane, but couldn't find the time to investigate the bank crimes causing 18.2 million unlawful foreclosures.

Audit the REMIC mortgage loan lists for multiply-pledged notes! Then, go after the uncollected billions in tax implications and give the houses back!

Thor's Hammer , July 11, 2017 at 10:37 am

We irrelevant posters in the blogsphere seem to have trouble learning from even the most recent past.

Consider the fate of Muammar Gadiffi. Ruler of the wealthiest an most socially progressive country in Africa. Liked to wear weird clothes and hang out in a tent in the desert with his harem. Made the mistake of meddling in regional power politics, and the fatal mistake of trying to organized a gold-based currency for trade in oil. His fate was to have his country torn apart with the active support of the CIA, NSA and other US spook agencies. And to die with a bayonet up his ass while Secretary of State Hillary Clinton watched on a live spy satellite camera and chortled madly. https://www.youtube.com/watch?v=dR45C6Vw8uM

If that is the response of the Deep State to a perceived threat from a small African country, imagine the measures it would take toward an out-or-control US president who threatens to make peace with the best and most profitable enemy they have ever been able to create.

Disturbed Voter , July 11, 2017 at 12:43 pm

Correct not only is politics war by other means, but finance is war by other means. The banking business is part of the WMD of the Anglo-American Empire. This is what happens when you unleash a predatory species of unparalleled capability on the planet.

jo6pac , July 11, 2017 at 1:09 pm

LOL and sadly so true.

polecat , July 11, 2017 at 2:01 pm

It' not really a laughing matter especially where the Russians & Chinese are uh 'concerned' !

At the ever-increasing rate of establishment insanity, I see a nuclear war in our future, perhaps not too far out, either.

Thor's Hammer , July 11, 2017 at 3:15 pm

I wouldn't exactly call the sounds that come out of the Hildabeast's mouth laughing!-.
https://www.youtube.com/watch?v=dR45C6Vw8uM

Lord Koos , July 11, 2017 at 4:21 pm

Iraq was a similar deal. Any country that attempts to operate outside of the western banking system must be destroyed.

RenoDino , July 11, 2017 at 10:48 am

I'll say again, Trump was elected to break things and he is doing his job perfectly. He is breaking the MSM and all three branches of government. He is destroying the global order and undermining the "democratic" process. Such is the hatred for these institutions, he is only marginally less popular than when he was elected. People may find fault with the way he breaks things, but he is not going for style points. Rather he is the perfect person for the job. He is totally dismissive of his critics, not open to suggestion and completely and utterly unpredictable. He is one of the few people who manages to live life on their own terms. This is an extreme rarity and its importance cannot be stressed enough. It drives his critics completely mad because they reflect on everything they say and do and try to gauge the response to every action.

The last forty years have wrought a society with a glass jaw that Trump intends to break. His antics expose the vulnerabilities inherent in the West's corrupt and hypocritical institutions who are desperately trying to cling to a unreal state of affairs that have become a bigger joke than Trump.

... ... ...

edr , July 11, 2017 at 11:44 am

The country didn't need "Occupy Wallstreet" to focus on Wall Street Corruption.

The loss of people's homes already had the entire country aware and fuming about Wall Street corruption, writing and calling Congress. Occupy's purpose was to convince Legislators, not the public, of the country's existing concerns and get them to break up the Wall Street MegaBanks. And what happened with the whole country fuming???? Nothing!!! 8 years of nothing.

Wall street Derivatives bets are about 2-3x the total of World's cumulative assets!! That's been staring the Fed and Congress in the face since 2008, and they can't figure out there is anything to fix. Worse than the housing crises, which they ALSO REFUSED to see or prevent. 40years of losses in real wages, also purposefully ignored by Congress and the white house.

(And, deciphering the facts behind Media reporting is a full time job.)

Therefore, Trump . why get all in a froth to resolve nothing? Enjoy the show, because nothing else was on offer.

Bill H. , July 11, 2017 at 11:52 am

Wall Street does not create the money that sloshes into it. That money pours into Wall Street from Pharma with its 50%+ profit margins, from "sharing economy" capitalists with 80% profit margins, from health care corporations with 50% profit margins, from IPO's that net the "creators" obscene amounts of money for trivial adventures and from the Federal Reserve for "quantitative easing."

Wall Street is not the problem, it is a symptom of the problem, it feeds on the problem, and it is a distraction from the problem. The problem is corporatism and its control of governance. That is why "Occupy" was such a farce.

sharonsj , July 11, 2017 at 12:05 pm

You're forgetting free credit from the Fed. They have given billions worldwide.

Lord Koos , July 11, 2017 at 4:25 pm

I disagree, Wall Street is an actor that is complicit with big capital and it is definitely a problem. I don't see how you can separate corporatism from Wall St. since they enable each other.

I wouldn't call an authentic grass-roots protest against inequality a farce.

jsn , July 11, 2017 at 7:43 pm

Occupy was a "farce" because bank security colluded with corporate press and the enforcement arms of the surveillance state to present you that image. Hook, line and sinker appears to be your take.

Marbles , July 11, 2017 at 11:55 am

More sky is blue commentary, with no discussion of what to do next.

Re occupy Wall Street?

Stop paying all of your loans and watch the banks implode?

Pin one's hopes on some snowball's chance to elect officials in every office that would use the force of the state to clawback ill gotten gains?

Pray for a computer hacker to create some debt jubilee and reset the clock?

agkaiser , July 11, 2017 at 12:17 pm

Look what happened to Mr. Robot! Yeah, that was all a dream too, wasn't it?

Marbles , July 11, 2017 at 12:47 pm

After the revolution is a topic that needs to be discussed more, not to bring Slavoj Zizek into the discussion.

diptherio , July 11, 2017 at 3:13 pm

Here's one:
https://nextcity.org/daily/entry/directory-worker-cooperatives-worker-owned-businesses

And another:
https://cooperativeeconomy.info/every-commune-is-a-cooperative-self-organisation-and-self-sufficiency-are-progressing-in-rojava/

agkaiser , July 11, 2017 at 12:12 pm

Everybody knows the rich and their banks and corporations pay lower percentages of taxes than the rest of us. Everybody knows many of them pay no taxes at all.

Many of us and our governments borrow money from the rich. We borrow to live a decent life. The governments borrow and do the things like build and repair roads, defense and other things we need in common. Some say we don't have to borrow. Is that really true?

Q: Why do the rich have excess money that they can loan to us and our government?

A: The rich don't pay taxes.

If the governments taxed the excess instead of borrowing it, maybe we could pay lower taxes and have more of our earnings so we wouldn't have to borrow so much either. What do you think?

Jcast23 , July 11, 2017 at 12:13 pm

Jello Biafra made the same point about Trump's tweets a couple of months back:

https://youtu.be/BPwdK9cBhK8

templar555510 , July 11, 2017 at 2:13 pm

Goldman Sachs = Vampire Squid . What more needs to be said ?

Norb , July 11, 2017 at 3:44 pm

Governments colluding with wealthy elites in order to rule the world is what human society is all about at the present time. It has been the driving force for millennia. Wealthy elites and Government are interchangeable terms- thus the problem for poor people.

Getting people into debt is the whole point. If not willingly, by force if necessary. Debt keeps the mopes working. Debt works better than abject slavery because the oppressive nature of the practice is more easily rationalized by the perpetrators. Christianity once objected to usury for good reason.

This dual arrangement, private elite money and Government need works so well for both parties because all the upside goes to the wealthy. The wealthy are shielded form the horrors of dishing out violence to achieve ones goals -- that task is relegated to the Government, while the Government is free from accountability- they can always get more "money" from the elite because they control all the wealth.

That is the extreme tragedy of Privatization. The real wealth of the nation and potential of its people are squandered in a financial shell game.

There is a bigger picture that is obfuscated by necessity. Limits to private ownership are essential to a fair and just society. Some form of common good must be defined.

As for taxes. Taxes are the main tool for social engineering. You either have the opportunity to create a middle class or cement an oligarchy in power. Take your pick on which to support.

Russia! Russia! Down with Socialism and Communism!

Repeat above phrase until your are unconscious.

Crazy Horse , July 11, 2017 at 5:56 pm

If we adopt the perspective of all the other millions of species that have evolved to find a home on this planet, homo sapiens can only be seen as a toxic weed that if left unchecked will destroy their home. Perhaps the bacteria will succeed where saber toothed tigers and grizzly bears failed and save the planet from humans. There certainly is little evidence that the Sapiens will evolve into an intelligent species that can live in harmony with all the other inhabitants.

[Jul 04, 2017] We should reject masked by mathiness typical neoclassical junk that is mainstream now.

Notable quotes:
"... That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was. ..."
Mar 03, 2017 | economistsview.typepad.com
libezkova : March 02, 2017 at 07:14 PM , 2017 at 07:14 PM
"macro rightly got a lot of stick by largely ignoring the role of finance,"

That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was.

As much as I admire the mathematics, its use in macro is perverted and unscientific because it relies on unrealistic assumptions. Its all pure mathiness.

Most of terminology that neoclassical economy introduced smells "fraud" or at least is detached from reality. "Output gap" and related notion "potential output" can serve as an example. Look at WWII production. For example, even potential output of a single plant (let's say three shift work and full utilization of equipment) is pretty convoluted notion as there is a high level of dependence on suppliers and somewhere typically "bottleneck" exists that prevent the factory achieving this input. Still Hjalmar Schacht achieved wonders during WWII by just ordering German factories to continue producing without waiting for orders to come.

Also it looks like Simon Wren-Lewis equalizes Keynes with Paul Samuelson simplification (or perversion if you wish) of Keynes thoughts ( http://econ.bus.utk.edu/department/emeritus/samuelson'sarrogance100%20final.pdf )

== quote ==
Moreover, Keynes [1936, p. 177, 179] had denounced Walras's approach as wrong when he wrote "Now the analysis of the previous chapters [of The General Theory] made it plain that this account [in Walras] of the matter must be erroneous .this [Walrasian system] is a nonsense theory".
== end of quote ==

And even worse, like most neoliberal economists, he tends to ignore Hyman Minsky important contribution to understanding of source of instability in capitalist economics.

That fact alone IMHO makes his lectures junk science.

libezkova -> libezkova... , March 02, 2017 at 07:14 PM
I remember that during 2008 events somebody called Bernanke not a specialist on Great Depression, but a charlatan, who tried to explain Great Depression using neoclassic economics.

I think that was an apt definition.

Mr. Bill : , March 02, 2017 at 10:21 PM
"I acknowledge that macro rightly got a lot of stick by largely ignoring the role of finance, but I also point out that the poor recovery has involved a vindication of the core macro model: austerity is a bad idea at the ZLB, QE was not inflationary and interest rates on government debt did not rise but fell."

No shit Dick Tracy. Look at the devastation of the US of O (The United States of Oligarchy). Let's join the Military in defending the shipping lanes, 3 hots and a cot.

I'm glad the core macro-model has been vindicated.

Sanjait : , March 02, 2017 at 11:29 PM
Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way.

I mean, I don't mind a bit of vituperation or even limited amounts of incoherence and insanity, if it is accompanied by at least earnest attempts to have substantive discussions. But it just feels like the essential substance has become increasingly rare.

libezkova -> Sanjait... , -1
"Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way."

If you think that neoliberal economists and their low-level supporters like some members of this blog are crazy you are wrong. They are corrupt the same way as Mafia members are corrupt. That's why they are unable to discuss economics in a serious way. Only "religious dogma" based way is permitted.

Neoliberal Jesuits will defend their "flat earth" theory and ostracize heretics as long as financial oligarchy is in power, because their well being is dependent on it, and they are paid by financial oligarchy to do the job.

When neoliberalism was hatched it deliberately emulated methods of influence used by Communists (and Austrians were intimately aware of them, because the country experienced communist revolution, which failed) in trying to expand their influence at university departments and by creating think tanks. Those subversive methods proved way too successful and they are now really entrenched: neoclassic economic thinking permeates the society to the same or higher degree as Marx political economy in the USSR.

See LSE discussion "Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics "

https://www.youtube.com/watch?v=ehrjP2_ffPc

libezkova : , March 03, 2017 at 08:48 AM
I think that that one of the few better and more productive pathway of discussing economic events is the one that stems from Hyman Minsky work with its idea of positive feedback loops in economics with one from financial system that periodically destabilizes the capitalist economy and create a financial crisis.

The neoclassical concept of equilibrium is way too primitive and attempts to build economics as branch of physics. It should be discarded for good, as the way it is used now is close to pure charlatanism.

We also have an uncertainty principle here as even the suggestion of the intervention can change the dynamics of the system (look at "Fed talk" )

The role of the state now is so huge that any talk about the economy achieving equilibrium by itself is fraud outside few special cases. And actually the introduction of neoliberalism was the "revolution from above" -- a coup d'état, if you wish.

== quote ==

In microeconomic theory, cost-minimization by consumers and by firms implies the existence of supply and demand correspondences for which market clearing equilibrium prices exist, if there are large numbers of consumers and producers. Under convexity assumptions or under some marginal-cost pricing rules, each equilibrium will be Pareto efficient: In large economies, non-convexity also leads to quasi-equilibria that are nearly efficient.

However, the concept of market equilibrium has been criticized by Austrians, post-Keynesians and others, who object to applications of microeconomic theory to real-world markets, when such markets are not usefully approximated by microeconomic models. Heterodox economists assert that micro-economic models rarely capture reality.
== end of quote ==

Steve Keen in one who uses and try to develop further Minsky concepts and he was one of the few who predicted the financial crash on 2008. IMHO he should get more respect and coverage at the expense of neoliberal stooges like Krugman.

Ha-Joon Chang, Philip Mirowski, Joseph Stiglitz, Richard Koo, Yanis Varoufakis, Noam Chomsky all have interesting and IMHO more realistic ideas about how the modern economy really function and what can be more appropriate ways to model it.

We should reject masked by mathiness typical neoclassical junk that is mainstream now.

[Jul 04, 2017] Economics of the Populist Backlash naked capitalism

Populism is a weasel word that is use by neoliberal MSM to delitimize the resistance. This is a typical neoliberal thinking.
Financial globalization is different from trade. It is more of neocolonialism that racket, as is the case with trade.
Notable quotes:
"... Financial globalisation appears to have produced adverse distributional impacts within countries as well, in part through its effect on incidence and severity of financial crises. Most noteworthy is the recent analysis by Furceri et al. (2017) that looks at 224 episodes of capital account liberalisation. They find that capital-account liberalisation leads to statistically significant and long-lasting declines in the labour share of income and corresponding increases in the Gini coefficient of income inequality and in the shares of top 1%, 5%, and 10% of income. Further, capital mobility shifts both the tax burden and the burden of economic shocks onto the immobile factor, labour. ..."
"... I suggest that the fact that these two countries are arguably the most unequal in the advanced world has something to do with this. Also, on many measures I believe these two countries appear to be the most 'damaged' societies in the advanced world – levels of relationship breakdown, teenage crime, drug use, teenage pregnancies etc. I doubt this is a coincidence. ..."
"... Forced Free Trade was intended to be destructive to American society, and it was . . . exactly as intended. Millions of jobs were abolished here and shipped to foreign countries used as economic aggression platforms against America. So of course American society became damaged as the American economy became mass-jobicided. On purpose. With malice aforethought. ..."
"... "Populism" seems to me to be a pejorative term used to delegitimize the grievances of the economically disenfranchised and dismiss them derision. ..."
"... In the capitalist economies globalization is/was inevitable; the outcome is easy to observe ..and suffer under. ..."
"... they never get into the nitty-gritty of the "immobility" of the general populations who have been crushed by the lost jobs, homes, families, lives ..."
"... This piece was a lengthy run-on Econ 101 bollocks. Not only does the writer dismiss debt/interest and the effects of rentier banking, but they come off as very simplistic. Reads like some sheltered preppy attempt at explaining populism ..."
"... But like almost all economists, Rodrik is ignoring the political part of political economy. Historically, humanity has developed two organizational forms to select and steer toward preferred economic destinies: governments of nation states, and corporations. ..."
"... The liberalization of trade has come, I would argue, with a huge political cost no economist has reckoned yet. Instead, economists are whining about the reaction to this political cost without facing up to the political cost itself. Or even accept its legitimacy. ..."
"... Second, there are massive negative effects of trade liberalization that economists simply refuse to look at. Arbitration of environmental and worker safety laws and regulations is one. ..."
"... As I have argued elsewhere, the most important economic activity a society engages in us the development and diffusion of new science and technology. ..."
"... Rodrik is also wrong about the historical origins of agrarian populism in USA. It was not trade, but the oligopoly power of railroads, farm equipment makers, and banks that were the original grievances of the Grangers, Farmers Alliances after the Civil War. ..."
"... The salient characteristic of populism is favoring the people vs. the establishment. The whole left/right dichotomy is a creation of the establishment, used to divide the public and PREVENT an effective populist backlash. As Gore Vidal astutely pointed out decades ago, there is really only one party in the U.S. – the Property Party – and the Ds and Rs are just two heads of the same hydra. Especially in the past 10 years or so. ..."
Jul 04, 2017 | www.nakedcapitalism.com

'Populism' is a loose label that encompasses a diverse set of movements. The term originates from the late 19th century, when a coalition of farmers, workers, and miners in the US rallied against the Gold Standard and the Northeastern banking and finance establishment. Latin America has a long tradition of populism going back to the 1930s, and exemplified by Peronism. Today populism spans a wide gamut of political movements, including anti-euro and anti-immigrant parties in Europe, Syriza and Podemos in Greece and Spain, Trump's anti-trade nativism in the US, the economic populism of Chavez in Latin America, and many others in between. What all these share is an anti-establishment orientation, a claim to speak for the people against the elites, opposition to liberal economics and globalisation, and often (but not always) a penchant for authoritarian governance.

The populist backlash may have been a surprise to many, but it really should not have been in light of economic history and economic theory.

Take history first. The first era of globalisation under the Gold Standard produced the first self-conscious populist movement in history, as noted above. In trade, finance, and immigration, political backlash was not late in coming. The decline in world agricultural prices in 1870s and 1880s produced pressure for resumption in import protection. With the exception of Britain, nearly all European countries raised agricultural tariffs towards the end of the 19th century. Immigration limits also began to appear in the late 19th century. The United States Congress passed in 1882 the infamous Chinese Exclusion Act that restricted Chinese immigration specifically. Japanese immigration was restricted in 1907. And the Gold Standard aroused farmers' ire because it was seen to produce tight credit conditions and a deflationary effect on agricultural prices. In a speech at the Democratic national convention of 1896, the populist firebrand William Jennings Bryan uttered the famous words: "You shall not crucify mankind upon a cross of gold."

To anyone familiar with the basic economics of trade and financial integration, the politically contentious nature of globalisation should not be a surprise. The workhorse models with which international economists work tend to have strong redistributive implications. One of the most remarkable theorems in economics is the Stolper-Samuelson theorem, which generates very sharp distributional implications from opening up to trade. Specifically, in a model with two goods and two factors of production, with full inter-sectoral mobility of the factors, owners of one of the two factors are made necessarily worse off with the opening to trade. The factor which is used intensively in the importable good must experience a decline in its real earnings.

The Stolper-Samuelson theorem assumes very specific conditions. But there is one Stolper-Samuelson-like result that is extremely general, and which can be stated as follows. Under competitive conditions, as long as the importable good(s) continue to be produced at home – that is, ruling out complete specialisation – there is always at least one factor of production that is rendered worse off by the liberalisation of trade. In other words, trade generically produces losers. Redistribution is the flip side of the gains from trade; no pain, no gain.

Economic theory has an additional implication, which is less well recognised. In relative terms, the redistributive effects of liberalisation get larger and tend to swamp the net gains as the trade barriers in question become smaller. The ratio of redistribution to net gains rises as trade liberalisation tackles progressively lower barriers.

The logic is simple. Consider the denominator of this ratio first. It is a standard result in public finance that the efficiency cost of a tax increases with the square of the tax rate. Since an import tariff is a tax on imports, the same convexity applies to tariffs as well. Small tariffs have very small distorting effects; large tariffs have very large negative effects. Correspondingly, the efficiency gains of trade liberalisation become progressively smaller as the barriers get lower. The redistributive effects, on the other hand, are roughly linear with respect to price changes and are invariant, at the margin, to the magnitude of the barriers. Putting these two facts together, we have the result just stated, namely that the losses incurred by adversely affected groups per dollar of efficiency gain are higher the lower the barrier that is removed.

Evidence is in line with these theoretical expectations. For example, in the case of NAFTA, Hakobyan and McLaren (2016) have found very large adverse effects for an "important minority" of US workers, while Caliendo and Parro (2015) estimate that the overall gains to the US economy from the agreement were minute (a "welfare" gain of 0.08%).

In principle, the gains from trade can be redistributed to compensate the losers and ensure no identifiable group is left behind. Trade openness has been greatly facilitated in Europe by the creation of welfare states. But the US, which became a truly open economy relatively late, did not move in the same direction. This may account for why imports from specific trade partners such as China or Mexico are so much more contentious in the US.

Economists understand that trade causes job displacement and income losses for some groups. But they have a harder time making sense of why trade gets picked on so much by populists both on the right and the left. After all, imports are only one source of churn in labour markets, and typically not even the most important source. What is it that renders trade so much more salient politically? Perhaps trade is a convenient scapegoat. But there is another, deeper issue that renders redistribution caused by trade more contentious than other forms of competition or technological change. Sometimes international trade involves types of competition that are ruled out at home because they violate widely held domestic norms or social understandings. When such "blocked exchanges" (Walzer 1983) are enabled through trade they raise difficult questions of distributive justice. What arouses popular opposition is not inequality per se, but perceived unfairness.

Financial globalisation is in principle similar to trade insofar as it generates overall economic benefits. Nevertheless, the economics profession's current views on financial globalisation can be best described as ambivalent. Most of the scepticism is directed at short-term financial flows, which are associated with financial crises and other excesses. Long-term flows and direct foreign investment in particular are generally still viewed favourably. Direct foreign investment tends to be more stable and growth-promoting. But there is evidence that it has produced shifts in taxation and bargaining power that are adverse to labour.

The boom-and-bust cycle associated with capital inflows has long been familiar to developing nations. Prior to the Global Crisis, there was a presumption that such problems were largely the province of poorer countries. Advanced economies, with their better institutions and regulation, would be insulated from financial crises induced by financial globalisation. It did not quite turn out that way. In the US, the housing bubble, excessive risk-taking, and over-leveraging during the years leading up to the crisis were amplified by capital inflows from the rest of the world. In the Eurozone, financial integration, on a regional scale, played an even larger role. Credit booms fostered by interest-rate convergence would eventually turn into bust and sustained economic collapses in Greece, Spain, Portugal, and Ireland once credit dried up in the immediate aftermath of the crisis in the US.

Financial globalisation appears to have produced adverse distributional impacts within countries as well, in part through its effect on incidence and severity of financial crises. Most noteworthy is the recent analysis by Furceri et al. (2017) that looks at 224 episodes of capital account liberalisation. They find that capital-account liberalisation leads to statistically significant and long-lasting declines in the labour share of income and corresponding increases in the Gini coefficient of income inequality and in the shares of top 1%, 5%, and 10% of income. Further, capital mobility shifts both the tax burden and the burden of economic shocks onto the immobile factor, labour.

The populist backlash may have been predictable, but the specific form it took was less so. Populism comes in different versions. It is useful to distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight and render salient. The US progressive movement and most Latin American populism took a left-wing form. Donald Trump and European populism today represent, with some instructive exceptions, the right-wing variant (Figure 2). What accounts for the emergence of right-wing versus left-wing variants of opposition to globalization?

Figure 2 Contrasting patterns of populism in Europe and Latin America

Notes : See Rodrik (2017) for sources and methods.

I suggest that these different reactions are related to the forms in which globalisation shocks make themselves felt in society (Rodrik 2017). It is easier for populist politicians to mobilise along ethno-national/cultural cleavages when the globalisation shock becomes salient in the form of immigration and refugees. That is largely the story of advanced countries in Europe. On the other hand, it is easier to mobilise along income/social class lines when the globalisation shock takes the form mainly of trade, finance, and foreign investment. That in turn is the case with southern Europe and Latin America. The US, where arguably both types of shocks have become highly salient recently, has produced populists of both stripes (Bernie Sanders and Donald Trump).

It is important to distinguish between the demand and supply sides of the rise in populism. The economic anxiety and distributional struggles exacerbated by globalisation generate a base for populism, but do not necessarily determine its political orientation. The relative salience of available cleavages and the narratives provided by populist leaders are what provides direction and content to the grievances. Overlooking this distinction can obscure the respective roles of economic and cultural factors in driving populist politics.

Finally, it is important to emphasise that globalization has not been the only force at play - nor necessarily even the most important one. Changes in technology, rise of winner-take-all markets, erosion of labour market protections, and decline of norms restricting pay differentials all have played their part. These developments are not entirely independent from globalisation, insofar as they both fostered globalization and were reinforced by it. But neither can they be reduced to it. Nevertheless, economic history and economic theory both give us strong reasons to believe that advanced stages of globalisation are prone to populist backlash.

Anonymous2 , July 3, 2017 at 6:43 am

An interesting post.

One question he does not address is why the opposition to globalization has had its most obvious consequences in two countries:- the US and the UK with Trump and Brexit respectively.

I suggest that the fact that these two countries are arguably the most unequal in the advanced world has something to do with this. Also, on many measures I believe these two countries appear to be the most 'damaged' societies in the advanced world – levels of relationship breakdown, teenage crime, drug use, teenage pregnancies etc. I doubt this is a coincidence.

For me the lessons are obvious – ensure the benefits of increased trade are distributed among all affected, not just some; act to prevent excessive inequality; nurture people so that their lives are happier.

John Wright , July 3, 2017 at 9:39 am

re: "ensure the benefits of increased trade are distributed among all affected"

Note that for the recent TPP, industry executives and senior government officials were well represented for the drafting of the agreement, labor and environmental groups were not.

There simply may be no mechanism to "ensure the benefits are distributed among all affected" in the USA political climate as those benefits are grabbed by favored groups, who don't want to re-distribute them later.

Some USA politicians argue for passing flawed legislation while suggesting they will fix it later, as I remember California Democratic Senator Dianne Feinstein stating when she voted for Bush Jr's Medicare Part D ("buy elderly votes for Republicans").

It has been about 15 years, and I don't remember any reform efforts on Medicare Part D from Di-Fi.

Legislation should be approached with the anticipated inequality problems solved FIRST when wealthy and powerful interests are only anticipating increased wealth via "free trade". Instead, the political process gifts first to the wealthy and powerful first and adopts a "we'll fix it later" attitude for those harmed. And the same process occurs, the wealthy/powerful subsequently strongly resist sharing their newly acquired "free trade" wealth increment with the free trade losers..

If the USA adopted a "fix inequality first" requirement, one wonders if these free trade bills would get much purchase with the elite.

different clue , July 4, 2017 at 4:14 am

Forced Free Trade was intended to be destructive to American society, and it was . . . exactly as intended. Millions of jobs were abolished here and shipped to foreign countries used as economic aggression platforms against America. So of course American society became damaged as the American economy became mass-jobicided. On purpose. With malice aforethought.

NAFTA Bill Clinton lit the fuse to the bomb which finally exploded under his lovely wife Hillary in 2016.

Ignacio , July 3, 2017 at 7:35 am

The big problem I find in this analysis is that it completely forgets how different countries use fiscal/financial policies to play merchantilistic games under globalization.

Doug , July 3, 2017 at 7:41 am

Yves, thanks for posting this from Dani Rodrik - whose clear thinking is always worthwhile. It's an excellent, succinct post. Still, one 'ouch': "Redistribution is the flip side of the gains from trade; no pain, no gain."

This is dehumanizing glibness that we cannot afford. The pain spreads like wildfire. It burns down houses, savings, jobs, communities, bridges, roads, health and health care, education, food systems, air, water, the 'real' economy, civility, shared values - in short everything for billions of human beings - all while sickening, isolating and killing.

The gain? Yes, as you so often point out, cui bono? But, really it goes beyond even that question. It requires asking, "Is this gain so obscene to arguably be no gain at all because its price for those who cannot have too many homes and yachts and so forth is the loss of humanity?

Consider, for example, Mitch McConnell. He cannot reasonably be considered human. At all. And, before the trolls create any gifs for the Teenager-In-Chief, one could say the same - or almost the same - for any number of flexians who denominate themselves D or R (e.g. Jamie Gorelick).

No pain, no gain? Fine for getting into better shape or choosing to get better at some discipline.

It's an abominable abstraction, though, for describing phenomena now so far along toward planet-o-cide.

Thuto , July 3, 2017 at 7:56 am

"Populism" seems to me to be a pejorative term used to delegitimize the grievances of the economically disenfranchised and dismiss them derision.

Another categorization that I find less than apt, outmoded and a misnomer is the phrase "advanced economies", especially given that level of industrialization and gdp per capita are the key metrics used to arrive at these classifications. Globalization has shifted most industrial activity away from countries that invested in rapid industrialization post WW2 to countries with large pools of readily exploitable labour while gdp per capita numbers include sections of the population with no direct participation in creating economic output (and the growth of these marginalized sections is trending ever upward).

Meanwhile the financial benefits of growing GDP numbers gush ever upwards to the financial-political elites instead of "trickling downwards" as we are told they should, inequality grows unabated, stress related diseases eat away at the bodies of otherwise young men and women etc. I'm not sure any of these dynamics, which describe perfectly what is happening in many so called advanced economies, are the mark of societies that should describe themselves as "advanced"

Yves Smith Post author , July 3, 2017 at 8:24 pm

Sorry, but the original populist movement in the US called themselves the Populists or the Populist Party. Being popular is good. You are the one who is assigning a pejorative tone to it.

Hiho , July 4, 2017 at 1:32 am

Populism is widely used in the mainstream media, and even in the so called alternative media, as a really pejorative term. That is what he means (I would say).

witters , July 3, 2017 at 7:56 am

"What all these share is an anti-establishment orientation, a claim to speak for the people against the elites, opposition to liberal economics and globalisation, and often (but not always) a penchant for authoritarian governance."

On the other hand:

"What all these share is an establishment orientation, a claim to speak for the elites against the people, support for liberal economics and globalisation, and always a penchant for authoritarian governance."

Wisdom Seeker , July 3, 2017 at 1:29 pm

You nailed it. Let me know when we get our Constitution back!

Eclair , July 3, 2017 at 8:09 am

"Financial globalisation appears to have produced adverse distributional impacts within countries as well, in part through its effect on incidence and severity of financial crises. Most noteworthy is the recent analysis by Furceri et al. (2017) that looks at 224 episodes of capital account liberalisation. They find that capital-account liberalisation leads to statistically significant and long-lasting declines in the labour share of income and corresponding increases in the Gini coefficient of income inequality and in the shares of top 1%, 5%, and 10% of income. Further, capital mobility shifts both the tax burden and the burden of economic shocks onto the immobile factor, labour."

So, translated, Rodrick is saying that the free flow of money across borders, while people are confined within these artificial constraints, results in all the riches flowing to the fat cats and all the taxes, famines, wars, droughts, floods and other natural disasters being dumped upon the peasants.

The Lakota, roaming the grassy plains of the North American mid-continent, glorified their 'fat cats,' the hunters who brought back the bison which provided food, shelter and clothing to the people. And the rule was that the spoils of the hunt were shared unequally; the old, women and children got the choice high calorie fatty parts. The more that a hunter gave away, the more he was revered.

The Lakota, after some decades of interaction with the European invaders, bestowed on them a disparaging soubriquet: wasi'chu. It means 'fat-taker;' someone who is greedy, taking all the best parts for himself and leaving nothing for the people.

sierra7 , July 4, 2017 at 12:04 am

"So, translated, Rodrick is saying that the free flow of money across borders, while people are confined within these artificial constraints .."

Nailed it!! That's something that has always bothered me it's great for the propagandists to acclaim globalization but they never get into the nitty-gritty of the "immobility" of the general populations who have been crushed by the lost jobs, homes, families, lives .there should be a murderous outrage against this kind of globalized exploitation and the consequent sufferings. Oh, but I forgot! It's all about the money that is supposed to give incentive to those who are left behind to "recoup", "regroup" and in today's age develop some kind of "app" to make up for all those losses .

In the capitalist economies globalization is/was inevitable; the outcome is easy to observe ..and suffer under.

Left in Wisconsin , July 4, 2017 at 11:09 am

they never get into the nitty-gritty of the "immobility" of the general populations who have been crushed by the lost jobs, homes, families, lives

That's a feature, not a bug. Notice that big corporations are all in favor of globalization except when it comes to things like labor law. Then, somehow, local is better.

edr , July 3, 2017 at 9:35 am

"The economic anxiety and distributional struggles exacerbated by globalization generate a base for populism, but do not necessarily determine its political orientation. The relative salience of available cleavages and the narratives provided by populist leaders are what provides direction and content to the grievances. "

Excellent and interesting point. Which political party presents itself as a believable tool for redress affects the direction populism will take, making itself available as supply to the existing populist demand. That should provide for 100 years of political science research.

Anonymous2 : "For me the lessons are obvious – ensure the benefits of increased trade are distributed among all affected, not just some; act to prevent excessive inequality; nurture people so that their lives are happier."

Seems so simply, right ?

Anonymous2 , July 3, 2017 at 11:09 am

It ought to be but sadly I fear our politicians are bought. I am unsure I have the solution . In the past when things got really bad I suspect people ended up with a major war before these sorts of problems could be addressed. I doubt that is going to be a solution this time.

Kuhio Kane , July 3, 2017 at 10:10 am

This piece was a lengthy run-on Econ 101 bollocks. Not only does the writer dismiss debt/interest and the effects of rentier banking, but they come off as very simplistic. Reads like some sheltered preppy attempt at explaining populism

Hiho , July 4, 2017 at 2:27 am

Well said.

washunate , July 4, 2017 at 9:35 am

Yep, Rodrik has been writing about these things for decades and has a remarkable talent for never actually getting anywhere. He's particularly enamored by the neoliberal shiny toy of "skills", as if predation, looting, and fraud simply don't exist.

Left in Wisconsin , July 4, 2017 at 11:11 am

And yet, in the profession, he is one of the least objectionable.

Tony Wikrent , July 3, 2017 at 10:44 am

This is a prime example of what is wrong with professional economic thinking. First, note that Rodrik is nominally on our side: socially progressive, conscious of the increasingly frightful cost of enviro externalities, etc.

But like almost all economists, Rodrik is ignoring the political part of political economy. Historically, humanity has developed two organizational forms to select and steer toward preferred economic destinies: governments of nation states, and corporations.

Only nation states provide the mass of people any form and extent of political participation in determining their own destiny. The failure of corporations to provide political participation can probably be recited my almost all readers of NC. Indeed, a key problem of the past few decades is that corp.s have increasingly marginalized the role of nation states and mass political participation. The liberalization of trade has come, I would argue, with a huge political cost no economist has reckoned yet. Instead, economists are whining about the reaction to this political cost without facing up to the political cost itself. Or even accept its legitimacy.

Second, there are massive negative effects of trade liberalization that economists simply refuse to look at. Arbitration of environmental and worker safety laws and regulations is one. Another is the aftereffects of the economic dislocations Rodrik alludes to.

One is the increasing constriction of government budgets. These in turn have caused a scaling back of science R&D which I believe will have huge but incalculable negative effects in coming years. How do you measure the cost of failing to find a cure for a disease? Or failing to develop technologies to reverse climate change? Or just to double the charge duration of electric batteries under load? As I have argued elsewhere, the most important economic activity a society engages in us the development and diffusion of new science and technology.

FluffytheObeseCat , July 3, 2017 at 12:32 pm

Intellectually poisoned by his social environment perhaps. The biggest problems with this piece were its sweeping generalizations about unquantified socio-political trends. The things that academic economists are least trained in; the things they speak about in passing without much thought.

I.e. Descriptions of political 'populism' that lumps Peronists, 19th century U.S. prairie populists, Trump, and Sanders all into one neat category. Because, social movements driven by immiseration of the common man are interchangeable like paper cups at a fast food restaurant.

sierra7 , July 4, 2017 at 12:15 am

Agree with much of what you comment .I believe that the conditions you describe are conveniently dismissed by the pro economists as: "Externalities" LOL!! They seem to dump everything that doesn't correlate to their dream of "Free Markets", "Globalization", etc .into that category .you gotta love 'em!!

Tony Wikrent , July 3, 2017 at 11:16 am

Rodrik is also wrong about the historical origins of agrarian populism in USA. It was not trade, but the oligopoly power of railroads, farm equipment makers, and banks that were the original grievances of the Grangers, Farmers Alliances after the Civil War.

In fact, the best historian of USA agrarian populism, Lawrence Goodwyn, argued that it was exactly the populists' reluctant alliance with Byran in the 1896 election that destroyed the populist movement. It was not so much an issue of the gold standard, as it was "hard money" vs "soft money" : gold AND silver vs the populists' preference for greenbacks, and currency and credit issued by US Treasury instead of the eastern banks.

A rough analogy is that Byran was the Hillary Clinton of his day, with the voters not given any way to vote against the interests of Goldman Sachs or the House of Morgan.

Massinissa , July 3, 2017 at 9:33 pm

Honestly I would say Bryan is more an unwitting Bernie Sanders than a Hillary Clinton. But the effect was essentially the same.

flora , July 3, 2017 at 9:35 pm

"the oligopoly power of railroads, farm equipment makers, and banks that were the original grievances "

That power was expressed in total control of the Congress and Presidential office. Then, as now, the 80-90% of the voters had neither R or D party that represented their economic, property, and safety interests. Given the same economic circumstances, if one party truly pushed for ameliorating regulations or programs the populist movement would be unnecessary. Yes, Bryan was allowed to run (and he had a large following) and to speak at the Dem convention, much like Bernie today. The "Bourbon Democrats" kept firm control of the party and downed Jennings' programs just as the neolib Dem estab today keep control of the party out of the hands of progressives.

an aside: among many things, the progressives pushed for good government (ending cronyism), trust busting, and honest trade, i.e not selling unfit tinned and bottled food as wholesome food. Today, we could use an "honest contracts and dealings" act to regulate the theft committed by what the banks call "honest contract enforcement", complete with forges documents. (Upton Sinclair wrote The Jungle (1906) about the meatpacking industry. What would he make of today's mortgage industry, or insurance industry, for example.)

washunate , July 3, 2017 at 11:26 am

For an author and article so interested in international trade, I'm fascinated by the lack of evidence or argumentation that trade is the problem. The real issue being described here is excessive inequality delivered through authoritarianism, not international trade. The intra-city divergence between a hospital administrator and a home health aid is a much bigger problem in the US than trade across national borders. The empire abroad and the police state at home is a much bigger problem than competition from China or Mexico. Etc. Blaming international trade for domestic policies (and opposition to them) is just simple misdirection and xenophobia, nothing more.

Wisdom Seeker , July 3, 2017 at 1:52 pm

I take exception to most of Prof. Rodrik's post, which is filled with factual and/or logical inaccuracies.

"Populism appears to be a recent phenomenon, but it has been on the rise for quite some time (Figure 1)."

Wrong. Pretending that a historical generic is somehow new Populism has been around since at least the time of Jesus or William Wallace or the American Revolution or FDR.

"What all these share is an anti-establishment orientation, a claim to speak for the people against the elites, opposition to liberal economics and globalisation, and often (but not always) a penchant for authoritarian governance."

Wrong. Creating a straw man through overgeneralization. Just because one country's "populism" appears to have taken on a certain color, does not mean the current populist movement in another part of the world will be the same. The only essential characteristics of populism are the anti-establishment orientation and seeking policies that will redress an imbalance in which some elites have aggrandized themselves unjustly at the expense of the rest of the people. The rest of the items in the list above are straw men in a generalization. Rise of authoritarian (non-democratic) governance after a populist uprising implies the rise of a new elite and would be a failure, a derailing of the populist movement – not a characteristic of it.

"Correspondingly, the efficiency gains of trade liberalisation become progressively smaller as the barriers get lower."

If, in fact, we were seeing lower trade barriers, and this was driving populism, this whole line of reasoning might have some value. But as it is, well over half the US economy is either loaded with barriers, subject to monopolistic pricing, or has not seen any "trade liberalization". Pharmaceuticals, despite being commodities, have no common global price the way, say, oil does. Oil hasn't had lowered barriers, though, and thus doesn't count in favor of the argument either. When China, Japan and Europe drop their import barriers, and all of them plus the U.S. get serious about antitrust enforcement, there might be a case to be made

"It is useful to distinguish between left-wing and right-wing variants of populism"

Actually it isn't. The salient characteristic of populism is favoring the people vs. the establishment. The whole left/right dichotomy is a creation of the establishment, used to divide the public and PREVENT an effective populist backlash. As Gore Vidal astutely pointed out decades ago, there is really only one party in the U.S. – the Property Party – and the Ds and Rs are just two heads of the same hydra. Especially in the past 10 years or so.

About the only thing the author gets right is the admission that certain economic policies unjustly create pain among many groups of people, leading to popular retribution. But that's not insightful, especially since he fails to address the issue quantitatively and identify WHICH policies have created the bulk of the pain. For instance, was more damage done by globalization, or by the multi-trillion-$ fleecing of the U.S. middle class by the bankers and federal reserve during the recent housing bubble and aftermath? What about the more recent ongoing fleecing of the government and the people by the healthcare cartels, at about $1.5-2 trillion/year in the U.S.?

This is only the top of a long list

PKMKII , July 3, 2017 at 2:28 pm

What arouses popular opposition is not inequality per se, but perceived unfairness.

Which is the primary worldview setting for the neo-reactionary right in America. Everything is a question of whether or not ones income was "fairly earned."

So you get government employees and union members voting for politicians who've practically declared war against those voters' class, but vote for them anyway because they set their arguments in a mode of fairness morality: You can vote for the party of hard workers, or the party of handouts to the lazy. Which is why China keeps getting depicted as a currency manipulator and exploiter of free trade agreements.

Economic rivals can only succeed via "cheating," not being industrious like the US.

Livius Drusus , July 3, 2017 at 6:45 pm

That describes a number of my relatives and their friends. They are union members and government employees yet hold hard right-wing views and are always complaining about lazy moochers living on welfare. I ask them why they love the Republicans so much when this same party demonizes union members and public employees as overpaid and lazy and the usual answer is that Republicans are talking about some other unions or other government employees, usually teachers.

I suspect that the people in my anecdote hate public school teachers and their unions because they are often female and non-white or teach in areas with a lot of minority children. I see this a lot with white guys in traditional masculine industrial unions. They sometimes look down on unions in fields that have many female and non-white members, teachers being the best example I can think of.

tongorad , July 3, 2017 at 10:11 pm

Economists understand that trade causes job displacement and income losses for some groups.

No, no they don't.

[Jun 30, 2017] Robert Shiller The Index I Invented Is At Levels Last Seen In 1929 And 2000

Jun 30, 2017 | www.zerohedge.com
With the Shiller CAPE index having surpassed the 30x for the first time since September 2001, its creator, Nobel Laureate and Yale School of Management Economics Professor Robert Shiller is warning investors that they should be cautious about investing in such an "unusual" market.

" the CAPE index that John Campbell and I devised 30 years ago is at unusual highs.

The only time in history going back to 1881 when it has been higher are, A: 1929 and B: 2000."

"We are at a high level, and its concerning."

However, the index has risen to these levels before without precipitating an immediate collapse, Shiller said. Indeed, during the history of the stock market, it has only traded at a richer valuation during one period - June 1997 to September 2001 - as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.

Luckily, Shiller says, US investors at least have the option of investing in foreign markets. There are plenty of venues today that allow clients paying in dollars to invest in foreign markets.

"I think people should be cautious now. We have a high market. That doesn't mean I would avoid it all together. One can invest abroad also, the US has an unusually high stock market compared with other countries, or one can invest in low cape sectors."

"The world looks better and cheaper than we do?," CNBC asked.

"Yea – well the world believes in us, I guess. I think everyone should diversify.

"One should have a little of everything if one hasn't diversified this would be a good time to do that."

The market's fragility is becoming increasingly apparent as vol events become more frequent. In Thursday trading, the S&P 500 was off as much as 1.4% - sending the VIX up 50%+ before the panic-vol sellers stepped in. The FANG stocks, which contributed an outsize portion to this year's rally, are facing their worst week in five months.

GUS100CORRINA -> The_Juggernaut , Jun 29, 2017 10:13 PM

Robert Shiller : "The Index I Invented Is At Levels Last Seen In 1929 And 2000"

My response; As long as CBs have control of the global money supply and its creation, the party can continue indefinitely. We live in a world of relativism. His model is based on absolutes which no longer exist.

I do have one observation about the graph. DEBT structures were much different in previous centuries than they are today. As a result, DEBT would most definitely alter the SHILLER CAPE RATIO graph to the point the today's level would approach or exceed the level during the 2000 time frame.

XXX, Jun 29, 2017 9:36 PM

And the only time since the '50s market cap has been higher relative to gdp was 2000...

http://thesoundingline.com/putting-the-us-stock-market-in-perspective/

squid -> Zorba's idea , Jun 29, 2017 10:23 PM

If they had tried QE in the way we do it today, there would have been civil war.

FDR did do QE, but he used gold. He made everyone sell their gold for 20USD and then devalued the USD in terms of gold to 35USD, a loss of 70% for the poor mugs that sold the government their gold. As such, FRD increased the potential USD supply by 70% overnight.

Same thing. Squid

chosen , Jun 29, 2017 10:13 PM

Shiller predicted the collapse of the 2000 bubble. Most economists can't predict shit. So I respect him for that.

hoytmonger -> chosen , Jun 29, 2017 10:28 PM

Shiller is a shill for the state. https://mises.org/blog/robert-shiller-shilling-state

GooseShtepping Moron -> Gab Timov , Jun 29, 2017 10:48 PM

The Shiller P/E uses a 10-year moving average adjusted for inflation, so it captures market behavior from slightly before 2008 and everything since then. To the extent that QE causes inflation, the Shiller index should reflect some of that too. But the answer to your second question is yes, things certainly could go higher, but this time I don't think they will.

All the Fed-bashers and Yellen-haters up-thread seem to be stuck on shitposter autopilot. They're just repeating the same comments they've been making for the last 9 years. Don't you guys realize that the Fed is tightening now? That Yellen does not have the market's back anymore? Haven't you guys heard that she's unwinding the Fed's balance sheet? It's been in a couple of ZH posts, you know. It's time to start changing your tune about the central banks, because Yellen is serious about tightening and this sucker's coming down.

Dewey Cheatum a... , Jun 29, 2017 11:13 PM

Shiller's index is the closest thing out there that has any semblance of reality. And as usual the Fed is out of balance as a washing machine on spin cycle with a load of wet towels on one side and some socks and a few undies on the other.

Yen Cross , Jun 29, 2017 11:14 PM

Chew on these. Investment Grade Bond I've spent the better part of Q-2 '17 looking at[real] GAAP earnings across all sectors, and then looked at bond issuance [debt financing] and found some astounding divergences.

I think we're going to see a cascade event, when investors realize what is actually happening. CAPex isn't happening. The cost of buy-backs is getting very expensive, and the fraud/ mis-reporting is really troublesome.

[Jun 30, 2017] Why Libertarians Should Read Marx

Notable quotes:
"... How can we defend property rights at the same time as defending a system which came into being by denying those rights? ..."
"... Do current market structures (which are of course determined by the state) really maximize development? ..."
"... Are markets really a realm of freedom, or a means through which some exploit and oppress others? And so on. ..."
"... "The system of protection," says Marx, "was an artificial means of manufacturing manufacturers, of expropriating independent laborers, of capitalizing the national means of production and subsistence, and of forcibly abbreviating the transition from the medieval to the modern mode of production." ..."
"... Most Libertarians I have come across just seem to dislike taxes and are looking for a reason why this might be a morally acceptable position. It is like that famous J K Galbraith quote: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness." ..."
"... Anybody who thinks that Libertarians really care about "freedom" (whatever that is - the more I think about it the less I see a difference to "power" - which is largely - though not entirely - zero sum) is kidding themselves. ..."
"... I reckon there are three reasons libertarians should read Marx. One is that Marx saw economics as a historical process. For him, one of the big questions was: "where did that come from?" ..."
Jun 30, 2017 | economistsview.typepad.com
Chris Dillow: Why libertarians should read Marx : Kristian Niemietz says he can't be bothered to read Marx. Can I try and convince him otherwise?

For one thing, I suspect libertarians like him would be surprised by a lot of Marx. There's astonishingly little in Marx about a centrally planned economy: if you want an argument for central planning, you should read that hero of the right, Ronald Coase instead (pdf ). Marx was admiring of capitalism in some respects. It has, he wrote , given "an immense development to commerce" and has "accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals." And I think you'd be surprised by just how much attention Marx paid to the facts: once you get past the first few chapters, there's massive empirical work in Capital volume I*. And there are many differences between Marx and social democrats – not least of them being that Marx was no statist.

What's more, many of the ideas associated with Marx were largely elaborations of his predecessors: Paul Samuelson called him a "minor post-Ricardian". The labour theory of value, the interest in the division of income between classes and the idea of a falling rate of profit are all as Ricardian as Marxian. (The falling rate of profit (pdf) might be a good explanation for our recent slow growth and lack of capital spending, but let that pass).

I reckon there are three reasons libertarians should read Marx.

  1. One is that Marx saw economics as a historical process. For him, one of the big questions was: "where did that come from?" ...
  2. A second reason for libertarians to read Marx lies in his view of the relationship between property rights and technical progress ...
  3. A third reason to read Marx lies in his attitudes to freedom. ...

In short, then, libertarians should read Marx because he poses them some questions which should sharpen their thinking.

  1. How can we defend property rights at the same time as defending a system which came into being by denying those rights?
  2. What material conditions are necessary for people to support freedom? How will new technologies shape our beliefs?
  3. Do current market structures (which are of course determined by the state) really maximize development?
  4. If not, how can they change? Do actually-existing markets merely enhance formal freedom, or are they conducive to the substantive freedom that Marx wanted? Can they be made more conducive?
  5. Are markets really a realm of freedom, or a means through which some exploit and oppress others? And so on.

If you look past tribal caricatures, perhaps libertarian thinking will be enriched by a consideration of Marx's work.

Miguel Madeira -> Christopher H.... , June 29, 2017 at 04:20 AM

Pgl wrote "Smith did not like trade protection as in his day it was a tool of the elites."; but, yes, Marx was against trade protection

https://www.marxists.org/archive/marx/works/1888/free-trade/

anne -> Miguel Madeira ... , June 29, 2017 at 05:32 AM
I appreciate this:

https://www.marxists.org/archive/marx/works/1888/free-trade/

1888

On the Question of Free Trade
Preface by Frederick Engels for the 1888 English edition pamphlet

TOWARDS the end of 1847, a Free Trade Congress was held at Brussels. It as a strategic move in the Free Trade campaign then carried on by the English manufacturers. Victorious at home, by the repeal of the Corn Laws in 1846, they now invaded the continent in order to demand, in return for the free admission of continental corn into England, the free admission of English manufactured goods to the continental markets.

At this Congress, Marx inscribed himself on the list of speakers; but, as might have been expected, things were not so managed that before his turn came on, the Congress was closed. Thus, what Marx had to say on the Free Trade question he was compelled to say before the Democratic Association of Brussels, an international body of which he was one of the vice-presidents.

The question of Free Trade or Protection being at present on the order of the day in America, it has been thought useful to publish an English translation of Marx's speech, to which I have been asked to write an introductory preface.

"The system of protection," says Marx, "was an artificial means of manufacturing manufacturers, of expropriating independent laborers, of capitalizing the national means of production and subsistence, and of forcibly abbreviating the transition from the medieval to the modern mode of production."

Such was protection at its origin in the 17th century, such it remained well into the 19th century. It was then held to be the normal policy of every civilized state in western Europe. The only exceptions were the smaller states of Germany and Switzerland -- not from dislike of the system, but from the impossibility of applying it to such small territories....

reason -> pgl... , June 29, 2017 at 01:26 AM
I sort of wonder though, who Chris Dillow is addressing here. Most Libertarians I have come across just seem to dislike taxes and are looking for a reason why this might be a morally acceptable position. It is like that famous J K Galbraith quote: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness."

Anybody who thinks that Libertarians really care about "freedom" (whatever that is - the more I think about it the less I see a difference to "power" - which is largely - though not entirely - zero sum) is kidding themselves.

anne , June 28, 2017 at 10:25 AM
Nice essay, and though I have a loose understanding of Marx which would obviously bother those who read Marx strictly no matter the motives, I think a loose understanding warranted and directly applicable. The reason I find a loose understanding of Marx important, is that just as there are successful capitalist economies, and just as many people think that is all there are in the way of successful economies, there is a communist economy that is successful and important enough to be studied as such.

I would think that understanding China would take having a loose understanding of Marx, because though American economists may argue with the idea China has developed successfully as a communist system.

[ I do not care, by the way, to argue the matter, the perspective is just mine. ]

anne -> anne... , June 28, 2017 at 11:49 AM
I reckon there are three reasons libertarians should read Marx. One is that Marx saw economics as a historical process. For him, one of the big questions was: "where did that come from?"

-- Chris Dillow

[ Really nice and important passage. ]

anne -> anne... , June 28, 2017 at 02:39 PM
https://www.nytimes.com/2017/06/26/opinion/finland-station-communism-socialism.html

June 26, 2017

Socialism's Future May Be Its Past
By Bhaskar Sunkara

One hundred years after Lenin's sealed train arrived at Finland Station and set into motion the events that led to Stalin's gulags, the idea that we should return to this history for inspiration might sound absurd. But there was good reason that the Bolsheviks once called themselves "social democrats." They were part of a broad movement of growing parties that aimed to fight for greater political democracy and, using the wealth and the new working class created by capitalism, extend democratic rights into the social and economic spheres, which no capitalist would permit.

The early Communist movement never rejected this broad premise. It was born out of a sense of betrayal by the more moderate left-wing parties of the Second International, the alliance of socialist and labor parties from 20 countries that formed in Paris in 1889. Across Europe, party after party did the unthinkable, abandoned their pledges to working-class solidarity for all nations, and backed their respective governments in World War I. Those that remained loyal to the old ideas called themselves Communists to distance themselves from the socialists who had abetted a slaughter that claimed 16 million lives. (Amid the carnage, the Second International itself fell apart in 1916.)

Of course, the Communists' noble gambit to stop the war and blaze a humane path to modernity in backward Russia ended up seemingly affirming the Burkean notion that any attempt to upturn an unjust order would end up only creating another.

Most socialists have been chastened by the lessons of 20th-century Communism. Today, many who would have cheered on the October Revolution have less confidence about the prospects for radically transforming the world in a single generation. They put an emphasis instead on political pluralism, dissent and diversity.

Still, the specter of socialism evokes fear of a new totalitarianism. A recent Victims of Communism Memorial Foundation report worries that young people are likely to view socialism favorably and that a "Bernie Sanders bounce" may be contributing to a millennial turn against capitalism. Last year, the president of the United States Chamber of Commerce, Thomas J. Donohue, even found it necessary to remind readers that "Socialism Is a Dangerous Path for America."

The right still denounces socialism as an economic system that will lead to misery and privation, but with less emphasis on the political authoritarianism that often went hand in hand with socialism in power. This may be because elites today do not have democratic rights at the forefront of their minds - perhaps because they know that the societies they run are hard to justify on those terms.

Capitalism is an economic system: a way of organizing production for the market through private ownership and the profit motive. To the extent that it has permitted democracy, it has been with extreme reluctance. That's why early workers' movements like Britain's Chartists in the early 19th century organized, first and foremost, for democratic rights. Capitalist and socialist leaders alike believed that the struggle for universal suffrage would encourage workers to use their votes in the political sphere to demand an economic order that put them in control.

It didn't quite work out that way. Across the West, workers came to accept a sort of class compromise....

reason -> anne... , June 29, 2017 at 01:37 AM
The way to think about this is to distinguish between the margin and the whole. Capitalism provides a valuable dynamism at the margin, that neither monopoly capitalism nor centralized socialism can provide when they dominate the whole of society. That is why a mixture is essential.

Countervailing power is essential. Somehow this topic seems to emphasize the value of JK Galbraith, he may not have moved economics much forward, but his political vision was valuable.

kurt -> reason ... , June 29, 2017 at 11:22 AM
Agree 100%.
anne , June 28, 2017 at 11:08 AM
https://en.wikipedia.org/wiki/Marxism

The term Classical Marxism denotes the collection of socio-eco-political theories expounded by Karl Marx and Friedrich Engels. "Marxism," as Ernest Mandel remarked, "is always open, always critical, always self-critical." As such, Classical Marxism distinguishes between "Marxism" as broadly perceived, and "what Marx believed;" thus, in 1883, Marx wrote to the French labour leader Jules Guesde and to Paul Lafargue (Marx's son-in-law) – both of whom claimed to represent Marxist principles – accusing them of "revolutionary phrase-mongering" and of denying the value of reformist struggle; from Marx's letter derives the paraphrase: "If that is Marxism, then I am not a Marxist."

jonny bakho , June 28, 2017 at 11:33 AM
Without government, there is no property- the contradiction at the heart of libertarianism

Libertarianism would not be possible without the efforts of the very government they despise

Humans evolved as social animals.
Humans thrive in social groups.
True individuals do not survive for long

DrDick -> jonny bakho... , June 28, 2017 at 11:40 AM
Humans also evolved to become more cooperative and sharing and it is that sharing and cooperation that has been the key to our evolutionary success.
Jerry Brown -> jonny bakho... , June 28, 2017 at 11:56 AM
But, but... Clint Eastwood in practically all his movies...

No seriously, "Without government, there is no property- the contradiction at the heart of libertarianism". Excellent point. Great comment.

anne , June 28, 2017 at 02:50 PM
There's astonishingly little in Marx about a centrally planned economy: if you want an argument for central planning, you should read that hero of the right, Ronald Coase instead (pdf)....

-- Chris Dillow

[ This reference link will not open. Possibly a reader might know what was intended as the reference. ]

anne -> anne... , June 28, 2017 at 04:05 PM
http://en.wikipedia.org/wiki/Coase_theorem

In law and economics, the Coase theorem * describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.

* This "theorem" is commonly attributed to University of Chicago Nobel Prize laureate Ronald Coase. However, Coase himself stated that the theorem was based on perhaps four pages of his 1960 paper "The Problem of Social Cost", and that the "Coase theorem" is not about his work at all.

reason -> anne... , June 29, 2017 at 01:30 AM
Note: the word "efficient" is doing lots of work here. "Efficient" (particularly in the sense economists use it), should not be confused with "good".
anne -> anne... , June 28, 2017 at 04:08 PM
Would the so-called Coase theorem then, explain why Coase might be considered a hero of libertarians? I must be missing something, but what would that be?
reason -> anne... , June 29, 2017 at 01:31 AM
(G)Libertarians think that Coase "proved that regulation is unnecessary" (of course he did no such thing).
DrDick -> anne... , June 28, 2017 at 04:50 PM
While Marx was never very explicit about what he envisioned as the future, he appears to have favored the syndicalist model, basically a system of co-ops owned and run by the workers but retaining the "company" model of capitalism.
anne -> DrDick... , June 28, 2017 at 04:54 PM
While Marx was never very explicit about what he envisioned as the future, he appears to have favored the syndicalist model, basically a system of co-ops owned and run by the workers but retaining the "company" model of capitalism.

[ Like Germany, at least somewhat. With worker representation on corporate boards and industry-wide worker bargaining. Fascinating and important, and to the extent that this is like Germany, successful. ]

anne , June 28, 2017 at 04:11 PM
Mark Thoma:

I experimented and here is the missing link:

http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf

1937

The Nature of the Firm
R. H. COASE

anne -> anne... , June 28, 2017 at 04:13 PM
http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf

1937

The Nature of the Firm
By R. H. COASE

Economic theory has suffered in the past from a failure to state clearly its assumption. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needles controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgment in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word "firm" in economics may be different from the use of the term by the "plain man."' Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry,2 it is ail the more necessary not only that a clear definition of the word "firm" should be given but that its difference from a firm in the "real world," if it aists, should be made clear. Mrs. Robinson has said that "the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?"3

Though, as Mrs. Robinson points out, "More often one set will be manageable and the other realistic," yet there may well be branches of theory where assumptions may be both manageable and realistic. It is hoped to show in the following paper that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of substitution, together giving the idea of substitution at the margin.4 Our definition must, of course, "relate to formal relations which are capable of being conceived exactly."

Jerry Brown -> anne... , June 28, 2017 at 07:10 PM
Simon & Garfunkel, Paul Simon

And here's to you
Mrs. Robinson
Jesus loves you more than you will know
Woah woah woah
God bless you please
Mrs. Robinson
Heaven holds a place for those who pray
Hey hey hey, hey hey hey

Hopefully I haven't confused my Robinsons again. :)